TRUEBLUE, INC., 10-K filed on 2/23/2015
Annual Report
Document and Entity Information (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 26, 2014
Feb. 2, 2015
Jun. 27, 2014
Entity Information [Line Items]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 26, 2014 
 
 
Document Fiscal Year Focus
2014 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
TBI 
 
 
Entity Registrant Name
TrueBlue, Inc. 
 
 
Entity Central Index Key
0000768899 
 
 
Current Fiscal Year End Date
--12-26 
 
 
Entity Well-Known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
41,543,267 
 
Entity Public Float
 
 
$ 1,111,811 
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Dec. 26, 2014
Dec. 27, 2013
Current assets:
 
 
Cash and cash equivalents
$ 19,666 
$ 122,003 
Marketable securities
1,500 
14,745 
Accounts receivable, net of allowance for doubtful accounts of $7,603 and $5,710
359,903 
199,519 
Prepaid expenses, deposits and other current assets
18,778 
9,491 
Income tax receivable
10,516 
3,060 
Deferred income taxes
5,444 
7,640 
Total current assets
415,807 
356,458 
Property and equipment, net
61,392 
54,473 
Restricted cash and investments
168,426 
154,558 
Deferred income taxes
4,213 
Goodwill
241,855 
82,239 
Intangible assets, net
136,560 
31,505 
Other assets, net
42,631 
36,015 
Total assets
1,066,671 
719,461 
Current liabilities:
 
 
Accounts payable and other accrued expenses
50,256 
29,850 
Accrued wages and benefits
69,692 
39,094 
Current portion of workers' compensation claims reserve
64,556 
49,942 
Other current liabilities
2,726 
2,523 
Total current liabilities
187,230 
121,409 
Workers’ compensation claims reserve, less current portion
178,283 
164,887 
Long-term debt, less current portion
199,383 
29,656 
Deferred income taxes
19,768 
Other long-term liabilities
12,673 
10,149 
Total liabilities
597,337 
326,101 
Commitments and contingencies
   
   
Shareholders’ equity:
 
 
Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding
Common stock, no par value, 100,000 shares authorized; 41,530 and 41,085 shares issued and outstanding
Accumulated other comprehensive income
871 
2,033 
Retained earnings
468,462 
391,326 
Total shareholders’ equity
469,334 
393,360 
Total liabilities and shareholders’ equity
$ 1,066,671 
$ 719,461 
CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 26, 2014
Dec. 27, 2013
Allowance for doubtful accounts
$ 7,603 
$ 5,710 
Preferred stock, par value (in dollars per share)
$ 0.131 
$ 0.131 
Preferred stock, shares authorized
20,000,000 
20,000,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value (in dollars per share)
$ 0 
$ 0 
Common stock, shares authorized
100,000,000 
100,000,000 
Common stock, shares issued
41,530,000 
41,085,000 
Common stock, shares outstanding
41,530,000 
41,085,000 
CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 26, 2014
Dec. 27, 2013
Dec. 28, 2012
Revenue from services
$ 2,174,045 
$ 1,668,929 
$ 1,389,530 
Cost of services
1,637,066 
1,226,626 
1,017,145 
Gross profit
536,979 
442,303 
372,385 
Selling, general and administrative expenses
425,777 
362,248 
300,459 
Depreciation and amortization
29,474 
20,472 
18,890 
Income from operations
81,728 
59,583 
53,036 
Interest expense
(3,156)
(1,248)
(1,131)
Interest and other income
3,272 
2,602 
2,700 
Interest and other income, net
116 
1,354 
1,569 
Income before tax expense
81,844 
60,937 
54,605 
Income tax expense
16,169 
16,013 
20,976 
Net income
65,675 
44,924 
33,629 
Net income per common share:
 
 
 
Basic (in dollars per share)
$ 1.61 
$ 1.12 
$ 0.85 
Diluted (in dollars per share)
$ 1.59 
$ 1.11 
$ 0.84 
Weighted average shares outstanding:
 
 
 
Basic (in shares)
40,734 
40,166 
39,548 
Diluted (in shares)
41,176 
40,502 
39,862 
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment, net of tax
(1,281)
(689)
175 
Unrealized gain (loss) on investments, net of tax
119 1 2
(96)1 2
Total other comprehensive income (loss), net of tax
(1,162)1
(785)1
175 1
Comprehensive income
$ 64,513 
$ 44,139 
$ 33,804 
CONSOLIDATED STATEMENTS OF SHARHOLDERS' EQUITY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $)
In Thousands, unless otherwise specified
Total
Common stock
Retained earnings
Accumulated other comprehensive income
Beginning balance at Dec. 30, 2011
$ 293,579 
$ 1 
$ 290,935 
 
Beginning balance (in shares) at Dec. 30, 2011
 
39,933 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
Net income
33,629 
 
33,629 
 
Foreign currency translation adjustment, net of tax
175 
 
 
 
Unrealized gain (loss) on investments, net of tax
 
 
 
Purchases and retirement of common stock (in shares)
 
(306)
 
 
Purchases and retirement of common stock
(4,386)
 
(4,386)
 
Issuances under equity plans, including tax benefits (in shares)
 
593 
 
 
Issuances under equity plans, including tax benefits
2,760 
 
2,760 
 
Stock-based compensation
7,917 
 
7,917 
 
Ending balance at Dec. 28, 2012
333,674 
330,855 
2,818 
Ending balance (in shares) at Dec. 28, 2012
 
40,220 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
Net income
44,924 
 
44,924 
 
Foreign currency translation adjustment, net of tax
(689)
 
 
 
Unrealized gain (loss) on investments, net of tax1 2
(96)
 
 
 
Issuances under equity plans, including tax benefits (in shares)
 
865 
 
 
Issuances under equity plans, including tax benefits
7,135 
 
7,135 
 
Stock-based compensation
8,412 
 
8,412 
 
Ending balance at Dec. 27, 2013
393,360 
391,326 
2,033 
Ending balance (in shares) at Dec. 27, 2013
41,085 
41,085 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
Net income
65,675 
 
65,675 
 
Foreign currency translation adjustment, net of tax
(1,281)
 
 
(1,281)
Unrealized gain (loss) on investments, net of tax
119 1 2
 
 
119 
Issuances under equity plans, including tax benefits (in shares)
 
445 
 
 
Issuances under equity plans, including tax benefits
410 
 
410 
 
Stock-based compensation
11,051 
 
11,051 
 
Ending balance at Dec. 26, 2014
$ 469,334 
$ 1 
$ 468,462 
$ 871 
Ending balance (in shares) at Dec. 26, 2014
41,530 
41,530 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 26, 2014
Dec. 27, 2013
Dec. 28, 2012
Cash flows from operating activities:
 
 
 
Net income
$ 65,675 
$ 44,924 
$ 33,629 
Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Depreciation and amortization
29,474 
20,472 
18,890 
Provision for doubtful accounts
11,815 
12,063 
6,994 
Stock-based compensation
11,051 
8,412 
7,917 
Deferred income taxes
12,663 
(3,844)
3,091 
Other operating activities
898 
2,116 
1,946 
Changes in operating assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable
(77,629)
(4,181)
(20,408)
Income taxes
(5,696)
4,113 
(3,748)
Other assets
(7,361)
(7,341)
(1,214)
Accounts payable and other accrued expenses
(8,683)
(3,592)
1,524 
Accrued wages and benefits
12,069 
(3,643)
(182)
Workers’ compensation claims reserve
1,579 
9,859 
3,746 
Other liabilities
1,670 
6,710 
138 
Net cash provided by operating activities
47,525 
86,068 
52,323 
Cash flows from investing activities:
 
 
 
Capital expenditures
(16,918)
(13,003)
(17,826)
Acquisition of businesses, net of cash acquired
(305,876)
(77,560)
Purchases of marketable securities
(25,057)
(40,800)
Sales and maturities of marketable securities
44,167 
20,050 
Change in restricted cash and cash equivalents
(9,283)
(16,122)
7,587 
Purchases of restricted investments
(18,196)
(13,411)
(33,778)
Maturities of restricted investments
12,726 
15,581 
18,116 
Other
(250)
Net cash used in investing activities
(318,437)
(125,265)
(26,151)
Cash flows from financing activities:
 
 
 
Purchases and retirement of common stock
(4,386)
Net proceeds from stock option exercises and employee stock purchase plans
2,191 
9,136 
4,164 
Common stock repurchases for taxes upon vesting of restricted stock
(3,114)
(2,800)
(2,154)
Net change in Revolving Credit Facility
171,994 
Proceeds from long-term debt
34,000 
Payments on debt and other liabilities
(2,267)
(8,681)
(4,548)
Other
978 
713 
751 
Net cash provided by (used in) financing activities
169,782 
32,368 
(6,173)
Effect of exchange rate changes on cash and cash equivalents
(1,207)
(681)
203 
Net change in cash and cash equivalents
(102,337)
(7,510)
20,202 
CASH AND CASH EQUIVALENTS, beginning of period
122,003 
129,513 
109,311 
CASH AND CASH EQUIVALENTS, end of period
$ 19,666 
$ 122,003 
$ 129,513 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRINCIPLES AND PRACTICES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business
TrueBlue, Inc. (“TrueBlue,” “we,” “us,” “our”) is a leading provider of specialized workforce solutions, helping clients improve growth and performance by providing staffing, recruitment process outsourcing, and managed service provider solutions. Our workforce solutions meet clients’ needs for a reliable, efficient workforce in a wide variety of industries. Through our workforce solutions, we help over 135,000 businesses be more productive and we connect as many as 750,000 people and work each year. We are headquartered in Tacoma, Washington.
Effective June 30, 2014, we acquired Staffing Solutions Holdings, Inc. ("Seaton") which added a full service line of on-premise temporary blue-collar staffing together with complementary outsourced service offerings in recruitment process outsourcing ("RPO") and managed services provider ("MSP") solutions. On-premise staffing is large scale sourcing, screening, recruiting and management of the contingent labor workforce at a customer's facility. RPO is high-volume sourcing, screening, and recruiting of permanent employees for all major industries and jobs. MSP solutions provide customers with improved quality and spend management of their contingent labor vendors. The addition of Seaton added new services and capabilities to better meet our objective of providing customers with talent and flexible workforce solutions they need to enhance business performance. See Note 2: Acquisitions for additional information.
We operate our workforce solutions through two reportable segments, Staffing Services and Managed Services. For additional information on our segments see Note 18: Segment Information.
Basis of presentation
The consolidated financial statements include the accounts of TrueBlue and all of its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The consolidated financial statements include the results of operations and cash flows of Seaton from the acquisition date to December 26, 2014 and not from any prior periods, except with respect to the unaudited pro forma information included in Note 2: Acquisitions.
Fiscal period end
We utilize a 52 or 53 week fiscal year, ending on the last Friday of December. The three most recent years ended on December 26, 2014, December 27, 2013, and December 28, 2012, all of which contained 52 weeks. Seaton has a fiscal period end of the last Sunday of the December. Seaton’s results for the period from the acquisition date to December 28, 2014 have been combined with TrueBlue’s results for the year ended December 26, 2014.
Revenue recognition
Revenue is recognized at the time the service is provided and is net of adjustments related to customer credits. Revenue also includes billable travel and other reimbursable costs. Customer discounts or other incentives are recognized in the period the related revenue is earned. Revenues are reported net of sales, use, or other transaction taxes collected from customers and remitted to taxing authorities.
We record revenue on a gross basis as a principal versus on a net basis as an agent in the consolidated statement of operations. We have determined that gross reporting as a principal is the appropriate treatment based upon the following key factors:
We maintain the direct contractual relationship with the customer;
We have discretion in selecting and assigning the temporary workers to particular jobs and establishing their billing rate; and
We bear the risk and rewards of the transaction, including credit risk, if the customer fails to pay for services performed.
Cost of Services
Cost of services are costs directly associated with the earning of revenue and primarily includes wages and related payroll taxes and workers’ compensation expenses. Cost of services also includes billable travel and other reimbursable costs.
Advertising costs
Advertising costs consist primarily of print and other promotional activities. We expense advertisements as of the first date the advertisements take place. Advertising expenses included in Selling, general and administrative expenses were $6.2 million, $4.0 million, and $3.7 million in 2014, 2013, and 2012, respectively.
Cash and cash equivalents and marketable securities
We consider all highly liquid instruments purchased with an original maturity of three months or less at date of purchase to be cash equivalents. Investments with original maturities greater than three months are classified as marketable securities. Our marketable securities consist of certificates of deposit ("CDs"), variable-rate demand notes ("VRDNs"), and commercial paper. All of our marketable securities are classified as available-for-sale and are reported at fair value, with any unrealized gains and losses, net of tax, recorded in Other comprehensive income (loss). We do not buy and hold securities principally for the purpose of selling them in the near future. Our investment policy is focused on the preservation of capital, liquidity, and return. From time to time, we may sell certain securities but the objective is generally not to generate profits on short-term differences in price. We manage our cash equivalents and marketable securities as a single portfolio of highly liquid securities.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are recorded at the invoiced amount together with interest for certain past due accounts. We establish an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments. The allowance for doubtful accounts is determined based on current collection efforts, historical collection trends, write-off experience, customer credit risk, and current economic data. The allowance for doubtful accounts is reviewed quarterly and represents our best estimate of the amount of probable credit losses. Past due balances are written off when it is probable the receivable will not be collected. Our allowance for doubtful accounts was $7.6 million and $5.7 million as of December 26, 2014 and December 27, 2013, respectively.
Restricted cash and investments
Cash and investments pledged as collateral and restricted to use for workers' compensation insurance programs are included as Restricted cash and investments on our Consolidated Balance Sheets. Our investments consist of highly rated investment grade debt securities, which are rated A1/P1 or higher for short-term securities and A- or higher for long-term securities, by nationally recognized statistical rating organizations. We have the positive intent and ability to hold all these investments until maturity in accordance with our investment policy and, accordingly, all of our investments are classified as held-to-maturity. In the event that an investment is downgraded, it is replaced with a highly rated investment grade security. We review for impairment on a quarterly basis and do not consider temporary unrealized losses to be an impairment.
We have an agreement with AIG and the Bank of New York Mellon creating a trust ("Trust"), which holds the majority of our collateral obligations under existing workers' compensation insurance policies. Placing the collateral in the Trust allows us to manage the investment of the assets and provides greater protection of those assets.
Fair value of financial instruments and investments
The carrying value of cash and cash equivalents and restricted cash approximates fair value because of the short-term maturity of those instruments. The fair value of our restricted investments is based upon the quoted market price on the last business day of the fiscal reporting period. Where an observable quoted market price for a security does not exist, we estimate fair value using a variety of valuation methodologies, which include observable inputs for comparable instruments and unobservable inputs. There are inherent limitations when estimating the fair value of financial instruments and the fair values reported are not necessarily indicative of the amounts that would be realized in current market transactions.
Property and equipment
Property and equipment are recorded at cost. We compute depreciation using the straight-line method over the estimated useful lives of the assets.
 
Years
Buildings
40
Computers and software
3 - 10    
Furniture and equipment
3 - 10    

Leasehold improvements are amortized over the shorter of the related non-cancelable lease term, which is typically 90 days, or their estimated useful lives.
Non-capital expenditures associated with opening new branch locations are expensed as incurred.
When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss, net of proceeds, is reflected on the Consolidated Statements of Operations and Comprehensive Income.
Repairs and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated.
Costs associated with the acquisition or development of software for internal use are capitalized and amortized over the expected useful life of the software, from three to ten years. A subsequent addition, modification, or upgrade to internal-use software is capitalized to the extent that it enhances the software's functionality or extends its useful life. Software maintenance and training costs are expensed in the period incurred.
Finite-lived intangible assets
Intangible assets consist of identifiable intangible assets acquired through acquisitions and include trade names/trademarks, customer relationships, non-compete agreements, and acquired technology. We amortize intangible assets, other than trade names and trademarks with an indefinite life, using the straight-line method over their useful lives. We amortize non-compete covenants using the straight-line method over the lives of the related agreements.
Leases
We conduct our branch office operations from leased locations. Many leases require payment of real estate taxes, insurance, and common area maintenance, in addition to rent. The terms of our lease agreements generally range from three to five years with options to cancel within 90 days of notification. Most of the leases contain renewal options and escalation clauses.
For leases that contain predetermined fixed escalations of the minimum rent, we recognize the related rent expense on a straight-line basis from the date we take possession of the property to the end of the minimum lease term. We record any difference between the straight-line rent amounts and amounts payable under the leases as part of deferred rent, in accrued liabilities or long-term liabilities, as appropriate.
Cash or lease incentives received upon entering into certain branch leases ("tenant allowances") are recognized on a straight-line basis as a reduction to rent from the date we take possession of the property through the end of the initial lease term. We record the unamortized portion of tenant allowances as a part of deferred rent, in accrued liabilities or long-term liabilities, as appropriate.

Goodwill and indefinite-lived intangible assets
We had historically evaluated our goodwill for impairment at the reporting unit level annually as of the last day of our fiscal third quarter or when indications of potential impairment exist. In the first quarter of 2014, we changed the date of our annual assessment of goodwill impairment to the first day of our fiscal second quarter of each year. This is a change in method of applying an accounting principle, which management believes is preferable because it better aligns the timing of the assessment with our planning and forecasting process and alleviates constraints on accounting resources during our annual reporting process. The change in the assessment date did not delay, accelerate, or avoid a potential impairment charge. Due to significant judgments and estimates utilized in our goodwill impairment analysis, management has determined that it was impracticable to objectively determine projected cash flows and related valuation estimates that would have been used as of the first day of the second quarter of each prior reporting period without the use of hindsight.
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. We allocated goodwill to reporting units based on the reporting units that are expected to benefit from the business combination. We do not amortize goodwill but test it for impairment annually, or when indications of potential impairment exist. We monitor the existence of potential impairment indicators throughout the fiscal year and noted no significant indicators of impairment.
We test for goodwill impairment at the reporting unit level. Prior to the acquisition of Seaton, we considered our service lines (Labor Ready, Spartan Staffing, CLP Resources, PlaneTechs, and Centerline) to be our reporting units for goodwill impairment testing. There were no substantial changes to our previously reported reporting units. Effective June 30, 2014, we acquired Seaton which added a full service line of on-premise blue-collar staffing with Staff Management | SMX ("Staff Management"), complementary service offerings in RPO with the People Scout and hrX service lines, and the MSP solutions portion of Staff Management. We consider the acquired service lines to be reporting units for goodwill impairment testing.
The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds carrying value, then we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, a second step is required to measure possible goodwill impairment loss. The second step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit's goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions to evaluate the impact of operating and macroeconomic changes on each reporting unit. The fair value of each reporting unit is estimated using a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. We also identify similar publicly traded companies and develop a correlation, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples we compare to are revenue and earnings before interest, taxes, depreciation, and amortization. These combined fair values are then reconciled to our aggregate market value of our shares of common stock on the date of valuation, while considering a reasonable control premium.
In our annual impairment test our reporting units' fair values were substantially in excess of their carrying values. Accordingly, no impairment loss was required to be recognized. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at 20% or greater. 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. Based on our test, all of our reporting units' fair values were substantially in excess of their carrying values. The estimated fair value of our PlaneTechs reporting unit was in excess of its carrying value, however, the operations of this reporting unit continue to be in the process of transitioning from a concentrated portfolio with one significant customer in the aviation industry to a more diversified customer portfolio for aviation and expanding their services for mechanics and technicians to other transportation industries. As such, we believe this reporting unit carries more risk of impairment in comparison to our other reporting units. We will continue to closely monitor the operational performance of the PlaneTechs reporting unit.
Our services are subject to volatility based on overall economic conditions. As a consequence, our revenues tend to increase quickly when the economy begins to grow. Conversely, our revenues also decrease quickly when the economy begins to weaken, as had occurred during the most recent recession. If actual results were to significantly deviate from management's estimates and assumptions of future performance, we could experience a material impairment to our goodwill.
We have indefinite-lived intangible assets related to our CLP Resources, Spartan Staffing, Staff Management | SMX and PeopleScout trade names. We test our indefinite-lived intangible assets annually for impairment, or when indications of potential impairment exist. We utilize the relief from royalty method to determine the fair value of each of our trade names. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess. Considerable management judgment is necessary to determine key assumptions, including projected revenue, royalty rates, and appropriate discount rates.
Long-lived asset impairment
Long-lived assets include property and equipment and definite-lived intangible assets. Long-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. We have determined that no triggering events have occurred during the period that would require us to perform an impairment test. 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, significant changes in the manner of use of the assets, or significant changes in our business strategies. Long-lived assets are grouped at the lowest level at which identifiable cash flows are largely independent when assessing impairment. Our branch assets, including property and equipment, and customer relationship intangibles, are grouped and evaluated at the individual branch level. All other property and equipment and definite-lived intangibles are grouped at either the service line or corporate level, as appropriate, based on the identifiable cash flows. 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 quoted market prices or other valuation techniques (e.g., discounted cash flow analysis). Considerable management judgment is necessary to estimate future after-tax cash flows, including cash flows from continuing use and terminal value. Accordingly, actual future results could vary from our estimates.
Business acquisitions
We account for our business acquisitions using the purchase method of accounting. The fair value of the net assets acquired and the results of the acquired business are included in the financial statements from the acquisition date forward. We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and results of operations during the reporting period. Estimates are used in accounting for, among other things, the fair value of acquired property and equipment, intangible assets, useful lives of property and equipment, and amortizable lives for acquired intangible assets, as well as liabilities for workers' compensation and legal contingencies. Any excess of the purchase consideration over the identified fair value of the assets acquired and liabilities assumed is recognized as goodwill. Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date. All acquisition related costs are expensed as incurred and recorded in Selling, general, and administrative expenses. Additionally, we recognize liabilities for anticipated restructuring costs that will be necessary due to the elimination of excess capacity, redundant assets, or unnecessary functions and record them as Selling, general, and administrative expenses.
The valuation of these tangible and identifiable intangible assets and liabilities is subject to further management review and may change between the preliminary allocation and the final allocation. Any changes to these estimates may have a material impact on our operating results or financial condition.
Workers’ compensation claims reserves
We maintain reserves for workers’ compensation claims using actuarial estimates of the future cost of claims and related expenses. These estimates include claims that have been reported but not settled and claims that have been incurred but not reported. These reserves, which reflect potential liabilities to be paid in future periods based on estimated payment patterns, are discounted to estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments, which are evaluated on a quarterly basis. We evaluate the reserves regularly throughout the year and make adjustments accordingly. If the actual cost of such claims and related expenses exceed the amounts estimated, additional reserves may be required. Changes in reserve estimates are reflected in 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 claims above our self-insured limits (“excess claims”) and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance companies. We discount the liability and its corresponding receivable to its estimated net present value using the “risk-free” rates associated with the actuarially determined weighted average lives of our excess claims. When appropriate, based on our best estimate, we record a valuation allowance against the insurance receivable to reflect amounts that may not be realized.
Reserves for 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. In addition, we are subject to legal proceedings in the ordinary course of our operations. We establish reserves for contingent legal and regulatory liabilities when management determines that it is probable that a legal claim will result in an adverse outcome and the amount of liability can be reasonably estimated. To the extent that an insurance company is contractually obligated to reimburse us for a liability, we record a receivable for the amount of the probable reimbursement. We evaluate our reserve regularly throughout the year and make adjustments as needed. If the actual outcome of these matters is different than expected, an adjustment is charged or credited to expense in the period the outcome occurs or the period in which the estimate changes.
Income taxes and related valuation allowance
We account for income taxes by recording taxes payable or receivable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. These expected future tax consequences are measured based on provisions of tax law as currently enacted; the effects of future changes in tax laws are not anticipated. Future tax law changes, such as changes to the federal and state corporate tax rates and the mix of states and their taxable income, could have a material impact on our financial condition or results of operations. When appropriate, we record a valuation allowance against deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, we consider whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results. Based on that analysis, we have determined that a valuation allowance is appropriate for certain net operating losses and tax credits that we expect will not be utilized within the permitted carry forward periods as of December 26, 2014 and December 27, 2013.
Stock-based compensation
Under various plans, officers, employees, and non-employee directors have received or may receive grants of stock, restricted stock awards, performance share units, or options to purchase common stock. We also have an employee stock purchase plan (“ESPP”).
Compensation expense for restricted stock awards and performance share units is generally recognized on a straight-line basis over the vesting period, based on the stock’s fair market value on the grant date. For restricted stock and performance share unit grants issued with performance conditions, compensation expense is recognized over each vesting period based on assessment of the likelihood of meeting these conditions. We recognize compensation expense for only the portion of restricted stock and performance share units that is expected to vest, rather than record forfeitures when they occur. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in the future periods. We determine the fair value of options to purchase common stock using the Black-Scholes valuation model, which requires the input of subjective assumptions. We recognize expense over the service period for options that are expected to vest and record adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.
Foreign currency
Our consolidated financial statements are reported in U.S. dollars. Assets and liabilities of international subsidiaries with non-U.S. dollar functional currencies are translated to U.S. dollars at the exchange rates in effect on the balance sheet date. Revenues and expenses for each subsidiary are translated to U.S. dollars using a weighted average rate for the relevant reporting period. Translation adjustments resulting from this process are included, net of tax, in other comprehensive income ("OCI") where applicable. Currency gains and losses of intercompany balances deemed to be long-term in nature in international subsidiaries are included, net of tax, in OCI.
Purchases and retirement of our common stock
Purchases of our common stock are not displayed separately as treasury stock on the Consolidated Balance Sheets in accordance with the Washington Business Corporation Act, which requires the retirement of purchased shares. As a result, shares of our common stock that we purchase are retired immediately. It is our accounting policy to first record these purchases as a reduction to our common stock account. Once the common stock account has been reduced to a nominal balance, remaining purchases are recorded as a reduction to our Retained earnings. Furthermore, activity in our common stock account related to stock-based compensation is also recorded to Retained earnings until such time as the reduction to Retained earnings due to stock repurchases has been recovered.
Shares of common stock outstanding
Shares of common stock outstanding include shares of unvested restricted stock. Unvested restricted stock included in reportable shares outstanding was 0.7 million shares as of December 26, 2014 and December 27, 2013.
Use of estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Examples include, but are not limited to, purchase accounting, allowance for doubtful accounts, estimates for asset and goodwill impairments, stock-based performance awards, assumptions underlying self-insurance reserves, contingent legal and regulatory liabilities, and the potential outcome of future tax consequences of events that have been recognized in the financial statements. Actual results and outcomes may differ from these estimates and assumptions.
Recently adopted accounting standards
Effective December 28, 2013, we adopted the accounting standard regarding the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The standard requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent when, for certain reasons, it is not available. The adoption of this standard did not have a material impact on our financial statements.
Effective December 28, 2013, we early adopted the accounting standard regarding reporting discontinued operations and disposals of components of an entity. Under the new guidance, only disposals representing a strategic shift in operations or that have a major effect on a company's operations and results of operations should be presented as discontinued operations. The standard amends the requirement for reporting discontinued operations and requires additional disclosures about disposals of individually material components that are not classified as discontinued operations. The standard is effective for fiscal year-ends beginning after December 15, 2014, however early adoption is permitted. The adoption of this standard did not have a material impact on our financial statements.

Recently issued accounting pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2014-09 related to revenue recognition. This guidance sets forth a five-step revenue recognition model, which supersedes the prior revenue recognition guidance, as well as most industry-specific revenue recognition guidance that previously existed in U.S. GAAP. The underlying principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The ASU provides two methods of initial adoption: retrospective for all periods presented, or through a cumulative adjustment in the year of adoption. It is effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. Early adoption is not permitted. We have not yet determined which method of adoption will be applied and are currently evaluating the impact that this standard will have on our consolidated financial statements.
ACQUISITIONS ACQUISITION
ACQUISITION
ACQUISITIONS
Effective June 30, 2014, we completed the acquisition of all of the outstanding equity interests of Seaton, a Chicago-based corporation, for a cash purchase price of approximately $305.9 million, net of cash acquired. The Seaton acquisition added a full service line of on-premise blue-collar staffing, complementary service offerings in recruitment process outsourcing, and managed services provider solutions. Seaton's operations will continue to be managed and supported from Chicago.

Effective June 30, 2014, we entered into a Second Amended and Restated Revolving Credit Agreement for a secured revolving credit facility ("Revolving Credit Facility") of up to a maximum of $300.0 million, of which $187.0 million was used to fund a portion of the Seaton acquisition price. See Note 9: Long-term Debt, for details of our Revolving Credit Facility.

We incurred acquisition and integration-related costs of $5.2 million during the year ended December 26, 2014. These costs are included in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income and cash flows from operating activities in the Consolidated Statements of Cash Flows.
Purchase price allocation
We have completed the allocation of the purchase price, net of cash acquired, to the assets acquired and liabilities assumed based on fair value assessments. The following information reflects our allocation of the purchase price (in thousands):

June 30, 2014 Fair Value
Accounts receivable (1)
$
94,571

Prepaid expenses, deposits and other current assets
7,111

Property and equipment
6,957

Other non-current assets
7,848

Restricted cash
1,227

Intangible assets
117,100

  Total assets acquired
234,814

 
 
Accounts payable and other accrued expenses (2)
28,916

Accrued wages and benefits
18,528

Workers' compensation claims reserve (3)
26,433

Deferred tax liability
13,514

Other long-term liabilities
1,163

  Total liabilities assumed
88,554

 
 
Net identifiable assets acquired
146,260

Goodwill (4)
159,616

  Net assets acquired
$
305,876


(1)
The gross contractual amount of accounts receivable was $96.7 million of which $2.1 million was estimated to be uncollectible.
(2)
The preliminary purchase price allocation for accounts payable and accrued expenses was increased by approximately $9.6 million related to additional commitments and obligations assumed.
(3)
The preliminary purchase price allocation for the workers' compensation liability was increased by approximately $7.8 million for estimated excess claims with a corresponding receivable due from the insurance provider.
(4)
Goodwill is attributable to the acquired workforce, the expected synergies, and future cash flows after the acquisition of Seaton. Synergies consist primarily of increasing service capacity through acquiring workforce and facilities, increasing market share and economies of scale, increasing operational efficiency and expertise, and leveraging technology investments.

Intangible assets include identifiable intangible assets for customer relationships and trade name/trademarks. We estimated the fair value of the acquired identifiable intangible assets, which are subject to amortization using the income approach. The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of June 30, 2014 (in thousands):
 
Estimated Fair Value
 
Weighted Average Estimated Useful Lives in Years
Trade name/trademarks
$
10,500

 
Indefinite
Trade name/trademarks
300

 
4.0
Technologies
18,300

 
4.6
Customer relationships
88,000

 
9.7
Total intangible assets
$
117,100

 
 


The acquired assets and liabilities assumed of Seaton are included in our Consolidated Balance Sheets as of December 26, 2014 and the results of its operations and cash flows are reported in our Consolidated Statements of Operations and Comprehensive Income and Consolidated Statements of Cash Flows for the period from June 30, 2014 to December 26, 2014.

The amount of revenue and income from operations of Seaton included in our Consolidated Statements of Operations and Comprehensive Income were $394.4 million and $13.6 million, respectively, for the period from the acquisition date to December 26, 2014. Income from operations includes amortization expense of $6.3 million for acquired finite-lived intangible assets and developed technology pushed down to Seaton.

Unaudited pro forma financial information

The following table reflects the unaudited pro forma consolidated results of operations for the periods presented, as though the acquisition of Seaton had occurred as of the beginning of the period being reported on, after giving effect to related income taxes.

The unaudited pro forma financial information combines our results of operations with the unaudited financial information of Seaton used by Seaton management for internal reporting purposes. Seaton acquired hrX, an Australian based company, on January 31, 2014. The unaudited pro forma information of Seaton includes the results of operations for hrX as if it had been acquired at the beginning of the period being reported on. Any changes required by further procedures over the financial information of Seaton could be material. The unaudited pro forma financial information presented is for illustrative purposes only and is not indicative of the results of operations that would have been realized if the acquisition had been completed on the dates indicated, nor is it indicative of future operating results.

The unaudited pro forma consolidated results of operations includes differences in workers' compensation expense, interest expense on debt, amortization of debt issuance costs, amortization of finite-lived intangible assets, stock-based compensation, non-recurring costs of acquisition, and integration related costs. The unaudited pro forma consolidated results of operations do not include, among other items, the effects of potential losses in gross profit due to revenue attrition from combining the two companies.

Unaudited pro forma financial data is presented below (in thousands, except per share data):
 
 
Years ended
 
 
December 26,
2014
 
December 27,
2013
Revenue from services
 
$
2,472,289

 
$
2,274,742

Net income
 
$
64,713

 
$
47,464

Net income per common share - diluted
 
$
1.57

 
$
1.17



Prior Year Acquisitions

MDT Personnel, LLC
Effective February 4, 2013, we acquired substantially all of the assets and assumed certain liabilities of MDT Personnel, LLC and its subsidiaries ("MDT") for $53.1 million, net of cash acquired. Assets acquired included finite-lived intangible assets of $10.2 million. The excess of the purchase price over the estimated fair values of the net assets acquired in the amount of $25.7 million was recorded as goodwill and primarily represents synergies with our existing business, the acquired assembled workforce, and potential new customers. Through its network of 105 branches in 25 states, MDT supplied blue-collar labor to industries similar to those served by TrueBlue, including construction, event staffing, disaster recovery, hospitality, and manufacturing.
We incurred acquisition and integration-related costs of $6.0 million.We have fully integrated and blended MDT's operations with our existing service lines. MDT was primarily integrated into the Labor Ready service line. The integration of the MDT sales and branch operations was completed during the first quarter of 2013. We completed the integration of all remaining administrative services during the second quarter of 2013. These activities consisted of integrating our branch network capacity, sales and services teams, and infrastructure by closing, consolidating, and relocating certain branch offices and administrative operations, eliminating redundant assets, and reducing excess administrative workforce and capacity. These integration costs are included in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income and cash flows from operating activities on the Consolidated Statements of Cash Flows for the year ended December 27, 2013.
Purchase price allocation
The following table summarizes the final allocation of the MDT purchase price, net of cash acquired, based on the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date of February 4, 2013 (in thousands):
 
 
Purchase Price Allocation
Accounts receivable (1)
 
$
29,910

Prepaid expenses, deposits and other current assets
 
614

Property and equipment
 
299

Restricted cash
 
6,877

Intangible assets
 
10,200

  Total assets acquired
 
47,900

 
 
 
Accounts payable and other accrued expenses
 
6,273

Accrued wages and benefits
 
4,781

Workers' compensation claims reserve
 
9,381

Other long-term liabilities
 
76

  Total liabilities assumed
 
20,511

 
 
 
Net identifiable assets acquired
 
27,389

Goodwill
 
25,686

  Net assets acquired
 
$
53,075


(1)
The gross contractual amount of accounts receivable was $32.9 million of which $3.0 million was estimated to be uncollectible.

Intangible assets include identifiable intangible assets for customer relationships, the trade name/trademarks and a non-compete agreement. We estimated the fair value of the acquired identifiable intangible assets, which are subject to amortization using the income approach. No residual value is estimated for any of the intangible assets. The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of February 4, 2013 (in thousands):
 
Estimated Fair Value
 
Weighted Average Estimated Useful Lives in Years
Customer relationships
$
7,800

 
8.0
Trade name/trademarks
1,000

 
1.5
Non-compete agreement
1,400

 
5.0
Total intangible assets
$
10,200

 
 

The acquired assets and liabilities of MDT are included in our Consolidated Balance Sheets as of December 27, 2013 and the results of its operations and cash flows are reported in our Consolidated Statements of Operations and Comprehensive Income and Consolidated Statements of Cash Flows from February 4, 2013.
MDT operations have been fully integrated with our existing operations and our customers, temporary workforce, field employees, and locations have been merged. The nature of the customers and the services provided by TrueBlue and the former MDT are substantially the same. We competed in the marketplace for the same customers, temporary workers, and sales and service personnel. Accordingly, subsequent to merging our operations, it is not possible to segregate and to accurately estimate the revenues and expenses related exclusively to the former MDT operations.
Unaudited pro forma financial information
The following table reflects the unaudited pro forma consolidated results of operations for the periods presented, as though the acquisition of MDT had occurred as of the beginning of the period being reported on, after giving effect to related income taxes.
The unaudited pro forma financial information combines our results of operations with the unaudited financial information of MDT used by MDT management for internal reporting purposes. Any changes required by an audit of the MDT financial information could be material. The unaudited pro forma financial information presented is for illustrative purposes only and is not indicative of the results of operations that would have been realized if the acquisition had been completed on the dates indicated, nor is it indicative of future operating results.
The unaudited pro forma consolidated results of operations do not include, among other items, the effects of potential losses in gross profit due to revenue attrition from combining the two companies, and differences in our operating costs structure. It does include differences in workers' compensation and certain payroll taxes for temporary employees, and amortization of finite-lived intangible assets. 2013 pro forma net income was adjusted to exclude $6.0 million of acquisition and integration-related costs incurred in 2013. 2012 pro forma earnings were adjusted to include these charges. 
Pro forma financial data (unaudited) is presented below (in thousands, except per share data).
 
Years ended
 
December 27,
2013
 
December 28,
2012
Revenue from services
$
1,693,073

 
$
1,612,467

Net income
$
48,988

 
$
25,939

Net income per common share - diluted
$
1.21

 
$
0.65



The Work Connection, Inc.

Effective October 1, 2013, we acquired certain assets and liabilities of The Work Connection, Inc. ("TWC"). TWC was founded in 1986 and provided light industrial services out of 37 branches in nine states. This acquisition provided us geographic expansion into new markets for our Spartan Staffing service line. TWC’s operations were integrated with those of our Spartan Staffing service line during the fourth quarter ended December 27, 2013. The acquisition of TWC was not material individually or in the aggregate to our consolidated results of operations and as such, pro forma financial information was not required. The total cost of the acquisition was $22.7 million. We incurred acquisition and integration-related costs of $1.2 million for the purchase of TWC. Assets acquired included finite-lived intangible assets of $8.2 million. The excess of the purchase price over the estimated fair values of the net assets acquired in the amount of $7.6 million was recorded as goodwill and primarily represents synergies with our existing business, acquired assembled workforce, and potential new customers.
The following table summarizes the final allocation of the TWC purchase price, based on the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date of October 1, 2013 (in thousands):
 
 
Purchase Price Allocation
Accounts receivable (1)
 
$
10,198

Prepaid expenses
 
41

Plant and equipment
 
107

Intangible assets
 
8,200

  Total assets acquired
 
18,546

 
 
 
Accounts payable
 
614

Accrued wages and benefits
 
2,853

  Total liabilities assumed
 
3,467

 
 
 
Net identifiable assets acquired
 
15,079

Goodwill
 
7,610

  Net assets acquired
 
$
22,689


(1)
The gross contractual amount of accounts receivable was $10.4 million of which $0.2 million was estimated to be uncollectible.

The TWC acquisition was not material to our financial statements, therefore no additional disclosures are provided.
FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We apply a fair value hierarchy that prioritizes the inputs used to measure fair value:
Level 1 inputs are valued using quoted market prices in active markets for identical assets or liabilities. Our Level 1 assets primarily include cash and cash equivalents and mutual funds.
Level 2 inputs are valued based upon quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active. Our Level 2 assets are marketable securities, which may consist of CDs, VRDNs, and commercial paper, and restricted investments, which consist of municipal debt securities, corporate debt securities, asset-backed securities, and U.S. agency debentures. Our investments consist of highly rated investment grade debt securities, which are rated A1/P1 or higher for short-term securities and A- or higher for long-term securities, by nationally recognized statistical rating organizations. We obtain our inputs from quoted market prices and independent pricing vendors.
Level 3 inputs are generally unobservable and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability. We have no Level 3 assets or liabilities.
The carrying values of our accounts receivable, accounts payable and other accrued expenses, and accrued wages and benefits approximate fair value due to their short-term nature. We also hold certain restricted investments which collateralize workers' compensation programs and are classified as held-to-maturity and carried at amortized cost on our Consolidated Balance Sheets. We hold long-term debt with variable interest rates that approximate fair value. For additional information, see Note 9: Long-term Debt.
The following tables present the fair value and hierarchy for our financial assets (in thousands):
 
December 26, 2014
 
Carrying Value
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
Cash and cash equivalents (1)
$
19,666

 
$
19,666

 
$
19,666

 
$

 
$

Marketable securities classified as available-for-sale (2)
1,500

 
1,500

 

 
1,500

 

Restricted cash and cash equivalents (1)
68,359

 
68,359

 
68,359

 

 

Other restricted assets (3)
9,972

 
9,972

 
9,972

 

 

Restricted investments classified as held-to-maturity
90,095

 
91,066

 

 
91,066

 

 
December 27, 2013
 
Carrying Value
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
Cash and cash equivalents (1)
$
122,003

 
$
122,003

 
$
122,003

 
$

 
$

Marketable securities classified as available-for-sale (2)
20,650

 
20,650

 

 
20,650

 

Restricted cash and cash equivalents (1)
57,085

 
57,085

 
57,085

 

 

Other restricted assets (3)
10,795

 
10,795

 
10,795

 

 

Restricted investments classified as held-to-maturity
86,678

 
86,940

 

 
86,940

 


(1)
Cash equivalents and restricted cash equivalents consist of money market funds, deposits, and investments with original maturities of three months or less.
(2)
Marketable securities include CDs, VRDNs, and commercial paper, which are classified as available-for-sale. At December 26, 2014, all our marketable securities, which consist of CDs, had stated maturities of less than one year. At December 27, 2013, we had $6.0 million of CDs with maturities greater than one year, which are classified as Other assets on our Consolidated Balance Sheets. VRDNs with contractual maturities beyond one year are classified as short-term based on their highly liquid nature and because they represent the investment of cash that is available for current operations. Despite the long-term nature of their stated contractual maturities, we routinely buy and sell these securities and believe we have the ability to quickly sell them to the re-marketing agent at par value plus accrued interest in the event we decide to liquidate our investment in a particular VRDN.
(3)
Other restricted assets primarily consist of deferred compensation plan accounts, which are comprised of mutual funds.
MARKETABLE SECURITIES
MARKETABLE SECURITIES
MARKETABLE SECURITIES
The following tables present the amortized cost and fair value of our marketable securities, which are carried at fair value (in thousands):
 
December 26, 2014
 
December 27, 2013
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Certificates of deposit (1)
$
1,500

 
$
1,500

 
$
10,000

 
$
9,900

Variable-rate demand notes

 

 
5,750

 
5,750

Commercial paper

 

 
5,000

 
5,000

 
$
1,500

 
$
1,500

 
$
20,750


$
20,650


(1)
As of December 26, 2014, all our CDs were due within one year. As of December 27, 2013 $14.8 million of our marketable securities were due within one year.
Gross unrealized gains and losses were de minimis for the years ended December 26, 2014 and December 27, 2013. Our marketable securities have not resulted in any other-than-temporary impairments as of December 26, 2014 or December 27, 2013.
RESTRICTED CASH AND INVESTMENTS
RESTRICTED CASH AND INVESTMENTS
RESTRICTED CASH AND INVESTMENTS
Restricted cash and investments consist principally of collateral that has been provided or pledged to insurance carriers for workers' compensation and state workers' compensation programs. Our insurance carriers and certain state workers' compensation programs require us to collateralize a portion of our workers' compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in municipal debt securities, corporate debt securities, and asset-backed securities. The majority of our collateral obligations are held in Trust. Our investments have not resulted in any other-than-temporary impairments.
The following is a summary our Restricted cash and investments (in thousands):
 
December 26,
2014
 
December 27,
2013
Cash collateral held by insurance carriers
$
22,639

 
$
23,747

Cash and cash equivalents held in Trust (1)
43,856

 
31,474

Investments held in Trust
90,095

 
86,678

Cash collateral backing letters of credit
1,864

 
1,864

Other (2)
9,972

 
10,795

Total restricted cash and investments
$
168,426

 
$
154,558


(1)
Includes $0.7 million and $0.8 million of accrued interest at December 26, 2014 and December 27, 2013, respectively.
(2)
Primarily consists of deferred compensation plan accounts, which are comprised of mutual funds.
The following tables present fair value disclosures for our held-to-maturity investments, which are carried at amortized cost (in thousands):
 
December 26, 2014
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Fair Value
Municipal debt securities
$
52,406

 
$
882

 
$
(92
)
 
$
53,196

Corporate debt securities
27,715

 
179

 
(144
)
 
27,750

Asset-backed securities
9,974

 
157

 
(11
)
 
10,120

 
$
90,095

 
$
1,218

 
$
(247
)
 
$
91,066

 
December 27, 2013
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Fair Value
Municipal debt securities
$
54,133

 
$
722

 
$
(398
)
 
$
54,457

Corporate debt securities
19,694

 
180

 
(294
)
 
19,580

Asset-backed securities
12,851

 
141

 
(89
)
 
12,903

 
$
86,678

 
$
1,043

 
$
(781
)
 
$
86,940


The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows (in thousands):
 
December 26, 2014
 
Amortized Cost
 
Fair Value
Due in one year or less
$
10,236

 
$
10,281

Due after one year through five years
41,174

 
41,511

Due after five years through ten years
38,685

 
39,274

 
$
90,095

 
$
91,066


Actual maturities may differ from contractual maturities because the issuers of certain debt securities have the right to call or prepay their obligations without penalty. We have no significant concentrations of counterparties in our held-to-maturity investment portfolio.
PROPERTY AND EQUIPMENT, NET
PROPERTY AND EQUIPMENT, NET
PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost and consist of the following (in thousands):
 
December 26,
2014
 
December 27,
2013
Buildings and land
$
30,381

 
$
27,008

Computers and software
115,419

 
101,852

Furniture and equipment
11,690

 
10,444

Construction in progress
5,415

 
2,869

 
162,905

 
142,173

Less accumulated depreciation
(101,513
)
 
(87,700
)
 
$
61,392

 
$
54,473


Capitalized software costs, net of accumulated depreciation, were $30.2 million and $30.6 million as of December 26, 2014 and December 27, 2013, respectively, excluding amounts in Construction in progress. Construction in progress consists primarily of purchased and internally-developed software.
Depreciation expense of property and equipment totaled $17.4 million, $15.5 million, and $15.8 million for the years ended December 26, 2014, December 27, 2013, and December 28, 2012, respectively.
GOODWILL AND INTANGIBLE ASSETS
Goodwill and Intangible Assets
GOODWILL AND INTANGIBLE ASSETS
Goodwill

The following table reflects goodwill allocated to each reporting segment at December 26, 2014 and December 27, 2013 (in thousands):
 
Legacy TrueBlue
 
Unallocated Goodwill (1)
 
Total Company
Balance at December 27, 2013
 
 
 
 
 
Goodwill before impairment
$
128,449

 
$

 
$
128,449

Accumulated impairment loss
(46,210
)
 

 
(46,210
)
Goodwill, net
82,239

 

 
82,239

 
 
 
 
 
 
Goodwill acquired

 
159,616

 
159,616

 
 
 
 
 
 
Balance at December 26, 2014
 
 
 
 
 
Goodwill before impairment
128,449

 
159,616

 
288,065

Accumulated impairment loss
(46,210
)
 

 
(46,210
)
Goodwill, net
$
82,239

 
$
159,616

 
$
241,855


(1)
Management is still determining the allocation of our goodwill acquired to our new reportable segments, which will be finalized in Q1 2015. See Note 18: Segment Information, for additional details.
Intangible assets
The following table presents our purchased finite-lived intangible assets (in thousands):
 
December 26, 2014
 
December 27, 2013
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Finite-lived intangible assets (1):
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
123,940

 
$
(22,195
)
 
$
101,745

 
$
35,940

 
$
(13,942
)
 
$
21,998

Trade name/trademarks
4,422

 
(2,878
)
 
1,544

 
5,172

 
(2,708
)
 
2,464

Non-compete agreements
1,800

 
(817
)
 
983

 
1,800

 
(457
)
 
1,343

Technologies
18,300

 
(2,212
)
 
16,088

 

 

 

Total finite-lived intangible assets
$
148,462

 
$
(28,102
)
 
$
120,360

 
$
42,912

 
$
(17,107
)
 
$
25,805


(1)
Excludes assets that are fully amortized.

Finite-lived intangible assets include customer relationships, trade name/trademarks, and developed technologies of $88.0 million, $0.3 million, and $18.3 million, respectively, based on our purchase price allocation relating to our acquisition of Seaton. Refer to Note 2: Acquisitions, for additional information regarding this acquisition.
Amortization of our finite-lived intangible assets was $12.0 million, $4.9 million and $3.1 million for the years ended December 26, 2014, December 27, 2013, and December 28, 2012, respectively.
The following table provides the estimated future amortization of finite-lived intangible assets as of December 26, 2014 (in thousands):
2015
$
18,987

2016
18,186

2017
16,157

2018
14,638

2019
11,942

Thereafter
40,450

Total future amortization
$
120,360


We also held indefinite-lived trade name/trademarks of $16.2 million and $5.7 million as of December 26, 2014 and December 27, 2013, respectively. Indefinite-lived trade name/trademarks acquired in 2014 of $10.5 million are based on the purchase price allocation relating to our acquisition of Seaton. See Note 2: Acquisitions, for additional information regarding this acquisition.
WORKERS' COMPENSATION INSURANCE AND RESERVES
WORKERS' COMPENSATION INSURANCE AND RESERVES
WORKERS’ COMPENSATION INSURANCE AND RESERVES
We provide workers’ compensation insurance for our temporary and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured.
For workers’ compensation claims originating in Washington, North Dakota, Ohio, Wyoming, Canada, and Puerto Rico (our “monopolistic jurisdictions”), we pay workers’ compensation insurance premiums and obtain full coverage under government-administered programs (with the exception of our Labor Ready service line in the state of Ohio where we have a self-insured policy). Accordingly, because we are not the primary obligor, our financial statements do not reflect the liability for workers’ compensation claims in these monopolistic jurisdictions. Our workers’ compensation reserve is established using estimates of the future cost of claims and related expenses that have been reported but not settled, as well as those that have been incurred but not reported.
Our workers’ compensation reserve for claims below the deductible limit is discounted to its estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. The weighted average discount rate was 1.7% and 2.1% at December 26, 2014 and December 27, 2013, respectively. Payments made against self-insured claims are made over a weighted average period of approximately 4.5 years at December 26, 2014.
The table below presents a reconciliation of the undiscounted workers’ compensation claims reserve to the discounted workers' compensation reserve for the periods presented as follows (in thousands):
 
December 26,
2014
 
December 27,
2013
Undiscounted workers’ compensation reserve
$
256,220

 
$
234,453

Less discount on workers' compensation reserve
13,381

 
19,624

Workers' compensation reserve, net of discount
242,839

 
214,829

Less current portion
64,556

 
49,942

Long-term portion
$
178,283

 
$
164,887


Payments made against self-insured claims were $60.6 million, $49.1 million, and $38.3 million for the years ended December 26, 2014, December 27, 2013, and December 28, 2012.
Our workers’ compensation reserve includes estimated expenses related to claims above our self-insured limits (“excess claims”), and we record a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 14.5 years. The discounted workers’ compensation reserve for excess claims was $42.6 million and $34.1 million as of December 26, 2014 and December 27, 2013. The discounted receivables from insurance companies, net of valuation allowance, were $38.7 million and $28.4 million as of December 26, 2014 and December 27, 2013, respectively, and are included in Other assets, net on the accompanying Consolidated Balance Sheets.
Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment. Factors considered in establishing and adjusting these reserves include, among other things:
changes in medical and time loss (“indemnity”) costs;
changes in mix between medical only and indemnity claims;
regulatory and legislative developments impacting benefits and settlement requirements;
type and location of work performed;
impact of safety initiatives; and
positive or adverse development of claims.
The table below presents the estimated future payout of our discounted workers' compensation claims reserve for the next five years and thereafter as of December 26, 2014 (in thousands):
2015
$
64,556

2016
37,660

2017
23,113

2018
15,046

2019
10,431

2020 and thereafter
49,421

Sub-total
200,227

Excess claims (1)
42,612

Total
$
242,839


(1)
Estimated expenses related to claims above our self-insured limits for which we have a corresponding receivable for the insurance coverage based on contractual policy agreements.
Workers’ compensation expense consists primarily of changes in self-insurance reserves net of changes in discount, monopolistic jurisdictions’ premiums, insurance premiums, and other miscellaneous expenses. Workers’ compensation expense of $77.5 million, $63.2 million, and $52.3 million was recorded in Cost of services for the years ended December 26, 2014, December 27, 2013, and December 28, 2012, respectively.
LONG-TERM DEBT (Notes)
Long-term Debt
LONG-TERM DEBT

The components of our borrowings were as follows (in thousands):
 
 
December 26, 2014
 
December 27, 2013
Revolving Credit Facility
 
$
171,994

 
$

Term Loan
 
29,656

 
31,923

Total debt
 
201,650

 
31,923

Less current portion
 
2,267

 
2,267

Long-term debt
 
$
199,383

 
$
29,656



Second amended and restated credit agreement

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

The maximum amount we can borrow under the Revolving Credit Facility is subject to certain borrowing limits. Specifically, we are limited to the sum of 90% of our eligible billed accounts receivable, plus 85% of our eligible unbilled accounts receivable limited to 15% of all our eligible receivables, plus the value of our Tacoma headquarters office building. The real estate lending limit is $17.4 million, and is reduced quarterly by $0.4 million beginning on October 1, 2014. As of December 26, 2014, the Tacoma headquarters office building liquidation value totaled $17.0 million. The borrowing limit is further reduced by the sum of a reserve in an amount equal to the payroll and payroll taxes for our temporary employees for one payroll cycle and other reserves, if deemed applicable. Each borrowing has a stated maturity of 90 days or less. At December 26, 2014, $278.0 million was available under the Revolving Credit Facility, $172.0 million was utilized as a draw on the facility and $4.7 million was utilized by outstanding standby letters of credit, leaving $101.3 million available for additional borrowings. The letters of credit collateralize a portion of our workers' compensation obligation.

The Revolving Credit Facility requires that we maintain an excess liquidity of $37.5 million. Excess liquidity is an amount equal to the unused borrowing capacity under the Revolving Credit Facility plus certain unrestricted cash, cash equivalents, and marketable securities. We are required to satisfy a fixed charge coverage ratio in the event we do not meet that requirement. The additional amount available to borrow at December 26, 2014 was $101.3 million and the amount of cash, cash equivalents and certain marketable securities under control agreements was $28.1 million for a total of $129.4 million, which is well in excess of the liquidity requirement. We are currently in compliance with all covenants related to the Revolving Credit Facility.

Under the terms of the Revolving Credit Facility, we pay a variable rate of interest on funds borrowed that is based on London Interbank Offered Rate (LIBOR) plus an applicable spread between 1.25% and 2.00%. Alternatively, at our option, we may pay interest based upon a base rate plus an applicable spread between 0.25% and 1.00%. The applicable spread is determined by certain liquidity to debt ratios. The base rate is the greater of the prime rate (as announced by Bank of America), the federal funds rate plus 0.50% or the one-month LIBOR rate plus 1.00%. Until January 1, 2015, the applicable spread on LIBOR was 1.75% and the applicable spread on the base rate was 0.75%. As of December 26, 2014, the interest rate was 2.00%.

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

Obligations under the Revolving Credit Facility are guaranteed by TrueBlue and material U.S. domestic subsidiaries and are secured by a pledge of substantially all of the assets of TrueBlue and material U.S. domestic subsidiaries. The Revolving Credit Facility has variable rate interest and approximates fair value as of December 26, 2014.
Term loan agreement
On February 4, 2013, we entered into an unsecured Term Loan Agreement (“Term Loan”) with Synovus Bank in the principal amount of $34.0 million. The Term Loan has a five-year maturity with fixed monthly principal payments, which total $2.3 million annually based on a loan amortization term of 15 years. Interest accrues at the one-month LIBOR index rate plus an applicable spread of 1.50%, which is paid in addition to the principal payments. At our discretion, we may elect to extend the term of the Term Loan by five consecutive one-year extensions. At December 26, 2014, the interest rate for the Term Loan was 1.66%.
At December 26, 2014 and December 27, 2013, the remaining balance of the Term Loan was $29.7 million and $31.9 million, respectively, of which $2.3 million is short-term and is included in Other current liabilities on our Consolidated Balance Sheets. The Term Loan has variable rate interest and approximates fair value as of December 26, 2014 and December 27, 2013.
The scheduled principal payments for debt are as follows (in thousands):
2015
$
2,267

2016
2,267

2017
2,267

2018
22,855

Total
$
29,656


Our obligations under the Term Loan may be accelerated upon the occurrence of an event of default under the Term Loan, which includes customary events of default, as well as cross-defaults related to indebtedness under our Revolving Credit Facility and other Term Loan specific defaults. The Term Loan contains customary negative covenants applicable to the Company and its subsidiaries such as indebtedness, certain dispositions of property, the imposition of restrictions on payments under the Term Loan, and other Term Loan specific covenants. We are currently in compliance with all covenants related to the Term Loan.
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Workers’ compensation commitments
Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation, for which they become responsible should we become insolvent. The collateral typically takes the form of cash and cash equivalents, highly rated investment grade debt securities, letters of credit and/or surety bonds. On a regular basis these entities assess the amount of collateral they will require from us relative to our workers' compensation obligation. The majority of our collateral obligations are held in the Trust.
We have provided our insurance carriers and certain states with commitments in the form and amounts listed below (in thousands):
 
December 26,
2014
 
December 27,
2013
Cash collateral held by insurance carriers
$
22,639

 
$
23,747

Cash and cash equivalents held in Trust (1)
43,856

 
31,474

Investments held in Trust
90,095

 
86,678

Letters of credit (2)
6,513

 
7,867

Surety bonds (3)
16,861

 
16,099

Total collateral commitments
$
179,964

 
$
165,865


(1)
Included in this amount is $0.7 million and $0.8 million of accrued interest at December 26, 2014 and December 27, 2013, respectively.
(2)
We have agreements with certain financial institutions to issue letters of credit as collateral. We had $1.9 million of restricted cash collateralizing our letters of credit at December 26, 2014 and December 27, 2013.
(3)
Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which are determined by each independent surety carrier. These fees do not exceed 2.0% of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days notice.
Operating leases
We have contractual commitments in the form of operating leases related to office space and equipment. Future non-cancelable minimum lease payments under our operating lease commitments as of December 26, 2014 are as follows for each of the next five years and thereafter (in thousands):
2015
$
4,417

2016
3,403

2017
2,940

2018
2,655

2019
2,459

Thereafter
3,573

Total future non-cancelable minimum lease payments
$
19,447


The majority of operating leases pertaining to our office space provide for renewal options ranging from three to five years. Operating leases are generally renewed in the normal course of business, and most of the options are negotiated at the time of renewal. However, for the majority of our leases, we have the right to cancel the lease within 90 days of notification. Accordingly, we have not included the leases with 90 day cancellation provisions in our disclosure of future minimum lease payments. Total rent expense for 2014, 2013, and 2012 was $23.0 million, $22.5 million, and $22.0 million, respectively.
Purchase Obligations
Purchase obligations include agreements to purchase goods and services in the ordinary course of business that are enforceable, legally binding and specify all significant terms. Purchase obligations do not include agreements that are cancelable without significant penalty. We had $15.6 million of purchase obligations as of December 26, 2014, of which $10.2 million are expected to be paid in 2015.
Legal contingencies and developments
We are involved in various proceedings arising in the normal course of conducting business. We believe the liabilities included in our financial statements reflects the probable loss that can be reasonably estimated. The resolution of those proceedings is not expected to have a material effect on our results of operations or financial condition.
STOCKHOLDERS' EQUITY STOCKHOLDERS' EQUITY
Stockholders' Equity Note Disclosure [Text Block]
STOCKHOLDERS' EQUITY
Common Stock
In July 2011, our Board of Directors approved a program to repurchase $75.0 million of our outstanding common stock. As of December 26, 2014, $35.2 million remained available for repurchase of common stock under the current authorization, which has no expiration date. During 2014 and 2013, we did not repurchase or retire any shares of our common stock under our authorized stock repurchase program.
Preferred Stock
We have authorized 20 million shares of blank check preferred stock. The blank check preferred stock is issuable in one or more series, each with such designations, preferences, rights, qualifications, limitations and restrictions as our Board of Directors may determine and set forth in supplemental resolutions at the time of issuance, without further shareholder action. The initial series of blank check preferred stock authorized by the Board of Directors was designated as Series A Preferred Stock. We had no outstanding shares of preferred stock in any of the years presented.
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION
We record stock-based compensation expense for restricted and unrestricted stock awards, performance share units, stock options, and shares purchased under an employee stock purchase plan.
Our 2005 Long-Term Equity Incentive Plan, as amended and restated effective May 2013 ("Incentive Plan"), provides for the issuance or delivery of up to 7.95 million shares of our common stock over the full term of the Incentive Plan.

Restricted and unrestricted stock awards and performance share units
Under the Incentive Plan, restricted stock awards are granted to executive officers and key employees and vests annually over three or four years. Unrestricted stock awards granted to our Board of Directors vests immediately. Restricted and unrestricted stock-based compensation expense is calculated based on the grant-date market value. We recognize compensation expense on a straight-line basis over the vesting period, net of estimated forfeitures.
Performance share units have been granted to executive officers and certain key employees. Vesting of the performance share units is contingent upon the achievement of revenue and/or profitability growth goals at the end of each three-year performance period. Each performance share unit is equivalent to one share of common stock. Compensation expense is calculated based on the grant-date market value of our stock and is recognized ratably over the performance period for the performance share units which are expected to vest. Our estimate of the performance units expected to vest is reviewed and adjusted as appropriate each quarter.
Restricted and unrestricted stock awards and performance share units activity for the year ended December 26, 2014, was as follows (shares in thousands):
 
Shares
 
Weighted- average grant-date price
Non-vested at beginning of period
1,544

 
$
16.66

Granted
544

 
$
26.02

Vested
(481
)
 
$
17.84

Forfeited
(60
)
 
$
19.32

Non-vested at the end of the period
1,547

 
$
20.03


The weighted average grant-date price of restricted and unrestricted stock awards and performance share units granted during the years 2014, 2013 and 2012 was $26.02, $19.00, and $16.72, respectively. As of December 26, 2014, total unrecognized stock-based compensation expense related to non-vested restricted stock was approximately $10.2 million, which is estimated to be recognized over a weighted average period of 1.75 years. As of December 26, 2014, total unrecognized stock-based compensation expense related to performance share units was approximately $3.5 million, which is estimated to be recognized over a weighted average period of 1.66 years. The total fair value of restricted shares vested during 2014, 2013 and 2012 was $4.9 million, $4.8 million and $5.3 million, respectively.
Stock options
Our Incentive Plan provides for both nonqualified stock options and incentive stock options (collectively, “stock options”) for directors, officers, and certain employees. We issue new shares of common stock upon exercise of stock options. All of our stock options are vested and expire if not exercised within seven to ten years from the date of grant.
A summary of the weighted average assumptions and results for stock options granted during the year ended December 26, 2014 is as follows:
 
 
December 26,
2014
Expected life (in years)
3.72

Expected volatility
42.8
%
Risk-free interest rate
0.7
%
Expected dividend yield
%
Weighted average fair value of options granted during the period
$
8.31


There were no stock options granted during fiscal years 2013 or 2012.
Stock option activity was as follows:
 
Shares (in thousands)
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Life
 
Aggregate Intrinsic Value (in thousands)
Outstanding, December 27, 2013
74

 
$
14.99

 
 
 
 
Granted
7

 
$
25.26

 
 
 
 
Exercised
(50
)
 
$
15.32

 
 
 
 
Expired/Forfeited
(1
)
 
$
18.98

 
 
 
 
Outstanding, December 26, 2014
30

 
$
16.58

 
2.87
 
$
197

Exercisable, December 26, 2014
30

 
$
16.58

 
2.87
 
$
197


The aggregate intrinsic value in the table above is the amount by which the market value of the underlying stock exceeded the exercise price of outstanding options, before applicable income taxes and represents the amount optionees would have realized if all in-the-money options had been exercised on the last business day of the period indicated. The closing per share market value of the Company’s stock on December 26, 2014 was $22.65.
The total intrinsic value of options exercised was $0.6 million, $3.0 million, and $1.9 million, in 2014, 2013, and 2012, respectively, determined as of the date of exercise. Cash received from option exercises, net of tax withholdings, during 2014, 2013, and 2012 was $0.8 million, $7.3 million and $2.5 million, respectively. The actual tax benefit realized for the deduction from option exercises was $0.1 million, $1.0 million and $0.6 million in 2014, 2013, and 2012, respectively.
Employee stock purchase plan

Our Employee Stock Purchase Plan (“ESPP”) reserves for purchase 1.0 million shares of common stock. The plan allows eligible employees to contribute up to 10% of their earnings toward the monthly purchase of the Company's common stock. The employee's purchase price is the lesser of 85% of the fair market value of shares on either the first day or the last day of each month. We consider our ESPP to be a component of our stock-based compensation and accordingly we recognize compensation expense over the requisite service period for stock purchases made under the plan. The requisite service period begins on the enrollment date and ends on the purchase date, the duration of which is one month.
The following table summarizes transactions under our ESPP from fiscal years 2014, 2013, and 2012 (shares in thousands):
 
Shares    
 
Average Price Per    
Share
Issued during fiscal year 2014
64

 
$
21.55

Issued during fiscal year 2013
69

 
$
17.10

Issued during fiscal year 2012
95

 
$
12.41


Stock-based compensation expense
Total stock-based compensation expense, which is included in Selling, general and administrative expenses on our Consolidated Statements of Operations and Comprehensive Income, was $11.1 million, $8.4 million and $7.9 million in 2014, 2013, and 2012, respectively. The related tax benefit was $3.9 million in 2014, and $2.9 million in 2013 and 2012.
DEFINED CONTRIBUTION PLANS
DEFINED CONTRIBUTION PLANS
DEFINED CONTRIBUTION PLANS

We offer both qualified and non-qualified defined contribution plans to eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation. The plans offer discretionary matching contributions. The liability for the non-qualified plans was $10.1 million and $6.6 million as of December 26, 2014 and December 27, 2013, respectively. The current and non-current portion of the deferred compensation liability is included in Other current liabilities and Other long-term liabilities, respectively, on the Consolidated Balance Sheets, and is largely offset by restricted investments recorded in Restricted cash and investments on the Consolidated Balance Sheets. The expense for our qualified and non-qualified deferred compensation plans, including our discretionary matching contributions, totaled $2.0 million, $1.4 million, and $1.2 million for 2014, 2013, and 2012, respectively, and is recorded in Selling, general and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income.
INCOME TAXES
INCOME TAXES
INCOME TAXES

The provision for income taxes is comprised of the following (in thousands):
 
2014
 
2013
 
2012
Current taxes:
 
 
 
 
 
Federal
$
(161
)
 
$
14,174

 
$
14,863

State
2,614

 
5,196

 
2,655

Foreign
951

 
488

 
368

Total current taxes
3,404

 
19,858

 
17,886

Deferred taxes:
 
 
 
 
 
Federal
10,198

 
(2,819
)
 
2,698

State
2,481

 
(1,026
)
 
392

Foreign
86

 

 

Total deferred taxes
12,765

 
(3,845
)
 
3,090

Provision for income taxes
$
16,169

 
$
16,013

 
$
20,976


The items accounting for the difference between income taxes computed at the statutory federal income tax rate and income taxes reported in the Consolidated Statements of Operations and Comprehensive Income are as follows (in thousands except percentages):
 
2014
 
%
 
2013
 
%
 
2012
 
%
Income tax expense based on statutory rate
$
28,641

 
35.0
 %
 
$
21,328

 
35.0
 %
 
$
19,112

 
35.0
 %
Increase (decrease) resulting from:
 
 
 
 
 
 
 
 
 
 
 
State income taxes, net of federal benefit
3,213

 
3.9

 
2,536

 
4.2

 
1,800

 
3.3

Tax credits, net
(18,564
)
 
(22.6
)
 
(10,790
)
 
(17.7
)
 
(1,915
)
 
(3.5
)
Non-deductible/non-taxable items
1,983

 
2.4

 
2,124

 
3.5

 
2,320

 
4.2

Foreign taxes
1,037

 
1.3

 
488

 
0.8

 
368

 
0.7

Other, net
(141
)
 
(0.2
)
 
327

 
0.5

 
(709
)
 
(1.3
)
Total taxes on income
$
16,169

 
19.8
 %
 
$
16,013

 
26.3
 %
 
$
20,976

 
38.4
 %


Our effective tax rate on earnings for fiscal 2014 was 19.8%. The comparability of taxes on income for fiscal 2014, to the same period in 2013, was impacted primarily by the Work Opportunity Tax Credit ("WOTC"). This tax credit is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. The Tax Increase Protection Act of 2014 was signed into law on December 19, 2014, retroactively restoring the WOTC for 2014. During fiscal 2014, we also generated approximately $8.7 million of credit benefit from prior year wages because more veterans with higher credits were certified than expected, our qualified workers worked longer generating more credits than expected, and many states processed a backlog of credit applications with higher than expected certification rates. During fiscal 2013, we generated approximately $4.6 million of credit benefit from prior year wages primarily because The American Taxpayer Relief Act of 2012 (the “Act") was signed into law on January 2, 2013, retroactively restoring 2012 WOTC.
Our effective tax rate on earnings for 2013 was 26.3% compared to 38.4% for 2012. The effective tax rate for 2012 excluded benefits of WOTC because it had largely expired at the end of 2011. The Act was signed into law on January 2, 2013, and retroactively restored the WOTC for 2012 and extended it through 2013. Because a change in the law is accounted for in the period of enactment, the retroactive effect of the Act on our U.S. federal taxes for 2012 was recognized in fiscal 2013. Accordingly, the decrease in the effective tax rate is due primarily to the benefit of the retroactively restored WOTC. The impact of WOTC on our effective tax rate is greater when our pre-tax income is lower. The primary difference between the statutory federal income tax rate of 35.0% and our annual effective income tax rate of 26.3%, is from the WOTC, state income taxes, and certain non-deductible expenses.
The components of deferred tax assets and liabilities were as follows (in thousands):
 
December 26, 2014
 
December 27, 2013
Deferred tax assets:
 
 
 
Allowance for doubtful accounts
$
2,255

 
$
2,172

Workers’ compensation claims reserve
1,135

 
10,381

Accounts payable and other accrued expenses
2,641

 
2,152

Net operating loss carryforwards
7,277

 
534

Tax credit carryforwards
7,343

 
620

Accrued wages and benefits
7,918

 
6,822

Deferred compensation
2,991

 
2,179

Other
1,663

 
970

Total
33,223

 
25,830

Valuation allowance
(2,844
)
 
(844
)
Total deferred tax asset, net of valuation allowance
30,379

 
24,986

Deferred tax liabilities:
 
 
 
Prepaid expenses, deposits and other current assets
(2,888
)
 
(1,662
)
Depreciation and amortization (1)
(40,804
)
 
(10,379
)
Other
(1,011
)
 
(1,092
)
Total deferred tax liabilities
(44,703
)
 
(13,133
)
Net deferred tax (liabilities) asset, end of year
(14,324
)
 
11,853

Net deferred tax asset, current
5,444

 
7,640

Net deferred tax (liabilities) asset, non-current
$
(19,768
)
 
$
4,213

(1)
We have $21.8 million of tax basis in goodwill from the prior owners' acquisition of Seaton in 2005, which will continue to produce amortization deductions through 2020.
Deferred taxes related to our foreign currency translation were de minimis for 2014, 2013, and 2012.

The following table summarizes our net operating losses (“NOLs”) and credit carryforwards along with their respective valuation allowance (in thousands):
 
Carryover Tax Benefit
 
Valuation Allowance
 
Expected Benefit
 
Year Expiration Begins
Year end tax attributes:
 
 
 
 
 
 
 
Seaton federal NOLs
$
4,679

 
$

 
$
4,679

 
2029
Seaton federal WOTCs
6,665

 

 
6,665

 
2024
Seaton state NOLs
1,570

 
(1,570
)
 

 
Various
Seaton foreign NOLs
509

 
(498
)
 
11

 
Various
Puerto Rico NOLs
519

 
(519
)
 

 
2015
California zone credits (1)
515

 
(257
)
 
258

 
2023
Foreign tax credits
163

 

 
163

 
2024
Total
$
14,620

 
$
(2,844
)
 
$
11,776

 
 
(1)
The California Zone Credits fully expire in 2023.
Our ability to utilize federal net operating losses and WOTC that carry forward from the Seaton acquisition are limited by IRC Sec. 382 of the Internal Revenue Code. However, pursuant to Notice 2003-65, 2003-40 IRB 747, this limit is increased in the five post-acquisition years by Seaton’s net unrealized built-in gains. The amount of tax we may offset with Seaton carryover tax attributes is approximately $5.0 million annually for five years after the acquisition.
Pre-tax income of operations outside the U.S. was $3.1 million, $1.3 million, and $1.3 million in 2014, 2013, and 2012, respectively. We have not provided for deferred U.S. income taxes relating to undistributed earnings of $1.3 million and $3.0 million for Seaton India and Seaton Canada, respectively, as we consider those earning to be permanently invested. Determination of the unrecognized deferred tax liability that would be incurred if such amounts were repatriated is not practicable. Deferred taxes are provided on $7.2 million of unremitted accumulated earnings of our Labour Ready Canada subsidiary that may be remitted to the U.S. We have recorded deferred tax liabilities of $1.0 million, $1.1 million, and $0.9 million in 2014, 2013, and 2012, respectively, related to these Labour Ready Canada earnings that may be remitted.
As of December 26, 2014, our liability for unrecognized tax benefits was $2.0 million. If recognized, $1.3 million would impact our effective tax rate. We do not believe the amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the year ended December 26, 2014. This liability is recorded in Other non-current liabilities on our Consolidated Balance Sheets. In general, the tax years 2011 through 2013 remain open to examination by the major taxing jurisdictions where we conduct business.
The following table summarizes the activity related to our unrecognized tax benefits (in thousands):
 
2014
 
2013
 
2012
Balance, beginning of fiscal year
$
2,035

 
$
1,884

 
$
1,656

Increases for tax positions related to the current year
389

 
402

 
494

Reductions due to lapsed statute of limitations
(385
)
 
(251
)
 
(266
)
Balance, end of fiscal year
$
2,039

 
$
2,035

 
$
1,884


We recognize interest and penalties related to unrecognized tax benefits within Income tax expense on the accompanying Consolidated Statements of Operations and Comprehensive Income. Accrued interest and penalties are included within Other long-term liabilities on the Consolidated Balance Sheets. Related to the unrecognized tax benefits noted above, we accrued a de minimis amount for interest and penalties during fiscal 2014 and, in total, as of December 26, 2014, have recognized a liability for penalties of $0.2 million and interest of $0.8 million.
NET INCOME PER SHARE
NET INCOME PER SHARE
NET INCOME PER SHARE
Diluted common shares were calculated as follows (in thousands, except per share amounts):
 
Years ended
 
2014
 
2013
 
2012
Net income
$
65,675

 
$
44,924

 
$
33,629

 
 
 
 
 
 
Weighted average number of common shares used in basic net income per common share
40,734

 
40,166

 
39,548

Dilutive effect of outstanding stock options and non-vested restricted stock
442

 
336

 
314

Weighted average number of common shares used in diluted net income per common share
41,176

 
40,502

 
39,862

   Net income per common share:
 
 
 
 
 
Basic
$
1.61

 
$
1.12

 
$
0.85

Diluted
$
1.59

 
$
1.11

 
$
0.84

 
 
 
 
 
 
Anti-dilutive shares
58

 
78

 
726


Basic net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares include the dilutive effects of outstanding options, non-vested restricted stock, performance share units, and shares issued under the employee stock purchase plan, except where their inclusion would be anti-dilutive.
Anti-dilutive shares include unvested restricted stock, performance share units, and in-the-money options for which the sum of the assumed proceeds, including unrecognized compensation expense, exceeds the average stock price during the periods presented. Anti-dilutive shares associated with our stock options relate to those stock options with an exercise price higher than the average market value of our stock during the periods presented.
ACCUMULATED OTHER COMPREHENSIVE INCOME
ACCUMULATED OTHER COMPREHENSIVE INCOME
ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income is reflected as a net increase to shareholders’ equity. Changes in the balance of each component of accumulated other comprehensive income during the years presented were as follows (in thousands):
 
Foreign currency translation adjustment
 
Unrealized gain (loss) on marketable securities (1)
 
Total other comprehensive income, net of tax
Balance at December 30, 2011
$
2,643

 
$

 
$
2,643

Current-period other comprehensive income (2)
175

 

 
175

Balance at December 28, 2012
$
2,818

 
$

 
$
2,818

Current-period other comprehensive loss (2)
(689
)
 
(96
)
 
(785
)
Balance at December 27, 2013
$
2,129

 
$
(96
)
 
$
2,033

Current-period other comprehensive income (loss) (2)
(1,281
)
 
119

 
(1,162
)
Balance at December 26, 2014
$
848

 
$
23

 
$
871


(1)
Consists of deferred compensation plan accounts, which includes mutual funds and available-for-sale securities. Available-for-sale securities which give rise to gains and losses are limited to our investments in select certificates of deposit.
(2)
The tax impact on foreign currency translation adjustment and unrealized gain (loss) on marketable securities was de minimus for the years ended December 26, 2014, December 27, 2013, and December 28, 2012.

There were no material reclassifications out of accumulated other comprehensive income during the fiscal periods presented.
SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information (in thousands):
 
Fiscal years ended
 
2014
 
2013
 
2012
Cash paid during the period for:
 
 
 
 
 
Interest
$
2,483

 
$
1,058

 
$
655

Income taxes
$
9,140

 
$
15,565

 
$
21,309

As of December 26, 2014, December 27, 2013, and December 28, 2012 we had acquired $1.0 million, $0.5 million, and $1.6 million of property, plant and equipment on account that was not yet paid. These are considered non-cash investing items.
SEGMENT INFORMATION
SEGMENT INFORMATION
SEGMENT INFORMATION

Our operating segments are based on the organizational structure for which financial results are regularly evaluated by the chief operating decision maker, our Chief Executive Officer, to determine resource allocation and assess performance. Our service lines are our operating segments. In the fourth quarter of 2014, we changed our organizational structure as a result of our acquisition of Seaton (see Note 2: Acquisitions for details). Historically, our operations were all in the blue-collar staffing market of the temporary staffing industry and supplied customers with temporary workers, which we aggregated into one reportable segment in accordance with U.S. GAAP. The acquisition of Seaton added a full service line of on-premise temporary blue-collar staffing. On-premise staffing is large scale exclusive sourcing, screening, recruiting, and managing of an on-premise contingent labor workforce at a customers facilities. This service line is an operating segment which is aggregated with our blue-collar staffing services and reported as Staffing Services.

The acquisition of Seaton also added complementary outsourced service offerings in RPO and MSP solutions. RPO is high-volume sourcing, screening, and recruiting of permanent employees for all major industries and jobs. MSP solutions provide customers with improved quality and spend management with respect to their contingent labor vendors. The complementary service lines are operating segments which are aggregated and reported as Managed Services.
Our reportable segments are described below:

Our Staffing Services segment provides temporary staffing through the following service lines:
Labor Ready: On-demand general labor;
Spartan Staffing: Skilled manufacturing and logistics labor;
CLP Resources: Skilled trades for commercial, industrial, and energy construction as well as building and plant maintenance;
PlaneTechs: Skilled mechanics and technicians to the aviation and transportation industries;
Centerline Drivers: Temporary and dedicated drivers to the transportation and distribution industries; and
Staff Management On-premise Staffing: Exclusive recruitment and on-premise management of a facility's contingent industrial workforce.

Our Managed Services segment provides high-volume permanent employee recruitment process outsourcing and management of outsourced labor service providers through the following service lines:
PeopleScout and hrX - RPO: Outsourced recruitment of permanent employees on behalf of clients; and
Staff Management - MSP: Management of multiple third party staffing vendors on behalf of clients.

We have two measures of segment performance; revenue from services and income from operations. Income from operations for each segment includes net sales to third parties, related cost of sales, and operating expenses directly attributable to the segment. Costs excluded from segment income from operations include various corporate general and administrative expenses, depreciation and amortization expense, interest (expense) income, other (expense) income, and income taxes. Asset information by reportable segment is not presented, since we do not manage the performance of our segments on a balance sheet basis. There are no internal revenue transactions between our reporting segments. The accounting policies of the operating segments are the same as those described in Note 1, Summary of Significant Accounting Policies.

Revenue from services and income from operations associated with our segments were as follows (in thousands):
 
2014
 
2013
 
2012
Revenue from services
 
 
 
 
 
Staffing Services
$
2,125,915

 
$
1,668,929

 
$
1,389,530

Managed Services
48,130

 

 

Total Company
$
2,174,045

 
$
1,668,929

 
$
1,389,530

 
 
 
 
 
 
Income from operations
 
 
 
 
 
Staffing Services
$
138,205

 
$
113,230

 
$
92,512

Managed Services
5,937

 

 

Depreciation and amortization
(29,474
)
 
(20,472
)
 
(18,890
)
Corporate unallocated
(32,940
)
 
(33,175
)
 
(20,586
)
Total Company
81,728

 
59,583

 
53,036

Interest and other income, net
116

 
1,354

 
1,569

Income before tax expense
$
81,844