UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: July ~~2, 2017~~1, 2018

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-14543

____________________________________

TrueBlue, Inc.

(Exact name of registrant as specified in its charter)

______________________________________



Washington		91-1287341
(State of incorporation)		(I.R.S. Employer Identification No.)

1015 A Street, Tacoma, Washington		98402
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (253) 383-9101

______________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Name of each exchange on which registered
Common Stock no par value		The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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 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”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



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 if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of July ~~17, 2017,~~16, 2018, there were ~~42,001,799~~40,627,334 shares of the registrant’s common stock outstanding.

TrueBlue, Inc.

Table of Contents



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations and Comprehensive Income ~~(Loss)~~	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1421
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2935
Item 4.	Controls and Procedures	2935

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3036
Item 1A.	Risk Factors	3036
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3441
Item 6.	Exhibits	3542

	Signatures	3643

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PART I. FINANCIAL INFORMATION



Item 1.	CONSOLIDATED FINANCIAL STATEMENTS

TRUEBLUE, INC.

CONSOLIDATED BALANCE SHEETS

~~(in thousands, except par value data)~~

(unaudited)


	July 2, 2017			January 1, 2017
(in thousands, except par value data)							July 1, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	29,123		$	34,970		$	33,408		$	28,780
Accounts receivable, net of allowance for doubtful accounts of $5,186 and $5,160	337,058			352,606
Accounts receivable, net of allowance for doubtful accounts of $6,153 and $4,344							370,588			374,273
Prepaid expenses, deposits and other current assets	18,430			21,373			21,006			20,605
Income tax receivable	10,094			18,854			7,964			4,621
Total current assets	394,705			427,803			432,966			428,279
Property and equipment, net	61,821			63,998			57,055			60,163
Restricted cash and investments	229,931			231,193			239,390			239,231
Deferred income taxes, net	3,229			6,770			1,005			3,783
Goodwill	226,191			224,223			239,380			226,694
Intangible assets, net	115,244			125,671			102,075			104,615
Other assets, net	47,752			50,787			52,349			46,266
Total assets	$	1,078,873		$	1,130,445		$	1,124,220		$	1,109,031
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued expenses	$	54,992		$	66,758		$	69,515		$	55,091
Accrued wages and benefits	75,222			79,782			77,113			76,894
Current portion of workers' compensation claims reserve	75,410			79,126
Contingent consideration	—			21,600
Current portion of long-term debt	23,989			2,267
Current portion of workers’ compensation claims reserve							69,848			77,218
Other current liabilities	1,194			1,602			2,653			3,216
Total current liabilities	230,807			251,135			219,129			212,419
Workers’ compensation claims reserve, less current portion	202,707			198,225			195,240			197,105
Long-term debt, less current portion	87,204			135,362			117,199			116,489
Long-term deferred compensation liabilities							23,268			21,866
Other long-term liabilities	24,581			20,544			6,083			6,305
Total liabilities	545,299			605,266			560,919			554,184

Commitments and contingencies (Note 5)
Commitments and contingencies (Note 9)

Shareholders’ equity:
Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding	—			—			—			—
Common stock, no par value, 100,000 shares authorized; 41,982 and 42,171 shares issued and outstanding	1			1
Common stock, no par value, 100,000 shares authorized; 40,595 and 41,098 shares issued and outstanding							1			1
Accumulated other comprehensive loss	(8,447		)	(11,433		)	(11,634		)	(6,804		)
Retained earnings	542,020			536,611			574,934			561,650
Total shareholders’ equity	533,574			525,179			563,301			554,847
Total liabilities and shareholders’ equity	$	1,078,873		$	1,130,445		$	1,124,220		$	1,109,031

See accompanying notes to consolidated financial statements

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TRUEBLUE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME ~~(LOSS)~~

~~(in thousands, except per share data)~~

(unaudited)


	Thirteen weeks ended						Twenty-six weeks ended						Thirteen weeks ended						Twenty-six weeks ended
	July 2, 2017			June 24, 2016			July 2, 2017			June 24, 2016
(in thousands, except per share data)													July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Revenue from services	$	610,122		$	672,612		$	1,178,366		$	1,318,592		$	614,301		$	610,122		$	1,168,689		$	1,178,366
Cost of services	454,842			502,688			883,657			998,156			448,717			454,842			859,837			883,657
Gross profit	155,280			169,924			294,709			320,436			165,584			155,280			308,852			294,709
Selling, general and administrative expense	124,754			135,787			246,598			266,411			134,207			124,754			259,970			246,598
Depreciation and amortization	12,287			11,694			23,461			22,983			10,101			12,287			20,191			23,461
Goodwill and intangible asset impairment charge	—			99,269			—			99,269
Income (loss) from operations	18,239			(76,826		)	24,650			(68,227		)
Income from operations													21,276			18,239			28,691			24,650
Interest expense	(1,296		)	(1,740		)	(2,528		)	(3,709		)	(1,355		)	(1,296		)	(2,245		)	(2,528		)
Interest and other income	1,451			853			2,757			1,803			387			1,451			3,481			2,757
Interest and other income (expense), net	155			(887		)	229			(1,906		)	(968		)	155			1,236			229
Income (loss) before tax expense	18,394			(77,713		)	24,879			(70,133		)
Income tax expense (benefit)	5,260			(13,978		)	7,071			(13,366		)
Net income (loss)	$	13,134		$	(63,735	)	$	17,808		$	(56,767	)
Income before tax expense													20,308			18,394			29,927			24,879
Income tax expense													2,576			5,260			3,440			7,071
Net income													$	17,732		$	13,134		$	26,487		$	17,808

Net income (loss) per common share:
Net income per common share:
Basic	$	0.32		$	(1.53	)	$	0.43		$	(1.36	)	$	0.44		$	0.32		$	0.66		$	0.43
Diluted	$	0.31		$	(1.53	)	$	0.43		$	(1.36	)	$	0.44		$	0.31		$	0.65		$	0.43

Weighted average shares outstanding:
Basic	41,579			41,688			41,608			41,595			40,227			41,579			40,335			41,608
Diluted	41,856			41,688			41,875			41,595			40,469			41,856			40,576			41,875

Other comprehensive income (loss):
Other comprehensive income:
Foreign currency translation adjustment	$	540		$	(307	)	$	2,340		$	2,094		$	(1,921	)	$	540		$	(3,305	)	$	2,340
Unrealized gain (loss) on investments, net of tax	(91		)	86			646			162			—			(91		)	—			646
Total other comprehensive income (loss), net of tax	449			(221		)	2,986			2,256			(1,921		)	449			(3,305		)	2,986
Comprehensive income (loss)	$	13,583		$	(63,956	)	$	20,794		$	(54,511	)
Comprehensive income													$	15,811		$	13,583		$	23,182		$	20,794

See accompanying notes to consolidated financial statements

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TRUEBLUE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

~~(in thousands, unaudited)~~(unaudited)


	Twenty-six weeks ended						Twenty-six weeks ended
	July 2, 2017			June 24, 2016
(in thousands)							July 1, 2018			July 2, 2017
Cash flows from operating activities:
Net income (loss)	$	17,808		$	(56,767	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net income							$	26,487		$	17,808
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	23,461			22,983			20,191			23,461
Goodwill and intangible asset impairment charge	—			99,269
Provision for doubtful accounts	3,619			4,221			5,571			3,619
Stock-based compensation	5,146			6,042			5,983			5,146
Deferred income taxes	2,975			(21,404		)	1,373			2,975
Other operating activities	1,877			2,264			102			2,022
Changes in operating assets and liabilities, net of effects of acquisition of business:
Changes in operating assets and liabilities:
Accounts receivable	11,925			116,112			888			11,925
Income tax receivable	8,828			11,238			(3,641		)	8,828
Other assets	5,977			425			(3,522		)	5,977
Accounts payable and other accrued expenses	(13,181		)	754			3,767			(13,181		)
Accrued wages and benefits	(4,560		)	(10,897		)	(1,423		)	(4,560		)
Workers’ compensation claims reserve	767			7,838			(9,235		)	767
Other liabilities	(580		)	2,258			2,900			(580		)
Net cash provided by operating activities	64,062			184,336			49,441			64,207

Cash flows from investing activities:
Capital expenditures	(9,137		)	(11,430		)	(6,468		)	(9,137		)
Acquisition of business	—			(71,863		)	(22,742		)	—
Change in restricted cash and cash equivalents	8,829			(1,265		)
Divestiture of business							8,800			—
Purchases of restricted investments	(20,712		)	(21,076		)	(10,730		)	(20,712		)
Maturities of restricted investments	13,546			8,416			13,044			13,546
Net cash used in investing activities	(7,474		)	(97,218		)	(18,096		)	(16,303		)

Cash flows from financing activities:
Purchases and retirement of common stock	(15,530		)	—			(19,065		)	(15,530		)
Net proceeds from stock option exercises and employee stock purchase plans	858			840			757			858
Common stock repurchases for taxes upon vesting of restricted stock	(2,873		)	(2,321		)	(2,403		)	(2,873		)
Net change in Revolving Credit Facility	(25,303		)	(94,186		)
Net change in revolving credit facility							21,300			(25,303		)
Payments on debt	(1,133		)	(1,133		)	(22,856		)	(1,133		)
Payment of contingent consideration at acquisition date fair value	(18,300		)	—			—			(18,300		)
Other	—			25
Net cash used in financing activities	(62,281		)	(96,775		)	(22,267		)	(62,281		)
Effect of exchange rate changes on cash and cash equivalents	(154		)	1,648
Net change in cash and cash equivalents	(5,847		)	(8,009		)
Cash and cash equivalents, beginning of period	34,970			29,781
Cash and cash equivalents, end of period	$	29,123		$	21,772

Effect of exchange rate changes on cash, cash equivalents and restricted cash							(919		)	(154		)
Net change in cash, cash equivalents and restricted cash							8,159			(14,531		)
Cash, cash equivalents and restricted cash, beginning of period							73,831			103,222
Cash, cash equivalents and restricted cash, end of period							$	81,990		$	88,691
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest	$	1,549		$	1,981		$	1,892		$	1,549
Income taxes	(4,740		)	(3,845		)	5,696			(4,740		)
Non-cash transactions:
Property, plant, and equipment purchased but not yet paid	2,888			1,961			726			2,888
Non-cash acquisition adjustments	—			3,783
Divestiture non-cash consideration							1,657			—

See accompanying notes to consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~TRUEBLUE, INC.~~

~~Notes to Consolidated Financial Statements~~


~~NOTE 1:~~	~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial statement preparation

The accompanying unaudited consolidated financial statements (“financial statements”) of TrueBlue, Inc. (the ~~“Company,~~“company,” “TrueBlue,” “we,” “us,” and “our”) are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The financial statements reflect all adjustments which, in the opinion of management, are necessary to fairly state the financial statements for the interim periods presented. We follow the same accounting policies for preparing both quarterly and annual financial statements.

These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended ~~January 1,~~December 31, 2017. The results of operations for the thirteen and twenty-six weeks ended July ~~2, 2017,~~1, 2018, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.

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 ~~fiscal~~ quarter, and more frequently if an event occurs or circumstances change that would indicate impairment may exist. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, customer 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.

Based on our annual goodwill impairment test performed as of the first day of our fiscal second ~~fiscal~~ quarter, all reporting units’ fair values were substantially in excess of their respective carrying values. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater. Accordingly, no impairment loss was recognized for the thirteen weeks ended July 1, 2018 nor July 2, 2017. ~~Based on our test performed in the prior year, we recorded a goodwill impairment charge of $65.9 million for the thirteen weeks ended June 24, 2016.~~

We performed our annual indefinite-lived intangible asset impairment test as of the first day of our fiscal second ~~fiscal~~ quarter and determined that the estimated fair values exceeded the carrying amounts for ~~both of~~ our indefinite-lived trade names. Accordingly, no impairment loss was recognized for the thirteen weeks ended July 1, 2018 nor July 2, 2017. ~~Based on our test performed in the prior year, we recorded an impairment charge of $4.5 million for the thirteen weeks ended June 24, 2016.~~

Recently adopted accounting standards

In ~~January~~May 2017, the Financial Accounting ~~Standards~~Standing 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. Instead, 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 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 iswas to reduce the scope of transactions that would require modification accounting. Disclosure requirements remain unchanged. This amended guidance iswas effective for our fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. We ~~plan to adopt~~adopted this guidance ~~on the effective date and do not expect the~~for our fiscal first quarter of 2018. The adoption of ~~this guidance to~~the new standard did not have a material impact on our financial statements.

~~Page - 6~~

~~Table~~In January 2017, the FASB issued guidance clarifying the definition of ~~Contents~~

~~Notes to Consolidated Financial Statements—(Continued)~~

a business, which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. This guidance was effective for fiscal years and interim periods beginning December 15, 2017 (Q1 2018 for TrueBlue) on a prospective basis. This standard did not have a material impact on our financial statements. In Q2 2018, we acquired all of the outstanding equity interests of TMP Holdings LTD (“TMP”) and concluded that TMP represents a business based on this new guidance. See Note 3: Acquisition and divestiture, for further discussion of our acquisition of TMP.

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 iswas effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue)~~, with early adoption permitted.~~. We ~~plan to adopt~~adopted this guidance onfor our fiscal first quarter of 2018 using the ~~effective date. Changes~~retrospective transition method. Accordingly, the change in restricted cash and cash equivalents ~~recorded~~is no longer segregated in our statement of cash flows, ~~from investing were~~and the $8.8 million ~~and $1.3 million~~previously presented in the investing section for the twenty-six weeks ended July 2, 2017 is now included when reconciling the beginning-of-period and ~~June 24, 2016, respectively.~~end-of-period cash, cash equivalents and restricted cash shown on the statement of cash flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In October 2016, the FASB issued guidance on the accounting for income tax effects of intercompany sales or transfers of assets other than inventory. The guidance requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. This guidance iswas effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue)~~, with early adoption permitted.~~. The guidance ~~will require~~requires a modified retrospective application with a cumulative catch-up adjustment to opening retained earnings. We ~~plan to adopt~~adopted this guidance ~~on the effective date and do not expect the~~for our fiscal first quarter of 2018. The adoption of ~~this guidance to~~the new standard did not have a material impact on our financial statements.

In August 2016, the FASB issued ~~an accounting standards update~~guidance relating to how certain cash receipts and cash payments should be presented and classified in the statement of cash flows. The update iswas intended to reduce the existing diversity in practice. The amended guidance iswas 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.~~. We adopted this guidance for our fiscal first quarter of 2018. The adoption of the ~~amendment should~~new standard did not have an impact on our financial statements.

In January 2016, the FASB issued guidance on the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The guidance was effective for annual and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). Early adoption of the amendments in the guidance was not permitted, with limited exceptions. The guidance required a cumulative-effect adjustment be ~~applied~~made to reclassify unrealized gains and losses related to available-for-sale equity securities from accumulated other comprehensive income, to retained earnings as of the beginning of the fiscal year of adoption. We adopted this guidance as of the first day of our fiscal first quarter of 2018 and reclassified from accumulated other comprehensive loss to retained earnings, $1.5 million in unrealized gains, net of tax on available-for-sale equity securities. Beginning in Q1 2018, change in market value for our available-for-sale equity securities is included in selling, general and administrative expense in the Consolidated Statements of Operation and Comprehensive Income.

In May 2014, the FASB issued guidance outlining a single comprehensive model for accounting for revenue arising from contracts with clients, which supersedes the current revenue recognition guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to clients in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted this new guidance as of January 1, 2018 using the modified retrospective transition ~~method, if practicable. We plan to adopt this amendment on the effective date and do not expect the~~method. The adoption of this new guidance todid not have a material impact on our consolidated financial ~~statements.~~

In June 2016, the FASB issued guidance on accounting for credit losses on financial instruments. This guidance sets forth a current expected credit loss model, which requires measurement of all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and some off-balance sheet exposures,statements as well as trade account receivables. This guidance is effective for fiscal years beginning after December 15, 2019 (Q1 2020 for TrueBlue) with early adoption permitted no sooner than Q1 2019. A modified retrospective approach is required for all investments, except debt securities for which an other-than-temporary impairment had been recognized prior to the effective date, which will require a prospective transition approach. We plan to adopt this guidance on the effective date and are currently assessing the impact of the adoption ~~of this guidance on our financial statements.~~date, nor for the thirteen and twenty-six weeks ended July 1, 2018, except for expanded disclosures. Refer to Note 2: Revenue recognition for additional accounting policy and transition disclosures.

Recently issued accounting pronouncements not yet adopted

In February 2016, the FASB issued guidance on lease accounting. The new guidance will continue to classify leases as either finance or operating, ~~and~~but 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.~~operations. This guidance is effective for annual and interim periods beginning after December 15, 2018 (Q1 2019 for TrueBlue), and early adoption is permitted. A modified retrospective approach is required for all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements. We plan to adopt the guidance on the effective date. We established a cross-functional implementation team consisting of representatives from various departments to review our current contracts, accounting policies and business practices to identify and quantify the potential impact of the new standard on our financial statements. We are ~~currently evaluating the impact of~~completing this ~~guidance on our financial statements~~evaluation 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 ~~of this guidance~~ to have a material impact on the pattern of expense recognition in our Consolidated Statements of Operations and Comprehensive ~~Income (Loss).~~Income.

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

~~Page - 7~~

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~~Notes to Consolidated Financial Statements—(Continued)~~

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 expect to adopt the guidance using the modified retrospective approach.

We established a cross-functional implementation team consisting of representatives from across our business segments and various departments. We are utilizing a bottoms-up approach to analyze 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 are in the process of identifying appropriate changes to our business processes, systems, and controls to support recognition and disclosure under the new standard.

We have been closely monitoring FASB activity related to the new standard to conclude on specific interpretive issues. We are substantially complete with our evaluation of the potential impact that adopting the new standard will have on our financial statements. Revenue on the majority of our contracts with customers will continue to be recognized over time as services are rendered. The impact of adopting this new standard will result in deferring certain contract costs and will require estimating variable consideration. We do not anticipate this will have a material impact on our financial reporting other than expanded disclosures. However, the full extent of the impact is subject to the completion of our assessment.

Other accounting standards that have been issued ~~or proposed~~ 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.

~~Subsequent events~~NOTE 2: REVENUE RECOGNITION

Adoption of new revenue recognition guidance

On January 1, 2018, we adopted new revenue recognition guidance using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue recognition guidance, while prior period amounts were not adjusted and continue to be reported in accordance with historic accounting guidance. The adoption of this new guidance did not have a material impact on our consolidated financial statements as of the adoption date, nor for the thirteen and twenty-six weeks ended July 1, 2018, except for expanded disclosures.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue recognition

We ~~evaluated events~~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 ~~transactions occurring~~collectability of consideration is probable. Revenues are recognized over time, using an output measure, as the control of the promised services is transferred to the client in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The majority of our contracts are short-term in nature as they are filling the temporary staffing needs of our clients, or include termination clauses that allow either party to cancel within a short termination period, without cause. Revenue includes billable travel and other reimbursable costs and are reported net of sales, use, or other transaction taxes collected from clients and remitted to taxing authorities. Payment terms vary by client and the services offered. We consider payment terms that exceed one year to be extended payment terms, 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 in the Consolidated Statements of Operations and Comprehensive 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 client and are responsible for fulfilling the service promised to the client.

We maintain control over our workers while the services to the client are being performed.

We establish our worker’s billing rate.

Contingent staffing

We recognize revenue for our contingent staffing services over time as services are performed in an amount that reflects the consideration we expect to be entitled to in exchange for our services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate. The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur costs to obtain our contingent staffing contracts. Costs are incurred to fulfill some contingent staffing contracts, however these costs are not material and are expensed as incurred.

Human resource outsourcing

We primarily recognize revenue for our outsourced recruitment of permanent employees over time in an amount that reflects the consideration we expect to be entitled to in exchange for our services. The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur costs to obtain our outsourced recruitment of permanent employees’ contracts. The costs to fulfill these contracts are not material and are expensed as incurred.

Unsatisfied performance obligations

As a practical expedient, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an expected original duration of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

Disaggregated revenue

The following table presents our revenue disaggregated by major source:



	Thirteen weeks ended				July 1, 2018
(in thousands)	PeopleReady		PeopleManagement		PeopleScout		Consolidated
Revenue from services:
Contingent staffing	$	377,460	$	178,839	$	—	$	556,299
Human resource outsourcing	—		—		58,002		58,002
Total company	$	377,460	$	178,839	$	58,002	$	614,301

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Twenty-six weeks ended				July 1, 2018
(in thousands)	PeopleReady		PeopleManagement		PeopleScout		Consolidated
Revenue from services:
Contingent staffing	$	694,295	$	362,731	$	—	$	1,057,026
Human resource outsourcing	—		—		111,663		111,663
Total company	$	694,295	$	362,731	$	111,663	$	1,168,689

NOTE 3: ACQUISITION AND DIVESTITURE

Acquisition

Effective June 12, 2018, the company acquired all of the outstanding equity interests of TMP Holdings LTD (“TMP”), through its subsidiary PeopleScout, Inc. for a cash purchase price of $22.7 million, net of cash acquired of $7.0 million. TMP is a mid-sized recruitment process outsourcing (“RPO”) and employer branding service provider operating in the United Kingdom, which is the second largest RPO market in the world. This acquisition increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and employer branding capabilities.

We incurred acquisition and integration-related costs of $0.5 million, which are included in selling, general and administrative expense on the Consolidated Statements of Operations and Comprehensive Income for the thirteen and twenty-six weeks ended July 1, 2018 and cash flows from operating activities on the Consolidated Statements of Cash Flows for the twenty-six weeks ended July 1, 2018.

The following table reflects our preliminary allocation of the purchase price, net of cash acquired, to the fair value of the assets acquired and liabilities assumed:



(in thousands)	Purchase price allocation
Cash purchase price, net of cash acquired	$	22,742
Purchase price allocated as follows:
Accounts receivable	9,770
Prepaid expenses, deposits and other current assets	337
Property and equipment	435
Customer relationships	6,286
Trade names/trademarks	1,738
Total assets acquired	18,566
Accounts payable and other accrued expenses	9,139
Accrued wages and benefits	1,642
Income tax payable	205
Deferred income tax liability	1,444
Total liabilities assumed	12,430
Net identifiable assets acquired	6,136
Goodwill (1)	16,606
Total consideration allocated	$	22,742

(1) Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers and future cash flows after the acquisition of TMP, and is non-deductible for income tax purposes.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the components of identifiable intangible assets, their estimated fair values and useful lives as of June 12, 2018:



(in thousands, except for estimated useful lives, in years)	Estimated fair value		Estimated useful life in years
Customer relationships	$	6,286	3-7
Trade names/trademarks	1,738		14
Total acquired identifiable intangible assets	$	8,024

The acquired assets and assumed liabilities of TMP are included on our Consolidated Balance Sheet as of July 1, 2018, and the results of its operations and cash flows are reported on our Consolidated Statements of Operations and Comprehensive Income and Consolidated Statements of Cash Flows for the period from June 12, 2018 to July 1, 2018. The amount of revenue from TMP included in our Consolidated Statements of Operations and Comprehensive Income was $2.9 million from the acquisition date to July 1, 2018. The acquisition of TMP was not material to our consolidated results of operations and as such, pro forma financial information was not required.

Divestiture

Effective March 12, 2018, the company entered into an asset purchase agreement to sell substantially all the assets and certain liabilities of the PlaneTechs business to Launch Technical Workforce Solutions (“Launch”) for a purchase price of $11.4 million, of which $8.5 million was paid in cash, and $1.6 million in a note receivable due within six months following the closing date. The note receivable has monthly principal payments of $0.1 million beginning April 2018 with the remainder due in September 2018, which is included in prepaid expenses, deposits and other current assets on the Consolidated Balance Sheets. The remaining purchase price balance ~~sheet date~~consists of the preliminary working capital adjustment, which is expected to be paid in cash during the fiscal third quarter of 2018 and is included in prepaid expenses, deposit and other current assets on the Consolidated Balance Sheets. The company recognized a preliminary pre-tax gain on the divestiture of $1.1 million, which is included in interest and other income on the Consolidated Statements of Operations and Comprehensive Income for the twenty-six weeks ended July 1, 2018. Fiscal first quarter revenue through the closing date of the divestiture for the PlaneTechs business of $8.0 million was reported in the PeopleManagement reportable segment.

The divestiture of PlaneTechs did not represent a strategic shift with a major effect on the company’s operations and financial ~~statements were issued,~~results and, ~~identified no other events that were subject~~therefore was not reported as discontinued operations in the Consolidated Balance Sheets or Consolidated Statements of Operations and Comprehensive Income for the periods presented.

The company has agreed to ~~recognition or disclosure.~~provide certain transition services to Launch for a period not to exceed seven months, which includes various back office services to support the PlaneTechs branch offices until personnel and systems are transferred to Launch.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


~~NOTE 2:~~	~~FAIR VALUE MEASUREMENT~~

NOTE 4: FAIR VALUE MEASUREMENT

Our assets and liabilities measured at fair value on a recurring basis consisted of the ~~following (in thousands~~):following:

July 2, 2017
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) $ 29,123
$ 29,123
$ —
$ —
Restricted cash and cash equivalents (1) 59,316
59,316
—
—
Other restricted assets (2) 19,891
19,891
—
—
Restricted investments classified as held-to-maturity 152,370
—
152,370
—

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	July 1, 2018
(in thousands)	Total fair value		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)
Financial assets:
Cash and cash equivalents	$	33,408	$	33,408	$	—	$	—
Restricted cash and cash equivalents	48,582		48,582		—		—
Cash, cash equivalents and restricted cash (1)	$	81,990	$	81,990	$	—	$	—

Deferred compensation mutual funds classified as available-for-sale	$	24,384	$	24,384	$	—	$	—

Municipal debt securities	$	78,190	$	—	$	78,190	$	—
Corporate debt securities	82,238		—		82,238		—
Agency mortgage-backed securities	3,229		—		3,229		—
U.S. government and agency securities	975		—		975		—
Restricted investments classified as held-to-maturity	$	164,632	$	—	$	164,632	$	—

~~Notes to Consolidated Financial Statements—(Continued)~~


	January 1, 2017								December 31, 2017
	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(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	$	—	$	—	$	28,780	$	28,780	$	—	$	—
Restricted cash and cash equivalents ~~(1)~~	67,751		67,751		—		—		45,051		45,051		—		—
Other restricted assets (2)	16,925		16,925		—		—
Cash, cash equivalents and restricted cash (1)									$	73,831	$	73,831	$	—	$	—

Deferred compensation mutual funds classified as available-for-sale									$	22,428	$	22,428	$	—	$	—

Municipal debt securities									$	83,366	$	—	$	83,366	$	—
Corporate debt securities									83,791		—		83,791		—
Agency mortgage-backed securities									4,062		—		4,062		—
U.S. government and agency securities									1,019		—		1,019		—
Restricted investments classified as held-to-maturity	145,953		—		145,953		—		$	172,238	$	—	$	172,238	$	—

Financial liabilities:
Contingent consideration (3)	21,600		—		—		21,600


(1)	Cash, 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 Insourcing Solutions Corporation (“SIMOS”), which was estimated using a probability-adjusted discounted cash flow model.

The following table presents the change in the estimated fair value of our liability for contingent consideration measured using significant unobservable inputs (Level 3) for the twenty-six weeks ended July 2, 2017 (~~in thousands)~~:

Fair value measurement at beginning of period $ 21,600
Accretion on contingent consideration 900
Payment of contingent consideration (22,500 )
Fair value measurement at end of period $ —

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

The preliminary achievement of the defined performance milestone occurred in the fourth quarter of 2016; however, the final determination was subject to a verification period through the payout date in the second quarter of 2017. 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 twenty-six weeks ended July 1, 2018 nor July 2, ~~2017 or June 24, 2016.~~2017.


~~NOTE 3:~~	NOTE 5: RESTRICTED CASH AND INVESTMENTS

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of the carrying value of our restricted cash and investments:



(in thousands)	July 1, 2018		December 31, 2017
Cash collateral held by insurance carriers	$	22,726	$	22,926
Cash and cash equivalents held in Trust	25,447		16,113
Investments held in Trust	166,424		171,752
Deferred compensation mutual funds	24,384		22,428
Other restricted cash and cash equivalents	409		6,012
Total restricted cash and investments	$	239,390	$	239,231

The amortized cost and estimated fair value of our held-to-maturity investments held in trust, aggregated by investment category are as follows:



	July 1, 2018
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Municipal debt securities	$	78,675	$	304	$	(789	)	$	78,190
Corporate debt securities	83,481		5		(1,248		)	82,238
Agency mortgage-backed securities	3,269		6		(46		)	3,229
U.S. government and agency securities	999		—		(24		)	975
Total held-to-maturity investments	$	166,424	$	315	$	(2,107	)	$	164,632



	December 31, 2017
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Municipal debt securities	$	82,770	$	974	$	(378	)	$	83,366
Corporate debt securities	83,916		309		(434		)	83,791
Agency mortgage-backed securities	4,066		22		(26		)	4,062
U.S. government and agency securities	1,000		19		—			1,019
Total held-to-maturity investments	$	171,752	$	1,324	$	(838	)	$	172,238

The estimated fair value and gross unrealized losses of all investments classified as held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of July 1, 2018 and December 31, 2017, were as follows:



	July 1, 2018
	Less than 12 months					12 months or more					Total
(in thousands)	Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses
Municipal debt securities	$	37,263	$	(350	)	$	9,329	$	(439	)	$	46,592	$	(789	)
Corporate debt securities	69,369		(1,042		)	8,980		(206		)	78,349		(1,248		)
Agency mortgage-backed securities	1,397		(15		)	976		(31		)	2,373		(46		)
U.S. government and agency securities	975		(24		)	—		—			975		(24		)
Total held-to-maturity investments	$	109,004	$	(1,431	)	$	19,285	$	(676	)	$	128,289	$	(2,107	)

~~Notes to Consolidated Financial Statements—(Continued)~~Page - 12

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~The following is a summary of our restricted cash and investments (in thousands~~):

July 2,
2017 January 1,
2017
Cash collateral held by insurance carriers $ 28,737
$ 34,910
Cash and cash equivalents held in Trust 30,579
32,841
Investments held in Trust 150,724
146,517
Other (1) 19,891
16,925
Total restricted cash and investments $ 229,931
$ 231,193



	December 31, 2017
	Less than 12 months					12 months or more					Total
(in thousands)	Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses
Municipal debt securities	$	23,078	$	(124	)	$	9,631	$	(254	)	$	32,709	$	(378	)
Corporate debt securities	48,952		(311		)	10,081		(123		)	59,033		(434		)
Agency mortgage-backed securities	1,362		(10		)	888		(16		)	2,250		(26		)
Total held-to-maturity investments	$	73,392	$	(445	)	$	20,600	$	(393	)	$	93,992	$	(838	)


~~(1)~~	~~Primarily consists of deferred compensation plan accounts, which are comprised of mutual funds classified as available-for-sale securities.~~

The ~~following tables present~~total number of held-to-maturity securities in an unrealized loss position as of July 1, 2018 and December 31, 2017 were 114 and 83, respectively. The unrealized losses were the result of interest rate increases. Since the decline in estimated fair value ~~disclosures for our held-to-maturity investments, which are carried at~~is attributable to changes in interest rates and not credit quality, and the company has the intent and ability to hold these debt securities until recovery of amortized cost (~~in thousands~~):

or maturity, we do not consider these investments other than temporarily impaired.

July 2, 2017
Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value
Municipal debt securities $ 77,573
$ 1,583
$ (297 ) $ 78,859
Corporate debt securities 67,204
474
(158 ) 67,520
Agency mortgage-backed securities 4,948
38
(18 ) 4,968
U.S. government and agency securities 999
24
—
1,023
$ 150,724
$ 2,119
$ (473 ) $ 152,370

January 1, 2017
Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value
Municipal debt securities $ 71,618
$ 443
$ (865 ) $ 71,196
Corporate debt securities 68,934
212
(352 ) 68,794
Agency mortgage-backed securities 5,965
30
(32 ) 5,963
$ 146,517
$ 685
$ (1,249 ) $ 145,953

The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as ~~follows (in thousands~~):follows:


	July 2, 2017				July 1, 2018
	Amortized Cost		Fair Value
(in thousands)					Amortized cost		Fair value
Due in one year or less	$	14,581	$	14,597	$	24,233	$	24,101
Due after one year through five years	72,477		73,070		91,941		91,148
Due after five years through ten years	63,666		64,703		50,250		49,383
	$	150,724	$	152,370
Total held-to-maturity investments					$	166,424	$	164,632

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.

NOTE 6: GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table reflects changes in the carrying amount of goodwill during the period by reportable segments:



(in thousands)	PeopleReady			PeopleManagement			PeopleScout			Total company
Balance at December 31, 2017
Goodwill before impairment	$	106,304		$	100,146		$	132,323		$	338,773
Accumulated impairment loss	(46,210		)	(50,700		)	(15,169		)	(112,079		)
Goodwill, net	60,094			49,446			117,154			226,694

Divested goodwill before impairment (1)	—			(19,054		)	—			(19,054		)
Divested accumulated impairment loss (1)	—			17,000			—			17,000
Acquired goodwill (2)	—			—			16,606			16,606
Foreign currency translation	—			—			(1,866		)	(1,866		)

Balance at July 1, 2018
Goodwill before impairment	106,304			81,092			147,063			334,459
Accumulated impairment loss	(46,210		)	(33,700		)	(15,169		)	(95,079		)
Goodwill, net	$	60,094		$	47,392		$	131,894		$	239,380


(1)	Effective March 12, 2018, the company entered into an asset purchase agreement for the sale of its PlaneTechs business to Launch Technical Workforce Solutions. As a result of this divestiture, we eliminated the remaining goodwill balance of the PlaneTechs business, which was a part of our PeopleManagement reportable segment. For additional information, see Note 3: Acquisition and divestiture.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(2)	Effective June 12, 2018, the company acquired TMP Holdings LTD, through its PeopleScout subsidiary. Accordingly, the goodwill associated with the acquisition has been assigned to our PeopleScout reportable segment based on our preliminary purchase price allocation. For additional information, see Note 3:Acquisition and divestiture.

Intangible Assets

Finite-lived intangible Assets

The following table presents our purchased finite-lived intangible assets:



	July 1, 2018							December 31, 2017
(in thousands)	Gross carrying amount		Accumulated amortization			Net carrying amount		Gross carrying amount		Accumulated amortization			Net carrying amount
Finite-lived intangible assets (1):
Customer relationships	$	154,060	$	(62,048	)	$	92,012	$	148,114	$	(53,801	)	$	94,313
Trade names/trademarks	2,865		(889		)	1,976		4,149		(3,736		)	413
Non-compete agreements	—		—			—		1,400		(1,377		)	23
Technologies	15,771		(13,684		)	2,087		17,500		(13,588		)	3,912
Total finite-lived intangible assets	$	172,696	$	(76,621	)	$	96,075	$	171,163	$	(72,502	)	$	98,661


(1)	Excludes assets that are fully amortized.

Finite-lived intangible assets include customer relationships and trade names/trademarks of $6.3 million and $1.7 million, respectively, based on our preliminary purchase price allocation relating to our acquisition of TMP Holdings LTD. For additional information, see Note 3:Acquisition and divestiture.

Amortization expense of our finite-lived intangible assets was $5.2 million and $10.4 million for the thirteen and twenty-six weeks ended July 1, 2018, respectively, and $5.3 million and $10.7 million for the thirteen and twenty-six weeks ended July 2, 2017, respectively.

Indefinite-lived intangible assets

We also held indefinite-lived trade names/trademarks of $6.0 million as of July 1, 2018 and December 31, 2017.

NOTE 4:7: WORKERS’ COMPENSATION INSURANCE AND RESERVES

We provide workers’ compensation insurance for our temporary and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured.

Our workers’ compensation reserve for claims below the deductible limit is discounted to its estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. The weighted average discount rate was ~~1.6%~~1.9% and 1.8% at July 2,1, 2018 and December 31, 2017, ~~and January 1, 2017.~~respectively. Payments made against self-insured claims are made over a weighted average period of approximately ~~4.5~~five years atas of July ~~2, 2017.~~1, 2018.

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~~Notes to Consolidated Financial Statements—(Continued)~~

The following table ~~below~~ presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods ~~presented (in thousands~~):presented:


	July 2, 2017		January 1, 2017
(in thousands)					July 1, 2018		December 31, 2017
Undiscounted workers’ compensation reserve	$	293,927	$	292,169	$	284,399	$	293,600
Less discount on workers’ compensation reserve	15,810		14,818		19,311		19,277
Workers' compensation reserve, net of discount	278,117		277,351
Workers’ compensation reserve, net of discount					265,088		274,323
Less current portion	75,410		79,126		69,848		77,218
Long-term portion	$	202,707	$	198,225	$	195,240	$	197,105

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Payments made against self-insured claims were ~~$31.5~~$36.1 million and ~~$37.2~~$31.5 million for the twenty-six weeks ended July 1, 2018 and July 2, 2017, ~~and June 24, 2016,~~ respectively.

Our workers’ compensation reserve includes estimated expenses related to claims above our self-insured limits (“excess claims”), and we record a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. At July 1, 2018 and December 31, 2017, the weighted average rate was 2.6% and 2.5%, respectively. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 15 years. The discounted workers’ compensation reserve for excess claims was ~~$51.0~~$48.6 million and ~~$52.9~~$48.8 million as of July ~~2, 2017~~1, 2018 and ~~January 1,~~December 31, 2017, respectively. The discounted receivables from insurance companies, net of valuation allowance, were ~~$46.3 million and $48.9~~$45.0 million as of July 2,1, 2018 and December 31, 2017, ~~and January 1, 2017, respectively,~~ and are included in ~~Other~~other assets, net on the accompanying Consolidated Balance Sheets.

Workers’ compensation expense of ~~$22.3~~$17.8 million and ~~$24.6~~$22.3 million was recorded in ~~Cost~~cost of services for the thirteen weeks ended July 1, 2018 and July 2, 2017, ~~and June 24, 2016,~~ respectively. Workers’ compensation expense of ~~$42.1~~$34.4 million and ~~$48.7~~$42.1 million was recorded in ~~Cost~~cost of services for the twenty-six weeks ended July 1, 2018 and July 2, 2017, ~~and June 24, 2016,~~ respectively.

NOTE 8: LONG-TERM DEBT

The components of our borrowings were as follows:



(in thousands)	July 1, 2018		December 31, 2017
Revolving Credit Facility	$	117,199	$	95,900
Term Loan	—		22,856
Total debt	117,199		118,756
Less current portion	—		2,267
Long-term debt, less current portion	$	117,199	$	116,489

Revolving credit facility

Effective June 30, 2014, we entered into a Second Amended and Restated Revolving Credit Agreement for a secured revolving credit facility of $300.0 million with Bank of America, N.A., Wells Fargo Bank, National Association, HSBC and PNC Capital Markets LLC (“Revolving Credit Facility”). The maximum amount we could borrow under the Revolving Credit Facility was subject to certain borrowing limits. Specifically, we were limited to the sum of 90% of our eligible billed accounts receivable, plus 85% of our eligible unbilled accounts receivable limited to 15% of all our eligible receivables, plus the value of our Tacoma headquarters office building. The borrowing limit was 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. As of July 1, 2018, we were in compliance with all covenants related to the Revolving Credit Facility.

Revolving credit facility subsequent event

On July 13, 2018, we entered into a credit agreement with Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, N.A., KeyBank, N.A. and HSBC Bank USA, N.A. (“New Revolving Credit Facility”), and replaced the Revolving Credit Facility. The agreement provides for a revolving line of credit of up to $300 million with an option, subject to lender approval, to increase the amount to $450 million, and matures in five years. Under the terms of the agreement, we will pay a variable rate of interest on funds borrowed that is based on the London Interbank Offered Rate (LIBOR) plus an applicable spread between 1.25% and 2.50%. Alternatively, at our option, we may pay interest based upon a base rate plus an applicable spread between 0.25% and 1.50%. The applicable spread will be determined by the consolidated leverage ratio, as defined in the credit agreement. The base rate is the greater of the prime rate (as announced by Bank of America), the federal funds rate plus 0.50%, or the one-month LIBOR rate plus 1.00%.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A commitment fee between 0.250% and 0.375% will be applied against the New Revolving Credit Facility’s unused borrowing capacity, with the specific rate determined by the consolidated leverage ratio, as defined in the credit agreement. Letters of credit are priced at a margin between 1.00% and 2.25%, plus a fronting fee of 0.50%. Obligations under the agreement are guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by certain collateral of TrueBlue and material U.S. domestic subsidiaries. The agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants based on our leverage and fixed charge coverage ratios, as defined in the credit agreement.

Accordingly, we classified the Revolving Credit Facility as long-term as of July 1, 2018, since the New Revolving Credit Facility replaced the Revolving Credit Facility on a long-term basis.

Term loan agreement

On June 25, 2018, we pre-paid in full our outstanding obligations of approximately $22.0 million with Synovus Bank, terminating all commitments under this term loan (the “Term Loan”) dated February 4, 2013 (as subsequently amended). We did not incur any early termination penalties in connection with the termination of the Term Loan.


~~NOTE 5:~~	NOTE 9: COMMITMENTS AND CONTINGENCIES

Workers’ compensation commitments

We have provided our insurance carriers and certain states with commitments in the form and amounts listed ~~below (in thousands~~):below:


	July 2, 2017		January 1, 2017
(in thousands)					July 1, 2018		December 31, 2017
Cash collateral held by workers’ compensation insurance carriers	$	28,098	$	28,066	$	21,946	$	22,148
Cash and cash equivalents held in Trust	30,579		32,841		25,447		16,113
Investments held in Trust	150,724		146,517		166,424		171,752
Letters of credit (1)	7,783		7,982		7,618		7,748
Surety bonds (2)	20,605		20,440		22,014		19,829
Total collateral commitments	$	237,789	$	235,846	$	243,449	$	237,590


(1)	We have agreements with certain financial institutions to issue letters of credit as collateral.

(2)

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

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.

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~~Notes to Consolidated Financial Statements—(Continued)~~


NOTE 6:10:	INCOME TAXES

Our income tax provision or benefit ~~from income taxes~~ for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes we make a cumulative adjustment. Our quarterly tax provision and ~~our~~ quarterly estimate of our annual effective tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss ~~and the mix of jurisdictions to which they relate,~~by jurisdiction, tax credits, government audit developments, changes in ~~law,~~laws, regulations and administrative practices, and relative changes ofin expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income. For example, the impact of discrete items, tax credits, and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower. Except as required under U.S. tax law, we do not provide for U.S. taxes on undistributed earnings of our foreign subsidiaries since we consider those earnings to be permanently invested outside of the U.S.

Our effective tax rate for the twenty-six weeks ended July ~~2, 2017~~1, 2018 was ~~28.4%~~11.5%. The ~~principal~~ difference between the statutory federal income tax rate of ~~35.0%~~21.0% and our effective income tax rate results primarily from the federal Work Opportunity Tax Credit. This tax credit is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. Other differences between the statutory federal income tax rate of ~~35.0%~~21.0% and our effective tax rate result from state and foreign income taxes, certain non-deductible expenses, tax exempt interest, and tax effects of share based compensation.


~~NOTE 7:~~	~~NET INCOME (LOSS) PER SHARE~~

~~Diluted common shares were calculated as follows (~~On December 22, 2017, Staff Accounting Bulletin No. 118 was issued to address the application of U.S. GAAP in ~~thousands, except per share amounts~~):

Thirteen weeks ended Twenty-six weeks ended
July 2, 2017 June 24, 2016 July 2, 2017 June 24, 2016
Net income (loss) $ 13,134
$ (63,735 ) $ 17,808
$ (56,767 )

Weighted average number of common shares used in basic net income (loss) per common share 41,579
41,688
41,608
41,595
Dilutive effect of non-vested restricted stock 277
—
267
—
Weighted average number of common shares used in diluted net income (loss) per common share 41,856

41,688

41,875
41,595
Net income (loss) per common share:
Basic $ 0.32
$ (1.53 ) $ 0.43
$ (1.36 )
Diluted $ 0.31
$ (1.53 ) $ 0.43
$ (1.36 )

Anti-dilutive shares 60
527
183
446
situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. For the twenty-six weeks ended July 1, 2018, we have not identified any needed adjustments to our transition tax and revaluation of net deferred tax assets recorded at December 31, 2017. Any

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Notes to Consolidated Financial Statements—(Continued)~~

subsequent adjustment to these amounts will be recorded to current tax expense in the fiscal 2018 quarter in which the analysis is complete.


NOTE 11:	NET INCOME PER SHARE

Diluted common shares were calculated as follows:



	Thirteen weeks ended				Twenty-six weeks ended
(in thousands, except per share data)	July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017
Net income	$	17,732	$	13,134	$	26,487	$	17,808

Weighted average number of common shares used in basic net income per common share	40,227		41,579		40,335		41,608
Dilutive effect of non-vested restricted stock	242		277		241		267
Weighted average number of common shares used in diluted net income per common share	40,469		41,856		40,576		41,875
Net income per common share:
Basic	$	0.44	$	0.32	$	0.66	$	0.43
Diluted	$	0.44	$	0.31	$	0.65	$	0.43

Anti-dilutive shares	254		60		218		183


NOTE 8:12:	ACCUMULATED OTHER COMPREHENSIVE LOSS

Changes in the balance of each component of accumulated other comprehensive loss during the reporting periods were as ~~follows (in thousands~~):follows:

Thirteen weeks ended
July 2, 2017 June 24, 2016
Balance at beginning of period Current period other comprehensive income (loss) Balance at end of period Balance at beginning of period Current period other comprehensive income (loss) Balance at end of period
Foreign currency translation adjustment $ (9,884 ) $ 540
$ (9,344 ) $ (11,113 ) $ (307 ) $ (11,420 )
Unrealized gain (loss) on investments (1) 988
(91 ) 897
(423 ) 86
(337 )
Total other comprehensive income (loss), net of tax $ (8,896 ) $ 449
$ (8,447 ) $ (11,536 ) $ (221 ) $ (11,757 )



	Thirteen weeks ended
	July 1, 2018								July 2, 2017
(in thousands)	Foreign currency translation adjustment			Unrealized gain (loss) on investments, net of tax (1)		Total other comprehensive (loss), net of tax			Foreign currency translation adjustment			Unrealized gain on investments, net of tax (1)			Total other comprehensive income (loss), net of tax
Balance at beginning of period	$	(9,713	)	$	—	$	(9,713	)	$	(9,884	)	$	988		$	(8,896	)
Current period other comprehensive income	(1,921		)	—		(1,921		)	540			(91		)	449
Balance at end of period	$	(11,634	)	$	—	$	(11,634	)	$	(9,344	)	$	897		$	(8,447	)

Twenty-six weeks ended
July 2, 2017 June 24, 2016
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 ) $ 2,340
$ (9,344 ) $ (13,514 ) $ 2,094
$ (11,420 )
Unrealized gain (loss) on investments (1) 251
646
897
(499 ) 162
(337 )
Total other comprehensive income (loss), net of tax $ (11,433 ) $ 2,986
$ (8,447 ) $ (14,013 ) $ 2,256
$ (11,757 )



	Twenty-six weeks ended
	July 1, 2018									July 2, 2017
(in thousands)	Foreign currency translation adjustment			Unrealized gain on investments, net of tax (1)			Total other comprehensive (loss), net of tax			Foreign currency translation adjustment			Unrealized gain on investments, net of tax (1)		Total other comprehensive income (loss), net of tax
Balance at beginning of period	$	(8,329	)	$	1,525		$	(6,804	)	$	(11,684	)	$	251	$	(11,433	)
Current period other comprehensive income	(3,305		)	—			(3,305		)	2,340			646		2,986
Change in accounting standard cumulative-effect adjustment (2)	—			(1,525		)	(1,525		)	—			—		—
Balance at end of period	$	(11,634	)	$	—		$	(11,634	)	$	(9,344	)	$	897	$	(8,447	)

(1)

~~Consists~~Consisted of deferred compensation plan accounts, ~~which are~~ comprised of mutual funds classified as available-for-sale ~~securities.~~securities, prior to our adoption of the new accounting standard for equity investments in the fiscal first quarter of 2018. The tax impact on the unrealized gain ~~(loss)~~ on available-for-sale securities was de minimis for the thirteen and twenty-six weeks ended July 2, ~~2017 and June 24, 2016, respectively.~~2017.


(2)	As a result of our adoption of the new accounting standard for equity investments, $1.5 million in unrealized gains, net of tax on available-for-sale equity securities were reclassified from accumulated other comprehensive loss to retained earnings as of the beginning of fiscal

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2018. There were no material reclassifications out of accumulated other comprehensive loss during the thirteen ~~weeks ended July 2, 2017 or June 24, 2016, nor during the~~and twenty-six weeks ended July 2, ~~2017 or June 24, 2016.~~2017. For additional information, see Note 1: Summary of significant accounting policies.


~~NOTE 9:~~	NOTE 13: SEGMENT INFORMATION

~~Commencing in~~Our operating segments are based on the ~~fourth quarter of 2016, we changed our internal reporting~~organizational structure ~~to better align our operations with customer needs and how~~for which financial results are regularly reviewed by our chief operating ~~decision maker,~~decision-maker, our Chief Executive Officer, ~~currently evaluates financial results~~ to determine resource allocation and assess performance. ~~As a result of this change, our former Staffing Services reportable segment has been separated into two reportable~~Our operating segments, ~~PeopleReady and PeopleManagement, and our former Managed Services reportable segment has been renamed PeopleScout. In addition, we changed our methodology for allocating certain corporate costs~~also referred to ~~our segments, which decreased our corporate unallocated expenses. The prior year amounts have been recast to reflect this change for consistency purposes.~~

~~Our~~as 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 ~~the retail,~~a broad range of industries that include construction, manufacturing and logistics, warehousing ~~logistics, energy, construction,~~and distribution, waste and recycling, hospitality, general labor and ~~other industries.~~others.

Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-premise ~~contingent staffing and on-premise management of those contingent staffing services~~at the client’s facility, through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:

Staff Management | SMX: Exclusive recruitment and on-premise management of a facility’s contingent industrial workforce;

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~~Notes to Consolidated Financial Statements—(Continued)~~

SIMOS Insourcing Solutions: On-premise management and recruitment of warehouse/distribution operations; and

Centerline Drivers: Recruitment and management of temporary and dedicated drivers to the transportation and distribution ~~industries; and~~

~~PlaneTechs: Skilled mechanics and technicians, including on-premise management thereof, to the aviation and transportation~~ industries.

Effective March 12, 2018, we divested the PlaneTechs operating segment within our PeopleManagement reportable segment to Launch Technical Workforce Solutions. For additional information, see Note 3: Acquisition and divestiture.

Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing, and management of outsourced labor service providers through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:

PeopleScout: Outsourced recruitment of permanent employees on behalf of clients; and

PeopleScout MSP: Management of multiple third party staffing vendors on behalf of clients.

Effective June 12, 2018, we acquired TMP Holdings LTD, through our PeopleScout subsidiary. Accordingly, the results associated with the acquisition are included in our PeopleScout operating segment. TMP is a mid-sized RPO and employer branding service provider operating in the United Kingdom which is the second largest RPO market in the world. This acquisition increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and employer branding capabilities. For additional information, see Note 3:Acquisition and divestiture.

We ~~have two primary measures~~evaluate performance based on segment revenue and segment profit. Inter-segment revenue is minimal. Commencing in the fiscal first quarter of 2018, we revised our internal segment ~~performance: revenue from services and~~performance measure to be segment profit, rather than the previously reported segment earnings before interest, taxes, depreciation and amortization ~~(“Segment EBITDA”)~~(segment EBITDA). Segment ~~EBITDA~~profit includes ~~net sales to third parties,~~revenue, related cost of ~~sales,~~services, and ~~selling, general and administrative~~ongoing operating expenses directly attributable to the reportable ~~segment together with certain allocated corporate general~~segment. Segment profit excludes goodwill and ~~administrative expenses. Segment EBITDA excludes~~intangible impairment charges, depreciation and amortization expense, unallocated corporate general and administrative ~~expenses.~~expense, interest, other income and expense, income taxes, and costs not considered to be ongoing costs of the segment. The prior year amounts have been recast to reflect this change for consistency purposes.

The following table presents a reconciliation of segment revenue from services to total company ~~revenue (in thousands~~):revenue:


	Thirteen weeks ended				Twenty-six weeks ended				Thirteen weeks ended				Twenty-six weeks ended
	July 2, 2017		June 24, 2016		July 2, 2017		June 24, 2016
(in thousands)									July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017
Revenue from services:
PeopleReady	$	370,712	$	406,274	$	703,336	$	762,284	$	377,460	$	370,712	$	694,295	$	703,336
PeopleManagement	192,887		219,344		384,573		465,771		178,839		192,887		362,731		384,573
PeopleScout	46,523		46,994		90,457		90,537		58,002		46,523		111,663		90,457
Total Company	$	610,122	$	672,612	$	1,178,366	$	1,318,592
Total company									$	614,301	$	610,122	$	1,168,689	$	1,178,366

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents a reconciliation of Segment ~~EBITDA~~profit to income ~~(loss)~~ before tax ~~expense (in thousands~~):expense:

Thirteen weeks ended Twenty-six weeks ended
July 2, 2017 June 24, 2016 July 2, 2017 June 24, 2016
Segment EBITDA (1):
PeopleReady $ 19,154
$ 29,543
$ 28,876
$ 41,098
PeopleManagement 6,286
(80,091 ) 11,819
(73,738 )
PeopleScout 10,129
(3,841 ) 18,794
4,169
35,569
(54,389 ) 59,489
(28,471 )
Corporate unallocated (5,043 ) (10,743 ) (11,378 ) (16,773 )
Depreciation and amortization (12,287 ) (11,694 ) (23,461 ) (22,983 )
Income (loss) from operations 18,239
(76,826 ) 24,650
(68,227 )
Interest and other income (expense), net 155
(887 ) 229
(1,906 )
Income (loss) before tax expense $ 18,394
$ (77,713 ) $ 24,879
$ (70,133 )


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



	Thirteen weeks ended						Twenty-six weeks ended
(in thousands)	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Segment profit:
PeopleReady	$	23,198		$	19,170		$	32,723		$	29,164
PeopleManagement	4,712			6,286			10,361			11,819
PeopleScout	11,320			10,129			23,225			18,794
	39,230			35,585			66,309			59,777
Corporate unallocated	(5,868		)	(5,043		)	(13,532		)	(11,378		)
Work Opportunity Tax Credit processing fees	(264		)	(16		)	(459		)	(288		)
Acquisition/integration costs	(457		)	—			(457		)	—
Other costs	(1,264		)	—			(2,979		)	—
Depreciation and amortization	(10,101		)	(12,287		)	(20,191		)	(23,461		)
Income from operations	21,276			18,239			28,691			24,650
Interest and other income (expense), net	(968		)	155			1,236			229
Income before tax expense	$	20,308		$	18,394		$	29,927		$	24,879

Asset information by reportable segment is not presented since we do not manage our segments on a balance sheet basis.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14: SUBSEQUENT EVENTS

New credit agreement

On July 13, 2018, we entered into a new 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. Refer to Note 8: Long-term debt for additional information on this credit agreement.

In connection with entering into the new credit agreement, we also replaced the Second Amended and Restated Credit Agreement, which was set to expire in June 2019. We did not incur any early termination penalties in connection with the termination of the prior credit agreement.

CEO transition

On July 30, 2018, TrueBlue, Inc. announced that Chief Executive Officer Steven C. Cooper will become Executive Chairman of the Board of Directors, succeeding Joe Sambataro Jr. This transition will take place effective September 1, 2018. Mr. Sambataro will remain on the board of directors. Mr. Cooper will be succeeded as CEO by current President and Chief Operating Officer Patrick Beharelle, who has been named CEO and a member of the board of directors, effective September 1, 2018. Mr. Cooper will also retire as an executive of the company at year-end and continue to serve as Chairman of the Board of Directors thereafter. The board of directors also appointed and elected Mr. Beharelle to the company’s board of directors, effective September 1, 2018.

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.

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Item 2.	~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ~~AND RESULTS OF OPERATIONS~~

COMMENT ON FORWARD LOOKING STATEMENTS

Certain statements in this Form 10-Q, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are

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~~“forward-looking~~ “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 II, Item 1A of this Form 10-Q), “Quantitative and Qualitative Disclosures about Market Risk” (Part I, Item 3 of this Form 10-Q), and “Management’s Discussion and Analysis” (Part I, Item 2 of this Form 10-Q). 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.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide the reader of our accompanying unaudited 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 Annual Report on Form 10-K for the fiscal year ended ~~January 1, 2017. MD&A is provided as a supplement to,~~December 31, 2017, and ~~should be read in conjunction with,~~ our financial statements and the accompanying notes to our financial statements.

~~OVERVIEW~~

TrueBlue, Inc. (the ~~“Company,~~“company,” “TrueBlue,” “we,” “us,” and “our”) is a leading provider of specialized workforce solutions that help our clients create growth, improve efficiency, and increase reliability. Our workforce solutions meet our clients’ needs for a reliable, efficient workforce in a wide variety of industries.

OVERVIEW

Global employment trends are reshaping and redefining traditional employment models, sourcing strategies and human resource capability requirements. In response, the industry has accelerated its evolution from commercial into specialized staffing, and has expanded into outsourced solutions. Client demand for contingent staffing services is dependent on the overall strength of the labor market and trends toward greater workforce flexibility. Improving economic growth typically results in increasing demand for labor, resulting in greater demand for our staffing services. This may create volatility based on overall economic conditions.

We report our business as three distinct segments: ~~PeopleReady; PeopleManagement;~~PeopleReady, PeopleManagement and PeopleScout.

Our PeopleReady reportable segment provides on-demand blue-collar and skilled, contingent staffing to a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, waste and recycling, hospitality, general labor and others.

Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-premise, through the following operating segments, which we have aggregated into one reportable segment in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”):

Staff Management | SMX: Exclusive recruitment and on-premise management of a facility’s contingent industrial workforce;

SIMOS Insourcing Solutions: On-premise management and recruitment of warehouse/distribution operations; and

Centerline Drivers: Recruitment and management of temporary and dedicated drivers to the transportation and distribution industries.

Effective March 12, 2018, we divested the PlaneTechs business within our PeopleManagement reportable segment to Launch Technical Workforce Solutions. For additional information, see Note 3: Acquisition and divestiture, to our Consolidated Financial Statements found in Item 1 of this Quarterly Report on Form 10-Q.

Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing (“RPO”), and management of outsourced labor service providers through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:

PeopleScout: Outsourced recruitment of permanent employees on behalf of clients; and

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MANAGEMENT'S DISCUSSION AND ANALYSIS

PeopleScout MSP: Management of multiple third party staffing vendors on behalf of clients.

Effective June 12, 2018, we acquired TMP Holdings LTD (“TMP”), through our PeopleScout subsidiary. Accordingly, the results associated with the acquisition are included in our PeopleScout operating segment. TMP will be fully integrated into PeopleScout and expand our global reach as the industry leader.

See Note 9:13: Segment ~~Information~~information, to our Consolidated Financial Statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details of our ~~service lines~~operating segments and reportable segments.

Fiscal Second Quarter of 2018 Highlights

~~PeopleReady~~ is our branch-based blue-collar industrial staffing service. PeopleReady provides a wide range of staffing solutions for contingent, on-demand, general and skilled labor to a broad range of industries that include retail, manufacturing, warehousing, logistics, energy, construction, hospitality, and others. PeopleReady helped approximately 122,000 businesses in 2016 to be more productive by providing easy access to dependable contingent labor. Additionally, we connected over 414,000 people with work in 2016. At the end of the second quarter, we had a network of 625 branches across all 50 states, Puerto Rico, and Canada.

~~PeopleManagement~~ ~~predominantly encompasses our on-site placement and management~~Revenue from 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 Insourcing Solutions (“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 temporary skilled mechanics and technicians, including on-premise management thereof, to the aviation and transportation industries. Centerline Drivers specializes in dedicated and temporary truck drivers to the transportation and distribution industries. PeopleManagement helped approximately 900 businesses in 2016 to be more productive by providing easy access to

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dependable blue-collar contingent workforce solutions. Additionally, we connected over 133,000 people with work in 2016. At the end of the second quarter, we had 242 on-premise locations at customers’ facilities.

~~PeopleScout~~ provides outsourced recruitment for permanent employees for all major industries and jobs. Our dedicated recruitment process outsourcing service delivery teams work as an integrated partner with our customers in providing end-to-end talent acquisition services from sourcing candidates to on-boarding employees. In 2016, PeopleScout placed over 268,000 individuals into permanent jobs with 200 customers. Our PeopleScout segment also includes a management service provider business, which provides customers with improved quality and spend management of their contingent labor vendors.

Total company revenue ~~declined~~grew to ~~$610~~$614 million for the thirteen weeks ended July ~~2, 2017,~~1, 2018, a ~~9.3% decrease~~0.7% increase compared to the same period in the prior year primarily due ~~primarily~~ to ~~lower volumes for staffing services within~~widespread revenue improvements in our PeopleReady ~~business and with our former largest customer, Amazon. Excluding this customer, total company revenue declined 5.2% from the same period in the prior year.~~

business.

PeopleReady ~~staffing~~revenue from services experienced weakness in the construction, manufacturing, retail industries, and various other service industries in many of the geographies we serve, as well as both national and local accounts. Demand for our temporary staffing services is largely dependent upon general economic and labor trends. Wage growth has accelerated due

PeopleReady revenue grew to various minimum wage increases, which are more concentrated at the beginning of the year, as well as a need for higher wages to attract talent in tight labor markets. We have increased bill rates for higher wages and associated payroll burdens, as well as our traditional mark-up. While we believe our pricing strategy is the right long-term decision, these actions do impact our revenue trends in the near term as businesses make their own pricing and productivity related adjustments.

~~PeopleManagement staffing services revenue declined by 12.1%, but delivered growth of 1.8% excluding our former largest customer. Revenue from this customer declined by $30 million or 79.7% to $8~~$377 million for the thirteen weeks ended July ~~2, 2017,~~1, 2018, a 1.8% increase compared to the same period in the prior ~~year. This customer substantially in-sourced~~year, which was an improvement from a decrease of 4.7% for the ~~recruitment~~thirteen weeks ended April 1, 2018. The revenue trend improvement was broad-based across most industries and ~~management of contingent labor for their warehouse fulfillment centers and distribution sites in the United States, commencing in the second quarter of fiscal 2016. Excluding this customer,~~geographies driven by improvements to local business development activities.

PeopleManagement revenue ~~trends improved with modest increases in demand~~ from ~~existing and new customers. We continued to experience strong demand in the e-commerce industry and have expanded our~~ services ~~to existing customers, as well as new customers, which will drive future growth.~~

~~PeopleScout~~PeopleManagement revenue declined to ~~$47~~$179 million for the thirteen weeks ended July ~~2, 2017,~~1, 2018, a ~~1.0%~~7.3% decrease compared to the same period in the prior year. The decline iswas primarily due to ~~reduced demand~~the divestiture of our PlaneTechs business effective March 12, 2018, which accounted for a 5.7% decline in PeopleManagement’s revenue compared to the same period in the prior year. The remaining decline of 1.6% was primarily due to lower production volumes with certain clients.

PeopleScout revenue from ~~several significant customers as they respond~~services

PeopleScoutrevenue grew to ~~changing business conditions. This~~$58 million for the thirteen weeks ended July 1, 2018, a 24.7% increase compared to the same period in the prior year. The increase was ~~partially offset~~primarily due to a combination of new client wins and expansion of the scope of services for existing clients. During the second quarter of 2018, PeopleScout purchased TMP which represented a 6.1% increase in PeopleScout’s revenue compared to the same period in the prior year. TMP is a mid-sized RPO and employer branding service provider operating in the United Kingdom, which is the second largest RPO market in the world. We believe this acquisition increases our ability to win multi-continent engagements by ~~growing demand~~adding a physical presence in ~~a tightening labor market for permanent positions from customers in other industries as well as winning new customers which will drive future growth.~~Europe, referenceable clients and employer branding capabilities.

Gross profit

Total company gross profit as a percentage of revenue for the thirteen weeks ended July ~~2, 2017~~1, 2018 was ~~25.5%~~27.0%, compared to ~~25.3%~~25.5% in the same period in the prior year. The ~~slight~~ increase was primarily ~~due to~~ driven by growth in our higher-margin PeopleScout business and

continued ~~focus on disciplined pricing of our~~efficiency gains in their sourcing and recruitment activities. In addition, gross margin improved in the PeopleReady and PeopleManagement ~~industrial~~ staffing ~~services.~~businesses primarily due to lower workers’ compensation costs as a result of our continued efforts to manage the cost of claims and reduce workplace accidents.

Selling, general and administrative (“SG&A”) expense

Total company ~~selling, general and administrative ("~~SG~~&A")~~&A expense ~~decreased~~increased by ~~$11~~$9 million to ~~$125~~$134 million, or 21.8% as a percent of revenue for the thirteen weeks ended July ~~2, 2017,~~1, 2018, compared to ~~the same period in the prior year, due to continued success of our cost management programs. Total company SG&A expense~~$125 million, or 20.4% as a ~~percentage~~percent of revenue ~~increased to 20.4%~~ for ~~the thirteen weeks ended July 2, 2017, from 20.2% in~~ the same period in the prior year. ~~The revenue decline outpaced~~Approximately $6 million of the ~~decline in operating expenses. With the decline in revenues, we put in place cost control programs commencing~~increase was from higher costs in the ~~prior year,~~core business, most of which occurred in our PeopleScout business to support their continued organic growth. The remaining increase included TMP operating costs of $1 million, TMP acquisition and integration costs of $1 million, and continued investment in ~~the current year, and have reduced costs in line with our plans. However, we will continue to monitor and manage our SG&A costs.~~cloud-based systems of approximately $1 million.

Income from operations

Total company income from operations was $21 million, or 3.5% as a percent of revenue, for the thirteen weeks ended July 1, 2018, compared to $18 million, or 3.0% as a percent of revenue for the ~~thirteen weeks ended July 2, 2017, compared to a loss of $77 million in the~~ same period in the prior year. The prior year loss included a non-cash goodwill and intangible impairment charge to operating expense of $99 million. The impairment was primarily driven by a change in the scope of services with our largest customer and other changes in outlook reflecting recent economic and industry conditions. Excluding the impairment charge, net income from operations was $22 million or 3.3% as a percent of revenue for the thirteen weeks ended June 24, 2016. Excluding this charge, the decrease in income from operationsimprovement was primarily due to ~~the decline~~growth in revenue, ~~partially offset by disciplined pricing which improved~~growth in gross ~~margin performance~~profit outpacing the growth in SG&A, and ~~the success of our cost management programs.~~

~~Net income was $13 million, or $0.31 per diluted share for the thirteen weeks ended July 2, 2017, compared~~lower depreciation due to net loss of $64 million, or $1.53 per diluted share in the same period in the prior year. The prior year results include the impairment charge of $99.3 million, which is equivalent to $80 million after tax or $1.91 per diluted share. Excluding the impairment charge, net income would have been $16 million or $0.38 per diluted share.a proprietary software application becoming fully depreciated.

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Net income

Net income was $18 million, or $0.44 per diluted share for the thirteen weeks ended July 1, 2018, compared to $13 million, or $0.31 per diluted share for the same period in the prior year, a 42% increase in net income per diluted share compared to the same period in the prior year. The increase was primarily due to higher income from operations and a lower effective tax rate for the thirteen weeks ended July 1, 2018, as compared to the same period in the prior year. Our effective tax rate for the thirteen weeks ended July 1, 2018 was 12.7% compared to 28.6% for the same period in the prior year. The decrease in our effective income tax rate was primarily due to the enactment of the comprehensive tax legislation in December 2017, referred to as the Tax Cuts and Jobs Act (the “Tax Act”), which decreased the federal tax rate from 35% to 21% beginning in 2018, and due to discrete tax benefits from additional prior year Work Opportunity Tax Credits.

Additional highlights

We believe we are taking the right steps to ~~preserve~~expand our operating margin and produce long-term growth for shareholders. We also believe we are in a strong financial position to fund working capital needs for growth opportunities. During the second quarter of 2018, we pre-paid in full our outstanding term loan with Synovus Bank of approximately $22 million. In addition, on July 13, 2018, we replaced our Second Amended and Restated Revolving Credit Agreement (“Revolving Credit Facility”), which was subject to borrowing limits tied primarily to eligible billed accounts receivable, and entered into a new credit agreement (“New Revolving Credit Facility”), which provides a $300 million credit line with an option, subject to lender approval, to increase the amount to $450 million (see Note 8: Long-term debt, to our Consolidated Financial Statements found in Item 1 of this Quarterly Report on Form 10-Q). We continue to return cash to shareholders through our stock buyback program, repurchasing $19 million of common stock during Q2 2018 for a weighted-average price per share of $25.17, leaving $74 million available under our existing authorization. As of July ~~2, 2017,~~1, 2018, we had cash and cash equivalents of $29 million and $128 million available under the Second Amended and Restated Revolving Credit Agreement for a secured revolving credit facility ("Revolving Credit Facility") for total liquidity of $157$33 million.

RESULTS OF OPERATIONS

Total company results

The following table presents selected financial ~~data (in thousands, except percentages and per share amounts~~):data:

Thirteen weeks ended Twenty-six weeks ended
July 2,
2017 % of revenue June 24,
2016 % of revenue July 2,
2017 % of revenue June 24,
2016 % of revenue
Revenue from services $ 610,122
$ 672,612
$ 1,178,366
$ 1,318,592

Total revenue growth (decline) % (9.3 )% 7.2 % (10.6 )% 9.8 %

Gross profit $ 155,280
25.5 % $ 169,924
25.3 % $ 294,709
25.0 % $ 320,436
24.3 %
Selling, general and administrative expense 124,754
20.4 % 135,787
20.2 % 246,598
20.9 % 266,411
20.2 %
Depreciation and amortization 12,287
2.0 % 11,694
1.7 % 23,461
2.0 % 22,983
1.7 %
Goodwill and intangible asset impairment charge —
— % 99,269
14.8 % —
— % 99,269
7.5 %
Income (loss) from operations 18,239
3.0 % (76,826 ) (11.4 )% 24,650
2.1 % (68,227 ) (5.2 )%
Interest and other income (expense), net 155
(887 ) 229
(1,906 )
Income (loss) before tax expense 18,394
(77,713 ) 24,879

(70,133 )
Income tax expense (benefit) 5,260
(13,978 ) 7,071
(13,366 )
Net income (loss) $ 13,134
2.2 % $ (63,735 ) (9.5 )% $ 17,808
1.5 % $ (56,767 ) (4.3 )%
Net income (loss) per diluted share $ 0.31
$ (1.53 ) $ 0.43
$ (1.36 )



	Thirteen weeks ended										Twenty-six weeks ended
(in thousands, except percentages and per share data)	July 1, 2018			% of revenue		July 2, 2017			% of revenue		July 1, 2018			% of revenue		July 2, 2017			% of revenue
Revenue from services	$	614,301				$	610,122				$	1,168,689				$	1,178,366
Total revenue decline %	0.7		%			(9.3		)%			(0.8		)%			(10.6		)%

Gross profit	$	165,584		27.0	%	$	155,280		25.5	%	$	308,852		26.4	%	$	294,709		25.0	%
Selling, general and administrative expense	134,207			21.8	%	124,754			20.4	%	259,970			22.2	%	246,598			20.9	%
Depreciation and amortization	10,101			1.6	%	12,287			2.0	%	20,191			1.7	%	23,461			2.0	%
Income from operations	21,276			3.5	%	18,239			3.0	%	28,691			2.5	%	24,650			2.1	%
Interest and other income (expense), net	(968		)			155					1,236					229
Income before tax expense	20,308					18,394					29,927					24,879
Income tax expense	2,576					5,260					3,440					7,071
Net income	$	17,732		2.9	%	$	13,134		2.2	%	$	26,487		2.3	%	$	17,808		1.5	%
Net income per diluted share	$	0.44				$	0.31				$	0.65				$	0.43

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Revenue from services

Revenue from services by reportable segment was as ~~follows for the thirteen weeks and twenty-six weeks ended July 2, 2017~~ ~~(in thousands, except percentages)~~:follows:


	Thirteen weeks ended										Twenty-six weeks ended										Thirteen weeks ended										Twenty-six weeks ended
	July 2, 2017		Decline %		Segment % of Total		June 24, 2016		Segment % of Total		July 2, 2017		Decline %		Segment % of Total		June 24, 2016		Segment % of Total
Revenue from services
(in thousands, except percentages)																					July 1, 2018		Growth (decline) %		Segment % of total		July 2, 2017		Segment % of total		July 1, 2018		Growth (decline) %		Segment % of total		July 2, 2017		Segment % of total
Revenue from services:
PeopleReady	$	370,712	(8.8	)%	60.8	%	$	406,274	60.4	%	$	703,336	(7.7	)%	59.7	%	$	762,284	57.8	%	$	377,460	1.8	%	61.4	%	$	370,712	60.8	%	$	694,295	(1.3	)%	59.4	%	$	703,336	59.7	%
PeopleManagement	192,887		(12.1	)%	31.6	%	219,344		32.6	%	384,573		(17.4	)%	32.6	%	465,771		35.3	%	178,839		(7.3	)%	29.1	%	192,887		31.6	%	362,731		(5.7	)%	31.0	%	384,573		32.6	%
PeopleScout	46,523		(1.0	)%	7.6	%	46,994		7.0	%	90,457		(0.1	)%	7.7	%	90,537		6.9	%	58,002		24.7	%	9.4	%	46,523		7.6	%	111,663		23.4	%	9.6	%	90,457		7.7	%
Total Company	$	610,122	(9.3	)%	100.0	%	$	672,612	100.0	%	$	1,178,366	(10.6	)%	100.0	%	$	1,318,592	100.0	%
Total company																					$	614,301	0.7	%	100.0	%	$	610,122	100.0	%	$	1,168,689	(0.8	)%	100.0	%	$	1,178,366	100.0	%

Total company revenue declined to ~~$1.2 billion~~$1,169 million for the twenty-six weeks ended July ~~2, 2017,~~1, 2018, a ~~10.6%~~0.8% decrease compared to the same period in the prior year. The decrease is primarily due to lower volumes for staffing services within our PeopleReady ~~business~~ and ~~with our former largest customer, Amazon. Excluding this customer, total company revenue declined 5.2% for the thirteen weeks ended July 2, 2017 and 4.3% for the twenty-six weeks ended July 2, 2017.~~

PeopleManagement businesses.

PeopleReady

PeopleReadyrevenue ~~declined~~grew to ~~$371~~$377 million for the thirteen weeks ended July ~~2, 2017,~~1, 2018, a 1.8% increase compared to the same period in the prior year, which was an ~~8.8%~~improvement from a decrease of 4.7% for the thirteen weeks ended April 1, 2018. The revenue trend improvement was broad-based across most industries and geographies driven by improvements to local business development activities.

PeopleReady revenue declined to $694 million for the twenty-six weeks ended July 1, 2018, a 1.3% decrease compared to the same period in the prior year. ~~Revenue~~The decrease was primarily due to weakness in revenue in the first quarter of 2018 compared to the same period in the prior year from clients in the construction, manufacturing and retail industries, which was partially offset by growth from clients in the transportation and hospitality industries, as compared to the same period in the prior year. In addition, we experienced an elevated level of turnover in our branch level sales professionals, primarily in the Southeast. This attrition, coupled with project delays associated with new tariffs on imported solar panels, fueled much of the decline.

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-ups. While we believe our pricing strategy is the right long-term decision, these actions can have an impact on our revenue trends in the near term.

PeopleManagement

PeopleManagementrevenue declined to ~~$703~~$179 million for the ~~twenty-six~~thirteen weeks ended July ~~2, 2017,~~1, 2018, a ~~7.7%~~7.3% decrease compared to the same period in the prior year. ~~PeopleReady staffing services experienced weakness~~The decline was primarily due to the divestiture of our PlaneTechs business effective March 12, 2018, which accounted for a 5.7% decline in PeopleManagement’s revenue compared to the same period in the ~~construction, manufacturing, retail industries and various other service industries in many~~prior year. The remaining decline of the geographies we serve as well as both national and local accounts. Demand for our temporary staffing services is largely dependent upon general economic and labor trends. Wage growth has accelerated1.6% was primarily due to ~~various minimum wage~~lower production volumes with certain clients.

PeopleManagementrevenue declined to $363 million for the twenty-six weeks ended July 1, 2018, a 5.7% decrease compared to the same period in the prior year. The divestiture of our PlaneTechs business represented a 4.0% decline in PeopleManagement’s revenue. The remaining decline of 1.7% was primarily due to lower volumes with existing clients.

PeopleScout

PeopleScoutrevenue grew to $58 million for the thirteen weeks ended July 1, 2018, a 24.7% increase compared to the same period in the prior year. The increase was primarily due to a combination of new client wins and expansion in the scope of services for existing clients. In June 2018, PeopleScout purchased TMP, which accounted for a 6.1% increase in PeopleScout’s revenue compared to the same period in the prior year. TMP is a mid-sized RPO and employer branding service provider operating in the United Kingdom, which is the second largest RPO market in the world. We believe this acquisition increases ~~which are more concentrated at the beginning of the year, as well as~~our ability to win multi-continent engagements by adding a ~~need for higher wages~~physical presence in Europe, referenceable clients and employer branding capabilities.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

to attract talent in tight labor markets. We have increased bill rates for higher wages and associated payroll burdens, as well as our traditional mark-up. While we believe our pricing strategy is the right long-term decision, these actions do impact our revenue trends in the near term as businesses make their own pricing and productivity related adjustments.

~~PeopleManagement~~

~~PeopleManagement~~PeopleScout revenue ~~declined~~grew to ~~$193 million for the thirteen weeks ended July 2, 2017, a 12.1% decrease compared to the same period in the prior year. PeopleManagement revenue declined to $385~~$112 million for the twenty-six weeks ended July ~~2, 2017,~~1, 2018, a 17.4% decrease compared to the same period in the prior year. Excluding our former largest customer, PeopleManagement delivered growth of 1.8% for the thirteen and twenty-six weeks ended July 2, 2017. Revenue from this customer declined by $30 million or 79.7% to $8 million for the thirteen weeks ended July 2, 2017, and declined by $88 million, or 83.0% for the twenty-six weeks ended July 2, 2017, compared to their respective prior year periods. This customer substantially in-sourced the recruitment and management of contingent labor for their warehouse fulfillment centers and distribution sites in the United States, commencing in the second quarter of fiscal 2016. Excluding this customer, revenue trends improved with modest increases in demand from existing and new customers. We continued to experience strong demand in the e-commerce industry and have expanded our services to existing customers, as well as new customers, which will drive future growth.

~~PeopleScout~~

~~PeopleScout~~revenue declined to $47 million for the thirteen weeks ended July 2, 2017, a 1.0% decrease compared to the same period in the prior year. PeopleScout revenue declined to $90 million for the twenty-six weeks ended July 2, 2017, a 0.1% decrease23.4% increase compared to the same period in the prior year. The ~~decline~~ acquisition of TMP represented a 3.2% increase in PeopleScout’s revenue compared to the same period in the prior year. The remaining increase was driven primarily by strong market interest in our recruitment process outsourcing services, which have been accentuated by the launch of our new talent acquisition technology, Affinix^TM. Affinix^TMis ~~primarily due to reduced demand from several significant customers as they respond to changing business conditions. This was partially offset by~~ a ~~growing demand in~~mobile-first, cloud-based proprietary platform which creates a ~~tightening labor market for permanent positions from customers in~~consumer-like candidate experience and streamlines the sourcing process within PeopleScout’s talent solutions. It delivers speed and scalability while leveraging artificial intelligence, recruitment marketing, machine learning, predictive analytics and other ~~industries as well as winning new customers which will drive future growth.~~emerging technology with one-point applicant tracking system and vendor management system integration and single sign-on.

Gross profit

Gross profit was as ~~follows for thirteen weeks and twenty-six weeks ended July 2, 2017 (in thousands, except percentages~~):follows:


	Thirteen weeks ended						Twenty-six weeks ended						Thirteen weeks ended						Twenty-six weeks ended
	July 2, 2017			June 24, 2016			July 2, 2017			June 24, 2016
(in thousands, except percentages)													July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Gross profit	$	155,280		$	169,924		$	294,709		$	320,436		$	165,584		$	155,280		$	308,852		$	294,709
Percentage of revenue	25.5		%	25.3		%	25.0		%	24.3		%	27.0		%	25.5		%	26.4		%	25.0		%

Total company gross profit as a percentage of revenue for the thirteen weeks ended July ~~2, 2017~~1, 2018 was ~~25.5%~~27.0%, compared to ~~25.3% in~~25.5% for the same period in the prior year. The increase of 0.2% was due primarily to favorable mix with less revenue from our former largest customer, which carries a lower gross margin than the blended average, and a continued focus on disciplined pricing of our PeopleReady and PeopleManagement industrial staffing services.

Total company gross profit as a percentage of revenue for the twenty-six weeks ended July ~~2, 2017~~1, 2018 was ~~25.0%~~26.4%, compared to ~~24.3% in~~25.0% for the same period in the prior year. The increase ~~of 0.7%~~ was ~~due~~ primarily ~~to favorable mix with less revenue from~~driven by growth in our ~~former largest customer, which carries a lower~~higher-margin PeopleScout business and continued efficiency gains in their sourcing and recruitment activities. In addition, gross margin ~~than~~improved in the ~~blended average, a continued focus on disciplined pricing of our~~ PeopleReady and PeopleManagement ~~industrial~~ staffing ~~services, and additional efficiency gains in the sourcing and recruiting activities of PeopleScout.~~

~~Workers’~~businesses primarily due to lower workers’ compensation ~~expense~~costs as a ~~percentage~~result of revenue was 3.7% for the thirteen weeks ended July 2, 2017 and the same period in the prior year. Workers’ compensation expense as a percentage of revenue was 3.6% for the twenty-six weeks ended July 2, 2017, compared to 3.7% in the same period in the prior year. Our continuousour continued efforts to ~~actively~~ manage the ~~safety~~cost of ~~our temporary workers with our safety programs~~claims 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.reduce workplace accidents. Continued favorable adjustments to our workers’ compensation liabilities are dependent on our ability to continue to lower accident rates and claim costs.

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Selling, general and administrative expense

~~Selling, general and administrative ("~~SG~~&A")~~&A expense ~~for thirteen weeks and twenty-six weeks ended July 2, 2017~~ was as ~~follows (in thousands, except percentages~~):follows:


	Thirteen weeks ended						Twenty-six weeks ended						Thirteen weeks ended						Twenty-six weeks ended
	July 2, 2017			June 24, 2016			July 2, 2017			June 24, 2016
(in thousands, except percentages)													July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Selling, general and administrative expense	$	124,754		$	135,787		$	246,598		$	266,411		$	134,207		$	124,754		$	259,970		$	246,598
Percentage of revenue	20.4		%	20.2		%	20.9		%	20.2		%	21.8		%	20.4		%	22.2		%	20.9		%

Total company SG&A expense ~~decreased~~increased by ~~$11~~$9 million to ~~$125~~$134 million, or 21.8% as a percent of revenue for the thirteen weeks ended July ~~2, 2017,~~1, 2018, compared to ~~the same period in the prior year due to continued progress in managing costs. Total company SG&A expense~~$125 million, or 20.4% as a ~~percentage~~percent of revenue ~~increased to 20.4%~~ for ~~the thirteen weeks ended July 2, 2017, from 20.2% in~~ the same period in the prior year. ~~The revenue declines outpaced~~Approximately $6 million of the ~~decline in operating expenses. With the decline in revenues, we have reduced~~increase is from higher costs in ~~line with~~the core business, most of which occurred in our ~~plans. However, we will continue~~PeopleScout business to ~~monitor~~support their continued organic growth. The remaining increase included TMP operating costs of $1 million, TMP acquisition and ~~manage our SG&A costs.~~

integration costs of $1 million, and continued investment in cloud-based systems of approximately $1 million.

Total company SG&A expense ~~decreased~~increased by ~~$20~~$13 million to ~~$247~~$260 million, or 22.2% as a percent of revenue for the twenty-six weeks ended July ~~2, 2017,~~1, 2018, compared to ~~the same period in the prior year due to continued progress in managing costs. Total company SG&A expense~~$247 million, or 20.9% as a ~~percentage~~percent of revenue ~~increased to 20.9%~~ for ~~the twenty-six weeks ended July 2, 2017, from 20.2% in~~ the same period in the prior year. ~~The rate at which revenue declines outpaced~~Approximately $8 million of the ~~decline in operating expenses has slowed with the success of our cost reduction programs.~~

~~Goodwill and Intangible Asset Impairment Charge~~

~~Goodwill and intangible asset impairment charge was as follows for thirteen weeks and twenty-six weeks ended July 2, 2017~~ ~~(in thousands, except percentages)~~:

Thirteen weeks ended Twenty-six weeks ended
July 2, 2017 June 24, 2016 July 2, 2017 June 24, 2016
Goodwill and intangible asset impairment charge $ —
$ 99,269
$ —
$ 99,269
Percentage of revenue — % 14.8 % — % 7.5 %

~~Net loss~~increase is from operations for the thirteen and twenty-six weeks ended June 24, 2016, includes a non-cash goodwill and intangible impairment charge to operating expense of $99 million. The impairment was primarily driven by a changehigher costs in the ~~scope~~core business, most of ~~services with~~which occurred in our ~~former largest customer~~PeopleScout business to support their continued organic growth. The remaining increase included TMP operating costs of $1 million, TMP acquisition and ~~other changes~~integration costs of $1 million, and continued investment in ~~outlook reflecting recent economic and industry conditions.~~

~~We test goodwill and indefinite-lived intangible assets for impairment annually on the first day~~cloud-based systems of ~~our second fiscal 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.~~approximately $3 million.

Depreciation and amortization

Depreciation and amortization was as ~~follows for thirteen weeks and twenty-six weeks ended July 2, 2017~~ ~~(in thousands, except percentages)~~:follows:


	Thirteen weeks ended						Twenty-six weeks ended						Thirteen weeks ended						Twenty-six weeks ended
	July 2, 2017			June 24, 2016			July 2, 2017			June 24, 2016
(in thousands, except percentages)													July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Depreciation and amortization	$	12,287		$	11,694		$	23,461		$	22,983		$	10,101		$	12,287		$	20,191		$	23,461
Percentage of revenue	2.0		%	1.7		%	2.0		%	1.7		%	1.6		%	2.0		%	1.7		%	2.0		%

Depreciation ~~increased $2 million~~ and ~~$3 million~~amortization decreased primarily due to a proprietary software application becoming fully depreciated during the fiscal fourth quarter of 2017, which resulted in a decline in depreciation for the thirteen and twenty-six weeks ended July 2, 2017, respectively, primarily due to an increase in investments designed to further improve our efficiency and effectiveness in recruiting and retaining our contingent workers, and attracting and retaining customers. This was offset by a decline in amortization of $1 million and $2 million, for the thirteen and twenty-six weeks ended July 2, 2017, respectively, due to the intangible asset impairment in the prior year.1, 2018.

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Income taxes

The income tax expense and the effective income tax rate were as follows:



	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except percentages)	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Income tax expense	$	2,576		$	5,260		$	3,440		$	7,071
Effective income tax rate	12.7		%	28.6		%	11.5		%	28.4		%

Our effective tax rate for ~~thirteen weeks and~~the twenty-six weeks ended July 1, 2018 and July 2, 2017 ~~were~~was 11.5% and 28.4%, respectively. We benefited from the U.S. government enacting comprehensive tax legislation commonly referred to as ~~follows~~ (the Tax Act. The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, a federal tax rate reduction from 35.0% to 21.0% beginning in ~~thousands, except percentages)~~:

Thirteen weeks ended Twenty-six weeks ended
July 2, 2017 June 24, 2016 July 2, 2017 June 24, 2016
Income tax expense (benefit) $ 5,260
$ (13,978 ) $ 7,071
$ (13,366 )
Effective income tax rate 28.6 % 18.0 % 28.4 % 19.1 %

2018. Additionally, we recognized discrete tax benefits from prior year hiring credits of $0.6 million for the twenty-six weeks ended July 1, 2018.

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 ~~and the mix of jurisdictions to which they relate,~~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. ~~Except as required under U.S. federal income tax law, we~~We do not provide for ~~U.S. federal~~deferred income taxes on undistributed earnings of our foreign subsidiaries because we consider those earnings to be permanently invested outside of the United States.

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~~maximums by targeted category. Based on historical results and business trends, we estimate the amount of WOTC we expect to earn related to wages of the current year. However, the estimate is subject to variation because 1) a small percentage of our workers qualify for one or more of the many targeted categories; 2) the targeted categories are subject to different incentive credit rates and limitations; 3) credits fluctuate depending on economic conditions and qualified worker retention periods; and 4) state and federal offices can delay their credit certification processing and have inconsistent certification rates. We recognize additional prior year hiring credits if credits in excess of original estimates have been certified by government offices. WOTC was restored through December 31, 2019, as a result of the Protecting Americans from Tax Hikes Act of 2015, signed into law on December 18, 2015.

Our effective tax rate for the twenty-six weeks ended July 2, 2017 and June 24, 2016 was 28.4% and 19.1%, respectively. Our effective tax rate for the twenty-six weeks ended June 24, 2016, included a goodwill and intangible asset impairment charge of $99.3 million. Excluding the impairment charge, net income would have been $29.1 million with an effective tax rate of 21.6%. We recognized discrete tax benefits from prior year(s) hiring credits of $0.5 million for the twenty-six weeks ended July 2, 2017, compared to $2.3 million for the same period in the prior year.

Changes to our effective tax rate as a result of hiring credits, ~~impairment, and~~ share based compensation, ~~were for thirteen weeks~~ and ~~twenty-six weeks ended July 2, 2017~~the Tax Act were as follows:


	Thirteen weeks ended				Twenty-six weeks ended				Thirteen weeks ended				Twenty-six weeks ended
	July 2, 2017		June 24, 2016		July 2, 2017		June 24, 2016		July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017
Effective income tax rate without adjustments below	39.9	%	40.4	%	39.7	%	41.1	%	27.5	%	39.9	%	27.5	%	39.7	%
Hiring credits estimate from current year wages	(8.4	)	(11.7	)	(8.4	)	(11.7	)	(13.6	)	(8.4	)	(13.6	)	(8.4	)
Additional hiring credits from prior year wages	(2.8	)	(2.2	)	(2.1	)	(7.8	)	(1.2	)	(2.8	)	(1.8	)	(2.1	)
Tax effect of share based compensation	(0.1	)	—		(0.8	)	—		—		(0.1	)	(0.6	)	(0.8	)
Goodwill and intangible asset impairment impact	—		(8.5	)	—		(2.5	)
Effective income tax rate	28.6	%	18.0	%	28.4	%	19.1	%	12.7	%	28.6	%	11.5	%	28.4	%

Segment ~~EBITDA~~performance

We ~~realigned our reporting structure~~evaluate performance based on segment revenue and segment profit. Inter-segment revenue is minimal. Commencing in the ~~fourth~~fiscal first quarter of ~~fiscal 2016~~2018, we revised our internal segment performance measure to ~~streamline our operations~~be segment profit, rather than the previously reported segment earnings before interest, taxes, depreciation and ~~make it easier for our customers~~amortization (segment EBITDA). Segment profit includes revenue, related cost of services, and ongoing operating expenses directly attributable to ~~leverage our total workforce solution by using both our contingent work~~the reportable segment. Segment profit excludes goodwill 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~~intangible impairment charges, depreciation and ~~PeopleManagement,~~amortization expense, unallocated corporate general and ~~our former Managed Services reportable segment was renamed PeopleScout. In addition, we changed our methodology for allocating certain corporate~~administrative expense, interest, other income and expense, income taxes, and costs not considered to ~~our segments, which decreased our corporate unallocated expenses.~~be ongoing costs of the segment. The prior year amounts have been recast to reflect this change for ~~consistency.~~

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~~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, 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 temporary skilled mechanics and technicians, including on-premise management thereof, to the aviation and transportation industries. Centerline Drivers specializes in dedicated and temporary truck drivers to the transportation and distribution industries.

~~PeopleScout~~ provides outsourced recruitment for permanent employees for all major industries and jobs. Our dedicated recruitment process outsourcing service delivery teams work as an integrated partner with our customers in providing end-to-end talent acquisition services from sourcing candidates to on-boarding employees. Our PeopleScout segment also includes a management service provider business, which provides customers with improved quality and spend management of their contingent labor vendors.

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”). Segment EBITDA includes net sales to third parties, related cost of sales, and selling, general and administrative expenses directly attributable to the reportable segment together with certain allocated corporate general and administrative expenses. Segment EBITDA excludes unallocated corporate general and administrative expenses.consistency purposes. See Note 9:13: Segment ~~Information~~information, to our Consolidated Financial Statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details of our ~~service lines and~~ reportable segments, as well as a reconciliation of ~~Segment EBITDA~~segment profit to income ~~(loss)~~ before tax expense.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

Segment ~~EBITDA~~profit 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 in accordance with accounting principles generally accepted in the United States of America, and may not be comparable to similarly titled measures of other companies.

PeopleReadysegment performance was as follows:



	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except for percentages)	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Revenue from services	$	377,460		$	370,712		$	694,295		$	703,336
Segment profit	23,198			19,170			32,723			29,164
Percentage of revenue	6.1		%	5.2		%	4.7		%	4.1		%

PeopleReady segment profit grew to $23 million, or 6.1% of revenue for the thirteen ~~weeks and twenty-six~~ weeks ended July ~~2, 2017 was as follows (in thousands, except for percentages):~~

Thirteen weeks ended Twenty-six weeks ended
July 2, 2017 June 24, 2016 July 2, 2017 June 24, 2016
Revenue from services $ 370,712
$ 406,274
$ 703,336
$ 762,284

Segment EBITDA $ 19,154
$ 29,543
$ 28,876
$ 41,098
Percentage of revenue 5.2 % 7.3 % 4.1 % 5.4 %

~~PeopleReady Segment EBITDA decreased~~1, 2018, compared to $19 million, or 5.2% of revenue for the thirteen weeks ended July 2, 2017, compared to $30 million, or 7.3% of revenue in the same period in the prior year. PeopleReady Segment EBITDA decreased to $29 million, or 4.1% of revenue for the twenty-six weeks ended July 2, 2017, compared to $41 million, or 5.4% of revenue in the same period in the prior year. The ~~revenue decline outpaced the cost control programs~~growth was primarily due to ~~the de-leveraging effect associated with the fixed costs~~widespread revenue growth and an improvement in ~~a branch network. Through~~gross margin.

Gross margins improved through disciplined pricing weand programs to reduce the cost of services. We have ~~successfully~~ passed through ~~our normal mark-up on the~~ increased costs for minimum wages, payroll taxes and benefits, together with higher contingent worker wages in a tightening labor ~~market. With~~market, as well as most of our standard markup on these costs. Our continued efforts to actively manage the ~~decline~~safety of our temporary workers with our safety programs, and to control increasing costs with our network of workers’ compensation service providers resulted in ~~revenue, we~~lower workers’ compensation cost.

We put in place cost control programs commencing in the prior year ~~which continue~~in connection with declining revenues. Those programs continued in the current year and have reduced SG&A costs in line with our plans. We will continue to monitor and manage our SG&A ~~costs.~~costs in the current environment of sluggish growth.

PeopleReady segment profit grew to $33 million, or 4.7% of revenue for the twenty-six weeks ended July 1, 2018, compared to $29 million, or 4.1% of revenue for the same period in the prior year. Revenue declines were offset by gross margin expansion and SG&A cost management.

PeopleManagementsegment performance was as follows:



	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except for percentages)	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Revenue from services	$	178,839		$	192,887		$	362,731		$	384,573
Segment profit	4,712			6,286			10,361			11,819
Percentage of revenue	2.6		%	3.3		%	2.9		%	3.1		%

PeopleManagement segment profit decreased 25.0% to $5 million, or 2.6% of revenue for the thirteen weeks ended July 1, 2018, compared to $6 million, or 3.3% of revenue for the same period in the prior year. PeopleManagement segment profit decreased 12.3% to $10 million, or 2.9% of revenue for the twenty-six weeks ended July 1, 2018, compared to $12 million, or 3.1% of revenue for the same period in the prior year. The decline in segment profit and related margin was primarily due to the divestiture of our PlaneTechs business effective March 12, 2018, and volume declines for selected industrial workforce clients. This was partially offset by programs to reduce the cost of services and control SG&A commencing in the prior year in connection with declining revenues. Those programs continued in the current year and have reduced costs in line with our plans. We will continue to monitor and manage our costs while also investing in growth initiatives.

PeopleScoutsegment performance was as follows:



	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except for percentages)	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
Revenue from services	$	58,002		$	46,523		$	111,663		$	90,457
Segment profit	11,320			10,129			23,225			18,794
Percentage of revenue	19.5		%	21.8		%	20.8		%	20.8		%

PeopleScout segment profit grew to $11 million, or 19.5% of revenue for the thirteen weeks ended July 1, 2018, compared to $10 million, or 21.8% of revenue for the same period in the prior year. PeopleScout segment profit increased to $23 million, or 20.8%

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MANAGEMENT'S DISCUSSION AND ANALYSIS

~~PeopleManagement~~ ~~segment performance for thirteen weeks and twenty-six weeks ended July 2, 2017 was as follows (in thousands, except for percentages):~~

Thirteen weeks ended Twenty-six weeks ended
July 2, 2017 June 24, 2016 July 2, 2017 June 24, 2016
Revenue from services $ 192,887
$ 219,344
$ 384,573
$ 465,771

Segment EBITDA $ 6,286
$ (80,091 ) $ 11,819
$ (73,738 )
Percentage of revenue 3.3 % (36.5 )% 3.1 % (15.8 )%

PeopleManagement Segment EBITDA increased to earnings of $6 million, or 3.3% of revenue for the thirteen weeks ended July 2, 2017, compared to a loss of $80 million in the same period in the prior year. PeopleManagement Segment EBITDA increased to earnings of $12 million, or 3.1% of revenue for the twenty-six weeks ended July ~~2, 2017,~~1, 2018, compared to a loss of $74 million in the same period in the prior year. The increases were primarily due to the goodwill and intangible asset impairment charge of $84 million in the prior period. Excluding the goodwill and intangible asset impairment charge, Segment EBITDA as a percentage of revenue improved by 1.4% and 0.8% for the thirteen and twenty-six weeks ended July 2, 2017, compared to their respective prior year periods. This improvement is 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 a cost reduction program. Revenue from our former largest customer declined by $30 million, or 79.7% to $8 million for the thirteen weeks ended July 2, 2017, from the same period in the prior year. Revenue from our former largest customer declined by $88 million, or 83.0% to $18 million for the twenty-six weeks ended July 2, 2017, from the same period in the prior year.

~~PeopleScoutsegment performance for thirteen weeks and twenty-six weeks ended July 2, 2017 was as follows (in thousands, except for percentages):~~

Thirteen weeks ended Twenty-six weeks ended
July 2, 2017 June 24, 2016 July 2, 2017 June 24, 2016
Revenue from services $ 46,523
$ 46,994
$ 90,457
$ 90,537

Segment EBITDA $ 10,129
$ (3,841 ) $ 18,794
$ 4,169
Percentage of revenue 21.8 % (8.2 )% 20.8 % 4.6 %

PeopleScout Segment EBITDA increased to earnings of $10 million, or 21.8% of revenue for the thirteen weeks ended July 2, 2017, compared to a loss of $4 million for the same period in the prior year. PeopleScout Segment EBITDA grew to $19 million, or 20.8% ~~of revenue for the twenty-six weeks ended July 2, 2017, compared to $4 million, or 4.6%~~ of revenue for the same period in the prior year. The increase was due primarily to revenue growth driven by strong market interest in our recruitment process outsourcing services and scope expansions with existing clients, which has been accentuated by our new talent acquisition technology, Affinix^TM. The increase in segment profit was also driven by continued efficiency gains in sourcing and recruiting activities. These increases to segment profit were ~~primarily due~~partially offset by additional operating costs to the goodwill and intangible asset impairment charge of $15 million in the prior period. Excluding the goodwill and intangible asset impairment charge, Segment EBITDA as a percentage of revenue declined by 2.3% and 0.6% for the thirteen and twenty-six weeks ended July 2, 2017, compared to their respective prior year periods. This was primarily due to acquisition related transition service benefits in the prior year which did not recur.support organic growth.

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 the remainder of fiscal ~~2017.~~2018. These expectations are subject to revision as our business changes with the overall economy.

~~Revenue declined~~Our PeopleManagement segment provides staffing services to Amazon fulfillment centers in Canada. We received notice that Amazon intends to assume responsibility for all if its workforce needs in Canada and will discontinue the use of our services on September 1, 2018. Amazon revenue and segment profit over the last four quarters was $52 million and $5.9 million, respectively.

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. Likewise, cost management programs to lower the cost of services and control operating expenses are key priorities in the ~~first half~~short-term and to position the business for strong operating leverage and profitable long-term growth in the future.

•

We are committed to technological innovation that makes it easier for our clients to do business with us and easier to connect people to work. We continue making investments in online and mobile applications to improve access, speed and ease of connecting our clients and workers for our staffing businesses and candidates for our recruitment process outsourcing business. We expect these investments will increase the competitive differentiation of our services, improve the efficiency of our service delivery, and reduce our PeopleReady dependence on local branches to find temporary workers and connect them with work. Examples include our new Jobstack^TM mobile platform in the PeopleReady business and our new Affinix^TM talent acquisition technology in the PeopleScout business.

PeopleScout is a recognized industry leader of ~~2017 primarily due~~RPO services, which is in the early stages of that industry’s adoption cycle. Due to the ~~decrease~~industry growth rate for RPO services, our market leading position, and our advances in technology, we expect the revenue ~~from our former largest customer and weakness in the residential construction, manufacturing and various other service industries in many~~growth of the geographies we serve. Demand for our temporary and permanent staffing services is largely dependent upon general economic and labor trends. Within our staffing businesses, wage growth has accelerated duethis business to various minimum wage increases, which are more concentrated at the beginning of the year, as well as higher wages to attract talent in tight labor markets. We have made pricing discipline a strategic focus. We have increased bill rates for higher wages and associated payroll burdens, as well as our traditional mark-up. While we believe our pricing strategy is the right long-term decision, these actions do impact our revenue trends in the short term as businesses make their own pricing and productivity related adjustments. Additionally, we implemented cost reduction programs in the prior year which we continued in the current year to address revenue declines and preserve operating margin without sacrificing strategic initiatives to drive future growth. With the decline in revenues we have reduced costs in line with our plans. We will continue to ~~monitor~~exceed the growth of our other segments. We expect our acquisition of TMP to increase our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and ~~manage our SG&A costs.~~employer branding capabilities.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

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. The SIMOS business model is based on a productivity-based pricing model where the customer outsources a complete work cell to SIMOS. Through a combination of process redesign and best practices, SIMOS is able to increase the efficiency of a customer’s contingent workforce and align the cost of the workforce with the level of demand within a customer’s business. We believe this adds an appealing solution to certain parts of our existing on-premise business as well as opportunities in the broader marketplace. We believe that SIMOS will continue to deliver growth with its compelling value proposition.

PeopleScout is a recognized industry leader of RPO services, which are in the early stages of their adoption cycles. The acquisition of the RPO business of Aon Hewitt positions PeopleScout as the leading provider of RPO solutions and accelerates our global RPO strategy. The acquisition added new services and capabilities to better meet our objective of providing customers with talent and flexible workforce solutions they need to enhance business performance. This acquisition exceeded management’s initial expectations. We expect continued organic growth with a differentiated service that leverages innovative technology for high-volume, scalable sourcing and dedicated client service teams for connecting the best talent to work opportunity, reducing the cost of hiring, and delivering a better outcome for the customer. Additionally, we are focused on growth through the disciplined pursuit of international acquisitions to improve win rates on multi-continent deals.

We are committed to technology innovation that makes it easier for our customers to do business with us and easier to connect people with work. We continue making investments in our online tools and our mobile application ("JobStack") to improve access, speed, and ease of connecting our customers and workers. We expect JobStack will increase the competitive differentiation of our services, expand our reach into new demographics, improve both service delivery and work-order fill rates and ultimately reduce our dependence on local branches to find temporary workers and connect them with work.

LIQUIDITY AND CAPITAL RESOURCES

~~The following discussion highlights our cash flow activities for the twenty-six weeks ended July 2, 2017 and June 24, 2016.~~LIQUIDITY

Cash flows from operating activities

Our cash flows from operating activities were as ~~follows (in thousands~~):follows:


	Twenty-six weeks ended						Twenty-six weeks ended
	July 2, 2017			June 24, 2016
Net income (loss)	$	17,808		$	(56,767	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
(in thousands)							July 1, 2018			July 2, 2017
Net income							$	26,487		$	17,808
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	23,461			22,983			20,191			23,461
Goodwill and intangible asset impairment charge	—			99,269
Provision for doubtful accounts	3,619			4,221			5,571			3,619
Stock-based compensation	5,146			6,042			5,983			5,146
Deferred income taxes	2,975			(21,404		)	1,373			2,975
Other operating activities	1,877			2,264			102			2,022
Changes in operating assets and liabilities, net of effects of acquisition of business:
Changes in operating assets and liabilities:
Accounts receivable	11,925			116,112			888			11,925
Income tax receivable	8,828			11,238			(3,641		)	8,828
Accounts payable and other accrued expenses	(13,181		)	754			3,767			(13,181		)
Accrued wages and benefits	(4,560		)	(10,897		)	(1,423		)	(4,560		)
Workers' compensation claims reserve	767			7,838
Workers’ compensation claims reserve							(9,235		)	767
Other assets and liabilities	5,397			2,683			(622		)	5,397
Net cash provided by operating activities	$	64,062		$	184,336		$	49,441		$	64,207

Net cash provided by operating activities was ~~$64~~$49 million for the twenty-six weeks ended July ~~2, 2017,~~1, 2018, compared to ~~$184~~$64 million for the same period in the prior year.

Depreciation and amortization decreased primarily due to a proprietary software application becoming fully depreciated during the fiscal fourth quarter of 2017.

The ~~goodwill and intangible asset impairment charge~~decrease in accounts receivable in the current year is primarily due to the divestiture of ~~$99 million~~our PlaneTechs business effective March 12, 2018 offset by an increase in our days sales outstanding due to growth in our PeopleScout business, which has longer payment terms.

The increase in income tax receivable in the current year is primarily due to the benefit of higher than expected WOTC. The decrease in income tax receivable in the prior year was primarily driven by a change in the scope of services with our former largest customer of $67 million and $32 million due to the impact of other changes in outlook reflecting recent economic and industry conditions which lowered future expectations

~~The change to deferred income taxes~~ is due primarily to ~~the goodwill~~receipt of a refund of $9 million for returns amended for higher than anticipated benefits from WOTC.

The increase in accounts payable and ~~intangible asset impairment charge~~other accrued expenses in the ~~second quarter 2016.~~

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~~The decline in accounts receivable for the twenty-six weeks ended July 2, 2017~~current period is primarily due to normal seasonal de-leveraging of accounts receivable. The change in accounts receivable is significantly less than the comparable prior year period due to a decline in revenue and associated receivables from our former largest customer. The record fourth quarter of fiscal 2015 and seasonal de-leveraging that followed was in large part due to this customer who substantially in-sourced their recruitment and management of contingent labor for their warehouse fulfillment centers and distribution sitesgrowth in the United States commencing in the second quarter of fiscal 2016. Revenues from our former largest customer declined by $140 million in the fourth quarter of fiscal 2016 and $88 million in the first half of fiscal 2017 compared to their respective prior year periods.

business. The decline in accounts payable and other accrued expenses isin the prior period was primarily due to cost control programs ~~together~~commencing in the prior year in connection with ~~normal seasonal patterns~~declining revenues and timing of payments.

The ~~decline~~change in ~~accrued wages~~other assets and ~~benefits~~liabilities is primarily due to investments in cloud-based systems of $6 million and a note receivable of $1 million relating to the ~~lower volume~~divestiture of ~~activity from revenue declines, which require reductions in~~ the ~~flex workforce to align with client volume changes.~~PlaneTechs business effective March 12, 2018.

Generally, our workers’ compensation claims reserve for estimated claims increases as contingent labor services increase and decreases as contingent labor services decline. However, our worker safety programs have had a positive impact and have created favorable adjustments to our workers’ compensation liabilities recorded in prior periods. Continued favorable adjustments to our workers’ compensation liabilities are dependent on our ability to continue to lower accident rates and claim costs.

~~During the second quarter~~

Page - 29

Table of 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.Contents



MANAGEMENT'S DISCUSSION AND ANALYSIS

Cash flows from investing activities

Our cash flows from investing activities were as ~~follows (in thousands~~):follows:


	Twenty-six weeks ended						Twenty-six weeks ended
	July 2, 2017			June 24, 2016
(in thousands)							July 1, 2018			July 2, 2017
Capital expenditures	$	(9,137	)	$	(11,430	)	$	(6,468	)	$	(9,137	)
Acquisition of businesses, net of cash acquired	—			(71,863		)
Change in restricted cash and investments	1,663			(13,925		)
Acquisition of business, net of cash acquired							(22,742		)	—
Divestiture of business							8,800			—
Change in restricted investments							2,314			(7,166		)
Net cash used in investing activities	$	(7,474	)	$	(97,218	)	$	(18,096	)	$	(16,303	)

Net cash used in investing activities was $7$18 million for the twenty-six weeks ended July ~~2, 2017,~~1, 2018, compared to ~~$97~~a $16 million cash use for the same period in the prior year.

~~Cash used in investing activities of $72 million for~~

Effective June 12, 2018, the ~~twenty-six weeks ended June 24, 2016, was for the acquisition~~company acquired all of the ~~RPO~~outstanding equity interests of TMP, through its subsidiary PeopleScout for a cash purchase price of $23 million, net of cash acquired of $7 million. See Note 3: Acquisition and divestiture, to our Consolidated Financial Statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details on the purchase of TMP.

Effective March 12, 2018, the company entered into an asset purchase agreement to sell substantially all the assets and certain liabilities of its PlaneTechs business to Launch Technical Workforce Solutions for a purchase price of ~~Aon Hewitt, effective January 4, 2016.~~$11 million, of which $9 million has been paid in cash as of July 1, 2018. See Note 3: Acquisition and divestiture, to our Consolidated Financial Statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details on the divestiture of our PlaneTechs business.

~~Change in restricted cash and~~Restricted investments consist primarily of collateral that has been provided or pledged to insurance carriers and state workers’ compensation programs. ~~Restricted~~The decrease in the incremental cash ~~and investments changed~~used in investing activities was primarily due to alower collateral requirements from our workers’ compensation insurance providers, as well as the timing of collateral payments.

Cash flows from financing activities

Our cash ~~source of $2~~flows from financing activities were as follows:



	Twenty-six weeks ended
(in thousands)	July 1, 2018			July 2, 2017
Purchases and retirement of common stock	$	(19,065	)	$	(15,530	)
Net proceeds from stock option exercises and employee stock purchase plans	757			858
Common stock repurchases for taxes upon vesting of restricted stock	(2,403		)	(2,873		)
Net change in revolving credit facility	21,300			(25,303		)
Payments on debt and other liabilities	(22,856		)	(1,133		)
Payment of contingent consideration at acquisition date fair value	—			(18,300		)
Net cash used in financing activities	$	(22,267	)	$	(62,281	)

Net cash used in financing activities was $22 million for the twenty-six weeks ended July ~~2, 2017,~~1, 2018, compared to ~~a cash use of $14~~$62 million for the same period in the prior year. ~~This change was primarily due to~~

We made further progress on our stock buyback program, repurchasing $19 million of common stock during Q2 2018 for a ~~decrease~~weighted-average price per share of $25.17, leaving $74 million available under our existing authorization.

On June 25, 2018, we pre-paid in ~~collateral requirements to~~full our ~~workers’ compensation insurance providers due to both declining claims, as well as timing~~outstanding obligations of ~~collateral payments.~~approximately $22 million with Synovus Bank, terminating all commitments under this term loan (the “Term Loan”) dated February 4, 2013 (as subsequently amended). We did not incur any early termination penalties in connection with the termination of the Term Loan.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

~~Cash flows from financing activities~~

~~Our cash flows from financing activities were as follows (in thousands~~):

Twenty-six weeks ended
July 2, 2017 June 24, 2016
Purchases and retirement of common stock $ (15,530 ) $ —
Net proceeds from stock option exercises and employee stock purchase plans 858
840
Common stock repurchases for taxes upon vesting of restricted stock (2,873 ) (2,321 )
Net change in Revolving Credit Facility (25,303 ) (94,186 )
Payments on debt and other liabilities (1,133 ) (1,133 )
Payment of contingent consideration at acquisition date fair value (18,300 ) —
Other —
25
Net cash used in financing activities $ (62,281 ) $ (96,775 )

~~Net cash used in financing activities was $62 million for the twenty-six weeks ended July 2, 2017, compared to $97 million for the same period in the prior year, primarily due to repayments on~~We borrowed against our Revolving Credit Facility ~~$16 million in share buybacks, and~~to fund the ~~payment of $23 million during the second quarter relating to the contingent consideration associated with our~~ acquisition of ~~SIMOS. The total contingent consideration payment included $18 million related~~TMP effective June 12, 2018 and liquidation of the Synovus Bank loan. See Note 3: Acquisition and divestiture, to our Consolidated Financial Statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details on 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.~~TMP.

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:

~~Our~~On July 13, 2018, we replaced our Second Amended and Restated Revolving Credit ~~Facility of up~~Agreement, which was subject to borrowing limits tied primarily to eligible billed accounts receivable, and entered into a ~~maximum of~~new credit agreement. This agreement provides a $300 million ~~expires~~credit line with an option, subject to lender approval, to increase the amount to $450 million (see Note 8: Long-term debt, to our Consolidated Financial Statements found in Item 1 of this Quarterly Report on June 30, 2019. The Revolving Credit Facility is an asset backed facility, which is 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 July 2, 2017 was $128 million. We believe the Revolving Credit Facility provides adequate borrowing availability.Form 10-Q).

We had cash and cash equivalents of ~~$29~~$33 million at July ~~2, 2017.~~

1, 2018.

The majority of our workers’ compensation payments are made from restricted cash rather than cash from operations. At July ~~2, 2017,~~1, 2018, we had restricted cash and investments totaling ~~$230~~$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~~CAPITAL RESOURCES

Revolving credit facility

On July 13, 2018, we entered into a credit agreement with Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, N.A., KeyBank, N.A. and HSBC Bank USA, N.A., and replaced the second amended and restated credit agreement associated with our prior credit facility. The agreement provides for a revolving line of credit of up to $300 million with an option, subject to lender approval, to increase the amount to $450 million, and matures in five years. Under the terms of the agreement, we will pay a variable rate of interest on funds borrowed that is based on the London Interbank Offered Rate (LIBOR) plus an applicable spread between 1.25% and 2.50%. Alternatively, at our option, we may pay interest based upon a base rate plus an applicable spread between 0.25% and 1.50%. The applicable spread will be determined by the consolidated leverage ratio as defined in the credit agreement. The base rate is the greater of the prime rate (as announced by Bank of America), the federal funds rate plus 0.50%, or the one-month LIBOR rate plus 1.00%.

A commitment fee between 0.250% and 0.375% will be applied against the New Revolving Credit Facility’s unused borrowing capacity, with the specific rate determined by the consolidated leverage ratio as defined in the credit agreement. Letters of credit are priced at a margin between 1.00% and 2.25%, plus a fronting fee of 0.50%. Obligations under the agreement are guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by certain collateral of TrueBlue and material U.S. domestic subsidiaries. The agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants based on our leverage and fixed charge coverage ratios, as defined in the credit agreement (see Note 8: Long-term debt, to our Consolidated Financial Statements found in Item 1 of this Quarterly Report on Form 10-Q).

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 cash equivalents and investments for the purpose of providing collateral instruments to our insurance carriers to satisfy workers’ compensation claims. At July ~~2, 2017,~~1, 2018, we had restricted cash and investments totaling ~~$230~~$239 million. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon ~~("Trust"~~(“Trust”). See Note 3:5: Restricted ~~Cash~~cash and ~~Investments~~investments, to our Consolidated Financial Statements found in Item 1 of this Quarterly Report on Form 10-Q, for details of our ~~Restricted Cash~~restricted cash and ~~Investments.~~investments.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

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,

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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~~	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 temporary and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2 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

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/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. 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 the Trust.

Our total collateral commitments were made up of the following components for the fiscal period end dates ~~presented (in thousands~~):presented:


	July 2, 2017		January 1, 2017
(in thousands)					July 1, 2018		December 31, 2017
Cash collateral held by workers’ compensation insurance carriers	$	28,098	$	28,066	$	21,946	$	22,148
Cash and cash equivalents held in Trust	30,579		32,841		25,447		16,113
Investments held in Trust	150,724		146,517		166,424		171,752
Letters of credit (1)	7,783		7,982		7,618		7,748
Surety bonds (2)	20,605		20,440		22,014		19,829
Total collateral commitments	$	237,789	$	235,846	$	243,449	$	237,590


(1)	We have agreements with certain financial institutions to issue letters of credit as collateral.

(2)

Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which 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.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

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~~):presented:


	July 2, 2017			January 1, 2017
(in thousands)							July 1, 2018			December 31, 2017
Total workers’ compensation reserve	$	278,117		$	277,351		$	265,088		$	274,323
Add back discount on workers’ compensation reserve (1)	15,810			14,818			19,311			19,277
Less excess claims reserve (2)	(51,029		)	(52,930		)	(48,619		)	(48,826		)
Reimbursable payments to insurance provider (3)	8,530			10,193			11,564			5,492
Less portion of workers’ compensation not requiring collateral (4)	(13,639		)	(13,586		)
Other (4)							(3,895		)	(12,676		)
Total collateral commitments	$	237,789		$	235,846		$	243,449		$	237,590


(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~~the difference between the self-insured reserves ~~where~~and collateral ~~is not required.~~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.

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 July ~~2, 2017,~~1, 2018, the weighted average discount rate was ~~1.6%~~1.9%. The claim payments are made over an estimated weighted average period of approximately ~~4.5~~five 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 July ~~2, 2017,~~1, 2018, the weighted average rate was ~~2.2%~~2.6%. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 15 years. The discounted workers’ compensation reserve for excess claims and the corresponding receivable for the insurance on excess claims were ~~$51 million and $53~~$49 million as of July ~~2, 2017~~1, 2018 and ~~January 1, 2017, respectively.~~December 31, 2017.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

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 substantially all of the insurance receivables from the insurance companies in liquidation.

We continue to actively manage workers’ compensation expense through the safety of our temporary workers with our safety programs, and actively control costs with our network of service providers. These actions have had a positive impact creating

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favorable adjustments to workers’ compensation liabilities recorded in prior periods. Continued favorable adjustments to our 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.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

There have been no material changes during the period covered by this Quarterly Report on Form 10-Q, outside of the ordinary course of business, to the contractual obligations specified in the table of contractual obligations ~~included~~found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” ~~included in~~of our Annual Report on Form 10-K for the fiscal year ended ~~January 1,~~December 31, 2017.

SUMMARY OF CRITICAL ACCOUNTING ESTIMATES

Our critical accounting estimates are discussed in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Summary of Critical Accounting Estimates” in our Annual Report on Form 10-K for the fiscal year ended ~~January 1,~~December 31, 2017. The following has been updated to reflect the results of our annual goodwill and indefinite-lived intangible asset impairment analyses.

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 ~~fiscal~~ quarter, and whenever events or circumstances make it more likely than not that an impairment may have occurred. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, customer 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 lines~~operating segments to be our reporting units for goodwill impairment testing. Our ~~service lines~~operating segments are PeopleReady, ~~PlaneTechs,~~ Centerline, Staff Management | SMX, SIMOS, PeopleScout, and PeopleScout MSP. The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds carrying value, we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value of the goodwill.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions to evaluate the impact of operational and macroeconomic changes on each reporting unit. The fair value of each reporting unit is a weighted average of the income and market valuation approaches. The income approach applies a fair value methodology based on discounted cash flows. This analysis requires significant estimates and judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. Our weighted average cost of capital for our most recent annual impairment test ranged from ~~11.5%~~10.5% to ~~12.0%~~11.5%. 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. 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.~~premium of 13.2%. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

Based on our test performed as of the first day of our fiscal second ~~fiscal~~ quarter of ~~2017,~~2018, all reporting units’ fair values were substantially in excess of their respective carrying values. Accordingly, no impairment loss was ~~recognized. Based~~recognized for the twenty-six weeks ended July 1, 2018 nor July 2, 2017.

The estimated fair value of our Staff Management | SMX and SIMOS reporting units were in excess of their carrying value, however, the operations of these reporting units are largely dependent on ~~our test performed in the prior year,~~major national customers. The loss of a major national customer could give rise to an impairment. In that event, we ~~recorded~~would be required to record a goodwill ~~impairment charge~~impairment. We will continue to closely monitor the operational performance of ~~$65.9 million for the thirteen weeks ended June 24, 2016.~~

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these reporting units.

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 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.

We performed our annual indefinite-lived intangible asset impairment test as of the first day of our fiscal second ~~fiscal~~ quarter of ~~2017~~2018 and determined that the estimated fair values exceeded the carrying amounts for ~~both of~~ our indefinite-lived trade names. Accordingly, no impairment loss was ~~recognized. Based on our test performed in the prior year, we recorded an impairment charge of $4.5 million~~recognized for the ~~thirteen~~twenty-six weeks ended ~~June 24, 2016.~~July 1, 2018 nor July 2, 2017.

NEW ACCOUNTING STANDARDS

See Note 1: Summary of ~~Significant Accounting Policies,~~significant accounting policies, to our Consolidated Financial Statements ~~included~~found in Item 1 of this Quarterly Report on Form 10-Q.

~~Item 3.~~



Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our quantitative and qualitative disclosures about market risk are discussed in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended ~~January 1,~~December 31, 2017.

~~Item 4. CONTROLS AND PROCEDURES~~



Item 4.	CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

During the fiscal second quarter of ~~fiscal 2017,~~2018, we carried out an evaluation, under the supervision and with the participation of our management, including our ~~chief executive officer~~Chief Executive Officer and our ~~chief financial officer,~~Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of July ~~2, 2017.~~

1, 2018.

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that materially affected or are reasonably likely to materially affect internal control over financial reporting.

The certifications required by ~~Section 302~~Rule 13a-14 of the ~~Sarbanes-Oxley~~Exchange Act ~~of 2002~~ are filed as exhibits 31.1 and 31.2, respectively, to this Quarterly Report on Form 10-Q.

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PART II. OTHER INFORMATION

~~Item 1.~~



Item 1.	LEGAL PROCEEDINGS

See Note 5:9: Commitments and ~~Contingencies,~~contingencies, to our Consolidated Financial Statements found in Part I, Item 1 of this Quarterly Report on Form 10-Q.



Item 1A.	RISK FACTORS

Investing in our securities involves risk. The following risk factors and all other information set forth in this Quarterly Report on Form 10-Q should be considered in evaluating our future prospects. If any of the events described below ~~occurs,~~occur, our business, financial condition, results of operations, liquidity, or access to the capital markets could be materially and adversely affected.

~~Our~~Demand for our workforce solutions ~~are~~is significantly affected by fluctuations in general economic conditions.

The demand for workforce solutions is highly dependent upon the state of the economy and upon the workforce needs of our ~~customers,~~clients, which creates uncertainty and volatility. As economic activity slows, companies tend to reduce their use of temporary workers and reduce their recruitment of new employees. Significant declines 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 decrease our revenues and profits. Deterioration in economic conditions or the financial or credit markets could also have an adverse impact on our ~~customers’~~clients’ 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 may cause clients to reduce or defer projects for which they utilize our services. The negative impact to our business can occur before 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 take advantage of growth opportunities.

We may be unable to attract sufficient qualified candidates to meet the needs of our ~~customers.~~clients.

We compete to meet our ~~customers’~~clients’ 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 ~~in the past~~ 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,~~clients, 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, our business could be adversely 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, ~~that~~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~~clients to absorb any increased costs related to ~~government mandated~~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”).

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Because the ~~final~~ requirements, regulations, and interpretations of the ACA may change, the ultimate financial effect of the ACA is not yet known, and changes in ~~these~~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 ~~U.S.,~~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

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ACA, or any future health care legislation in the ~~U.S.,~~United States, or sufficiently raise the rates we charge our ~~customers~~clients 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 ~~other businesses.~~our clients. 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~~clients 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 ~~the companies from which we have obtained~~our insurance providers will be able to pay claims we make under such policies.

We are dependent on workers’ compensation 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 workers 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 collateral is held in trust by a third-party for the payment of these claims. The loss or decline in value of the 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. 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. Unexpected changes in claim trends, including the severity and frequency of claims, changes in state laws regarding benefit levels and allowable claims, actuarial estimates, or medical cost inflation, could result in costs that are significantly different than initially reported. There can be no assurance that we will be able to increase the fees charged to our ~~customers~~clients 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 with 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 declining 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 industry and may be unable to retain ~~customers~~clients 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 ~~competition includes large, well-financed~~ competitors ~~small local competitors, internet-based companies, and mobile-enabled solutions providing~~offer a variety of flexible workforce solutions. We expect the increased use of internet-based and mobile technology will attract additional technology-oriented companies and resources to the staffing industry. Our customers may demand technological changes in the development or implementation of our services. We face extensive pricing pressure and must continue to invest in new technology and industry developments while we innovate changes in the way we do business in order to remain relevant to our customers. Therefore, there ~~can be~~is no assurance that we will be able to retain ~~customers~~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 clients 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

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in new technology and industry developments in order to remain relevant to our clients. 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 clients, 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 clients and employees as well as prospective clients and employees. We may not be successful in detecting, preventing, or negating all 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~~new credit agreement (“New Revolving Credit ~~Agreement as amended ("Revolving Credit Facility"~~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 thelimited. Our New Revolving Credit Facility ~~will be directly~~

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~~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 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.

~~Our Revolving Credit Facility and Term Loan Agreement contain~~contains 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 principal sources of liquidity are funds generated from operating activities, available cash and cash equivalents, and borrowings under our New 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.

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; limiting our ability to take advantage of significant business opportunities, such as acquisition opportunities; limiting our ability to react to changes in market or industry conditions; and putting us at a disadvantage compared to competitors with less debt.

The loss of, or substantial decline in revenue from, a major ~~customer~~client could have a material adverse effect on our revenues, profitability and liquidity.

We experience revenue concentration with large ~~customers.~~clients. Generally our contracts do not contain guarantees of minimum duration, revenue levels, or profitability and our ~~customers~~clients may terminate their contracts or materially reduce their requested levels of service at any time. The loss of, or reduced demand for our services from, major ~~customers~~clients could have a material adverse effect on our business, financial condition and results of operations. In addition, ~~customer~~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.

~~Our management~~Failure of our information technology systems ~~may not perform as anticipated and~~could adversely affect our ~~system, operations and facilities are vulnerable to damage and interruption.~~operating results.

The efficient operation of our business is dependent on our ~~management~~ 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 clients. We rely heavily on proprietary and third-party ~~management~~ 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 could result in decreased revenue and increased overhead costs, causing our business and results of operations to suffer materially.

Our information technology systems may need to be updated or replaced.

We occasionally implement, modify, retire and change our systems. For example, we are in the process of implementing a new cloud-based enterprise accounting system. These changes to our information technology systems ~~and these transitions can~~may be disruptive, take longer than desired, be more expensive than anticipated, be distracting to management, or fail, causing our business and results of operations to suffer materially. 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, and catastrophic events. Failure of our systems or facilities may require significant additional capital and management resources to resolve, causing material harm to our business.

A ~~data breach,~~cyberattack, or improper disclosure of, or access to, our confidential and/or proprietary information ~~or our employees’ or customers’ information~~ could materially harm our business.

Our business ~~involves the use, storage, and transmission of information about applicants, candidates, temporary workers, employees, and customers. Our temporary workers and employees may have access or exposure to~~uses confidential information about applicants, candidates, temporary workers, other employees and ~~customers.~~clients. We and our third-party vendors have established policies and procedures to help protect the security and privacy of this information. The secure use, storage, and transmission of this information is critical to our business operations. We have experienced cyber-attacks,experience cyberattacks, computer viruses, social engineering schemes and other means of unauthorized access to our systems.

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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. 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.

A data breach, or improper disclosure of, or access to our clients’ 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 clients. The security controls over sensitive or confidential information and other practices we, 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.

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, and entering into new business initiatives as part of our business strategy. This strategy may be impeded, however, if we cannot identify suitable acquisition

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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 and 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 new business initiatives, including initiatives outside of our workforce solutions business, 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 directing management’s attention from our other businesses. 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 ~~customers.~~clients. We believe our competitive advantage is providing unique solutions for each individual ~~customer,~~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 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 quality of our strategy execution and planned growth. Delayed expansion, significant increases in employee turnover rates, or significant increases in labor costs could have a material adverse effect on our business, financial condition and results of operations.

We may have additional tax liabilities that exceed our estimates.

We are subject to federal taxes, ~~and~~ 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 credits 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 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.

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, our Board of Directors authorized a share repurchase program. Under the program, we are authorized to repurchase shares of common stock for an aggregate purchase price not to exceed $100 million, excluding fees, commissions and other ancillary expenses. 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

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and amount of the repurchases, if any, will depend upon several factors, including market and business conditions, the trading price of the company’s 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 programs 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.

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 ofover our third party vendors, or if our independent registered public accounting firm cannot render an opinion on the effectiveness of our internal ~~control~~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.

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 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 ~~texting,~~applications, and electronic pay solutions, to provide certain back office support activities, and to support business process outsourcing for our ~~customers.~~clients. Accordingly, we are 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;~~clients; and sustained decreases in share price. We

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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.

Our stock price may be volatile.

Our stock price has experienced substantial fluctuation based on a variety of factors, several of which are beyond our control. Some of these factors include general economic conditions; actual or anticipated variations in our quarterly operating results; changes in financial estimates by securities analysts; changes or volatility in the financial markets; announcements by our competitors related to new services or acquisitions; and shareholder activism. Fluctuations in our stock price could mean that investors will not be able to sell their shares at or above the price they paid and may impair our ability in the future to offer common stock as a source of additional capital.

We face risks in operating internationally.

A portion 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

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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.

Foreign currency fluctuations may have a material adverse effect on our operating results.

We report our results of operations in ~~United States~~U.S. dollars. The majority of our revenues are generated in the United States. Our international operations are denominated in currencies other than the ~~United States~~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 ~~United States~~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.



Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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 July ~~2, 2017.~~1, 2018.

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)
04/03/2017 through 04/30/2017 —
—
—
$29.4 million
05/01/2017 through 05/28/2017 2,470

$27.09
421,384
$18.3 million
05/29/2017 through 07/02/2017 15,296

$26.60
164,600
$13.9 million
Total 17,766

$26.67
585,984



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)
04/02/2018 through 04/29/2018	8		$26.45	—	$92.7 million
04/30/2018 through 05/27/2018	1,722		$24.10	597,808	$77.8 million
05/28/2018 through 07/01/2018	10,160		$27.02	162,679	$73.5 million
Total	11,890		$26.60	760,487


(1)	During the ~~twenty-six~~thirteen weeks endedJuly ~~2, 2017,~~1, 2018, we purchased ~~17,766~~11,890 shares in order to satisfy employee tax withholding obligations upon the vesting of restricted ~~stock awards and performance share units.~~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 ~~the~~ shares repurchased under the share repurchase program during the period was ~~$26.50.~~$25.17.

(4)

~~Our~~On September 15, 2017, our Board of Directors authorized a ~~$75.0~~$100 million share repurchase program ~~in July 2011 that~~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. As of July ~~2, 2017, $13.9~~1, 2018, $73.5 million remains available for repurchase ~~of our common stock~~ under the current authorization.

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Item 6.	EXHIBITS



			Incorporated by reference
Exhibit number	Exhibit description	Filed herewith	Form	File no.	Date of first filing

3.1	~~Exhibit~~ ~~Number~~Amended and Restated Articles of Incorporation.		~~Exhibit Description~~8-K	001-14543	05/12/2016

3.2	~~31.1~~Amended and Restated Bylaws.		10-Q	001-14543	10/30/2017

10.1	Credit agreement by and among Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, N.A., Key Bank, HSBC and TrueBlue, Inc. dated as of July 13, 2018.		8-K	001-14543	07/16/2018

31.1	Certification of Steven C. Cooper, Chief Executive Officer of TrueBlue, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002.	X

31.2		Certification of Derrek L. Gafford, Chief Financial Officer of TrueBlue, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002.	X

32.1		Certification of Steven C. Cooper, Chief Executive Officer of TrueBlue, Inc. and Derrek L. Gafford, Chief Financial Officer of TrueBlue, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.	X

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase.

101.DEF		XBRL Taxonomy Extension Definition Linkbase.

101.LAB		XBRL Taxonomy Extension Label Linkbase.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase.

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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/ Steven C. Cooper	7/~~31/2017~~30/2018
	Signature	Date
By:	Steven C. Cooper, Director and Chief Executive Officer

	/s/ Derrek L. Gafford	7/~~31/2017~~30/2018
	Signature	Date
By:	Derrek L. Gafford, Chief Financial Officer and Executive Vice President

	/s/ Norman H. Frey	7/~~31/2017~~30/2018
	Signature	Date
By:	Norman H. Frey, Chief Accounting Officer and Senior Vice President

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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	$	—



	July 2, 2017
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Municipal debt securities	$	77,573	$	1,583	$	(297	)	$	78,859
Corporate debt securities	67,204		474		(158		)	67,520
Agency mortgage-backed securities	4,948		38		(18		)	4,968
U.S. government and agency securities	999		24		—			1,023
	$	150,724	$	2,119	$	(473	)	$	152,370