UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ý☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 201727, 2020
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-14543
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TrueBlue, Inc.
(Exact name of registrant as specified in its charter)
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Washington | Washington | | 91-1287341 | |
| (State of incorporation) | | (I.R.S. Employer Identification No.employer identification no.) |
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1015 A Street, Tacoma, Washington | | 98402 |
(Address of principal executive offices) | | (Zip Code) |
1015 A Street, Tacoma, Washington 98402
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (253) 383-9101
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Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stockstock, no par value | TBI | The New York Stock Exchange |
Securities registered under Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý☒ No ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No ý☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d)15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No ¨☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. |
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| Large accelerated filer | x☐ | Accelerated filer | ¨☒ | Non-accelerated filer | ¨☐ | (Do not check if a smaller reporting company) |
| Smaller reporting company | ¨☐ | Emerging growth company | ¨☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒
As of July 2, 2017,June 28, 2020, the aggregate market value (based on the NYSE quoted closing price) of the common stock held by non-affiliates of the registrant was approximately $1.1$0.5 billion.
As of February 1, 2018,2021, there were 41,089,32935,485,980 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report is incorporated by reference from the registrant’s definitive proxy statement relating to the Annual Meeting of Shareholders scheduled to be held May 9, 2018,12, 2021, which will be filed no later than 120 days after the end of the fiscal year to which this report relates.
TrueBlue, Inc.
Table of Contents
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| PART I |
| Item 1. | | |
| Item 1A. | | |
| Item 1B. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| PART II |
| Item 5. | | |
Item 6.7. | | |
Item 7. | | |
| Item 7A. | | |
| Item 8. | | |
| Item 9. | | |
| Item 9A. | | |
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| Item 9B. | | |
| PART III |
| Item 10. | | |
| Item 11. | | |
| Item 12. | | |
| Item 13. | | |
| Item 14. | | |
| PART IV |
| Item 15. | | |
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| Item 16. | | |
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PART I
COMMENT ON FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-K, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, the impact of and our ongoing response to COVID-19, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve risks and uncertainties, and future events and circumstances could differ significantly from those anticipated in the forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “goal,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from those expressed or implied in our forward-looking statements, including the risks and uncertainties described in “Risk Factors” (Part I, Item 1A of this Form 10-K), “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part II, Item 7 of this Form 10-K), and “Quantitative and Qualitative Disclosures about Market Risk” (Part II, Item 7A of this Form 10-K), and “Management’s Discussion and Analysis” (Part II, Item 7 of this Form 10-K). We undertake no duty to update or revise publicly any of the forward-looking statements after the date of this report or to conform such statements to actual results or to changes in our expectations, whether because of new information, future events, or otherwise.
OUR COMPANY
TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us” and “our”) is a leading provider of specialized workforce solutions that help customers createclients achieve business growth and improve efficiencyproductivity. We began operations in 1989 and increase reliability. Weare headquartered in Tacoma, Washington.
BUSINESS OVERVIEW
In 2020, we connected approximately 740,000490,000 people with work during fiscal 2017, and served approximately 108,000 customers in99,000 clients. Our operations are managed as three business segments: PeopleReady, PeopleManagement and PeopleScout.
•PeopleReady offers on-demand, industrial and skilled trade staffing throughout the United States (“U.S.”), Canada and Puerto Rico.
•PeopleManagement offers contingent, on-site industrial staffing and commercial driver services throughout the U.S., Canada and Puerto Rico.
•PeopleScout offers recruitment process outsourcing (“RPO”) and managed service provider (“MSP”) solutions to a wide variety of industries through our staffing, on-site workforce management and recruitment process outsourcing services. We are headquarteredgeographies, primarily in Tacoma, Washington.
We began operations in 1989, specializing in on-demand, general labor staffing services with the objective of providing customers with talent and flexible workforce solutions to enhance the performance of their businesses. We expanded our on-demand, general labor staffing services through organic geographic expansion throughoutU.S., Canada, the United States, CanadaKingdom and Puerto Rico. Commencing in 2004, we began expanding through acquisitions to provide a full range of blue-collar staffing solutions, and to help our customers be more productive with a reliable contingent labor workforce and rapidly respond to changing business needs. Additionally, in 2014, we further expanded through acquisition to provide a full range of workforce solutions, which added on-premise contingent blue-collar staffing (we expanded this service offering with the acquisition of SIMOS in 2015), complementary outsourced service offerings in permanent employment recruitment process outsourcing (which was further strengthened by an additional acquisition in 2016), and a management service provider business, which provides customers with outsourced management of their contingent labor vendors.Australia.
BUSINESS OVERVIEW
We report our business as three distinct reportable segments described below and in Note 16: Segment Information, to our Consolidated Financial Statements found in Part II, Item 8 of this Annual Report on Form 10-K.
PeopleReady
PeopleReady provides access to reliable workers in the United States, Canada and Puerto Ricoqualified associates through a wide range of staffing solutions for blue-collar,on-demand contingent on-demand general and skilled labor. PeopleReady connects people towith work in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, waste and recycling, hospitality, general labor,energy, retail, and others.hospitality.
PeopleReady helped approximately 107,000 customers98,000 clients in fiscal 2017 to2020 be flexible and more productive by providing easy access to dependable, blue-collar contingent labor. Through our PeopleReady service line, we connected approximately 352,000221,000 people with work in fiscal 2017.2020. We have a network of 623629 branches across all 50 states, Canada and Puerto Rico. Complementing our branch network is our industry-leading mobile app, JobStackTM, which connects people with work 24/7. This creates a virtual exchange between our associates and clients, and allows our branch resources to expand their recruiting, sales and service delivery efforts. JobStack is competitively differentiating our services, expanding our reach into new demographics, and improving our service delivery and work order fill rates, as we embrace a digital future.
PeopleManagement provides recruitment and on-site management of a facility’s contingent labor and outsourced industrial workforce solutions.workforce. In comparison with PeopleReady, services are larger in scale and longer in duration, and provided on-premisededicated service teams are located at the customer’sclient’s facility.
We uselabor-intensive manufacturing, distribution and fulfillment facilities. Our dedicated service teams work closely with on-site management as an integral part of the following distinct brands to market our PeopleManagementproduction and logistics process, managing all or a subset of the contingent workforce solutions:
Staff Management | SMX specializes in exclusive outsourced recruitment and on-premise management oflabor for a facility’s contingent industrial workforce. On-premisefacility or operational function. Our on-site staffing issolutions provide large-scale sourcing, screening, recruiting and management of the contingent workforce at a customer’sclient’s facility in order to achieve faster hiring, lower total workforce cost, of workforce, increasedincrease safety and compliance, improvedimprove retention, create greater volume flexibility, and enhancedenhance strategic decision-making through robust reporting and analytics;
analytics. Our On-Site business includes our Staff Management | SMX (“Staff Management”) and SIMOS Insourcing Solutions (“SIMOS”(“SIMOS”) specializes branded service offerings, which provide hourly and productivity-based (cost per unit) pricing options for industrial staffing solutions. Client contracts are generally multi-year in exclusive outsourced recruitment and on-premise management of the entire warehouse operations or parts of warehouse operations in orderduration. The productivity-based pricing leverages a strategically engineered on-site solution to reduce costs and improve performance. SIMOS systematically analyzes and improves business processes in a customer’s facilities and manages the contingent workforce with incentives to driveincentivize performance improvements in cost, quality and on-time delivery. Internet sales have fundamentally changed the nature of retail supply chain. The retail market asdelivery using a whole has moved significantly from conventional retail stores to growing demand for e-commerce, selling directly to its customers. These changes have driven extreme peak seasonal volumes, small number of pieces per order, intense pressure for fast delivery, and an increase of consumer product returns. We provide scalable solutions to meet the pick and pack and shipping requirements in labor intensive e-commerce warehouses. Our unique productivity model incorporates fixed price-per-unit solutions to drive client value. Additionally, our continuous analysisapproach. Both hourly and improvementproductivity-based pricing are impacted by factors such as geography, volume, job type, and degree of processes and incentive pay drives workforce efficiency, reduces costs, lowers risk of injury and damage, and improves productivity and service levels;
recruiting difficulty.
Centerline Drivers (“Centerline”) specializes in providingPeopleManagement also provides dedicated and temporarycontingent commercial truck drivers to the transportation and distribution industries.industries through our Centerline Drivers (“Centerline”) brand. Centerline delivers compliant drivers specifically matched to each customer’sclient’s needs, allowing them to improve productivity, control costs, ensure compliance, and deliver improved service; and
service.PlaneTechs specializes in providing temporary skilled mechanics and technicians to aircraft maintenance, repair, overhaul and manufacturing companies in the commercial, government services and business aviation sectors.
PeopleManagement helped approximately 1,000 customers in 2017 to be more productive by providing easy access to dependable blue-collar contingent workforce solutions. Through our PeopleManagement service line, we connected approximately 91,000 people with work in fiscal 2017. We have over 251 locations at customers’ facilities.
PeopleScout
PeopleScout provides permanent employee recruitment process outsourcing (“RPO”) for our customers. Our RPO solution serves all major industriesservices that manage talent solutions spanning the global economy and job types. Our RPO solution delivers improved talent quality, faster hiring, increased scalability, reduced turnover, lower cost of recruitment, greater flexibility, and increased compliance.advisory capabilities supporting total workforce needs. We leverage our proprietary candidate applicant tracking system, along with dedicated service delivery teams to workare recognized as an integrated partner with our customers in providing end-to-end talent acquisition services from sourcing candidates through onboarding employees.industry leader for RPO services. Our solution is highly scalable and flexible, allowingwhich allows for outsourcing of all or a subset of skill categories across a series of recruitment, processeshiring and onboarding steps. CustomerOur solution delivers improved talent quality and candidate experience, faster hiring, increased scalability, lower cost of recruitment, greater flexibility and increased compliance. Our clients outsource the recruitment process to PeopleScout in all major industries and jobs. We leverage our proprietary technology platform (AffinixTM) for sourcing, screening and delivering a permanent workforce, along with dedicated service delivery teams to work as an integrated partner with our clients. Client contracts are generally multi-year in duration and pricing is typically composed of a fee for each hire. Volume,hire and talent consulting fees. Pricing is impacted by factors such as geography, volume, job type, degree of recruiting difficulty, and numberthe scope of recruiting process steps from sourcing to onboarding factor into pricing.outsourced recruitment and employer branding services included.
PeopleScout also includes our managed service provider (“MSP”)MSP business, which manages our customers’clients’ contingent labor programs including vendor selection, performance management, compliance monitoring and risk management. As the customer’sclient’s exclusive MSP, we have dedicated service delivery teams which work as an integrated partner with our customerclients to increase the productivity of their contingent labor.
In fiscal 2017, PeopleScout connected approximately 297,000 individuals with work for approximately 200 customers.workforce program.
INDUSTRY AND MARKET DYNAMICS
The staffing industry, which includes our PeopleReady and PeopleManagement services, supplies contingent workforce solutions to minimize the cost and effort of hiring and managing permanent employees. This allows for rapid response to changes in business conditions through the ability to replace absent employees, fill new positions, and convert fixed or permanent labor costs to variable costs. Staffing companies act as intermediaries in matchingto match available temporary workers toassociates with employer work assignments. The workWork assignments vary widely in duration, skill level of skill, and required experience. The staffing industry is large and highly fragmented with many competing companies. No single company has a dominant share of the industry. Staffing companies compete both to recruit and retain a supply of temporary workers,associates, and to attract and retain customersclients who will employ these workers. Customerassociates. Client demand for contingent staffing services is dependent on the overall strength of the economy and workforce flexibility trends. This creates volatility for the staffing industry based on overall economic conditions. Historically, in periods of economic growth, the
number of companies providing contingent workforce solutions has increased due to low barriers to entry whereas, during recessionary periods, the number of companies has decreased through consolidation, bankruptcies or other events. PeopleReady and PeopleManagement are leaders in industrial staffing services.
The human resource outsourcing industry, which includes our PeopleScout services, involves transitioning various functions handled by internal human resources and labor procurement to outside service providers on a permanent or project basis. Human resource departments are faced with increasingly complex operational and regulatory requirements, increased candidate
expectations, an expanding talent technology landscape, and pressure to achieve efficiencies, which increase the need to migrate non-core functions to outsourced providers. The human resource outsourcing industry includes RPO and MSP solutions which allow clients to more effectively find and engage high-quality talent, leverage talent acquisition technology, and scale their talent acquisition function to keep pace with changing business needs. PeopleScout is a leader in RPO and MSP services.
Our workforce solutions address the following key industry and market trends contributing to anticipated staffing growth:
•Workforce flexibility:flexibility and scalability: The staffing industry continues to experience increased demand in relation to total job growth as demand for a flexible workforce continues to grow with competitive and economic pressures to reduce costs, meet dynamic seasonal demands and respond to rapidly changing market conditions.
Providers in the human resource outsourcing industry can add significant scalability to a company’s recruiting and hiring efforts, including accommodating seasonal, project or peak hiring needs without sacrificing quality. These providers also help clients increase efficiency and drive lower overhead costs by standardizing processes, reducing time to fill, and onboarding the best fit talent into a client’s organization.•Workforce productivity: Companies are under increasing competitive pressures to improve productivity through workforce solutions that improve performance.
performance, and enable clients to focus on their core business.Worker preferences•Leveraging technology to access talent: Automation, artificial intelligence and access to talent: Workersmachine learning are transforming talent acquisition. The fragmented talent technology ecosystem is becoming more crowded, with significant investments flowing in and new technology coming online rapidly. Associates are demanding more flexibility in how, when and where they work, as well as access to contingent work opportunities through mobile technology. Baby boomers are leaving the workforce and leaving a talent shortage in what have traditionally been blue-collar trades. The remaining workersAvailable associates are in greaterhigh demand and have more power to find the employment situation they want or stay busy working on a contingent basis.
The human resource outsourcing industry involves transitioning various functions handled by internal human resources and labor procurement to outside service providers on a permanent or project basis. Human resource departments are faced with increasingly complex operational and regulatory requirements, a tightening recruitment market, an expanding talent technology landscape, and pressure to achieve efficiencies, which increase the need to migrate non-core functions to outsourced providers. The human resource outsourcing industry includes RPO and MSP solutions which allow customers to more effectively find and engage high-quality talent, leverage talent acquisition technology, and scale their talent acquisition function to keep pace with changing business needs. PeopleScout is a leader in RPO and MSP services, which are in the early stages of their adoption cycles, and therefore, we believe they continue to have significant growth potential.
Our solutions address the following key trends contributing to anticipated RPO growth:
Talent access and engagement: desire. As the competition for talent, shortage of skilled workers, and changes in worker demographics continue to increase, customersqualified candidates increases, clients are relying on RPOservice providers to seamlessly blend talent acquisition processes and technology to more effectively access, identify and engageelevate the best talent. RPO providers bring experience buildingemployer brand, build talent communities, meeting candidates where they are, leveragingcreate a world-class candidate experience, leverage innovative talent technology, and facilitatingfacilitate effective recruitment marketing and candidate communication strategies.
Leveraging talent acquisition technology: Automation, artificial intelligence and machine learning are transforming talent acquisition and the fragmented talent technology ecosystem is becoming more crowded, with significant investments flowing in and new technology coming online rapidly. RPO providers are continuously identifying, evaluating and investing in new technology to leverage as part of their talent technology stack to best meet today’s candidate’s expectations of a personalized, mobile-optimized and efficient hiring process. RPO providers are uniquely positioned to successfully integrate and deploy new talent technology based on the volume of candidate engagements they manage and their understanding of the talent landscape, thereby reducing the investments required to be made by customers.
Scalability: RPO providers can add significant scalability to a company’s recruiting and hiring efforts, including accommodating seasonal, project or peak hiring needs without sacrificing quality. Providers also help customers increase efficiency and drive better performance by standardizing processes and reducing time to fill and onboard the best fit talent into a customer’s organization, and enabling customers to focus on their core business.
Our solutions address the following key trends contributing to anticipated MSP growth:
Vendor consolidation and cost savings: As an organization’s spend on contingent workforce rises, it becomes increasingly interested in reducing the administrative burden of managing multiple outside vendors, having consistency among contractors and processes, and maintaining robust performance tracking and analytics. Vendor consolidation can achieve significant efficiencies through enhanced scale and cost advantages such as single point of contact, standardized contracts, and consolidated invoicing and reporting.
Access to talent: An MSP solution allows a company access to a large variety of staffing vendors with the efficiency of working with one supplier. An MSP can access numerous vendors to find the best talent at the best price more quickly, thereby delivering a better outcome for the customer.
Compliance pressure: Demand for temporary employee sourcing and workforce vendor management solutions is driven by increasing work eligibility legislation and compliance monitoring to ensure correct worker classification in order to properly
address tax withholding, overtime, Social Security, unemployment and health care obligations to avoid government penalties and lawsuits.
BUSINESS STRATEGY
Market leadership through organic growth of our specialized workforce solutions.
Our customersclients have a variety of challenges in running their businesses, manyeach of which are unique to the industries in which they operate, their competitive pressures and business performance.of their industry. We are industry leaders dedicated to staffing solutions tailored to our customers’clients’ needs and the industries in which they operate. OurWe ensure our differentiated solutions keep pace with theirthe changing needs and are as follows:of our clients through the following:
•We will continue to evaluate opportunities to expand our market presence for specialized blue-collar staffing services, and expand our geographical reach, through new physical locations, expand use of existing locations to provide the fulla broad range of blue-collar staffing services, and dispatch of our temporary workersassociates to areas without branches.a physical location. Continued investment in specialized sales, recruiting and service expertise will create a more seamless experience for our customersclients to access all of our services with more comprehensive solutions to enhance their performance and our growth. Our service linesbusiness segments offer complementary workforce solutions with unique value propositions to meet our customers’ demandclients’ demands for talent.
•We will continue to invest in technology that increases our ability to attract more customersclients, employees and employeesassociates as well as reduce the cost of delivering our services. We are committed to leveraging technology to improve the temporary workerexperience of our associates, clients and customer experience.permanent employees. Our technological innovation makesinnovations make it easier for our customersclients to do business with us, and easier to connect workersassociates with work opportunities and candidates to workpermanent employment opportunities. We are making significant investments in online and mobile applicationsapps to improve the access, speed and ease of connecting our customersclients with both high-quality temporarycontingent and permanent employee workforce solutions.
◦Complementing our PeopleReady branch network is our JobStack platform which connects our associates and clients through a real-time 24/7 digital exchange with an easy-to-use mobile app. JobStack enables our branches to expand their recruiting, sales and service delivery efforts. JobStack is helping to competitively differentiate our services, expand our reach into new demographics, and improve both service delivery and work order fill rates as we embrace a digital future. Currently 90% of PeopleReady’s associates use JobStack to find on-demand work. During 2020, we introduced new digital onboarding features that cut application time in half, increasing the percentage of applicants put to work. We introduced JobStack to our clients in 2018 and by the end of 2020 over 26,000 of our clients were using JobStack to place orders for associates, rate their performance, and approve their time worked, an increase of 23%, compared to the prior year. During fiscal 2020, PeopleReady dispatched approximately 2.9 million shifts via JobStack and achieved a digital fill rate of 53%, compared to approximately 3.7 million shifts and a digital fill rate of 48% in the prior year. We are focused on driving growth in the number of heavy client users of JobStack. A heavy client user is a client who has 50 or more touches on JobStack per month. Heavy client users have consistently posted better year-over-year growth rates compared to all other PeopleReady clients. We more than doubled our heavy client user mix
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◦ | We introduced our mobile application, JobStackTM, and completed the roll out to our temporary workers in 2017. We expect to fully roll out JobStackTM to our customers in 2018. This will create a virtual exchange between our workers and customers, which will allow our branch resources to expand their recruiting and sales efforts and service delivery. We expect JobStackTM will increase the competitive differentiation of our services, expand our reach into new demographics, and improve both service delivery and work-order fill rates.
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◦ | We introduced a mobile-first, cloud-based proprietary platform, AffinixTM, in 2017 that creates a consumer-like candidate experience and streamlines the sourcing process within PeopleScout’s talent solutions. AffinixTM delivers speed and scalability while leveraging artificial intelligence, recruitment marketing, machine learning, predictive analytics and other emerging technology with one-point applicant tracking system and vendor management system integration and single sign-on. Currently, AffinixTM is available exclusively to PeopleScout customers and is continuously evolving to make the end-to-end process seamless for the candidate.
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from 11% in 2019 to 24% in 2020. We are well positioned for growth by providing customerscontinue to expand functionality to further leverage this technology to transform our business and enhance our client and associate retention.
◦Complementing our PeopleManagement dedicated on-site contingent workforce management is StaffTrackTM. StaffTrack is a proprietary technology platform that enables us to recruit and connect the best candidates with on-site assignments. StaffTrack has robust, real-time analytics that drive dynamic supply chain and workforce strategies, which allow clients faster, more precise hiring and help drive operational improvements and efficiencies. The recently launched StaffTrack associate mobile app provides associates the talent and flexible workforce solutions they needability to enhance business performance. Our customers utilize our workforce solutions to improve the performance of their businesses. With growing demand for improved productivity and accessing temporary workers, our customers are lookingsearch for a full range of workforce services.
job, view their schedules, pick-up shifts, and receive real-time notifications. We are recognized as an industry leader for RPO services. The RPO industry is in the early stages of its adoption cycle, and therefore, we believe it has significant growth potential. The success of early adopters is generating greater opportunitycontinue to expand functionality within StaffTrack to further enhance our client and associate experience.
◦Complementing our PeopleScout dedicated service offering.delivery teams is our technology platform, Affinix, used for sourcing, screening and delivering a permanent workforce. Affinix creates a consumer-like candidate experience and streamlines the sourcing process. Affinix delivers speed and scalability while leveraging recruitment marketing, machine learning, predictive analytics and other emerging technology to make the end-to-end process seamless for the candidate. We have a differentiated service that leverageswill continue to invest in Affinix to further improve our ability to quickly and efficiently source the most attractive talent at the best price.
•Our RPO services leverage innovative technology for high-volume sourcing and dedicated client service teams for connecting people to opportunities. We have a track record of helping our customersclients reduce the cost of hiring, add significant scalability to recruiting and hiring, and access numerous sources to prospect forquickly find the best talent, quickly, thereby delivering a better outcome for the customer. Companies are facing rapidly changing employment demographics, shortage of talent, and dynamic changes to how people connect to work opportunities. Our solution addresses these growing challenges.client.
•Our MSP solutionbusiness is focused primarily on managing the contingent labor programs of domestic, middle-market companies with a growing dependence on contingent labor. This enables our clients to efficiently source, engage, fulfill, measure and manage all categories of contingent and externally-sourced labor. We believe that we are uniquely positioned to supply blue-collar temporary workers to our customers and, with our MSP solution, manage the full range of their contingentour clients’ labor needs.
Growth through strategic acquisitions.
Strategic acquisitions continue to be a key growth strategy with a focus on globalizing our RPO services. We believe we have a core competence in assessing, valuing and integrating acquisitions culminating in higher shareholder returns. We are excited about the future of the staffing industry and human resource outsourcing and believe we can continue to create shareholder value through
acquisitions, which expand our workforce solutions in high-growth markets, enhance our use of technology to better serve our customers, and increase our own efficiency.
CUSTOMERSCLIENTS
Our customersclients range from small and medium-sized businesses to Fortune 100 companies.
During fiscal 2017,2020, we served approximately 108,000 customers99,000 clients in industries including construction, energy, manufacturing, warehousing and distribution, waste and recycling, energy, transportation, aviation,retail, hospitality, and general labor, and many more.labor. Our ten largest customersclients accounted for 17.6%19.0% of total revenue for fiscal 2017, 19.9%2020, 16.5% for fiscal 20162019 and 25.5%16.1% for fiscal 2015.2018. Our single largest customerclient for fiscal 20172020 accounted for less than 3.0%3.2% of total company revenue.
No single customerclient represented more than 10.0% of total company revenue for fiscal 20172020, 2019 or 2016. One customer, Amazon, Inc. (“Amazon”), represented 13.1%2018.
HUMAN CAPITAL RESOURCES
We believe our success depends on our ability to attract, develop and retain talented employees. The skills, experience and industry knowledge of total company revenue for fiscal 2015. Amazon represented 2.2%our employees significantly benefit our operations and 6.2% for fiscal 2017 and 2016, respectively.
EMPLOYEES
performance. As of December 31, 2017,27, 2020, we employed approximately 5,5005,200 full-time equivalent employees. Our employees are in eight countries with approximately 81% located in the U.S. None of our permanent employees are represented by a labor union. We have not experienced work stoppages and believe that our employee relations are in good standing, as evidenced by our employee engagement survey results. Our Compensation Committee of the Board of Directors (the “Board”) regularly receives reports regarding the progress on our key human capital initiatives. These reports inform discussions regarding the development, retention, and engagement of our employees. Some of our key human capital management initiatives are discussed below.
TEMPORARY WORKERSCulture and engagement
We believe a strong corporate culture and employee engagement is key to attracting and retaining talented employees. To assess and improve our culture, we routinely utilize an independent third party to measure how favorably our employees view our organizational culture and engagement. These surveys include corporate culture assessments, as well as real-time feedback on employee engagement and employee-managment relations. The results of these surveys are reported and distributed throughout management and the Board, and are used to create actionable plans to improve employee engagement and retention. Our PeopleReadySeptember 2020 survey returned an engagement score of 74, which exceeds the benchmark set by the independent survey provider of 67, and PeopleManagement services placed approximately 443,000 temporary workersis an improvement of 1 point from our pre-COVID-19 survey completed in February 2020.
Developing our people
In order to continually attract and retain talented employees, we focus on assignmentspersonal development and career growth through our full performance program. Our full performance strategy for employees incorporates career planning and development, continuous learning, and creating internal career opportunities. We provide a range of training courses to our employees to enable more effective onboarding, work performance, compliance and advancing corporate initiatives. This strategy supports our intent to foster a culture that enables all employees to realize their full professional potential and cultivates a qualified bench of future leaders.
Employees create individual development plans, identify specific skill gaps and development goals, and chart a path for career growth. We aim to strengthen skills that transfer across roles, business segments and functions. Managers meet regularly with employees to discuss their plans, and yearly assessments provide a formal process for tracking progress. This standardized process also ensures employees in similar positions are similarly evaluated.
Health, safety and wellness
We provide our customers during fiscal 2017. We recruit temporary workers daily so that we can be responsiveemployees and their families with flexible health and wellness programs, including competitive benefits. Our benefits include health, dental and vision insurance, health savings and flexible spending accounts, paid time off, family leave, and family care resources.
In response to the plannedCOVID-19 pandemic, we implemented significant changes to ensure the health and unplanned needssafety of our employees. These changes included an investment in the technology necessary to allow the majority of our support center employees to work from home and a reimbursement for certain expenses associated with moving to home-based work. Through the distribution and provision of necessary personal protective equipment, the continuing use of education and awareness, and changes to our operating processes, we are working to ensure our offices remain open and a safe place for our employees.
Diversity, equity and inclusion
We are dedicated to fostering, recognizing, and embracing diversity at every level of the customersorganization. In January 2021, we serve.hired a Vice President of Diversity, Equity and Inclusion who reports directly to the Chief Executive Officer. We have assembled a diverse internal employee workforce, and are committed to making further improvements. For example, today, women hold nearly 50% of positions at the director level and above.
We have a Diversity & Inclusion Council (the “Council”) which designs and launches initiatives that advance acceptance and inclusion. The Council reports regularly to executive leadership, who brief our Board periodically through the year. The Council also sponsors training to build diversity and inclusion awareness, and supports Employee Resource Groups (“ERGs”), which are employee-led groups that create opportunities for employees to collaborate based on shared characteristics or life experiences to support each other for enhanced career and personal development. We have ERGs that include the African American Resource Connection, Be Proud (LGBTQ+), Hispanic Opportunity and Latinx Awareness, Women in Leadership, Europe, Middle East, and Africa Developing Female Talent Team, and Veteran Employee Talent Society. Through these experiences, we learn how our differences build stronger teams and how our histories reveal similarities.
Associates
Associates are the people we put to work for our clients. We attract our pool of temporary workersassociates through our proprietary mobile applications,apps, online resources, extensive internal databases, advertising, job fairs, community-based organizations and various other methods. We identify the skills, knowledge, abilities and personal characteristics of a temporary workerour associates and match their competencies and capabilities to a customer’sour client’s requirements. This enables our customersclients to obtain immediate value by placing a highly productive employee on the job site. We use a variety of proprietary programs and methods for identifying and assessing the skill level of our temporary workersassociates when selecting a particular individual for a specific assignment and retaining those workersassociates for future assignments. We believe that our programs and methods enable us to offer a higher quality of service by increasing productivity, decreasing turnover, reducing absenteeism and improving workerassociate safety.
We provide a bridge to permanent, full-time employment for thousands of temporary workers each year. Workers alsoAssociates come to us because of the flexibility we offer to fill a short-term financial need and/or provide longer-term contingent flexible labor opportunities. WorkersAssociates may be assigned to different jobs and job sites, and their assignments could last for as little as a few hours or extend for several weeks or months. We provide our workersassociates meaningful work and the opportunity to improve their skills. We provide a bridge to permanent, full-time employment for thousands of associates each year. We are considered the legal employer of our workers,associates, and laws regulating the employment relationship are applicable to our operations. We consider our relationsrelationships with our temporary workersassociates to be good.
We remain focused and committed to workerassociate safety. We have developed an integrated risk management program that focuses on loss analysis, education, and safety improvement programs to reduce the safety risks that may be encountered by our operational costsassociates. We continuously monitor injuries to our associates at our customer job sites and risk exposure.report throughout management on our internally developed Worker Safety Ratio score in order to monitor injuries across regions, industries, and brands. We regularly analyze our workers’ compensation claimsthis Worker Safety Ratio to identify trends. This allowstrends that allow us to focus our safety resources on those areasthe types of jobs that may have the greatest impact on us, price our services appropriately, and adjust our sales and operational approach in these areas.lead to more injuries. We have also developeddistribute educational materials for distribution to our customersclients and workersassociates, and perform client site visits to address specific safety risks unique to their industry.industry or job site. In this unprecedented environment due to the COVID-19 pandemic, we have provided masks for all our associates, distributed infrared thermometers for branches and job sites, established a resource center for staff, and implemented drive-in job fairs.
COMPETITION
Contingent staffing services
The staffing industry is large and highly fragmented with large publicly-held companies as well as privately-owned companies on a national, regional and local level. No single company has a dominant share of the industry. We compete primarily with local and regional companies. We also experience competition from internet-based companies providing a variety of flexible workforce solutions. The strongest staffing services competitor in a particular market is a company with established relationships and a track record of meeting the customer’sclients’ needs. We compete with other large publicly-held staffing companies as well as privately-owned staffing companies on a national, regional and local level. We also experience competition from internet-based companies providing a variety of flexible workforce solutions.
Competition exists in attracting customersclients as well as qualified temporary workers for our customers. No single company has a dominant share of the industry.associates. Competitive forces have historically limited our ability to raise our prices to immediately and fully offset the increased costs of doing business, some of which include increased temporary workerassociate wages, costs for workers’ compensation costs, unemployment insurance and health care.
The most significant competitive factors are price, ability to promptly fill customerclient orders, success in meeting customers’clients’ expectations of recruiting temporary workers,associates, and appropriately addressing customerclient service issues. We believe we derive a competitive advantage from our service history, and our specialized approach in serving the industries of our customers.clients, and our mobile apps, which connect associates with jobs and create virtual exchanges between our associates and clients. Our PeopleReady JobStack and PeopleManagement StaffTrack mobile apps are helping to competitively differentiate our services, expand our reach into new demographics, and improve our recruiting, sales and service delivery. Our national presence, industry specialization, investment in technology, and proprietary systems and processes, together with
specialized programs focused on worker safety, risk management, and legal and regulatory compliance are key differentiators from many of our competitors.
Human resource outsourcing
TheOur strongest competitors are companies specializingwho specialize in RPO services, and business processas well as companies who offer broader human resource outsourcing companies that also offersolutions, which include RPO services. No onesingle provider dominates the market. Competition also includes internal human resource departments that have not or are not considering outsourcing. The most significant competitive factors for RPO services are the ability to attract top talent, reduce customer cost by deploying an RPO solutionper hire, improve retention, deploy best in breed technology solutions, and reducing the internal human resource cost structure of our customers.improve employment branding. Important factors for success in RPO services include the ability to add significant scalability to a customer’sclient’s recruiting and hiring efforts, including accommodating seasonal and irregular hiring; the ability to increase efficiency by standardizing processes and facilitating transitions for candidates and employees; and the ability to source the most attractive talent at the best price. Our tailored solutions, customer partnership,client partnerships, proprietary technologytechnologies and service delivery are key differentiators from many of our competitors.
TRADEMARKS
We own several trademarks that are registered with the U.S. Patent and Trademark Office, the European Union Community Trademark Office and numerous individual country trademark offices.
CYCLICAL AND SEASONAL NATURE OF OUR BUSINESS
The workforce solutions business has historically been cyclical, often acting as an indicator of both economic downturns and upswings. CustomersClients tend to use temporary workersa contingent workforce to supplement their existing workforce and generally hire permanent workersemployees when long-term demand is expected to increase. As a consequence, our revenues tendrevenue from services tends to increase quickly when the economy begins to grow. Conversely, our revenues also decreaserevenue from services decreases quickly when the economy begins to weaken and thus temporarycontingent staff positions are eliminated, permanent hiring is frozen and turnover replacement diminishes.
Our business experiences seasonal fluctuations for contingent staffing services. Demand is lower during the first and second quarters, due in part due to limitations to outside work during the winter months and slowdown in manufacturing and logistics after the holiday season. Our working capital requirements are primarily driven by temporary worker payroll and customer accounts receivable. Since receipts from customers lag payroll to temporary workers, working capital requirements increase substantially in periods of growth. Demand for contingent labor peaks during the third quarter for outdoor work and the fourth quarter for manufacturing, assembly, warehousing, distribution and logistics for the holiday season. Our working capital requirements are primarily driven by our associate payroll and client accounts receivable. Since receipts from clients lag payroll to associates, working capital requirements increase substantially in periods of growth.
REGULATION
Our services are subject to a variety of complex federal and state laws and regulations. We continuously monitor legislation and regulatory changes for their potential effect on our business. We invest in technology and process improvements to implement required changes while minimizing the impact toon our operating efficiency and effectiveness. Regulatory cost increases are passed through to our customersclients to the fullest extent possible.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
For information regarding revenue from operations and long-lived assets by domestic and foreign operations, please refer to the information presented in Note 16:15: Segment Information, to our Consolidated Financial Statementsconsolidated financial statements found in Part II, Item 8 of this Annual Report on Form 10-K.
AVAILABLE INFORMATION
Our Annual Report on Form 10-K, along with all other reports and amendments filed with or furnished to the Securities and Exchange Commission (“SEC”), are publicly available, free of charge, on our website at www.trueblue.com or at www.sec.gov as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. Our Corporate Governance Guidelines, Code of Business Conduct and Ethics and Board Committee Charters are also posted to our website. The information on our website is not part of this or any other report we file with, or furnish to, the SEC.
Investing in our securities involves risk. The following risk factors and all other information set forth in this Annual Report on Form 10-K should be considered in evaluating our future prospects. If any of the events described below occur, our business, financial condition, results of operations, liquidity, or access to the capital markets could be materially and adversely affected.
RISKS RELATED TO OUR COMPANY’S OPERATIONS
COVID-19, governmental reactions to COVID-19, and the resulting adverse economic conditions have negatively impacted our business and will have a continued material adverse impact on our business, financial condition, liquidity, and results of operations.
COVID-19’s negative impacts on the global economy and related governmental responses have been wide-ranging and multi-faceted. These impacts have caused historically steep and rapid declines in economic activity in the markets where we operate, disruptions in global supply chains, travel restrictions, sharp downturns in business activity, price volatility in equity markets, and concern that credit markets and companies will not remain liquid.
COVID-19 caused significant negative impacts on our operations and stock price. Our workforce solutions are significantly affected by fluctuationsrevenues declined substantially beginning in generalthe second half of March 2020 because of COVID-19 and will remain suppressed while the current economic conditions.
conditions continue. The operations of our clients have been severely disrupted, and could further decline, thereby increasing the likelihood that our clients continue to delay new contracts or cancel current contracts, reduce orders for our services in the future, have difficulty paying for services provided, or cease operations altogether. The rapid increase in unemployment has made it easier for clients to find new staff, reducing the demand for workforce solutions is highly dependent upon the state of the economy and upon the workforce needs of our customers, which creates uncertainty and volatility. As economic activity slows, companies tendservices. In response to these adverse conditions we have taken steps to reduce their useour expenses and cash outflows. These reductions in expenses, including layoffs, could reduce our ability to take advantage of temporary workers and reduce their recruitmentopportunities in the future if economic conditions improve. Further deterioration in economic conditions, as a result of new employees. Significant declinesCOVID-19 or otherwise, will lead to a prolonged decline in demand of any region or industry in which we have a major presence may severely reduce the demand for our services and thereby significantly decreasenegatively impact our revenuesbusiness.
The extent to which COVID-19, including any variants, adversely impacts our business depends on future developments of the pandemic and profits. Deterioration inrelated governmental responses, such as the timing, availability and efficacy of the COVID-19 vaccines, which are both uncertain and unpredictable. While this matter has, and we expect it to continue to, negatively impact our results of operations, cash flows, profit margins, and financial position, the current level of uncertainty over the economic conditions orand operational impacts of COVID-19 means the related financial or credit markets could also have an adverse impact on our customers’ ability to pay for services we have already provided.
It is difficult for us to forecast futureestimate at this time. In addition, we cannot guarantee that actions we take to reduce costs or otherwise change our operations will address the issues we face with clients, employees or our results of operations.
Advances in technology may disrupt the labor and recruiting markets and we must constantly improve our technology to meet the expectations of clients, candidates and employees.
The increased use of internet-based and mobile technology is attracting additional technology-oriented companies and resources to our industry. Our candidates and clients increasingly demand technological innovation to improve the access to and delivery of our services. Our clients increasingly rely on automation, artificial intelligence, machine learning and other new technologies to reduce their dependence on labor needs, which may reduce demand for our services dueand impact our operations. We face extensive pressure for lower prices and new service offerings and must continue to the inherent uncertaintyinvest in forecasting the direction and strength of economic cyclesimplement new technology and the project nature of our staffing assignments. The uncertainty can be exacerbated by volatile economic conditions, which may cause customersindustry developments in order to reduce or defer projects for which they utilize our services. The negative impactremain relevant to our clients and candidates. As a result of this increasing dependence upon technology, we must timely and effectively identify, develop, or license technology from third parties, and integrate such enhanced or expanded technologies into the solutions that we provide. In addition, our business can occur beforerelies on a variety of technologies, including those that support recruiting, hiring, paying, order management, billing, collecting, associate data analytics and client data analytics. If we do not sufficiently invest in and implement new technology, or evolve our business at sufficient speed and scale, our business results may decline in economic activity is seen in the broader economy. When it is difficultmaterially. Acquiring technological expertise and developing new technologies for our business may require us to accurately forecast future demand,incur significant expenses and capital costs. For some solutions, we may not be abledepend on key vendors and partners to determine the optimal level of personnelprovide technology and investment necessarysupport. If these third parties fail to profitably take advantage of growth opportunities.
We may be unableperform their obligations or cease to attract sufficient qualified candidates to meet the needs of our customers.
We compete to meet our customers’ needs for workforce solutions and, therefore, we must continually attract qualified candidates to fill positions. Attracting qualified candidates depends on factors such as desirability of the assignment, location, and the associated wages and other benefits. We have experienced shortages of qualified candidates and we may experience such shortages in the future. Further, if there is a shortage, the cost to employ or recruit these individuals could increase. If we are unable to pass those costs through to our customers, it could materially and adversely affect our business. Organized labor periodically engages in efforts to represent various groups of our temporary workers. If we are subject to unreasonable collective bargaining agreements or work disruptions,with us, our business operations could be adverselynegatively affected.
We may not achieve the intended effects of our business strategy.
Our business strategy focuses on driving growth in our PeopleReady, PeopleManagement and PeopleScout business lines by investing in innovative technology, acquisitions, and initiatives which drive organic growth. If we are unsuccessful in executing any of these strategies, we may not achieve our stated goal of revenue growth, which could negatively impact profitability.
Our workforce solutions are subject to extensive government regulation and the imposition of additional regulations, which could materially harm our future earnings.
Our workforce solutions are subject to extensive government regulation. The cost to comply, and any inability to comply with government regulation, could have a material adverse effect on our business and financial results. Increased government regulation of the workplace or of the employer-employee relationship, or judicial or administrative proceedings related to such regulation, could materially harm our business.
Our temporary staffing services employ temporary workers. The wage rates we pay to temporary workers are based on many factors including government mandated minimum wage requirements, payroll taxes and benefits. If we are not able to increase the fees charged to customers to absorb any increased costs related to government-mandated minimum wages, payroll-related taxes, or benefits, our results of operations and financial condition could be adversely affected.
We offer our temporary workers in the United States government-mandated health insurance in compliance with the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”). Because the requirements, regulations, and interpretations of the ACA may change, the ultimate financial effect of the ACA is not yet known, and changes in its requirements and interpretations could increase or change our costs. In addition, because of the uncertainty surrounding a potential repeal or replacement of the ACA, we cannot predict with any certainty the likely impact of the ACA’s repeal or the adoption of any other health care reform legislation on our financial condition or operating results. Whether or not there is a change in health care legislation in the United States, there is likely to be significant disruption to the health care market in the future, and the costs of our health care expenditures may increase. If we are unable to comply with changes to the ACA, or any future health care legislation in the United States, or sufficiently raise the rates we charge our customers to cover any additional costs, such increases in costs could materially harm our business.
We may incur employment related claims and costs that could materially harm our business.
We are in the business of employing people in the workplaces of our customers. We incur a risk of liability for claims for personal injury, wage and hour violations, immigration, discrimination, harassment, and other liabilities arising from the actions of our customers and/or temporary workers. Some or all of these claims may give rise to negative publicity, litigation, settlements, or investigations. We may incur costs, charges or other material adverse impacts on our financial statements for the period in which the effect of an unfavorable final outcome becomes probable and can be reasonably estimated.
We maintain insurance with respect to some potential claims and costs with deductibles. We cannot be certain that our insurance will be available, or if available, will be in sufficient amount or scope to cover all claims that may be asserted against us. Should the ultimate judgments or settlements exceed our insurance coverage, they could have a material effect on our business. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future, that adequate replacement policies will be available on acceptable terms, or at all, or that our insurance providers will be able to pay claims we make under such policies.
We are dependent on obtaining workers’ compensation and other insurance coverage at commercially reasonable terms. Unexpected changes in claim trends on our workers’ compensation may negatively impact our financial condition.
Our temporary staffing services employ workersassociates for which we provide workers’ compensation insurance. Our workers’ compensation insurance policies are renewed annually. The majority of our insurance policies are with AIG. Our insurance carriers require us to collateralize a significant portion of our workers’ compensation obligation. The majority of our collateral is held in trust by a third-partythird party for the payment of these claims. The loss or decline in the value of theour collateral could require us
to seek additional sources of capital to pay our workers’ compensation claims. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on acceptable terms. As our business grows or if our financial results deteriorate, the amount of collateral required will likely increase and the timing of providing collateral could be accelerated. Resources to meet these requirements may not be available. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on acceptable terms. The loss of our workers’ compensation insurance coverage would prevent us from operating as a staffing services business in the majority of our markets. Further, we cannot be certain that our current and former insurance carriers will be able to pay claims we make under such policies.
We self-insure, or otherwise bear financial responsibility for, a significant portion of expected losses under our workers’ compensation program. UnexpectedWe have experienced unexpected changes in claim trends, including the severity and frequency of claims, changes in state laws regarding benefit levels and allowable claims, actuarial estimates, orand medical cost inflation, and may experience such changes in the future which could result in costs that are significantly different than initially reported.anticipated or reported and could cause us to record different reserves in our financial statements. There can be no assuranceis a risk that we will not be able to increase the fees charged to our customersclients in a timely manner and in a sufficient amount to cover increased costs as a result of any changes in claims-related liabilities.
We actively manage the safety of our temporary workers withassociates through our safety programs and actively control costs with our network of workers’ compensation related service providers. These activities have had a positive impact creating favorable adjustments to workers’ compensation liabilities recorded in prior periods. The benefit of these adjustments has been decliningis likely to decline and there can be no assurance that we will be able to continue to reduce accident rates and control costs to produce these results in the future.
We operate in a highly competitive industrySome clients require extensive insurance coverage and mayrequest insurance endorsements that are not available under standard policies. There can be unable to retain customers or market share.
Our industry is highly competitive and rapidly innovating, with low barriers to entry. We compete in global, national, regional and local markets with full-service and specialized temporary staffing companies. Our competitors offer a variety of flexible workforce solutions. Therefore, there is no assurance that we will be able to retain customersnegotiate acceptable compromises with clients or market share in the future, nor can there be any assurance that we will, in light of competitive pressures, be able to remain profitable or maintain our current profit margins.
Advances in technology may disrupt the labor and recruiting markets.
We expect the increased use of internet-based and mobile technology will attract additional technology-oriented companies and resources to the staffing industry. Our candidates and customers increasingly demand technological innovation to improve the access to and delivery of our services. We face extensive pressure for lower prices and new service offerings and must continue to invest in new technology and industry developments in order to remain relevant to our customers. If we are unable to do so, our business and results of operations may decline materially.
We are at risk of damage to our brands and reputation, which is important to our success.
Our ability to attract and retain customers, temporary workers, candidates, and employees is affected by external perceptions of our brands and reputation. Reputational damage from negative perceptions or publicity could damage our reputation with customers and employees as well as prospective customers and employees. We may not be successful in detecting, preventing, or negating allnegotiate appropriate changes in or impacts upon, our reputation.
Our level of debt and restrictions in our credit agreement could negatively affect our operations and limit our liquidity and our ability to react to changes in the economy.
Extensions of credit under our Second Amended and Restated Revolving Credit Agreement as amended (“Revolving Credit Facility”) are permitted based on a borrowing base, which is an agreed percentage of eligible accounts receivable and an agreed percentage of the appraised value of our Tacoma headquarters building, less required reserves and other adjustments. If the amount or quality of our accounts receivable deteriorates, then our ability to borrow under the Revolving Credit Facility will be directly affected. Our lenders can impose additional conditions which may reduce the amounts available to us under the Revolving Credit Facility.
Our principal sources of liquidity are funds generated from operating activities, available cash and cash equivalents, and borrowings under our Revolving Credit Facility. We must have sufficient sources of liquidityinsurance contracts. An inability to meet our working capitalclient insurance requirements fund our workers’ compensation collateral requirements, service our outstanding indebtedness, and finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our operations or we may not be able to pursue promising business opportunities.
Our Revolving Credit Facility and Term Loan Agreement contain restrictive covenants that require us to maintain certain financial conditions. Our failure to comply with these restrictive covenants could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. We may not have sufficient funds on hand to repay these loans, and if we are forced to refinance these borrowings on less favorable terms, or are unable to refinance at all, our results of operations and financial condition could be materially adversely affected by increased costs and rates.
Our debt levels could have significant consequences for the operation of our business including: requiring us to dedicate a significant portion of our cash flow from operations to servicing our debt rather than using it for our operations; limiting our ability to obtain additional debt financing for future working capital, capital expenditures, or other corporate purposes; limitingaffect our ability to take advantageon new clients or continue providing services to existing clients.
We may experience employment related claims, commercial indemnification claims and other legal proceedings that could materially harm our business.
We are in the business of significant business opportunities, such as acquisition opportunities; limitingemploying people in the workplaces of our clients. We incur a risk of liability for claims relating to personal injury, wage and hour violations, immigration, discrimination, harassment and other liabilities arising from the actions of our clients and associates. Some or all of these claims may give rise to negative publicity, investigations, litigation or settlements. We may incur costs or other material adverse impacts on our financial statements for the period in which the effect of an unfavorable final outcome becomes probable and can be reasonably estimated.
We may have liability to our clients for the action or inaction of our employees, that may cause harm to our clients or third parties. In some cases, we must indemnify our clients for certain acts of our associates or arising from our associates presence on the client’s job site and certain clients have negotiated broad indemnification provisions. We may also incur fines, penalties, and losses that are not covered by insurance or negative publicity with respect to these matters.
We maintain insurance with respect to some potential claims and costs with deductibles. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on acceptable terms. Should the final judgments or settlements exceed our insurance coverage, they could have a material effect on our business. Our ability to reactobtain insurance, its coverage levels, deductibles and premiums, are all dependent on market factors, our loss history, and insurance providers’ assessments of our overall risk profile. Further, we cannot be certain our current and former insurance carriers will be able to changes in market or industry conditions; and putting us at a disadvantage compared to competitors with less debt.pay claims we make under such policies.
The loss of, continued reduction in or substantial decline in revenue from a major customerlarger clients or certain industries could have a material adverse effect on our revenues, profitability and liquidity.
We experience revenue concentration with large customers.clients and in certain industries. Generally, our contracts do not contain guarantees of minimum duration, revenue levels, or profitability and our customersprofitability. Our clients may terminate their contracts or materially reduce their requested levels of service at any time. Although we have no client that represents over 10% of our consolidated revenue, there are clients that exceed 10% of revenues within some of our operating segments. The lossdeterioration of the financial condition of a large client or reduced demand for our services from, major customersa particular industry could have a material adverse effect on our business, financial condition, and results of operations. COVID-19 has caused certain clients to temporarily close large job sites or reduce demand for our services, and future outbreaks of the pandemic could cause large closures and long-term reduction in demand. In addition, customer a significant change to the business, staffing or recruiting model of these clients, for example a decision to insource our services, has had, and could again have, a material adverse effect on our business, financial condition, and results of operations. The loss of, or reduced demand for our services from larger clients and industries, such as construction or travel and leisure, has had, and in the future could have, a material adverse effect on our business, financial condition, and results of operations. Client
concentration exposes us to concentrated credit risk, as a significant portion of our accounts receivable may be from a small number of customers.clients. The impact of COVID-19 may adversely impact our clients’ ability to pay for our services. If we are unable to collect our receivables, or are required to take additional reserves, our results and cash flows will be adversely affected.
Failure of our information technology systems could adversely affect our operating results.
The efficient operation of our business is dependent on our information technology systems. We rely on our information technology systems to monitor and control our operations, adjust to changing market conditions, implement strategic initiatives, and provide services to customers. We rely heavily on proprietary and third-party information technology systems, mobile device technology and related services, and other technology which may not yield the intended results. Our systems may experience problems with functionality and associated delays. The failure of our systems to perform as anticipated could disrupt our business and operations have undergone, and will continue to undergo, significant change as we seek to improve our operational and support effectiveness, which if not managed could result in decreased revenue and increased overhead costs, causinghave an adverse outcome on our business and results of operations to suffer materially.
Our information technology systems may need to be updated or replaced.operations.
We occasionally implement, modify, retirehave significantly changed our operations and changeinternal processes in recent periods, and we will continue making similar changes, in order to improve our systems.operational effectiveness. These efforts strain our systems, management, administrative, operations, and financial infrastructure. For example, we arecombined some of our operating segments earlier in the process of implementing a new cloud-based enterprise accounting system. These changesyear. We believe these efforts are important to our information technologylong-term success. Managing and cascading these changes throughout the company will continue to require the further attention of our management team and refinements to our operational, financial and management controls, reporting systems and procedures. These activities will require ongoing expenditures and allocation of valuable management and employee resources. If we fail to manage these changes effectively, our costs and expenses may be disruptive, take longerincrease more than desired, be more expensive than anticipated, be distracting to management, or fail, causingwe expect and our business, financial condition, and results of operations to suffer materially.may be harmed.
A cyberattack, or improper disclosure of, or access to, our confidential and/or proprietary information could materially harm our business.
OurNew business uses confidential information about applicants, candidates, temporary workers, other employees and customers. We experience cyberattacks, computer viruses, social engineering schemes and other means of unauthorized access to our systems. The security controls over sensitive or confidential information and other practices we and our third-party vendors followinitiatives may not prevent the improper access to, disclosure of, or loss of such information. Failure to protect the integrity and security of such confidential and/or proprietary information could exposecause us to regulatory fines, litigation, contractual liability, damage to our reputationincur additional expenditures and increased compliance costs.
A data breach, or improper disclosure of, or access to our customers’ information could materially harm our business.
Our temporary workers and employees may have access to or exposure to confidential information about applicants, candidates, temporary workers, other employees and customers. The security controls over sensitive or confidential information and other practices we, customers and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information. Failure to protect the integrity and security of such confidential and/or proprietary information could expose us to regulatory fines, litigation, contractual liability, damage to our reputation and increased compliance costs.
Our facilities, operations and information technology systems are vulnerable to damage and interruption.
Our primary computer systems, headquarters, support facilities and operations are vulnerable to damage or interruption from power outages, computer and telecommunications failures, computer viruses, employee errors, security breaches, natural disasters and catastrophic events. Failure of our systems or damage to our facilities may require significant additional capital and management resources to resolve, causing material harm to our business.
Acquisitions and new business initiatives may have an adverse effect on our business.
We expect to continue making acquisitions, adjusting the composition of our business lines,segments and entering into new business initiatives as part of our business strategy. This strategy may be impeded, however, if we cannot identify suitable acquisition candidates or new business initiatives, or if acquisition candidates are not available under acceptable terms. Future acquisitions could result in incurring additional debt and contingent liabilities, an increase in interest expense, amortization expense, and charges related to integration costs. New business initiatives, andstrategic business partners or changes in the composition of our business mix can be distracting to our management and disruptive to our operations, causing our business and results of operations to suffer materially. Acquisitions and newNew business initiatives, including initiatives outside of our workforce solutions business, in new markets, or new geographies, could involve significant unanticipated challenges and risks including not advancing our business strategy, not realizing our anticipated return on our investment, experiencing difficulty in implementing initiatives, or integrating acquired operations, or directingdiverting management’s attention from our other businesses. In particular, we are making additional expenditures to advance our technology, and we cannot be sure that those initiatives will be successful or that we will achieve a return on our investment. These events could cause material harm to our business, operating results or financial condition.
Our resultsFailure to protect our intellectual property could harm our business, and we face the risk that our services or products may infringe upon the intellectual property rights of operations could materially deteriorate ifothers.
We have invested in developing specialized technology and intellectual property, proprietary systems, processes and methodologies that we failbelieve provide us a competitive advantage in serving clients. We cannot guarantee that trade secret, trademark, and copyright law protections are adequate to attract, develop and retain qualified employees.
Our performance is dependent on attracting and retaining qualified employees who are able to meet the needsdeter misappropriation of our customers.intellectual property, which is an important part of our business. We believemay be unable to detect the unauthorized use of our competitive advantageintellectual property and take the necessary steps to enforce our rights. We cannot be sure that our services and products, or the products of others that we offer to our clients, do not infringe on the intellectual property rights of third parties, and we may have infringement claims asserted against us or our clients. These claims may harm our reputation, result in financial liability and prevent us from offering some services or products to clients.
We are at risk of damage to our brands and reputation, which is providing unique solutions for each individual customer, which requires usimportant to have trained and engaged employees. our success.
Our success depends upon our ability to attract develop and retain a sufficient number of qualifiedclients, associates, candidates, and employees including management, sales, recruiting, service and administrative personnel. The turnover rate in the employment services industry is high, and qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply. Our inability to recruit, train and motivate a sufficient number of qualified individuals may delay or affect the speed and qualityaffected by external perceptions of our strategy executionbrands and planned growth. Delayed expansion, significant increasesreputation. Negative perceptions or publicity could damage our reputation with current or perspective clients and employees. Negative perceptions or publicity regarding our vendors, clients, or business partners may adversely affect our brand and reputation. We may not be successful in employee turnover rates,detecting, preventing, or significant increasesnegating all changes in labor costs could have a material adverse effector impacts on our business, financial condition and results of operations.
Wereputation. If any factor, including poor performance or negative publicity, whether or not true, hurts our reputation, we may have additional tax liabilities that exceed our estimates.
We are subject to federal taxes, a multitude of state and local taxes in the United States, and taxes in foreign jurisdictions. We face continued uncertainty surrounding the recent 2017 Tax Cuts and Jobs Act and any reduction or change in tax creditsexperience negative repercussions which we utilize, such as the Work Opportunity Tax Credit. In the ordinary course of our business, there are transactions and calculations where the ultimate tax determination is uncertain. We are regularly subject to audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical tax provisions and accruals. The results of an audit or litigation could materially harm our business.
The taxing authoritiesexpansion of the jurisdictions in which we operate may challengesocial media platforms creates new risks and challenges that could cause damage to our methodologies for valuing intercompany arrangementsbrand and reputation.
The use of social media platforms, including social media websites and other forms of internet-based communications, has rapidly increased allowing individuals access to a broad audience of consumers and other interested parties. For example, unfavorable comments about a work site could make recruiting or may change theirhiring at that site more challenging. The inappropriate or unauthorized use of such platforms by our clients, employees or associates could violate privacy laws, cause damage to our brand, or lead to litigation which could increase our worldwide effective tax rate and harm our financial position and resultsbusiness.
We cannot guarantee that we will repurchase our common stock pursuant to our share repurchase program or that our share repurchase program will enhance long-term shareholder value.
In September 2017, ourOur Board of Directors (the “Board”) has authorized a share repurchase program. Under the program, we are authorized to repurchase shares of common stock for ana set aggregate purchase price, notor we may choose to exceed $100 million, excluding fees, commissions and other ancillary expenses.purchase shares in the open market, from individual holders, through an accelerated share repurchase program or otherwise. Although the Board of Directors has authorized a share repurchase program, the share repurchase program does not obligate the company to repurchase any specific dollar amount or to acquire any specific number of shares. The timing and amount of the repurchases, if any, will depend upon several factors, including market and business conditions, the trading price of the company’sour common stock and the nature of other investment opportunities. The repurchase program may be limited, suspended or discontinued at any time without prior notice. In addition, repurchases of our common stock pursuant to our share
repurchase program could affect our stock price and increase its volatility. The existence of a share repurchase program could cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. Additionally, our share repurchase program could diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions. There can be no assurance that these share repurchases will enhance shareholder value because the market price of our common stock may decline below the level at which we repurchased shares of stock. Although our share repurchase programsprogram is intended to enhance long-term shareholder value, there is no assurance that it will do so and short-term stock price fluctuations could reduce the program’s effectiveness. Following an amendment to our revolving credit agreement (the “Revolving Credit Facility”), our share repurchase program has been paused until the third quarter of 2021.
Our level of debt and restrictions in our credit agreement could negatively affect our operations and limit our liquidity and our ability to react to changes in the economy.
Our Revolving Credit Facility contains restrictive covenants that require us to maintain certain financial conditions, which we may fail to meet if there is a material decrease in our profitability, including as a result of COVID-19. Our failure to comply with these restrictive covenants could result in an event of default, which, if not cured or waived, would require us to repay these borrowings before their due date. We may not have sufficient funds on hand to repay these loans, and if we are forced to refinance these borrowings on less favorable terms, or are unable to refinance at all, our results of operations and financial condition could be materially adversely affected by increased costs and rates. If the business interruptions caused by COVID-19 last longer than we expect, we may need to seek other sources of liquidity.
Our principal sources of liquidity are funds generated from operating activities, available cash and cash equivalents, and borrowings under our Revolving Credit Facility. We must have sufficient sources of liquidity to meet our working capital requirements, fund our workers’ compensation collateral requirements, service our outstanding indebtedness, and finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our operations or we may not be able to pursue promising business opportunities.
As our debt levels increase, it could have significant consequences for the operation of our business including requiring us to dedicate a significant portion of our cash flow from operations to servicing our debt rather than using it for our operations; limiting our ability to obtain additional debt financing for future working capital, capital expenditures, or other corporate purposes; limiting our ability to take advantage of significant business opportunities, such as acquisitions; limiting our ability to react to changes in market or industry conditions; and putting us at a disadvantage compared to competitors with less debt.
RISKS RELATED TO OUR INDUSTRY
Our workforce solutions are subject to extensive government regulation and the imposition of additional regulations, which could materially harm our future earnings.
Our workforce solutions are subject to extensive government regulation. The cost to comply, and any inability to comply with government regulation, could have a material adverse effect on our business and financial results. Increases or changes in government regulation of the workplace or of the employer-employee relationship, or judicial or administrative proceedings related to such regulation, could materially harm our business.
Our temporary staffing services employ associates. The wage rates we pay to associates are based on many factors including government-mandated increases to minimum wage requirements, payroll-related taxes and benefits. If we are not able to increase the fees charged to clients to absorb any increased costs related to these factors, our results of operations and financial condition could be adversely affected.
We offer our associates in the United States (“U.S.”) government-mandated health insurance in compliance with the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”). Because of the uncertainty surrounding potential changes to the ACA, we cannot predict with any certainty the likely impact of the ACA’s modification by the courts or of any other health care legislation on our financial condition or operating results. If we are unable to comply with changes to the ACA, or any future health care legislation in the U.S., or sufficiently raise the rates we charge our clients to cover any additional costs, such noncompliance or increases in costs could materially harm our business.
We operate in a highly competitive industry and may be unable to retain clients, market share, or profit margins.
Our industry is highly competitive and rapidly innovating, with low barriers to entry. We compete in global, national, regional and local markets with full-service and specialized temporary staffing companies as well as business process outsourcing companies that also offer our services. Our competitors offer a variety of flexible workforce solutions. Therefore, there is no assurance that we will be able to retain clients or market share in the future, nor can there be any assurance that we will, in light of competitive pressures, be able to remain profitable or maintain our current profit margins.
We may be unable to attract sufficient qualified associates and candidates to meet the needs of our clients.
We compete to meet our clients’ needs for workforce solutions, therefore, we must continually attract qualified associates and candidates to fill positions. Attracting qualified associates and candidates depends on factors such as desirability of the assignment, location, the associated wages and other benefits. Prior to COVID-19, unemployment in the U.S. was low, making it challenging to find sufficient eligible associates and candidates to meet our clients’ orders. The economic slowdown resulting from COVID–19 has increased unemployment substantially, but we cannot predict its continued effect on employment rates. Government responses to COVID-19 included generous unemployment benefits which negatively impacted our ability to recruit qualified associates and candidates. Continued similar unemployment benefits will further impact our ability to recruit in the future. We have experienced shortages of qualified associates and candidates and may experience such shortages in the future. Further, if there is a shortage, the cost to employ or recruit these individuals could increase and our ability to generate revenue would be harmed if we could not fill positions. If we are unable to pass those costs through to our clients, it could materially and adversely affect our business. Organized labor periodically engages in efforts to represent various groups of our associates. If we are subject to unreasonable collective bargaining agreements or work disruptions, our business could be adversely affected.
Cybersecurity vulnerabilities and incidents could lead to the improper disclosure of information about our clients, candidates and employees.
Our business requires the use, processing, and storage of confidential information about applicants, candidates, associates, other employees and clients. We use information technology and other computer resources to carry out operational and support activities and maintain our business records. We rely on information technology systems to process, transmit, and store electronic information and to communicate among our locations around the world and with our clients, partners, and employees. The breadth and complexity of this infrastructure increases the potential risk of security breaches which could lead to potential unauthorized disclosure of confidential information.
Our systems and networks are vulnerable to computer viruses, malware, hackers and other security issues, including physical and electronic break-ins, disruptions from unauthorized access and tampering, social engineering attacks, impersonation of authorized users, and coordinated denial-of-services attacks. We have experienced cybersecurity incidents and attacks which have not had a material impact on our business or results of operations, however, there is no assurance that such impacts will not be material in the future. The security controls over sensitive or confidential information and other practices we and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information. Continued investments in cybersecurity will increase our costs and a failure to prevent access to our systems could lead to penalties, litigation, and damage to our reputation. Perceptions that we do not adequately protect the privacy of information could harm our relationship with clients and employees.
Data security, data privacy and data protection laws and other technology regulations increase our costs.
Laws and regulations related to privacy and data protection are evolving and generally becoming more stringent. We may fail to implement practices and procedures that comply with increasing international and domestic privacy regulations, such as the General Data Protection Regulations or the California Consumer Privacy Act. Several additional U.S. states have issued cybersecurity regulations that outline a variety of required security measures for protection of data. These regulations are designed to protect client, candidate, associate, and employee data and require that we meet stringent requirements regarding the handling of personal data, including the use, protection and transfer of personal data. As these laws continue to change, we may be required to make changes to our services, solutions or products to meet the new legal requirements. Changes in these
laws may increase our costs to comply as well as our potential costs through higher potential penalties for non-compliance. Failure to protect the integrity and security of such confidential and/or proprietary information could expose us to regulatory fines, litigation, contractual liability, damage to our reputation and increased compliance costs.
Improper disclosure of, or access to our clients’ information could materially harm our business.
Our associates and employees may have access to or exposure to confidential information about applicants, candidates, associates, other employees and clients. The security controls over sensitive or confidential information and other practices we, our clients and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information. Failure to protect the integrity and security of such confidential and/or proprietary information could expose us to regulatory fines, litigation, contractual liability, damage to our reputation and increased compliance costs.
GENERAL RISK FACTORS
Demand for our workforce solutions is significantly affected by fluctuations in general economic conditions.
The demand for our workforce solutions is highly dependent upon the state of the economy and the workforce needs of our clients, which creates uncertainty and volatility. National and global economic activity is slowed by many factors, including rising interest rates, political and legislative changes, epidemics, other significant health concerns, and global trade uncertainties. As economic activity slows, companies tend to reduce their use of associates and recruitment of new employees. We work in a broad range of industries that primarily include construction, manufacturing and logistics, warehousing and distribution, waste and recycling, energy, retail, and hospitality. For example, we have recently experienced significantly reduced demand from our clients due to COVID-19. Significant declines in demand from any region or industry in which we have a major presence, or the financial health of our clients, significantly decreases our revenues and profits. The travel and hospitality industry was more severely impacted by COVID-19 and is expected to recover slowly. Deterioration in economic conditions or the financial or credit markets could also have an adverse impact on our clients’ financial health or their ability to pay for services we have already provided.
It is difficult for us to forecast future demand for our services due to the inherent uncertainty in forecasting the direction and strength of economic cycles and the project nature of our staffing assignments. The uncertainty can be exacerbated by volatile economic conditions, which has caused and may continue to cause clients to reduce or defer projects for which they utilize our services. The negative impact to our business can occur before, during or after a decline in economic activity is seen in the broader economy. When it is difficult for us to accurately forecast future demand, we may not be able to determine the optimal level of personnel and investment necessary to profitably manage our business in light of opportunities and risks we face.
Outsourcing certain aspects of our business could result in disruption and increased costs.
We have outsourced certain aspects of our business to third-party vendors. These relationships subject us to significant risks including disruptions in our business and increased costs. For example, we license software from third parties, much of which is central to our systems and our business. The licenses are generally terminable if we breach our obligations under the license agreements. If any of these relationships were terminated, or if any of these parties were to cease doing business or supporting the applications we currently utilize, our business could be disrupted and we may be forced to spend significant time and money to replace the licensed software. In addition, we have engaged third parties to host and manage certain aspects of our data center, information and technology infrastructure, mobile apps, and electronic pay solutions, to provide certain back office support activities, and to support business process outsourcing for our clients. We are subject to the risks associated with the vendors’ inability to provide these services in a manner that meets our needs. If the cost of these services is more than expected, if the vendors suddenly cease providing their services, if we or the vendors fail to adequately protect our data and information is lost, or if our ability to deliver our services is interrupted, then our business and results of operations may be negatively impacted.
We may not achieve the intended effects of our business strategy which could negatively impact our results.
Our business strategy focuses on driving growth in our PeopleReady, PeopleManagement and PeopleScout business segments by investing in innovative technology, acquisitions and initiatives which drive organic growth. Our investments and acquisitions may not achieve our desired returns and the results of our initiatives may not be as expected or may be impacted by matters outside of our control. If we are unsuccessful in executing any of these strategies, we may not achieve our goal of revenue and profitability growth, which could negatively impact financial results.
Failure of our information technology systems could adversely affect our operating results.
The efficient operation of our business and applications and services we provide is dependent on reliable technology. We rely on our information technology systems to monitor and control our operations, adjust to changing market conditions, implement strategic initiatives, and provide services to clients. We rely heavily on proprietary and third-party information technology systems, mobile device technology data centers, cloud-based environments and other technology. We take various precautions and have enhanced controls around these systems, but information technology systems are susceptible to damage, disruptions, shutdowns, power outages, hardware failures, computer viruses, malicious attacks, telecommunication failures, user errors, catastrophic events or failures during the process of upgrading or replacing software, vendors, or databases. The failure of technology and our applications and services, and our information systems to perform as anticipated could disrupt our business and result in decreased revenue and increased overhead costs, causing our business and results of operations to suffer materially.
Our facilities, operations and information technology systems are vulnerable to damage and interruption.
Our primary computer systems, headquarters, support facilities and operations are vulnerable to damage or interruption from power outages, computer and telecommunications failures, computer viruses, employee errors, security breaches, natural disasters, civil unrest, and catastrophic events. Failure of our systems or damage to our facilities may cause significant interruption to our business, and require significant additional capital and management resources to resolve, causing material harm to our business.
Acquisitions may have an adverse effect on our business.
We may continue making acquisitions a part of our business strategy. This strategy may be impeded, however, and we may not achieve our long-term growth goals if we cannot identify suitable acquisition candidates or if acquisition candidates are not available under acceptable terms. We may have difficulty integrating acquired companies into our operating, financial planning, and financial reporting systems and may not effectively manage acquired companies to achieve expected growth.
Future acquisitions could result in incurring additional debt and contingent liabilities, an increase in interest expense, amortization expense, and charges related to integration costs. Additional indebtedness could also include covenants or other restrictions that would impede our ability to manage our operations. We may also issue equity securities to pay for an acquisition, which could result in dilution to our shareholders. Any acquisitions we announce could be viewed negatively by investors, which may adversely affect the price of our common stock. Acquisitions can also result in the addition of goodwill and intangible assets to our financial statements and we may be required to record a significant charge in our financial statements during the period in which we determine an impairment of our acquired goodwill and intangible assets has occurred, which would negatively impact our financial results. The potential loss of key executives, employees, clients, suppliers, vendors, and other business partners of businesses we acquire may adversely impact the value of the assets, operations, or business we acquire. These events could cause material harm to our business, operating results or financial condition.
Our results of operations could materially deteriorate if we fail to attract, develop and retain qualified employees.
Our performance is dependent on attracting and retaining qualified employees who are able to meet the needs of our clients. We believe our competitive advantage is providing unique solutions for each client, which requires us to have trained and engaged employees. Our success depends upon our ability to attract, develop and retain a sufficient number of qualified employees, including management, sales, recruiting, service, technology and administrative personnel. The turnover rate in the employment services industry is high, and qualified individuals may be difficult to attract and hire. Our inability to recruit, train, motivate and provide a safe working environment to a sufficient number of qualified individuals may delay or affect the speed and quality of our strategy execution and planned growth. Delayed expansion, significant increases in employee turnover rates, failure to keep our staff healthy or significant increases in labor costs could have a material adverse effect on our business, financial condition and results of operations.
We face risks in operating internationally.
A portion of our business operations and support functions are located outside of the U.S. These international operations are subject to a number of risks, including the effects of COVID-19 and governmental action, such as travel restrictions and “stay-at-home” orders, political and economic conditions in those foreign countries, foreign currency fluctuations, the burden of complying with various foreign laws and technical standards, unpredictable changes in foreign regulations, U.S. legal requirements governing U.S. companies operating in foreign countries, legal and cultural differences in the conduct of business, potential adverse tax consequences and difficulty in staffing and managing international operations. We have operations in the United Kingdom, which could be negatively impacted as clients in the United Kingdom encounter uncertainties related to the United Kingdom’s exit from the European Union. We could also be exposed to fines and penalties under U.S. or foreign laws,
such as the Foreign Corrupt Practices Act, which prohibits improper payments to governmental officials and others for the purpose of obtaining or retaining business. Although we have implemented policies and procedures designed to ensure compliance with these laws, we cannot be sure that our employees, contractors or agents will not violate such policies. Any such violations could materially damage our reputation, brands, business and operating results. Further, changes in U.S. laws and policies governing foreign investment and use of foreign operations or workers, and any negative sentiments towards the U.S. resulting from such changes, could adversely affect our operations.
We may have additional tax liabilities that exceed our estimates.
We are subject to federal taxes, a multitude of state and local taxes in the U.S., and taxes in foreign jurisdictions. We face continued uncertainty surrounding ongoing job tax credits we utilize, and for the recent business tax incentives related to measures taken to soften the impact of COVID-19. In the ordinary course of our business, there are transactions and calculations where the ultimate tax determination is uncertain. We are regularly subject to audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical tax provisions and accruals. The results of an audit or litigation with tax authorities could materially harm our business. Changes in interpretation of existing laws and regulations by a taxing authority could result in penalties and increased costs in the future. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing intercompany arrangements or may change their laws, which could increase our worldwide effective tax rate and harm our financial position and results of operations.
Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting.
If our management is unable to certify the effectiveness of our internal controls, including those over our third partythird-party vendors, or if our independent registered public accounting firm cannot render an opinion on the effectiveness of our internal controls over financial reporting, or if material weaknesses in our internal controls are identified, we could be subject to regulatory scrutiny and a loss of public confidence. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to accurately report our financial performance on a timely basis, which could cause our stock price to fall.decline.
Outsourcing certain aspectsThe price of our business couldcommon stock may fluctuate significantly, which may result in disruption and increased costs.losses for investors.
We have outsourced certain aspects of our business to third-party vendors that subject us to risks including disruptions in our business and increased costs. For example, we have engaged third parties to host and manage certain aspects of our data center, information and technology infrastructure, mobile applications, and electronic pay solutions, to provide certain back office support activities, and to support business process outsourcingThe market price for our customers. Accordingly, we arecommon stock may be subject to the risks associated with the vendors’ ability to provide these services in a manner that meet our needs. If the cost of these services is more than expected, if we or the vendors are unable to adequately protect our data and information is lost, or if our ability to deliver our services is interrupted, then our business and results of operations may be negatively impacted.
If our acquired intangible assets become impaired we may be required to record a significant charge to earnings.
We regularly review acquired intangible assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. We test goodwill and indefinite-lived intangible assets for impairment at least annually. Factors that may be considered a change in circumstances, indicating that the carrying value of the intangible assets may not be recoverable, include: macroeconomic conditions, such as deterioration in general economic conditions; industry and market considerations, such as deterioration in the environment in which we operate; cost factors, such as increases in labor or other costs that have a negative effect on earnings and cash flows; our financial performance, such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods; other relevant entity-specific events, such as changes in management, key personnel, strategy, or customers; and sustained decreases in share price. We may be required to record a significant charge in our financial statements during the period in which we determine an impairment of our acquired intangible assets has occurred, therefore negatively impacting our financial results.
volatility. Our stock price may be volatile.
Our stock price has experienced substantial fluctuation based oncan fluctuate as a result of a variety of factors, severalmany of which are beyond our control. Some of theseThese factors include, but are not limited to, changes in general economic conditions; actualconditions, including those caused by COVID-19; social unrest; announcement of new services or anticipated variations inacquisitions by us or our quarterly operating results;competitors; changes in financial estimates or other statements by securities analysts; changes in industry trends or volatility in the financial markets; announcements by our competitors related to new services or acquisitions;conditions; regulatory developments; and shareholder activism. Fluctuationsany major change in our Board or management. In addition, the stock market in general has experienced extreme price could meanand volume fluctuations that investors will not be ablehave often been unrelated to sell their shares at or abovethe operating performance of listed companies. These broad market and industry factors may impact the price they paid and may impairof our ability in the future to offer common stock, as a source of additional capital.
We face risks in operating internationally.
A portionregardless of our business operations and support functions are located outside of the United States. These international operations are subject to a number of risks, including political and economic conditions in those foreign countries, the burden of complying with various foreign laws and technical standards, and unpredictable changes in foreign regulations, U.S. legal requirements governing U.S. companies operating in foreign countries, legal and cultural differences in the conduct of business, potential adverse tax consequences and difficulty in staffing and managing international operations. We could also be exposed to fines and penalties under U.S. or local jurisdiction laws prohibiting improper payments to governmental officials and others for the purpose of obtaining or retaining business. Although we have implemented policies and procedures designed to ensure compliance with these laws, we cannot be sure that our employees, contractors or agents will not violate such policies. Any such violations could materially damage our reputation, brands, business and operating results. Further, changes in U.S. laws and policies governing foreign investment and use of foreign operations or workers, and any negative sentiments towards the United States as a result of such changes, could adversely affect the our operations.performance.
Foreign currency fluctuations may have a material adverse effect on our operating results.
We report our results of operations in U.S. dollars. The majority of our revenues are generated in the United States. Our international operations are denominated in currencies other than the U.S. dollar, and unfavorable fluctuations in foreign currency exchange rates could have an adverse effect on our reported financial results. Increases or decreases in the value of the U.S. dollar against other major currencies could affect our revenues, operating profit and the value of balance sheet items denominated in foreign currencies. Our exposure to foreign currencies could have an adverse effect on our business, financial condition, cash flow and/or results of operations. Furthermore, the volatility of currencies may impact year-over-year comparability.
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| Item 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable.
We lease the building space atfor all our PeopleReady branches, and other offices except for onetwo that we own in Florida. In addition, to branches for our PeopleReady operations, we lease office spaces for our PeopleManagement PeopleScout and PeopleReadyPeopleScout centralized support functions. Under the majority of our PeopleReady branch leases, we have the right to terminate the lease onwith 90 days’ notice. On October 1, 2020, we took possession of office space we are under contract to lease for 15 years, commencing on April 1, 2021. The location serves as our new Chicago support center. We do not anticipate any difficulty in renewing these leases or in finding alternative sites in the ordinary course of business. We own an office building in Tacoma, Washington, which serves as our corporate headquarters. During 2020, as a result of COVID-19, the majority of our employees have conducted business remotely as a result of governmental orders or our internal policies designed to protect the health and safety of our employees. Management believes all our facilities are currently suitable for their intended use.
See Note 9: Commitments and Contingencies, to our Consolidated Financial Statementsconsolidated financial statements found in Part II, of Item 8 of this Annual Report on Form 10-K.
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| Item 4. | MINE SAFETY DISCLOSURES |
Not applicable.
PART II
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| Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market information
Our common stock is listed on the New York Stock Exchange under the ticker symbol TBI. The table below sets forth the high and low sales prices for our common stock as reported by the New York Stock Exchange during the last two fiscal years:
|
| | | | | | |
| | High | Low |
| 2017 | | |
| Fourth Quarter | $ | 29.50 |
| $ | 22.45 |
|
| Third Quarter | $ | 27.25 |
| $ | 19.30 |
|
| Second Quarter | $ | 28.70 |
| $ | 25.30 |
|
| First Quarter | $ | 27.85 |
| $ | 23.40 |
|
| 2016 | | |
| Fourth Quarter | $ | 24.90 |
| $ | 16.50 |
|
| Third Quarter | $ | 23.65 |
| $ | 17.35 |
|
| Second Quarter | $ | 27.57 |
| $ | 17.84 |
|
| First Quarter | $ | 26.51 |
| $ | 20.03 |
|
Holders of the corporation’s common stock
We had approximately 509467 shareholders of record as of February 1, 2018.2021. This number does not include shareholders for whom shares were held in “nominee” or “street name.”
Dividends
No cash dividends have been declared on our common stock to date nor have any decisions been made to pay a dividend in the future. Payment of dividends is evaluated on a periodic basis and if a dividenddividends were paid, itthey would be subject to the covenants of our Second Amended and Restated Revolving Credit Agreement,revolving credit agreement, which may have the effect of restricting our ability to pay dividends.
Stock repurchases
The table below includes repurchases of our common stock pursuant to publicly announced plans or programs and those not made pursuant to publicly announced plans or programs during the thirteen weeks ended December 31, 2017.27, 2020.
| | | | | | | | | | | | | | |
| Period | Total number
of shares
purchased (1) | Weighted
average price
paid per
share (2) | Total number of shares
purchased as part of
publicly announced plans
or programs | Maximum number of shares (or
approximate dollar value) that
may yet be purchased under
plans or programs at period
end (3) |
| 09/28/2020 through 10/25/2020 | 2,543 | | $15.46 | | — | | $66.7 million |
| 10/26/2020 through 11/22/2020 | 1,499 | | $15.52 | | — | | $66.7 million |
| 11/23/2020 through 12/27/2020 | 2,334 | | $19.11 | | — | | $66.7 million |
| Total | 6,376 | | $16.81 | | — | | |
|
| | | | | | | | |
| Period | Total number of shares purchased (1) | Weighted average price paid per share (2) | Total number of shares purchased as part of publicly announced plans or programs (3) | Maximum number of shares (or approximate dollar value) that may yet be purchased under plans or programs at period end (4) |
| 10/02/2017 through 10/29/2017 | 1,662 |
|
| $22.82 |
| — |
| $100.0 million |
| 10/30/2017 through 11/26/2017 | 1,497 |
|
| $26.32 |
| — |
| $100.0 million |
| 11/27/2017 through 12/31/2017 | 3,459 |
|
| $27.12 |
| 261,990 |
| $92.7 million |
| Total | 6,618 |
|
| $25.86 |
| 261,990 |
| |
| |
(1) | During the year ended December 31, 2017, we purchased 6,618 shares in order to satisfy employee tax withholding obligations upon the vesting of restricted stock. These shares were not acquired pursuant to any publicly announced purchase plan or program. |
| |
(2) | Weighted average price paid per share does not include any adjustments for commissions. |
| |
(3) | The weighted average price per share for shares repurchased under the share repurchase program during the period was $27.90. |
| |
(4) | During fiscal 2017, we repurchased shares using the remaining $29.4 million available under our $75.0 million share repurchase program. On September 15, 2017, our Board of Directors authorized a $100 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 thirteen weeks ended December 31, 2017, we used $7.3 million under this new program to repurchase shares. |
(2)Weighted average price paid per share does not include any adjustments for commissions.
Directors authorized a $100 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.
TrueBlue stock comparative performance graph
The following graph depicts our stock price performance from December 28, 201225, 2015 through December 31, 2017,27, 2020, relative to the performance of the S&P SmallCap 600 Index and S&P 1500 Human Resources and Employment Services Index.
All indices shown in the graph have been reset to a base of 100 as of December 28, 201225, 2015, and assume an investment of $100 on that date and the reinvestment of dividends, if any, paid since that date.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
| | | Total Return Analysis | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |
| Total return analysis | | Total return analysis | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
| TrueBlue, Inc. | $ | 100 |
| $ | 167 |
| $ | 146 |
| $ | 171 |
| $ | 159 |
| $ | 177 |
| TrueBlue, Inc. | $ | 100 | | $ | 93 | | $ | 104 | | $ | 82 | | $ | 89 | | $ | 72 | |
| S&P SmallCap 600 Index | 100 |
| 144 |
| 153 |
| 152 |
| 189 |
| 214 |
| S&P SmallCap 600 Index | 100 | | 124 | | 141 | | 128 | | 158 | | 177 | |
| S&P 1500 Human Resources and Employment Services Index | 100 |
| 179 |
| 182 |
| 193 |
| 212 |
| 270 |
| S&P 1500 Human Resources and Employment Services Index | 100 | | 110 | | 140 | | 116 | | 143 | | 147 | |
|
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Item 6. | SELECTED FINANCIAL DATA |
The following selected financial data is derived from our audited Consolidated Financial Statements. The data below should be read in conjunction with Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Summary consolidated financial and operating data
as of and for the fiscal years ended (1)
|
| | | | | | | | | | | | | | | | | |
| Statements of operations data: | (52 Weeks) | | (53 Weeks) | | (52 Weeks) |
| (in thousands, except per share data) | 2017 | | 2016 | | 2015 | 2014 | 2013 |
| Revenue from services | $ | 2,508,771 |
| | $ | 2,750,640 |
| | $ | 2,695,680 |
| $ | 2,174,045 |
| $ | 1,668,929 |
|
| Cost of services | 1,874,298 |
| | 2,070,922 |
| | 2,060,007 |
| 1,637,066 |
| 1,226,626 |
|
| Gross profit | 634,473 |
| | 679,718 |
| | 635,673 |
| 536,979 |
| 442,303 |
|
| Selling, general and administrative expense | 510,794 |
| | 546,477 |
| | 495,988 |
| 425,777 |
| 362,248 |
|
| Depreciation and amortization | 46,115 |
| | 46,692 |
| | 41,843 |
| 29,474 |
| 20,472 |
|
| Goodwill and intangible asset impairment charge | — |
| | 103,544 |
| | — |
| — |
| — |
|
| Interest and other income (expense), net | (14 | ) | | (3,345 | ) | | (1,395 | ) | 116 |
| 1,354 |
|
| Income (loss) before tax expense | 77,550 |
| | (20,340 | ) | | 96,447 |
| 81,844 |
| 60,937 |
|
| Income tax expense (benefit) | 22,094 |
| | (5,089 | ) | | 25,200 |
| 16,169 |
| 16,013 |
|
| Net income (loss) | $ | 55,456 |
| | $ | (15,251 | ) | | $ | 71,247 |
| $ | 65,675 |
| $ | 44,924 |
|
| | | | | | | | |
| Net income (loss) per diluted share | $ | 1.34 |
| | $ | (0.37 | ) | | $ | 1.71 |
| $ | 1.59 |
| $ | 1.11 |
|
| | | | | | | | |
| Weighted average diluted shares outstanding | 41,441 |
| | 41,648 |
| | 41,622 |
| 41,176 |
| 40,502 |
|
| | | | | | | | |
Balance sheet data(2): | | | | | | | |
| (in thousands) | 2017 | | 2016 | | 2015 | 2014 | 2013 |
| Working capital | $ | 215,860 |
| | $ | 176,668 |
| | $ | 314,989 |
| $ | 223,133 |
| $ | 227,409 |
|
| Total assets | 1,109,031 |
| | 1,130,445 |
| | 1,259,442 |
| 1,061,227 |
| 719,461 |
|
| Long-term liabilities | 341,765 |
| | 354,131 |
| | 495,893 |
| 404,663 |
| 204,692 |
|
| Total liabilities | 554,184 |
| | 605,266 |
| | 723,869 |
| 591,893 |
| 326,101 |
|
| |
(1) | In the fourth quarter of fiscal 2016, we changed our fiscal year-end from the last Friday in December to the Sunday closest to the last day in December. In addition, the 2016 fiscal year included 53 weeks, with the 53rd week falling in our fourth quarter. All other years presented include 52 weeks. |
| |
(2) | Fiscal years 2015 through 2013 data have been impacted by the adoption and retrospective application of ASU 2015-17, which classifies all deferred income taxes as non-current. |
The operating results reported above include the results of acquisitions subsequent to their respective purchase dates. In January 2016, we acquired the recruitment process outsourcing business of Aon Hewitt. In December 2015, we acquired SIMOS Insourcing Solutions Corporation. In June 2014, we acquired Seaton. In February 2013, we acquired MDT Personnel, LLC. In October 2013, we acquired The Work Connection, Inc.
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| | | | |
| Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Management’s discussionDiscussion and analysisAnalysis of financial conditionFinancial Condition and resultsResults of operationsOperations (“MD&A”) is designed to provide the reader of our accompanying consolidated financial statements (“financial statements”) with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect future results. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to our financial statements.
OVERVIEW
TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us,”“us” and “our”) is a leading provider of specialized workforce solutions that help our customers createclients achieve business growth and improve efficiency,productivity. In 2020, we connected approximately 490,000 people with work and increase reliability.served approximately 99,000 clients. Our workforce solutions meet our customers’ needs for a reliable, efficient workforce in a wide variety of industries.
We report our businessoperations are managed as three distinctbusiness segments: PeopleReady, PeopleManagement and PeopleScout. See Note 16: 15: Segment Information, to our Consolidated Financial Statementsconsolidated financial statements found in Item 8 of this Annual Report on Form 10-K for additional details on our service linesoperating segments and reportable segments.
Our fiscal year-end changedPeopleReady segment offers on-demand, industrial staffing; our PeopleManagement segment offers contingent, on-site industrial staffing and commercial driver services; and our PeopleScout segment offers recruitment process outsourcing (“RPO”) and managed service provider (“MSP”) solutions.
COVID-19
Beginning in March 2020, jurisdictions across the countries we serve began implementing restrictions to protect public health as the impact of COVID-19 set in. Many of our clients temporarily halted or reduced operations which had a significant impact on our revenue. However, throughout the pandemic, our business has remained open and provided key services to essential businesses and other businesses as COVID-19 restrictions were lifted. Nevertheless, the preventative measures and individual precautions taken to help curb the spread of COVID-19, and the resulting negative impact on the economy, continue to have an adverse impact on client demand for our services and our business results.
Our first priority continues to be the health and safety of our associates, employees, clients, suppliers and others with whom we partner in our business activities. We implemented comprehensive measures across our businesses to keep our associates, employees and clients healthy and safe, including adherence to guidance from the last Friday in DecemberCenters for Disease Control and Prevention, World Health Organization, Occupational Safety and Health Administration and other key authorities.
In response to the Sunday closestrapidly changing market conditions as a result of COVID-19, commencing in April 2020, we took actions to reduce our operating expenses while preserving the last day in December effectivekey strengths of our business to ensure we were prepared as business conditions improved. Our cost management strategies are on track and continue to improve our operating results and preserve our liquidity. At this time, we have ample liquidity to satisfy our cash needs. However, the long-term impacts of the pandemic are difficult to predict. Accordingly, we will continue to evaluate the nature and extent of the impact of COVID-19 on our business, consolidated results of operations, financial condition, and liquidity.
We continue to monitor this evolving situation and guidance from domestic and international authorities, including federal, state and local public health authorities, and may take additional actions based on their recommendations. There may be developments outside our control requiring us to adjust our operating plan. As such, it is difficult to estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the fourth quarterfuture. For additional discussion on the uncertainties and business risks associated with COVID-19, refer to Risk Factors in Part I, Item 1A of 2016. The week ending date was moved forward from Fridaythis Annual Report on Form 10-K.
On March 27, 2020, the United States (“U.S.”) government enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which among other things, provides employer payroll tax credits for wages paid to Sundayemployees who are unable to better align withwork during the work weekCOVID-19 outbreak and options to defer payroll tax payments for a limited period. Based on our evaluation of our customers. In addition, our 2016 fiscalthe CARES Act, we qualify for certain employer payroll tax credits as well as the deferral of payroll tax payments into the future. Additionally, the Canadian government enacted the Canada Emergency Wage Subsidy and the Australian government enacted the JobKeeper subsidy to help employers offset a portion of their employee wages for a limited period of time. For the year included 53 weeks, withended December 27, 2020, we recognized $9.9 million in government subsidies and delayed payments of $57.1 million for the 53rd week falling in our fourth fiscal quarter. All other years presented include 52 weeks.employer portion of social security taxes.
Due to the reduction in the use
Fiscal 2017 highlights | | | | | | | | |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
Revenue from services
Total company revenue declined 22.1% to $2.5$1.8 billion for the year ended December 31, 2017, an 8.8% decrease27, 2020, compared to the year ended January 1, 2017.prior year. The decline was primarily due to a drop in client demand associated with government and societal actions taken to address COVID-19, which had severe adverse impacts on our former largest customer substantially insourcing the recruitmentoperations and managementbusiness results. Many of contingent labor for its warehouse fulfillment centers and distribution sitesour clients have been severely impacted by COVID-19, which has resulted in the United States. Revenue from our former largest customer declined by $118 million, or 68.8% for the year ended December 31, 2017, when compared to the year ended January 1, 2017, which represented a decline in total company revenue of 4.0%. Our fiscal 2017 also had nine fewer days when compared to fiscal 2016, which represented a decline in total company revenue of 1.2%. The remaining decrease of 3.6% was primarily due to lower PeopleReady volume partially offset by higher PeopleScout volume.
PeopleReady revenue from services
PeopleReady revenue declined to $1.5 billion for the year ended December 31, 2017, a 7.2% decrease compared to the year ended January 1, 2017. The nine fewer days in fiscal 2017 represented a decline in PeopleReady revenue of 1.1%. Demandreduced demand for our temporary staffing services is largely dependent upon general economic and labor trends and continues to be mixed across geographies and the industries we serve. Financial results were negatively impacted by weakness with our residential construction, manufacturing and retail customers. However, this decline was partially offset by an increase in revenue from improving performance with our commercial construction and hospitality customers.
services. We saw improvementsteady improvements in our year-over-year quarterly revenue trends forsince the second halfquarter of fiscal 2017. Excluding2020. Revenue declined 39.0% in the nine additional days in fiscal 2016, we exited fiscal 2017 with a year-over-year quarterly decline of 0.7%, which was an improvement from a decline of 4.8%second quarter, 25.5% in the third quarter and 12.3% in the fourth quarter. These improvements were broad-based across most of fiscal 2017,the industries and geographies we serve.
PeopleReady, our largest segment, experienced a revenue decline of 8.8% in the second quarter of fiscal 2017. The improving year-over-year results were due to improving customer trends across the industries we serve, with the exception of manufacturing and retail.
Wage growth has accelerated due to various minimum wage increases and a need for higher wages to attract talent in tight labor markets. We have increased bill rates for the higher wages, payroll burdens and our traditional mark-up. While we believe our pricing strategy is the right long-term decision, these actions impact our revenue trends in the near term.
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| | |
MANAGEMENT'S DISCUSSION AND ANALYSIS |
PeopleReady performance was impacted by temporary disruptions from operational changes related to our consolidation of Labor Ready, CLP Resources, and Spartan Staffing into one specialized workforce solutions business at the beginning of fiscal 2017 in order to create a more seamless experience for our customers to access all of our blue-collar, contingent on-demand general and skilled labor service offerings. The transition is largely complete.
PeopleManagement revenue from services
PeopleManagementrevenue declined to $807 million for the year ended December 31, 2017, a 14.2% decrease25.4%, compared to the year ended January 1, 2017. Revenue from Amazon,prior year. PeopleReady’s clients have been severely impacted by COVID-19, which has resulted in reduced demand for our former largest customer, declined by $118 million,services. The impact of COVID-19 on PeopleReady’s clients has moderated in the third and fourth quarters of 2020. PeopleManagement, our lowest margin segment, experienced a revenue decline of 8.6%, compared to prior year. PeopleManagement supplies an outsourced workforce that involves multi-year, multi-million dollar on-site or 68.8% to $53 million for the year ended December 31, 2017,driver relationships. These types of client engagements are often more resilient in an economic downturn. PeopleScout, our highest margin segment, experienced revenue decline of 36.6%, compared to the year ended January 1, 2017, which representedprior year. PeopleScout has a decline in PeopleManagement revenuelarge number of 12.2%. This customer substantially insourced the recruitment and management of contingent labor for their warehouse fulfillment centers and distribution sitesclients in the United States, commencing in the second quarter of fiscal 2016. Our fiscal 2017 also had nine fewer days when comparedtravel and leisure industries which continue to fiscal 2016, which represented a decline in PeopleManagement revenue of 1.3%.
We saw improvement in our year-over-year quarterly revenue trends for the second half of fiscal 2017. Excluding the nine additional days in fiscal 2016, we exited fiscal 2017 with a year-over-year quarterly decline of 6.3%, which was an improvement from a decline of 9.2% in the third quarter of fiscal 2017, and a decline of 12.1% in the second quarter of fiscal 2017. The improving year-over-year quarterly results were primarily due to increasingly favorable prior year comparisons associated with our former largest customer.
PeopleScout revenue from services
PeopleScoutrevenue grew to $190 million for the year ended December 31, 2017, a 5.2% increase compared to fiscal 2016. The nine fewer days in fiscal 2017 represented a decline in PeopleScout revenue of 1.2%. We saw improvement in our year-over-year quarterly revenue trends for the second half of fiscal 2017. Excluding the nine additional days in fiscal 2016, we exited fiscal 2017 with a year-over-year quarterly growth of 15.1%, which was an improvement from an increase of 10.0% in the third quarter of fiscal 2017, and a decrease of 1.0% in the second quarter of fiscal 2017. The increase was primarily drivenbe disproportionately impacted by new client wins and expanding our scope of services with existing customers.COVID-19.
Gross profit
Total company gross profit as a percentage of revenue for the year ended December 31, 201727, 2020 was 25.3%23.9%, compared to 24.7%26.2% for the year ended January 1, 2017. The increase was primarilyprior year. Our staffing businesses contributed approximately 140 basis points of the decline due to favorableapproximately 100 basis points from pressure on our bill and pay rates caused by higher pay rates to entice associates to take work assignments given COVID-19 health concerns and the availability of additional federal unemployment benefits. As with prior recessions, our ability to pass through higher costs plus a markup in our bill rates was hampered due to a variety of economic factors negatively impacting our clients. This decline was partially offset by a benefit of 30 basis points from a reduction in estimated costs to comply with the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively the “ACA”), which were accrued in prior fiscal years. Our PeopleScout business contributed approximately 90 basis points to the decline due to client mix with less PeopleManagementand lower volume driven by the rapid revenue fromdecline, which outpaced the reductions to our former largest customer, which carries a lower gross margin than the blended average,service delivery team, and additional efficiency gains in the sourcing and recruiting activitiesseverance of PeopleScout.approximately 20 basis points.
Selling, general and administrative (“SG&A”) expense
Total company SG&A expense decreased by $36$108.0 million to $511 million for the year ended December 31, 2017, compared to the year ended January 1, 2017. The nine fewer days in fiscal 2017 represented $8 million of the decrease. Additionally, fiscal 2016 included $7 million of integration costs to fully integrate the recruitment process outsourcing business of Aon Hewitt into the PeopleScout service line, and $6 million in costs incurred to exit the delivery business of our former largest customer and certain other realignment costs.The remaining decrease of $15 million for the year ended December 31, 2017 was primarily due to cost control programs commencing in the prior year, which have continued in the current year.
Total company SG&A expense as a percentage of revenue increased to 20.4% for the year ended December 31, 2017, from 19.9% for the year ended January 1, 2017, largely due to the decline in revenue outpacing the decline in expense.
Income from operations
Total company income from operations was $78$408.3 million, or 3.1% as a percentage22.1% of revenue for the year ended December 31, 2017,27, 2020, compared to a loss from operations of $17$516.2 million, or 0.6%21.8% of revenue for the prior year. The decrease in SG&A expense was primarily due to comprehensive actions we put in place beginning in April 2020 to dramatically reduce costs in response to rapidly changing market conditions due to COVID-19. These actions reduced SG&A expense by 20.9% for the year ended January 1, 2017. The prior year included a goodwill and intangible impairment charge of $104 million. ExcludingDecember 27, 2020, compared to the prior year. We believe we have taken the right actions to reduce SG&A expense, while still investing in technology and preserving the key strengths of our business to ensure we are prepared as business conditions improve. The decrease in SG&A expense benefited from $8.6 million of employee retention subsidies made available under the Canada Emergency Wage Subsidy and the Australian JobKeeper subsidy, as well as a U.S. payroll tax credit in accordance with the provisions of the CARES Act. These reductions were partially offset by a $2.8 million one-time discretionary bonus rewarding our employees for their efforts in 2020, and $8.9 million in workforce reduction costs recorded in the year ended December 27, 2020, compared to $3.3 million in workforce reduction costs recorded in the prior year.
Loss from operations
Total company loss from operations was $174.9 million for the year ended December 27, 2020, compared to income from operations of $66.2 million for the prior year. The decrease in income from operations was primarily due to a goodwill and intangible asset impairment charge net income from operations was $87of $175.2 million or 3.1% as a percentagein the first quarter of revenue for2020 and the year ended January 1, 2017. This decline was primarily due to thesignificant decline in revenue outpacing improved gross profitclient demand associated with government and societal actions taken to address COVID-19. The significant drop in demand, increased price sensitivity, increased associate wages, and preventive measures taken to help curb the decline inspread of COVID-19, had severe adverse impacts on our operations and business results. The declines were partially offset by the decisive and comprehensive cuts to SG&A expenses.
Effective tax rate
Our effective tax rate forexpense in line with management’s plans to preserve the year ended December 31, 2017 was 28.5%, compared to 25.0% in the same period in the prior year. The increase in the effective tax rate was primarily due to the U.S. government-enacted comprehensive tax legislation commonly r
key strengths of our business.
| | | | | | | | |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
eferred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affects fiscal 2017, including, but not limited to, requiring a one-time transition tax on deemed repatriated earnings of foreign subsidiaries (payable over eight years) and the revaluation of net deferred tax assets to reflect the federal tax rate reduction from 35.0% to 21.0%.
Net incomeloss
Net incomeloss was $55$141.8 million, or $1.34$4.01 per diluted share for the year ended December 31, 2017,27, 2020, compared to a net lossincome of $15$63.1 million, or $0.37$1.61 per diluted share for the year ended January 1, 2017. Excludingprior year. The net loss includes an income tax benefit of $31.4 million, $23.3 million of which was due to the prior year goodwill and intangible asset impairment, charge, net income would have been $67 million forresulting in an effective tax rate of 18.1%, compared to 10.0% in the prior year. Our effective tax rate was lower in the prior year ended January 1, 2017.as a result of the federal Work Opportunity Tax Credit (“WOTC”) reducing the tax expense, while increasing the tax benefit in 2020. WOTC is designed to encourage employers to hire associates from certain targeted groups with higher than average unemployment rates.
Additional highlights
We believeare focused on cash management as a top priority. In response to the rapidly changing market conditions as a result of COVID-19, we are taking the right stepshave taken swift actions to reduce operating costs and other cash outflows to preserve working capital. Additionally, on March 16, 2020, we amended our operating margin and produce long-term growth for shareholders. We also believecredit agreement which extended the maturity of the revolving credit facility established thereunder (“Revolving Credit Facility”) to March 16, 2025. On June 24, 2020, we are in a strongfurther amended our revolving credit agreement, which modified terms of our financial positioncovenants as well as certain other provisions. Under the amended credit agreement, we have the option, subject to fund working capital needs for growth opportunities.lender approval, to increase the Revolving Credit Facility to $450.0 million. As of December 31, 2017,27, 2020, we had cash and cash equivalents of $29$62.5 million and $117no outstanding debt resulting in an unused credit facility. We also returned excess capital to shareholders by repurchasing $52.4 million available under the Second Amended and Restated Revolving Credit Agreement for a secured revolving credit facility (“Revolving Credit Facility”) for total liquidity of $146 million.
During the second half of fiscal 2017, we repurchased shares using the remaining $29 million available under our $75 million share repurchase program. Under this program we repurchased and retired 4.8 million sharesor 9.2% of our common stock at an average share pricestock. These purchases were initiated prior to the medical community’s acknowledgment of $15.52. On September 15, 2017, our Boardthe expected severity of Directors authorized a $100 million share repurchase programthe impact of our outstanding common stock. The share repurchase program does not obligate us to acquire any particular amount of common stock and does not have an expiration date. During the year ended December 31, 2017, we used $7 million under this new program to repurchase shares at an average share price of $27.90.COVID-19.
RESULTS OF OPERATIONS
COVID-19
The global economy and our business have been dramatically affected by the COVID-19 pandemic. We continue to monitor its impact on all aspects of our business. Throughout the pandemic, our businesses have remained open. We provided key services to essential businesses and other businesses as COVID-19 restrictions were lifted. However, the preventative measures and precautions taken to help curb the spread of COVID-19 and the resulting negative impact on the economy, continue to have a severe adverse impact on client demand for our services and our business results.
Our first priority, with regard to COVID-19, has been to ensure the health and safety of our associates, employees, clients, suppliers and others with whom we partner in our business activities to continue our operations in this unprecedented environment. We implemented comprehensive measures across our businesses to keep our associates, employees and clients healthy and safe, including adherence to guidance from the Centers for Disease Control and Prevention, World Health Organization, Occupational Safety and Health Administration and other key authorities. We formed a specialized task force tracking the most up-to-date developments and safety standards, and created an internal information hub with safety protocols, dashboards, FAQs, and daily reporting by location on the impact of COVID-19. In addition to posting TrueBlue’s action plan on our external websites, we are actively sharing information on how companies and workers can protect themselves via ongoing emails, social outreach, webinars and other digital communications. PeopleReady is fully leveraging our JobStackTM app to help companies and associates connect safely through a digital environment, and are rolling out a new virtual onboarding capability to minimize in-person branch visits. PeopleScout is also leveraging our AffinixTM technology to enable companies to connect with permanent talent through virtual hiring and sourcing. Working closely with clients to enforce safety standards, we are supporting efforts in providing masks and hand sanitizer for associates, disinfecting workplaces, encouraging social distancing, and providing infrared temperature checks. We instruct our associates and employees to stay home if they are not feeling well or have been exposed to COVID-19. Immediate notification and self-quarantine protocols are in place if an employee, associate or client’s employee is exposed to COVID-19, and our Field Safety Specialists closely evaluate any assignments related to clean-up of potentially infectious job sites. To ensure business continuity and support for clients who need associates for essential services, we established a Centralized Branch Support Center and are ready to implement Regional Command Centers as needed to serve as backup for our 600+ branches. Our branches follow strict sanitation and social distancing guidelines. In addition, across the TrueBlue organization, we suspended all international travel and restricted nonessential domestic travel for our employees and are providing remote work capabilities for our Tacoma and Chicago support centers as well as other locations.
In response to the rapidly changing market conditions as a result of COVID-19, we have taken steps to reduce SG&A expense and other cash outflows. We continue to monitor this evolving situation and guidance from domestic and international authorities, including federal, state and local public health authorities, and may take additional actions based on their recommendations. For additional discussion on the uncertainties and business risks associated with COVID-19, refer to Risk Factors in Part I, Item 1A of this Annual Report on Form 10-K.
| | | | | | | | |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
Total company results
The following table presents selected financial data:
| | | | | | | | | | | | | | | |
| |
| (in thousands, except percentages and per share data) | 2020 | % of revenue | 2019 | % of revenue | |
| Revenue from services | $ | 1,846,360 | | | $ | 2,368,779 | | | |
| | | | | |
| Gross profit | 440,645 | | 23.9 | % | 619,948 | | 26.2 | % | |
| Selling, general and administrative expense | 408,307 | | 22.1 | % | 516,220 | | 21.8 | % | |
| Depreciation and amortization | 32,031 | | 1.7 | % | 37,549 | | 1.6 | % | |
| Goodwill and intangible asset impairment charge | 175,189 | | | — | | | |
| Income (loss) from operations | (174,882) | | (9.5) | % | 66,179 | | 2.8 | % | |
| Interest expense and other income, net | 1,620 | | | 3,865 | | | |
| Income (loss) before tax expense (benefit) | (173,262) | | | 70,044 | | | |
| Income tax expense (benefit) | (31,421) | | | 6,971 | | | |
| Net income (loss) | $ | (141,841) | | (7.7) | % | $ | 63,073 | | 2.7 | % | |
| | | | | |
| Net income (loss) per diluted share | $ | (4.01) | | | $ | 1.61 | | | |
|
| | | | | | | | | | | | | | | |
| | Years ended |
| (in thousands, except percentages and per share data) | 2017 | % of revenue | 2016 | % of revenue | 2015 | % of revenue |
| Revenue from services | $ | 2,508,771 |
| | $ | 2,750,640 |
| | $ | 2,695,680 |
| |
| Total revenue growth % | (8.8 | )% | | 2.0 | % | | 24.0 | % | |
| | | | | | | |
| Gross profit | $ | 634,473 |
| 25.3 | % | $ | 679,718 |
| 24.7 | % | $ | 635,673 |
| 23.6 | % |
| Selling, general and administrative expense | 510,794 |
| 20.4 | % | 546,477 |
| 19.9 | % | 495,988 |
| 18.4 | % |
| Depreciation and amortization | 46,115 |
| 1.8 | % | 46,692 |
| 1.7 | % | 41,843 |
| 1.6 | % |
| Goodwill and intangible asset impairment charge | — |
|
|
| 103,544 |
| 3.8 | % | — |
|
|
|
| Income (loss) from operations | 77,564 |
| 3.1 | % | (16,995 | ) | (0.6 | )% | 97,842 |
| 3.6 | % |
| Interest and other income (expense), net | (14 | ) | | (3,345 | ) | | (1,395 | ) | |
| Income (loss) before tax expense | 77,550 |
|
|
| (20,340 | ) | | 96,447 |
| |
| Income tax expense (benefit) | 22,094 |
| | (5,089 | ) | | 25,200 |
| |
| Net income (loss) | $ | 55,456 |
| 2.2 | % | $ | (15,251 | ) | (0.6 | )% | $ | 71,247 |
| 2.6 | % |
| Net income (loss) per diluted share | $ | 1.34 |
| | $ | (0.37 | ) | | $ | 1.71 |
| |
Revenue from services by reportable segment was as follows:
Our year-over-year trends | | | | | | | | | | | | | | | | | |
| |
| (in thousands, except percentages) | 2020 | Decline
% | Segment % of total | 2019 | Segment % of total |
| Revenue from services: | | | | | |
| PeopleReady | $ | 1,099,462 | | (25.4) | % | 59.5 | % | $ | 1,474,062 | | 62.2 | % |
| PeopleManagement | 586,822 | | (8.6) | | 31.8 | | 642,233 | | 27.1 | |
| PeopleScout | 160,076 | | (36.6) | | 8.7 | | 252,484 | | 10.7 | |
| Total company | $ | 1,846,360 | | (22.1) | % | 100.0 | % | $ | 2,368,779 | | 100.0 | % |
The workforce solutions industry is dependent on the overall strength of the labor market. Clients tend to use a contingent workforce to supplement their existing workforce and generally hire permanent employees when long-term demand is expected to increase. As a consequence, our revenue from services tends to increase when the economy begins to grow. Conversely, our revenue declines when the economy begins to weaken and thus contingent staff positions are significantlyeliminated, permanent hiring is frozen and turnover replacement diminishes.
Total company revenue declined to $1.8 billion for the year ended December 27, 2020, a 22.1% decrease compared to the prior year. The decline was due to a drop in client demand associated with government and societal actions taken to address COVID-19, which had severe adverse impacts on our operations and business results. Many of our clients have been severely impacted by the following acquisitions:
Effective December 1, 2015, we acquired SIMOS Insourcing Solutions (“SIMOS”), a leading provider of on-premise workforce management solutions. SIMOS specializesCOVID-19, which has resulted in helping customers streamline warehouse/distribution operations to meet the growingreduced demand for e-commerceour services. However, we saw steady improvement in our year-over-year revenue trends since the second quarter of 2020. Revenue declined 39.0% in the second quarter, 25.5% in the third quarter and supply chain solutions. They are also experts12.3% in providing scalable solutions for pickthe fourth quarter. These improvements were broad-based across most of the industries and pack and shipping requirements. Their unique productivity model incorporates fixed price-per-unit solutions to drive client value. Additionally, their continuous analysis and improvement of processes and incentive pay drives workforce efficiency and reduces costs, lowers risk of injury and damage, and improves productivity and service levels. SIMOS expands our existing services for on-premise staffing and management of a facility’s contingent workforce.
geographies we serve.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
Effective January 4, 2016, we acquired the RPO business of Aon Hewitt, a leading provider of RPO services. The acquired operations expand and complement our PeopleScout services and were fully integrated into this service line in 2016.
We report our business as three distinct segments: PeopleReady, PeopleManagementreportable segments described below and PeopleScout. Seein Note 16: 15: Segment Information, to our Consolidated Financial Statementsconsolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details of our service lines and reportable segments.10-K.
PeopleReadyprovides access to reliable workers in the United States, Canada and Puerto Rico through a wide range of staffing solutions for blue-collar, contingent on-demand general and skilled labor. PeopleReady connects people to work in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, waste and recycling, hospitality, general labor and others. PeopleReady helped approximately 107,000 businesses in fiscal 2017 to be more productive by providing easy access to dependable contingent labor. Additionally, we connected approximately 352,000 people with work in fiscal 2017. We have a network of 623 branches across all 50 states, Canada and Puerto Rico.
PeopleManagement predominantly encompasses our on-site placement and management services and provides a wide range of workforce management solutions for blue-collar, contingent, on-premise staffing and management of a facility’s workforce. We use distinct brands to market our PeopleManagement contingent workforce solutions and operate as Staff Management | SMX (“Staff Management”), SIMOS, PlaneTechs and Centerline Drivers. Staff Management specializes in exclusive recruitment and on-premise management of a facility’s contingent industrial workforce. SIMOS specializes in exclusive recruitment and on-premise management of warehouse/distribution operations to meet the growing demand for e-commerce and scalable supply chain solutions. PlaneTechs specializes in recruitment and on-premise management of temporary skilled mechanics and technicians to the aviation and transportation industries. Centerline Drivers specializes in dedicated and temporary truck drivers to the transportation and distribution industries. PeopleManagement helped approximately 1,000 customers in fiscal 2017 to be more productive by providing easy access to dependable blue-collar contingent workforce solutions. Additionally, we connected approximately 91,000 people with work in fiscal 2017. We have 251 on-premise locations at customers’ facilities.
PeopleScout provides permanent employee recruitment process outsourcing (“RPO”) for our customers for all major industries and jobs. The RPO solution delivers improved talent quality, faster hiring, increased scalability, reduced turnover, lower cost of recruitment, greater flexibility, and increased compliance. We leverage our proprietary candidate applicant tracking system, along with dedicated service delivery teams to work as an integrated partner with our customers in providing end-to-end talent acquisition services from sourcing candidates through onboarding employees. The solution is highly scalable and flexible, allowing for outsourcing of all or a subset of skill categories across a series of recruitment processes and onboarding steps. Customer contracts are generally multi-year in duration and pricing is typically composed of a fee for each hire. Volume, job type, degree of recruiting difficulty, and number of recruiting process steps from sourcing to onboarding factor into pricing. Our PeopleScout segment also includes a management service provider business, which provides customers with improved quality and spend management of their contingent labor vendors. In fiscal 2017, PeopleScout connected approximately 297,000 individuals with work for approximately 200 customers.
Our fiscal year-end changed from the last Friday in December to the Sunday closest to the last day in December effective in the fourth quarter of 2016. The week ending date was moved forward from Friday to Sunday to better align with the work week of our customers. In addition, the 2016 fiscal year included 53 weeks, with the 53rd week falling in our fourth quarter. All other years presented include 52 weeks.
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
FISCAL 2017 AS COMPARED TO FISCAL 2016
Revenue from services
Revenue from services by reportable segment was as follows: |
| | | | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2017 | Growth (decline) % | 2016 |
| Revenue from services: | | | |
| PeopleReady | $ | 1,511,360 |
| (7.2 | )% | $ | 1,629,455 |
|
| PeopleManagement | 807,273 |
| (14.2 | )% | 940,453 |
|
| PeopleScout | 190,138 |
| 5.2 | % | 180,732 |
|
| Total company | $ | 2,508,771 |
| (8.8 | )% | $ | 2,750,640 |
|
Total companyPeopleReady revenue declined to $2.5$1.1 billion for the year ended December 31, 2017, an 8.8%27, 2020, a 25.4% decrease compared to the year ended January 1, 2017, primarilyprior year. The decline was due to lower volumesa drop in client demand associated with government and societal actions taken to address the impact of COVID-19. In particular, the outbreak and preventive measures taken to help curb the spread of COVID-19 had severe adverse impacts on our operations and business results. Many of the clients we serve have been severely impacted by COVID-19, which has resulted in reduced demand for staffingour services. We experienced steady improvements in our year-over-year revenue trends since the second quarter of 2020, which declined 43.4%. Revenue in the third quarter of 2020 declined 28.9%, and the fourth quarter of 2020 declined 18.5%. These improvements were broad-based across most geographies and industries, driven primarily by the retail, manufacturing, services withinand transportation industries.
We believe the year-over-year decline was moderated by the use of our industry-leading JobStack mobile app that digitally connects associates with jobs. During fiscal 2020, PeopleReady business and with our former largest customer. Revenue from our former largest customer declined by $118 million, or 68.8% forachieved a digital fill rate of 53.0%, compared to 48.0% in the year endedprior year. As of December 31, 2017, when27, 2020, JobStack had more than 26,000 client users, an increase of 23.5% compared to the year ended January 1, 2017,prior year. We are focused on driving clients to become JobStack heavy users, which represented a decline in total company revenue of 4.0%. Our fiscal 2017 also had nine fewer days whenwe define as clients with 50 or more touches on JobStack per month. Heavy client users have consistently posted better year-over-year growth rates compared to fiscal 2016, which representedother PeopleReady clients. We more than doubled our heavy client user mix from 11.0% in 2019 to 24.0% in 2020. Also during 2020, we introduced new digital onboarding features in JobStack that cut application time in half. This has led to a declinesignificant increase in total company revenuethe ratio of 1.2%.The remaining decreaseassociates put to work compared to all applicants. JobStack is helping us safely connect people with work during this time of 3.6% was primarily due to lower PeopleReady volume partially offset by higher PeopleScout volume.crisis.
PeopleReadyPeopleManagement
PeopleReady PeopleManagementrevenue declined to $1.5 billion for the year ended December 31, 2017, a 7.2% decrease compared to the year ended January 1, 2017. The nine fewer days in fiscal 2017 represented a decline in PeopleReady revenue of 1.1%. The remaining decline was primarily due to weakness with our residential construction, manufacturing and retail customers. However, this decline was partially offset by an increase in revenue from improving performance in the commercial construction and hospitality customers.
We saw improvement in our year-over-year quarterly revenue trends for the second half of fiscal 2017. We exited fiscal 2017 with a year-over-year quarterly decline of 0.7%, excluding the nine additional days in fiscal 2016. The improving year-over-year results were due to improving customer trends across all the industries we serve, with the exception of manufacturing and retail.
Wage growth has accelerated due to various minimum wage increases and a need for higher wages to attract talent in tight labor markets. We have increased bill rates for the higher wages, payroll burdens and our traditional mark-up. While we believe our pricing strategy is the right long-term decision, these actions impact our revenue trends in the near term.
PeopleReady performance was impacted by temporary disruptions from operational changes related to our consolidation of Labor Ready, CLP Resources, and Spartan Staffing into one specialized workforce solutions business in order to create a more seamless experience for our customers to access all of our blue-collar, contingent on-demand general and skilled labor service offerings. The transition is largely complete.
PeopleManagement
PeopleManagementrevenue declined to $807$586.8 million for the year ended December 31, 2017, a 14.2%27, 2020, an 8.6% decrease compared to the year ended January 1, 2017. Revenue fromprior year. Many of the clients we serve have been impacted by COVID-19 and have reduced their need for our former largest customerservices, which has resulted in lower revenue. PeopleManagement has experienced improving revenue trends during the third and fourth quarters of 2020, compared to the second quarter of 2020, primarily driven by the fact that PeopleManagement supplies an outsourced workforce that involves multi-year, multi-million dollar on-site or driver relationships. These types of client engagements are often more resilient in an economic downturn. Year-over-year, revenue declined by $118 million, or 68.8%22.7% in the second quarter of 2020, declined 7.6% in the third quarter of 2020, and grew 4.6% in the fourth quarter of 2020. These improvements were broad-based across most of the geographies and industries we serve.
PeopleScout
PeopleScoutrevenue declined to $53$160.1 million for the year ended December 31, 2017,27, 2020, a 36.6% decrease compared to the year ended January 1, 2017, which represented aprior year. The revenue decline in PeopleManagement revenue of 12.2%. Our fiscal 2017 also had nine fewer days when comparedwas primarily due to fiscal 2016, which represented a decline in PeopleManagement revenue of 1.3%. During fiscal 2017, revenue trends have stabilized with a more diverse customer base and we have seen modest increases inless demand from existing clients resulting from the economic disruption caused by the impact of COVID-19. PeopleScout clients in the travel and new customers supporting e-commerceleisure industries were especially impacted. These clients, which represented approximately 29% of the client mix for the year ended December 29, 2019, were disproportionately impacted and transportation.experienced a 61.0% decrease in revenue compared to prior year. Year-over-year, revenue declined 52.7% in the second quarter of 2020, 47.6% in the third quarter of 2020, and 23.8% in the fourth quarter of 2020.
Gross profit
Gross profit was as follows:
| | | | | | | | |
| |
| (in thousands, except percentages) | 2020 | 2019 |
| Gross profit | $ | 440,645 | | $ | 619,948 | |
| Percentage of revenue | 23.9 | % | 26.2 | % |
Gross profit as a percentage of revenue declined 230 basis points to 23.9% for the year ended December 27, 2020, compared to 26.2% for the prior year.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
PeopleScout
PeopleScoutrevenue grew•Our staffing businesses contributed approximately 140 basis points of the decline due to $190 million forapproximately 100 basis points from pressure on our bill and pay rates caused by higher pay rates to entice associates to take work assignments given COVID-19 health concerns and the year ended December 31, 2017,availability of additional federal unemployment benefits. As with prior recessions, our ability to pass through higher costs plus a 5.2% increase comparedmarkup in our bill rates was hampered due to the year ended January 1, 2017. New customer wins and expansiona variety of economic factors negatively impacting our services with existing customers represented an increase in revenue of 6.4%,clients’ businesses. This decline was partially offset by a benefit of 30 basis points from a reduction in estimated costs to comply with the nine fewer daysACA, which were accrued in prior fiscal 2017,years.
•Our PeopleScout business contributed approximately 90 basis points to the decline due to client mix and lower volume due to the rapid revenue decline, which represented a decline in PeopleScout revenueoutpaced the reductions to our service delivery team, and severance of 1.2%.approximately 20 basis points.
Gross profit
Gross profit was as follows: |
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2017 | 2016 |
| Gross profit | $ | 634,473 |
| $ | 679,718 |
|
| Percentage of revenue | 25.3 | % | 24.7 | % |
Total company gross profit as a percentageWe continue to actively manage workers’ compensation cost by improving the safety of our associates with our safety programs, and actively controlling the cost of health care. We had favorable adjustments to our prior year workers’ compensation self-insurance reserves of $19.2 million or 1.0% of revenue for the year ended December 31, 2017 was 25.3%,27, 2020, compared to 24.7%$21.7 million, or 0.9% of revenue for the prior year. Continued favorable adjustments to our prior year ended January 1, 2017. The increase was primarily dueworkers’ compensation liabilities are dependent on our ability to favorable mix with less PeopleManagement revenue fromcontinue to lower accident rates and claim costs. For additional discussion regarding our former largest customer, which carries a lower gross margin thanworkers’ compensation liability, see the blended average,“Workers’ compensation insurance, collateral and additional efficiency gains in the sourcingclaims reserves” section within Liquidity and recruiting activities of PeopleScout as growth has accelerated.Capital Resources.
Selling, general and administrative expense
SG&A expense was as follows:
| | | | | | | | |
| |
| (in thousands, except percentages) | 2020 | 2019 |
| Selling, general and administrative expense | $ | 408,307 | | $ | 516,220 | |
| Percentage of revenue | 22.1 | % | 21.8 | % |
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2017 | 2016 |
| Selling, general and administrative expense | $ | 510,794 |
| $ | 546,477 |
|
| Percentage of revenue | 20.4 | % | 19.9 | % |
Total company SG&A expense decreased by $36$108.0 million to $511$408.3 million, or 22.1% of revenue for the year ended December 31, 2017,27, 2020, compared to $516.2 million, or 21.8% of revenue for the year ended January 1, 2017.prior year. The nine fewer daysdecrease in fiscal 2017 represented $8 million of the decrease. Additionally, fiscal 2016 included $7 million of integration costs to fully integrate the RPO business of Aon Hewitt into the PeopleScout service line and $6 million in costs incurred to exit the delivery business of our former largest customer and certain other realignment costs. The remaining decrease of $15 millionSG&A expense was primarily due to cost control programs commencingcomprehensive actions we put in the prior year, which have continuedplace beginning in the current year.
Total companyApril 2020 to dramatically reduce costs in response to rapidly changing market conditions due to COVID-19. These actions reduced SG&A expense as a percentage of revenue increased to 20.4%by 20.9% for the year ended December 31, 2017,27, 2020, compared to the prior year. We believe we have taken the right actions to reduce SG&A expense, while still investing in technology and preserving the key strengths of our business to ensure we are prepared as business conditions improve. The decrease in SG&A expense benefited from 19.9%$8.6 million in employee retention subsidies made available under the Canada Emergency Wage Subsidy and Australian JobKeeper subsidy, as well as a U.S. payroll tax credit in accordance with the provisions of the CARES Act. These reductions were partially offset by a $2.8 million one-time discretionary bonus rewarding our employees for their efforts in 2020, and $8.9 million in workforce reduction costs recorded in the year ended January 1, 2017, largely dueDecember 27, 2020, compared to $3.3 million in workforce reduction costs recorded in the decline in revenue outpacing the decline in expense.prior year.
Depreciation and amortization
Depreciation and amortization was as follows:
| | | | Years ended | |
| (in thousands, except percentages) | 2017 | 2016 | (in thousands, except percentages) | 2020 | 2019 |
| Depreciation and amortization | $ | 46,115 |
| $ | 46,692 |
| Depreciation and amortization | $ | 32,031 | | $ | 37,549 | |
| Percentage of revenue | 1.8 | % | 1.7 | % | Percentage of revenue | 1.7 | % | 1.6 | % |
Depreciation increasedand amortization decreased primarily due to investments designedthe impairment to further improve our efficiencyacquired client relationships intangible assets of $34.7 million in the first quarter of 2020 and effectivenessseveral intangible assets that were fully amortized in recruiting and retaining our contingent workers, and attracting and retaining customers,the second half of 2019, which was more than offset byresulted in a decline in amortization expense for the year ended December 31, 2017, due to the intangible asset impairment in the prior year.27, 2020.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
Goodwill and intangible asset impairment charge
TheA summary of the goodwill and intangible asset impairment charge for the year ended December 27, 2020 by reportable segment is as follows:
| | | | | | | | | | | | |
| (in thousands) | | PeopleManagement | PeopleScout | Total company |
| Goodwill | | $ | 45,901 | | $ | 94,588 | | $ | 140,489 | |
| Client relationships | | 9,700 | | 25,000 | | 34,700 | |
| Total | | $ | 55,601 | | $ | 119,588 | | $ | 175,189 | |
We experienced a significant decline in our stock price during the first quarter of 2020. As a result of the decline in stock price, our market capitalization fell significantly below the recorded value of our consolidated net assets. The reduced market capitalization reflected the expected continued weakness in pricing and demand for our services in an uncertain economic climate that was further impacted in March 2020 by COVID-19, which created a sudden global economic shock. Most industries we serve were impacted by a significant decrease in demand for their products and services and, as a result, we experienced a significant drop in client demand associated with government and societal actions taken to address COVID-19. We experienced significant decreases to our revenue and corresponding operating results due to weakness in pricing and demand for our services during the severe economic downturn. While demand is expected to recover in the prior year was primarily drivenfuture, the rate of recovery will vary by geography and industry depending on the economic impact caused by COVID-19 and the availability and efficacy of the COVID-19 vaccines.
As a changeresult of our interim impairment test in the scopefirst quarter of 2020, we concluded that the carrying amounts of goodwill for PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units exceeded their implied fair values and we recorded a non-cash impairment charge of $140.5 million. The total goodwill carrying value of $45.9 million for PeopleManagement On-Site reporting unit was fully impaired. The goodwill impairment charge for PeopleScout RPO and PeopleScout MSP was $92.2 million and $2.4 million, respectively. The remaining goodwill balances for PeopleScout RPO and PeopleScout MSP were $23.6 million and $9.7 million, respectively, as of December 27, 2020.
With the decrease in demand for our services withdue to the economic impact caused by COVID-19, we lowered our former largest customerfuture expectations, which was the primary trigger of an impairment to our acquired client relationships intangible assets for our PeopleScout RPO and other changesPeopleManagement On-Site reporting units of $34.7 million in our outlook reflecting changes in economicthe first quarter of 2020. The remaining client relationship intangible asset balances related to assets impaired for PeopleScout RPO and industry conditions.PeopleManagement On-Site were $5.1 million and $7.2 million, respectively, as of December 27, 2020.
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
Income taxes
The income tax expense (benefit) and the effective income tax rate were as follows:
|
| | | | | | |
| Years ended |
| (in thousands, except percentages) | 2017 | 2016 |
| Income tax expense (benefit) | $ | 22,094 |
| $ | (5,089 | ) |
| Effective income tax rate | 28.5 | % | 25.0 | % |
Our effective tax rate for the years ended December 31, 2017 and January 1, 2017 was 28.5% and 25.0%, respectively. We recognized discrete tax benefits from prior years hiring credits of $1 million for the year ended December 31, 2017, compared to $6 million for the year ended January 1, 2017.
As a result of the Tax Act, we recognized $2 million of additional tax expense from a one-time transition tax on deemed repatriated earnings of foreign subsidiaries and from the revaluation of net deferred tax assets to reflect the federal tax rate reduction from 35.0% to 21.0%. Upon completion of our fiscal 2017 U.S. income tax return in 2018, we may identify adjustments to our recorded transition tax and remeasurement of our net deferred tax assets. We will continue to assess our provision for income taxes as future guidance is issued, but do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act. | | | | | | | | |
| |
| (in thousands, except percentages) | 2020 | 2019 |
| Income tax expense (benefit) | $ | (31,421) | | $ | 6,971 | |
| Effective income tax rate | 18.1 | % | 10.0 | % |
Our tax provision and our effective tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss by jurisdiction, tax credits, government audit developments, changes in law,laws, regulations and administrative practices, and relative changes of expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income. For example, the impact of tax credits and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower. We do not provide
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
Our effective tax rate for deferred income taxes on undistributed earnings of our foreign subsidiaries because we consider those earningsthe year ended December 27, 2020 was 18.1% compared to be permanently invested outside of10.0% for the United States.
A significant driver ofprior year. Significant fluctuations in our effective rate are primarily due to the non-deductible goodwill and intangible asset impairment charge, the CARES Act and WOTC. Other differences between the statutory federal income tax rate result from state and foreign income taxes, certain other non-deductible and non-taxable items, tax exempt interest, and the tax effects of stock-based compensation. Changes to our effective tax rate are as follows:
| | | | | | | | | | | | | | |
| |
| (in thousands, except percentages) | 2020 | % | 2019 | % |
| Income tax expense (benefit) based on statutory rate | $ | (36,385) | | 21.0 | % | $ | 14,709 | | 21.0 | % |
| Increase (decrease) resulting from: | | | | |
| State income taxes, net of federal benefit | (6,631) | | 3.8 | | 3,666 | | 5.3 | |
| Job and other tax credits, net | (7,719) | | 4.5 | | (13,627) | | (19.4) | |
| Benefit from the CARES Act | (2,939) | | 1.7 | | — | | — | |
| Non-deductible goodwill impairment charge | 21,849 | | (12.6) | | — | | — | |
| Non-deductible and non-taxable items | 124 | | (0.1) | | 1,559 | | 2.2 | |
| Foreign taxes | (977) | | 0.5 | | 282 | | 0.4 | |
| Other, net | 1,257 | | (0.7) | | 382 | | 0.5 | |
| Total tax expense (benefit) | $ | (31,421) | | 18.1 | % | $ | 6,971 | | 10.0 | % |
The non-cash goodwill and intangible asset impairment charge of $175.2 million, recorded in the first quarter of 2020, includes $84.7 million (tax effect of $21.8 million) related to reporting units from stock acquisitions and accordingly are not deductible for tax purposes. The remaining impairment charge of $90.5 million (tax effect of $23.3 million) is related to reporting units from asset acquisitions and accordingly is deductible for tax purposes.
On March 27, 2020, the Work Opportunity Tax Credit (“WOTC”)CARES Act was enacted in the U.S. The CARES Act is an emergency economic aid package to help mitigate the impact of COVID-19. Among other things, the CARES Act provides certain changes to tax laws, including the ability to carry back current year losses to obtain refunds related to prior year tax returns with a higher federal tax rate of 35%.
WOTC is designed to encourage hiring ofemployers to hire workers from certain disadvantaged targeted categories, andgroups with higher than average unemployment rates. WOTC is generally calculated as a percentage of wages over a twelve monthtwelve-month period up to worker maximummaximums by targeted category.groups. 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 workersassociates qualify for one or more of the many targeted categories;groups; 2) the targeted categoriesgroups 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 additionaladjust prior year hiring credits if credits in excess of originalit becomes clear that our estimates have been certified by government offices.need revision. Congress extended the WOTC was restoredprogram through December 31, 2019,2025 as a result of the Protecting Americans from Tax HikesConsolidated Appropriations Act of 2015, signed into law on December 18, 2015.2021.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affect fiscal 2017, including, but not limited to, requiring a one-time transition tax on deemed repatriated earnings of foreign subsidiaries (payable over eight years) and the revaluation of net deferred tax assets to reflect the federal tax rate reduction from 35.0% to 21.0%.
ChangesSee Note 13: Income Taxes, to our effective tax rate as a resultconsolidated financial statements found in Item 8 of hiring credits, impairment and the Tax Act were as follows:this Annual Report on Form 10-K, for additional information.
|
| | | | |
| | Years ended |
| | 2017 | 2016 |
| Effective income tax rate without adjustments below | 38.1 | % | 40.5 | % |
Hiring credits estimate from current year wages | (10.9 | )% | (14.4 | )% |
| Additional hiring credits from prior year wages | (1.9 | )% | (7.6 | )% |
| Transition to the U.S. Tax Cuts and Jobs Act | 3.2 | % | — | % |
| Goodwill and intangible asset impairment impact | — | % | 6.5 | % |
| Effective income tax rate | 28.5 | % | 25.0 | % |
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
Segment performance
We realigned our reporting structure in the fourth quarter of fiscal 2016 to streamline our operationsevaluate performance based on segment revenue and make it easier for our customers to leverage our total workforce solution by using both our contingent work and permanent placement services. We now report our business as three distinct segments. Our former Staffing Services reportable segment was separated into two reportable segments, PeopleReady and PeopleManagement, and our former Managed Services reportable segment was renamed PeopleScout. In addition, we changed our methodology for allocating certain corporate costs to our segments, which decreased our corporate unallocated expenses. The 2015 amounts have been recast to reflect this change for consistency.
A primary measure of segment performance, evaluated by our chief operating decision-maker, to determine resource allocation and assess performance is segment earnings before interest, taxes, depreciation and amortization (“segment EBITDA”).profit. Segment EBITDAprofit includes net sales to third parties,revenue, related cost of sales, selling, generalservices, and administrative expense, and goodwill and intangible impairment chargesongoing operating expenses directly attributable to the reportable segment together with certain allocated corporate generalsegment. Segment profit excludes goodwill and administrative expense. Segment EBITDA excludesintangible asset impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense.expense, interest expense, other income and expense, income taxes, and other adjustments not considered to be ongoing. See Note 16: 15: Segment Information, to our Consolidated Financial Statementsconsolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details ofon our service lines and reportable segments, as well as a reconciliation of segment EBITDAprofit to income (loss) before tax expense.
Segment EBITDAprofit should not be considered a measure of financial performance in isolation or as an alternative to net income (loss) in the Consolidated Statements of Operations and Comprehensive Income (Loss) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and may not be comparable to similarly titled measures of other companies.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
PeopleReadysegment performance was as follows:
| | | | Years ended | |
| (in thousands, except percentages) | 2017 | 2016 | (in thousands, except percentages) | 2020 | 2019 |
| Revenue from services | $ | 1,511,360 |
| $ | 1,629,455 |
| Revenue from services | $ | 1,099,462 | | $ | 1,474,062 | |
| Segment EBITDA | 78,372 |
| 101,270 |
| |
| Segment profit | | Segment profit | $ | 43,200 | | $ | 82,106 | |
| Percentage of revenue | 5.2 | % | 6.2 | % | Percentage of revenue | 3.9 | % | 5.6 | % |
PeopleReady segment EBITDA decreased to $78 million, or 5.2% of revenue for the year ended December 31, 2017, compared to $101 million, or 6.2% of revenue in the year ended January 1, 2017. The revenue decline outpaced the cost control programs primarily due to the de-leveraging effect associated with the fixed costs in a branch network. Through disciplined pricing, we have passed through increased costs for minimum wages, payroll taxes and benefits, together with higher contingent worker wages in a tightening labor market, as well as most of our standard markup on these costs. With the decline in revenue, we put in place cost control programs commencing in the prior year, which continue in the current year, and have reduced SG&A costs in line with our plans.
PeopleManagementsegment performance was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2017 | 2016 |
| Revenue from services | $ | 807,273 |
| $ | 940,453 |
|
| Segment EBITDA | 27,043 |
| (60,452 | ) |
| Percentage of revenue | 3.3 | % | (6.4 | )% |
PeopleManagement segment EBITDA increased to $27 million, or 3.3% of revenue for the year ended December 31, 2017, compared to a loss of $60 million, or 6.4% of revenue in the year ended January 1, 2017. The loss of $60 million for the year ended January 1, 2017 included a goodwill and intangible asset impairment charge of $84 million primarily driven by a change in the scope of services with our former largest customer. Excluding the goodwill and intangible asset impairment charge, segment EBITDA as a percentage of revenue improved by 0.8% for the year ended December 31, 2017. This improvement in segment EBITDA as a percentage of revenue was primarily due to a more favorable mix of less revenue from our former largest customer which carried a lower gross margin than our blended average, and the results of a cost reduction program. Revenue from our former largest customerprofit declined by $118 million, or 68.8% to $53$38.9 million for the year ended December 31, 2017,27, 2020, compared to the prior year. The revenue decline was primarily due to the decrease in client demand associated with government and societal actions taken to address COVID-19. The decline in demand, as well as increased price sensitivity, increased associate wages, and preventive measures taken to help curb the spread of COVID-19 had severe adverse impacts on our segment profit and our segment profit as a percent of revenue. The decline in segment profit was partially offset by the decisive and comprehensive cuts to SG&A expense in line with management’s plans to preserve the key strengths of our business.
We believe our revenue decline was partially offset by the use of our industry-leading JobStack mobile app that digitally connects associates with jobs. JobStack is helping us safely connect people with work during this time of crisis.
PeopleManagementsegment performance was as follows:
| | | | | | | | |
| |
| (in thousands, except percentages) | 2020 | 2019 |
| Revenue from services | $ | 586,822 | | $ | 642,233 | |
| Segment profit | $ | 11,717 | | $ | 12,593 | |
| Percentage of revenue | 2.0 | % | 2.0 | % |
PeopleManagement segment profit declined $0.9 million for the year ended January 1, 2017.December 27, 2020, compared to the prior year. The revenue decline was primarily due to the decrease in demand from our clients associated with government and societal actions taken to address COVID-19. The decline in demand, as well as increased price sensitivity, higher pay rates necessary to attract employees given the availability of federal unemployment benefits, and preventive measures taken to help curb the spread of COVID-19 had adverse impacts on our segment profit. The decline in segment profit was partially offset by the decisive and comprehensive cuts to SG&A expense in line with management’s plans to preserve the key strengths of our business.
PeopleScoutsegment performance was as follows:
| | | | | | | | |
| |
| (in thousands, except percentages) | 2020 | 2019 |
| Revenue from services | $ | 160,076 | | $ | 252,484 | |
| Segment profit | $ | 4,525 | | $ | 37,831 | |
| Percentage of revenue | 2.8 | % | 15.0 | % |
PeopleScout segment profit declined $33.3 million for the year ended December 27, 2020, compared to the prior year. The decline in segment profit was primarily due to a decline in demand from our clients associated with government and societal actions taken to address COVID-19. PeopleScout clients in the travel and leisure industries were especially impacted. These clients, which represented approximately 29% of the client mix for the year ended December 29, 2019, were disproportionately impacted and experienced a 61.0% decrease in revenue compared to the prior year. Due to the decline in revenue, we took actions to reduce the cost of our service delivery which lagged the rapid revenue decline caused by the disruption of COVID-19 and negatively impacted our segment profit and our segment profit as a percent of revenue. The decline in segment profit was partially offset by our cost reduction programs, which have reduced SG&A expense in line with our plans.
FISCAL 2019 AS COMPARED TO FISCAL 2018
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, found in Part II of the Annual Report on Form 10-K for the fiscal year ended December 29, 2019 for discussion of fiscal 2019 compared to fiscal 2018.
| | | | | | | | |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
FUTURE OUTLOOK
PeopleScoutsegment performance was as follows:The global economy and our business have been dramatically affected by COVID-19. To date, COVID-19 has surfaced all around the world and resulted in country-level quarantines, global travel restrictions and broad-based economic slowdowns. There are no reliable estimates of how long the pandemic will last, how people will be affected by it, or how rapidly people are vaccinated. For that reason, it is difficult to predict the short- and long-term impacts of the pandemic on our business at this time. Due to the uncertainty surrounding COVID-19 and its impact on the business environment, we have limited visibility into our financial condition, results of operations and cash flows in the future. However, we are providing the following future outlook for fiscal 2021.
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2017 | 2016 |
| Revenue from services | $ | 190,138 |
| $ | 180,732 |
|
| Segment EBITDA | 39,232 |
| 19,116 |
|
| Percentage of revenue | 20.6 | % | 10.6 | % |
PeopleScout segment EBITDA increased•We anticipate gross margin to $39 million, or 20.6%decline between 290 and 250 basis points in the first quarter of revenue for the year ended December 31, 2017,2021, compared to $19 million, or 10.6%the same period in the prior year. This decline includes a 130 basis point benefit we received in the first quarter of revenue for the year ended January 1, 2017.2020 (30 basis points annualized) from a reduction in estimated health care benefits costs, which was accrued in prior fiscal years. The increase wasremaining decline is primarily due to bill and pay rate pressures. For fiscal 2021, we anticipate gross margin to decline between 50 and 10 basis points, compared to the goodwillsame period in the prior year. This is primarily due to bill and intangible asset impairment chargepay rate pressure which we expect to moderate over the course of $152021 and the reduction in estimated health care benefits costs previously mentioned, partially offset by improving PeopleScout volumes.
•In April 2020, we took steps to reduce our operating cost structure and other cash outflows to preserve cash to fund working capital needs. We expect these actions will have the effect of reducing our operating expenses by $13 million to $17 million in the year ended January 1, 2017. Excluding the goodwill and intangible asset impairment charge, segment EBITDA as a percentagefirst quarter of revenue was 19.0% for the year ended January 1, 2017. The improved performance was due primarily to new client wins and expanding the scope of services with existing customers together with efficiency gains in sourcing and recruiting activities.
FISCAL 2016 AS COMPARED TO FISCAL 2015
Revenue from services
Revenue from services by reportable segment was as follows:
|
| | | | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | Growth (decline) % | 2015 |
| Revenue from services: | | | |
| PeopleReady | $ | 1,629,455 |
| 0.2 | % | $ | 1,625,817 |
|
| PeopleManagement | 940,453 |
| (2.6 | )% | 965,331 |
|
| PeopleScout | 180,732 |
| 72.9 | % | 104,532 |
|
| Total company | $ | 2,750,640 |
| 2.0 | % | $ | 2,695,680 |
|
Total company revenue grew to $2.8 billion for the year ended January 1, 2017, a 2.0% increase2021, compared to the same period in the prior year, while preserving the key strengths of our business to ensure we are prepared when business conditions improve. As the demand environment begins to improve, we will slowly and thoughtfully bring back spending that is critical for the long-term health and sustainability of our business.
•We expect an effective income tax rate for full year 2021, before job tax credits, of 23% to 27%. We expect job tax credits of $8 million to $10 million. Our effective tax rate can be more or less volatile based on the amount of pre-tax income. For example, the impact of tax credits and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.
Liquidity outlook
•Capital expenditures for the first quarter of 2021 will be approximately $16 million. This includes $8 million of build out costs planned for our Chicago support center, of which $6 million will be reimbursed by our landlord and reflected in our operating cash flows. Capital expenditures for fiscal 2021 are expected to be between $37 million and $41 million. This includes $10 million of build out costs planned for our Chicago support center, of which $7 million will be reimbursed by our landlord and reflected in our operating cash flows. We remain committed to technological innovation to transform our business for a digital future. We continue to make investments in online and mobile apps to improve access to associates and candidates, as well as improve the speed and ease of connecting our clients and associates for our staffing businesses, and candidates for our RPO business. We expect these investments will increase the competitive differentiation of our services over the long-term, improve the efficiency of our service delivery, and reduce PeopleReady’s dependence on local branches to find associates and connect them with work. Examples include PeopleReady’s JobStack mobile app and PeopleScout’s Affinix talent acquisition technology.
•We expect our Revolving Credit Facility and strong financial position to provide ample liquidity. At December 27, 2020, we had cash and cash equivalents of $63 million and no outstanding balance drawn on our Revolving Credit Facility, resulting in $161 million available for future borrowings based on our most restrictive covenant. We have an option to increase the total line of credit amount from $300 million to $450 million, subject to bank approval.
•During fiscal 2020, we generated a cash flow benefit from delayed payroll tax payments under the CARES Act of $57 million. We plan to take advantage of favorable net operating loss carryback provisions in the CARES Act by repaying this benefit in the third quarter of 2021.
•We had a significant reduction in our accounts receivable balance of $57 million for fiscal 2020 primarily due to increasedlower revenue caused from acquisitions offset by decreased revenuea decline in demand for our services from our largest customer, Amazon.
For the year ended January 1, 2017, the acquisition of SIMOS contributed $145 million in revenue through November 2016, the one year anniversary of the acquisition, or 5.4% of revenue growth, compared to the prior year, and the acquisition of the RPO business of Aon Hewitt contributed $67 million in revenue, or 2.5% of revenue growth, compared to the prior year. Excluding revenue from acquisitions, organic revenue decreased by approximately $157 million, or 5.8% for the year ended January 1, 2017,COVID-19, as compared to the prior year. Thewell as a 7% decrease in organic revenue was primarilydays sales outstanding due to our former largest customer substantially insourcing the recruitmentfocused collection efforts. These efforts resulted in a substantial source of cash in 2020, but will become a cash use as revenue recovers in future periods and management of contingent labor for its warehouse fulfillment centers and distribution sites in the United States. Revenue from our former largest customer declined by $183 million, or 51.7% for the year ended January 1, 2017. Excluding this customer, organic revenue increased by 1.1% and, excluding the nine additional days of fiscal 2016, was essentially unchanged from the prior year.
Demand for our temporary and permanent staffing services is largely dependent upon general economic and labor trends. Correspondingly, financial results for the year ended January 1, 2017 were negatively impacted by soft economic growth with mixed results by industry.
PeopleReady
Revenue grew to $1.6 billion for the year ended January 1, 2017, a 0.2% increase compared to the prior year or 1.0% decline excluding the nine additional days of fiscal 2016. Revenue trends softened in 2016 across all geographies. However, we saw some improvement during the latter part of 2016. Revenue trends were also mixed across the industries we serve. Modest revenue growth for our small to medium-sized customers was more than offset by declining revenue trends for our larger national customers. Growth in residential construction and hospitality industries was more than offset by declines in retail, commercial construction, energy, manufacturing and service-based industries. Caution over the sluggish economy persisted across many of the industries we serve.
fund increasing accounts receivable.
| | | | | | | | |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
LIQUIDITY AND CAPITAL RESOURCES
PeopleManagementLIQUIDITY
Revenue declined | | | | | | | | |
| |
| (in thousands) | 2020 | 2019 |
| Net income (loss) | $ | (141,841) | | $ | 63,073 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | |
| Depreciation and amortization | 32,031 | | 37,549 | |
| Goodwill and intangible asset impairment charge | 175,189 | | — | |
| Provision for doubtful accounts | 6,300 | | 7,661 | |
| Stock-based compensation | 9,113 | | 9,769 | |
| Deferred income taxes | (26,791) | | 1,263 | |
| Non-cash lease expense, net of changes in operating lease liabilities | 633 | | (355) | |
| Other operating activities | (686) | | (1,589) | |
| Changes in operating assets and liabilities, net of amounts divested: | | |
| Accounts receivable | 57,146 | | 5,450 | |
| Income tax receivable | (1,122) | | (6,480) | |
| Accounts payable and other accrued expenses | (6,561) | | 6,921 | |
| Accrued wages and benefits | 55,053 | | (9,494) | |
| Workers’ compensation claims reserve | (125) | | (10,828) | |
| Other assets and liabilities | (5,808) | | (9,409) | |
| Net cash provided by operating activities | $ | 152,531 | | $ | 93,531 | |
Cash flows from operating activities
Net cash provided by operating activities increased to $940$152.5 million for the year ended January 1, 2017, a 2.6% decreaseDecember 27, 2020, compared to $93.5 million for the prior year, or a declineyear.
Changes to adjustments to reconcile net income (loss) to net cash provided by operating activities were primarily due to:
•Depreciation and amortization decreased primarily due to the impairment to our acquired client relationships intangible assets for our PeopleScout RPO and PeopleManagement On-Site reporting units of 3.8% excluding the nine additional days of fiscal 2016. Effective December 1, 2015, we acquired SIMOS which contributed $145$34.7 million in revenue through November 2016, the one year anniversaryfirst quarter of the acquisition, for the fiscal year 2016. The increase from the SIMOS acquisition was more than offset by decreased revenue from our largest customer, which substantially insourced the recruitment2020, and management of contingent labor for its warehouse fulfillment centers and distribution sitesseveral intangible assets that became fully amortized in the United States. Revenue from our former largest customer declined by $183 million or 51.7%2019.
•Net loss for the year ended January 1, 2017, comparedDecember 27, 2020 includes a non-cash goodwill and intangible asset impairment charge of $175.2 million ($151.9 million after tax). The charge was a result of the adverse impact on expected future cash flows related to the prior year. Excluding this customer, organic revenue increased by 2.1% and, excluding the nine additional days of fiscal 2016, was essentially unchanged from the prior year. Organic revenue trends improved in the latter partcurrent state of the year with modest increases in demand from existing customerseconomy and the additionimpact of new customers.COVID-19. The charge does not impact the company’s current cash, liquidity, or banking covenants.
PeopleScout
Revenue•Deferred tax assets increased to $181 million for the year ended January 1, 2017, a 72.9% increase compared to the prior year. The increase is primarily due to the$23.3 million of discrete tax benefit resulting from goodwill and intangible asset impairment charges. Impairment charges related to goodwill and intangible assets acquired in an asset acquisition are deductible for tax purposes.
Changes to operating assets and liabilities were primarily due to:
•Cash provided by accounts receivable of the RPO business of Aon Hewitt, which contributed $67$57.1 million was due to lower revenue from a decline in revenue, or 63.6% ofdemand for our revenue growth for the year ended January 1, 2017. Organic revenue grew 9.3%, or 8.1% excluding the nine additional days of fiscal 2016. The organic revenue growth was driven primarily by winning new customers. Revenue growth from existing customers was mixed. We experienced growing demand in a tightening labor market for outsourced recruiting services, for permanent positions for certain customers and industries. This was partially offset by reduced demand from some existing customers and their continued caution in a sluggish economy.
Gross profit
Gross profit was as follows: |
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | 2015 |
| Gross profit | $ | 679,718 |
| $ | 635,673 |
|
| Percentage of revenue | 24.7 | % | 23.6 | % |
Total company gross profitwell as a percentage7% decrease in days sales outstanding due to focused collection efforts.
•Cash used for accounts payable and accrued expenses of revenue for$6.6 million was primarily due to cost control programs, a decline in customer rebates and timing of payments. The cost control programs were implemented in response to the year ended January 1, 2017 was 24.7%, comparedeconomic impact of COVID-19. Customer rebates have declined significantly due to 23.6% in the prior year. The increaseclients not meeting rebate volume thresholds as a result of 1.1% was due primarily to the impact of the acquired SIMOS and Aon Hewitt RPO businesses of 0.6%, which carried higher gross margins in comparison to our blended company average, and the positive impact of a revenue mix change of 0.6% largely drivenCOVID-19 on their businesses.
•Cash provided by the decline in revenue from our former largest customer which carries a lower gross margin than our blended average. This increase was partially offset by a resistance from our customers for contingent staffing services to accept price increases beyond the increases caused by increasing minimumaccrued wages and benefits in a sluggish economyof $55.1 million was primarily due to delayed payments for the employer portion of social security taxes incurred between March 27, 2020 and higherDecember 31, 2020, for both our temporary worker wagesassociates and permanent employees, which is allowed under the CARES Act. We plan to pay the deferred amount by September 15, 2021.
| | | | | | | | |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
•Generally, our workers’ compensation claims reserve for estimated claims decreases as contingent labor services decline, as is the case in a tightening labor market. Through disciplined pricing, we have made continuous progress throughout the current year in reducing gross margin compression and passing through our normal markup on increased statutory costs in higher bill rates.
Workers’ compensation expense as a percentage of revenue was 3.4% for the year ended January 1, 2017, compared to 3.6% in the prior year. Our continuous efforts to actively manage theworker safety of our temporary workers with our safety programs and control increasing costs with our network of workers’ compensation service providers have had a positive impact and have created favorable adjustments to our workers’ compensation liabilities recorded in prior periods. Continued favorable adjustments to our prior year workers’ compensation liabilities are dependent on our ability to continue to lower accident rates and claim costs. However,
Cash flows from investing activities
| | | | | | | | |
| |
| (in thousands) | 2020 | 2019 |
| Capital expenditures | $ | (27,066) | | $ | (28,119) | |
| Acquisition of business, net of divestiture of business | — | | 215 | |
| Purchases and sales of restricted investments, net | (7,345) | | 6,273 | |
| Net cash used in investing activities | $ | (34,411) | | $ | (21,631) | |
Net cash used in line with our expectations, we are experiencing diminishing favorable adjustments to our workers’ compensation liabilities as the opportunity for significant reduction to frequency and severity of accident rates diminishes.
Selling, general and administrative expense
SG&A expenseinvesting activities was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | 2015 |
| Selling, general and administrative expense | $ | 546,477 |
| $ | 495,988 |
|
| Percentage of revenue | 19.9 | % | 18.4 | % |
|
| | |
MANAGEMENT'S DISCUSSION AND ANALYSIS |
SG&A expense increased by $50 million to $546$34.4 million for the year ended January 1, 2017,December 27, 2020, compared to the prior year. The increase includes expenses related to the acquired operations of SIMOS and the RPO business of Aon Hewitt of approximately $38 million, as well as an increase in incremental acquisition and integration costs of $2 million to fully integrate the RPO business of Aon Hewitt into the PeopleScout service line in the current year. Excluding the impact of these acquisitions, organic SG&A expense increased by $10 million, or approximately $3 million excluding the nine additional days of fiscal 2016. The increase included approximately $6 million of costs incurred to exit the delivery business of our former largest customer and certain other realignment costs. With the slowdown in current year growth we put cost control programs in place during the first quarter of 2016 and expanded those programs in subsequent quarters as the sluggish economy persisted and revenues declined from our former largest customer as they substantially insourced the recruitment and management of contingent labor. We have reduced costs in line with our plans.
SG&A expense as a percentage of revenue increased to 19.9% for the year ended January 1, 2017 from 18.4%, compared to the prior year. The cost control programs which commenced in the first quarter and expanded in subsequent quarters have progressively reduced SG&A expense as a percentage of revenue throughout the year. However, continued organic revenue declines outpaced the decline in operating expenses. We will continue to monitor and manage our SG&A costs in the current environment of sluggish growth.
Depreciation and amortization
Depreciation and amortization was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | 2015 |
| Depreciation and amortization | $ | 46,692 |
| $ | 41,843 |
|
| Percentage of revenue | 1.7 | % | 1.6 | % |
Depreciation and amortization increased $5 million to $47$21.6 million for the year ended January 1, 2017,prior year.
Capital expenditures are primarily due to the amortization of acquired finite-lived intangible assets of $8 millionour continued investment in connection with the acquisitions of SIMOS and the RPO business of Aon Hewitt. This was partially offset by reduced amortization due primarily to the intangible asset impairment in fiscal 2016.
Goodwill and intangible asset impairment charge
The goodwill and intangible asset impairment charge of $104 million for the year ended January 1, 2017 includes a non-cash goodwill and intangible asset impairment charge of $99 million recognized in the second quarter of 2016.software technology. We test goodwill and indefinite-lived intangible assets for impairment annually on the first day of our second quarter and whenever events or circumstances arise that indicate an impairment may exist, such as the loss of key customers and adverse industry and economic conditions.
The impairment was primarily driven by a change in the scope of services with our largest customer, as we reported in April 2016, of $67 million, and also other changes in outlook reflecting recent economic and industry conditions of $32 million.
The impairment charge further includes a non-cash intangible trade name impairment charge of $4 million driven by a change to our branding in connection with the consolidation of our retail branch network service lines of Labor Ready, Spartan Staffing and CLP Resources under the PeopleReady brand name during the third quarter of 2016. See Summary of Critical Accounting Estimates for further discussion.
A summary of the goodwill and intangible asset impairment charges by service line is as follows:
|
| | | | | | | | | | | | |
| (in thousands) | Customer relationships | Trade name/trademarks | Goodwill | Total |
| Staff Management | $ | 28,900 |
| $ | 4,500 |
| $ | 33,700 |
| $ | 67,100 |
|
| PlaneTechs | — |
| — |
| 17,000 |
| 17,000 |
|
| hrX | — |
| — |
| 15,169 |
| 15,169 |
|
| Spartan Staffing and CLP Resources | — |
| 4,275 |
| — |
| 4,275 |
|
| Total non-cash impairment charges | $ | 28,900 |
| $ | 8,775 |
| $ | 65,869 |
| $ | 103,544 |
|
|
| | |
MANAGEMENT'S DISCUSSION AND ANALYSIS |
Note, our PeopleScout and hrX service lines were combined during fiscal 2016 and now represent a single operating segment (PeopleScout).
Income taxes
The income tax expense and the effective income tax rate were as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | 2015 |
| Income tax expense (benefit) | $ | (5,089 | ) | $ | 25,200 |
|
| Effective income tax rate | 25.0 | % | 26.1 | % |
Our effective tax rate for the year ended January 1, 2017 was 25.0%, which is calculated with a goodwill and intangible asset impairment charge. Excluding this impairment charge, our effective tax rate would have been 18.5%, as compared to 26.1% in prior year, primarily because of increased tax rate benefit from WOTC.
Changes to our effective tax rate as a result of hiring credits and impairment were as follows:
|
| | | | |
| | Years ended |
| | 2016 | 2015 |
| Effective income tax rate without hiring credits or impairment | 40.5 | % | 41.6 | % |
Hiring credits estimate from current year wages | (14.4 | )% | (10.5 | )% |
| Additional hiring credits from prior year wages | (7.6 | )% | (5.0 | )% |
| Goodwill and intangible asset impairment impact | 6.5 | % | — | % |
| Effective income tax rate | 25.0 | % | 26.1 | % |
Segment performance
PeopleReadysegment performance was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | 2015 |
| Revenue from services | $ | 1,629,455 |
| $ | 1,625,817 |
|
| Segment EBITDA | 101,270 |
| 123,899 |
|
| Percentage of revenue | 6.2 | % | 7.6 | % |
PeopleReady segment EBITDA decreased to $101 million, or 6.2% of revenue for the year ended January 1, 2017, compared to $124 million, or 7.6% of revenue in the prior year. Segment EBITDA included a non-cash goodwill and intangible asset impairment charge of $4 million for the year ended January 1, 2017 driven by a change to our branding in connection with the consolidation of our retail branch network service lines of Labor Ready, Spartan Staffing and CLP Resources. Excluding the goodwill and intangible asset impairment charge, segment EBITDA decreased to 6.5% of revenue for the year ended January 1, 2017, compared to 7.6% of revenue in the prior year due to gross margin compression and the de-leveraging effect associated with the fixed costs in a branch network partially offset by cost control programs. Gross margin compression was caused by resistance from our customers to accept price increases beyond the increases caused by increasing minimum wages and benefits in a sluggish economy and higher contingent worker wages in a tightening labor market. Through disciplined pricing, we have made continuous progress throughout the current year in successfully passing through our normal markup on increased statutory costs in higher bill rates. Due to the current year slowdown in revenue growth, we curtailed investments made in the prior year in selling and recruiting resources to fuel revenue growth and commenced cost control programs in the first quarter of 2016 and expanded those programs in subsequent quarters as the sluggish economy persisted. We have reduced SG&A costs in line with our plans and have generated progressively improving operating income margins during the course of the year. We will continue to closely monitor and manage our SG&A costs in the current environment.
|
| | |
MANAGEMENT'S DISCUSSION AND ANALYSIS |
PeopleManagementsegment performance was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | 2015 |
| Revenue from services | $ | 940,453 |
| $ | 965,331 |
|
| Segment EBITDA | (60,452 | ) | 36,512 |
|
| Percentage of revenue | (6.4 | )% | 3.8 | % |
PeopleManagement segment EBITDA decreased to a loss of $60 million for the year ended January 1, 2017, compared to income of $37 million in the prior year. Segment EBITDA included a non-cash goodwill and intangible asset impairment charge of $84 million for the year ended January 1, 2017. The goodwill and intangible asset impairment charge was primarily driven by a change in the scope of services with our former largest customer reported in April 2016, for our Staff Management service line, as well as other changes in our future outlook, which reflect recent economic and industry conditions for our PlaneTechs service line.
Excluding the goodwill and intangible asset impairment charge, segment EBITDA decreased to 2.5% of revenue for the year ended January 1, 2017, compared to 3.8% for the prior year. The decrease was primarily due to the pace of revenue from our former largest customer slightly outpacing the decline in costs to support the wind down of our largest customer’s business as they substantially insourced the recruitment and management of contingent labor, as well as the de-leveraging effect associated with the fixed costs of centralized services. With the slowdown in current year growth, we put in place cost control programs and will continue to closely monitor and manage our SG&A costs in the current environment.
PeopleScoutsegment performance was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | 2015 |
| Revenue from services | $ | 180,732 |
| $ | 104,532 |
|
| Segment EBITDA | 19,116 |
| 9,324 |
|
| Percentage of revenue | 10.6 | % | 8.9 | % |
PeopleScout segment EBITDA of $19 million for the year ended January 1, 2017, is net of a non-cash goodwill and intangible asset impairment charge of $15 million, recorded in operating expenses in the second quarter of 2016.
Excluding the goodwill and intangible asset impairment charge, segment EBITDA increased to 19.0% of revenue for the year ended January 1, 2017, compared to 8.9% in the prior year. The increase was primarily due to the impact of productivity improvement programs and the acquired RPO business of Aon Hewitt. In addition, PeopleScout implemented programs to improve the productivity of our recruitment process and service delivery, which improved segment EBITDA as a percentage of revenue, as compared to the prior year. Further improvements to segment EBITDA as a percentage of revenue were due to the acquired RPO business of Aon Hewitt, which carried higher gross margins in comparison to our legacy blended PeopleScout average, combined business synergies, and lower cost of support activities provided by Aon Hewitt for the acquired operations during the transition year.
FUTURE OUTLOOK
We have limited visibility into future demand for our services. However, we believe there is value in providing highlights of our expectations for future financial performance. The following highlights represent our expectations regarding operating trends for fiscal 2018. These expectations are subject to revision as our business changes with the overall economy.
Our top priority remains to produce solid organic revenue and gross profit growth while leveraging our cost structure to increase income from operations as a percentage of revenue. Through disciplined pricing and management of increasing minimum wages, taxes and benefits, we expect to pass through the higher cost of our temporary workers.
We areremain committed to technological innovation to transform our business for a digital future that makes it easier for our customersclients to do business with us and easier to connect people to work. We continue making investments in online and mobile applicationsapps to improve access to associates and candidates, as well as improve the speed and ease of connecting our customersclients and workers.associates for our staffing businesses, and candidates for our RPO business. We expect these investments will increase the competitive differentiation of our services over the long-term, improve the efficiency of our service delivery, and reduce ourPeopleReady’s dependence on local branches to find temporary workersassociates and connect them with work. Examples include PeopleReady’s JobStack mobile app and PeopleScout’s Affinix talent acquisition technology.
PeopleScout is a recognized industry leader of RPO services, which are in the early stages of that industry’s adoption cycle. Due to the industry growth rate for RPO services, our market leading position, and our advances in technology, we expect the revenue growth of this business to exceed the growth of our other segments.
We estimate our historical effective income tax rate of 28% will decline to approximately 16% in fiscal 2018 and 2019 as a result of the Tax Act. The lower rate could extend beyond 2019 if Congress extends the WOTC. If the WOTC is not extended beyond 2019, we estimate our effective income tax rate will return to approximately 28%.
|
| | |
MANAGEMENT'S DISCUSSION AND ANALYSIS |
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Cash flows from operating activities
Our cash flows from operating activities were as follows:
|
| | | | | | | | | |
| Years ended |
| (in thousands) | 2017 | 2016 | 2015 |
| Net income (loss) | $ | 55,456 |
| $ | (15,251 | ) | $ | 71,247 |
|
| Adjustments to reconcile net income (loss) to net cash from operating activities: |
|
|
|
| |
| Depreciation and amortization | 46,115 |
| 46,692 |
| 41,843 |
|
| Goodwill and intangible asset impairment charge | — |
| 103,544 |
| — |
|
| Provision for doubtful accounts | 6,808 |
| 8,308 |
| 7,132 |
|
| Stock-based compensation | 7,744 |
| 9,363 |
| 11,103 |
|
| Deferred income taxes | 2,440 |
| (25,355 | ) | 5,176 |
|
| Other operating activities | 2,066 |
| 7,910 |
| 446 |
|
| Changes in operating assets and liabilities, net of effects of business acquisitions: |
|
| |
| Accounts receivable | (28,483 | ) | 112,785 |
| (89,474 | ) |
| Income tax receivable | 14,875 |
| 9,450 |
| (16,678 | ) |
| Accounts payable and other accrued expenses | (10,569 | ) | (4,101 | ) | 23,261 |
|
| Accrued wages and benefits | (2,888 | ) | (7,313 | ) | 12,203 |
|
| Workers’ compensation claims reserve | (1,048 | ) | 11,070 |
| 14,736 |
|
| Other assets and liabilities | 7,335 |
| 4,652 |
| (8,923 | ) |
| Net cash provided by operating activities | $ | 99,851 |
| $ | 261,754 |
| $ | 72,072 |
|
Fiscal 2017 as compared to fiscal 2016
Net cash provided by operating activities was $100 million for the year ended December 31, 2017, compared to $262 million for the same period in the prior year.
The goodwill and intangible asset impairment charge of $104 million in the prior year was primarily driven by a change in the scope of services with our former largest customer and the impact of other changes in economic and industry conditions which lowered future expectations. In addition, it includes a $4 million trade name impairment charge in connection with the consolidation of our retail branch network under a common brand name.
The change to deferred income taxes is due primarily to the goodwill and intangible asset impairment charge in the prior year, as well as the impact from the recently enacted Tax Act in the current year due to the revaluation of the company’s deferred income tax net assets as of December 31, 2017.
The increase in accounts receivable in the current year is primarily due to an increase in days sales outstanding caused by new customer onboarding in our PeopleScout segment, as well as our fourth quarter of fiscal 2017 mix of local and national customers in our PeopleReady segment shifting slightly toward national customers, which have a longer cash collection cycle. Accounts receivable for the prior year period declined primarily due to a decline in revenue and associated receivables from our former largest customer.
The decline in accounts payable and other accrued expenses is primarily due to cost control programs together with normal seasonal patterns and timing of payments.
Generally, our workers’ compensation claims reserve for estimated claims decreases as contingent labor services decline.
During fiscal 2017, we paid $23 million relating to the contingent consideration associated with our acquisition of SIMOS. The payment included $18 million related to the final purchase price fair value, which is reflected in cash flows used in financing activities. The remaining balance of $4 million is recognized in cash flows used in operating activities as a decrease in other assets and liabilities.
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
Fiscal 2016 as compared to fiscal 2015
Net cash provided by operating activities was $262 million for the year ended January 1, 2017, compared to $72 million for the same period in 2015.
Net loss of $15 million for the year ended January 1, 2017, includes a non-cash goodwill and intangible asset impairment charge of $82 million, net of tax. Excluding this charge, net income would have been $67 million.
The goodwill and intangible asset impairment charge of $104 million was primarily driven by a change in the scope of services with our former largest customer of $67 million, as well as other changes in our future outlook reflecting recent economic and industry conditions of $32 million. In addition, it includes a $4 million trade name impairment charge in connection with the consolidation of our retail branch network under a common brand name. See Summary of Critical Accounting Estimates for further discussion.
The change in accounts receivable is primarily driven by the decline in revenue from our former largest customer of $183 million, or 51.7% for the year ended January 1, 2017, compared to the prior year. Revenue from our former largest customer peaked in the fourth quarter of fiscal 2015. The decline in accounts receivable was further driven by improved days sales outstanding due to revenue mix and improved collections.
An increase in income tax receivable is due primarily to higher than anticipated benefits from WOTC. WOTC is designed to encourage employers to hire workers from certain disadvantaged targeted categories.
The change to deferred income taxes is due primarily to the goodwill and intangible asset impairment charge.
The change in accounts payable is primarily driven by lower revenue growth, slower seasonal build and cost control programs as compared to the prior year.
Accrued wages and benefits decreased primarily due to reductions in the flex workforce to align with client volume changes.
During 2016, our workers’ compensation claims reserve increased with the delivery of contingent labor services partially offset by claim payments.
Cash flows from investing activities
Our cash flows from investing activities were as follows:
|
| | | | | | | | | |
| | Years ended |
| (in thousands) | 2017 | 2016 | 2015 |
| Capital expenditures | $ | (21,958 | ) | $ | (29,042 | ) | $ | (18,394 | ) |
| Acquisition of business, net of cash acquired | — |
| (72,476 | ) | (67,500 | ) |
| Sales and maturities of marketable securities | — |
| — |
| 1,500 |
|
| Change in restricted cash and investments | (8,939 | ) | (41,698 | ) | (20,632 | ) |
| Net cash used in investing activities | $ | (30,897 | ) | $ | (143,216 | ) | $ | (105,026 | ) |
Fiscal 2017 as compared to fiscal 2016
Net cash used in investing activities was $31 million for the year ended December 31, 2017, compared to $143 million for the same period in the prior year.
Cash used in investing activities of $72 million for the year ended January 1, 2017, was for the acquisition of the RPO business of Aon Hewitt, effective January 4, 2016.
Restricted cash and investments consists primarilyconsist of collateral that has been provided or pledged to insurance carriers and state workers’ compensation programs. The decrease inprograms, as well as collateral to support the incremental cash used in investing activities was primarily due to lowerdeferred compensation plan. Lower collateral requirements from our workers’ compensation insurance providers as well as the timingwere more than offset by an acceleration of collateral payments.
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
Fiscal 2016 as compared to fiscal 2015
Net cash used in investing activities was $143 millionfunding required by our primary insurance provider for the year ended January 1, 2017, compared to $105 million for the same period in 2015.
Cash used in investing activities of $72 million in 2016 was for the acquisition of the RPO business of Aon Hewitt, effective January 4, 2016.
The change in restricted cash and investments was primarily due to an increase in collateral requirements paid to our workers’ compensation insurance providers, as well as timing of collateral payments.December 27, 2020.
Cash flows from financing activities
Our cash flows from financing activities were as follows:
|
| | | | | | | | | |
| | Years ended |
| (in thousands) | 2017 | 2016 | 2015 |
| Purchases and retirement of common stock | $ | (36,680 | ) | $ | (5,748 | ) | $ | — |
|
| Net proceeds from stock option exercises and employee stock purchase plans | 1,646 |
| 1,542 |
| 1,563 |
|
| Common stock repurchases for taxes upon vesting of restricted stock | (3,127 | ) | (2,851 | ) | (3,869 | ) |
| Net change in Revolving Credit Facility | (16,607 | ) | (105,579 | ) | 46,091 |
|
| Payments on debt and other liabilities | (2,267 | ) | (2,456 | ) | (2,078 | ) |
| Payment of contingent consideration at acquisition date fair value | (18,300 | ) | — |
| — |
|
| Other | — |
| (29 | ) | 1,079 |
|
| Net cash provided by (used in) financing activities | $ | (75,335 | ) | $ | (115,121 | ) | $ | 42,786 |
|
Fiscal 2017 as compared to fiscal 2016 | | | | | | | | |
| |
| (in thousands) | 2020 | 2019 |
| Purchases and retirement of common stock | $ | (52,346) | | $ | (38,826) | |
| Net proceeds from employee stock purchase plans | 922 | | 1,329 | |
| Common stock repurchases for taxes upon vesting of restricted stock | (2,438) | | (2,222) | |
| Net change in revolving credit facility | (37,100) | | (42,900) | |
| | |
| | |
| | |
| Other | (1,540) | | (296) | |
| Net cash used in financing activities | $ | (92,502) | | $ | (82,915) | |
Net cash used in financing activities was $75$92.5 million for the year ended December 31, 2017,27, 2020, compared to $115$82.9 million for the same period in the prior year.
During fiscal 2017, we repurchased shares using the remaining $29 million available under our $75 million share repurchase program. Under this program we repurchased and retired 4.8 million shares of our common stock. On September 15, 2017, our Board of Directors authorized a $100 million share repurchase program of our outstanding common stock. During the year ended December 31, 2017,27, 2020, we used $7repurchased $40.0 million of our common stock under this newan accelerated share repurchase program to repurchase shares.
During fiscal 2017, we paid $23and $12.4 million relating to contingent considerationof our common stock in connection withthe open market, including commissions, for a total of $52.4 million, or 9.2% of our acquisition of SIMOS in December 2015. The total contingent consideration payment included $18 million relatedcommon stock under existing authorizations. These purchases were initiated prior to the final purchase price fair value, which is reflectedmedical community’s acknowledgment of the expected severity of the impact of COVID-19. As of December 27, 2020, $66.7 million remains available for repurchase under existing authorizations. We have historically returned capital to shareholders through share repurchases. Share repurchases are an important part of our capital allocation priorities, however, the second amendment to our credit agreement (the “Second Amendment”) prohibits us from repurchasing shares until July 1, 2021. See Note 10: Shareholders’ Equity, to our consolidated financial statements found in cash flows usedItem 8 of this Annual Report on Form 10-K, for additional details on our share repurchase program.
FISCAL 2019 AS COMPARED TO FISCAL 2018
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, found in financing activities, withPart II of the remaining balanceAnnual Report on Form 10-K for the fiscal year ended December 29, 2019 for discussion of $4 million reflected in cash flows used in operating activities as a decrease in other assets and liabilities.
Fiscal 2016 asfiscal 2019 compared to fiscal 20152018.
Net cash used in financing activities was $115 million for
| | | | | | | | |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
CAPITAL RESOURCES
Revolving credit facility
On March 16, 2020, we entered into a first amendment to our credit agreement with Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, N.A., KeyBank, N.A. and HSBC Bank USA, N.A. dated as of July 13, 2018, which extended the year ended January 1, 2017, compared to net cash provided by financing activitiesmaturity of $43 million for the same period in 2015. This change was primarily due to repayments on our Revolving Credit Facility netto March 16, 2025 and modified certain other terms. On June 24, 2020, we entered into the Second Amendment, which modified terms of our financial covenants as well as certain other provisions of the acquisitionRevolving Credit Facility. On January 28, 2021, we entered into a third amendment (the “Third Amendment”), which clarified the definition of the RPO businessAsset Coverage Ratio financial covenant of Aon Hewitt,the Revolving Credit Facility. The Third Amendment was effective January 4, 2016 in the amountas of $72 million. SeeDecember 27, 2020 (refer to Note 8: Long-term Debt, 16: Subsequent Event, to our Consolidated Financial Statementsconsolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details of the Third Amendment). Subject to lender approval, we have the ability to increase our Revolving Credit Facility.Facility from $300.0 million up to $450.0 million.
Future outlook
Our cash-generating capability provides us with financial flexibility in meeting our operating and investing needs. Our current financial position is highlighted as follows:
OurObligations under the Revolving Credit Facility of up to a maximum of $300 million expires on June 30, 2019. The Revolving Credit Facility is an asset-backed facility, which isare guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by a pledge of substantially all of the assets of TrueBlue Inc. and material U.S. domestic subsidiaries. The additional amount available to borrow at December 31, 2017 was $117 million. We believe the Revolving Credit Facility provides adequate borrowing availability to support our anticipated needs.amended credit agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants.
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
We had cash and cash equivalents of $29 million at December 31, 2017.
The majority of our workers’ compensation payments are made from restricted cash rather than cash from operations. At December 31, 2017, we had restricted cash and investments totaling $239 million.
We believe that cash provided from operations and our capital resources will be adequate to meet our cash requirements for the foreseeable future.
Capital resources
Revolving credit facility
See Note 8: Long-term Debt, to our Consolidated Financial Statementsconsolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details ofon our Revolving Credit Facility.
Restricted cash and investments
Restricted cash and investments consist principally of collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. We have agreements with certain financial institutions that allow us to restrict cash and investments for the purpose of providing collateral instruments to our insurance carriers to satisfy workers’ compensation claims. At December 31, 2017, we had restricted cash and investments totaling $239 million. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon (“Trust”). See Note 4: Restricted Cash and Investments, to our Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K, for details of our Restricted Cash and Investments.
We established investment policy directives for the Trust with the first priority to ensure sufficient liquidity to pay workers’ compensation claims, second to maintain and ensure a high degree of liquidity, and third to maximize after-tax returns. Trust investments must meet minimum acceptable quality standards. The primary investments include U.S. Treasury securities, U.S. agency debentures, U.S. agency mortgages, corporate securities and municipal securities. For those investments rated by nationally recognized rating organizations the minimum ratings are:
|
| | | |
| S&P | Moody’s | Fitch |
Short-term rating | A-1/SP-1 | P-1/MIG-1 | F-1 |
Long-term rating | A | A2 | A |
Workers’ compensation insurance, collateral and claims reserves
Workers’ compensation insurance
We provide workers’ compensation insurance for our temporaryassociates and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2$2.0 million deductible limit, on a “per occurrence” basis and accordingly, we are 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 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.
Workers’ compensation collateral and restricted cash and investments
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-backed instruments, highly rated investment grade securities, letters of credit, and/orand surety bonds. On a regular basis, these entities assess the amount of collateral they will require from us relative to our workers’ compensation obligation. Such amounts can increase or decrease independent of our assessments and reserves. We generally anticipate that our collateral commitments will continue to grow as we grow our business. We pay our premiums and deposit our collateral in installments. The majority of the restricted cash and investments collateralizing our self-insured workers’ compensation policies are held in a trust at the Trust.
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
New York Mellon (“Trust”).
Our total collateral commitments were made up of the following components for the fiscal period end dates presented:
| | | | | | | | |
| (in thousands) | December 27, 2020 | December 29,
2019 |
| Cash collateral held by workers’ compensation insurance carriers | $ | 22,253 | | $ | 22,256 | |
| Cash and cash equivalents held in Trust | 29,410 | | 23,681 | |
| Investments held in Trust | 152,247 | | 149,373 | |
| Letters of credit | 6,095 | | 6,202 | |
| Surety bonds (1) | 20,616 | | 20,731 | |
| Total collateral commitments | $ | 230,621 | | $ | 222,243 | |
|
| | | | | | |
| (in thousands) | December 31, 2017 | January 1,
2017 |
| Cash collateral held by workers’ compensation insurance carriers | $ | 22,148 |
| $ | 28,066 |
|
| Cash and cash equivalents held in Trust | 16,113 |
| 32,841 |
|
| Investments held in Trust | 171,752 |
| 146,517 |
|
| Letters of credit (1) | 7,748 |
| 7,982 |
|
| Surety bonds (2) | 19,829 |
| 20,440 |
|
| Total collateral commitments | $ | 237,590 |
| $ | 235,846 |
|
| | |
(1) | We have agreements with certain financial institutions to issue letters of credit as collateral. |
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(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 is 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.MANAGEMENT’S DISCUSSION AND ANALYSIS |
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.
At December 27, 2020, we had restricted cash and investments totaling $240.5 million. Restricted cash and investments consist principally of collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. We have agreements with certain financial institutions that allow us to restrict cash and cash equivalents and investments for the purpose of providing collateral instruments to our insurance carriers to satisfy workers’ compensation claims. The majority of our collateral obligations are held in a Trust. See Note 4: Restricted Cash and Investments, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our restricted cash and investments. We established investment policy directives for the Trust with the first priority to preserve capital, second to ensure sufficient liquidity to pay workers’ compensation claims, third to diversify the investment portfolio and fourth to maximize after-tax returns. Trust investments must meet minimum acceptable quality standards. The primary investments include U.S. Treasury securities, U.S. agency debentures, U.S. agency mortgages, corporate securities and municipal securities. For those investments rated by nationally recognized statistical rating organizations the minimum ratings at time of purchase are:
| | | | | | | | | | | |
| S&P | Moody’s | Fitch |
| Short-term rating | A-1/SP-1 | P-1/MIG-1 | F-1 |
| Long-term rating | A | A2 | A |
Workers’ compensation reserve
The following table provides a reconciliation of our collateral commitments to our workers’ compensation reserve as of the fiscal period end dates presented:
| | | | | | | | |
| (in thousands) | December 27, 2020 | December 29, 2019 |
| Total workers’ compensation reserve | $ | 255,493 | | $ | 255,618 | |
| Add back discount on workers’ compensation reserve (1) | 18,009 | | 19,316 | |
| Less excess claims reserve (2) | (54,019) | | (45,253) | |
| Reimbursable payments to insurance provider (3) | 6,373 | | 8,121 | |
| Other (4) | 4,765 | | (15,559) | |
| Total collateral commitments | $ | 230,621 | | $ | 222,243 | |
|
| | | | | | |
| (in thousands) | December 31, 2017 | January 1,
2017 |
| Total workers’ compensation reserve | $ | 274,323 |
| $ | 277,351 |
|
| Add back discount on workers’ compensation reserve (1) | 19,277 |
| 14,818 |
|
| Less excess claims reserve (2) | (48,826 | ) | (52,930 | ) |
| Reimbursable payments to insurance provider (3) | 5,492 |
| 10,193 |
|
| Less portion of workers’ compensation not requiring collateral (4) | (12,676 | ) | (13,586 | ) |
| Total collateral commitments | $ | 237,590 |
| $ | 235,846 |
|
| |
(1) | Our workers’ compensation reserves are discounted to their estimated net present value while our collateral commitments are based on the gross, undiscounted reserve. |
| |
(2) | Excess claims reserve includes the estimated obligation for claims above our deductible limits. These are the responsibility of the insurance carriers against which there are no collateral requirements. |
| |
(3) | This amount is included in restricted cash and represents a timing difference between claim payments made by our insurance carrier and the reimbursement from cash held in the Trust. When claims are paid by our carrier, the amount is removed from the workers’ compensation reserve but not removed from collateral until reimbursed to the carrier. |
| |
(4) | Represents deductible and self-insured reserves where collateral is not required. |
(2)Excess claims reserve includes the estimated obligation for claims above our deductible limits. These are the responsibility of the insurance carriers against which there are no collateral requirements.
(3)This amount is included in restricted cash and represents a timing difference between claim payments made by our insurance carrier and the reimbursement from cash held in the Trust. When claims are paid by our carrier, the amount is removed from the workers’ compensation reserve but not removed from collateral until reimbursed to the carrier.
(4)Represents the difference between the self-insured reserves and collateral commitments.
Our workers’ compensation reserve is established using estimates of the future cost of claims and related expenses, which are discounted to their estimated net present value. We discount our workers’ compensation liability as we believe the estimated future cash outflows are readily determinable.
Our workers’ compensation reserve for deductible and self-insured claims 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. Reserves are estimated for claims incurred in the current year, as well as claims incurred during prior years.
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;
•the impact of safety initiatives; and
•positive or adverse development of claims, which considers the potential impact of COVID-19.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
positive or adverse development of claims. Our workers’ compensation claims reserves are discounted to their estimated net present value using discount rates based on returns of “risk-free” U.S. Treasury instruments with maturities comparable to the weighted average lives of our workers’ compensation claims. At December 31, 2017,27, 2020, the weighted average discount rate was 1.8%. The claim payments are made over an estimated weighted average period of approximately five5.5 years.
Our workers’ compensation reserves include estimated expenses related to claims above our self-insured limits (“excess claims”), and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance 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 31, 2017,27, 2020, the weighted average rate was 2.5%1.3%. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 1517 years. The discounted workers’ compensation reserve for excess claims and the corresponding receivable for the insurance on excess claims were $49was $54.0 million and $53$45.3 million as of December 31, 201727, 2020 and January 1, 2017,December 29, 2019, respectively. The discounted receivables from insurance companies, net of valuation allowance, were $52.9 million and $44.6 million as of December 27, 2020 and December 29, 2019, respectively.
The following table provides an analysis of changes in our workers’ compensation claims reserves:
| | | | | | | | |
| |
| (in thousands) | 2020 | 2019 |
| Beginning balance | $ | 255,618 | | $ | 266,446 | |
| Self-insurance reserve expenses related to current year, net | 61,264 | | 78,367 | |
| Payments related to current year claims | (12,594) | | (14,997) | |
| Payments related to claims from prior years | (40,236) | | (48,177) | |
| Changes to prior years’ self-insurance reserve, net | (19,205) | | (21,748) | |
| Amortization of prior years’ discount (1) | 1,880 | | (1,393) | |
| Net change in excess claims reserve (2) | 8,766 | | (2,880) | |
| | |
| Ending balance | 255,493 | | 255,618 | |
| Less current portion | 66,007 | | 73,020 | |
| Long-term portion | $ | 189,486 | | $ | 182,598 | |
|
| | | | | | | | | |
| | Years ended |
| (in thousands) | 2017 | 2016 | 2015 |
| Beginning balance | $ | 277,351 |
| $ | 266,280 |
| $ | 242,839 |
|
| Self-insurance reserve expenses related to current year, net | 83,966 |
| 88,753 |
| 93,138 |
|
| Payments related to current year claims (1) | (17,123 | ) | (16,529 | ) | (19,519 | ) |
| Payments related to claims from prior years (1) | (49,668 | ) | (57,093 | ) | (51,232 | ) |
| Changes to prior years’ self-insurance reserve, net (2) | (14,349 | ) | (12,992 | ) | (10,117 | ) |
| Amortization of prior years’ discount (3) | (1,754 | ) | 5,029 |
| (1,293 | ) |
| Net change in excess claims reserve (4) | (4,100 | ) | 3,903 |
| 3,976 |
|
| Liability assumed from acquired business, net (5) | — |
| — |
| 8,488 |
|
| Ending balance | 274,323 |
| 277,351 |
| 266,280 |
|
| Less current portion | 77,218 |
| 79,126 |
| 69,308 |
|
| Long-term portion | $ | 197,105 |
| $ | 198,225 |
| $ | 196,972 |
|
| |
(1) | Payments made against self-insured claims are made over a weighted average period of approximately five years at December 31, 2017. |
| |
(2) | Changes in reserve estimates are reflected in the statement of operations in the period when the changes in estimates are made. |
| |
(3) | The discount is amortized over the estimated weighted average life. In addition, any changes to the estimated weighted average lives and corresponding discount rates for actual payments made are reflected in the statement of operations in the period when the changes in estimates are made. |
| |
(4) | (2)Changes to our excess claims are discounted to its estimated net present value using the risk-free rates associated with the actuarially determined weighted average lives of our excess claims. Certain workers’ compensation insurance companies with which we formerly did business are in liquidation and have failed to pay a number of excess claims to date. We have recorded a valuation allowance against all of the insurance receivables from the insurance companies in liquidation. |
| |
(5) | Effective December 1, 2015, we acquired SIMOS, including $9 million of workers’ compensation liability. For the period ended December 25, 2015, the assumed liability was reduced for payments and changes to actuarial estimates. |
Certain workers’ compensation insurance companies with which we formerly did business are in liquidation and have failed to pay a number of excess claims to date. We have recorded a valuation allowance against all of the insurance receivables from the insurance companies in liquidation.
We continue to actively manage workers’ compensation expensecost through the safety of our temporary workersassociates with our safety programs and actively control costs with our network of service providers. These actions have had a positive impact creating favorable adjustments to workers’ compensation liabilities recorded in prior periods. Continued favorable adjustments to our prior year workers’ compensation liabilities are dependent on our ability to continue to aggressively lower accident rates and costs of our claims. We expect diminishing favorable adjustments to our workers’ compensation liabilities as the opportunity for significant reduction to frequency and severity of accident rates diminishes.
Future outlook
We are focused on cash management as a top priority. In response to the rapidly changing market conditions due to COVID-19, we have reduced operating costs and other cash outflows to preserve capital to fund working capital needs. Our Revolving Credit Facility provides for a revolving line of credit of up to $300.0 million with an option, subject to lender approval, to increase the amount to $450.0 million. On March 16, 2020, we extended the maturity of the Revolving Credit Facility to March 16, 2025. Although we were in compliance with our covenants, we felt it was prudent to negotiate more favorable covenants given the level of economic uncertainty. On June 24, 2020, we further amended our revolving credit agreement, which included modifications to our financial covenants. As of December 27, 2020, we are in a strong financial position with cash and cash equivalents of $62.5 million, no debt outstanding and total liquidity of $160.9 million under the most restrictive covenants of our Revolving Credit Facility.
We expect approximately $16 million of capital expenditures in the first quarter of 2021 and $37 million to $41 million in fiscal 2021. These capital expenditures include build-out costs for our Chicago support center of approximately $8 million in the first
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
CONTRACTUAL OBLIGATIONS AND COMMITMENTSquarter of 2021 and $10 million in fiscal 2021, of which approximately $6 million and $7 million, respectively, will be reimbursed by our landlord. These reimbursements will be reflected in our operating cash flows.
The following table providesCARES Act included employer payroll tax credits for wages paid to employees who were unable to work during the COVID-19 outbreak. Under the Act, we were allowed to delay payments for our portion of social security taxes (6.2% of taxable wages) incurred between March 27, 2020 and December 31, 2020, for both our associates and permanent employees. We anticipate the deferred amount of $57.1 million will be paid by September 15, 2021.
Our insurance carriers and certain state workers’ compensation programs require us to collateralize a summaryportion of our contractual obligations asworkers’ compensation obligation, for which they become responsible should we become insolvent. The collateral typically takes the form of the end of fiscal 2017. We expect to fund these commitments with existing cash and cash equivalents,cash-backed instruments, highly-rated investment grade securities, letters of credit, and cash flows from operations.
|
| | | | | | | | | | | | | | | |
| | Payments due by period (in thousands) |
| Contractual obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years |
| Long-term debt obligations, including interest and fees (1): | | | | | |
| Revolving Credit Facility | $ | 105,279 |
| $ | 3,650 |
| $ | 101,629 |
| $ | — |
| $ | — |
|
| Term Loan | 23,539 |
| 2,899 |
| 20,640 |
| — |
| — |
|
| Workers’ compensation claims (2) | 244,771 |
| 77,216 |
| 69,326 |
| 27,262 |
| 70,967 |
|
| Deferred compensation (3) | 3,200 |
| 270 |
| 1,414 |
| 735 |
| 781 |
|
| Operating leases (4) | 28,254 |
| 8,779 |
| 13,502 |
| 5,471 |
| 502 |
|
| Purchase obligations (5) | 27,574 |
| 9,199 |
| 14,353 |
| 2,778 |
| 1,244 |
|
| Total contractual cash obligations | $ | 432,617 |
| $ | 102,013 |
| $ | 220,864 |
| $ | 36,246 |
| $ | 73,494 |
|
| |
(1) | Interest and fees are calculated based on the rates in effect at December 31, 2017. Our Revolving Credit Facility expires in 2019. For additional information, see Note 8: Long-term Debt to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
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(2) | Excludes estimated expenses related to claims above our self-insured limits, for which we have a corresponding receivable based on the contractual policy agreements we have with insurance carriers. For additional information, see Note 7: Workers’ Compensation Insurance to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
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(3) | Represents scheduled distributions based on the elections of plan participants. Additional payments may be made if plan participants terminate, retire, or schedule distributions during the periods presented. For additional information, see Note 12: Defined Contribution Plans to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
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(4) | Excludes all payments related to branch leases with short-term cancellation provisions, typically within 90 days. For additional information, see Note 9: Commitments and Contingencies to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
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(5) | Purchase obligations include agreements to purchase goods and services that are enforceable, legally binding and specify all significant terms. Purchase obligations do not include agreements that are cancelable without significant penalty. |
Liability for unrecognized tax benefits has been excludedsurety bonds. We continue to have risk that these collateral requirements may be increased by our insurers due to our loss history and market dynamics, including from the table above, asimpact of COVID-19.
We have contractual commitments in the timing and/or amountsform of any cash payment is uncertain. For additional information, seeoperating leases related to office space, vehicles and equipment. Our leases have remaining terms of up to 16 years. See Note 13: Income Taxes,9: Commitments and Contingencies, to the Consolidated Financial Statements includedour consolidated financial statements found in Item 8 of this Annual Report on Form 10-K.10-K, for details on our operating lease contractual commitments.
We have purchase obligation agreements to purchase goods and services in the ordinary course of business that are enforceable, legally binding and specify all significant terms. See Note 9: Commitments and Contingencies, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our purchase obligations. We believe that cash provided from operations and our capital resources will be adequate to meet our cash requirements for the next 12 months.
SUMMARY OF CRITICAL ACCOUNTING ESTIMATES
Management’s discussion and analysis of financial condition and results of operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management believes that the following accounting estimates are the most critical to aid in fully understandingunderstand and evaluatingevaluate our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.
Considerations related to COVID-19
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
COVID-19. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual future amounts differing from reported estimated amounts.
Workers’ compensation reserve
We maintain reserves for workers’ compensation claims, including the excess claims portion above our deductible, 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 on “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 exceedsexceed the amountsamount estimated, additional reserves may be required. Changes in reserve estimates are reflected in cost of services on the statementConsolidated Statements of operationsOperations and Comprehensive Income 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”)claims and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance companies. We discount the reserve and its corresponding receivable to its respectivetheir estimated net present valuevalues using the risk-free rates associated
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
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.
There are two main factors that impact workers’ compensation expense:cost: the number of claims and the cost per claim. The number of claims is driven by the volume of hours worked, the business mix which reflects the type of work performed, and the safety of the environment where the work is performed. The cost per claim is driven primarily by the severity of the injury, the state in which the injury occurs, related medical costs, and lost-time wage costs. A 5%5.0% change in one or more of the above factors would result in a change to workers’ compensation expensecost of approximately $4$3 million. Our reserve balances have been positively impacted primarily by the success of our accident prevention programs. In the event that we are not able to further reduce our accident rates, the positive impacts to our reserve balance will diminish.
AllowanceAccounts receivable allowance for doubtful accountscredit losses
We establish an estimate for the allowance for doubtful accounts for estimatedcredit losses resulting from the failure of our customersclients to make required payments.payments by applying an aging schedule to pools of assets with similar risk characteristics. Based on an analysis of the risk characteristics of our clients and associated receivables, we have concluded our pools are as follows:
•PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally with frequent, low dollar invoices due to the daily nature of the work we perform. This results in high turnover in accounts receivable and lower rates of non-payment.
•PeopleManagement On-Site has a smaller number of clients, and follows a contractual billing schedule. The invoice amounts are higher than that of PeopleReady and Centerline, with longer payment terms.
•PeopleScout has a smaller number of clients, and generally sends invoices on a consolidated basis for a client. Invoice amounts are generally higher for PeopleScout than for PeopleManagement On-Site, with similar payment terms.
When specific clients are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The credit loss rates applied to each aging category by pool are based on current collection efforts, historical collection trends, write-off experience, client credit risk, current economic data and forecasted information. The allowance for doubtful accountscredit loss is determined based on historical write-off experience, expectations of future write-offs, and current economic data,reviewed monthly and represents our best estimate of the amount of probableexpected credit losses. The allowance for doubtful accounts is reviewed quarterlyEach month, past due or delinquent balances are identified based upon a review of aged receivables performed by collections and pastoperations. Past due balances are written-offwritten off when it is probable the receivable will not be collected. IfChanges in the financial conditionallowance for credit losses are recorded in SG&A expense on the Consolidated Statements of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.Operations and Comprehensive Income (Loss).
Business combinations
We account for our business acquisitions using the purchaseacquisition method of accounting. The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. We determine the estimated fair values after review and consideration of relevant information including discounted cash flows, quoted market prices and estimates made by management. Determining the fair value of an acquired company is judgmental in nature and involves the use of significant estimates and assumptions. The significant judgments include estimation of future cash flows, which is dependent on forecasts; estimation of the long-term rate of growth; estimation of the useful life over which cash flows will occur; and determination of a weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the business being purchased. Intangible assets that arise from contractual/legal rights, or are capable of being separated, are measured and recorded at fair value and amortized over the estimated useful life. If practicable, assets acquired and liabilities assumed arising from contingencies are measured and recorded at fair value. If not practicable, such assets and liabilities are measured and recorded when it is probable that a gain or loss has occurred and the amount can be reasonably estimated. The residual balance of the purchase price, after fair value allocations to all identified assets and liabilities, represents goodwill.
Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date. Acquisition-related costs are expensed as incurred. Our acquisitions may include contingent consideration, which require us to recognize the fair value of the estimated liability at the time of the acquisition. Subsequent changes in the estimate of the amount to be paid under the contingent consideration arrangement are recognized inon the Consolidated Statements of Operations and Comprehensive Income (Loss).Income. Cash payments for contingent or deferred consideration are classified within cash flows from investing activities for the purchase price fair value of the contingent consideration while amounts paid in excess are classified within cash flows from operating activities withinon the Consolidated Statements of Cash Flows.
Goodwill and indefinite-lived intangible assets
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
Goodwill and indefinite-lived intangible assets
We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter, and more frequently if an event occurswhenever events or circumstances changemake it more likely than not that would indicatean impairment may exist.have occurred. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, customerclient engagement, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.
Goodwill
We test for goodwill impairment at the reporting unit level. We consider our service linesoperating segments to be our reporting units for goodwill impairment testing. Our service lines areAs of December 27, 2020, our operating segments were PeopleReady, PlaneTechs,PeopleManagement Centerline, Drivers, Staff Management, SIMOS,PeopleManagement On-Site, PeopleScout RPO, and PeopleScout MSP. The
Testing for impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds the carrying value, we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment losscharge in an amount equal to the excess, not to exceed the carrying value of the goodwill.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions to evaluate the impact of operationaloperating and macroeconomic changes on each reporting unit. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
The fair value of each reporting unit is estimated using a weighted averagecombination of a discounted cash flow methodology and the income and market valuation approaches.approach using publicly traded company multiples in similar businesses. The income approach applies a fair value methodology based on discounted cash flows. This analysis requiresflow methodology required significant estimates and judgments, including estimation of future cash flows, which is dependent on internalinternally developed forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows willwould 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. Our weighted average cost of capital for our most recent annual impairment test ranged from 11.5% to 12.0%. We also apply aThe market approach which identifies similar publicly traded companies and develops a correlation, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches wereare equally weighted in our most recent annual impairment test.weighted. These combined fair values are reconciled to our aggregate market value of our shares of common stock outstanding on the date of valuation, resulting in a reasonable control premium. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.valuation. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater.
Interim impairment test
During the first quarter of 2020, we experienced a significant decline in our stock price. As a result of the decline in stock price, our market capitalization fell significantly below the recorded value of our consolidated net assets. The reduced market capitalization reflected the expected continued weakness in pricing and demand for our staffing services in a volatile economic climate. This was further impacted in March 2020 by COVID-19, which created a sudden global economic shock. We experienced a significant drop in client demand associated with government and societal actions taken to address COVID-19. We expected significant decreases to our revenue and corresponding operating results to continue due to weakness in pricing and demand for our services during this severe economic downturn. While demand was expected to recover in the future, the rate of recovery was expected to vary by geography and industry depending on the economic impact caused by COVID-19 and the rate at which infections would decline to a contained level. Accordingly, we performed an interim impairment test of our goodwill on the last day of our fiscal first quarter (March 29, 2020).
The weighted average cost of capital used in our interim impairment test ranged from 11.5% to 12.0%. Our control premium was approximately 12%, which management has determined to be reasonable.
We carefully considered the economic impact of COVID-19, together with the estimated decreases to our revenue and corresponding operating results as we continued to experience weakness in pricing and demand for our services during the economic downturn. Our estimates were based on our experience with prior recessions, as well as our experience with plans and actions to adjust and adapt to recessions. Given the uncertain nature of the economic impact of COVID-19, and the recovery pattern of the broader economy and its impact on our business, actual results could differ significantly from our estimates.
As a result of our interim impairment test, we concluded that the carrying amounts of goodwill for our PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units exceeded their implied fair values and we recorded a non-cash impairment charge of $140.5 million, which was included in goodwill and intangible asset impairment charge on the
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
Consolidated Statements of Operations and Comprehensive Income (Loss). The goodwill carrying value of $45.9 million for our PeopleManagement On-Site reporting unit was fully impaired. The goodwill impairment charge for PeopleScout RPO and PeopleScout MSP was $92.2 million and $2.4 million, respectively. Based on our interim goodwill impairment test, the fair values of our PeopleReady and PeopleManagement Centerline reporting units were substantially in excess of their carrying value at approximately 60% and 195%, respectively.
Annual impairment test
Given the proximity of our interim impairment measurement date (last day of our fiscal first quarter - March 29, 2020) to our annual goodwill impairment measurement date (first day of our fiscal second quarter - March 30, 2020), we performed a qualitative assessment to determine whether it was more likely than not that the fair value of any of our reporting units was less than the carrying value. We considered the current and expected future economic and market conditions surrounding COVID-19 and concluded that it was not more likely than not that the goodwill associated with our reporting units were impaired as of the first day of our fiscal second quarterquarter. Therefore, a quantitative assessment was not performed as of fiscal 2017,March 30, 2020.
Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the period from March 30, 2020 to December 27, 2020. The remaining goodwill balances for PeopleScout RPO and PeopleScout MSP were $23.6 million and $9.7 million, respectively, as of December 27, 2020. The loss of a key client, a significant further decline to the economy, or a delayed recovery in key industries we serve, including travel and leisure, could give rise to an additional impairment. Should any one of these events occur, we would need to record an impairment charge to goodwill for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill. We will continue to closely monitor the operational performance of our reporting units as it relates to goodwill impairment.
Based on our 2019 and 2018 annual impairment tests, all reporting units’ fair values were substantially in excess of their respective carrying values. Accordingly, there was no impairment loss was recognized.
Based on our test performed in 2016, we recorded a goodwill impairment charge of $66 million. See Note 6: Goodwill and intangible assets, torecognized for the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.years ended December 29, 2019 or December 30, 2018.
Indefinite-lived intangible assets
We have indefinite-lived intangible assets related to our Staff Management | SMX and PeopleScout trade names. We test our trade names annually for impairment, and when indicators of potential impairment exist. We utilize the relief from royalty method to determine the fair value of each of our trade names. If the carrying value exceeds the fair value, we recognize an impairment losscharge in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates.
Interim impairment test
We performed our annual indefinite-lived intangible assetan interim impairment test as of the firstlast day of our secondfiscal first quarter of fiscal 2017for 2020 (March 29, 2020) and determined that the estimated fair values exceeded the carrying amounts for both of our indefinite-lived trade names. Accordingly, no impairment losscharge was recognized.
Annual impairment test
Given the proximity of our interim impairment measurement date (last day of our fiscal first quarter - March 29, 2020) to our annual indefinite-lived trade names impairment measurement date (first day of our fiscal second quarter - March 30, 2020), we performed a qualitative assessment to determine whether it was more likely than not that the fair value of any of our indefinite-lived trade names was less than the carrying value. We concluded that it was not more likely than not that the indefinite-lived intangible assets associated with our Staff Management | SMX and PeopleScout trade names were impaired as of the first day of our fiscal second quarter. Therefore, a quantitative assessment was not performed as of March 30, 2020. Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the period from March 30, 2020 to December 27, 2020.
Based on our test performed in 2016, we recorded anour 2019 and 2018 annual indefinite-lived intangible asset impairment tests, the estimated fair values exceeded their carrying values. Accordingly, no impairment charge was recognized for the years ended December 29, 2019 or December 30, 2018.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
Finite-lived intangible assets, to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Intangible assets and other long-lived assets
We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Factors considered important that could result in an impairment review include, but are not limited to, significant underperformance relative to historical or planned operating results, or significant changes in business strategies. We estimate the recoverability of these assets by comparing the carrying amount of the asset to the future undiscounted cash flows that we expect the asset to generate.
An impairment losscharge is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment losscharge is recognized, the carrying amount of the asset is reduced to its estimated fair value based on discounted cash flow analysis or other valuation techniques.
Interim impairment test
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
In 2016,COVID-19, we lowered our future expectations, which was the primary trigger of an impairment test as of the last day of our fiscal first quarter for certain of our acquired client relationships intangible assets. As a result of this impairment test, we recorded ana non-cash impairment tocharge for our acquired trade names/trademarksPeopleScout RPO and PeopleManagement On-Site client relationship intangible assets of $4$34.7 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 27, 2020. The impairment charge for PeopleScout RPO and PeopleManagement On-Site client relationship intangible assets was $25.0 million and $9.7 million, respectively. Considerable management judgment was necessary to determine key assumptions, including estimated revenue of acquired clients and an appropriate discount rate of 12.0%.
Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the period from March 30, 2020 to our customer relationshipsDecember 27, 2020. The remaining client relationship intangible asset balances related to assets impaired for PeopleScout RPO and PeopleManagement On-Site were $5.1 million and $7.2 million, respectively, as of $29 million. See Note 6: Goodwill andDecember 27, 2020. Should actual results decline further or longer than we have currently estimated, the remaining intangible assets,asset balances may become further impaired. We will continue to closely monitor the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.revenue generated from acquired clients as it relates to client relationship asset impairment.
No impairment charge was recognized for the years ended December 29, 2019 or December 30, 2018.
Estimated contingent legal and regulatory liabilities
From time to time we are subject to compliance audits by federal, state, local and localforeign authorities relating to a variety of regulations including wage and hour laws, taxes, workers’ compensation, immigration, and safety. We are also subject to legal proceedings in the ordinary course of our operations. We have established reserves for contingent legal and regulatory liabilities. We record a liability when our management determines that it is probable that a legal claim will result in an adverse outcome and the amount of liability can be reasonably estimated. To the extent that an insurance company or other third party is contractuallylegally obligated to reimburse us for a liability, we record a receivable for the amount of the probable reimbursement. We evaluate our estimated liability 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 allowances
We account for income taxes by recording taxes payable or refundable 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. We measure these expected future tax consequences based upon the 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 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.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
NEW ACCOUNTING STANDARDS
See Note 1: Summary of Significant Accounting Policies, to our Consolidated Financial Statementsconsolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
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| Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to market risk related to changes in interest rates and foreign currency exchange rates, each of which could adversely affect the value of our investments. We do not currently use derivative financial instruments.
Interest rate risks
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our long-term debt.revolving credit facility. The interest on our revolving credit agreement is based on the U.S. Dollar London Interbank Offered Rate (“LIBOR”) or, at our option, the higher of the prime rate (as announced by Bank of America) or the federal funds rate.
Under existing guidance, the publication of the LIBOR reference rate was to be discontinued beginning on or around the end of 2021. However, the Intercontinental Exchange Benchmark Administration (“Administrative Agent”), in its capacity as administrator of LIBOR, has announced that it intends to extend publication of LIBOR (other than one-week and two-month tenors) to June 2023. TrueBlue has agreed with its lenders to adopt a successor rate benchmark approved by the Administrative Agent, as published on Bloomberg.
Trust assets
Restricted cash and investments consist principally of collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of the workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in municipal debt securities, corporate debt securities and agency mortgage-backed securities. The majority of our collateral obligations are held in a trust (“Trust”) at the Bank of New York Mellon. The individual investments within the Trust are subject to credit risk due to possible rating changes, default or impairment. We monitor the portfolio to ensure this risk does not exceed prudent levels. We consistently apply and adhere to our investment policy of holding high-quality, diversified securities. We have the positive intent and ability to hold these investments until maturity and accordingly have classified them as held-to-maturity. For additional information, see Note 4: Restricted Cash and Investments, to the Consolidated Financial Statementsconsolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
Long-term debt
We are subject to the risk of fluctuating interest rates on our Revolving Credit Facility and Term Loan, which bear interest at variable rates. For additional information, see Note 8: Long-term Debt, to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Based on the principal balance of our outstanding Term Loan of $23 million and Revolving Credit Facility of $96 million as of December 31, 2017, an increase or decrease of the interest rate by 10% over the next year would not have a material effect on our annual interest expense.
Foreign currency exchange rate risk
The majority of our revenue, expense, liabilities and capital purchasing activities are transacted in U.S. dollars. However, because a portion of our operations consists of activities outside of the United States, we have minimal transactions in other currencies, primarily the Canadian and Australian dollar.dollars, and Great Britain pound. We have not hedged our foreign currency translation risk. We have the ability to hold our foreign currency denominated assets indefinitely and do not expect that a sudden or significant change in foreign exchange rates will have a material impact on future operating results or cash flows.
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| Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of TrueBlue, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of TrueBlue, Inc. and subsidiaries (the “Company”) as of December 31, 201727, 2020 and January 1, 2017,December 29, 2019, and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 201727, 2020 and the related notes and schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 201727, 2020 and January 1, 2017,December 29, 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,27, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,27, 2020, based on the criteria established in Internal Control -— Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 201822, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.SU.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the riskrisks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by the management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill – PeopleScout Reporting Unit –- Refer to Notes 1 and 6 to the Financial Statements
Critical Audit Matter Description
The Company’s evaluation of the goodwill held by the PeopleScout Reporting Unit (“PeopleScout”) for impairment involves comparison of the estimated reporting unit fair value to its carrying value. The Company equally weighted the discounted cash flow model and market approach to estimate fair value, which required management to make significant estimates and assumptions related to forecasts of future revenues and earnings. Changes in these assumptions could have a significant impact on the fair value, the amount of any goodwill impairment charge, or both.
The goodwill balance as of March 29, 2020 (the measurement date) allocated to PeopleScout was $115.8 million. The estimated carrying value of PeopleScout exceeded its fair value by $92.2 million as of the measurement date, resulting in an impairment charge of the same amount. The remaining goodwill balance allocated to PeopleScout following the March 29, 2020 impairment test was $23.6 million.
Given the significant judgments made by management to estimate the fair value of PeopleScout in order to determine the amount of the recorded impairment, auditing management’s judgments regarding forecasts of future revenue and cash flows for PeopleScout, including the expected impacts of the COVID-19 global pandemic on future revenues and operations, involved enhanced auditor judgment.
How the Critical Audit Matter was Addressed in the Audit
Our audit procedures related to forecasts of future revenue and earnings for the PeopleScout reporting unit included the following, among others:
•We tested the effectiveness of controls over management’s evaluation of goodwill for impairment, including those over the forecast of future revenue and earnings.
•We evaluated management’s ability to accurately forecast future revenues and earnings and evaluated the reasonableness of management’s revenue and earnings forecast by comparing the forecasts to:
◦Historical revenues and earnings;
◦Internal communications between management, brand presidents, and the Board of Directors;
◦Management’s assessment of current and future growth opportunities; and
◦Externally sourced macroeconomic projections, including consideration of the historical correlation of PeopleScout revenue and earnings to such macroeconomic indicators.
•We further evaluated the reasonableness of management’s forecast by evaluating assumptions about future revenue and cash flows, using both the Company’s internal information, and analyst and industry reports.
Workers’ Compensation Claims Reserves - Refer to Note 1 and Note 7 to the Financial Statements
Critical Audit Matter Description
The Company bears the financial responsibility for a significant portion of expected losses under its workers’ compensation program and records reserves for workers’ compensation claims based on estimates of the future cost of claims and related expenses, which are discounted to their estimated net present value. The determination of the undiscounted reserves requires significant estimates and assumptions related to the future cost of claims and related expenses for claims that have been reported but not settled, as well as those that have been incurred but not reported. The undiscounted workers’ compensation obligation was $273.5 million as of December 27, 2020.
Given the fact that changes in actuarial assumptions could have a significant impact on the reserves, auditing management judgments regarding the workers’ compensation reserves, including estimates of the future cost of claims and related expenses, involved a high degree of auditor judgment, including the need to involve our actuarial specialists.
How the Critical Audit Matter was Addressed in the Audit
Our audit procedures related to the workers’ compensation reserves included the following, among others:
•We tested the effectiveness of controls over workers’ compensation, including those over payments and related expenses, claims data provided to the actuary, and review of actuarial results.
•We evaluated the methods and assumptions used by management to estimate the workers’ compensation reserves by:
◦Making selections of the underlying data that served as the basis for the actuarial analysis, including claims payments and related expenses, to evaluate whether the inputs to the actuarial estimate were accurate; and
◦Comparing management’s prior-year assumptions of expected future cost of claims and related expenses to actual claims expense incurred during the current year to identify potential bias in the determination of the workers’ compensation reserves.
•With the assistance of our actuarial specialists, we developed independent estimates of the reserves and compared our estimates to the Company’s recorded reserves.
/s/ Deloitte & Touche, LLP
Seattle, Washington
February 26, 2018
22, 2021
We have served as the Company’s auditor since 2009.
TRUEBLUE, INC.
CONSOLIDATED BALANCE SHEETS
| | | (in thousands, except par value data) | December 31,
2017 | January 1,
2017 | (in thousands, except par value data) | December 27,
2020 | December 29,
2019 |
| ASSETS | | ASSETS | |
| Current assets: | | Current assets: | |
| Cash and cash equivalents | $ | 28,780 |
| $ | 34,970 |
| Cash and cash equivalents | $ | 62,507 | | $ | 37,608 | |
| Accounts receivable, net of allowance for doubtful accounts of $4,344 and $5,160 | 374,273 |
| 352,606 |
| |
| Prepaid expenses, deposits and other current assets | 20,605 |
| 21,373 |
| |
| Accounts receivable, net of allowance of $2,921 and $4,288 | | Accounts receivable, net of allowance of $2,921 and $4,288 | 278,343 | | 342,303 | |
| Prepaid expenses and other current assets | | Prepaid expenses and other current assets | 26,137 | | 30,717 | |
| Income tax receivable | 4,621 |
| 18,854 |
| Income tax receivable | 11,898 | | 11,105 | |
| Total current assets | 428,279 |
| 427,803 |
| Total current assets | 378,885 | | 421,733 | |
| Property and equipment, net | 60,163 |
| 63,998 |
| Property and equipment, net | 71,734 | | 66,150 | |
| Restricted cash and investments | 239,231 |
| 231,193 |
| Restricted cash and investments | 240,534 | | 230,932 | |
| Deferred income taxes, net | 3,783 |
| 6,770 |
| Deferred income taxes, net | 30,019 | | 3,228 | |
| Goodwill | 226,694 |
| 224,223 |
| Goodwill | 94,873 | | 237,498 | |
| Intangible assets, net | 104,615 |
| 125,671 |
| Intangible assets, net | 28,929 | | 73,673 | |
| Operating lease right-of-use assets, net | | Operating lease right-of-use assets, net | 65,940 | | 41,082 | |
| Workers’ compensation claims receivable, net | | Workers’ compensation claims receivable, net | 52,934 | | 44,624 | |
| Other assets, net | 46,266 |
| 50,787 |
| Other assets, net | 16,729 | | 17,235 | |
| Total assets | $ | 1,109,031 |
| $ | 1,130,445 |
| Total assets | $ | 980,577 | | $ | 1,136,155 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| Current liabilities: | | Current liabilities: | |
| Accounts payable and other accrued expenses | $ | 55,091 |
| $ | 66,758 |
| Accounts payable and other accrued expenses | $ | 62,199 | | $ | 68,406 | |
| Accrued wages and benefits | 76,894 |
| 79,782 |
| Accrued wages and benefits | 122,657 | | 67,604 | |
| | Current portion of workers’ compensation claims reserve | 77,218 |
| 79,126 |
| Current portion of workers’ compensation claims reserve | 66,007 | | 73,020 | |
| Contingent consideration | — |
| 21,600 |
| |
| Current operating lease liabilities | | Current operating lease liabilities | 13,938 | | 14,358 | |
| Other current liabilities | 3,216 |
| 3,869 |
| Other current liabilities | 4,166 | | 7,418 | |
| Total current liabilities | 212,419 |
| 251,135 |
| Total current liabilities | 268,967 | | 230,806 | |
| Workers’ compensation claims reserve, less current portion | 197,105 |
| 198,225 |
| Workers’ compensation claims reserve, less current portion | 189,486 | | 182,598 | |
| Long-term debt, less current portion | 116,489 |
| 135,362 |
| |
| Long-term debt | | Long-term debt | 0 | | 37,100 | |
| | Long-term deferred compensation liabilities | 21,866 |
| 14,946 |
| Long-term deferred compensation liabilities | 26,361 | | 26,765 | |
| Long-term operating lease liabilities | | Long-term operating lease liabilities | 54,797 | | 28,849 | |
| | Other long-term liabilities | 6,305 |
| 5,598 |
| Other long-term liabilities | 3,776 | | 4,064 | |
| Total liabilities | 554,184 |
| 605,266 |
| Total liabilities | 543,387 | | 510,182 | |
| | | |
| Commitments and contingencies (Note 9) |
| Commitments and contingencies (Note 9) | 0 |
| | | |
| Shareholders’ equity: | | Shareholders’ equity: | |
| Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding | — |
| — |
| |
| Common stock, no par value, 100,000 shares authorized; 41,098 and 42,171 shares issued and outstanding | 1 |
| 1 |
| |
| Preferred stock, $0.131 par value, 20,000 shares authorized; NaN shares issued and outstanding | | Preferred stock, $0.131 par value, 20,000 shares authorized; NaN shares issued and outstanding | 0 | | 0 | |
| Common stock, 0 par value, 100,000 shares authorized; 35,493 and 38,593 shares issued and outstanding | | Common stock, 0 par value, 100,000 shares authorized; 35,493 and 38,593 shares issued and outstanding | 1 | | 1 | |
| Accumulated other comprehensive loss | (6,804 | ) | (11,433 | ) | Accumulated other comprehensive loss | (14,828) | | (13,238) | |
| Retained earnings | 561,650 |
| 536,611 |
| Retained earnings | 452,017 | | 639,210 | |
| Total shareholders’ equity | 554,847 |
| 525,179 |
| Total shareholders’ equity | 437,190 | | 625,973 | |
| Total liabilities and shareholders’ equity | $ | 1,109,031 |
| $ | 1,130,445 |
| Total liabilities and shareholders’ equity | $ | 980,577 | | $ | 1,136,155 | |
See accompanying notes to consolidated financial statements
TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| | | | Years ended | |
| (in thousands, except per share data) | 2017 | 2016 | 2015 | (in thousands, except per share data) | 2020 | 2019 | 2018 |
| Revenue from services | $ | 2,508,771 |
| $ | 2,750,640 |
| $ | 2,695,680 |
| Revenue from services | $ | 1,846,360 | | $ | 2,368,779 | | $ | 2,499,207 | |
| Cost of services | 1,874,298 |
| 2,070,922 |
| 2,060,007 |
| Cost of services | 1,405,715 | | 1,748,831 | | 1,843,760 | |
| Gross profit | 634,473 |
| 679,718 |
| 635,673 |
| Gross profit | 440,645 | | 619,948 | | 655,447 | |
| Selling, general and administrative expense | 510,794 |
| 546,477 |
| 495,988 |
| Selling, general and administrative expense | 408,307 | | 516,220 | | 540,479 | |
| Depreciation and amortization | 46,115 |
| 46,692 |
| 41,843 |
| Depreciation and amortization | 32,031 | | 37,549 | | 41,049 | |
| Goodwill and intangible asset impairment charge | — |
| 103,544 |
| — |
| Goodwill and intangible asset impairment charge | 175,189 | | 0 | | 0 | |
| Income (loss) from operations | 77,564 |
| (16,995 | ) | 97,842 |
| Income (loss) from operations | (174,882) | | 66,179 | | 73,919 | |
| Interest expense | (5,494 | ) | (7,166 | ) | (4,160 | ) | |
| Interest and other income | 5,480 |
| 3,821 |
| 2,765 |
| |
| Interest and other income (expense), net | (14 | ) | (3,345 | ) | (1,395 | ) | |
| Income (loss) before tax expense | 77,550 |
| (20,340 | ) | 96,447 |
| |
| | Interest expense and other income, net | | Interest expense and other income, net | 1,620 | | 3,865 | | 1,744 | |
| Income (loss) before tax expense (benefit) | | Income (loss) before tax expense (benefit) | (173,262) | | 70,044 | | 75,663 | |
| Income tax expense (benefit) | 22,094 |
| (5,089 | ) | 25,200 |
| Income tax expense (benefit) | (31,421) | | 6,971 | | 9,909 | |
| Net income (loss) | $ | 55,456 |
| $ | (15,251 | ) | $ | 71,247 |
| Net income (loss) | $ | (141,841) | | $ | 63,073 | | $ | 65,754 | |
| | | |
| Net income (loss) per common share: | | Net income (loss) per common share: | |
| Basic | $ | 1.35 |
| $ | (0.37 | ) | $ | 1.73 |
| Basic | $ | (4.01) | | $ | 1.63 | | $ | 1.64 | |
| Diluted | $ | 1.34 |
| $ | (0.37 | ) | $ | 1.71 |
| Diluted | $ | (4.01) | | $ | 1.61 | | $ | 1.63 | |
| | | |
| Weighted average shares outstanding: | | Weighted average shares outstanding: | |
| Basic | 41,202 |
| 41,648 |
| 41,226 |
| Basic | 35,365 | | 38,778 | | 39,985 | |
| Diluted | 41,441 |
| 41,648 |
| 41,622 |
| Diluted | 35,365 | | 39,179 | | 40,275 | |
| | | |
| Other comprehensive income (loss): | | Other comprehensive income (loss): | |
| Foreign currency translation adjustment, net of tax | $ | 3,355 |
| $ | 1,830 |
| $ | (14,362 | ) | |
| Unrealized gain (loss) on investments, net of tax | 1,274 |
| 750 |
| (522 | ) | |
| Foreign currency translation adjustment | | Foreign currency translation adjustment | $ | (1,590) | | $ | 1,411 | | $ | (6,320) | |
| | Total other comprehensive income (loss), net of tax | 4,629 |
| 2,580 |
| (14,884 | ) | Total other comprehensive income (loss), net of tax | (1,590) | | 1,411 | | (6,320) | |
| Comprehensive income (loss) | $ | 60,085 |
| $ | (12,671 | ) | $ | 56,363 |
| Comprehensive income (loss) | $ | (143,431) | | $ | 64,484 | | $ | 59,434 | |
See accompanying notes to consolidated financial statements
TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| | | | Common stock | | Accumulated other comprehensive income (loss) | Total shareholders’ equity | | Common stock | | Accumulated other comprehensive loss | Total shareholders’ equity |
| (in thousands) | Shares | Amount | Retained earnings | (in thousands) | Shares | Amount | Retained earnings |
| Balances, December 26, 2014 | 41,530 |
| $ | 1 |
| $ | 468,462 |
| $ | 871 |
| $ | 469,334 |
| |
| Balances, December 31, 2017 | | Balances, December 31, 2017 | 41,098 | | $ | 1 | | $ | 561,650 | | $ | (6,804) | | $ | 554,847 | |
| Net income | — |
| — |
| 71,247 |
| — |
| 71,247 |
| Net income | — | | — | | 65,754 | | — | | 65,754 | |
| Other comprehensive loss, net of tax | — |
| — |
| — |
| (14,884 | ) | (14,884 | ) | |
| Issuances under equity plans, including tax benefits | 494 |
| — |
| (1,227 | ) | — |
| (1,227 | ) | |
| Stock-based compensation | — |
| — |
| 11,103 |
| — |
| 11,103 |
| |
| Balances, December 25, 2015 | 42,024 |
| 1 |
| 549,585 |
| (14,013 | ) | 535,573 |
| |
| Net loss | — |
| — |
| (15,251 | ) | — |
| (15,251 | ) | |
| Other comprehensive income, net of tax | — |
| — |
| — |
| 2,580 |
| 2,580 |
| |
| Foreign currency translation adjustment | | Foreign currency translation adjustment | — | | — | | — | | (6,320) | | (6,320) | |
| Purchases and retirement of common stock | (332 | ) | — |
| (5,748 | ) | — |
| (5,748 | ) | Purchases and retirement of common stock | (1,371) | | — | | (34,818) | | — | | (34,818) | |
| Issuances under equity plans, including tax benefits | 445 |
| — |
| (1,338 | ) | — |
| (1,338 | ) | Issuances under equity plans, including tax benefits | 299 | | — | | (1,900) | | — | | (1,900) | |
| Stock-based compensation | 34 |
| — |
| 9,363 |
| — |
| 9,363 |
| Stock-based compensation | 28 | | — | | 13,876 | | — | | 13,876 | |
| Balances, January 1, 2017 | 42,171 |
| 1 |
| 536,611 |
| (11,433 | ) | 525,179 |
| |
| Change in accounting standard cumulative-effect adjustment | | Change in accounting standard cumulative-effect adjustment | — | | — | | 1,525 | | (1,525) | | 0 | |
| Balances, December 30, 2018 | | Balances, December 30, 2018 | 40,054 | | 1 | | 606,087 | | (14,649) | | 591,439 | |
| Net income | — |
| — |
| 55,456 |
| — |
| 55,456 |
| Net income | — | | — | | 63,073 | | — | | 63,073 | |
| Other comprehensive income, net of tax | — |
| — |
| — |
| 4,629 |
| 4,629 |
| |
| Foreign currency translation adjustment | | Foreign currency translation adjustment | — | | — | | — | | 1,411 | | 1,411 | |
| Purchases and retirement of common stock | (1,530 | ) | — |
| (36,680 | ) | — |
| (36,680 | ) | Purchases and retirement of common stock | (1,855) | | — | | (38,826) | | — | | (38,826) | |
| Issuances under equity plans, including tax benefits | 418 |
| — |
| (1,481 | ) | — |
| (1,481 | ) | Issuances under equity plans, including tax benefits | 365 | | — | | (893) | | — | | (893) | |
| Stock-based compensation | 39 |
| — |
| 7,744 |
| — |
| 7,744 |
| Stock-based compensation | 29 | | — | | 9,769 | | — | | 9,769 | |
| Balances, December 31, 2017 | 41,098 |
| $ | 1 |
| $ | 561,650 |
| $ | (6,804 | ) | $ | 554,847 |
| |
| | Balances, December 29, 2019 | | Balances, December 29, 2019 | 38,593 | | 1 | | 639,210 | | (13,238) | | 625,973 | |
| Net loss | | Net loss | — | | — | | (141,841) | | — | | (141,841) | |
| Foreign currency translation adjustment | | Foreign currency translation adjustment | — | | — | | — | | (1,590) | | (1,590) | |
| Purchases and retirement of common stock | | Purchases and retirement of common stock | (3,557) | | — | | (52,346) | | — | | (52,346) | |
| Issuances under equity plans, including tax benefits | | Issuances under equity plans, including tax benefits | 429 | | — | | (1,517) | | — | | (1,517) | |
| Stock-based compensation | | Stock-based compensation | 28 | | — | | 9,113 | | — | | 9,113 | |
| Change in accounting standard cumulative-effect adjustment | | Change in accounting standard cumulative-effect adjustment | — | | — | | (602) | | — | | (602) | |
| Balances, December 27, 2020 | | Balances, December 27, 2020 | 35,493 | | $ | 1 | | $ | 452,017 | | $ | (14,828) | | $ | 437,190 | |
See accompanying notes to consolidated financial statements
TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | Years ended | |
| (in thousands) | 2017 | 2016 | 2015 | (in thousands) | 2020 | 2019 | 2018 |
| Cash flows from operating activities: | | Cash flows from operating activities: | |
| Net income (loss) | $ | 55,456 |
| $ | (15,251 | ) | $ | 71,247 |
| Net income (loss) | $ | (141,841) | | $ | 63,073 | | $ | 65,754 | |
| Adjustments to reconcile net income (loss) to net cash from operating activities: | | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
| Depreciation and amortization | 46,115 |
| 46,692 |
| 41,843 |
| Depreciation and amortization | 32,031 | | 37,549 | | 41,049 | |
| Goodwill and intangible asset impairment charge | — |
| 103,544 |
| — |
| Goodwill and intangible asset impairment charge | 175,189 | | 0 | | 0 | |
| Provision for doubtful accounts | 6,808 |
| 8,308 |
| 7,132 |
| Provision for doubtful accounts | 6,300 | | 7,661 | | 10,042 | |
| Stock-based compensation | 7,744 |
| 9,363 |
| 11,103 |
| Stock-based compensation | 9,113 | | 9,769 | | 13,876 | |
| Deferred income taxes | 2,440 |
| (25,355 | ) | 5,176 |
| Deferred income taxes | (26,791) | | 1,263 | | (1,929) | |
| Non-cash lease expense | | Non-cash lease expense | 15,195 | | 14,823 | | 0 | |
| Other operating activities | 2,066 |
| 7,910 |
| 446 |
| Other operating activities | (686) | | (1,589) | | 5,154 | |
| Changes in operating assets and liabilities, net of effects of business acquisitions: | | |
| Changes in operating assets and liabilities, net of amounts acquired and divested: | | Changes in operating assets and liabilities, net of amounts acquired and divested: | |
| Accounts receivable | (28,483 | ) | 112,785 |
| (89,474 | ) | Accounts receivable | 57,146 | | 5,450 | | 11,640 | |
| Income tax receivable | 14,875 |
| 9,450 |
| (16,678 | ) | Income tax receivable | (1,122) | | (6,480) | | (996) | |
| Other assets | 5,289 |
| 470 |
| (6,398 | ) | Other assets | (2,124) | | (12,575) | | (12,928) | |
| Accounts payable and other accrued expenses | (10,569 | ) | (4,101 | ) | 23,261 |
| Accounts payable and other accrued expenses | (6,561) | | 6,921 | | 3,029 | |
| Accrued wages and benefits | (2,888 | ) | (7,313 | ) | 12,203 |
| Accrued wages and benefits | 55,053 | | (9,494) | | (1,613) | |
| Workers’ compensation claims reserve | (1,048 | ) | 11,070 |
| 14,736 |
| Workers’ compensation claims reserve | (125) | | (10,828) | | (7,877) | |
| Operating lease liabilities | | Operating lease liabilities | (14,562) | | (15,178) | | 0 | |
| Other liabilities | 2,046 |
| 4,182 |
| (2,525 | ) | Other liabilities | (3,684) | | 3,166 | | 491 | |
| Net cash provided by operating activities | 99,851 |
| 261,754 |
| 72,072 |
| Net cash provided by operating activities | 152,531 | | 93,531 | | 125,692 | |
| Cash flows from investing activities: | | Cash flows from investing activities: | |
| Capital expenditures | (21,958 | ) | (29,042 | ) | (18,394 | ) | Capital expenditures | (27,066) | | (28,119) | | (17,054) | |
| Acquisitions of businesses | — |
| (72,476 | ) | (67,500 | ) | |
| Sales and maturities of marketable securities | — |
| — |
| 1,500 |
| |
| Change in restricted cash | 21,505 |
| (19,773 | ) | 18,374 |
| |
| Purchases of restricted investments | (50,601 | ) | (37,173 | ) | (51,516 | ) | |
| Maturities of restricted investments | 20,157 |
| 15,248 |
| 12,510 |
| |
| Acquisition of businesses, net of cash acquired | | Acquisition of businesses, net of cash acquired | 0 | | 0 | | (22,742) | |
| Divestiture of business | | Divestiture of business | 0 | | 215 | | 10,587 | |
| Payments for company-owned life insurance | | Payments for company-owned life insurance | (12,031) | | (12,210) | | 0 | |
| Purchases of restricted available-for-sale investments | | Purchases of restricted available-for-sale investments | (2,896) | | (7,667) | | (6,173) | |
| Sales of restricted available-for-sale investments | | Sales of restricted available-for-sale investments | 12,311 | | 20,859 | | 1,991 | |
| Purchases of restricted held-to-maturity investments | | Purchases of restricted held-to-maturity investments | (32,495) | | (22,963) | | (6,768) | |
| Maturities of restricted held-to-maturity investments | | Maturities of restricted held-to-maturity investments | 27,561 | | 28,254 | | 19,644 | |
| Other | | Other | 205 | | 0 | | 0 | |
| Net cash used in investing activities | (30,897 | ) | (143,216 | ) | (105,026 | ) | Net cash used in investing activities | (34,411) | | (21,631) | | (20,515) | |
| Cash flows from financing activities: | | Cash flows from financing activities: | |
| Purchases and retirement of common stock | (36,680 | ) | (5,748 | ) | — |
| Purchases and retirement of common stock | (52,346) | | (38,826) | | (34,818) | |
| Net proceeds from stock option exercises and employee stock purchase plans | 1,646 |
| 1,542 |
| 1,563 |
| |
| Net proceeds from employee stock purchase plans | | Net proceeds from employee stock purchase plans | 922 | | 1,329 | | 1,503 | |
| Common stock repurchases for taxes upon vesting of restricted stock | (3,127 | ) | (2,851 | ) | (3,869 | ) | Common stock repurchases for taxes upon vesting of restricted stock | (2,438) | | (2,222) | | (3,404) | |
| Net change in Revolving Credit Facility | (16,607 | ) | (105,579 | ) | 46,091 |
| |
| Net change in revolving credit facility | | Net change in revolving credit facility | (37,100) | | (42,900) | | (15,900) | |
| | Payments on debt | (2,267 | ) | (2,456 | ) | (2,078 | ) | Payments on debt | 0 | | 0 | | (22,397) | |
| Payment of contingent consideration at acquisition date fair value | (18,300 | ) | — |
| — |
| |
| | Other | — |
| (29 | ) | 1,079 |
| Other | (1,540) | | (296) | | 0 | |
| Net cash provided by (used in) financing activities | (75,335 | ) | (115,121 | ) | 42,786 |
| |
| Effect of exchange rate changes on cash and cash equivalents | 191 |
| 1,772 |
| 283 |
| |
| Net change in cash and cash equivalents | (6,190 | ) | 5,189 |
| 10,115 |
| |
| CASH AND CASH EQUIVALENTS, beginning of period | 34,970 |
| 29,781 |
| 19,666 |
| |
| CASH AND CASH EQUIVALENTS, end of period | $ | 28,780 |
| $ | 34,970 |
| $ | 29,781 |
| |
| Net cash used in financing activities | | Net cash used in financing activities | (92,502) | | (82,915) | | (75,016) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | 623 | | 936 | | (1,542) | |
| Net change in cash, cash equivalents and restricted cash | | Net change in cash, cash equivalents and restricted cash | 26,241 | | (10,079) | | 28,619 | |
| Cash, cash equivalents and restricted cash, beginning of period | | Cash, cash equivalents and restricted cash, beginning of period | 92,371 | | 102,450 | | 73,831 | |
| Cash, cash equivalents and restricted cash, end of period | | Cash, cash equivalents and restricted cash, end of period | $ | 118,612 | | $ | 92,371 | | $ | 102,450 | |
| Supplemental disclosure of cash flow information: | | Supplemental disclosure of cash flow information: | |
| Cash paid during the period for: | | |
| Cash paid (received) during the period for: | | Cash paid (received) during the period for: | |
| Interest | $ | 3,811 |
| $ | 4,083 |
| $ | 3,504 |
| Interest | $ | 3,149 | | $ | 2,432 | | $ | 4,373 | |
| Income taxes | 4,593 |
| 10,312 |
| 34,401 |
| Income taxes | (3,441) | | 12,166 | | 12,898 | |
| Operating lease liabilities | | Operating lease liabilities | 16,995 | | 17,643 | | 0 | |
| Non-cash transactions: | | Non-cash transactions: | |
| Property and equipment purchased but not yet paid | 375 |
| 1,471 |
| 341 |
| Property and equipment purchased but not yet paid | 1,347 | | 993 | | 1,553 | |
| Non-cash acquisition adjustments | — |
| 3,783 |
| — |
| |
| Divestiture non-cash consideration | | Divestiture non-cash consideration | 0 | | 0 | | 798 | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | | Right-of-use assets obtained in exchange for new operating lease liabilities | 38,847 | | 18,759 | | 0 | |
See accompanying notes to consolidated financial statements
|
| |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| |
NOTE 1: | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business
TrueBlue, Inc. (“TrueBlue,(the “company,” “TrueBlue,” “we,” “us,”“us” and “our”) is a leading provider of specialized workforce solutions and services, helping customers improvethat help clients achieve business growth and performance by providing contingent staffing, recruitment process outsourcing solutions and management of contingent staffing. Our workforce solutions meet customers’ needs for a reliable, efficient workforceimprove productivity. We serve clients in a wide variety of industries. Throughindustries through our workforcePeopleReady segment which offers on-demand, industrial staffing, our PeopleManagement segment which offers contingent, on-site industrial staffing and commercial driver services, and our PeopleScout segment which offers recruitment process outsourcing (“RPO”) and managed service provider (“MSP”) solutions we help businesses be more productive and we connect people to work each year.a wide variety of industries. We are headquartered in Tacoma, Washington.
We operate our workforce solutions through three reportable segments, PeopleReady, PeopleManagement and PeopleScout. For additional information on our segments see Note 16: Segment Information.
Basis of presentation
The consolidated financial statements (“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 endReclassifications
On December 15, 2016, we changed our fiscal period end day from the last FridayCertain previously reported amounts have been reclassified to conform to the Sunday closestcurrent presentation. Specifically, the company has made certain reclassifications between cost of services and selling, general and administrative expense (“SG&A”) to more accurately reflect the last daycosts of December. Our fiscal quarters also ended on the Sunday closest to the last day in March, June and September in fiscal 2017. In prior years, the consolidated financial statements were presented with the last day of the fiscal year ending on the last Friday of December. The change in fiscal year end and quarter enddelivering our services. Such reclassifications did not have a material effectsignificant impact on the comparability of the periods presented.company’s gross profit or SG&A expense.
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 in fiscal years consisting of 52 weeks, all quarters will consist of 13 weeks. Of the three most recent years ended on December 31, 2017, the 2016 fiscal year included 53 weeks, with the 53rd week falling in our fourth quarter. All other years presented include 52 weeks.
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 credit losses, estimates for asset and goodwill impairments, stock-based performance awards, assumptions underlying self-insurance reserves, contingent legal, regulatory and government incentive 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.
We also considered COVID-19 related impacts to our estimates, as appropriate, within our financial statements and there may be changes to those estimates in future periods. However, we believe that the accounting estimates used are appropriate after considering the increased uncertainties surrounding the severity and duration of COVID-19. These estimates and assumptions are subject to inherent uncertainties, which may result in actual future amounts differing from reported estimated amounts.
Revenue recognition
RevenueWe 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. Consolidated revenues are presented net of intercompany eliminations. Additionally, consolidated revenues are recognized atnet of any discounts, allowances and sales incentives, including rebates. Revenues are recognized over time using an output measure, as the timecontrol of the service is provided by the temporary worker. Revenue from permanent placementpromised services is recognized attransferred to the timeclient, in an amount that reflects the permanent placement candidate begins full-time employment.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 contingent staffing needs of our clients, or include termination clauses that allow either party to cancel within a short notice period, without cause. Revenue from other staffing fee-based services is recognized when the services are provided. Revenue also includes billable travel and other reimbursable costs. Customer discounts or other incentives are recognized in the period the related revenue is earned. Revenuescosts and are reported net of sales, use or other transaction taxes collected from customersclients and remitted to taxing authorities. Payment terms vary by client and the services
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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 inon the Consolidated Statements of Operations and Comprehensive Income (Loss).Income. We have determined that gross reporting as a principal is the appropriate treatment based upon the following key factors:
•We maintain the direct contractual relationship with the customer.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 associate’s billing rate.
Contingent staffing
We have discretionrecognize revenue for our PeopleReady and PeopleManagement contingent staffing services over time as services are performed in selectingan amount that reflects the consideration we expect to be entitled to collect 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 assigningconsumes the temporary workerbenefits of the services as they are provided. We do not incur costs to a particular jobobtain our contingent staffing contracts. Costs are incurred to fulfill some contingent staffing contracts, however these costs are immaterial and establishing their billing rate.are expensed as incurred.
Human resource outsourcing
We bearprimarily recognize revenue for our PeopleScout outsourced recruitment of permanent employees over time in an amount that reflects the riskconsideration we expect to be entitled to in exchange for our services. The client simultaneously receives and rewardsconsumes the benefits of the transaction, including credit risk, ifservices as they are provided. We do not incur costs to obtain our outsourced recruitment of permanent employee contracts. The costs to fulfill these contracts are immaterial and are expensed as incurred.
Unsatisfied performance obligations
As a practical expedient, we do not disclose the customer failsvalue 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 paywhich 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 expenseSG&A were $7.3$5.5 million, $7.8$6.8 million and $9.1$8.1 million in fiscal 2017, 20162020, 2019 and 2015,2018, respectively.
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Cash, cash equivalents and marketable securities
We consider all highly liquid instruments purchased with an original maturity of three months or less at date of purchase to be cash equivalents. Investments with original maturities greater than three months are classified as marketable securities. We do not buy and hold securities principally for the purpose of selling them in the near future. Our investment policy is focused on the preservation of capital, liquidity and return. From time to time, we may sell certain securities but the objective is generally not to generate profits on short-term differences in price. We manage our cash equivalents and marketable securities as a single portfolio of highly liquid securities.
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Accounts receivable and allowance for doubtful accountscredit losses
Accounts receivable are recorded at the invoiced amount. We establish an estimate for the allowance for doubtful accounts for estimatedcredit losses resulting from the failure of our customersclients to make required payments.payments by applying an aging schedule to pools of assets with similar risk characteristics. Based on an analysis of the risk characteristics of our clients and associated receivables, we have concluded our pools are as follows:
•PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally with frequent, low dollar invoices due to the daily nature of the work we perform. This results in high turnover in accounts receivable and lower rates of non-payment.
•PeopleManagement On-Site has a smaller number of clients, and follows a contractual billing schedule. The allowanceinvoice amounts are higher than that of PeopleReady and Centerline, with longer payment terms.
•PeopleScout has a smaller number of clients, and generally sends invoices on a consolidated basis for doubtful accounts is determineda client. Invoice amounts are generally higher for PeopleScout than for PeopleManagement On-Site, with similar payment terms.
When specific clients are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The credit loss rates applied to each aging category by pool are based on current collection efforts, historical collection trends, write-off experience, customerclient credit risk, and current economic data.data and forecasted information. The allowance for doubtful accountscredit loss is reviewed quarterlymonthly and represents our best estimate of the amount of probableexpected credit losses. Each month, past due or delinquent balances are identified based upon a review of aged receivables performed by collections and operations. Past due balances are written off when it is probable the receivable will not be collected. Changes in the allowance for credit losses are recorded in SG&A on the Consolidated Statements of Operations and Comprehensive Income (Loss). As a result of our adoption of the accounting standard for current expected credit losses (“CECL”), we recognized a cumulative-effect adjustment to our account receivable allowance of $0.5 million as of the beginning of the first quarter of 2020.
Restricted cash and investments
Cash and investments pledged as collateral and restricted tofor use forin 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 areat the time of purchase, were 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 reviewestablish an allowance for impairmentcredit loss for our held-to-maturity debt securities using a discounted cash flow method including a probability of default rate based on the issuer’s credit rating. We report the entire change in present value as credit loss expense (or reversal of credit loss expense) in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our held-to-maturity debt securities as a quarterly basis and do not consider temporary unrealized losses to be an impairment.result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of December 27, 2020.
We have an agreement with American International Group, Inc. and the Bank of New York Mellon Corporation creating a trust (“Trust”), which holds the majority of our collateral obligations under existing workers’ compensation insurance policies. Placing the collateral in the Trust allows us to manage the investment of the assets and provides greater protection of those assets.
Fair value of financial instruments and investments
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For assets and liabilities recorded or disclosed at fair value on a recurring basis, we determine fair value based on the following:
•Level 1: The carrying value of cash and cash equivalents and mutual funds approximates fair value because of the short-term nature of these instruments. Inputs are valued using quoted market prices in active markets for identical assets or liabilities.
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•Level 2: Inputs other than quoted prices in active markets for identical assets and liabilities. Instead weliabilities 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 and money market funds 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. In addition to mutual funds and money market funds, we also have company owned life insurance policies that fund our deferred compensation liability. Company owned life insurance policies are carried at cash surrender value, which approximates fair value. 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.
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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:
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| Years |
| Buildings | 40 |
| Software | 3 - 8 |
Computers, furniture and softwareequipment | 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).Income.
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 teneight 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, office equipment, and machinery for use at client sites. Many leases require paymentvariable payments of real estateproperty taxes, insurance, and common area maintenance, in addition to base rent. The variable portion of these lease payments is not included in our right-of-use assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income. We determine if an arrangement meets the definition of a lease at inception, at which time we also perform an analysis to determine whether the lease qualifies as operating or financing. The terms of our lease agreements generally range from three to five years, with some as high as 15 years and many containing options to cancel, typically withinrenew. Under the majority of our leases, we have the right to terminate the lease with 90 daysdays’ notice.
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Operating leases that contain predetermined fixed escalations of the minimum rent, we recognize the related rentare included in operating lease right-of-use assets, net and current and long-term operating lease liabilities on our Consolidated Balance Sheets. Lease 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 thefor operating leases as part of deferred rent, in accrued liabilities or long-term liabilities, as appropriate.
Cash or lease incentives received upon entering into certain leases (“tenant allowances”) areis recognized on a straight-line basis over the lease term and is included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income.
Financing leases are included in property and equipment, net, other current liabilities, and other long-term liabilities on our Consolidated Balance Sheets. Lease expense for financing leases is recognized as depreciation of the right-of-use asset and interest expense. Financing leases are immaterial to our financial statements.
Lease right-of-use assets and lease liabilities are measured using the present value of future minimum lease payments over the lease term at commencement date. The right-of-use asset also includes any lease payments made on or before the commencement date of the lease, less any lease incentives received. As the rate implicit in the lease is not readily determinable in our leases, we use our incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rates used are estimated based on what we would be required to pay for a collateralized loan over a similar term. We have lease agreements with lease and non-lease components, which are accounted for as a reductionsingle lease component.
For leases with an initial non-cancelable lease term of less than one year and no option to purchase, we have elected not to recognize the lease on our Consolidated Balance Sheets and instead recognize rent frompayments on a straight-line basis over the date we take possessionlease term within SG&A expense on our Consolidated Statements of Operations and Comprehensive Income. In addition, for those leases where the property throughright to cancel the end oflease is available to both TrueBlue (as the lessee) and the lessor, the lease term is the initial lease term. We recordnon-cancelable period plus the unamortized portion of tenant allowances as a part of deferred rent, in accrued liabilities or long-term liabilities, as appropriate.notice period, which is typically 90 days, and not greater than one year.
Intangible assetsGoodwill and other long-lived assets
We reviewindefinite-lived intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Based on our review there was no impairment loss recognized for the year ended December 31, 2017 nor December 25, 2015. In the prior year, we recorded an impairment to our acquired trade names/trademarks intangible assets of $4.3 million and an impairment to our customer relationships intangible assets of $28.9 million.
Goodwill
We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter, and more frequently if an event occurswhenever events or circumstances changemake it more likely than not that would indicatean impairment may exist.have occurred. These events or circumstances could include a significant change in the business climate, operating performance indicators, competition, customerclient engagement, legal factors, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.
Based on our annual We test for goodwill impairment at the reporting unit level. We consider our operating segments to be our reporting units for goodwill impairment testing. Our operating segments are PeopleReady, PeopleManagement Centerline, PeopleManagement On-Site, PeopleScout RPO, and PeopleScout MSP. The impairment test performed asinvolves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the first dayreporting unit. If the fair value exceeds the carrying value, we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment charge in an amount equal to the excess, not to exceed the carrying value of the goodwill.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions to evaluate the impact of operational and macroeconomic changes on each reporting unit. The fair value of each reporting unit is a weighted average of the income and market valuation approaches. The income approach applies a fair value methodology based on discounted cash flows. This analysis requires significant estimates and judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our second quarter, allweighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting units’unit being tested. We also apply a market approach, which identifies similar publicly traded companies and develops a correlation, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches were equally weighted in our most recent annual impairment test. We base fair values were substantially in excess of their respective carrying values for fiscal 2017.value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater. Accordingly,
During the first quarter of 2020, certain events made it more likely than not that an impairment had occurred and accordingly, we performed an interim impairment test as of the last day of our fiscal first quarter. As a result, we recorded an impairment charge of $140.5 million with respect to our PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units. Refer to Note 6: Goodwill and Intangible Assets for further details.
There were no goodwill impairment loss was recognizedcharges recorded during fiscal 2019 nor 2018.
We have indefinite-lived intangible assets related to our Staff Management | SMX and PeopleScout trade names. We test our trade names annually for
impairment, and when indications of potential impairment exist.
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| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
fiscal 2017. InWe performed our annual indefinite-lived intangible asset impairment test for 2020, 2019 and 2018, and determined that the prior year, we recorded a goodwillestimated fair values exceeded the carrying amounts for our indefinite-lived trade names. Accordingly, no impairment charge of $65.9 million. There was no goodwill impairment charge recorded in fiscal 2015.recognized for the years ended December 27, 2020, December 29, 2019 or December 30, 2018.
Long-lived asset impairmentOther long-lived assets
Long-livedOther long-lived assets include property and equipment, and finite-lived intangible assets. Property and equipment are tested for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Other long-lived assets include property and equipment, lease right-of-use assets, finite-lived intangible assets and capitalized implementation costs for cloud computing arrangements that are service contracts.
We have indefinite-livedfinite-lived intangible assets related to acquired company customers, trade names/trademarks, and technology, as well as purchased trade names/trademarks. During fiscal 2020, we recorded a non-cash impairment charge for our Staff ManagementPeopleScout RPO and PeopleScout trade names. We testPeopleManagement On-Site client relationship intangible assets of $34.7 million, which was included in goodwill and intangible asset impairment charge on our trade names annuallyConsolidated Statements of Operations and Comprehensive Income (Loss) for impairment,the year ended December 27, 2020. Refer to Note 6: Goodwill and when indications of potential impairment exist. We utilize the relief from royalty method to determine the fair value of each of our trade names. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates.Intangible Assets for further details. There were no triggering events during fiscal 2017 nor 2015 that would require us to perform an impairment test over our long-lived assets. Accordingly, there were noasset impairment charges recorded during fiscal 20172019 nor 2015.2018.
During fiscal 2016, we recognized an impairment chargeWe capitalize implementation costs incurred in a cloud computing arrangement that is a service contract. Capitalized implementation costs are recorded as a prepaid asset in other assets, net on indefinite-lived intangible assetsour Consolidated Balance Sheets, with the related amortization recorded in SG&A expense on our Consolidated Statements of $4.5 million.Operations and Comprehensive Income on a straight-line basis over the fixed, non-cancelable term of the associated arrangement plus any reasonably certain renewal periods. Software license fees incurred during the development period are expensed as incurred.
Business combinations
We account for our business acquisitions using the purchaseacquisition 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 initial valuation of these tangible and identifiable intangible assets and liabilities is subject to further management review and may change between the preliminary allocation and the final allocation. Any changes to these estimates may have a material impact on our operating results or financial condition.
All acquisition-related costs are expensed as incurred and recorded in selling, general and administrativeSG&A expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).Income. 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, generalSG&A expense on the Consolidated Statements of Operations and administrative expense.Comprehensive Income.
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” United States (“U.S.”) Treasury instruments available during the year in which the liability was incurred, which are evaluated on a quarterly basis. We evaluate the reserves regularly throughout the year and make adjustments accordingly. If the actual cost of such claims and related expenses exceeds the amounts estimated, additional reserves may be required. Changes in reserve estimates are reflected in cost of services 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 with insurance companies. We discount the liability and its corresponding receivable to its estimated net present value using the “risk-free” rates available during the year in which the liability was incurred, and associated with the actuariallyactuarial 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.
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We also establish an allowance for credit loss for our insurance receivables using a probability of default and losses expected upon default method, with the probability of default rate based on the third-party insurance carrier’s credit rating. Changes in the allowance for credit losses are recorded in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our workers’ compensation insurance receivables as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of December 27, 2020.
Legal contingency reserves and regulatory liabilities
From time to time we are subject to compliance audits by federal, state and local authorities relating to a variety of regulations including wage and hour laws, taxes, workers’ compensation, immigration, and safety. In addition, we are subject to legal proceedings in the ordinary course of our operations. We establish accruals for contingent legal and regulatory liabilities when management determines that it is probable that a legal claim will result in an adverse outcome and the amount of liability can be reasonably estimated. To the extent that an insurance company is contractually obligated to reimburse us for a liability, we record a receivable
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
for the amount of the probable reimbursement. We evaluate our reserve regularly throughout the year and make adjustments as needed. If the actual outcome of these matters is different than expected, an adjustment is charged or credited to expense in the period the outcome occurs or the period in which the estimate changes.
Income taxes and related valuation allowance
We account for income taxes by recording taxes payable or receivable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. These expected future tax consequences are measured based on provisions of tax law as currently enacted; the effects of future changes in tax laws are not anticipated. Future tax law changes, such as changes to the federal and state corporate tax rates and the mix of states and their taxable income, could have a material impact on our financial condition or results of operations. When appropriate, we record a valuation allowance against deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, we consider whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results. Based on that analysis, we have determined that a valuation allowance is appropriate for certain net operating losses (“NOLs”) and tax credits that we expect will not be utilized within the permitted carryforward periods as of December 31, 201727, 2020 and January 1, 2017.December 29, 2019.
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 workersassociates 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 accrued wages and benefits on our Consolidated Balance Sheets. The total deferred compensation liability is largely offset by deferred compensation mutual funds, money market funds and company owned life insurance policies recorded in restricted cash and investments on our Consolidated Balance Sheets. The mutual funds and money market funds are measured at fair value, with unrealized gains and losses recognized in SG&A expense, while realized gains and losses are recorded in other income on our Consolidated Statements of Operations and Comprehensive Income. The carrying value of company owned life insurance policies is based on the cash surrender value of the policies and, accordingly, approximates fair value. Changes in the cash surrender value of the insurance policies are recorded in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income.
Stock-based compensation
Under various plans, officers, employees and non-employee directors have received or may receive grants of stock, restricted stock awards, or performance share units or options to purchase common stock. We also have an employee stock purchase plan.plan (“ESPP”).
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Compensation expense for restricted stock awards and performance share units is generally recognized on a straight-line basis over the vesting period, based on theour stock’s fair market value on the grant date. For restricted stock and performance share unit grants issued with performance conditions, compensation expense is recognized over each vesting period based on assessment of the likelihood of meeting these conditions. We recognize compensation expense for only the portion of restricted stock and performance share units that is expected to vest, rather than record forfeitures when they occur. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in the future periods. We determine the fair value of options to purchase common stock using the Black-Scholes valuation model, which requires the input of subjective assumptions. We recognize expense over the service period for options that are expected to vest and record adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.
Foreign currency
Our consolidated financial statements are reported in U.S. dollars. Assets and liabilities of international subsidiaries with non-U.S. dollar functional currencies are translated to U.S. dollars at the exchange rates in effect on the balance sheet date. Revenues and expenses for each subsidiary are translated to U.S. dollars using a weighted average rate for the relevant reporting period. Translation adjustments resulting from this process are included, net of tax, in other comprehensive income, (“OCI”), wherewhen applicable. Currency gains and losses on intercompany loans intended to be a permanent investments in international subsidiaries are included, net of tax, in OCI.
Purchases and retirement of our common stock
We may purchase our common stock under a program authorized by our Board of Directors.Directors (the “Board”). 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.
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Net income (loss) per share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares include the dilutive effects of vested and non-vested restricted stock, performance share units and shares issued under the employee stock purchase plan,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
Segments
Our operating segments are based on the organizational structure for which financial results are regularly reviewed by our stock options relatechief operating decision-maker, our Chief Executive Officer, to those stock options with an exercise price higher thandetermine resource allocation and assess performance. We evaluate performance based on segment revenue and segment profit. Segment revenue is net of intercompany eliminations. Segment profit includes revenue, related cost of services, and ongoing operating expenses directly attributable to the average market value of our stockreportable segment. Segment profit excludes goodwill and intangible asset impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest expense, other income and expense, income taxes, and other adjustments not considered to be ongoing.
Government incentives
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the periods presented.
Use of estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affectCOVID-19 outbreak. Also, 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,Canadian government enacted the Canada Emergency Wage Subsidy and the potential outcomeAustralian government enacted the JobKeeper subsidy to help employers offset a portion of futuretheir employee wages for a limited period.
We elected to treat qualified government incentives from the U.S., Canada and Australian governments as offsets to the related operating expenses. During fiscal 2020, the qualified payroll tax consequencescredits and government subsidies reduced our operating expenses by $9.9 million on our Consolidated Statement of events that have been recognized in the financial statements. Actual resultsOperations and outcomes may differ from these estimates and assumptions.Comprehensive Income (Loss).
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Recently adopted accounting standards
Credit losses
In January 2017,June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance to simplify the subsequent measurement of goodwill by eliminating the requirement to perform a Step 2 impairment test to compute the implied fair value of goodwill. As a result, companies will only compare the fair value of a reporting unit to its carrying value (Step 1) and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized may not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This amended guidance is effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We early adopted this guidance for our fiscal 2017 annual impairment test. The adoption of the new standard did not have any impact to our consolidated financial statements.
Recently issued accounting pronouncements not yet adopted
In February 2018, the FASB issued guidance to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018 (Q1 2019 for TrueBlue), with early adoption permitted. We plan to adopt this guidance on the effective date and do not expect the adoption to have a material impact on our financial statements.
In May 2017, the FASB issued guidance to provide clarity and reduce diversity in practice when accounting for a change to the terms or conditions of share-based payment awards. The objective is to reduce the scope of transactions that would require modification accounting. Disclosure requirements remain unchanged. This amended guidance is effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. We plan to adopt this guidance on the effective date and do not expect the adoption to have a material impact on our financial statements.
In November 2016, the FASB issued guidance to amend the presentation of restricted cash and restricted cash equivalents on the statement of cash flows. The standard requires restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amended guidance is effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. We plan to adopt this guidance on the effective date. Changes in restricted cash recorded in cash flows from investing were $21.5 million, $19.8 million and $18.4 million for the years ended December 31, 2017, January 1, 2017 and December 25, 2015, respectively.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In October 2016, FASB issued guidance on the accounting for income tax effects of intercompany sales or transfers of assets other than inventory. The guidance requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. This guidance is effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. The guidance will require a modified retrospective application with a cumulative catch-up adjustment to opening retained earnings. We plan to adopt this guidance on the effective date and do not expect the adoption to have a material impact on our financial statements.
In August 2016, the FASB issued guidance relating to how certain cash receipts and cash payments should be presented and classified in the statement of cash flows. The update is intended to reduce the existing diversity in practice. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted, including adoption in an interim period. The adoption should be applied using the retrospective transition method, if practicable. We plan to adopt this guidance on the effective date and do not expect the adoption to have a material impact on our financial statements.
In June 2016, the FASB issued guidance on accounting for credit losses on financial instruments. This guidance sets forth a current expected credit loss model, which requires the measurement of allcredit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replacesforecasted information rather than the existing incurred loss model and is applicable to the measurementprevious methodology of delaying recognition of credit losses on financial assets measured at amortized cost and some off-balance sheet exposures, as well as trade account receivables.until it is probable a loss has been incurred. This guidance is effective for fiscal years beginning after December 15, 2019 (Q1 2020 for TrueBlue) with early adoption permitted no sooner than Q1 2019. A modified retrospective approach is required for all investments, except debt securities for which an other-than-temporary impairment had been recognized prior to the effective date, which will require a prospective transition approach. We plan to adopt this guidance on the effective date and are currently assessing the impact of the adoption of this guidance on our financial statements.
In February 2016, the FASB issued guidance on lease accounting. The new guidance will continue to classify leases as either finance or operating and will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet with classification affecting the pattern of expense recognition in the statement of income. This guidance is effective for annual and interim periods beginning after December 15, 2018 (Q1 2019 for TrueBlue), and early adoption is permitted. A modified retrospective approach is required for all leases existing or entered into afterwas adopted at the beginning of the earliest comparative period infirst quarter of 2020. We were required to apply the consolidated financial statements. We plan to adopt the guidance on the effective date. We are currently evaluating the impact of this guidance on our financial statements and expect that, upon adoption, a majority of our operating lease commitments will be recognized on our Consolidated Balance Sheets as operating lease liabilities and right-of-use assets. We do not expect the adoption to have a material impact on the pattern of expense recognition in our Consolidated Statements of Operations and Comprehensive Income (Loss).
In January 2016, the FASB issued guidance on the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The guidance is effective for annual and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). Early adoption of the amendments in the guidance is not permitted, with limited exceptions, and should be appliednew standard by means of a cumulative-effect adjustment to the balance sheetopening retained earnings as of the beginning of the first quarter of 2020. The total impact upon adoption to opening retained earnings was immaterial to both the individual financial assets affected as well as in the aggregate.
Recently issued accounting pronouncements not yet adopted
There are no new accounting pronouncements, issued or effective during the fiscal year, of adoption. We plan to adopt the guidance on the effective date. We do not expect the adoptionthat are expected to have a materialsignificant impact on our consolidated financial statements.
In May 2014, the FASB issued guidance outlining a single comprehensive model for accounting for revenue arising from contracts with customers, which supersedes the current revenue recognition guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments as well as assets recognized from costs incurred to obtain or fulfill a contract. The guidance provides two methods of initial adoption: retrospective for all periods presented (full retrospective), or a cumulative adjustment in the year of adoption (modified retrospective). Since the issuance of the original standard, the FASB has issued several other subsequent updates including the following: 1) clarification of the implementation guidance on principal versus agent considerations; 2) further guidance on identifying performance obligations in a contract as well as clarifications on the licensing implementation guidance; and 3) additional guidance and practical expedients in response to identified implementation issues. The effective date is for annual and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). We will adopt the guidance using the modified retrospective approach in the first quarter of 2018.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
We utilized a cross-functional implementation team consisting of representatives from across our business segments and various departments. This included a bottoms-up analysis to determine the impact of the standard on our various revenue streams by reviewing our current contracts with customers, accounting policies and business practices to identify potential differences that would result from applying the requirements of the new standard.
We have completed our evaluation of the impact that adopting the new standard will have on our financial statements and have concluded that it will not have a material impact on our financial reporting other than expanded disclosures as a majority of our revenues are from contingent staffing and other staffing fee-based arrangements. For such arrangements, the performance obligation transfer of control and revenue recognition occurs at the time when the service is provided, consistent with previous revenue recognition guidance. related disclosures.
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: ACQUISITIONSACQUISITION AND DIVESTITURE
20162018 acquisition
Effective January 4, 2016,June 12, 2018, we acquired certain assets and assumed certain liabilitiesall of the recruitment process outsourcingoutstanding equity interests of TMP Holdings LTD (“RPO”TMP”) business of Aon Hewitt, through our subsidiary PeopleScout, Inc. for a cash purchase price of $72.5$22.7 million, net of cash acquired of $7.0 million. TMP is a mid-sized RPO and employer branding service provider operating in the final working capital adjustment. We amendedUnited Kingdom. This acquisition increases our existing credit facilityability to temporarily increase the borrowing capacitywin multi-continent engagements by $30.0 million, which was used to fund the acquisition. The RPO business of Aon Hewitt broadened our PeopleScout RPO servicesadding a physical presence in Europe, referenceable clients and has been fully integrated into our PeopleScout service line, which is part of our PeopleScout reportable segment.
employer branding capabilities.
We incurred acquisition and integration-related costs of $6.6$1.6 million in connection withand $2.7 million for the acquisition of the RPO business of Aon Hewitt,years ended December 29, 2019 and December 30, 2018, respectively, which arewere included in selling, general and administrativeSG&A 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.
Flows.
The following table reflects our finalthe allocation of the purchase price: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 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 |
|
| | | | | |
| (in thousands) | Purchase price allocation |
| Cash purchase price, net of cash acquired | $ | 22,742 | |
| |
(1)Accounts receivable | Goodwill represents the expected synergies with our existing business, the9,770 | |
| Prepaid expenses, deposits and other current assets | 337 | |
| Property and equipment | 435 | |
| Customer relationships | 6,286 | |
| Trade names/trademarks | 1,738 | |
Total assets acquired assembled workforce, potential new customers | 18,566 | |
| |
Accounts payable and future cash flows after the acquisition of the RPO business of Aon Hewitt. Goodwill is deductible forother accrued expenses | 9,139 | |
| Accrued wages and benefits | 1,642 | |
| Income tax payable | 205 | |
Deferred income tax purposes over 15 years as of January 4, 2016.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.
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Intangible assets include identifiable intangible assets for customer relationships and developed technologies.trade names/trademarks. 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.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
approach.
The following table sets forth the components of identifiable intangible assets, and their estimated fair values and useful lives as of January 4, 2016:June 12, 2018:
| | | (in thousands, except for estimated useful lives, in years) | Estimated Fair Value | Estimated Useful Lives in Years | (in thousands, except for estimated useful lives, in years) | Estimated fair value | Estimated useful life in years |
| Customer relationships | $ | 34,900 |
| 9.0 | |
| Technologies | 400 |
| 3.0 | |
| Customer relationships - other | | Customer relationships - other | $ | 2,809 | | 3 |
| Customer relationships - RPO | | Customer relationships - RPO | 3,477 | | 7 |
| Trade names/trademarks | | Trade names/trademarks | 1,738 | | 14 |
| Total acquired identifiable intangible assets | $ | 35,300 |
| | Total acquired identifiable intangible assets | $ | 8,024 | | |
The amountresults of revenueTMP’s operations and cash flows reported for 2018 on our Consolidated Statements of Operations and Comprehensive Income (Loss) and Consolidated Statements of Cash Flows relate to the period from the RPO business of Aon HewittJune 12, 2018 to December 30, 2018. Revenue from TMP included in our Consolidated Statements of Operations and Comprehensive Income (Loss) was $66.5$31.0 million for the period from the acquisition date to January 1, 2017. The acquired operations have been fully integrated with our existing PeopleScout operations.
December 30, 2018, and $51.3 million and $46.0 million for the years ended December 29, 2019 and December 27, 2020, respectively. The acquisition of the RPO business of Aon HewittTMP was not materialimmaterial to our consolidated results of operations and as such, pro forma financial information was not required.
2015 acquisition2018 divestiture
Effective December 1, 2015,March 12, 2018, we acquired SIMOS Insourcing Solutions Corporationdivested substantially all the assets and certain liabilities of PlaneTechs, LLC (“SIMOS”PlaneTechs”), an Atlanta-based provider of on-premise workforce management solutions for a sales 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 beginning in April 2018. The balance was fully repaid as of December 29, 2019. The remaining purchase price of $66.6 million, netbalance consisted of the finalpreliminary working capital adjustment, which was funded by our existing credit facility. An additional cash paymentincluded in prepaid expenses and other current assets on the Consolidated Balance Sheets. The company recognized a pre-tax gain on the divestiture of $22.5$0.7 million, which was included in interest and other income on the Consolidated Statements of contingent considerationOperations 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 paid duringreported in the second quarter of fiscal 2017 as a result of SIMOS achieving a fiscal 2016 earnings before interest, taxes, depreciation and amortization target. SIMOS broadened our on-premise contingent staffing solution, which is part of our PeopleManagement reportable segment. Refer to Note 3: Fair Value Measurementsegment for further details regarding the contingent consideration.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
year ended December 30, 2018.
The following table reflects our final allocationdivestiture of PlaneTechs did not represent a strategic shift with a major effect on the purchase price:
|
| | | |
| (in thousands) | Purchase price allocation |
| Purchase price: | |
| Cash purchase price, net of working capital adjustment | $ | 66,603 |
|
| Contingent consideration (1) | 18,300 |
|
| Total consideration | $ | 84,903 |
|
| | |
| Purchase price allocated as follows: | |
| Accounts receivable (2) | $ | 19,207 |
|
| Prepaid expenses, deposits and other current assets | 461 |
|
| Property and equipment | 464 |
|
| Customer relationships | 39,000 |
|
| Trade name/trademarks | 800 |
|
| Technologies | 100 |
|
| Restricted cash | 4,277 |
|
| Other non-current assets | 2,439 |
|
| Total assets acquired | 66,748 |
|
| | |
| Accounts payable and other accrued expenses | 3,741 |
|
| Accrued wages and benefits | 4,075 |
|
| Workers’ compensation liability | 8,520 |
|
| Total liabilities assumed | 16,336 |
|
| | |
| Net identifiable assets acquired | 50,412 |
|
| Goodwill (3) | 34,491 |
|
| Total consideration allocated | $ | 84,903 |
|
| |
(1) | The present value of the $22.5 million contingent consideration as of the acquisition date based on a probability-weighted fair value measurement. |
| |
(2) | The gross contractual amount of accounts receivable was $19.3 million of which $0.1 million was estimated to be uncollectible. |
| |
(3) | Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers and future cash flows after the acquisition of SIMOS. Goodwill is deductible for income tax purposes over 15 years as of December 1, 2015. |
Intangible assets include identifiable intangible assets for customer relationships, trade name/trademarkscompany’s operations 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 relationshipsfinancial results and, trade name/trademarks, and the cost approach for developed technologies.
The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of December 1, 2015:
|
| | | | |
| (in thousands, except for estimated useful lives, in years) | Estimated fair value | Estimated useful life in years |
| Customer relationships | $ | 39,000 |
| 9.0 |
| Trade name/trademarks | 800 |
| 3.0 |
| Technologies | 100 |
| 2.0 |
| Total acquired identifiable intangible assets | $ | 39,900 |
| |
The acquisition of SIMOStherefore was not material to our consolidated resultsreported as discontinued operations in the Consolidated Balance Sheets or Consolidated Statements of operationsOperations and as such, pro forma financial information was not required.Comprehensive Income (Loss) for the periods presented.
| |
NOTE 3: | FAIR VALUE MEASUREMENT |
NOTE 3: FAIR VALUE MEASUREMENT
Assets and liabilities measured at fair value on a recurring basis
Our assets and liabilities measured at fair value on a recurring basis consisted of the following:
|
| | | | | | | | | | | | |
| | December 31, 2017 |
| (in thousands) | Total fair value | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) |
| Financial assets: | | | | |
| Cash and cash equivalents (1) | $ | 28,780 |
| $ | 28,780 |
| $ | — |
| $ | — |
|
| Restricted cash and cash equivalents (1) | 39,039 |
| 39,039 |
| — |
| — |
|
| Other restricted assets (2) | 28,440 |
| 28,440 |
| — |
| — |
|
| Restricted investments classified as held-to-maturity | 172,238 |
| — |
| 172,238 |
| — |
|
|
| | | | | | | | | | | | |
| | January 1, 2017 |
| (in thousands) | Total fair value | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) |
| Financial assets: | | | | |
| Cash and cash equivalents (1) | $ | 34,970 |
| $ | 34,970 |
| $ | — |
| $ | — |
|
| Restricted cash and cash equivalents (1) | 67,751 |
| 67,751 |
| — |
| — |
|
| Other restricted assets (2) | 16,925 |
| 16,925 |
| — |
| — |
|
| Restricted investments classified as held-to-maturity | 145,953 |
| — |
| 145,953 |
| — |
|
| | | | | |
| Financial liabilities: | | | | |
| Contingent consideration (3) | 21,600 |
| — |
| — |
| 21,600 |
|
| |
(1) | Cash equivalents and restricted cash equivalents consist of money market funds, deposits and investments with original maturities of three months or less. |
| |
(2) | Other restricted assets primarily consist of deferred compensation plan accounts, which are comprised of mutual funds classified as available-for-sale securities. |
| |
(3) | The estimated fair value of the contingent consideration associated with the acquisition of SIMOS, which was estimated using a probability-adjusted discounted cash flow model. Refer to Note 2: Acquisitions for further details regarding the SIMOS acquisition.
|
| | | | | | | | | | | | | | |
| December 27, 2020 |
| (in thousands) | Total fair value | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) |
| Cash and cash equivalents | $ | 62,507 | | $ | 62,507 | | $ | 0 | | $ | 0 | |
| Restricted cash and cash equivalents | 56,105 | | 56,105 | | 0 | | 0 | |
| Cash, cash equivalents and restricted cash (1) | $ | 118,612 | | $ | 118,612 | | $ | 0 | | $ | 0 | |
| | | | |
| Municipal debt securities | $ | 70,723 | | $ | 0 | | $ | 70,723 | | $ | 0 | |
| Corporate debt securities | 85,937 | | 0 | | 85,937 | | 0 | |
| Agency mortgage-backed securities | 512 | | 0 | | 512 | | 0 | |
| U.S. government and agency securities | 1,124 | | 0 | | 1,124 | | 0 | |
| Restricted investments classified as held-to-maturity (2) | $ | 158,296 | | $ | 0 | | $ | 158,296 | | $ | 0 | |
| | | | |
| Deferred compensation investments (3) | $ | 5,915 | | $ | 5,915 | | $ | 0 | | $ | 0 | |
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| | | | | | | | | | | | | | |
| December 29, 2019 |
| (in thousands) | Total fair value | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) |
| Cash and cash equivalents | $ | 37,608 | | $ | 37,608 | | $ | 0 | | $ | 0 | |
| Restricted cash and cash equivalents | 54,763 | | 54,763 | | 0 | | 0 | |
| Cash, cash equivalents and restricted cash (1) | $ | 92,371 | | $ | 92,371 | | $ | 0 | | $ | 0 | |
| | | | |
| Municipal debt securities | $ | 74,236 | | $ | 0 | | $ | 74,236 | | $ | 0 | |
| Corporate debt securities | 76,068 | | 0 | | 76,068 | | 0 | |
| Agency mortgage-backed securities | 1,376 | | 0 | | 1,376 | | 0 | |
| U.S. government and agency securities | 1,051 | | 0 | | 1,051 | | 0 | |
| Restricted investments classified as held-to-maturity (2) | $ | 152,731 | | $ | 0 | | $ | 152,731 | | $ | 0 | |
| | | | |
| Deferred compensation investments (3) | $ | 13,670 | | $ | 13,670 | | $ | 0 | | $ | 0 | |
The following table presents the change in the estimated fair value(1)Cash, cash equivalents and restricted cash consist of money market funds, deposits, and investments with original maturities of three months or less.
(2)Refer to Note 4: Restricted Cash and Investments for additional details on our liability for contingent consideration measured using significant unobservable inputs (level 3) for the year ended December 31, 2017:held-to-maturity debt securities.
|
| | | |
| (in thousands) | |
| Fair value measurement at beginning of period | $ | 21,600 |
|
| Accretion on contingent consideration | 900 |
|
| Payment of contingent consideration | (22,500 | ) |
| Fair value measurement at end of period | $ | — |
|
During the second quarter(3)Deferred compensation investments consist of fiscal 2017, we paid $22.5 million relating to the contingent consideration associated with our acquisition of SIMOS. The purchase price fair value of the contingent consideration of $18.3 million is reflected in cash flows used in financing activitiesmutual funds and the remaining balance of $4.2 million is recognized in cash flows used in operating activities as a decrease in other assets and liabilities.
Changes in the fair value of the contingent consideration are recorded in selling, general and administrative expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). Amortization of the present value discount was recorded in interest expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
There were no material transfers between level 1, level 2 and level 3 of the fair value hierarchy during the years ended December 31, 2017 and January 1, 2017.money market funds.
Assets measured at fair value on a nonrecurring basis
We measure the fair value of certain non-financial assets on a non-recurring basis, including goodwill and certain intangible assets. During the first quarter of 2020, we performed an interim impairment test as of the last day of our first fiscal quarter (March 29, 2020). As a result of those measurements, we recognized impairment charges of $103.5 million during the year ended January 1, 2017, as follows:
|
| | | | | | | | | | | | | | | |
| | January 1, 2017 |
| (in thousands) | Total fair value | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) | Total impairment loss |
| Goodwill | $ | 42,629 |
| $ | — |
| $ | — |
| $ | 42,629 |
| $ | (65,869 | ) |
| Customer relationships | 11,100 |
| — |
| — |
| 11,100 |
| (28,900 | ) |
| Trade names/trademarks | 3,600 |
| — |
| — |
| 3,600 |
| (8,775 | ) |
| Total | $ | 57,329 |
| $ | — |
| $ | — |
| $ | 57,329 |
| $ | (103,544 | ) |
Goodwill, finite-lived customer relationships, trade names/trademarks intangible assetstest, goodwill and indefinite-lived intangible trade names/trademarksclient relationship intangible assets with a total carrying value of $160.8$221.6 million were written down to their fair value, of $57.3 million, resulting inand an impairment charge of $103.5$175.2 million which was recorded in earningsrecognized on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended January 1, 2017.
December 27, 2020. There were no goodwill or intangible asset impairment charges recorded during fiscal 2017 nor 2015.2019 or 2018. Refer to Note 6: Goodwill and Intangible Assets for additional details on the impairment charge and valuation methodologies.
The impairment was comprised as follows: | | | | | | | | | | | | | | | | | |
| March 29, 2020 |
| (in thousands) | Total fair value | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) | Total impairment charge |
| Goodwill | $ | 31,705 | | $ | 0 | | $ | 0 | | $ | 31,705 | | $ | (140,489) | |
| Client relationships | 14,700 | | 0 | | 0 | | 14,700 | | (34,700) | |
| Total | $ | 46,405 | | $ | 0 | | $ | 0 | | $ | 46,405 | | $ | (175,189) | |
NOTE 4: RESTRICTED CASH AND INVESTMENTS
The following is a summary of the carrying value of our restricted cash and investments:
| | | | | | | | |
| (in thousands) | December 27,
2020 | December 29,
2019 |
| Cash collateral held by insurance carriers | $ | 26,025 | | $ | 24,612 | |
| Cash and cash equivalents held in Trust | 29,410 | | 23,681 | |
| Investments held in Trust | 152,247 | | 149,373 | |
| Deferred compensation investments | 5,915 | | 13,670 | |
| Company-owned life insurance policies | 26,267 | | 13,126 | |
| Other restricted cash and cash equivalents | 670 | | 6,470 | |
| Total restricted cash and investments | $ | 240,534 | | $ | 230,932 | |
| | |
NOTE 4: | RESTRICTED CASH AND INVESTMENTS |
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| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Held-to-maturity
Restricted cash and investments consist principally ofinclude collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in municipal debt securities, corporate debt securities and asset-backed securities. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon (“Trust”). Our investments have not resulted in any other-than-temporary impairments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Trust.
The following is a summary of our restricted cashamortized cost and investments:
|
| | | | | | |
| (in thousands) | December 31,
2017 | January 1,
2017 |
| Cash collateral held by insurance carriers | $ | 22,926 |
| $ | 34,910 |
|
| Cash and cash equivalents held in Trust | 16,113 |
| 32,841 |
|
| Investments held in Trust | 171,752 |
| 146,517 |
|
| Other (1) | 28,440 |
| 16,925 |
|
| Total restricted cash and investments | $ | 239,231 |
| $ | 231,193 |
|
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(1) | Primarily consists of deferred compensation plan accounts, which are comprised of mutual funds classified as available-for-sale securities. |
The following tables presentestimated fair value disclosures forof our held-to-maturity investments which are carried at amortized cost:held in Trust, aggregated by investment category as of December 27, 2020 and December 29, 2019, were as follows: | | | | December 31, 2017 | | December 27, 2020 |
| (in thousands) | Amortized cost | Gross unrealized gain | Gross unrealized loss | Fair value | (in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value |
| Municipal debt securities | $ | 82,770 |
| $ | 974 |
| $ | (378 | ) | $ | 83,366 |
| Municipal debt securities | $ | 67,287 | | $ | 3,436 | | $ | 0 | | $ | 70,723 | |
| Corporate debt securities | 83,916 |
| 309 |
| (434 | ) | 83,791 |
| Corporate debt securities | 83,467 | | 2,511 | | (41) | | 85,937 | |
| Agency mortgage-backed securities | 4,066 |
| 22 |
| (26 | ) | 4,062 |
| Agency mortgage-backed securities | 493 | | 19 | | 0 | | 512 | |
| U.S. government and agency securities | 1,000 |
| 19 |
| — |
| 1,019 |
| U.S. government and agency securities | 1,000 | | 124 | | 0 | | 1,124 | |
| | $ | 171,752 |
| $ | 1,324 |
| $ | (838 | ) | $ | 172,238 |
| |
| Total held-to-maturity investments | | Total held-to-maturity investments | $ | 152,247 | | $ | 6,090 | | $ | (41) | | $ | 158,296 | |
| | | | January 1, 2017 | | December 29, 2019 |
| (in thousands) | Amortized cost | Gross unrealized gain | Gross unrealized loss | Fair value | (in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value |
| Municipal debt securities | $ | 71,618 |
| $ | 443 |
| $ | (865 | ) | $ | 71,196 |
| Municipal debt securities | $ | 72,017 | | $ | 2,219 | | $ | 0 | | $ | 74,236 | |
| Corporate debt securities | 68,934 |
| 212 |
| (352 | ) | 68,794 |
| Corporate debt securities | 75,000 | | 1,102 | | (34) | | 76,068 | |
| Agency mortgage-backed securities | 5,965 |
| 30 |
| (32 | ) | 5,963 |
| Agency mortgage-backed securities | 1,357 | | 21 | | (2) | | 1,376 | |
| | $ | 146,517 |
| $ | 685 |
| $ | (1,249 | ) | $ | 145,953 |
| |
| U.S. government and agency securities | | U.S. government and agency securities | 999 | | 52 | | 0 | | 1,051 | |
| Total held-to-maturity investments | | Total held-to-maturity investments | $ | 149,373 | | $ | 3,394 | | $ | (36) | | $ | 152,731 | |
The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows:
| | | | December 31, 2017 | | December 27, 2020 |
| (in thousands) | Amortized cost | Fair value | (in thousands) | Amortized cost | Fair value |
| Due in one year or less | $ | 17,265 |
| $ | 17,248 |
| Due in one year or less | $ | 20,307 | | $ | 20,446 | |
| Due after one year through five years | 90,906 |
| 90,825 |
| Due after one year through five years | 115,421 | | 119,981 | |
| Due after five years through ten years | 63,581 |
| 64,165 |
| Due after five years through ten years | 16,519 | | 17,869 | |
| | $ | 171,752 |
| $ | 172,238 |
| |
| Total held-to-maturity investments | | Total held-to-maturity investments | $ | 152,247 | | $ | 158,296 | |
Actual maturities may differ from contractual maturities because the issuers of certain debt securities have the right to call or prepay their obligations without penalty. We have no significant concentrations of counterparties in our held-to-maturity investment portfolio.
Deferred compensation investments and company-owned life insurance policies
We hold mutual funds, money market funds and company-owned life insurance policies to support our deferred compensation liability. Unrealized gains and losses related to these investments still held at December 27, 2020, December 29, 2019 and December 30, 2018, included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), were as follows:
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| (in thousands) | 2020 | 2019 | 2018 |
| Unrealized gains (losses) | $ | 723 | | $ | 2,814 | | $ | (3,400) | |
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| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 5: SUPPLEMENTAL BALANCE SHEET INFORMATION
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NOTE 5: | PROPERTY AND EQUIPMENT, NET |
Accounts receivable allowance
Due to the uncertain economic environment, it is difficult to estimate the full impact caused by COVID–19 on our clients. However, the allowance for credit loss for accounts receivable as of December 27, 2020 is our best estimate of the amount of expected credit losses. Should actual results deviate from what we have currently estimated, our allowance for credit losses could change significantly.
The activity related to the allowance for accounts receivable was as follows:
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| (in thousands) | 2020 | 2019 | 2018 |
| Beginning balance | $ | 4,288 | | $ | 5,026 | | $ | 4,344 | |
| Cumulative-effect adjustment (1) | 524 | | 0 | | 0 | |
| Current period provision | 6,300 | | 7,661 | | 10,042 | |
| Write-offs | (8,181) | | (8,358) | | (9,349) | |
| Foreign currency translation | (10) | | (41) | | (11) | |
| Ending balance | $ | 2,921 | | $ | 4,288 | | $ | 5,026 | |
(1)As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to our account receivable allowance of $0.5 million as of the beginning of the first quarter of 2020.
Prepaid expenses and other current assets
| | | | | | | | |
| (in thousands) | December 27,
2020 | December 29,
2019 |
| Prepaid software agreements | $ | 8,643 | | $ | 9,576 | |
| Other prepaid expenses | 8,631 | | 7,761 | |
| Other current assets | 8,863 | | 13,380 | |
| Prepaid expenses and other current assets | $ | 26,137 | | $ | 30,717 | |
Property and equipment are stated at cost and consist of the following:
| | | (in thousands) | December 31,
2017 | January 1,
2017 | (in thousands) | December 27,
2020 | December 29,
2019 |
| Buildings and land | $ | 37,672 |
| $ | 35,514 |
| Buildings and land | $ | 44,479 | | $ | 43,621 | |
| Computers and software | 149,835 |
| 130,317 |
| |
| Furniture and equipment | 15,527 |
| 12,262 |
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| Software | | Software | 127,715 | | 132,378 | |
| Computers, furniture and equipment | | Computers, furniture and equipment | 42,846 | | 57,770 | |
| Construction in progress | 7,157 |
| 12,073 |
| Construction in progress | 9,997 | | 8,727 | |
| Gross property and equipment | 210,191 |
| 190,166 |
| Gross property and equipment | 225,037 | | 242,496 | |
| Less accumulated depreciation | (150,028 | ) | (126,168 | ) | Less accumulated depreciation | (153,303) | | (176,346) | |
| Property and equipment, net | $ | 60,163 |
| $ | 63,998 |
| Property and equipment, net | $ | 71,734 | | $ | 66,150 | |
Capitalized software costs, net of accumulated depreciation, were $21.9$27.6 million and $19.2$26.0 million as of December 31, 201727, 2020 and January 1, 2017,December 29, 2019, respectively, excluding amounts in construction in progress. Construction in progress consists primarily of purchased and internally-developed software.
Depreciation expense of property and equipment totaled $24.7$21.9 million, $21.6$19.7 million and $21.9$20.3 million for the years ended December 31, 2017, January 1, 201727, 2020, December 29, 2019 and December 25, 2015,30, 2018, respectively.
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| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Accrued wages and benefits
| | | | | | | | |
| (in thousands) | December 27,
2020 | December 29,
2019 |
| Deferred employer payroll tax | $ | 55,420 | | $ | 0 | |
| Other accrued wages and benefits | 67,237 | | 67,604 | |
| Accrued wages and benefits | $ | 122,657 | | $ | 67,604 | |
On March 27, 2020, the U.S. government enacted the CARES Act, which among other things, provided employer payroll tax credits for wages paid to employees who were unable to work during the COVID-19 outbreak. Additionally, we were allowed to delay payments for the employer portion of social security taxes (6.2% of taxable wages) incurred between March 27, 2020 and December 31, 2020, for both our temporary associates and permanent employees. We anticipate the deferred amount will be paid by September 15, 2021.
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NOTE 6: | NOTE 6: GOODWILL AND INTANGIBLE ASSETS |
Goodwill
Goodwill
The following table reflects changes in the carrying amount of goodwill during the period by our reportable segments:segments:
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| | | | | | | | | | | | |
| (in thousands) | PeopleReady | PeopleManagement | PeopleScout | Total company |
| Balance at December 25, 2015 | | | | |
| Goodwill before impairment | $ | 106,304 |
| $ | 103,977 |
| $ | 104,424 |
| $ | 314,705 |
|
| Accumulated impairment loss | (46,210 | ) | — |
| — |
| (46,210 | ) |
| Goodwill, net | 60,094 |
| 103,977 |
| 104,424 |
| 268,495 |
|
| | | | | |
| Acquired goodwill and other (1) | — |
| (3,831 | ) | 25,491 |
| 21,660 |
|
| Impairment loss | — |
| (50,700 | ) | (15,169 | ) | (65,869 | ) |
| Foreign currency translation | — |
| — |
| (63 | ) | (63 | ) |
| | | | | |
| Balance at January 1, 2017 | | | | |
| Goodwill before impairment | 106,304 |
| 100,146 |
| 129,852 |
| 336,302 |
|
| Accumulated impairment loss | (46,210 | ) | (50,700 | ) | (15,169 | ) | (112,079 | ) |
| Goodwill, net | 60,094 |
| 49,446 |
| 114,683 |
| 224,223 |
|
| | | | | |
| Foreign currency translation | — |
| — |
| 2,471 |
| 2,471 |
|
| | | | | |
| Balance at December 31, 2017 | | | | |
| Goodwill before impairment | 106,304 |
| 100,146 |
| 132,323 |
| 338,773 |
|
| Accumulated impairment loss | (46,210 | ) | (50,700 | ) | (15,169 | ) | (112,079 | ) |
| Goodwill, net | $ | 60,094 |
| $ | 49,446 |
| $ | 117,154 |
| $ | 226,694 |
|
(1) Effective January 4, 2016, we acquired the RPO business of Aon Hewitt, which is part of our PeopleScout reportable segment. Accordingly, the goodwill associated with the acquisition has been assigned to our PeopleScout reportable segment based on our purchase price allocation. Effective December 1, 2015, we acquired SIMOS, which is part of our PeopleManagement reportable segment. The amount presented includes year-to-date adjustments to the preliminary SIMOS purchase accounting for goodwill. For additional information see Note 2:Acquisitions.
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| (in thousands) | PeopleReady | PeopleManagement | PeopleScout | Total company |
| Balance at | December 30, 2018 | | | | |
| Goodwill before impairment | $ | 106,304 | | $ | 81,092 | | $ | 144,970 | | $ | 332,366 | |
| Accumulated impairment charge | (46,210) | | (33,700) | | (15,169) | | (95,079) | |
| Goodwill, net | 60,094 | | 47,392 | | 129,801 | | 237,287 | |
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| | | | |
| | | | |
| | | | |
| Foreign currency translation | 0 | | 0 | | 211 | | 211 | |
| | | | | |
| Balance at | December 29, 2019 | | | | |
| Goodwill before impairment | 106,304 | | 81,092 | | 145,181 | | 332,577 | |
| Accumulated impairment charge | (46,210) | | (33,700) | | (15,169) | | (95,079) | |
| Goodwill, net | 60,094 | | 47,392 | | 130,012 | | 237,498 | |
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| | | | |
| | | | |
| Impairment charge | 0 | | (45,901) | | (94,588) | | (140,489) | |
| Foreign currency translation | 0 | | 0 | | (2,136) | | (2,136) | |
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| Balance at | December 27, 2020 | | | | |
| Goodwill before impairment | 106,304 | | 81,092 | | 143,045 | | 330,441 | |
| Accumulated impairment charge | (46,210) | | (79,601) | | (109,757) | | (235,568) | |
| Goodwill, net | $ | 60,094 | | $ | 1,491 | | $ | 33,288 | | $ | 94,873 | |
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| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Intangible assets
Finite-lived intangible assets
The following table presents our purchased finite-lived intangible assets:
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| | December 27, 2020 | | December 29, 2019 |
| (in thousands) | Gross carrying amount | Accumulated
amortization | Net
carrying
amount | | Gross carrying amount | Accumulated
amortization | Net
carrying
amount |
| Finite-lived intangible assets (1): | | | | | | | |
| Customer relationships (2) | $ | 113,382 | | $ | (91,956) | | $ | 21,426 | | | $ | 149,299 | | $ | (83,317) | | $ | 65,982 | |
| Trade names/trademarks | 2,088 | | (585) | | 1,503 | | | 2,052 | | (441) | | 1,611 | |
| | | | | | | |
| Technologies | 0 | | 0 | | 0 | | | 600 | | (520) | | 80 | |
| Total finite-lived intangible assets | $ | 115,470 | | $ | (92,541) | | $ | 22,929 | | | $ | 151,951 | | $ | (84,278) | | $ | 67,673 | |
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| | December 31, 2017 | | January 1, 2017 |
| (in thousands) | Gross carrying amount | Accumulated amortization | Net carrying amount | | Gross carrying amount | Accumulated
amortization | Net
carrying
amount |
| Finite-lived intangible assets (1): | | | | | | | |
| Customer relationships (2) | $ | 148,114 |
| $ | (53,801 | ) | $ | 94,313 |
| | $ | 165,725 |
| $ | (54,676 | ) | $ | 111,049 |
|
| Trade names/trademarks (3) | 4,149 |
| (3,736 | ) | 413 |
| | 4,378 |
| (3,385 | ) | 993 |
|
| Non-compete agreements | 1,400 |
| (1,377 | ) | 23 |
| | 1,400 |
| (1,097 | ) | 303 |
|
| Technologies | 17,500 |
| (13,588 | ) | 3,912 |
| | 17,009 |
| (9,683 | ) | 7,326 |
|
| Total finite-lived intangible assets | $ | 171,163 |
| $ | (72,502 | ) | $ | 98,661 |
| | $ | 188,512 |
| $ | (68,841 | ) | $ | 119,671 |
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(1) | Excludes assets that are fully amortized. |
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(2) | Balance at January 1, 2017, is net of impairment loss of $28.9 million. |
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(3) | Balance at January 1, 2017, is net of impairment loss of $4.3 million. |
(2)Balances at December 27, 2020 are net of impairment charge of $34.7 million.
Amortization expense of our finite-lived intangible assets was $21.4$10.1 million, $25.1$17.9 million and $19.9$20.8 million for the years ended December 31, 2017, January 1, 201727, 2020, December 29, 2019 and December 25, 2015,30, 2018, respectively.
The following table provides the estimated future amortization of finite-lived intangible assets as of December 31, 2017:27, 2020:
| | | (in thousands) | | (in thousands) | |
| 2018 | $ | 19,821 |
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| 2019 | 17,299 |
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| 2020 | 15,736 |
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| 2021 | 12,431 |
| 2021 | $ | 6,684 | |
| 2022 | 12,128 |
| 2022 | 5,793 | |
| 2023 | | 2023 | 5,138 | |
| 2024 | | 2024 | 4,164 | |
| 2025 | | 2025 | 330 | |
| Thereafter | 21,246 |
| Thereafter | 820 | |
| Total future amortization | $ | 98,661 |
| Total future amortization | $ | 22,929 | |
Indefinite-lived intangible assets
We also held indefinite-lived trade names/trademarks of $6.0 million as of December 31, 201727, 2020 and January 1, 2017.
December 29, 2019.
Impairments
There were no goodwill or intangible assetGoodwill
Interim impairment charges recorded during fiscal 2017 or 2015.test
2016 impairments
WeDuring the first quarter of 2020, the following events made it more likely than not that an impairment had occurred and accordingly, we performed our annual goodwillan interim impairment analysistest as of the firstlast day of our secondfiscal first quarter (March 29, 2020).
We experienced a significant decline in our stock price during the first quarter of fiscal 2016.2020. As a result of the decline in stock price, our market capitalization fell significantly below the recorded value of our consolidated net assets. The reduced market capitalization reflected the expected continued weakness in pricing and demand for our staffing services in a volatile economic climate. This was further impacted in March 2020 by COVID-19, which created a sudden global economic shock. We experienced a significant drop in client demand associated with government and societal actions taken to address COVID-19. We expected significant decreases to our revenues and corresponding operating results to continue due to weakness in pricing and demand for our services during the severe economic downturn. While demand was expected to recover in the future, the rate of recovery was expected to vary by geography and industry depending on the economic impact caused by COVID-19 and the rate at which infections would decline to a contained level.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions to evaluate the impact of operating and macroeconomic changes on each reporting unit. The fair value of each
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| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
reporting unit was estimated using a combination of a discounted cash flow methodology and the market valuation approach using publicly traded company multiples in similar businesses. This analysis required significant judgments, including estimation of future cash flows, which iswas dependent on internalinternally developed forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows willwould occur, and determination of our weighted average cost of capital, which iswas 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-adjustedranged from 11.5% to reflect the specific risk profile of the12.0%. The combined fair values for all reporting units and ranged from 12.0%were then reconciled to 17.0%.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
our shares of common stock on the date of valuation, while considering a reasonable control premium. As a result of this impairment test, we concluded that the carrying amounts of goodwill for our testPeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units exceeded their implied fair values and we recorded a non-cash impairment charge of $140.5 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 27, 2020. The goodwill carrying value of $45.9 million for our PeopleManagement On-Site reporting unit was fully impaired. The goodwill impairment charge for PeopleScout RPO and PeopleScout MSP was $92.2 million and $2.4 million, respectively.
Annual impairment test
Given the proximity of $65.9our interim impairment measurement date (last day of our fiscal first quarter - March 29, 2020) to our annual goodwill impairment measurement date (first day of our fiscal second quarter - March 30, 2020), we performed a qualitative assessment to determine whether it was more likely than not that the fair value of any of our reporting units was less than the carrying value. We considered the current and expected future economic and market conditions surrounding COVID-19 and concluded that it was not more likely than not that the goodwill associated with our reporting units were impaired as of the first day of our fiscal second quarter. Therefore, a quantitative assessment was not performed as of March 30, 2020.
Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the period from March 30, 2020 to December 27, 2020. The remaining goodwill balances for PeopleScout RPO and PeopleScout MSP were $23.6 million relatingand $9.7 million, respectively, as of December 27, 2020. Should actual results decline further or longer than we have currently estimated, the remaining goodwill balances may be further impaired. We will continue to closely monitor the operational performance of these reporting units.
Finite-lived intangible assets
Interim impairment test
With the decrease in demand for our services due to the Staff Management, PlaneTechs and hrX reporting units as follows:
Staff Management: In April 2016, we were notifiedeconomic impact caused by our former largest customer of its plansthe response to reduce the use of contingent labor and realign its contingent labor vendors for warehousing. Our former largest customer announced it would be reducing the use of our services for its warehouse fulfillment centers in the United States and focusing our services on its planned expansion of distribution service sites to a national network for delivery direct to the customer.
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◦ | Goodwill impairment - We estimated that the change in scope of our services would decrease revenues by approximately $125 million compared to the prior year. As a result, we lowered our future expectations, which resulted in a goodwill impairment charge of $33.7 million.
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◦ | Intangible asset impairment - The significant decrease in scope of services by our former largest customer required us to lower our future expectations, which was the primary trigger of an impairment charge to our acquired customer relationships intangible asset of $28.9 million and indefinite-lived intangible assets trade name of $4.5 million. Considerable management judgment was necessary to determine key assumptions, including projected revenue, royalty rates, and an appropriate discount rate of 13.0% for the customer relationships intangibles asset and 17.0% for the indefinite-lived trade-name. In addition, we utilized the relief from royalty method to determine the fair value of Staff Management’s indefinite-lived trade name using a royalty rate of 10.0%.
|
PlaneTechs: Revenue declined significantly compared to fiscal 2015 as large projects were completed for a major aviation customer and its supply chain and anticipated projects did not occur to the extent expected. PlaneTechs has been diversifying from providing services to one primary customer without offsetting growth in the broader aviation and transportation marketplace. As a result of significantly underperforming against current year expectations and increased future uncertainty,COVID-19, we lowered our future expectations, which resulted in a goodwillwas the primary trigger of the impairment chargetest as of $17.0 million.
hrX: Salesthe last day of this service line included our internally developed applicant tracking software (“ATS”). ATS sales and prospects have underperformed againstfiscal first quarter (March 29,2020) for certain of our expectations.acquired client relationships intangible assets. As a result of underperforming against our expectations and increased future uncertainty in customer demand,this impairment test, we lowered our future expectations, which resulted inrecorded a goodwillnon-cash impairment charge of $15.2 million. Note,for our PeopleScout RPO and hrX service linesPeopleManagement On-Site client relationship intangible assets of $34.7 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 27, 2020. The impairment charge for PeopleScout RPO and PeopleManagement On-Site client relationship intangible assets was $25.0 million and $9.7 million, respectively. Considerable management judgment was necessary to determine key assumptions, including projected revenue of acquired clients and an appropriate discount rate of 12.0%. Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the period from March 30, 2020 to December 27, 2020. The remaining client relationship intangible asset balances related to assets impaired for PeopleScout RPO and PeopleManagement On-Site were combined during fiscal 2016$5.1 million and now represent a single operating segment (PeopleScout).
$7.2 million, respectively, as of December 27, 2020.Spartan and CLP Resources: In the third quarter of fiscal 2016, we finalized the changes to the organizational and reporting structureIndefinite-lived intangible assets
Interim impairment test
We performed an interim impairment test of our Labor Ready, Spartan Staffingindefinite-lived intangible assets as of the last day of our first fiscal quarter (March 29, 2020) for 2020 and CLP Resources service lines, which resulted in them merging into one service line. The combined service linedetermined that the estimated fair values exceeded the carrying amounts for our indefinite-lived trade names. Accordingly, no impairment charge was re-brandedrecognized.
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| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Annual impairment test
Given the proximity of our interim impairment measurement date (last day of our fiscal first quarter - March 29, 2020) to our annual indefinite-lived trade names impairment measurement date (first day of our fiscal second quarter - March 30, 2020), we performed a qualitative assessment to determine whether it was more likely than not that the fair value of any of our indefinite-lived trade names was less than the carrying value. We concluded that it was not more likely than not that the indefinite-lived intangible assets associated with our Staff Management | SMX and PeopleScout trade names were impaired as PeopleReady. Asof the first day of our fiscal second quarter. Therefore, a result,quantitative assessment was not performed as of March 30, 2020.
Additionally, we recognizeddid not identify any events or conditions that make it more likely than not that an impairment charge of $4.3 million formay have occurred during the remaining net book value of the Spartan and CLP Resources trade name/trademarks intangible assets.period from March 30, 2020 to December 27, 2020.
NOTE 7:WORKERS’ COMPENSATION INSURANCE AND RESERVES
We provide workers’ compensation insurance for our temporaryassociates and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured.
For workers’ compensation claims originating in Washington, North Dakota, Ohio, Wyoming, Canada and Puerto Rico (our “monopolistic jurisdictions”), we pay workers’ compensation insurance premiums and obtain full coverage under government-administered programs (with the exception of our PeopleReady service lines in the state of Ohio where we have a self-insured policy). Accordingly, because we are not the primary obligor, our financial statements do not reflect the liability for workers’ compensation claims in these monopolistic jurisdictions. Our workers’ compensation reserve is established using estimates of the future cost of claims and related expenses that have been reported but not settled, as well as those that have been incurred but not reported.
Our workers’ compensation reserve for claims below the deductible limit is discounted to its estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. The weighted average discount rate was 1.8% and 1.6%2.0% at December 31, 201727, 2020 and January 1, 2017,December 29, 2019, respectively. Payments made against self-insured claims are made over a weighted average period of approximately five5.5 years atas of December 31, 2017.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
27, 2020.
The following table below presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented as follows:presented:
| | | (in thousands) | December 31,
2017 | January 1,
2017 | (in thousands) | December 27,
2020 | December 29,
2019 |
| Undiscounted workers’ compensation reserve | $ | 293,600 |
| $ | 292,169 |
| Undiscounted workers’ compensation reserve | $ | 273,502 | | $ | 274,934 | |
| Less discount on workers’ compensation reserve | 19,277 |
| 14,818 |
| Less discount on workers’ compensation reserve | 18,009 | | 19,316 | |
| Workers’ compensation reserve, net of discount | 274,323 |
| 277,351 |
| Workers’ compensation reserve, net of discount | 255,493 | | 255,618 | |
| Less current portion | 77,218 |
| 79,126 |
| Less current portion | 66,007 | | 73,020 | |
| Long-term portion | $ | 197,105 |
| $ | 198,225 |
| Long-term portion | $ | 189,486 | | $ | 182,598 | |
Payments made against self-insured claims were $66.8$52.8 million, $73.6$63.1 million and $70.7$64.7 million for the years ended December 31, 2017, January 1, 201727, 2020, December 29, 2019 and December 25, 2015,30, 2018, respectively.
Our workers’ compensation reserve includes estimated expenses related to claims above our self-insured limits (“excess claims”),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 27, 2020 and December 29, 2019, the weighted average rate was 1.3% and 2.4%, respectively. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 1517 years. The discounted workers’ compensation reserve for excess claims was $48.8$54.0 million and $45.3 million, and the corresponding receivable for the insurance on excess claims, net of valuation allowance was $52.9 million and $44.6 million as of December 31, 201727, 2020 and January 1, 2017,December 29, 2019, respectively.
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The discounted receivables fromactivity related to the allowance for insurance companies, netreceivable was as follows:
| | | | | | | | | | | |
| (in thousands) | 2020 | 2019 | 2018 |
| Beginning balance | $ | 629 | | $ | 3,314 | | $ | 3,778 | |
| Cumulative-effect adjustment (1) | 72 | | 0 | | 0 | |
| Charged to expense | 13 | | 120 | | 120 | |
| Release of allowance | (629) | | (2,805) | | (584) | |
| Ending balance | $ | 85 | | $ | 629 | | $ | 3,314 | |
(1)As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to our insurance receivable valuation allowance were $45.0 million and $48.9of $0.1 million as of December 31, 2017 and January 1, 2017, respectively, and are included in other assets, net on the accompanying Consolidated Balance Sheets.beginning of the first quarter of 2020. Refer to Note 1: Summary of Significant Accounting Policies for further details.
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.claims, which considers the potential impact of COVID-19.
The table below presents the estimated future payout of our discounted workers’ compensation claims reserve for the next five years and thereafter as of December 31, 2017:27, 2020:
| | | | | |
| (in thousands) | |
| 2021 | $ | 66,007 | |
| 2022 | 35,200 | |
| 2023 | 20,077 | |
| 2024 | 13,204 | |
| 2025 | 9,508 | |
| Thereafter | 57,478 | |
| Sub-total | 201,474 | |
| Excess claims (1) | 54,019 | |
| Total | $ | 255,493 | |
|
| | | |
| (in thousands) | |
| 2018 | $ | 76,536 |
|
| 2019 | 42,611 |
|
| 2020 | 24,429 |
|
| 2021 | 15,227 |
|
| 2022 | 10,187 |
|
| Thereafter | 56,507 |
|
| Sub-total | 225,497 |
|
| Excess claims (1) | 48,826 |
|
| Total | $ | 274,323 |
|
| |
(1) | Estimated expenses related to claims above our self-insured limits for which we have a corresponding receivable for the insurance coverage based on contractual policy agreements. |
Workers’ compensation expensecost consists primarily of changes in self-insurance reserves net of changes in discount, monopolistic jurisdictions’ premiums, insurance premiums and other miscellaneous expenses. Workers’ compensation expensecost of $83.7$49.4 million, $94.0$60.2 million and $98.2$69.2 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2017, January 1, 201727, 2020, December 29, 2019 and December 25, 2015,30, 2018, respectively.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The components of our borrowings were as follows:
|
| | | | | | |
| (in thousands) | December 31,
2017 | January 1,
2017 |
| Revolving Credit Facility | $ | 95,900 |
| $ | 112,507 |
|
| Term Loan | 22,856 |
| 25,122 |
|
| Total debt | 118,756 |
| 137,629 |
|
| Less current portion | 2,267 |
| 2,267 |
|
| Long-term debt, less current portion | $ | 116,489 |
| $ | 135,362 |
|
Revolving credit facility
Effective June 30, 2014,On March 16, 2020, we entered into a Second Amended and Restated Revolving Credit Agreement for a secured revolvingfirst amendment to our credit facility of $300.0 millionagreement with Bank of America, N.A., Wells Fargo Bank, National Association,N.A., PNC Bank, N.A., KeyBank, N.A. and HSBC Bank USA, N.A. dated as of July 13, 2018, which extended the maturity of the revolving credit facility established thereunder (the “Revolving Credit Facility”) to March 16, 2025 and PNC Capital Markets LLC (“modified certain other terms. On June 24, 2020, we entered into a second amendment to our credit agreement (the “Second Amendment”), which modified terms of our financial covenants as well as certain other provisions of the Revolving Credit Facility”Facility. On January 28, 2021, we entered into a third amendment to our credit agreement (the “Third Amendment”). The, which clarified the definition of the Asset Coverage Ratio financial covenant of the Revolving Credit Facility, which matures June 30, 2019, amended and restated our previous credit facility.Facility. The Third Amendment was effective as of December 27, 2020 (refer to Note 16: Subsequent Event for details of the Third Amendment).
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The maximumamended credit agreement provides for a revolving line of credit of up to $300.0 million with an option, subject to lender approval, to increase the amount we can borrow underto $450.0 million. Included in the Revolving Credit Facility is subject to certain borrowing limits. Specifically, we are limited to the suma $30.0 million sub-limit for “Swingline” loans and a $125.0 million sub-limit for letters of 90% of our eligible billed accounts receivable, plus 85% of our eligible unbilled accounts receivable limited to 15% of all our eligible receivables, plus the value of our Tacoma headquarters office building. The real estate lending limit is $17.4 million, and is reduced by $0.4 million on the first day of each calendar quarter. As of December 31, 2017, the Tacoma headquarters office building liquidation value totaled $11.8 million. The borrowing limit is further reduced by the sum of a reserve in an amount equal to the payroll and payroll taxes for our temporary employees for one payroll cycle and certain other reserves, if deemed applicable. Each borrowing has a stated maturity of 90 days or less.credit. At December 31, 2017, $221.5 million was available under the Revolving Credit Facility, $95.9 million was utilized as a draw on the facility, and $8.327, 2020, $6.1 million was utilized by outstanding standby letters of credit, leaving $117.4$293.9 million unused under the Revolving Credit Facility, which is constrained by our most restrictive covenant making $160.9 million available for additional borrowings. The letters of credit are primarily used to collateralize a portion of our workers’ compensation obligation.
Excess liquidity is an amount equal to the unused borrowing capacity underAt December 29, 2019, $37.1 million was drawn on the Revolving Credit Facility, plus certain unrestricted cash, cash equivalents and marketable securities. We are required to satisfywhich included a fixed charge coverage ratio in the event we do not meet the excess liquidity requirement. The additional amount available to borrow at December 31, 2017 was $117.4$17.1 million and the amount of cash and cash equivalents under control agreements was $19.0 million, for a total of $136.4 million, which was well in excess of the $37.5 million liquidity requirement in effect on December 31, 2017. We are currently in compliance with all covenants related to the Revolving Credit Facility.
Swingline loan.
Under the terms of the Revolving Credit Facility, we pay a variable rate of interest on funds borrowed that isunder the revolving line of credit in excess of the Swingline loans, based on the U.S. Dollar London Interbank Offered Rate (LIBOR)(“LIBOR”) plus an applicable spread between 1.25% and 2.00%3.50%. Alternatively, at our option, we may pay interest based uponon a base rate plus an applicable spread between 0.25% and 1.00%1.50%. The applicable spread is determined by certain liquidity to debt ratios. The base rate is the greater of the prime rate (as announced by Bank of America), or the federal funds rate plus 0.50%, or the one-month LIBOR rate plus 1.00%. At December 31, 2017, theThe applicable spread on LIBOR was 1.75%3.50% through the end of fiscal 2020, and will be determined by the applicable spreadconsolidated leverage ratio thereafter, as defined in the amended credit agreement.
Under the terms of the Revolving Credit Facility, we are required to pay a variable rate of interest on funds borrowed under the Swingline loan based on the base rate was 1.38%. As of December 31, 2017, the weighted average interest rate on outstanding borrowings was 3.13%.
plus applicable spread between 0.25% and 1.50%, as described above.
A commitment fee of 0.375%between 0.25% and 0.50% is applied against the Revolving Credit Facility’s unused borrowing capacity, when utilization is less than 25%, or 0.25% when utilization is greater than or equal to 25%.with the specific rate determined by the consolidated leverage ratio, as defined in the amended credit agreement. Letters of credit are priced at thea margin in effect for LIBOR loans,between 1.00% and 3.25%, plus a fronting fee of 0.125%0.50%.
Obligations under the Revolving Credit Facility are guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by a pledge of substantially all of the assets of TrueBlue and material U.S. domestic subsidiaries. The amended credit agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants. The Second Amendment suspended testing of certain covenant through June 27, 2021 (second quarter of 2021).
The following financial covenants, as defined in the Second and Third Amendments, are currently in effect through the second quarter of 2021:
•Asset Coverage Ratio of greater than 1.00, defined as the ratio of 60% of accounts receivable to the difference of total debt outstanding and unrestricted cash in excess of $50.0 million, subject to certain minimums. As of December 27, 2020, our asset coverage ratio was 27.4.
•Liquidity greater than $150.0 million, defined as the sum of unrestricted cash and availability under the aggregate revolving commitments. As of December 27, 2020, our liquidity was greater than $150.0 million at $356.4 million.
The following financial covenant, as defined in the Second Amendment, will be in effect for the first and second quarter of 2021:
•EBITDA, as defined in the amended credit agreement, greater than $12.0 million for the trailing three quarters ending Q1 2021 and greater than $15.0 million for the trailing four quarters ending Q2 2021. As of December 27, 2020, EBITDA for the trailing three and four quarters was $35.6 million and $47.0 million, respectively.
The following financial covenants, as defined in the Second Amendment, will be in effect starting the third quarter of 2021 and thereafter:
•Consolidated leverage ratio greater than 4.00 for the third and fourth quarters of 2021 and greater than 3.00 thereafter, defined as our funded indebtedness divided by trailing twelve months consolidated EBITDA, as defined in the amended credit agreement.
•Consolidated fixed charge coverage ratio greater than 1.25, defined as the trailing twelve months bank-adjusted cash flow divided by cash interest expense.
As of December 27, 2020, we were in compliance with all effective covenants related to the Revolving Credit Facility has variable rate interest and approximates fair value as of December 31, 2017 and January 1, 2017.
Facility.
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Term loan agreement
On February 4, 2013, we entered into an unsecured Term Loan Agreement (“Term Loan”) with Synovus Bank in the principal amount of $34.0 million. The Term Loan has a five-year maturity with fixed monthly principal payments, which total $2.3 million annually based on a loan amortization term of 15 years. Interest accrues at the one-month LIBOR index rate plus an applicable spread of 1.50%, which is paid in addition to the principal payments. At our discretion, we may elect to extend the term of the Term Loan by five consecutive one-year extensions. In October 2017, we extended the term of the Term Loan for one year. At December 31, 2017, the interest rate for the Term Loan was 2.86%.
At December 31, 2017, the remaining balance of the Term Loan was $22.9 million, of which $2.3 million is current and is included in other current liabilities on our Consolidated Balance Sheets. The Term Loan has variable rate interest and approximates fair value as of December 31, 2017 and January 1, 2017.
The scheduled principal payments for debt are as follows:
|
| | | |
| (in thousands) | |
| 2018 | $ | 2,267 |
|
| 2019 | 20,589 |
|
| Total | $ | 22,856 |
|
Our obligations under the Term Loan may be accelerated upon the occurrence of an event of default under the Term Loan, which includes customary events of default, as well as cross-defaults related to indebtedness under our Revolving Credit Facility and other Term Loan specific defaults. The Term Loan contains customary negative covenants applicable to the company and our subsidiaries such as indebtedness, certain dispositions of property, the imposition of restrictions on payments under the Term Loan, and other Term Loan specific covenants. We are currently in compliance with all covenants related to the Term Loan.
| |
NOTE 9: | NOTE 9: COMMITMENTS AND CONTINGENCIES |
Workers’ compensationcommitments
Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation, for which they become responsible should we become insolvent. The collateral typically takes the form of cash and cash equivalents, highly-rated investment grade debt securities, letters of credit, and/or surety bonds. On a regular basis these entities assess the amount of collateral they will require from us relative to our workers’ compensation obligation. The majority of our collateral obligations are held in the Trust.
We have provided our insurance carriers and certain states with commitments in the form and amounts listed below:
| | | | | | | | |
| (in thousands) | December 27,
2020 | December 29,
2019 |
| Cash collateral held by workers’ compensation insurance carriers | $ | 22,253 | | $ | 22,256 | |
| Cash and cash equivalents held in Trust | 29,410 | | 23,681 | |
| Investments held in Trust | 152,247 | | 149,373 | |
| Letters of credit (1) | 6,095 | | 6,202 | |
| Surety bonds (2) | 20,616 | | 20,731 | |
| Total collateral commitments | $ | 230,621 | | $ | 222,243 | |
|
| | | | | | |
| (in thousands) | December 31,
2017 | January 1,
2017 |
| Cash collateral held by workers’ compensation insurance carriers | $ | 22,148 |
| $ | 28,066 |
|
| Cash and cash equivalents held in Trust | 16,113 |
| 32,841 |
|
| Investments held in Trust | 171,752 |
| 146,517 |
|
| Letters of credit (1) | 7,748 |
| 7,982 |
|
| Surety bonds (2) | 19,829 |
| 20,440 |
|
| Total collateral commitments | $ | 237,590 |
| $ | 235,846 |
|
| |
(1) | We have agreements with certain financial institutions to issue letters of credit as collateral. |
| |
(2) | Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which are determined by each independent surety carrier. These fees do not exceed 2.0% of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days’ notice. |
(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.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Operating leases
We have contractual commitments in the form of operating leases related to office space, vehicles and equipment. Our leases have remaining terms of up to 16 years. Most leases include one or more options to renew, which can extend the lease term up to 10 years. The exercise of lease renewal options is at our sole discretion. Typically, at the commencement of a lease, we are not reasonably certain we will exercise renewal options, and accordingly they are not considered in determining the initial lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We rent or sublease real estate to third parties in limited circumstances.
Operating lease costs were comprised of the following:
| | | | | | | | |
| |
| (in thousands) | 2020 | 2019 |
| Operating lease costs | $ | 16,607 | | $ | 17,333 | |
| Short-term lease costs | 7,781 | | 7,110 | |
| Other lease costs (1) | 3,922 | | 4,722 | |
| Total lease costs | $ | 28,310 | | $ | 29,165 | |
(1)Other lease costs include immaterial variable lease costs, net of sublease income.
Other information related to our operating leases was as follows:
| | | | | | | | |
| December 27,
2020 | December 29,
2019 |
| Weighted average remaining lease term in years | 9.0 | 4.1 |
| Weighted average discount rate | 5.0% | 5.0% |
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Future non-cancelable minimum lease payments under our operating lease commitments as of December 31, 201727, 2020, are as follows for each of the next five years and thereafter:
| | | | | |
| (in thousands) | |
| 2021 | 7,164 | |
| 2022 | 12,415 | |
| 2023 | 10,149 | |
| 2024 | 7,420 | |
| 2025 | 5,165 | |
| Thereafter | 36,252 | |
| Total undiscounted future non-cancelable minimum lease payments (1) | 78,565 | |
| Less: Imputed interest (2) | 9,830 | |
| Present value of lease liabilities | $ | 68,735 | |
|
| | | |
| (in thousands) | |
| 2018 | $ | 8,779 |
|
| 2019 | 7,132 |
|
| 2020 | 6,370 |
|
| 2021 | 4,253 |
|
| 2022 | 1,218 |
|
| Thereafter | 502 |
|
| Total future non-cancelable minimum lease payments | $ | 28,254 |
|
Operating(2)Amount necessary to reduce net minimum lease payments to present value calculated using our incremental borrowing rates, which are consistent with the lease terms at adoption date (for those leases are generally renewed in the normal course of business, and mostexistence as of the options are negotiated atadoption date of the time of renewal. However, fornew lease standard) or lease inception (for those leases entered into after the majority of our office space leases, we have the right to cancel the lease, typically within 90 days of notification. Accordingly, we have not included the leases with these cancellation provisions in our disclosure of future minimum lease payments. Total rent expense for fiscal 2017, 2016 and 2015 was $25.9 million, $26.5 million and $23.1 million, respectively.
adoption date).
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 cancelablecancellable without significant penalty. We had $27.6$39.4 million of purchase obligations as of December 31, 2017,27, 2020, of which $9.2$22.5 million are expected to be paid in 2018.
2021.
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 10: | SHAREHOLDERS’ EQUITY |
NOTE 10: SHAREHOLDERS’ EQUITY
Common stock
During fiscal 2017, we repurchased shares using the remaining $29.4 million available under our $75.0 million share repurchase program. Under this program we repurchased and retired 4.8 million shares of our common stock at an average share price of $15.52, which excludes commissions. On September 15, 2017, our Board of Directors authorized a $100.0 million share repurchase program of our outstanding common stock. The share repurchase program does not obligate us to acquire any particular amount of common stock and does not have an expiration date. During the year ended December 31, 2017, we used $7.3 million under this new program to repurchase shares at an average share price of $27.90.
Shares of common stock outstanding include shares of unvested restricted stock. Unvested restricted stock included in reportable shares outstanding was 0.80.9 million and 0.70.8 million shares as of December 31,27, 2020 and December 29, 2019, respectively.
On September 15, 2017, our Board authorized a $100.0 million share repurchase program of our outstanding common stock. On October 16, 2019, our Board authorized a $100.0 million share repurchase program of our outstanding common stock. These share repurchase programs do not obligate us to acquire any particular amount of common stock and Januarydo not have an expiration date. We may choose to purchase shares in the open market, from individual holders, through an accelerated share repurchase program or otherwise.
As part of the existing share repurchase plans, on February 28, 2020 we entered into an accelerated share repurchase (“ASR”) agreement with a third-party financial institution to repurchase $40.0 million of our common stock. Under the ASR agreement, we paid $40.0 million to the financial institution and received an initial delivery of 2,150,538 shares in the first quarter of 2020, which represented 80% of the total shares we expected to receive based on the market price at the time of the initial delivery. This transaction was initiated prior to the medical community’s acknowledgment of the expected severity of the impact COVID-19 would have on the U.S.
The final number of shares delivered upon settlement of the agreement was determined by the volume weighted average price of our shares over the term of the ASR agreement, less the agreed-upon discount. On July 2, 2020, we settled our ASR agreement resulting in the receipt of 626,948 additional shares from the third-party financial institution. The total number of shares delivered under the ASR agreement was 2,777,486 with a volume weighted average price over the term of the ASR agreement of $14.40. During the year ended December 27, 2020, we repurchased an additional 779,068 shares in the open market, for a volume weighted average price of $15.85.
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
As of December 27, 2020, $66.7 million remains available for repurchase of common stock under the 2019 authorization. The second amendment to our credit agreement prohibits us from repurchasing shares until July 1, 2017, respectively.2021.
Preferred stock
We have authorized 2020.0 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 11: | NOTE 11: 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.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Our 2016 Omnibus Incentive Plan, effective May 11, 2016 (“Incentive Plan”), provides for the issuance or delivery of up to 1.541.5 million shares of our common stock over the full term of the Incentive Plan.
Restrictedand 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. UnrestrictedEffective 2020, restricted stock awards are granted to members of our Board and vest over an eight month period, or receipt of Directors vest immediately.the shares may be deferred until after a director leaves the Board. Prior to 2020, unrestricted stock awards were granted to members of our Board which vested immediately, or receipt of the shares could be deferred until after a director left the Board. 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.
PerformanceEffective 2020, performance share units have beenare only granted to executive officers andofficers. Prior to 2020, performance share units were also granted to certain key employees. Vesting of the performance share units is contingent upon the achievement of revenue and profitability growthreturn on equity goals at the end of each three-year performance period. Each performance share unit is equivalent to one1 share of common stock. Compensation expense is calculated based on the grant-date market value of our stock and is recognized ratably over the performance period for the performance share units which are expected to vest. Our estimate of the performance units expected to vest is reviewed and adjusted as appropriate each quarter.
Restricted and unrestricted stock awards and performance share units activity for the year ended December 31, 2017,27, 2020, was as follows:
| | | (shares in thousands) | Shares | Weighted- average grant-date price | (shares in thousands) | Shares | Weighted- average grant-date price |
| Non-vested at beginning of period | 1,209 |
| $ | 22.76 |
| Non-vested at beginning of period | 1,371 | | $ | 26.45 | |
| Granted | 657 |
| $ | 25.45 |
| Granted | 848 | | $ | 17.06 | |
| Vested | (438 | ) | $ | 23.73 |
| Vested | (448) | | $ | 24.55 | |
| Forfeited | (107 | ) | $ | 24.65 |
| Forfeited | (248) | | $ | 22.61 | |
| Non-vested at the end of the period | 1,321 |
| $ | 23.50 |
| Non-vested at the end of the period | 1,523 | | $ | 22.77 | |
The weighted average grant-date price of restricted and unrestricted stock awards and performance share units granted during the years 20162020, 2019 and 20152018 was $21.53$17.06, $23.05 and $23.03,$26.87, respectively. As of December 31, 2017,27, 2020, total unrecognized stock-based compensation expense related to non-vested restricted stock and performance share units, net of forfeitures, was approximately $11.9$12.4 million and $1.0 million, respectively, which isare estimated to be recognized over a weighted average period of 1.7 years. As of December 31, 2017, total unrecognized stock-based compensation expense related to performance share units was approximately $2.1 million, which is estimated to be recognized over a weighted average period of 2.0 years. The total fair value of restricted shares vested during fiscal 2017, 20162020, 2019 and 20152018 was $6.9$8.6 million, $6.6$8.2 million and $6.2$9.9 million, respectively. The totalTotal fair value of performance shared vested during fiscal 2020 was $2.0 million. NaN performance shares vested during fiscal 2017, 2016 and 2015 was $2.9 million, $3.3 million and $4.0 million, respectively.2019 or 2018.
Stock optionsOur Incentive Plan provides for both nonqualified stock options and incentive stock options (collectively, “stock options”) for directors, officers and certain employees. We issue new sharesPage - 70
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Employee Stock Purchase Plan
Our Employee Stock Purchase Plan (“ESPP”)ESPP reserves for purchase 1.0 million shares of common stock.stock for purchase. 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%85.0% 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.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table summarizes transactions under our ESPP from fiscal 2017, 20162020, 2019 and 2015:2018:
| | | (shares in thousands) | | Shares | Average price per
share | (shares in thousands) | | Shares | Average price per share |
| Issued during fiscal | 2017 | 72 |
| $ | 20.43 |
| Issued during fiscal | 2020 | 68 | | $ | 13.46 | |
| Issued during fiscal | 2016 | 87 |
| $ | 17.51 |
| Issued during fiscal | 2019 | 73 | | $ | 18.31 | |
| Issued during fiscal | 2015 | 68 |
| $ | 20.65 |
| Issued during fiscal | 2018 | 68 | | $ | 22.17 | |
Stock-based compensation expense
Total stock-based compensation expense for fiscal years 2017, 20162020, 2019 and 2015,2018, which is included in Selling, general and administrativeSG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), was $7.7$9.1 million, $9.4$9.8 million and $11.1$13.9 million, respectively. The related tax benefit was $2.7$1.9 million, $3.3$2.1 million and $3.9$2.9 million for fiscal 2017, 20162020, 2019 and 2015,2018, respectively.
| |
NOTE 12: | NOTE 12: 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 plansplan was $24.1$30.6 million and $17.8$31.2 million as of December 31, 201727, 2020 and January 1, 2017, respectively. The currentDecember 29, 2019, respectively, of which $4.2 million and non-current portion of the deferred compensation liability is$4.4 million have been included in other current liabilitiesAccrued wages and other long-term liabilities, respectively, on our Consolidated Balance Sheets, and is largely offset by restricted investments recorded in restricted cash and investmentsbenefits on our Consolidated Balance Sheets. The expense for our qualified and non-qualified deferred compensation plans, including our discretionary matching contributions, totaled $6.1$3.7 million, $5.5 million and $5.3 million for fiscal 20172020, 2019 and $2.8 million for 2016 and 2015,2018, respectively, and is recorded in selling, general and administrativeSG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss).
| |
NOTE 13: | NOTE 13: INCOME TAXES |
The provision for income taxes is comprised of the following:
| | | | Years ended | |
| (in thousands) | 2017 | 2016 | 2015 | (in thousands) | 2020 | 2019 | 2018 |
| Current taxes: | | Current taxes: | |
| Federal | $ | 12,134 |
| $ | 12,082 |
| $ | 12,665 |
| Federal | $ | (7,318) | | $ | (933) | | $ | 5,088 | |
| State | 3,979 |
| 5,448 |
| 5,611 |
| State | (382) | | 3,835 | | 5,208 | |
| Foreign | 3,545 |
| 2,677 |
| 1,882 |
| Foreign | 3,045 | | 2,806 | | 1,542 | |
| Total current taxes | 19,658 |
| 20,207 |
| 20,158 |
| Total current taxes | (4,655) | | 5,708 | | 11,838 | |
| Deferred taxes: | | Deferred taxes: | |
| Federal | 3,645 |
| (20,693 | ) | 4,963 |
| Federal | (22,416) | | 846 | | (1,283) | |
| State | (195 | ) | (4,064 | ) | 81 |
| State | (3,369) | | 1,216 | | 120 | |
| Foreign | (1,014 | ) | (539 | ) | (2 | ) | Foreign | (981) | | (799) | | (766) | |
| Total deferred taxes | 2,436 |
| (25,296 | ) | 5,042 |
| Total deferred taxes | (26,766) | | 1,263 | | (1,929) | |
| Provision for income taxes | $ | 22,094 |
| $ | (5,089 | ) | $ | 25,200 |
| Provision for income taxes | $ | (31,421) | | $ | 6,971 | | $ | 9,909 | |
| | | | | | | | |
| 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 inon the Consolidated Statements of Operations and Comprehensive Income (Loss) are as follows:
| | | | Years ended | |
| (in thousands, except percentages) | 2017 | % | 2016 | % | 2015 | % | (in thousands, except percentages) | 2020 | % | 2019 | % | 2018 | % |
| Income tax expense (benefit) based on statutory rate | $ | 27,140 |
| 35.0 | % | $ | (7,119 | ) | 35.0 | % | $ | 33,745 |
| 35.0 | % | Income tax expense (benefit) based on statutory rate | $ | (36,385) | | 21.0 | % | $ | 14,709 | | 21.0 | % | $ | 15,889 | | 21.0 | % |
| Increase (decrease) resulting from: | | | | | | | Increase (decrease) resulting from: | |
| State income taxes, net of federal benefit | 2,667 |
| 3.4 | % | 1,373 |
| (6.8 | )% | 4,175 |
| 4.3 | % | State income taxes, net of federal benefit | (6,631) | | 3.8 | | 3,666 | | 5.3 | | 3,826 | | 5.1 | |
| Tax credits, net | (9,964 | ) | (12.9 | )% | (17,141 | ) | 84.3 | % | (14,483 | ) | (15.0 | )% | |
| Transition to the U.S. Tax Cuts and Job Act | 2,466 |
| 3.2 | % | — |
| — | % | — |
| — | % | |
| Job and other tax credits, net | | Job and other tax credits, net | (7,719) | | 4.5 | | (13,627) | | (19.4) | | (12,303) | | (16.3) | |
| Benefit from the CARES Act | | Benefit from the CARES Act | (2,939) | | 1.7 | | 0 | | 0 | | 0 | | 0 | |
| | Non-deductible goodwill impairment charge | — |
| — | % | 17,694 |
| (87.0 | )% | — |
| — | % | Non-deductible goodwill impairment charge | 21,849 | | (12.6) | | 0 | | 0 | | 0 | | 0 | |
| Non-deductible/non-taxable items | 1,157 |
| 1.5 | % | 630 |
| (3.1 | )% | 2,456 |
| 2.5 | % | Non-deductible/non-taxable items | 124 | | (0.1) | | 1,559 | | 2.2 | | 1,191 | | 1.6 | |
| Foreign taxes | (342 | ) | (0.4 | )% | 993 |
| (4.8 | )% | (933 | ) | (1.0 | )% | Foreign taxes | (977) | | 0.5 | | 282 | | 0.4 | | 735 | | 1.0 | |
| Other, net | (1,030 | ) | (1.3 | )% | (1,519 | ) | 7.4 | % | 240 |
| 0.3 | % | Other, net | 1,257 | | (0.7) | | 382 | | 0.5 | | 571 | | 0.7 | |
| Total taxes on income (loss) | $ | 22,094 |
| 28.5 | % | $ | (5,089 | ) | 25.0 | % | $ | 25,200 |
| 26.1 | % | |
| Total tax expense (benefit) | | Total tax expense (benefit) | $ | (31,421) | | 18.1 | % | $ | 6,971 | | 10.0 | % | $ | 9,909 | | 13.1 | % |
Our effective tax rate for fiscal 20172020 was 28.5%18.1%. The difference between the statutory federal income tax rate of 35.0%21.0% and our effective income tax rate results primarily from a nondeductible goodwill and intangible asset impairment charge, the impact of the CARES Act and the federal Work Opportunity Tax Credit (“WOTC”). This tax credit is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. During fiscal 2017, we recognized $1.4 million of tax benefits from prior year WOTC. Other differences between the statutory federal income tax rate of 35.0% and our effective tax rate of 28.5% result from state and foreign income taxes, certain non-deductible expenses, tax exempt interest, and tax effects of share basedstock-based compensation. Differences also result
The non-cash impairment charge of $175.2 million, recorded in the first quarter of 2020, includes $84.7 million (tax effect of $21.8 million) related to reporting units from the stock acquisitions and accordingly are not deductible for tax purposes. The remaining impairment charges of $90.5 million (tax effect of $23.3 million) related to reporting units from asset acquisitions and accordingly are deductible for tax purposes.
U.S. Tax Cuts and Job Act (the “Tax Act”) enacted December 22, 2017.
As a resultinternational components of the Tax Act, we recognized $2.5 million of additionalincome before tax expense from a one-time transition tax on deemed repatriated earnings of foreign subsidiaries and from the revaluation of net deferred tax assets to reflect the federal tax rate reduction from 35.0% to 21.0%. Upon completion of our fiscal 2017 U.S. income tax return in 2018, we may identify adjustments to our recorded transition tax and remeasurement of our net deferred tax assets. We will continue to assess our provision for income taxeswas as future guidance is issued, but do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.follows:
| | | | | | | | | | | |
| |
| (in thousands) | 2020 | 2019 | 2018 |
| U.S. | $ | (148,492) | | $ | 61,610 | | $ | 73,051 | |
| International | (24,770) | | 8,434 | | 2,612 | |
| Income (loss) before tax expense (benefit) | $ | (173,262) | | $ | 70,044 | | $ | 75,663 | |
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The components of deferred tax assets and liabilities were as follows:
| | | (in thousands) | December 31,
2017 | January 1,
2017 | (in thousands) | December 27,
2020 | December 29,
2019 |
| Deferred tax assets: | | Deferred tax assets: | |
| Allowance for doubtful accounts | $ | 876 |
| $ | 1,970 |
| Allowance for doubtful accounts | $ | 991 | | $ | 973 | |
| Workers’ compensation | 1,420 |
| — |
| Workers’ compensation | 0 | | 817 | |
| Accounts payable and other accrued expenses | 4,000 |
| 8,577 |
| Accounts payable and other accrued expenses | 7,933 | | 3,818 | |
| Net operating loss carryforwards | 2,388 |
| 2,287 |
| Net operating loss carryforwards | 3,679 | | 2,085 | |
| Tax credit carryforwards | 1,615 |
| 2,835 |
| Tax credit carryforwards | 18,461 | | 9,528 | |
| Accrued wages and benefits | 4,644 |
| 9,470 |
| Accrued wages and benefits | 7,938 | | 5,148 | |
| | Deferred compensation | 4,484 |
| 7,003 |
| Deferred compensation | 10,130 | | 6,622 | |
| Lease liabilities | | Lease liabilities | 21,771 | | 8,670 | |
| Other | 841 |
| 1,090 |
| Other | 1,047 | | 969 | |
| Total | 20,268 |
| 33,232 |
| Total | 71,950 | | 38,630 | |
| Valuation allowance | (2,508 | ) | (2,266 | ) | Valuation allowance | (3,072) | | (1,780) | |
| Total deferred tax asset, net of valuation allowance | 17,760 |
| 30,966 |
| Total deferred tax asset, net of valuation allowance | 68,878 | | 36,850 | |
| Deferred tax liabilities: | | Deferred tax liabilities: | |
| Prepaid expenses, deposits and other current assets | (2,096 | ) | (2,697 | ) | Prepaid expenses, deposits and other current assets | (1,840) | | (1,282) | |
| Lease right-of-use assets | | Lease right-of-use assets | (20,692) | | (7,985) | |
| Depreciation and amortization | (11,881 | ) | (18,330 | ) | Depreciation and amortization | (13,274) | | (24,355) | |
| Workers’ compensation | — |
| (3,169 | ) | Workers’ compensation | (3,053) | | 0 | |
| | Total deferred tax liabilities | (13,977 | ) | (24,196 | ) | Total deferred tax liabilities | (38,859) | | (33,622) | |
| Net deferred tax (liabilities) asset, end of year | $ | 3,783 |
| $ | 6,770 |
| |
| Deferred income taxes, net | | Deferred income taxes, net | $ | 30,019 | | $ | 3,228 | |
Deferred taxes related to our foreign currency translation were de minimisimmaterial for fiscal 2017, 20162020, 2019 and 2015.2018.
The activity related to the income tax valuation allowance was as follows:
| | | | | | | | | | | |
| (in thousands) | 2020 | 2019 | 2018 |
| Beginning balance | $ | 1,780 | | $ | 2,079 | | $ | 2,508 | |
| | | |
| Charged to expense | 1,292 | | 0 | | 0 | |
| | | |
| Release of allowance | 0 | | (299) | | (429) | |
| Ending balance | $ | 3,072 | | $ | 1,780 | | $ | 2,079 | |
The following table summarizes our net operating losses (“NOLs”)NOLs and credit carryforwards along with their respective valuation allowance as of December 31, 2017:27, 2020:
|
| | | | | | | | | | |
| (in thousands) | Carryover tax benefit | Valuation allowance | Expected benefit | Year expiration begins |
| Year-end tax attributes: | | | | |
| State NOLs | $ | 1,593 |
| $ | (349 | ) | $ | 1,244 |
| Various |
| Foreign NOLs | 795 |
| (795 | ) | — |
| Various |
| California Enterprise Zone credits (1) | 1,615 |
| (1,364 | ) | 251 |
| 2023 |
| Total | $ | 4,003 |
| $ | (2,508 | ) | $ | 1,495 |
| |
| |
(1) | The California Enterprise Zone credits fully expire in 2023. |
We have not provided for deferred income taxes relating to undistributed foreign earnings as we consider those earning to be permanently invested. Determination of the unrecognized deferred tax liability that would be incurred if such amounts were repatriated is not practicable. | | | | | | | | | | | | | | |
| (in thousands) | Carryover tax benefit | Valuation allowance | Expected
benefit | Year expiration begins |
| Year-end tax attributes: | | | | |
| Federal WOTCs | $ | 17,049 | | $ | 0 | | $ | 17,049 | | 2039 |
| State NOLs | 2,949 | | (931) | | 2,018 | | Various |
| Foreign NOLs | 730 | | (730) | | 0 | | Various |
| California Enterprise Zone credits | 1,411 | | (1,411) | | 0 | | 2023 |
| Foreign alternative minimum tax credits | 1,103 | | 0 | | 1,103 | | 2028 |
| Total | $ | 23,242 | | $ | (3,072) | | $ | 20,170 | | |
As of December 31, 2017,27, 2020, our liability for unrecognized tax benefits was $2.2$1.9 million. If recognized, $1.7$1.5 million would impact our effective tax rate. We do not believe the amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the year ended December 31, 2017.27, 2020. This liability is recorded in other non-currentlong-term liabilities on our Consolidated
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Balance Sheets. In general, the tax years 20142017 through 20162019 remain open to examination by the major taxing jurisdictions where we conduct business.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table summarizes the activity related to our unrecognized tax benefits:
| | (in thousands) | | (in thousands) | 2020 | 2019 | 2018 |
| Beginning balance | | Beginning balance | $ | 2,078 | | $ | 2,190 | | $ | 2,210 | |
| Increases for tax positions related to the current year | | Increases for tax positions related to the current year | 218 | | 318 | | 377 | |
| | | | Years ended | |
| (in thousands) | 2017 | 2016 | 2015 | |
| Balance, beginning of fiscal year | $ | 2,242 |
| $ | 2,195 |
| $ | 2,039 |
| |
| Increases for tax positions related to the current year | 356 |
| 348 |
| 436 |
| |
| Reductions due to lapsed statute of limitations | (388 | ) | (301 | ) | (280 | ) | Reductions due to lapsed statute of limitations | (366) | | (430) | | (397) | |
| Balance, end of fiscal year | $ | 2,210 |
| $ | 2,242 |
| $ | 2,195 |
| |
| Ending balance | | Ending balance | $ | 1,930 | | $ | 2,078 | | $ | 2,190 | |
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).Income. 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 minimisan immaterial amount for interest and penalties during fiscal 20172020 and, in total, as of December 31, 2017,27, 2020, have recognized a liability for penalties of $0.2 million and interest of $0.9$1.1 million.
| |
NOTE 14: | NOTE 14: NET INCOME (LOSS) PER SHARE |
Diluted common shares were calculated as follows:
| | | | | | | | | | | |
| |
| (in thousands, except per share data) | 2020 | 2019 | 2018 |
| Net income (loss) | $ | (141,841) | | $ | 63,073 | | $ | 65,754 | |
| | | |
| Weighted average number of common shares used in basic net income (loss) per common share | 35,365 | | 38,778 | | 39,985 | |
| Dilutive effect of non-vested restricted stock | 0 | | 401 | | 290 | |
| Weighted average number of common shares used in diluted net income (loss) per common share | 35,365 | | 39,179 | | 40,275 | |
| Net income (loss) per common share: | | | |
| Basic | $ | (4.01) | | $ | 1.63 | | $ | 1.64 | |
| Diluted | $ | (4.01) | | $ | 1.61 | | $ | 1.63 | |
| | | |
| Anti-dilutive shares | 894 | | 225 | | 538 | |
|
| | | | | | | | | |
| | Years ended |
| (in thousands, except per share data) | 2017 | 2016 | 2015 |
| Net income (loss) | $ | 55,456 |
| $ | (15,251 | ) | $ | 71,247 |
|
| | | | |
| Weighted average number of common shares used in basic net income (loss) per common share | 41,202 |
| 41,648 |
| 41,226 |
|
| Dilutive effect of non-vested restricted stock | 239 |
| — |
| 396 |
|
| Weighted average number of common shares used in diluted net income (loss) per common share | 41,441 |
| 41,648 |
| 41,622 |
|
| Net income (loss) per common share: | | | |
| Basic | $ | 1.35 |
| $ | (0.37 | ) | $ | 1.73 |
|
| Diluted | $ | 1.34 |
| $ | (0.37 | ) | $ | 1.71 |
|
| | | | |
| Anti-dilutive shares | 418 |
| — |
| 89 |
|
| |
NOTE 15: | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
Accumulated other comprehensive income (loss) is reflected asSince we reported a net increase (decrease) to shareholders’ equity and consists of foreign currency translation adjustments and the unrealized gains and losses, net of taxes, on available-for-sale securities. Changes in the balance of each component of accumulated other comprehensive income (loss) during the years ended December 31, 2017 and January 1, 2017 were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | Years ended |
| | December 31, 2017 | | January 1, 2017 |
| (in thousands) | Balance at beginning of period | Current period other comprehensive income | Balance at end of period | | Balance at beginning of period | Current period other comprehensive income | Balance at end of period |
| Foreign currency translation adjustment | $ | (11,684 | ) | $ | 3,355 |
| $ | (8,329 | ) | | $ | (13,514 | ) | $ | 1,830 |
| $ | (11,684 | ) |
| Unrealized gain (loss) on investments (1) | 251 |
| 1,274 |
| 1,525 |
| | (499 | ) | 750 |
| 251 |
|
| Total other comprehensive income (loss), net of tax | $ | (11,433 | ) | $ | 4,629 |
| $ | (6,804 | ) | | $ | (14,013 | ) | $ | 2,580 |
| $ | (11,433 | ) |
| |
(1) | Consists of deferred compensation plan accounts, which are comprised of mutual funds classified as available-for-sale securities. The tax impact on unrealized gain on available-for-sale securities was $0.5 millionloss for fiscal 2017 and de minimis for fiscal 2016. |
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
During the year ended December 31, 2017, $1.2 million ($0.8 million after tax) of unrealized gain on investments was reclassified out of accumulated other comprehensive income (loss)27, 2020, all potentially dilutive securities were antidilutive and recorded in interestaccordingly, basic net loss per share and other income on the Consolidated Statements of Operations and Comprehensive Income (Loss). Therediluted net loss per share were no material reclassifications out of accumulated other comprehensive loss during 2016 nor 2015.equal.
| |
NOTE 16: | NOTE 15: SEGMENT INFORMATION |
Our operating segments are based on the organizational structure for which financial results are regularly reviewed by our chief operating decision-maker, our Chief Executive Officer, to determine resource allocation and assess performance. Our service lines, which are our operating segments, and our reportable segments are described below:
Our PeopleReady reportable segment provides blue-collar, contingent staffing through the PeopleReady service line.operating segment. PeopleReady provides on-demand and skilled labor in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, retail, waste and recycling, energy, hospitality, and general labor and others.labor.
Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-premiseon-site at the customer’sclient’s facility, through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:
Staff Management | SMX•On-site: Exclusive recruitment and on-premise management of a facility’s contingent industrial workforce;
SIMOS Insourcing Solutions: On-premiseOn-site management and recruitment for the contingent industrial workforce of warehouse/manufacturing, warehouse, and distribution operations;
facilities; and•Centerline Drivers: Recruitment and management of temporarycontingent and dedicated commercial drivers to the transportation and distribution industries; andindustries.
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Effective March 12, 2018, we divested the PlaneTechs business within our PeopleManagement reportable segment. For additional information, see Note 2: RecruitmentAcquisition and on-premise management of skilled mechanics and technicians to the aviation and transportation industries.
Divestiture.Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing, employer branding services and management of outsourced labor service providers through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:
•PeopleScout RPO: Outsourced recruitment of permanent employees on behalf of customers;clients and
employer branding services; and•PeopleScout MSP: Management of multiple third partythird-party staffing vendors on behalf of customers.
clients.We have two primary measures of segment performance: revenue from servicesEffective June 12, 2018, we acquired TMP through PeopleScout. Accordingly, the results associated with the acquisition are included in our PeopleScout operating segment. For additional information, see Note 2: Acquisition and segment earnings before interest, taxes, depreciation and amortization (“segment EBITDA”)Divestiture. Segment EBITDA includes net sales to third parties, related cost of sales, selling, general and administrative expense, and goodwill and intangible impairment charges directly attributable to the reportable segment together with certain allocated corporate general and administrative expense. Segment EBITDA excludes unallocated corporate general and administrative expense.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table presents our revenue disaggregated by major source and segment and a reconciliation of segment revenue from services to total company revenue:
| | | | Years ended | |
| (in thousands) | 2017 | 2016 | 2015 | (in thousands) | 2020 | 2019 | 2018 |
| Revenue from services: | | |
| Revenue from services | | Revenue from services | |
| Contingent staffing | | Contingent staffing | |
| PeopleReady | $ | 1,511,360 |
| $ | 1,629,455 |
| $ | 1,625,817 |
| PeopleReady | $ | 1,099,462 | | $ | 1,474,062 | | $ | 1,522,076 | |
| PeopleManagement | 807,273 |
| 940,453 |
| 965,331 |
| PeopleManagement | 586,822 | | 642,233 | | 728,254 | |
| Human resource outsourcing | | Human resource outsourcing | |
| PeopleScout | 190,138 |
| 180,732 |
| 104,532 |
| PeopleScout | 160,076 | | 252,484 | | 248,877 | |
| | Total company | $ | 2,508,771 |
| $ | 2,750,640 |
| $ | 2,695,680 |
| Total company | $ | 1,846,360 | | $ | 2,368,779 | | $ | 2,499,207 | |
The following table presents a reconciliation of segment EBITDAprofit to income (loss) before tax expense:
| | | | | | | | | | | |
| |
| (in thousands) | 2020 | 2019 | 2018 |
| Segment profit: | | | |
| PeopleReady | $ | 43,200 | | $ | 82,106 | | $ | 85,998 | |
| PeopleManagement | 11,717 | | 12,593 | | 21,627 | |
| PeopleScout | 4,525 | | 37,831 | | 47,383 | |
| 59,442 | | 132,530 | | 155,008 | |
| Corporate unallocated | (20,714) | | (21,870) | | (26,066) | |
| Work Opportunity Tax Credit processing fees | (495) | | (960) | | (985) | |
| Acquisition/integration costs | 0 | | (1,562) | | (2,672) | |
| Goodwill and intangible asset impairment charge | (175,189) | | 0 | | 0 | |
| Gain on deferred compensation assets | (1,725) | | (495) | | 0 | |
| Workforce reduction costs | (12,570) | | (3,301) | | 0 | |
| COVID-19 government subsidies, net | 6,211 | | 0 | | 0 | |
| Other benefits (costs) | 2,189 | | (614) | | (10,317) | |
| Depreciation and amortization | (32,031) | | (37,549) | | (41,049) | |
| Income (loss) from operations | (174,882) | | 66,179 | | 73,919 | |
| Interest expense and other income, net | 1,620 | | 3,865 | | 1,744 | |
| Income (loss) before tax expense (benefit) | $ | (173,262) | | $ | 70,044 | | $ | 75,663 | |
|
| | | | | | | | | |
| | Years ended |
| (in thousands) | 2017 | 2016 | 2015 |
| Segment EBITDA (1): | | | |
| PeopleReady | $ | 78,372 |
| $ | 101,270 |
| $ | 123,899 |
|
| PeopleManagement | 27,043 |
| (60,452 | ) | 36,512 |
|
| PeopleScout | 39,232 |
| 19,116 |
| 9,324 |
|
| | 144,647 |
| 59,934 |
| 169,735 |
|
| Corporate unallocated | (20,968 | ) | (30,237 | ) | (30,050 | ) |
| Depreciation and amortization | (46,115 | ) | (46,692 | ) | (41,843 | ) |
| Income (loss) from operations | 77,564 |
| (16,995 | ) | 97,842 |
|
| Interest and other expense, net | (14 | ) | (3,345 | ) | (1,395 | ) |
| Income (loss) before tax expense | $ | 77,550 |
| $ | (20,340 | ) | $ | 96,447 |
|
| | |
(1) | Segment EBITDA was previously referred to as segment income (loss) from operations. This change had no impact on the amounts reported. |
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| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Our international operations are primarily in Canada, Australia and Australia. Revenuesthe United Kingdom. Revenue by region werewas as follows:
| | | | Years ended | |
| (in thousands, except percentages) | 2017 | % | 2016 | % | 2015 | % | (in thousands, except percentages) | 2020 | % | 2019 | % | 2018 | % |
| United States | $ | 2,387,992 |
| 95.2 | % | $ | 2,644,414 |
| 96.1 | % | $ | 2,603,085 |
| 96.6 | % | United States | $ | 1,729,171 | | 93.7 | % | $ | 2,222,543 | | 93.8 | % | $ | 2,369,024 | | 94.8 | % |
| International operations | 120,779 |
| 4.8 | % | 106,226 |
| 3.9 | % | 92,595 |
| 3.4 | % | International operations | 117,189 | | 6.3 | | 146,236 | | 6.2 | | 130,183 | | 5.2 | |
| Total revenue from services | $ | 2,508,771 |
| 100.0 | % | $ | 2,750,640 |
| 100.0 | % | $ | 2,695,680 |
| 100.0 | % | Total revenue from services | $ | 1,846,360 | | 100.0 | % | $ | 2,368,779 | | 100.0 | % | $ | 2,499,207 | | 100.0 | % |
No single customerclient represented more than 10%10.0% of total company revenue for fiscal 2017 nor 2016. One customer represented 13.1% of total company revenue for fiscal 2015. Customer2020, 2019 or 2018. Client concentration for our reportable segments iswas as follows:
•No single customerclient represented 10.0% or more than 10.0% of our PeopleReady reportable segment revenue for fiscal 2017, 2016, nor 2015.2020, 2019, or 2018.
No single customer•One client represented more than10.1% and 10.0% of our PeopleManagement reportable segment revenue for fiscal 2017. One customer2020 and 2019, respectively. No single client represented 18.2% and 36.7%10.0% or more of our PeopleManagement reportable segment revenue infor fiscal 20162018.
•One client represented 10.1%,12.5% and 2015, respectively.
Two customers represented 14.4% and 10.1%, respectively13.3% of our PeopleScout reportable segment revenue for fiscal 2017,2020, 2019 and 12.8% and 10.0%, respectively for fiscal 2016. Two different customers represented 10.6% and 10.2%, respectively of our PeopleScout reportable segment revenue for fiscal 2015.
2018, respectively.
Net property and equipment located in international operations was approximately 9.1%6.5% and 7.1%6.8% of total property and equipment as of December 31, 201727, 2020 and January 1, 2017,December 29, 2019, respectively.
NOTE 16: SUBSEQUENT EVENT
On January 28, 2021, we entered into the Third Amendment of our Revolving Credit Facility, which clarified the definition of the Asset Coverage Ratio financial covenant. The effective date of the Third Amendment was the last day of fiscal 2020 (December 27, 2020). The Third Amendment clarified the difference between the total outstanding balance of the Revolving Credit Facility and 60.0% of accounts receivable and unrestricted cash in excess of $50.0 million may not be less than zero. If the amount is less than zero, then the Asset Coverage Ratio is defined as the ratio of 60.0% of accounts receivable to total debt outstanding.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Page - 76
| | |
NOTE 17: | SELECTED QUARTERLY FINANCIAL DATA |
|
| | | | | | | | | | | | |
| (unaudited; in thousands, except per share data) | First | Second | Third | Fourth |
| 2017 | | | | |
| Revenue from services | $ | 568,244 |
| $ | 610,122 |
| $ | 660,780 |
| $ | 669,625 |
|
| Cost of services | 428,815 |
| 454,842 |
| 488,761 |
| 501,880 |
|
| Gross profit | 139,429 |
| 155,280 |
| 172,019 |
| 167,745 |
|
| Selling, general and administrative expense | 121,844 |
| 124,754 |
| 131,552 |
| 132,644 |
|
| Depreciation and amortization | 11,174 |
| 12,287 |
| 11,189 |
| 11,465 |
|
| Income from operations | 6,411 |
| 18,239 |
| 29,278 |
| 23,636 |
|
| Interest expense | (1,232 | ) | (1,296 | ) | (1,365 | ) | (1,601 | ) |
| Interest and other income | 1,306 |
| 1,451 |
| 1,146 |
| 1,577 |
|
| Interest and other income (expense), net | 74 |
| 155 |
| (219 | ) | (24 | ) |
| Income before tax expense | 6,485 |
| 18,394 |
| 29,059 |
| 23,612 |
|
| Income tax expense | 1,811 |
| 5,260 |
| 7,838 |
| 7,185 |
|
| Net income | $ | 4,674 |
| $ | 13,134 |
| $ | 21,221 |
| $ | 16,427 |
|
| Net income per common share: | | | | |
| Basic | $ | 0.11 |
| $ | 0.32 |
| $ | 0.52 |
| $ | 0.41 |
|
| Diluted | $ | 0.11 |
| $ | 0.31 |
| $ | 0.51 |
| $ | 0.40 |
|
| | | | | |
| 2016 | | | | |
| Revenue from services | $ | 645,980 |
| $ | 672,612 |
| $ | 697,097 |
| $ | 734,951 |
|
| Cost of services | 495,468 |
| 502,688 |
| 518,702 |
| 554,064 |
|
| Gross profit | 150,512 |
| 169,924 |
| 178,395 |
| 180,887 |
|
| Selling, general and administrative expense | 130,624 |
| 135,787 |
| 134,679 |
| 145,387 |
|
| Depreciation and amortization | 11,289 |
| 11,694 |
| 11,690 |
| 12,019 |
|
| Goodwill and intangible asset impairment charge | — |
| 99,269 |
| 4,275 |
| — |
|
| Income (loss) from operations | 8,599 |
| (76,826 | ) | 27,751 |
| 23,481 |
|
| Interest expense | (1,969 | ) | (1,740 | ) | (1,721 | ) | (1,736 | ) |
| Interest and other income | 950 |
| 853 |
| 854 |
| 1,164 |
|
| Interest and other income (expense), net | (1,019 | ) | (887 | ) | (867 | ) | (572 | ) |
| Income (loss) before tax expense | 7,580 |
| (77,713 | ) | 26,884 |
| 22,909 |
|
| Income tax expense (benefit) | 612 |
| (13,978 | ) | 3,455 |
| 4,822 |
|
| Net income (loss) | $ | 6,968 |
| $ | (63,735 | ) | $ | 23,429 |
| $ | 18,087 |
|
| Net income (loss) per common share: | | | | |
| Basic | $ | 0.17 |
| $ | (1.53 | ) | $ | 0.56 |
| $ | 0.43 |
|
| Diluted | $ | 0.17 |
| $ | (1.53 | ) | $ | 0.56 |
| $ | 0.43 |
|
| |
NOTE 18: | SUBSEQUENT EVENTS |
We evaluated events and transactions occurring after the balance sheet date through the date the financial statements were issued, and identified no other events that were subject to recognition or disclosure.
|
| | | | |
| Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
|
| | | | |
| Item 9A. | CONTROLS AND PROCEDURES |
Disclosure controls and procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Rule 13a-15(b) of the Securities Exchange Act Rule 13a-15(b)of 1934, as amended as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of December 31, 2017.
27, 2020.
Report of management on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions;transactions and disposition of assets; providing reasonable assurance that transactions are recorded as necessary forto permit preparation of our financial statements;statements in accordance with accounting principles generally accepted in the United States of America; providing reasonable assurance that receipts and expenditures are made only in accordance with management and director authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2017.27, 2020. Our internal control over financial reporting as of December 31, 201727, 2020 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein. Management did identify that, there was a material weakness in our internal control over financial reporting dating back to the fiscal year ended January 1, 2017, as described further below.
A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis. During the fourth quarter of 2017, we identified and remediated a material weakness in the operating effectiveness of our internal control over financial reporting related to the operating effectiveness of the internal investigation, communication and required escalation of certain employee hotline incidents. The control was not operating as designed because reporting of certain employee hotline incidents were not sufficiently investigated, communicated and escalated to the appropriate levels in accordance with Company policy. The company remediated the control by adding additional reporting and monitoring practices to ensure the appropriate investigation, communication and escalation for certain employee hotline reports, as well as providing additional education regarding responsibilities. As of December 31, 2017, we concluded that the material weakness was sufficiently remediated. Our independent registered public accounting firm, Deloitte & Touche, LLP, who audited the consolidated financial statements included in this annual report, has expressed an unqualified report on the operating effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.
Other than the remediation of the control deficiency discussed above, thereThere were no material changes in our internal control over financial reporting during the quarter and fiscal year ended December 31, 201727, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. During fiscal year 2017, we implemented internal controls to ensure we have adequately evaluated our contracts and properly assessed the impact of the new accounting standards related to revenue recognition on our financial statements to facilitate the adoption on January 1, 2018. We do not expect significant changes to our internal control over financial reporting due to the adoption of the new standard.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of TrueBlue, Inc.
Tacoma, Washington
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of TrueBlue, Inc., and subsidiaries (the “Company”) as of December 31, 201727, 2020 based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,27, 2020, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 201727, 2020 of the Company and our report dated February 26, 201822, 2021 expressed an unqualified opinion on those financial statements and financial statement schedule.
statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Seattle, Washington
February 26, 2018
22, 2021
|
| | | | |
| Item 9B. | OTHER INFORMATION |
None
None.
PART III
|
| | | | |
| Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information regarding our directors and nominees for directorship is presented under the heading “Election of Directors” in our definitive proxy statement for use in connection with the 20182021 Annual Meeting of Shareholders (the “Proxy Statement”) to be filed within 120 days after our fiscal year ended December 31, 2017,27, 2020, and is incorporated herein by this reference thereto. Information concerning our executive officers is set forth under the heading “Executive Officers” in our Proxy Statement, and is incorporated herein by reference thereto. Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, our codeCode of business conductConduct and ethicsBusiness Ethics and certain information related to the company’s Audit Committee and Governance Committee is set forth under the heading “Corporate Governance” in our Proxy Statement, and is incorporated herein by reference thereto.
|
| | | | |
| Item 11. | EXECUTIVE COMPENSATION |
Information regarding the compensation of our directors and executive officers and certain information related to the company’s Compensation Committee is set forth under the headings “Executive Compensation Tables,” “Compensation of Directors,” “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” in our Proxy Statement, and is incorporated herein by this reference thereto.
|
| | | | |
| Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information with respect to security ownership of certain beneficial owners and management is set forth under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our Proxy Statement, and is incorporated herein by this reference thereto.
|
| | | | |
| Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Information regarding certain relationships and related transactions and director independence is presented under the heading “Corporate Governance” in our Proxy Statement, and is incorporated herein by this reference thereto.
|
| | | | |
| Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Information concerning principal accounting fees and services is presented under the heading “Fees Paid to Independent Public Accountant for Fiscal Years 20172020 and 2016”2019” in our Proxy Statement, and is incorporated herein by this reference thereto.
PART IV
|
| | | | |
| Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| |
a) | The following documents are filed as a part of this 10-K: |
a)The following documents are filed as a part of this 10-K:
1. Financial statements
Financial statements can be found under Item 8 of Part II of this Form 10-K.
2. Financial statement schedules
Financial statement Schedule II can be found on the following page.
3. Exhibits
The exhibits are listed in the Index to Exhibits, which appears immediatelycan be found on the following the signature page.
FINANCIAL STATEMENT SCHEDULES
Schedule II, Valuation and Qualifying Accounts
Allowance for doubtful accounts activity was as follows:
|
| | | | | | | | | |
| (in thousands) | 2017 | 2016 | 2015 |
| Balance, beginning of the year | $ | 5,160 |
| $ | 5,902 |
| $ | 7,603 |
|
| Charged to expense | 6,903 |
| 8,171 |
| 7,132 |
|
| Write-offs | (7,719 | ) | (8,913 | ) | (8,833 | ) |
| Balance, end of year | $ | 4,344 |
| $ | 5,160 |
| $ | 5,902 |
|
Insurance receivable valuation allowance activity was as follows:
|
| | | | | | | | | |
| (in thousands) | 2017 | 2016 | 2015 |
| Balance, beginning of the year | $ | 4,019 |
| $ | 3,874 |
| $ | 3,933 |
|
| Charged to expense | 1,153 |
| 207 |
| 48 |
|
| Release of allowance | (1,394 | ) | (62 | ) | (107 | ) |
| Balance, end of year | $ | 3,778 |
| $ | 4,019 |
| $ | 3,874 |
|
Income tax valuation allowance activity was as follows:
|
| | | | | | | | | |
| (in thousands) | 2017 | 2016 | 2015 |
| Balance, beginning of the year | $ | 2,266 |
| $ | 3,227 |
| $ | 2,844 |
|
| Charged to expense | 2 |
| 579 |
| 383 |
|
| Transition to the U.S. Tax Cuts and Jobs Act | 240 |
| — |
| — |
|
| Release of allowance | — |
| (1,540 | ) | — |
|
| Balance, end of year | $ | 2,508 |
| $ | 2,266 |
| $ | 3,227 |
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | | | | |
| | | Incorporated by reference |
| Exhibit number | Exhibit description | Filed herewith | Form | File no. | Date of first filing |
| | | | |
| | TrueBlue, Inc. | | |
| | | | |
| | /s/ Steven C. Cooper | 2/26/2018 | |
| | Signature | Date | |
| By: | Steven C. Cooper, Director and Chief Executive Officer | | |
| | | | |
| | /s/ Derrek L. Gafford | 2/26/2018 | |
| | Signature | Date | |
| By:3.1 | Executive Vice President Restated Articles of Incorporation.
| | |
| 8-K | 001-14543 | | | |
| | /s/ Norman H. Frey | 2/26/2018 | |
| | Signature | Date | |
| By: | Norman H. Frey, Chief Accounting Officer and
Senior Vice President | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| 05/12/2016 |
| | | | |
/s/ Steven C. Cooper | 2/26/2018 | | /s/ Joseph P. Sambataro, Jr. | 2/26/2018 |
Signature | Date | | Signature | Date |
Steven C. Cooper, Director, Chief Executive Officer | | | Joseph P. Sambataro, Jr., Chairman of the Board | |
| | | | |
/s/ Colleen B. Brown | 2/26/2018 | | /s/ William C. Goings | 2/26/2018 |
Signature | Date | | Signature | Date |
Colleen B. Brown, Director | | | William C. Goings, Director | |
| | | | |
/s/ Kim Harris Jones | 2/26/2018 | | /s/ Stephen M. Robb | 2/26/2018 |
Signature | Date | | Signature | Date |
Kim Harris Jones, Director | | | Stephen M. Robb, Director | |
| | | | |
/s/ Jeffrey B. Sakaguchi | 2/26/2018 | | /s/ Bonnie W. Soodik | 2/26/2018 |
Signature | Date | | Signature | Date |
Jeffrey B. Sakaguchi, Director | | | Bonnie W. Soodik, Director | |
|
| 3.2 | | | 10-Q | 001-14543 | 10/30/2017 |
|
Page - 82
INDEX TO EXHIBITS
| X | | | |
| | | | | |
| | | Incorporated by reference |
Exhibit number | Exhibit description | Filed herewith | Form | File no. | Date of first filing |
| | | | | |
3.110.1 | | | 8-K | 001-14543 | 05/12/2016 |
| | | | | |
3.2 | | | 10-Q | 001-14543 | 10/30/2017 |
| | | | | |
10.1 | | | 10-K | 001-14543 | 03/11/2005 |
| | | | | |
| 10.2 | | | 10-K | 001-14543 | 03/11/2005 |
| | | | | |
| 10.3* | | | 8-K | 001-14543 | 08/09/2005 |
| | | | | |
10.4* | | | 10-Q | 001-14543 | 05/04/2007 |
| | | | | |
10.5* | | | 10-Q | 001-14543 | 05/04/2007 |
| | | | | |
10.6*10.4* | | | 10-Q | 001-14543 | 05/04/2007 |
| | | | | |
10.7* | | | 10-Q | 001-14543 | 05/04/2007 |
| | | | | |
10.8*10.5* | | | 10-Q | 001-14543 | 05/04/2007 |
| | | | | |
10.9* | | | 10-Q | 001-14543 | 05/04/2007 |
| | | | | |
10.10*10.6* | | | 8-K | 001-14543 | 11/19/2009 |
| | | | | |
10.11* | | | S-8 | 333-164614 | 02/01/2010 |
| | | | | |
10.1210.7 | | | S-8 | 333-167770 | 06/25/2010 |
| | | | | |
10.13*10.8* | | | 10-K | 001-14543 | 02/22/2012 |
| | | | | |
10.1410.9* | | | 10-K | 001-14543 | 02/21/2013 |
| | | | | |
10.15* | | | S-8 | 333-190220 | 07/29/2013 |
| | | | | |
10.1610.10* | | | DEF 14A | 001-14543 | 03/29/2018 |
| | | | | |
| 10.11 | | | 8-K | 001-14543 | 07/16/2018 |
| | | | | |
| 10.12* | | | 8-K | 001-14543 | 09/18/2018 |
| | | | | |
| 10.13* | | | 8-K | 001-14543 | 09/18/2018 |
| | | | | |
| 10.14* | | | 8-K | 001-14543 | 09/18/2018 |
| | | | | |
| 10.15* | | | 8-K | 001-14543 | 11/13/2019 |
| | | | | |
| 10.16* | | | 10-K | 001-14543 | 02/24/2020 |
| | | | | |
| 10.17* | | | 10-K | 001-14543 | 02/24/2020 |
| | | | | |
| 10.18* | | | 10-K | 001-14543 | 02/24/2020 |
| | | | | |
| 10.19* | | | 10-K | 001-14543 | 02/24/2020 |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | Incorporated by reference |
| Exhibit number | Exhibit description | Filed herewith | Form | File no. | Date of first filing |
| | | | | |
| 10.20* | | | 10-K | 001-14543 | 02/24/2020 |
| | | | | |
| 10.21 | First Amendment to Credit Agreement dated as of March 16, 2020 by and among Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, National Association, Key Bank, HSBC and TrueBlue, Inc. dated as of June 30, 2014. | | 10-Q8-K | 001-14543 | 07/28/2014 |
| | | |
| 03/17/2020 |
| | | | | |
| | | Incorporated by reference |
Exhibit
number
| Exhibit description | Filed herewith | Form | File no. | Date of first filing |
10.17*10.22 | | | 10-K | 001-14543 | 02/22/2016 |
| | | | | |
10.18* | | | 10-K | 001-14543 | 02/22/2016 |
| | | | | |
10.19 | ThirdSecond Amendment to Second Restated Credit Agreement dated as of June 24, 2020 by and Amongamong Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, National Association, Key Bank, HSBC and TrueBlue, Inc. dated January 4, 2016. | | 10-K10-Q | 001-14543 | 02/22/201607/27/2020 |
| | | | | |
10.20*10.23* | | | S-810-Q | 333-211737001-14543 | 06/01/201607/27/2020 |
| | | | | |
18.110.24* | | | 10-Q | 001-14543 | 04/28/201410/26/2020 |
| | | | | |
21.110.25* | | X | | | |
| | | | | |
| 10.26 | | X | | | |
| | | | | |
| 10.27* | | X | | | |
| | | | | |
| 10.28* | | X | | | |
| | | | | |
| 21.1 | | X | — | — | — |
| | | | | |
| 23.1 | | X | — | — | — |
| | | | | |
| 31.1 | | X | — | — | — |
| | | | | |
| 31.2 | | X | — | — | — |
| | | | | |
| 32.1 | | X | — | — | — |
| | | | | |
101.INS | XBRL Instance Document. | X | — | — | — |
| | | | | |
101.SCH | XBRL Taxonomy Extension Schema. | X | — | — | — |
| | | | | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase. | X | — | — | — |
| | | | | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase. | X | — | — | — |
| | | | | |
101.LAB | XBRL Taxonomy Extension Label Linkbase. | X | — | — | — |
| | | | | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase. | X | — | — | — |
|
| | | | | |
*101 | The following financial statements from the Company’s 10-K, formatted as Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Consolidated Statements of Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to consolidated financial statements. | X | — | — | — |
| | | | | |
| 104 | Cover page interactive data file - The cover page from this Annual Report on Form 10-K is formatted as Inline XBRL | X | — | — | — |
| | | | | |
| * | Indicates a management contract or compensatory plan or arrangement |
Copies of Exhibits may be obtained upon request directed to Mr. James E. Defebaugh,Garrett Ferencz, TrueBlue, Inc., PO Box 2910, Tacoma, Washington, 98401 and many are available at the SEC’s website found at www.sec.gov.
| | | | | |
| Item 16. | FORM 10-K SUMMARY |
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | |
| | TrueBlue, Inc. | | |
| | | | |
| | /s/ A. Patrick Beharelle | 2/22/2021 | |
| | Signature | Date | |
| By: | A. Patrick Beharelle, Director, President and Chief Executive Officer | | |
| | | | |
| | /s/ Derrek L. Gafford | 2/22/2021 | |
| | Signature | Date | |
| By: | Derrek L. Gafford, Chief Financial Officer and
Executive Vice President | | |
| | | | |
| | /s/ Richard B. Christensen | 2/22/2021 | |
| | Signature | Date | |
| By: | Richard B. Christensen, Chief Accounting Officer and Senior Vice President | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| /s/ A. Patrick Beharelle | 2/22/2021 | | /s/ Steven C. Cooper | 2/22/2021 |
| Signature | Date | | Signature | Date |
| A. Patrick Beharelle, Director, President and Chief Executive Officer | | | Steven C. Cooper, Chairman of the Board | |
| | | | |
| /s/ Colleen B. Brown | 2/22/2021 | | /s/ William C. Goings | 2/22/2021 |
| Signature | Date | | Signature | Date |
| Colleen B. Brown, Director | | | William C. Goings, Director | |
| | | | |
| /s/ Kim Harris Jones | 2/22/2021 | | /s/ Chris Kreidler | 2/22/2021 |
| Signature | Date | | Signature | Date |
| Kim Harris Jones, Director | | | Chris Kreidler, Director | |
| | | | |
| /s/ Jeffrey B. Sakaguchi | 2/22/2021 | | /s/ Bonnie W. Soodik | 2/22/2021 |
| Signature | Date | | Signature | Date |
| Jeffrey B. Sakaguchi, Director | | | Bonnie W. Soodik, Director | |
| | | | |
| /s/ Kristi A. Savacool | 2/22/2021 | | | |
| Signature | Date | | | |
| Kristi A. Savacool, Director | | | | |
