Company Quick10K Filing
Trueblue
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 40 $855
10-K 2020-02-24 Annual: 2019-12-29
10-Q 2019-10-28 Quarter: 2019-09-29
10-Q 2019-07-30 Quarter: 2019-06-30
10-Q 2019-04-29 Quarter: 2019-03-31
10-K 2019-02-22 Annual: 2018-12-30
10-Q 2018-11-05 Quarter: 2018-09-30
10-Q 2018-07-30 Quarter: 2018-07-01
10-Q 2018-04-30 Quarter: 2018-04-01
10-K 2018-02-26 Annual: 2017-12-31
10-Q 2017-10-30 Quarter: 2017-10-01
10-Q 2017-07-31 Quarter: 2017-07-02
10-Q 2017-05-01 Quarter: 2017-04-02
10-K 2017-02-24 Annual: 2017-01-01
10-Q 2016-10-24 Quarter: 2016-09-23
10-Q 2016-07-25 Quarter: 2016-06-24
10-Q 2016-04-25 Quarter: 2016-03-25
10-K 2016-02-22 Annual: 2015-12-25
10-Q 2015-10-26 Quarter: 2015-09-25
10-Q 2015-08-05 Quarter: 2015-06-26
10-Q 2015-04-29 Quarter: 2015-03-27
10-K 2015-02-23 Annual: 2014-12-26
10-Q 2014-10-27 Quarter: 2014-09-26
10-Q 2014-07-28 Quarter: 2014-06-27
10-Q 2014-04-28 Quarter: 2014-03-28
10-K 2014-02-20 Annual: 2013-12-27
10-Q 2013-10-28 Quarter: 2013-09-27
10-Q 2013-07-29 Quarter: 2013-06-28
10-Q 2013-04-29 Quarter: 2013-03-29
10-K 2013-02-21 Annual: 2012-12-28
10-Q 2012-10-29 Quarter: 2012-09-28
10-Q 2012-07-30 Quarter: 2012-06-29
10-Q 2012-04-30 Quarter: 2012-03-30
10-K 2012-02-23 Annual: 2011-12-30
10-Q 2011-10-31 Quarter: 2011-09-30
10-Q 2011-08-01 Quarter: 2011-07-01
10-Q 2011-05-06 Quarter: 2011-04-01
10-K 2011-02-22 Annual: 2010-12-31
10-Q 2010-10-29 Quarter: 2010-09-24
10-Q 2010-07-30 Quarter: 2010-06-25
10-Q 2010-04-30 Quarter: 2010-03-26
10-K 2010-02-16 Annual: 2009-12-25
8-K 2020-03-16 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2020-03-02 Officers
8-K 2020-02-05 Earnings, Regulation FD, Exhibits
8-K 2019-11-11 Officers, Regulation FD, Exhibits
8-K 2019-10-28 Earnings, Regulation FD, Exhibits
8-K 2019-10-28 Officers
8-K 2019-08-15 Officers, Exhibits
8-K 2019-07-29 Earnings, Regulation FD, Exhibits
8-K 2019-05-17 Shareholder Vote
8-K 2019-04-29 Earnings, Regulation FD, Exhibits
8-K 2019-02-07 Earnings, Regulation FD, Exhibits
8-K 2018-12-13 Officers
8-K 2018-11-05 Earnings, Regulation FD, Exhibits
8-K 2018-09-18 Officers, Exhibits
8-K 2018-07-30 Earnings, Regulation FD, Exhibits
8-K 2018-07-30 Officers, Exhibits
8-K 2018-07-13 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2018-06-13 Regulation FD, Exhibits
8-K 2018-05-14 Shareholder Vote
8-K 2018-04-30 Earnings, Regulation FD, Exhibits
8-K 2018-02-07 Earnings, Regulation FD, Exhibits
8-K 2018-01-04 Officers
TBI 2019-12-29
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Note 1: Summary of Significant Accounting Policies
Note 2: Acquisition and Divestiture
Note 3: Fair Value Measurement
Note 4: Restricted Cash and Investments
Note 5: Property and Equipment, Net
Note 6: Goodwill and Intangible Assets
Note 7: Workers' Compensation Insurance and Reserves
Note 8: Long-Term Debt
Note 9: Commitments and Contingencies
Note 10: Shareholders' Equity
Note 11: Stock-Based Compensation
Note 12: Defined Contribution Plans
Note 13: Income Taxes
Note 14: Net Income per Share
Note 15: Accumulated Other Comprehensive Loss
Note 16: Segment Information
Note 17: Selected Quarterly Financial Data (Unaudited)
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
EX-4.1 tbi10k122919ex41.htm
EX-10.7 truebluedoindemnificatio.htm
EX-10.19 formnoncompeteagreement.htm
EX-10.20 schweihsemploymentagreem.htm
EX-10.21 restrictedawardexecutive.htm
EX-10.22 performanceshareunitawar.htm
EX-21.1 tbi10k122919ex211.htm
EX-23.1 tbi10k122919ex231.htm
EX-31.1 tbi10k122919ex311.htm
EX-31.2 tbi10k122919ex312.htm
EX-32.1 tbi10k122919ex321.htm

Trueblue Earnings 2019-12-29

TBI 10K Annual Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
ICFI 1,614 1,420 735 1,460 393 68 118 1,852 27% 15.7 5%
HURN 1,414 1,162 574 939 290 30 63 1,669 31% 26.7 3%
KELYA 960 2,476 1,228 5,432 978 72 105 932 18% 8.9 3%
NCI 957 908 252 614 163 92 122 867 27% 7.1 10%
TBI 828 1,131 510 2,428 648 69 121 797 27% 6.6 6%
RMR 699 668 139 713 0 169 218 340 0% 1.6 25%
BBSI 688 870 710 935 216 53 69 456 23% 6.6 6%
AMEH 668 750 382 382 66 22 57 671 17% 11.8 3%
HCKT 553 194 55 213 73 21 30 539 34% 17.7 11%
CCRN 382 394 230 808 51 -75 -29 443 6% -15.2 -19%

Document
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 29, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-14543
____________________________________ 
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TrueBlue, Inc.
(Exact name of registrant as specified in its charter)
______________________________________ 
 
 
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:    (253383-9101
______________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, no par value
TBI
New York Stock Exchange
Securities registered under Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes 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
Accelerated filer
 Non-accelerated filer
 
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 Act). Yes No
As of June 30, 2019, the aggregate market value (based on the NYSE quoted closing price) of the common stock held by non-affiliates of the registrant was approximately $0.8 billion.
As of January 31, 2020, there were 38,628,495 shares of the registrant’s common stock outstanding.



DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report is incorporated by reference from the registrant’s definitive proxy statement relating to the Annual Meeting of Shareholders scheduled to be held May 13, 2020, which will be filed no later than 120 days after the end of the fiscal year to which this report relates.

 



TrueBlue, Inc.
Table of Contents
  
  
Page
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
 
 
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
 
Item 16.
 







 
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COMMENT ON FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-K, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve risks and uncertainties, and future events and circumstances could differ significantly from those anticipated in the forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “goal,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from those expressed or implied in our forward-looking statements, including the risks and uncertainties described in “Risk Factors” (Part I, Item 1A of this Form 10-K), “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part II, Item 7 of this Form 10-K), and “Quantitative and Qualitative Disclosures about Market Risk” (Part II, Item 7A of this Form 10-K). 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.
PART I
Item 1.
BUSINESS
OUR COMPANY
TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us” and “our”) is a leading provider of specialized workforce solutions that help clients achieve business growth and improve productivity. In 2019, we connected approximately 724,000 people with work and served approximately 139,000 clients. Our PeopleReady segment offers on-demand, industrial staffing, PeopleManagement segment offers contingent, on-site industrial staffing and commercial driver services, and PeopleScout segment offers recruitment process outsourcing (“RPO”) and managed service provider (“MSP”) solutions to a wide variety of industries. We are headquartered in Tacoma, Washington.
We began operations in 1989, specializing in on-demand general labor staffing services with the objective of providing clients with talent and flexible workforce solutions to enhance the performance of their businesses. We grew our on-demand, general labor staffing services through organic geographic expansion throughout the United States, Canada and Puerto Rico. Commencing in 2004, we began expanding through acquisitions to provide a full range of blue-collar staffing solutions, and to help our clients be more productive with a reliable contingent labor workforce to rapidly respond to changing business needs. In 2014, we expanded through acquisitions to provide complementary outsourced service offerings in permanent employment RPO and employer recruitment branding services, as well as outsourced management of clients’ contingent labor vendors.
BUSINESS OVERVIEW
We report our business as three reportable segments described below and in Note 16: Segment Information, to our consolidated financial statements found in Part II, Item 8 of this Annual Report on Form 10-K.
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PeopleReady provides access to qualified workers in the United States, Canada and Puerto Rico through a wide range of staffing solutions for on-demand contingent general and skilled labor. PeopleReady connects people with work in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, waste and recycling, energy, retail, hospitality, and others.
PeopleReady helped approximately 138,000 clients in fiscal 2019 be more productive by providing easy access to dependable, blue-collar contingent labor. Through our PeopleReady service line, we connected approximately 317,000 people with work in fiscal 2019. We have a network of 614 branches across all 50 states, Canada and Puerto Rico. Complementing our branch network is our mobile application, JobStackTM, which connects workers with jobs, creates a virtual exchange between our workers and clients, and allows our branch resources to expand their recruiting, sales and service delivery efforts. JobStack is helping to competitively differentiate our services, expand our reach into new demographics, and improve both service delivery and work order fill rates as we lead our business into a digital future.

 
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PeopleManagement provides recruitment and on-site management of a facility’s contingent industrial workforce. In comparison with PeopleReady, services are larger in scale, longer in duration, and dedicated service teams are located at the client’s facility. We provide scalable solutions to meet the volume requirements of labor-intensive manufacturing, distribution and fulfillment facilities. Our dedicated service teams work closely with on-site management as an integral part of the production and logistics process, managing all or a subset of the contingent labor for a facility or operational function. Client on-site staffing is large-scale sourcing, screening, recruiting and management of the contingent workforce at a client’s facility in order to achieve faster hiring, lower total cost of workforce, increased safety and compliance, improved retention, greater volume flexibility, and enhanced strategic decision-making through robust reporting and analytics. Client contracts are generally multi-year in duration and pricing is typically based on either an hourly or productivity-based cost per unit model. The productivity-based model leverages a strategically engineered on-site solution to incentivize performance improvements in cost, quality and on-time delivery using a fixed price-per-unit approach. Both models are impacted by factors such as geography, volume, job type, and degree of recruiting difficulty.

Effective December 30, 2019 (first day of our 2020 fiscal year), we combined our two on-site contingent industrial workforce operating segments, Staff Management | SMX and SIMOS Insourcing Solutions into one operating segment titled “On-site,” which continues to be reported under PeopleManagement. On-site includes our branded service offerings for hourly and productivity-based industrial staffing solutions serving the same industries and customers.
PeopleManagement also provides dedicated and contingent commercial truck drivers to the transportation and distribution industries through our Centerline Drivers (“Centerline”) brand. Centerline delivers compliant drivers specifically matched to each client’s needs, allowing them to improve productivity, control costs and deliver improved service.
Effective March 12, 2018, we divested the PlaneTechs, LLC business. For additional information, see Note 2: Acquisition and Divestiture, to our consolidated financial statements found in Part II, Item 8 of this Annual Report on Form 10-K.
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PeopleScout provides RPO of end-to-end talent acquisition services from candidate sourcing and engagement through the onboarding of employees. Our solution is highly scalable and flexible, which allows for outsourcing of all or a subset of skill categories across a series of recruitment, hiring and onboarding steps. Our solution delivers improved talent quality and candidate experience, faster hiring, increased scalability, lower cost of recruitment, greater flexibility and increased compliance. Our clients outsource the recruitment process to PeopleScout in all major industries and jobs. We leverage our proprietary technology platform (AffinixTM) for sourcing, screening and delivering a permanent workforce, along with dedicated service delivery teams to work as an integrated partner with our clients. Client contracts are generally multi-year in duration and pricing is typically composed of a fee for each hire and talent consulting fees. Pricing is impacted by factors such as geography, volume, job type, degree of recruiting difficulty, and the scope of outsourced recruitment and employer branding services included.
PeopleScout also includes our MSP business which manages our clients’ contingent labor programs including vendor selection, performance management, compliance monitoring and risk management. As the client’s exclusive MSP, we have dedicated service delivery teams which work as an integrated partner with our client to increase the productivity of their contingent workforce program.
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 is a mid-sized RPO and employer branding practice 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 2: Acquisition and Divestiture, to our consolidated financial statements found in Part II, Item 8 of this Annual Report on Form 10-K.
INDUSTRY AND MARKET DYNAMICS
The staffing industry, which includes our PeopleReady and PeopleManagement services, supplies contingent workforce solutions to minimize the cost and effort of hiring and managing permanent employees. This allows for rapid response to changes in business conditions through the ability to replace absent employees, fill new positions, and convert fixed or permanent labor costs to variable costs. Staffing companies act as intermediaries in matching available contingent workers to employer work assignments. Work

 
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assignments vary widely in duration, skill level and required experience. The staffing industry is large and highly fragmented with many competing companies. No single company has a dominant share of the industry. Staffing companies compete both to recruit and retain a supply of contingent workers, and to attract and retain clients who will employ these workers. Client demand for contingent staffing services is dependent on the overall strength of the economy and workforce flexibility trends. This creates volatility for the staffing industry based on overall economic conditions. Historically, in periods of economic growth, the number of companies providing contingent workforce solutions has increased due to low barriers to entry whereas during recessionary periods, the number of companies has decreased through consolidation, bankruptcies or other events.
Our solutions address the following key trends contributing to anticipated staffing growth:
Workforce flexibility: The staffing industry continues to experience increased demand in relation to total job growth as demand for a flexible workforce continues to grow with competitive and economic pressures to reduce costs, meet dynamic seasonal demands and respond to rapidly changing market conditions.
Workforce productivity: Companies are under increasing competitive pressures to improve productivity through workforce solutions that improve performance.
Worker preferences and access to talent: Workers are demanding more flexibility in how, when and where they work as well as access to contingent work opportunities through mobile technology. Baby boomers are leaving the workforce resulting in a talent shortage in what have traditionally been blue-collar trades. The remaining workers are in greater demand and have more power to find the employment situation they want.
The human resource outsourcing industry involves transitioning various functions handled by internal human resources and labor procurement to outside service providers on a permanent or project basis. Human resource departments are faced with increasingly complex operational and regulatory requirements, a tightening labor market, increased candidate expectations, an expanding talent technology landscape, and pressure to achieve efficiencies, which increase the need to migrate non-core functions to outsourced providers. The human resource outsourcing industry includes RPO and MSP solutions which allow clients to more effectively find and engage high-quality talent, leverage talent acquisition technology, and scale their talent acquisition function to keep pace with changing business needs. PeopleScout is a leader in RPO and MSP services.
Our solutions address the following key trends contributing to anticipated RPO growth:
Scalability: RPO providers can add significant scalability to a company’s recruiting and hiring efforts, including accommodating seasonal, project or peak hiring needs without sacrificing quality, which enables clients to focus on their core business. Providers also help clients increase efficiency and drive better performance by standardizing processes, reducing time to fill, and onboarding the best fit talent into a client’s organization.
Talent access and engagement: As competition for qualified candidates increases, clients are relying on RPO providers to elevate the employer brand, build talent communities, create a world class candidate experience, leverage innovative talent technology, and facilitate effective recruitment marketing and candidate communication strategies.
Leveraging talent acquisition technology: Automation, artificial intelligence and machine learning are transforming talent acquisition. The fragmented talent technology ecosystem is becoming more crowded, with significant investments flowing in and new technology coming online rapidly. RPO providers are continuously identifying, evaluating and investing in new technology to leverage as part of their talent technology stack to best meet today’s candidate’s expectations of a personalized, mobile-optimized and efficient hiring process. RPO providers are uniquely positioned to successfully integrate and deploy new talent technology based on the volume of candidate engagements they manage and their understanding of the talent landscape, thereby reducing the investments required to be made by clients.
Our solutions address the following key trends contributing to anticipated MSP growth:
Vendor consolidation and cost savings: Vendor consolidation can achieve significant efficiencies through enhanced scale and cost advantages such as a single point of contact to manage multiple outside vendors, standardized contracts, consistency among contractors and processes, centralized invoicing and reporting, and maintaining robust performance tracking and analytics.
Access to talent: An MSP solution allows a company access to a large variety of staffing vendors with the efficiency of working with one supplier. An MSP can access numerous vendors to find the best talent at the best price more quickly, thereby delivering a better outcome for the client.
Compliance pressure: Demand for contingent employee sourcing and workforce vendor management solutions is driven by increasing worker eligibility legislation and compliance monitoring to ensure correct worker classification in order to properly

 
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address tax withholding, overtime, Social Security, unemployment and health care obligations to avoid government penalties and lawsuits.
BUSINESS STRATEGY
Market leadership through organic growth of our specialized workforce solutions
Our clients have a variety of challenges in running their businesses, many of which are unique to the industries in which they operate, their competitive pressures and business performance. We are industry leaders dedicated to staffing solutions tailored to our clients’ needs and the industries in which they operate. Our differentiated solutions keep pace with their changing needs and are as follows:
We will continue to evaluate opportunities to expand our market presence for specialized blue-collar staffing services, expand our geographical reach through new physical locations, expand use of existing locations to provide the full range of blue-collar staffing services, and dispatch our contingent workers to areas without a physical location. Continued investment in specialized sales, recruiting and service expertise will create a more seamless experience for our clients to access all our services with more comprehensive solutions to enhance their performance and our growth. Our service lines offer complementary workforce solutions with unique value propositions to meet our clients’ demand for talent.
We will continue to invest in technology that increases our ability to attract more clients and employees as well as reduce the cost of delivering our services. We are committed to leveraging technology to improve the experience of our contingent workers, permanent employee candidates and clients. Our technological innovations make it easier for our clients to do business with us, and easier to connect contingent workers with work opportunities and candidates to permanent employment opportunities. We are making significant investments in online and mobile applications to improve the access, speed and ease of connecting our clients with high-quality contingent and permanent employee workforce solutions.
Complementing our PeopleReady branch network is our JobStack platform which connects our contingent workers and clients through real time 24/7 digital exchange with easy-to-use mobile apps. JobStack currently fills a job every nine seconds and enables our branches to expand their recruiting, sales and service delivery efforts. JobStack is helping to competitively differentiate our services, expand our reach into new demographics, and improve both service delivery and work order fill rates as we lead our business into a digital future. Currently 87% of PeopleReady’s workers use JobStack to find on-demand work. In 2018, we introduced JobStack to our clients, and we ended 2019 with approximately 21,300 registered clients using JobStack to order workers, rate their performance, and approve their time worked. In 2019, approximately 48% of the orders filled by our PeopleReady branches were digitally filled through JobStack. We continue to expand functionality to further leverage this technology to transform our business, and further enhance our client and worker retention.
Complementing our PeopleScout dedicated service delivery teams is our mobile-enabled cloud-based proprietary platform, Affinix, used for sourcing, screening and delivering a permanent workforce. Affinix creates a consumer-like candidate experience and streamlines the sourcing process. Affinix delivers speed and scalability while leveraging recruitment marketing, machine learning, predictive analytics and other emerging technology to make the end-to-end process seamless for the candidate. We will continue to invest in Affinix to further improve our ability to quickly and efficiently source the most attractive talent at the best price.
We are recognized as an industry leader for RPO services. The RPO industry is in the early majority stage of its adoption cycle, and therefore, we believe it has higher growth potential. We have a differentiated service that leverages innovative technology for high-volume sourcing and dedicated client service teams for connecting people to opportunities. We have a track record of helping our clients reduce the cost of hiring, add significant scalability to recruiting and hiring, and access numerous sources to quickly find the best talent, thereby delivering a better outcome for the client. Companies are facing rapidly changing employment demographics, a shortage of talent, and dynamic changes to how people connect with work opportunities. Our solution addresses these growing challenges. We expanded our services with the TMP acquisition, which increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients, and employer branding capabilities.
Our MSP solution is focused primarily on domestic middle-market companies with a growing dependence on contingent labor. Our managed service provider solutions have enabled our clients to efficiently source, engage, fulfill, measure and manage all categories of contingent and externally sourced labor. We believe our MSP solution is uniquely positioned to manage the full range of our clients’ labor needs.

 
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Growth through strategic acquisitions
Strategic acquisitions continue to be a key growth strategy with a focus on globalizing our RPO services. We believe we have a core competence in assessing, valuing and integrating acquisitions culminating in higher shareholder returns. We are excited about the future of human resource outsourcing and believe we can continue to create shareholder value through acquisitions, which expand our service offerings in high-growth markets, enhance our use of technology to better serve our clients, and increase our own efficiency.
CLIENTS
Our clients range from small and medium-sized businesses to Fortune 100 companies.
During fiscal 2019, we served approximately 139,000 clients in industries including construction, energy, manufacturing, warehousing and distribution, waste and recycling, energy, transportation, retail, hospitality, general labor and many more. Our ten largest clients accounted for 16.5% of total revenue for fiscal 2019, 16.1% for fiscal 2018 and 17.6% for fiscal 2017. Our single largest client for fiscal 2019 accounted for 3.0% of total company revenue.
No single client represented more than 10.0% of total company revenue for fiscal 2019, 2018 or 2017.
EMPLOYEES
As of December 29, 2019, we employed approximately 6,200 full-time equivalent employees.
Contingent workers
We recruit contingent workers daily so that we can be responsive to the planned and unplanned needs of the clients we serve. We attract our pool of contingent workers through our proprietary mobile applications, online resources, extensive internal databases, advertising, job fairs and various other methods. We identify the skills, knowledge, abilities and personal characteristics of a contingent worker and match their competencies and capabilities to the client’s requirements. This enables our clients to obtain immediate value by placing a highly productive employee on the job site. We use a variety of proprietary programs and methods for identifying and assessing the skill level of our contingent workers when selecting a particular individual for a specific assignment and retaining those workers for future assignments. We believe that our programs and methods enable us to offer a higher quality of service by increasing productivity, decreasing turnover, reducing absenteeism and improving worker safety.
Workers come to us because of the flexibility we offer to fill a short-term financial need and/or provide longer-term contingent flexible labor opportunities. Workers may be assigned to different jobs and job sites, and their assignments could last for a few hours or extend for several weeks or many months. We provide our workers meaningful work and the opportunity to improve their skills. We provide a bridge to permanent, full-time employment for thousands of contingent workers each year. We are considered the legal employer of our workers, and laws regulating the employment relationship are applicable to our operations. We consider our relationships with our contingent workers to be good.
We remain focused and committed to worker safety. We have developed an integrated risk management program that focuses on loss analysis, education, and safety improvement programs to reduce our risk exposure and operational costs. We regularly analyze our workers’ compensation claims to identify trends. This allows us to focus our resources on those areas that may have the greatest impact on us, price our services appropriately, and adjust our sales and operational approach in these areas. We have also developed educational materials for distribution to our clients and workers, as well as client site visits to address specific safety risks unique to their industry.
COMPETITION
Contingent staffing services
The staffing industry is large and highly fragmented with large publicly-held companies as well as privately-owned companies on a national, regional and local level. No single company has a dominant share of the industry. We compete primarily with local and regional companies. We also experience competition from internet-based companies providing a variety of flexible workforce solutions. The strongest staffing services competitor in a particular market is a company with established relationships and a track record of meeting the client’s needs.
Competition exists in attracting clients as well as qualified contingent workers. Competitive forces have historically limited our ability to raise our prices to immediately and fully offset the increased costs of doing business, some of which include increased contingent worker wages, costs for workers’ compensation, unemployment insurance and health care.

 
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The most significant competitive factors are price, ability to promptly fill client orders, success in meeting clients’ expectations of recruiting contingent workers, and appropriately addressing client service issues. We believe we derive a competitive advantage from our service history, our specialized approach in serving the industries of our clients, and our mobile application, JobStack, which connects workers with jobs, and creates a virtual exchange between our workers and clients. JobStack is helping to competitively differentiate our services, expand our reach into new demographics, and improve our recruiting, sales and service delivery. Our national presence, industry specialization, investment in technology, and proprietary systems and processes together with specialized programs focused on worker safety, risk management, and legal and regulatory compliance are key differentiators from many of our competitors.
Human resource outsourcing
The strongest competitors are companies specializing in RPO services and business process outsourcing companies that also offer RPO services. No one provider dominates the market. Competition also includes internal human resource departments that have not or are not considering outsourcing. The most significant competitive factors for RPO services are the ability to reduce client cost by deploying an RPO solution and reducing the internal human resource cost structure of our clients. Important factors for success in RPO services include the ability to add significant scalability to a client’s recruiting and hiring efforts, including accommodating seasonal and irregular hiring; the ability to increase efficiency by standardizing processes and facilitating transitions for candidates and employees; and the ability to source the most attractive talent at the best price. Our tailored solutions, client partnership, proprietary technology and service delivery are key differentiators from many of our competitors.
CYCLICAL AND SEASONAL NATURE OF OUR BUSINESS
The workforce solutions business has historically been cyclical, often acting as an indicator of both economic downturns and upswings. Clients tend to use contingent workers to supplement their existing workforce and generally hire permanent workers when long-term demand is expected to increase. As a consequence, our revenue from services tends to increase quickly when the economy begins to grow. Conversely, our revenue from services decreases quickly when the economy begins to weaken and thus contingent staff positions are eliminated, permanent hiring is frozen and turnover replacement diminishes.
Our business experiences seasonal fluctuations for contingent staffing services. Demand is lower during the first and second quarters, due in part to limitations to outside work during the winter months and slowdown in manufacturing and logistics after the holiday season. Our working capital requirements are primarily driven by contingent worker payroll and client accounts receivable. Since receipts from clients lag payroll to contingent workers, working capital requirements increase substantially in periods of growth. Demand for contingent labor peaks during the third quarter for outdoor work and the fourth quarter for manufacturing, assembly, warehousing, distribution and logistics for the holiday season.
REGULATION
Our services are subject to a variety of complex federal and state laws and regulations. We continuously monitor legislation and regulatory changes for their potential effect on our business. We invest in technology and process improvements to implement required changes while minimizing the impact on our operating efficiency and effectiveness. Regulatory cost increases are passed through to our clients to the fullest extent possible.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
For information regarding revenue from operations and long-lived assets by domestic and foreign operations, please refer to the information presented in Note 16: Segment Information, to our consolidated financial statements found in Part II, Item 8 of this Annual Report on Form 10-K.
AVAILABLE INFORMATION
Our Annual Report on Form 10-K, along with all other reports and amendments filed with or furnished to the Securities and Exchange Commission (“SEC”), are publicly available, free of charge, on our website at www.trueblue.com as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. Our Corporate Governance Guidelines, Code of Business Conduct and Ethics and Board Committee Charters are also posted to our website. The information on our website is not part of this or any other report we file with, or furnish to, the SEC.

 
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Item 1A.
RISK FACTORS
Investing in our securities involves risk. The following risk factors and all other information set forth in this Annual Report on Form 10-K should be considered in evaluating our future prospects. If any of the events described below occur, our business, financial condition, results of operations, liquidity, or access to the capital markets could be materially and adversely affected.
Demand for our workforce solutions is significantly affected by fluctuations in general economic conditions.
The demand for workforce solutions is highly dependent upon the state of the economy and the workforce needs of our clients, which creates uncertainty and volatility. National and global economic activity is slowed by many factors, including rising interest rates, political and legislative changes, epidemics, other significant health concerns, and global trade uncertainties. As economic activity slows, companies tend to reduce their use of contingent workers and recruitment of new employees. For example, we have recently experienced reduced demand from our construction and manufacturing customers. Significant declines in demand of any region or industry in which we have a major presence reduces the demand for our services and thereby significantly decreases our revenues and profits. Deterioration in economic conditions or the financial or credit markets could also have an adverse impact on our 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 has caused and may continue to cause clients to reduce or defer projects for which they utilize our services. The negative impact to our business sometimes occurs 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 contingent workers and candidates to meet the needs of our clients.
We compete to meet our clients’ needs for workforce solutions, therefore, we must continually attract qualified contingent workers and candidates to fill positions. Attracting qualified workers and candidates depends on factors such as desirability of the assignment, location, the associated wages and other benefits. Unemployment in the United States has been low in the past few years, and has recently decreased further, making it challenging to find sufficient eligible workers and candidates to meet our clients’ orders. Further increases in employment rates could increase these difficulties. We have experienced shortages of qualified workers and candidates and may experience such shortages in the future. Further, if there is a shortage, the cost to employ or recruit these individuals could increase and our ability to generate revenue would be harmed if we could not fill positions. If we are unable to pass those costs through to our clients, it could materially and adversely affect our business. Organized labor periodically engages in efforts to represent various groups of our contingent 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 which could negatively impact our results.
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. Our investments and acquisitions may not achieve our desired returns and the results of our initiatives may not be as expected or may be impacted by matters outside of our control. If we are unsuccessful in executing any of these strategies, we may not achieve our goal of revenue and profitability growth, which could negatively impact financial results.
Our workforce solutions are subject to extensive government regulation and the imposition of additional regulations, which could materially harm our future earnings.
Our workforce solutions are subject to extensive government regulation. The cost to comply, and any inability to comply with government regulation, could have a material adverse effect on our business and financial results. Increases or changes in government regulation of the workplace or of the employer-employee relationship, or judicial or administrative proceedings related to such regulation, could materially harm our business.
Our temporary staffing services employ contingent workers. The wage rates we pay to contingent workers are based on many factors including government-mandated minimum wage requirements, payroll-related taxes and benefits. If we are not able to increase the fees charged to clients to absorb any increased costs related to these factors, our results of operations and financial condition could be adversely affected.

 
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We offer our contingent workers in the United States government-mandated health insurance in compliance with the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”). Because the requirements, regulations, and interpretations of the ACA may change, the ultimate financial effect of the ACA is not yet known, and changes in its requirements and interpretations could increase or change our costs. In addition, because of the uncertainty surrounding a potential repeal or replacement of the ACA, we cannot predict with any certainty the likely impact of the ACA’s repeal or the adoption of any other health care reform legislation on our financial condition or operating results. Whether or not there is a change in health care legislation in the United States the costs of our health care expenditures may increase. If we are unable to comply with changes to the ACA, or any future health care legislation in the United States, or sufficiently raise the rates we charge our clients to cover any additional costs, such noncompliance or increases in costs could materially harm our business.
We may experience employment related claims, commercial indemnification claims and other legal proceedings that could materially harm our business.
We are in the business of employing people in the workplaces of our clients. We incur a risk of liability for claims relating to personal injury, wage and hour violations, immigration, discrimination, harassment and other liabilities arising from the actions of our clients and/or contingent workers. Some or all of these claims may give rise to negative publicity, investigations, litigation or settlements. We may incur costs or other material adverse impacts on our financial statements for the period in which the effect of an unfavorable final outcome becomes probable and can be reasonably estimated.
We may have liability to our clients for the action or inactions of our employees, that may cause harm to our clients or third parties. In some cases, we must indemnify our clients for certain acts of our contingent workers or arising from our contingent workers presence on the client’s job site and certain clients have negotiated broad indemnification provisions. We may also incur fines, penalties, and losses that are not covered by insurance or negative publicity with respect to these matters.
We maintain insurance with respect to some potential claims and costs with deductibles. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on acceptable terms. Should the final judgments or settlements exceed our insurance coverage, they could have a material effect on our business. Our ability to obtain insurance, its coverage levels, deductibles and premiums, are all dependent on market factors, our loss history, and insurance providers’ assessments of our overall risk profile. Further, we cannot be certain our current and former insurance carriers will be able to pay claims we make under such policies.
We are dependent on obtaining workers’ compensation and other insurance coverage at commercially reasonable terms. Unexpected changes in claim trends on our workers’ compensation may negatively impact our financial condition.
Our temporary staffing services employ 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. As our business grows or if our financial results deteriorate, the amount of collateral required will likely increase and the timing of providing collateral could be accelerated. Resources to meet these requirements may not be available. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on acceptable terms. The loss of our workers’ compensation insurance coverage would prevent us from operating as a staffing services business in the majority of our markets. Further, we cannot be certain that our current and former insurance carriers will be able to pay claims we make under such policies.
We self-insure, or otherwise bear financial responsibility for, a significant portion of expected losses under our workers’ compensation program. We have experienced unexpected changes in claim trends, including the severity and frequency of claims, changes in state laws regarding benefit levels and allowable claims, actuarial estimates, and medical cost inflation, and may experience such changes in the future which could result in costs that are significantly different than initially anticipated or reported and could cause us to record different reserves in our financial statements. There is a risk that we will not be able to increase the fees charged to our 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 contingent workers through our safety programs and actively control costs with our network of workers’ compensation related service providers. These activities have had a positive impact creating favorable adjustments to workers’ compensation liabilities recorded in prior periods. The benefit of these adjustments is likely to decline and there can be no assurance that we will be able to continue to reduce accident rates and control costs to produce these results in the future.
Some clients require extensive insurance coverage and request insurance endorsements that are not available under standard policies. There can be no assurance that we will be able to negotiate acceptable compromises with clients or negotiate appropriate

 
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changes in our insurance contracts. An inability to meet client insurance requirements may adversely affect our ability to take on new clients or continue providing services to existing clients.
We operate in a highly competitive industry and may be unable to retain 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 as well as business process outsourcing companies that also offer our services. Our competitors offer a variety of flexible workforce solutions. Therefore, there is no assurance that we will be able to retain clients or market share in the future, nor can there be any assurance that we will, in light of competitive pressures, be able to remain profitable or maintain our current profit margins.
Advances in technology may disrupt the labor and recruiting markets and we must constantly improve our technology to meet the expectations of clients, candidates and employees.
The increased use of internet-based and mobile technology is attracting additional technology-oriented companies and resources to the staffing industry. Our candidates and clients increasingly demand technological innovation to improve the access to and delivery of our services. Our clients increasingly rely on automation, artificial intelligence, machine learning and other new technologies to reduce their dependence on labor needs, which may reduce demand for our services and impact our operations. We face extensive pressure for lower prices and new service offerings and must continue to invest in and implement new technology and industry developments in order to remain relevant to our clients and candidates. As a result of this increasing dependence upon technology, we must timely and effectively identify, develop, or license technology from third parties, and integrate such enhanced or expanded technologies into the solutions that we provide. In addition, our business relies on a variety of technologies, including those that support recruiting, hiring, paying, order management, billing, collecting, contingent worker data analytics and client data analytics. If we do not sufficiently invest in and implement new technology, or evolve our business at sufficient speed and scale, our business results of operations may decline materially. Acquiring technological expertise and developing new technologies for our business may require us to incur significant expenses and costs. For some solutions, we depend on key vendors and partners to provide technology and support. If these third parties fail to perform their obligations or cease to work with us, our ability to execute on our strategic initiatives could be negatively affected.
Our business and operations have undergone, and will continue to undergo, significant change as we seek to improve our operational and support effectiveness, which if not managed could have an adverse outcome on our business and results of operations.
We have significantly changed our operations and internal processes in recent periods, and we will continue making similar changes, in order to improve our operational effectiveness. These efforts strain our systems, management, administrative, operations and financial infrastructure. For example, we are currently combining some of our operating segments. We believe these efforts are important to our long-term success. Managing and cascading these changes throughout the company will continue to require the further attention of our management team and refinement to our operational, financial and management controls, reporting systems and procedures. These activities will require ongoing expenditures and allocation of valuable management and employee resources. If we fail to manage these changes effectively, our costs and expenses may increase more than we expect and our business, financial condition and results of operations may be harmed.
We are at risk of damage to our brands and reputation, which is important to our success.
Our ability to attract and retain clients, contingent workers, candidates, and employees is affected by external perceptions of our brands and reputation. Negative perceptions or publicity could damage our reputation with current or perspective clients and employees. Negative perceptions or publicity regarding our vendors, clients, or business partners may adversely affect our brand and reputation. We may not be successful in detecting, preventing, or negating all changes in or impacts on our reputation. If any factor, including poor performance or negative publicity, whether or not true, hurts our reputation, we may experience negative repercussions which could harm our business.
The expansion of social media platforms creates new risks and challenges that could cause damage to our brand and reputation.

The use of social media platforms, including social media websites and other forms of internet-based communications, has rapidly increased allowing individuals access to a broad audience of consumers and other interested parties. For example, unfavorable comments about a work site could make recruiting or hiring at that site more challenging. The inappropriate or unauthorized use of such platforms by our clients or employees could violate privacy laws, cause damage to our brand, or lead to litigation which could harm our business.

 
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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 revolving credit agreement (“Revolving Credit Facility”) are limited. Our Revolving Credit Facility 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 require us to repay these borrowings before their due date. We may not have sufficient funds on hand to repay these loans, and if we are forced to refinance these borrowings on less favorable terms, or are unable to refinance at all, our results of operations and financial condition could be materially adversely affected by increased costs and rates.
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.
In the event that our debt levels increase, it could have significant consequences for the operation of our business including requiring us to dedicate a significant portion of our cash flow from operations to servicing our debt rather than using it for our operations; limiting our ability to obtain additional debt financing for future working capital, capital expenditures, or other corporate purposes; limiting our ability to take advantage of significant business opportunities, such as acquisitions; limiting our ability to react to changes in market or industry conditions; and putting us at a disadvantage compared to competitors with less debt.
The loss of, continued reduction or substantial decline in revenue from larger clients could have a material adverse effect on our revenues, profitability and liquidity.
We experience revenue concentration with large clients. Generally, our contracts do not contain guarantees of minimum duration, revenue levels, or profitability. Our clients may terminate their contracts or materially reduce their requested levels of service at any time. Although we have no clients that represents over 10% of our consolidated revenue, there are clients that exceed 10% of revenues within some of our operating segments. The deterioration of the financial condition of a large client could have a material adverse effect on our business, financial condition, and results of operations. In addition, a significant change to the business, staffing or recruiting model of these clients, for example a decision to insource our services, has had and could again have a material adverse effect on our business, financial condition, and results of operations. The loss of, or reduced demand for our services from larger clients, has had, and in the future could have, a material adverse effect on our business, financial condition, and results of operations. Client concentration exposes us to concentrated credit risk, as a significant portion of our accounts receivable may be from a small number of clients. If we are unable to collect our receivables, or are required to take additional reserves, our results and cash flows will be adversely affected.
Failure of our information technology systems could adversely affect our operating results.
The efficient operation of our business and applications and services we provide is dependent on reliable technology. We rely on our information technology systems to monitor and control our operations, adjust to changing market conditions, implement strategic initiatives, and provide services to clients. We rely heavily on proprietary and third-party information technology systems, mobile device technology data centers, cloud-based environments and other technology. We take various precautions and have enhanced controls around these systems, but information technology systems are susceptible to damage, disruptions, or shutdowns due to failures during the process of upgrading or replacing software, databases, power outages, hardware failures, computer viruses, malicious attacks, telecommunication failures, user errors or catastrophic events. The failure of technology and our applications and services, and our information systems to perform as anticipated could disrupt our business and result in decreased revenue and increased overhead costs, causing our business and results of operations to suffer materially.
Cyber security vulnerabilities and incidents could lead to the improper disclosure of information about our clients, candidates and employees.
Our business requires the use, processing, and storage of confidential information about applicants, candidates, contingent workers, other employees and clients. We use information technology and other computer resources to carry out operational and support activities and maintain our business records. We rely on information technology systems to process, transmit, and store electronic information and to communicate among our locations around the world and with our clients, partners, and employees. The breadth and complexity of this infrastructure increases the potential risk of security breaches which could lead to potential unauthorized disclosure of confidential information.

 
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Our systems and networks are vulnerable to computer viruses, malware, hackers and other security issues, including physical and electronic break-ins, disruptions from unauthorized access and tampering, social engineering attacks, impersonation of authorized users, and coordinated denial-of-services attacks. We have experienced cyber security incidents and attacks which have not had a material impact on our business or results of operations, however, there is no assurance that such impacts will not be material in the future. The security controls over sensitive or confidential information and other practices we and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information. Continued investments in cyber security will increase our costs and a failure to prevent access to our systems could lead to penalties, litigation, and damage to our reputation. Perceptions that we do not adequately protect the privacy of information could harm our relationship with clients and employees.
Data security, data privacy and data protection laws and other technology regulations increase our costs.
Laws and regulations related to privacy and data protection are evolving and generally becoming more stringent. We may fail to implement practices and procedures that comply with increasing international and domestic privacy regulations, such as the General Data Protection Regulations or the California Consumer Privacy Act. Several additional U.S. states have issued cyber security regulations that outline a variety of required security measures for protection of data. These regulations are designed to protect client, candidate, contingent worker, and employee data and require that we meet stringent requirements regarding the handling of personal data, including the use, protection and transfer of personal data. As these laws continue to change, we may be required to make changes to our services, solutions or products to meet the new legal requirements. Changes in these laws may increase our costs to comply as well as our potential costs through higher potential penalties for non-compliance. Failure to protect the integrity and security of such confidential and/or proprietary information could expose us to regulatory fines, litigation, contractual liability, damage to our reputation and increased compliance costs.
Improper disclosure of, or access to our clients’ information could materially harm our business.
Our contingent workers and employees may have access to or exposure to confidential information about applicants, candidates, contingent workers, other employees and clients. The security controls over sensitive or confidential information and other practices we, our clients and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information. Failure to protect the integrity and security of such confidential and/or proprietary information could expose us to regulatory fines, litigation, contractual liability, damage to our reputation and increased compliance costs.
Failure to protect our intellectual property could harm our business, and we face the risk that our services or products may infringe upon the intellectual property rights of others.
We have invested in developing specialized technology and intellectual property, proprietary systems, processes and methodologies that we believe provide us a competitive advantage in serving clients. We cannot guarantee that trade secrets, trademark, and copyright law protections are adequate to deter misappropriation of our intellectual property, which is an important part of our business. We may be unable to detect the unauthorized use of our intellectual property and take the necessary steps to enforce our rights. We cannot be sure that our services and products, or the products of others that we offer to our clients, do not infringe on the intellectual property rights of third parties, and we may have infringement claims asserted against us or our clients. These claims may harm our reputation, result in financial liability and prevent us from offering some services or products to clients.
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 cause significant interruption to our business, and require significant additional capital and management resources to resolve, causing material harm to our business.
Acquisitions may have an adverse effect on our business.
We may continue making acquisitions a part of our business strategy. This strategy may be impeded, however, and we may not achieve our long-term growth goals if we cannot identify suitable acquisition candidates or if acquisition candidates are not available under acceptable terms. We may have difficulty integrating acquired companies into our operating, financial planning, and financial reporting systems and may not effectively manage acquired companies to achieve expected growth.
Future acquisitions could result in incurring additional debt and contingent liabilities, an increase in interest expense, amortization expense, and charges related to integration costs. Additional indebtedness could also include covenants or other restrictions that would impede our ability to manage our operations. We may also issue equity securities to pay for an acquisition, which could result in dilution to our shareholders. Any acquisitions we announce could be viewed negatively by investors, which may adversely affect the price of our common stock. Acquisitions can also result in the addition of goodwill and intangible assets to our financial statements and we may be required to record a significant charge in our financial statements during the period in which we determine

 
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an impairment of our acquired goodwill and intangible assets has occurred, which would negatively impact our financial results. The potential loss of key executives, employees, clients, suppliers, vendors, and other business partners of businesses we acquire may adversely impact the value of the assets, operations, or business we acquire. These events could cause material harm to our business, operating results or financial condition.
New business initiatives may have an adverse effect on our business.

We expect to continue adjusting the composition of our business lines and entering into new business initiatives as part of our business strategy. New business initiatives, strategic business partners or changes in the composition of our business mix can be distracting to our management and disruptive to our operations, causing our business and results of operations to suffer materially. New business initiatives, including initiatives outside of our workforce solutions business, in new markets, or new geographies, could involve significant unanticipated challenges and risks including not advancing our business strategy, not realizing our anticipated return on investment, experiencing difficulty in implementing initiatives, or diverting 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 clients. We believe our competitive advantage is providing unique solutions for each client, which requires us to have trained and engaged employees. Our success depends upon our ability to attract, develop and retain a sufficient number of qualified employees, including management, sales, recruiting, service, technology and administrative personnel. The turnover rate in the employment services industry is high, and qualified individuals may be difficult to attract and hire. Our inability to recruit, train 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, a multitude of state and local taxes in the United States, and taxes in foreign jurisdictions. We face continued uncertainty surrounding the 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 with tax authorities could materially harm our business. Changes in interpretation of existing laws and regulations by a taxing authority could result in penalties and increased costs in the future. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing intercompany arrangements or may change their laws, which could increase our worldwide effective tax rate and harm our financial position and results of operations.
The price of our common stock may fluctuate significantly, which may result in losses for investors.
The market price for our common stock may be subject to significant volatility. Our stock price can fluctuate as a result of a variety of factors, many of which are beyond our control. These factors include, but are not limited to, changes in general economic conditions; announcement of new services or acquisitions by us or our competitors; changes in financial estimates or other statements by securities analysts; changes in industry trends or conditions; regulatory developments and any major change in our board or management. In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated to the operating performance of listed companies. These broad market and industry factors may impact the price of our common stock, regardless of our operating performance.
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.
Our Board of Directors has authorized a share repurchase program. Under the program, we are authorized to repurchase shares of common stock for a set aggregate purchase price, and we may choose to purchase shares in the open market, from individual holders, through an accelerated share repurchase program or otherwise. Although the Board of Directors has authorized a share repurchase program, the share repurchase program does not obligate the company to repurchase any specific dollar amount or to acquire any specific number of shares. The timing and amount of the repurchases, if any, will depend upon several factors, including market and business conditions, the trading price of the company’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

 
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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 program is intended to enhance long-term shareholder value, there is no assurance that it will do so and short-term stock price fluctuations could reduce the program’s effectiveness.
Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting.
If our management is unable to certify the effectiveness of our internal controls, including those over our third-party vendors, or if our independent registered public accounting firm cannot render an opinion on the effectiveness of our internal controls over financial reporting, or if material weaknesses in our internal controls are identified, we could be subject to regulatory scrutiny and a loss of public confidence. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to accurately report our financial performance on a timely basis, which could cause our stock price to fall.
Outsourcing certain aspects of our business could result in disruption and increased costs.
We have outsourced certain aspects of our business to third-party vendors. These relationships subject us to risks including disruptions in our business and increased costs. For example, we license software from third parties, much of which is central to our systems and our business. The licenses are generally terminable if we breach our obligations under the license agreements. If any of these relationships were terminated, or if any of these parties were to cease doing business or supporting the applications we currently utilize, we may be forced to spend significant time and money to replace the licensed software. In addition, we have engaged third parties to host and manage certain aspects of our data center, information and technology infrastructure, mobile applications, and electronic pay solutions, to provide certain back office support activities, and to support business process outsourcing for our clients. We are subject to the risks associated with the vendors’ inability to provide these services in a manner that meets our needs. If the cost of these services is more than expected, if we or the vendors fail to adequately protect our data and information is lost, or if our ability to deliver our services is interrupted, then our business and results of operations may be negatively impacted.
We 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, foreign currency fluctuations, the burden of complying with various foreign laws and technical standards, unpredictable changes in foreign regulations, U.S. legal requirements governing U.S. companies operating in foreign countries, legal and cultural differences in the conduct of business, potential adverse tax consequences and difficulty in staffing and managing international operations. We recently acquired operations in the United Kingdom, which could be negatively impacted as clients in the United Kingdom encounter uncertainties related to the United Kingdom’s exit from the European Union. We could also be exposed to fines and penalties under U.S. or foreign laws, for instance, the Foreign Corrupt Practices Act, prohibiting improper payments to governmental officials and others for the purpose of obtaining or retaining business. Although we have implemented policies and procedures designed to ensure compliance with these laws, we cannot be sure that our employees, contractors or agents will not violate such policies. Any such violations could materially damage our reputation, brands, business and operating results. Further, changes in U.S. laws and policies governing foreign investment and use of foreign operations or workers, and any negative sentiments towards the United States resulting from such changes, could adversely affect our operations.
Item 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
Item 2.
PROPERTIES
We lease building space for all our PeopleReady branches, except for two that we own in Florida, and our PeopleManagement recruitment offices. In addition, we lease office spaces for our PeopleReady, PeopleManagement, and PeopleScout centralized support functions. Under the majority of our leases, we have the right to terminate the lease with 90 days’ notice. We do not anticipate any difficulty in renewing these leases or in finding alternative sites in the ordinary course of business. We own an office building in Tacoma, Washington, which serves as our corporate headquarters. Management believes all our facilities are currently suitable for their intended use.

 
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Item 3.
LEGAL PROCEEDINGS
See Note 9: Commitments and Contingencies, to our consolidated financial statements found in Part II, Item 8 of this Annual Report on Form 10-K.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable.

 
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PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market information
Our common stock is listed on the New York Stock Exchange under the ticker symbol TBI.
Holders of the corporation’s common stock
We had approximately 503 shareholders of record as of January 31, 2020. This number does not include shareholders for whom shares were held in “nominee” or “street name.”
Dividends
No cash dividends have been declared on our common stock to date nor have any decisions been made to pay a dividend in the future. Payment of dividends is evaluated on a periodic basis and if a dividend were paid, it would be subject to the covenants of our revolving credit agreement, which may have the effect of restricting our ability to pay dividends.
Stock repurchases
The table below includes repurchases of our common stock pursuant to publicly announced plans or programs and those not made pursuant to publicly announced plans or programs during the thirteen weeks ended December 29, 2019.
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)
09/30/2019 through 10/27/2019
3,030


$21.12

280,154

$120.8 million
10/28/2019 through 11/24/2019
4,458


$23.03

17,600

$120.4 million
11/25/2019 through 12/29/2019
5,243


$23.20

62,838

$119.0 million
Total
12,731


$22.65

360,592

 
(1)
During the thirteen weeks ended December 29, 2019, we purchased 12,731 shares in order to satisfy employee tax withholding obligations upon the vesting of restricted stock. These shares were not acquired pursuant to our publicly announced share repurchase program.
(2)
Weighted average price paid per share does not include any adjustments for commissions.
(3)
The weighted average price per share for shares repurchased under the share repurchase program during the period was $21.51.
(4)
On September 17, 2017, our Board of Directors authorized a $100 million share repurchase program of our outstanding common stock. As of December 29, 2019, $19.0 million remains available for repurchase. On October 16, 2019, our Board of Directors authorized an additional $100 million share repurchase program of our outstanding common stock. These share repurchase programs do not obligate us to acquire any particular amount of common stock and do not have expiration dates.
TrueBlue stock comparative performance graph
The following graph depicts our stock price performance from December 26, 2014 through December 29, 2019, relative to the performance of the S&P SmallCap 600 Index and S&P 1500 Human Resources and Employment Services Index.
All indices shown in the graph have been reset to a base of 100 as of December 26, 2014 and assume an investment of $100 on that date and the reinvestment of dividends, if any, paid since that date.






 
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COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
grapha02.jpg
Total return analysis
2014
2015
2016
2017
2018
2019
TrueBlue, Inc.
$
100

$
117

$
109

$
121

$
96

$
104

S&P SmallCap 600 Index
100

99

123

140

127

156

S&P 1500 Human Resources and Employment Services Index
100

106

117

148

123

152


 
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Item 6.
SELECTED FINANCIAL DATA
The following selected financial data is derived from our audited consolidated financial statements. The data below should be read in conjunction with Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Summary consolidated financial and operating data
as of and for the fiscal years ended (1) 
Statements of operations data:
(52 weeks)
 
(53 weeks)
 
(52 weeks)
(in thousands, except per share data)
2019
2018
2017
 
2016
 
2015
Revenue from services
$
2,368,779

$
2,499,207

$
2,508,771

 
$
2,750,640

 
$
2,695,680

Cost of services
1,742,621

1,833,607

1,874,298

 
2,070,922

 
2,060,007

Gross profit
626,158

665,600

634,473

 
679,718

 
635,673

Selling, general and administrative expense
522,430

550,632

510,794

 
546,477

 
495,988

Depreciation and amortization
37,549

41,049

46,115

 
46,692

 
41,843

Goodwill and intangible asset impairment charge



 
103,544

 

Interest and other income (expense), net
3,865

1,744

(14
)
 
(3,345
)
 
(1,395
)
Income (loss) before tax expense (benefit)
70,044

75,663

77,550

 
(20,340
)
 
96,447

Income tax expense (benefit)
6,971

9,909

22,094

 
(5,089
)
 
25,200

Net income (loss)
$
63,073

$
65,754

$
55,456

 
$
(15,251
)
 
$
71,247

 
 
 
 
 
 
 
 
Net income (loss) per diluted share
$
1.61

$
1.63

$
1.34

 
$
(0.37
)
 
$
1.71

 
 
 
 
 
 
 
 
Weighted average diluted shares outstanding
39,179

40,275

41,441

 
41,648

 
41,622

 
 
 
 
 
 
 
 
Balance sheet data(2):
 
 
 
 
 
 
 
(in thousands)
2019
2018
2017
 
2016
 
2015
Working capital
$
190,927

$
204,301

$
215,860

 
$
176,668

 
$
314,989

Total assets
1,136,155

1,114,844

1,109,031

 
1,130,445

 
1,259,442

Long-term liabilities
279,376

297,879

341,765

 
354,131

 
495,893

Total liabilities
510,182

523,405

554,184

 
605,266

 
723,869

(1)
In the fourth quarter of fiscal 2016, we changed our fiscal year-end from the last Friday in December to the Sunday closest to the last day in December. In addition, the 2016 fiscal year included 53 weeks, with the 53rd week falling in our fourth quarter. All other years presented include 52 weeks.
(2)
Fiscal year 2015 data has been impacted by the adoption and retrospective application of ASU 2015-17, which classifies all deferred income taxes as non-current.
The operating results reported above include the results of acquisitions subsequent to their respective purchase dates. In June 2018, we acquired TMP Holdings LTD. In January 2016, we acquired the recruitment process outsourcing business of Aon Hewitt. In December 2015, we acquired SIMOS Insourcing Solutions Corporation. Additionally, in March 2018, we divested PlaneTechs, LLC.

 
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Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide the reader of our accompanying consolidated financial statements (“financial statements”) with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect future results. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to our financial statements.
OVERVIEW
TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us” and “our”) is a leading provider of specialized workforce solutions that help clients achieve business growth and improve productivity. In 2019, we connected approximately 724,000 people with work and served approximately 139,000 clients. We report our business as three reportable segments: PeopleReady, PeopleManagement and PeopleScout. Our PeopleReady segment offers on-demand, industrial staffing; PeopleManagement segment offers contingent, on-site industrial staffing and commercial driver services; and PeopleScout segment offers recruitment process outsourcing (“RPO”) and managed service provider (“MSP”) solutions to a wide variety of industries. See Note 16: Segment Information, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on our operating and reportable segments.
We experienced challenges in fiscal 2019, evidenced by a 5.2% revenue decline and a 4.1% decline in net income. Some of the decline in revenue was expected and came from a small number of large clients that experienced issues within their businesses. As the year unfolded, we saw a broader softening in revenue trends, similar to other industrial staffing providers, as clients pulled back in response to lower volumes. While overall job data was positive for the United States, the contingent portion, which makes up approximately 2% of the workforce, experienced a pull back as businesses used contingent services more sparingly in light of economic uncertainty.
Fiscal 2019 highlights
Revenue from services
Total company revenue declined 5.2% to $2.4 billion, for the year ended December 29, 2019, compared to the prior year. This decline was primarily driven by less demand for our services attributable to lower volumes within the businesses of our clients and continued economic uncertainty. Revenue trends slowed over the course of the year as clients moderated contingent labor spend. Declines were broad-based across multiple geographies and industries with manufacturing experiencing the most pressure.
PeopleReady, our largest segment, experienced a revenue decline of 3.2%, due primarily to less demand for our services and continued economic uncertainty. PeopleManagement, our lowest margin segment, experienced a revenue decline of 11.8%. In addition to less demand from existing clients, PeopleManagement experienced the impact of the loss of several key clients in the prior year. PeopleScout, our highest margin segment, experienced revenue growth of 1.4%. Our year-over-year PeopleScout trends are impacted by our acquisition on June 12, 2018 of TMP Holdings LTD (“TMP”). The TMP acquisition contributed 9.9% growth to PeopleScout for the year ended December 29, 2019, compared to the prior year. In addition to less demand from existing clients, PeopleScout continues to experience the impact of the loss of a large client after being acquired in the first quarter of 2019 and lower volume and margin on another large industrial client due to adverse business conditions.
Gross profit
Total company gross profit as a percentage of revenue for the year ended December 29, 2019 was 26.4%, compared to 26.6% for the prior year. The decrease was primarily due to client mix, partially offset by a decrease to workers’ compensation cost.
Selling, general and administrative (“SG&A”) expense
Total company SG&A expense decreased by $29 million to $522 million, or 22.1% of revenue for the year ended December 29, 2019, compared to $551 million, or 22.0% of revenue for the prior year. The decrease in SG&A expense is primarily due to cost control programs, while remaining committed to investing in customer acquisition and retention initiatives to drive growth, and our digital strategies to differentiate our services and grow market share.

 
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MANAGEMENT’S DISCUSSION AND ANALYSIS



Income from operations
Total company income from operations was $66 million, or 2.8% of revenue for the year ended December 29, 2019, compared to $74 million, or 3.0% of revenue for the prior year. The decrease in gross profit from the decline in revenue was largely offset by the decrease in SG&A expense due to cost control programs.
Net income
Net income was $63 million, 2.7% of revenue or $1.61 per diluted share for the year ended December 29, 2019, compared to $66 million, 2.6% of revenue or $1.63 per diluted share for the prior year. The net income decline was primarily driven by declining income from operations partially offset by lower interest expense due to a lower debt balance of $37 million at the end of 2019 compared to $80 million at the end of 2018.
Additional highlights
We believe we are taking the right steps with our disciplined cost management to address the continued economic uncertainty and slowed contingent labor spend while investing in strategic growth initiatives to produce long-term growth for shareholders. We also believe we are in a strong financial position to fund working capital needs for growth opportunities. As of December 29, 2019, we had cash and cash equivalents of $38 million and $257 million available under our revolving credit agreement (“Revolving Credit Facility”) for total liquidity of $295 million.
We continue to return cash to shareholders through our share repurchase program. We repurchased $39 million of common stock during the fiscal year ended December 29, 2019, which leaves $119 million available under the existing authorizations.
RESULTS OF OPERATIONS
The following table presents selected financial data for fiscal 2019 compared to fiscal 2018 for the total company:
 
Years ended
(in thousands, except percentages and per share data)
2019
% of revenue
2018
% of revenue
Revenue from services
$
2,368,779

 
$
2,499,207

 
Total revenue decline %
(5.2
)%
 
(0.4
)%
 
 
 
 
 
 
Gross profit
$
626,158

26.4
%
$
665,600

26.6
%
Selling, general and administrative expense
522,430

22.1
%
550,632

22.0
%
Depreciation and amortization
37,549

1.6
%
41,049

1.6
%
Income from operations
66,179

2.8
%
73,919

3.0
%
Interest and other income (expense), net
3,865

 
1,744

 
Income before tax expense
70,044



75,663

 
Income tax expense
6,971

 
9,909

 
Net income
$
63,073

2.7
%
$
65,754

2.6
%
 
 
 
 
 
Net income per diluted share
$
1.61

 
$
1.63

 
We report our business as three reportable segments described below and in Note 16: Segment Information, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K. We do not have any off-balance sheet arrangements.

 
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MANAGEMENT’S DISCUSSION AND ANALYSIS



PeopleReady provides access to reliable workers in the United States, Canada and Puerto Rico through a wide range of staffing solutions for on-demand contingent general and skilled labor. PeopleReady connects people to work in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, waste and recycling, energy, retail, hospitality, and others. PeopleReady helped approximately 138,000 clients in fiscal 2019 to be more productive by providing easy access to dependable, blue-collar contingent labor. Through our PeopleReady service line, we connected approximately 317,000 people with work in fiscal 2019. We have a network of 614 branches across all 50 states, Canada and Puerto Rico. Complementing our branch network is our mobile application, JobStackTM, which connects workers with jobs, creates a virtual exchange between our workers and clients, and allows our branch resources to expand their recruiting and sales efforts and service delivery. JobStack is helping to competitively differentiate our services, expand our reach into new demographics, and improve both service delivery and work order fill rates as we lead our business into a digital future.
PeopleManagement predominantly provides a wide range of on-site contingent staffing and workforce management solutions to larger multi-site manufacturing, distribution and fulfillment clients. In comparison with PeopleReady, services are larger in scale, longer in duration, and dedicated service teams are located at the client’s facility. Effective December 30, 2019 (first day of our 2020 fiscal year), we combined our two on-site contingent industrial workforce operating segments, Staff Management | SMX (“Staff Management”) and SIMOS Insourcing Solutions (“SIMOS”) into one operating segment titled “On-site,” which continues to be reported under PeopleManagement. On-site includes our branded service offerings for hourly and productivity-based industrial staffing solutions serving the same industries and similar customers. PeopleManagement also includes Centerline Drivers (“Centerline”), which specializes in dedicated and contingent commercial truck drivers to the transportation and distribution industries. Effective March 12, 2018, we divested the PlaneTechs, LLC (“PlaneTechs”) business from our PeopleManagement reportable segment.
PeopleScout provides recruitment process outsourcing of end-to-end talent acquisition services from candidate sourcing and engagement through the onboarding of employees. Our solution is highly scalable and flexible, which allows for the outsourcing of all or a subset of skill categories across a series of recruitment, hiring and onboarding steps. Our solution delivers improved talent quality and candidate experience, faster hiring, increased scalability, lower cost of recruitment, greater flexibility, and increased compliance. Our clients outsource the recruitment process to PeopleScout in all major industries and jobs. We leverage our proprietary technology platform (AffinixTM) for sourcing, screening and delivering a permanent workforce, along with dedicated service delivery teams to work as an integrated partner with our clients. Affinix uses artificial intelligence and machine learning to search the web and source candidates, which means we can create the first slate of candidates for a job posting within minutes rather than days.
Our year-over-year trends are impacted by our acquisition on June 12, 2018 of TMP, a mid-sized RPO and employer branding services 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. This acquisition expands and complements our PeopleScout services and has been integrated into this operating segment.
Our PeopleScout reportable segment also includes a managed service provider business, which provides clients with improved quality and spend management of their contingent labor vendors.
Global employment trends are reshaping and redefining traditional employment models, sourcing strategies and human resource capability requirements due to changing demographics, worker shortages, employee preferences, and employer workforce needs. In response, the staffing industry has accelerated its evolution from commercial staffing into specialized and outsourced staffing solutions. Client demand for 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.

 
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MANAGEMENT’S DISCUSSION AND ANALYSIS



Revenue from services
Revenue from services by reportable segment was as follows:
 
Years ended
(in thousands, except percentages)
2019
Growth
(decline)
%
Segment % of total
2018
Segment % of total
Revenue from services:
 
 
 
 
 
PeopleReady
$
1,474,062

(3.2
)%
62.2
%
$
1,522,076

60.9
%
PeopleManagement
642,233

(11.8
)
27.1

728,254

29.1

PeopleScout
252,484

1.4

10.7

248,877

10.0

Total company
$
2,368,779

(5.2
)%
100.0
%
$
2,499,207

100.0
%
Total company revenue declined to $2.4 billion for the year ended December 29, 2019, a 5.2% decrease compared to the prior year.
PeopleReady
PeopleReady revenue declined to $1.5 billion for the year ended December 29, 2019, a 3.2% decrease compared to the prior year. The revenue decline was primarily due to less demand for our services attributable to lower volumes within the businesses of our clients and continued economic uncertainty. Revenue trends slowed over the course of the year as clients moderated contingent labor spend. Declines were broad-based across multiple geographies and industries.
We believe the decline was partially offset by the strategic use of our industry-leading JobStack mobile application that digitally connects workers with jobs. During fiscal 2019, PeopleReady dispatched 4 million shifts via JobStack and achieved a digital fill rate of 48%. The mobile application is used by 21,300 clients with 87% worker adoption, which is up 8.7% and 62.6%, respectively, compared to the prior year.
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
PeopleManagement revenue declined to $642 million for the year ended December 29, 2019, an 11.8% decrease compared to the prior year. The decline included 3.3% from the loss of Amazon’s Canadian business in the second half of 2018 when they insourced the recruitment and management of contingent labor for their warehouse fulfillment centers, 2.1% from the substantially reduced volumes and price reductions with a large existing retail client, and 1.1% from the divestiture of our PlaneTechs business in mid-March 2018. The remaining decline of 5.3% was primarily due to slowing demand attributable to lower volumes within the business of our existing clients and continued economic uncertainty.
PeopleScout
PeopleScout revenue grew to $252 million for the year ended December 29, 2019, an 1.4% increase compared to the prior year. The increase was due primarily to the acquisition of TMP during the second quarter of 2018, which represents a 9.9% increase in PeopleScout’s revenue for the year ended December 29, 2019, compared to the prior year. Revenue growth was constrained primarily due to the loss of one large client after being acquired by a strategic buyer in the prior year and substantially reduced project-based recruiting volumes at another large client, which declined throughout the year due to adverse business conditions resulting in no order volume in the fourth quarter of 2019.

 
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MANAGEMENT’S DISCUSSION AND ANALYSIS



Gross profit
Gross profit was as follows:
 
Years ended
(in thousands, except percentages)
2019
2018
Gross profit
$
626,158

$
665,600

Percentage of revenue
26.4
%
26.6
%
Gross profit as a percentage of revenue declined to 26.4% for the year ended December 29, 2019, compared to 26.6% for the prior year. The decline was primarily due to client mix, which was partially offset by lower workers’ compensation costs. The lower workers’ compensation costs of 0.2% was from additional insurance coverage in our staffing business associated with former workers’ compensation carriers that are in liquidation. This was due to improvements in their balance sheets which allowed these carriers to cover a larger proportion of outstanding claims.
Improvements to the gross margin of our staffing businesses were more than offset by declines to the PeopleScout gross margin primarily due to the lower margins associated with the acquired TMP business due to the pass-through nature of recruitment media purchases made on behalf of certain clients, the loss of one large client after being acquired by a strategic buyer in the prior year and substantially reduced project-based recruiting volumes at another large client due to adverse business conditions.
We continue to manage the rising cost of claims by reducing workplace accidents. Continued favorable adjustments to our workers’ compensation liabilities are dependent on our ability to continue to lower accident rates and claim costs. For additional discussion on the adjustments to our workers’ compensation liability, see the “Workers’ compensation insurance, collateral and claims reserves” section within Liquidity and Capital Resources.
Selling, general and administrative expense
SG&A expense was as follows:
 
Years ended
(in thousands, except percentages)
2019
2018
Selling, general and administrative expense
$
522,430

$
550,632

Percentage of revenue
22.1
%
22.0
%
Total company SG&A expense decreased by $29 million to $522 million, or 22.1% of revenue for the year ended December 29, 2019, compared to $551 million, or 22.0% of revenue for the prior year. The decrease in SG&A expense was primarily due to cost control programs, while remaining committed to investing in customer acquisition and retention initiatives to drive growth and our digital strategies to differentiate our services and grow market share.
Depreciation and amortization
Depreciation and amortization was as follows:
 
Years ended
(in thousands, except percentages)
2019
2018
Depreciation and amortization
$
37,549

$
41,049

Percentage of revenue
1.6
%
1.6
%
Depreciation and amortization decreased primarily due to several intangible assets which became fully amortized in the second quarter of 2019, which resulted in a decline in amortization expense for the year ended December 29, 2019.

 
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MANAGEMENT’S DISCUSSION AND ANALYSIS



Income taxes
The income tax expense and the effective income tax rate were as follows:
 
Years ended
(in thousands, except percentages)
2019
2018
Income tax expense
$
6,971

$
9,909

Effective income tax rate
10.0
%
13.1
%
Our tax provision and our effective tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss by jurisdiction, tax credits, government audit developments, changes in 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.
Our effective tax rate for the year ended December 29, 2019 was 10.0% compared to 13.1% for the prior year. 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 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 job credits if credits in excess of original estimates have been certified by government offices. WOTC was extended through December 31, 2020 as a result of the Further Consolidated Appropriations Act of 2020 (H.R. 1865). Approval from Congress will be required to extend WOTC beyond December 31, 2020.
Changes to our effective tax rate as a result of WOTC and other job tax credits were as follows:
 
Years ended
 
2019
2018
Effective income tax rate without adjustments below
28.1
 %
29.1
 %
WOTC job credits estimate from current year wages 
(15.8
)
(14.6
)
WOTC additional job credits from prior year wages
(1.9
)
(1.4
)
Other job tax credits
(0.4
)

Effective income tax rate
10.0
 %
13.1
 %
See Note 13: Income Taxes, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional information.
Segment performance
We evaluate performance based on segment revenue and segment profit. Segment profit includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment. Segment profit excludes goodwill and intangible impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest, other adjustments not considered to be ongoing. See Note 16: Segment Information, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on our reportable segments, as well as a reconciliation of segment profit to income before tax expense.
Segment profit should not be considered a measure of financial performance in isolation or as an alternative to net income in the Consolidated Statements of Operations and Comprehensive Income 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.

 
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PeopleReady segment performance was as follows:
 
Years ended
(in thousands, except percentages)
2019
2018
Revenue from services
$
1,474,062

$
1,522,076

Segment profit
$
82,106

$
85,998

Percentage of revenue
5.6
%
5.7
%
PeopleReady segment profit declined to $82 million, or 5.6% of revenue for the year ended December 29, 2019, compared to $86 million, or 5.7% of revenue for the prior year. The decline was primarily due to less demand for our services attributable to lower volumes within the businesses of our clients and continued economic uncertainty. Revenue trends slowed over the course of the year as clients moderated contingent labor spend. Declines were broad based across multiple geographies and industries. The decline in revenue was largely offset by our cost control programs which have reduced our SG&A expense in line with our plans.
PeopleManagement segment performance was as follows:
 
Years ended
(in thousands, except percentages)
2019
2018
Revenue from services
$
642,233

$
728,254

Segment profit
$
12,593

$
21,627

Percentage of revenue
2.0
%
3.0
%
PeopleManagement segment profit decreased to $13 million, or 2.0% of revenue for the year ended December 29, 2019, compared to $22 million, or 3.0% of revenue for the prior year. The decline in revenue and related segment profit was primarily due to the loss of Amazon’s Canadian business in the second half of fiscal 2018 and volume and price reductions at another large industrial workforce client. Additionally, PeopleManagement experienced lower volumes due to our clients experiencing slowing demand in their businesses. Due to the decline in revenue, we put in place cost control measures and have reduced SG&A expense in line with our plans.
PeopleScout segment performance was as follows:
 
Years ended
(in thousands, except percentages)
2019
2018
Revenue from services
$
252,484

$
248,877

Segment profit
$
37,831

$
47,383

Percentage of revenue
15.0
%
19.0
%
PeopleScout segment profit decreased to $38 million, or 15.0% of revenue for the year ended December 29, 2019, compared to $47 million, or 19.0% of revenue for the prior year. The decline in segment profit and profit margin was primarily driven by the acquisition of TMP and client mix. TMP margins are lower than those of PeopleScout due to the pass-through nature of media-related purchases on behalf of certain clients. Client mix margins were impacted by substantially reduced project-based recruiting volumes at a large industrial client due to adverse business conditions and the loss of another higher margin client which was acquired by a strategic buyer in late 2018. Due to the decline in segment profit, we put in place cost control measures and have reduced SG&A expense in line with our plans.
FISCAL 2018 AS COMPARED TO FISCAL 2017
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, found in Part II of the Annual Report on Form 10-K for the fiscal year ended December 30, 2018 for discussion of fiscal 2018 compared to fiscal 2017.

 
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MANAGEMENT’S DISCUSSION AND ANALYSIS



FUTURE OUTLOOK
We have limited visibility into future demand for our services. However, we believe there is value in providing highlights of our expectations for future financial performance. The following highlights represent our expectations regarding operating trends for fiscal 2020. These expectations are subject to revision as our business changes with the overall economy.
We expect additional pressure on our revenue trends in 2020 due primarily to a widespread decline in same client demand as clients continue to experience weaker volumes within their own businesses across most geographies and industries. PeopleReady, our largest segment, experienced year-over-year revenue declines in 2019 and experienced growing revenue pressure as the year progressed. Similar to PeopleReady, PeopleManagement, our lowest margin segment, experienced less demand from existing clients and continued economic uncertainty. PeopleScout, our highest margin segment, passed the one-year anniversary of the TMP acquisition in June 2019. PeopleScout will experience further pressure due to the continued impact of the loss of a key client that was acquired by a strategic buyer which will anniversary in the first quarter of 2020 and substantially reduced project-based recruiting volumes at another large industrial client due to adverse business conditions which will anniversary in the third quarter of 2020. We expect continued challenges in the industrial markets we serve, but we are encouraged by recent improvements in the demand trend for PeopleReady services.
We believe there is a changing pace of underlying economic activity in some of the industries we serve. Our belief is based on our same client revenue trends and the softening demand for our PeopleReady services. Given the project-based nature of PeopleReady’s business, we believe it is often an early indicator of changing demand patterns. We remain focused on client expansion and retention, disciplined cost management, and investing in our digital strategies to differentiate our service offerings.
We are committed to technological innovation to transform our business for a digital future 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 to workers and candidates, as well as improve the 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 over the long-term, improve the efficiency of our service delivery, and reduce our PeopleReady dependence on local branches to find contingent workers and connect them with work. Examples include our new JobStack mobile application in the PeopleReady business and our Affinix talent acquisition technology in our PeopleScout business. PeopleReady’s JobStack app has filled more than six million shifts since its inception and is currently filling a job every nine seconds. PeopleScout’s Affinix is helping clients improve time to fill, candidate flow and candidate satisfaction. We believe our digital strategies provide further opportunity to differentiate our services, capture additional market share and deliver industry-leading growth.

 
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LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Cash flows from operating activities
Our cash flows from operating activities for fiscal 2019 as compared to fiscal 2018 were as follows:
 
Years ended
(in thousands)
2019
2018
Net income
$
63,073

$
65,754

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
37,549

41,049

Provision for doubtful accounts
7,661

10,042

Non-cash lease expense, net of changes in operating lease liabilities
(355
)

Stock-based compensation
9,769

13,876

Other operating activities
(326
)
3,225

Changes in operating assets and liabilities, net of amounts acquired and divested:
 
 
Accounts receivable
5,450

11,640

Income tax receivable
(6,480
)
(996
)
Change in all other assets
(12,575
)
(12,928
)
Workers’ compensation claims reserve
(10,828
)
(7,877
)
Change in all other liabilities
593

1,907

Net cash provided by operating activities
$
93,531

$
125,692

Net cash provided by operating activities was $94 million for the year ended December 29, 2019, compared to $126 million for the prior year. Net cash provided by operating activities is primarily due to net income of $63 million for the year ended December 29, 2019 compared to $66 million for the prior year.
Changes to adjustments to reconcile net income to net cash provided by operating activities for fiscal 2019 were primarily due to:
Depreciation and amortization decreased primarily due to certain fixed assets and intangible assets becoming fully depreciated during the prior year. Additionally, a greater portion of our investment funds are being directed toward non-capitalized third-party cloud-based solutions.
Provision for doubtful accounts decreased primarily due to the overall reduction in revenue during fiscal 2019. Additionally, 2019 benefited from the recovery of receivables which had been reserved for in 2018 when a customer filed for bankruptcy protection.
Stock-based compensation decreased primarily due to $4 million of accelerated stock compensation costs associated with the CEO transition in fiscal 2018.
Changes to operating assets and liabilities, net of amounts acquired and divested for fiscal 2019 were primarily due to:
The decrease in accounts receivable in fiscal 2019 was primarily due to the decline in revenue due to less demand for our services attributable to lower volumes within the businesses of our clients. This was partially offset by higher days sales outstanding due to continued economic uncertainty and longer payment terms.
The increase in income tax receivable in fiscal 2019 was primarily due to delays in foreign jurisdiction processing of refunds and higher than expected WOTC benefits.
Change in all other assets decreased primarily due to unrealized gains on deferred compensation assets as both equity and bond markets strengthened into fiscal 2019, verses unrealized losses in fiscal 2018 after a sharp decline in equity markets in the fourth quarter of 2018.
Generally, our workers’ compensation claims reserve for estimated claims decreases as contingent labor services declines, as is the case in the current and prior year. Additionally, our worker safety programs have had a positive impact and have created favorable adjustments to our workers’ compensation liabilities recorded in each period. 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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Cash flows from investing activities
Our cash flows from investing activities for fiscal 2019 as compared to fiscal 2018 were as follows:
 
Years ended
(in thousands)
2019
2018
Capital expenditures
$
(28,119
)
$
(17,054
)
Acquisition of business, net of divestiture of business
215

(12,155
)
Purchases and sales of restricted investments
18,483

8,694

Net cash used in investing activities
$
(21,631
)
$
(20,515
)
Net cash used in investing activities was $22 million for the year ended December 29, 2019, compared to $21 million for the prior year.
Capital expenditures increased in fiscal 2019 primarily due to investments in a cost savings initiative to upgrade our telephone system to voice over internet protocol, an expansion of our India shared services center, a computer hardware upgrade cycle, and further investment in software technology to support our digital strategy.
Net cash used in investing activities in fiscal 2018 was impacted by the acquisition of the outstanding equity interests of TMP for a cash purchase price of $23 million, net of cash acquired of $7 million. The acquisition was partially offset by the divestiture of all the assets and certain liabilities of our PlaneTechs business for a sales price of $11 million. See Note 2: Acquisition and Divestiture, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on the purchase of TMP and divestiture of PlaneTechs.
Restricted investments consist primarily of collateral that has been provided or pledged to insurance carriers and state workers’ compensation programs. The decrease in the cash provided by the selling of securities was primarily due to lower collateral requirements from our workers’ compensation insurance providers, as well as the timing of collateral payments.
Cash flows from financing activities
Our cash flows from financing activities for fiscal 2019 as compared to fiscal 2018 were as follows:
 
Years ended
(in thousands)
2019
2018
Purchases and retirement of common stock
$
(38,826
)
$
(34,818
)
Net proceeds from employee stock purchase plans
1,329

1,503

Common stock repurchases for taxes upon vesting of restricted stock
(2,222
)
(3,404
)
Net change in Revolving Credit Facility
(42,900
)
(15,900
)
Payments on debt

(22,397
)
Other
(296
)

Net cash used in financing activities
$
(82,915
)
$
(75,016
)
Net cash used in financing activities was $83 million for the year ended December 29, 2019, compared to $75 million for the prior year.
During fiscal 2019, we repurchased $39 million of common stock as compared to $35 million for the prior year. As of December 29, 2019, $119 million remains available for repurchase of common stock under existing authorizations.
During fiscal 2019, we increased net repayments on our Revolving Credit Facility of $43 million as compared to $16 million for the comparable period in the prior year. Draws on the Revolving Credit Facility during fiscal 2018 enabled the pre-payment of the outstanding balance of our existing long-term debt of $22 million with Synovus Bank on June 25, 2018.
FISCAL 2018 AS COMPARED TO FISCAL 2017
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, found in Part II of the Annual Report on Form 10-K for the fiscal year ended December 30, 2018 for discussion of fiscal 2018 compared to fiscal 2017.

 
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CAPITAL RESOURCES
Revolving credit facility
See Note 8: Long-term Debt, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our Revolving Credit Facility.
Restricted cash and investments
Restricted cash and investments consist principally of collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. We have agreements with certain financial institutions that allow us to restrict cash and cash equivalents and investments for the purpose of providing collateral instruments to our insurance carriers to satisfy workers’ compensation claims. At December 29, 2019, we had restricted cash and investments totaling $231 million. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon (“Trust”). See Note 4: Restricted Cash and Investments, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our restricted cash and investments.
We established investment policy directives for the Trust with the first priority to preserve capital, second to ensure sufficient liquidity to pay workers’ compensation claims, third to diversify the investment portfolio and fourth to maximize after-tax returns. Trust investments must meet minimum acceptable quality standards. The primary investments include U.S. Treasury securities, U.S. agency debentures, U.S. agency mortgages, corporate securities and municipal securities. For those investments rated by nationally recognized statistical rating organizations the minimum ratings at time of purchase are:
 
S&P
Moody’s
Fitch
Short-term rating
A-1/SP-1
P-1/MIG-1
F-1
Long-term rating
A
A2
A
Workers’ compensation insurance, collateral and claims reserves
Workers’ compensation insurance
We provide workers’ compensation insurance for our contingent and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2 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 PeopleReady 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.

 
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Our total collateral commitments were made up of the following components for the fiscal period end dates presented:
(in thousands)
December 29, 2019
December 30,
2018
Cash collateral held by workers’ compensation insurance carriers
$
22,256

$
22,264

Cash and cash equivalents held in Trust
23,681

28,021

Investments held in Trust
149,373

156,618

Letters of credit (1)
6,202

6,691

Surety bonds (2)
20,731

21,881

Total collateral commitments
$
222,243

$
235,475

(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.
Workers’ compensation reserve
The following table provides a reconciliation of our collateral commitments to our workers’ compensation reserve as of the fiscal period end dates presented:
(in thousands)
December 29, 2019
December 30,
2018
Total workers’ compensation reserve
$
255,618

$
266,446

Add back discount on workers’ compensation reserve (1)
19,316

18,179

Less excess claims reserve (2)
(45,253
)
(48,229
)
Reimbursable payments to insurance provider (3)
8,121

7,866

Other (4)
(15,559
)
(8,787
)
Total collateral commitments
$
222,243

$
235,475

(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 the difference between the self-insured reserves and collateral commitments.
Our workers’ compensation reserve is established using estimates of the future cost of claims and related expenses, which are discounted to their estimated net present value. We discount our workers’ compensation liability as we believe the estimated future cash outflows are readily determinable.
Our workers’ compensation reserve for deductible and self-insured claims is established using estimates of the future cost of claims and related expenses that have been reported but not settled, as well as those that have been incurred but not reported. Reserves are estimated for claims incurred in the current year, as well as claims incurred during prior years.
Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment. Factors considered in establishing and adjusting these reserves include, among other things:
changes in medical and time loss (“indemnity”) costs;
changes in mix between medical only and indemnity claims;
regulatory and legislative developments impacting benefits and settlement requirements;
type and location of work performed;

 
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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 December 29, 2019, the weighted average discount rate was 2.0%. The claim payments are made over an estimated weighted average period of approximately 5 years.
Our workers’ compensation reserves include estimated expenses related to claims above our self-insured limits (“excess claims”), and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. At December 29, 2019, the weighted average rate was 2.4%. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 16 years. The discounted workers’ compensation reserve for excess claims was $45 million and $48 million as of December 29, 2019 and December 30, 2018, respectively. The discounted receivables from insurance companies, net of valuation allowance, were $45 million as of December 29, 2019 and December 30, 2018.
The following table provides an analysis of changes in our workers’ compensation claims reserves:
 
Years ended
(in thousands)
2019
2018
Beginning balance
$
266,446

$
274,323

Self-insurance reserve expenses related to current year, net
78,367

79,874

Payments related to current year claims (1)
(14,997
)
(17,413
)
Payments related to claims from prior years (1)
(48,177
)
(47,242
)
Changes to prior years’ self-insurance reserve, net (2)
(21,748
)
(24,899
)
Amortization of prior years’ discount (3)
(1,393
)
2,404

Net change in excess claims reserve (4)
(2,880
)
(601
)
Ending balance
255,618

266,446

Less current portion
73,020

76,421

Long-term portion
$
182,598

$
190,025

(1)
Payments made against self-insured claims are made over a weighted average period of approximately 5 years at December 29, 2019.
(2)
Changes in reserve estimates are reflected in cost of services on the Consolidated Statement of Operations and Comprehensive Income in the period when the changes are made.
(3)
The discount is amortized over the estimated weighted average life. In addition, any changes to the estimated weighted average lives and corresponding discount rates for actual payments made are reflected in cost of services on the Consolidated Statement of Operations and Comprehensive Income in the period when the changes in estimates are made.
(4)
Changes to our excess claims are discounted to its estimated net present value using the risk-free rates associated with the actuarially determined weighted average lives of our excess claims. Certain workers’ compensation insurance companies with which we formerly did business are in liquidation and have failed to pay a number of excess claims to date. We have recorded a valuation allowance against all of the insurance receivables from the insurance companies in liquidation.
We continue to actively manage workers’ compensation cost through the safety of our contingent workers with our safety programs and actively control costs with our network of service providers. These actions have had a positive impact creating favorable adjustments to workers’ compensation liabilities recorded in the current and 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.
Future outlook
We believe we are in a strong financial position to fund working capital needs for growth opportunities. As of December 29, 2019, we had cash and cash equivalents of $38 million and $257 million available under our Revolving Credit Facility for total liquidity of $295 million.

 
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We continue to return cash to shareholders through our share repurchase program. During the year ended December 29, 2019, we repurchased $39 million of common stock. As of December 29, 2019, $119 million remains available for repurchase of common stock under existing authorizations.
We believe that cash provided from operations and our capital resources will be adequate to meet our cash requirements for the foreseeable future.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table provides a summary of our contractual obligations as of the end of fiscal 2019. We expect to fund these commitments with existing cash and cash equivalents, restricted cash and investments, and cash flows from operations.
 
Payments due by period
(in thousands)
Contractual obligations
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Long-term debt obligations, including interest and fees (1):
$
31,861

$
1,610

$
30,251

$

$

Workers’ compensation claims (2)
229,681

73,729

63,804

25,956

66,192

Deferred compensation (3)
8,232

2,930

2,383

1,343

1,576

Operating leases (4)
49,100

16,328

19,798

8,062

4,912

Purchase obligations (5)
29,811

13,837

14,730

1,244


Total contractual cash obligations
$
348,685

$
108,434

$
130,966

$
36,605

$
72,680

(1)
Interest and fees are calculated based on the rates in effect at December 29, 2019. Our Revolving Credit Facility expires in 2023. For additional information, see Note 8: Long-term Debt to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
(2)
Excludes estimated expenses related to claims above our self-insured limits, for which we have a corresponding receivable based on the contractual policy agreements we have with insurance carriers. For additional information, see Note 7: Workers’ Compensation Insurance and Reserves to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
(3)
Represents scheduled distributions based on the elections of plan participants. Additional payments may be made if plan participants terminate, retire, or schedule additional distributions during the periods presented. For additional information, see Note 12: Defined Contribution Plans to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
(4)
Excludes all payments related to branch leases with short-term cancellation provisions, typically within 90 days. Operating lease payments exclude approximately $37 million of legally binding minimum lease payments for leases signed but not yet commenced. For additional information, see Note 9: Commitments and Contingencies to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
(5)
Purchase obligations include agreements to purchase goods and services that are enforceable, legally binding and specify all significant terms. Purchase obligations do not include agreements that are cancelable without significant penalty.
Liability for unrecognized tax benefits has been excluded from the table above, as the timing and/or amounts of any cash payment is uncertain. For additional information, see Note 13: Income Taxes, to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
SUMMARY OF CRITICAL ACCOUNTING ESTIMATES
Management’s discussion and analysis of financial condition and results of operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management believes that the following accounting estimates are the most critical to understand and evaluate our reported financial results, and they require management’s most subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

 
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Workers’ compensation reserve
We maintain reserves for workers’ compensation claims, including the excess claims portion above our deductible, using actuarial estimates of the future cost of claims and related expenses. These estimates include claims that have been reported but not settled and claims that have been incurred but not reported. These reserves, which reflect potential liabilities to be paid in future periods based on estimated payment patterns, are discounted to estimated net present value using discount rates based on average returns on “risk-free” U.S. Treasury instruments, which are evaluated on a quarterly basis. We evaluate the reserves regularly throughout the year and make adjustments accordingly. If the actual cost of such claims and related expenses exceed the amount estimated, additional reserves may be required. Changes in reserve estimates are reflected in cost of services on the Consolidated Statements of Operations and Comprehensive Income in the period when the changes in estimates are made.
Our workers’ compensation reserves include estimated expenses related to excess claims and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance companies. We discount the reserve and its corresponding receivable to their estimated net present values using the risk-free rates associated with the actuarially determined weighted average lives of our excess claims. When appropriate, we record a valuation allowance against the insurance receivable to reflect amounts that may not be realized.
There are two main factors that impact workers’ compensation cost: the number of claims and the cost per claim. The number of claims is driven by the volume of hours worked, the business mix which reflects the type of work performed, and the safety of the environment where the work is performed. The cost per claim is driven primarily by the severity of the injury, the state in which the injury occurs, related medical costs, and lost-time wage costs. A 5% change in one or more of the above factors would result in a change to workers’ compensation cost of approximately $4 million. Our reserve balances have been positively impacted primarily by the success of our accident prevention programs. In the event that we are not able to further reduce our accident rates, the positive impacts to our reserve balance will diminish.
Allowance for doubtful accounts
We establish an allowance for doubtful accounts for estimated probable losses resulting from the failure of our clients to make required payments. The allowance for doubtful accounts is determined based on historical write-off experience, expectations of future write-offs, and current economic data, and represents our best estimate of the amount of probable credit losses. The allowance for doubtful accounts is reviewed quarterly and past due balances are written-off when it is likely the receivable will not be collected. If the financial condition of our clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Business combinations
We account for our business acquisitions using the acquisition method of accounting. The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. We determine the estimated fair values after review and consideration of relevant information including discounted cash flows, quoted market prices and estimates made by management. Determining the fair value of an acquired company is judgmental in nature and involves the use of significant estimates and assumptions. The significant judgments include estimation of future cash flows, which is dependent on forecasts; estimation of the long-term rate of growth; estimation of the useful life over which cash flows will occur; and determination of a weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the business being purchased. Intangible assets that arise from contractual/legal rights, or are capable of being separated, are measured and recorded at fair value and amortized over the estimated useful life. If practicable, assets acquired and liabilities assumed arising from contingencies are measured and recorded at fair value. If not practicable, such assets and liabilities are measured and recorded when it is probable that a gain or loss has occurred and the amount can be reasonably estimated. The residual balance of the purchase price, after fair value allocations to all identified assets and liabilities, represents goodwill.
Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date. Acquisition-related costs are expensed as incurred. Our acquisitions may include contingent consideration, which require us to recognize the fair value of the estimated liability at the time of the acquisition. Subsequent changes in the estimate of the amount to be paid under the contingent consideration arrangement are recognized on the Consolidated Statements of Operations and Comprehensive Income. Cash payments for contingent or deferred consideration are classified within cash flows from investing activities for the purchase price fair value of the contingent consideration while amounts paid in excess are classified within cash flows from operating activities on the Consolidated Statements of Cash Flows.

 
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Goodwill and indefinite-lived intangible assets
We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter, and 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, client 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 operating segments to be our reporting units for goodwill impairment testing. As of December 29, 2019, our operating segments are PeopleReady, Centerline, Staff Management, 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 the carrying value, we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment 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. 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. 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.
Annual impairment test
Based on our 2019 annual impairment test, the estimated fair value of all our reporting units were substantially in excess of their carrying value, except our SIMOS reporting unit, which was in excess of its carrying value by approximately 10%. The current carrying value of goodwill for this reporting unit is $35 million. There are two key clients that individually account for more than 10% of revenue for the SIMOS reporting unit. For each client we service multiple sites. The loss of a key client, loss of a significant number of key sites, or a significant downturn in the economy could give rise to an impairment. Should any one of these events occur, we may need to record an impairment loss to goodwill for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill. A discount rate of 12.5% was used in calculating the fair value of this reporting unit. In the event that the discount rate increases by approximately 1 percentage point, the forecasted revenue growth rate declines by approximately 3 percentage points, or gross margin as a percentage of revenue declines by approximately 1 percentage point, the carrying value of the reporting unit would have exceeded its fair value. Should any one of these events occur, we may need to record an impairment loss to goodwill for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill.
Our weighted average cost of capital for all our reporting units ranged from 11.5% to 12.5%, and our control premium was 15.2%, which management has determined to be reasonable.
Interim impairment test
Effective December 30, 2019 (the first day of fiscal 2020), our SIMOS and Staff Management | SMX reporting units were combined into one reporting unit (On-site) due to common customers and contingent workers, similar nature of services and economic characteristics. Therefore, we tested the SIMOS reporting unit for impairment prior to the combination due to its sensitivity to impairment as of our annual impairment test, as explained above. Our SMX reporting unit’s fair value was substantially in excess of its carrying as of the annual impairment test, or approximately 48%, and there were no indicators of impairment during the interim period. Therefore, no interim impairment test was performed. Based on the interim impairment test of our SIMOS reporting unit, the estimated fair value was in excess of its carrying value by approximately 7%. A discount rate of 12.0% was used in calculating the fair value of this reporting unit. If the discount rate was approximately 1 percentage point higher, the forecasted

 
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MANAGEMENT’S DISCUSSION AND ANALYSIS



revenue growth rate was approximately 5 percentage points lower, or gross margin as a percentage of revenue was approximately 1 percentage point lower, the carrying value of the reporting unit would have exceeded its fair value.
Based on the results of our annual and interim impairment tests, there was no impairment loss recognized for the year ended December 29, 2019. Based on our 2018 and 2017 annual impairment tests, all reporting units’ fair values were substantially in excess of their respective carrying values. Accordingly, there was no impairment loss recognized for the years ended December 30, 2018 or December 31, 2017.
Indefinite-lived intangible assets
We have indefinite-lived intangible assets related to our Staff Management and PeopleScout trade names. We test our trade names annually for impairment, and when indicators of potential impairment exist. We utilize the relief from royalty method to determine the fair value of each of our trade names. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates.
We performed our annual indefinite-lived intangible asset impairment test for 2019, 2018 and 2017 and determined that the estimated fair values exceeded the carrying amounts for our indefinite-lived trade names. Accordingly, no impairment loss was recognized for the years ended December 29, 2019, December 30, 2018 or December 31, 2017.
Finite-lived intangible assets and other long-lived assets
We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Factors considered important that could result in an impairment review include, but are not limited to, significant underperformance relative to historical or planned operating results, or significant changes in business strategies. We estimate the recoverability of these assets by comparing the carrying amount of the asset to the future undiscounted cash flows that we expect the asset to generate. An impairment loss is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on discounted cash flow analysis or other valuation techniques.
No impairment loss was recognized for the years ended December 29, 2019, December 30, 2018 or December 31, 2017.
Estimated contingent legal and regulatory liabilities
From time to time we are subject to compliance audits by federal, state and local authorities relating to a variety of regulations including wage and hour laws, taxes, workers’ compensation, immigration, and safety. We are also subject to legal proceedings in the ordinary course of our operations. We have established reserves for contingent legal and regulatory liabilities. We record a liability when our management determines that it is probable that a legal claim will result in an adverse outcome and the amount of liability can be reasonably estimated. To the extent that an insurance company or other third-party is legally obligated to reimburse us for a liability, we record a receivable for the amount of the probable reimbursement. We evaluate our estimated liability regularly throughout the year and make adjustments as needed. If the actual outcome of these matters is different than expected, an adjustment is charged or credited to expense in the period the outcome occurs or the period in which the estimate changes.
Income taxes and related valuation allowances
We account for income taxes by recording taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. We measure these expected future tax consequences based upon the provisions of tax law as currently enacted; the effects of future changes in tax laws are not anticipated. Future tax law changes, such as changes to federal and state corporate tax rates and the mix of states and their taxable income, could have a material impact on our financial condition or results of operations. When appropriate, we record a valuation allowance against deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, we consider whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results.
NEW ACCOUNTING STANDARDS
See Note 1: Summary of Significant Accounting Policies, to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

 
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Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in interest rates and foreign currency exchange rates, each of which could adversely affect the value of our investments. We do not currently use derivative financial instruments.
Interest rate risks
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our long-term debt. The interest on our long-term debt is based on the London Interbank Offered Rate (“LIBOR”). In the event LIBOR is replaced, TrueBlue has agreed with its lenders to adopt a successor rate benchmark.
Trust assets
Restricted cash and investments consist principally of collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of the workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in municipal debt securities, corporate debt securities and agency mortgage-backed securities. The majority of our collateral obligations are held in a trust (“Trust”) at the Bank of New York Mellon. The individual investments within the Trust are subject to credit risk due to possible rating changes, default or impairment. We monitor the portfolio to ensure this risk does not exceed prudent levels. We consistently apply and adhere to our investment policy of holding high-quality, diversified securities. We have the positive intent and ability to hold these investments until maturity and accordingly have classified them as held-to-maturity. For additional information, see Note 4: Restricted Cash and Investments, to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
Long-term debt
We are subject to the risk of fluctuating interest rates under our revolving credit agreement (“Revolving Credit Facility”), which bears interest at variable rates. For additional information, see Note 8: Long-term Debt, to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
Based on the principal balance of our outstanding Revolving Credit Facility of $37 million as of December 29, 2019, an increase or decrease of the interest rate by 10% over the next year would not have a material effect on our annual interest expense.
Foreign currency exchange rate risk
The majority of our revenue, expense, liabilities and capital purchasing activities are transacted in U.S. dollars. However, because a portion of our operations consists of activities outside of the United States, we have minimal transactions in other currencies, primarily the Canadian and Australian dollars, and Great Britain pound. We have not hedged our foreign currency translation risk. We have the ability to hold our foreign currency denominated assets indefinitely and do not expect that a sudden or significant change in foreign exchange rates will have a material impact on future operating results or cash flows.

 
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Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of TrueBlue, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of TrueBlue, Inc. and subsidiaries (the “Company”) as of December 29, 2019 and December 30, 2018, and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 29, 2019 and the related notes and schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 29, 2019 and December 30, 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 29, 2019, based on criteria established in Internal Control  Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill - SIMOS Reporting Unit - Refer to Note 6 to the Financial Statements
Critical Audit Matter Description
The Company’s evaluation of the SIMOS Insourcing Solutions Reporting Unit (“SIMOS”) goodwill for impairment involves the comparison of the estimated reporting unit fair value to its carrying value. The Company equally weighted the discounted cash flow model and market approach to estimate fair value, which requires management to make significant estimates and assumptions related to forecasts of future revenues and earnings. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both. The total goodwill balance as of December 29, 2019 (the measurement date) allocated to SIMOS was $35 million. The estimated fair value of SIMOS exceeded its carrying value by approximately 7% as of the measurement date. Based on the fact that the estimated fair value of the SIMOS reporting unit exceeded the carrying values, no impairment was recognized.

 
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Given the nature of SIMOS’ operations, the method used to determine its fair value, and the difference between its fair value and carrying value, auditing management’s judgments regarding forecasts of future revenue and cash flows for SIMOS involved enhanced auditor judgment.
How the Critical Audit Matter was Addressed in the Audit
Our audit procedures related to forecasts of future revenue and earnings for the SIMOS reporting unit included the following, among others:
We tested the effectiveness of controls over management’s evaluation of goodwill for impairment, including those over the forecast of future revenue and earnings.
We evaluated management’s ability to accurately forecast future revenues and earnings by comparing actual results to management’s historical forecasts.
We evaluated the reasonableness of management’s revenue and earnings forecast by comparing the forecasts to:
Historical revenues and earnings; and
Internal communications between management, brand presidents, and the Board of Directors, including assessment of current and future growth opportunities.
We further evaluated the reasonableness of management’s forecast by evaluating alternative assumptions about future revenue and cash flows, using both the Company’s internal information and analyst and industry reports.
Workers’ Compensation Claims Reserves - Refer to Note 1 and Note 7 to the Financial Statements
Critical Audit Matter Description
The Company bears the financial responsibility for a significant portion of expected losses under its workers’ compensation program and records reserves for workers’ compensation claims based on estimates of the future cost of claims and related expenses, which are discounted to their estimated net present value. The determination of the undiscounted reserves requires significant estimates and assumptions related to the future cost of claims and related expenses for claims that have been reported but not settled, as well as those that have been incurred but not reported. The undiscounted workers’ compensation obligation was $274.9 million as of December 29, 2019.
Given the fact that changes in actuarial assumptions could have a significant impact on the reserves, auditing management judgments regarding the workers’ compensation reserves, including estimates of the future cost of claims and related expenses, involved a high degree of auditor judgment, including the need to involve our actuarial specialists.
How the Critical Audit Matter was Addressed in the Audit
Our audit procedures related to the workers’ compensation reserves included the following, among others:
We tested the effectiveness of controls over workers’ compensation, including those over payments and related expenses, claims data provided to the actuary, and review of actuarial results.
We evaluated the methods and assumptions used by management to estimate the workers’ compensation reserves by:
Making selections of the underlying data that served as the basis for the actuarial analysis, including claims payments and related expenses, to evaluate whether the inputs to the actuarial estimate were accurate; and
Comparing management’s prior-year assumptions of expected future cost of claims and related expenses to actuals incurred during the current year to identify potential bias in the determination of the workers’ compensation reserves.
With the assistance of our actuarial specialists, we developed independent estimates of the reserves and compared our estimates to the Company’s recorded reserves.
/s/ Deloitte & Touche, LLP
Seattle, Washington
February 24, 2020
We have served as the Company’s auditor since 2009.

 
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TRUEBLUE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value data)
December 29,
2019
December 30,
2018
ASSETS
 
 
Current assets:
 
 
Cash and cash equivalents
$
37,608

$
46,988

Accounts receivable, net of allowance for doubtful accounts of $4,288 and $5,026
342,303

355,373

Prepaid expenses, deposits and other current assets
30,717

22,141

Income tax receivable
11,105

5,325

Total current assets
421,733

429,827

Property and equipment, net
66,150

57,671

Restricted cash and investments
230,932

235,443

Deferred income taxes, net
3,228

4,388

Goodwill
237,498

237,287

Intangible assets, net
73,673

91,408

Operating lease right-of-use assets
41,082


Workers’ compensation claims receivable, net
44,624

44,915

Other assets, net
17,235

13,905

Total assets
$
1,136,155

$
1,114,844

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
Current liabilities:
 
 
Accounts payable and other accrued expenses
$
68,406

$
62,045

Accrued wages and benefits
67,604

77,098

Current portion of workers’ compensation claims reserve
73,020

76,421

Operating lease current liabilities
14,358


Other current liabilities
7,418

9,962

Total current liabilities
230,806

225,526

Workers’ compensation claims reserve, less current portion
182,598

190,025

Long-term debt
37,100

80,000

Long-term deferred compensation liabilities
26,765

21,747

Operating lease long-term liabilities
28,849


Other long-term liabilities
4,064

6,107

Total liabilities
510,182

523,405

 
 
 
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; 38,593 and 40,054 shares issued and outstanding
1

1

Accumulated other comprehensive loss
(13,238
)
(14,649
)
Retained earnings
639,210

606,087

Total shareholders’ equity
625,973

591,439

Total liabilities and shareholders’ equity
$
1,136,155

$
1,114,844

See accompanying notes to consolidated financial statements

 
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TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 
Years ended
(in thousands, except per share data)
2019
2018
2017
Revenue from services
$
2,368,779

$
2,499,207

$
2,508,771

Cost of services
1,742,621

1,833,607

1,874,298

Gross profit
626,158

665,600

634,473

Selling, general and administrative expense
522,430

550,632

510,794

Depreciation and amortization
37,549

41,049