TRUEBLUE, INC., 10-Q filed on 4/29/2013
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 29, 2013
Apr. 19, 2013
Entity Information [Line Items]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Mar. 29, 2013 
 
Document Fiscal Year Focus
2013 
 
Document Fiscal Period Focus
Q1 
 
Trading Symbol
TBI 
 
Entity Registrant Name
TrueBlue, Inc. 
 
Entity Central Index Key
0000768899 
 
Current Fiscal Year End Date
--12-27 
 
Entity Well-Known Seasoned Issuer
No 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
40,688,134 
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Mar. 29, 2013
Dec. 28, 2012
Current assets:
 
 
Cash and cash equivalents
$ 110,800 
$ 129,513 
Accounts receivable, net of allowance for doubtful accounts of $6.4 million and $5.0 million
191,896 
167,292 
Prepaid expenses, deposits and other current assets
8,482 
8,541 
Income tax receivable
8,988 
6,373 
Deferred income taxes
6,022 
5,447 
Total current assets
326,188 
317,166 
Property and equipment, net
57,695 
58,171 
Restricted cash and investments
144,375 
136,259 
Deferred income taxes
5,559 
2,562 
Goodwill
70,613 
48,079 
Intangible assets, net
25,722 
16,554 
Other assets, net
23,896 
22,952 
Total assets
654,048 
601,743 
Current liabilities:
 
 
Accounts payable and other accrued expenses
27,041 
27,292 
Accrued wages and benefits
41,242 
35,102 
Current portion of workers' compensation claims reserve
46,865 
44,652 
Other current liabilities
8,793 
6,510 
Total current liabilities
123,941 
113,556 
Workers’ compensation claims reserve, less current portion
159,051 
150,937 
Note payable, less current portion
31,356 
Other long-term liabilities
3,791 
3,576 
Total liabilities
318,139 
268,069 
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; 40,678 and 40,220 shares issued and outstanding
Accumulated other comprehensive income
2,516 
2,818 
Retained earnings
333,392 
330,855 
Total shareholders’ equity
335,909 
333,674 
Total liabilities and shareholders’ equity
$ 654,048 
$ 601,743 
CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $)
In Millions, except Share data, unless otherwise specified
Mar. 29, 2013
Dec. 28, 2012
Allowance for doubtful accounts
$ 6.4 
$ 5.0 
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
40,678,000 
40,220,000 
Common stock, shares outstanding
40,678,000 
40,220,000 
CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (LOSS) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 29, 2013
Mar. 30, 2012
Revenue from services
$ 346,498 
$ 311,187 
Cost of services
259,859 
231,952 
Gross profit
86,639 
79,235 
Selling, general and administrative expenses
88,432 
72,082 
Depreciation and amortization
5,159 
4,768 
Income (loss) from operations
(6,952)
2,385 
Interest expense
(233)
(391)
Interest and other income
710 
655 
Interest and other income, net
477 
264 
Income (loss) before tax expense (benefit)
(6,475)
2,649 
Income tax expense (benefit)
(5,399)
1,119 
Net income (loss)
(1,076)
1,530 
Net income (loss) per common share:
 
 
Basic (in dollars per share)
$ (0.03)
$ 0.04 
Diluted (in dollars per share)
$ (0.03)
$ 0.04 
Weighted average shares outstanding:
 
 
Basic (in shares)
39,784 
39,425 
Diluted (in shares)
39,784 
39,914 
Total other comprehensive income (loss), net of tax:
 
 
Foreign currency translation
(302)
261 
Comprehensive income (loss)
$ (1,378)
$ 1,791 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 29, 2013
Mar. 30, 2012
Cash flows from operating activities:
 
 
Net income (loss)
$ (1,076)
$ 1,530 
Adjustments to reconcile net income (loss) to net cash from operating activities:
 
 
Depreciation and amortization
5,159 
4,768 
Provision for doubtful accounts
1,652 
1,049 
Stock-based compensation
2,880 
2,902 
Deferred income taxes
(3,573)
(1,006)
Other operating activities
180 
(401)
Changes in operating assets and liabilities, net of acquisitions:
 
 
Accounts receivable
4,982 
8,441 
Income taxes
(2,136)
1,037 
Other assets
251 
1,076 
Accounts payable and other accrued expenses
(6,990)
(2,644)
Accrued wages and benefits
4,061 
1,513 
Workers’ compensation claims reserve
549 
(876)
Other liabilities
158 
303 
Net cash provided by operating activities
6,097 
17,692 
Cash flows from investing activities:
 
 
Capital expenditures
(3,952)
(3,704)
Acquisition of business, net of cash acquired
(53,248)
Change in restricted cash and cash equivalents
(4,489)
3,529 
Purchases of restricted investments
(1,365)
(7,662)
Maturities of restricted investments
4,128 
3,907 
Net cash used in investing activities
(58,926)
(3,930)
Cash flows from financing activities:
 
 
Net proceeds from stock option exercises and employee stock purchase plans
2,266 
2,894 
Common stock repurchases for taxes upon vesting of restricted stock
(2,010)
(1,807)
Proceeds from note payable
34,000 
Payments on debt
(397)
Other
479 
637 
Net cash provided by financing activities
34,338 
1,724 
Effect of exchange rates on cash
(222)
208 
Net change in cash and cash equivalents
(18,713)
15,694 
CASH AND CASH EQUIVALENTS, beginning of period
129,513 
109,311 
CASH AND CASH EQUIVALENTS, end of period
$ 110,800 
$ 125,005 
ACCOUNTING PRINCIPLES AND PRACTICES
ACCOUNTING PRINCIPLES AND PRACTICES
ACCOUNTING PRINCIPLES AND PRACTICES
The accompanying unaudited consolidated financial statements (“financial statements”) are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with GAAP have been condensed or omitted. The unaudited financial statements reflect all adjustments which, in the opinion of management, are necessary to fairly state the consolidated financial statements for the interim periods presented. We follow the same accounting policies for preparing both quarterly and annual financial information. These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2012.
ACQUISITION
ACQUISITION
ACQUISITION

We account for our business acquisitions using the purchase method of accounting in accordance with ASC 805, Business Combinations. The fair value of the net assets acquired and the results of the acquired business are included in the Consolidated Financial Statements from the acquisition date forward. We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and results of operations during the reporting period. Estimates are used in accounting for, among other things, the fair value of acquired net operating assets, property and equipment, intangible assets, useful lives of property and equipment and amortizable lives for acquired intangible assets. Any excess of the purchase consideration over the identified fair value of the assets and liabilities acquired is recognized as goodwill. All acquisition related costs are expensed as incurred and recorded in operating 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 operating expenses. We estimate the preliminary fair value of acquired assets and liabilities as of the date of acquisition based on information available at that time. The valuation of these tangible and identifiable intangible assets and liabilities is subject to further management review and may change between the preliminary allocation and the final allocation. Any changes to these estimates may have a material impact on our operating results or financial condition.
Effective February 4, 2013, we acquired substantially all of the assets, properties and contractual rights and assumed certain liabilities of MDT Personnel, LLC and its subsidiaries ("MDT") for $53.2 million, which was paid in cash. MDT supplied blue-collar labor to industries similar to those served by TrueBlue, including construction, event staffing, disaster recovery, hospitality, and manufacturing through its network of 105 branches in 25 states. We expect the acquisition of MDT to enhance TrueBlue's national position as the leading provider of blue-collar temporary labor.
We expect to generate synergies from fully integrating and blending MDT's operations with our existing business lines. MDT was primarily integrated into the Labor Ready business line. The integration of the MDT operations was completed during first quarter of 2013. We consolidated 65 branches, blended our sales and service teams and fully integrated all former MDT locations into our enterprise systems to optimize our combined operational efficiencies post acquisition. We expect to complete the integration of all remaining administrative services during the second quarter of 2013 and exit the former MDT administrative center. During the quarter ended March 29, 2013, we incurred restructuring costs related to our integration of the acquisition of MDT. These activities consisted of integrating our branch network capacity, sales and services teams and infrastructure and included closing, consolidating and relocating certain branch offices and administrative operations, eliminating redundant assets, and reducing excess administrative workforce and capacity. The integration costs of $2.2 million are included in selling, general and administrative operating expenses in the Consolidated Statements of Operations & Comprehensive Income (Loss) and operating cash flows in the Consolidated Statements of Cash Flows. At March 29, 2013, we have a liability for incurred but not yet paid integration costs of $1.6 million included in accounts payable and other accrued expenses in our Consolidated Balance Sheets.
Purchase price allocation
The allocation of the purchase price to MDT's tangible and identifiable intangible assets acquired and liabilities assumed was based on their estimated fair values as of the date of the acquisition. The valuation of these tangible and identifiable intangible assets and liabilities is preliminary, subject to completion of a formal valuation process and further management review, and will be adjusted as additional information becomes available. The fair valuation estimates particularly subject to change are those relating to accounts receivable, identifiable intangible assets subject to amortization and liabilities assumed. Such adjustments may have a material effect on our results of operations and financial position. The excess of the purchase price over the tangible and identifiable intangible assets acquired and liabilities assumed has been allocated to goodwill. We expect to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than our 2013 fiscal year-end.
The following table summarizes the preliminary allocation of the purchase price, based on the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date of February 4, 2013 (in millions):
Accounts receivable, net of allowance for doubtful accounts (1)
$
31.2

Prepaid expenses, deposits and other current assets
1.2

Property and equipment, net
0.5

Restricted cash and investments
6.9

Intangible assets, net
10.2

Total assets acquired
50.0

 
 
Accounts payable and other accrued expenses
7.4

Accrued wages and benefits
2.0

Workers' compensation claims reserve
9.8

Other long-term liabilities
0.1

Total liabilities assumed
19.3

 
 
Net identifiable assets acquired
30.7

Goodwill (2)
22.5

Net assets acquired
$
53.2

___________________
(1)
The gross contractual amount of accounts receivable is $32.9 million and, of this amount, we expect $1.7 million to be uncollectible.
(2)
Goodwill is deductible for income tax purposes over 15 years as of March 29, 2013.
Intangibles assets include identifiable intangible assets for customer relationships, non-compete agreements and trade names. Customer related intangibles are primarily comprised of contractual arrangements and customer relationships.We have 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. These estimates are preliminary and are subject to completion of the formal valuation process, review by management and other adjustments, which may be material.
The following table sets forth the preliminary estimate for the components of identifiable intangible assets and their estimated useful lives (in millions, except for estimated useful lives, in years):
 
Estimated Fair Value
 
Estimated Useful Life
Customer relationships
$
7.8

 
8.0
Trade name/trademarks
1.0

 
1.5
Non-compete agreements
1.4

 
5.0

The acquired assets and liabilities of MDT are included in our Consolidated Balance Sheets as of March 29, 2013 and the results of its operations and cash flows are reported in our Consolidated Statements of Operations and Comprehensive Income (Loss) and Consolidated Statements of Cash Flows from February 4, 2013 through March 29, 2013 for the quarter ended March 29, 2013.
MDT operations were fully integrated with our existing operations and our customers, temporary workforce, field employees and locations were 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, sales and service personnel. Accordingly, subsequent to merging our operations, it is not possible to segregate and to reasonably estimate the revenues and expenses related exclusively to the former MDT operations.
Pro forma financial information
The following table reflects the 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 tax effects.
The 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 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 pro forma consolidated results of operations do not include, among other items, the effects of:
differences in our operating cost structure for workers compensation, payroll taxes and other costs of our respective temporary workforce.
potential losses in gross profit due to revenue attrition from combining the two companies.
any costs of restructuring and integration associated with the acquisition.
 
 
Further, as discussed above, the valuation of tangible and identifiable intangible assets and liabilities is preliminary, subject to completion of a formal valuation process and further management review, and will be adjusted as additional information is evaluated during the allocation period. Such adjustments may have a material effect on our results of operations and financial position, including the pro forma financial data as presented below (in millions, except per share data).
 
Thirteen weeks ended
 
March 29, 2013
 
March 30, 2012
Revenue from services
$
370.6

 
$
360.4

Net income (loss)
(0.2
)
 
0.3

Net income (loss) per common share - diluted
(0.01
)
 
0.01

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 restricted investments which primarily consist of Municipal Securities, Corporate Securities, U.S. Agency Mortgages and U.S. Agency Debentures. 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 currently have no Level 3 assets or liabilities.
The carrying value of our cash and cash equivalents, restricted cash and accounts receivable approximates fair value due to their short term nature. We also hold certain restricted investments which collateralize workers' compensation programs and are classified as held-to-maturity and carried at amortized cost on our Consolidated Balance Sheets. There are inherent limitations when estimating the fair value of financial instruments and the fair values reported are not necessarily indicative of the amounts that would be realized in current market transactions.
The following table presents the fair value and hierarchy for our cash equivalents and restricted investments (in millions):
 
March 29,
2013
 
December 28,
2012
Level 1:
 
 
 
Cash equivalents (1)
$
95.0

 
$
94.6

Restricted cash equivalents (1)
34.5

 
26.8

Other restricted investments (2)
4.4

 
3.5

Level 2:
 
 
 
Restricted investments classified as held-to-maturity (3)
89.5

 
92.7

____________________
(1)
Cash equivalents and restricted cash equivalents consist of money market funds, deposits and investments with original maturities of three months or less.
(2)
Level 1 other restricted investments consist of deferred compensation investments which are comprised of mutual funds. We have an equal and offsetting accrued liability related to the deferred compensation plan.
(3)
Level 2 restricted investments classified as held-to-maturity consist of Municipal Securities, Corporate Securities, U.S. Agency Mortgages and U.S. Agency Debentures.
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 U.S. Agency Debentures, U.S. Agency Mortgages, Corporate Securities and Municipal Securities. The majority of our collateral obligations are held in a trust ("Trust") at the Bank of New York Mellon.
The following is a summary of restricted cash and investments (in millions):
 
March 29,
2013
 
December 28,
2012
Cash collateral held by insurance carriers
$
28.1

 
$
21.5

Cash and cash equivalents held in Trust (1)
17.6

 
14.8

Investments held in Trust
87.8

 
91.2

Cash collateral backing letters of credit
1.8

 
1.8

Other (2)
9.1

 
7.0

Total restricted cash and investments
$
144.4

 
$
136.3

__________________
(1)
Included in this amount is $0.9 million of accrued interest at both March 29, 2013 and December 28, 2012.
(2)
Primarily consists of restricted cash in money market accounts and 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 millions):
 
March 29, 2013
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Fair Value
Municipal securities
$
54.4

 
$
1.1

 
$
(0.1
)
 
$
55.4

Corporate bonds
18.6

 
0.3

 

 
18.9

Asset backed bonds
14.8

 
0.4

 

 
15.2

 
$
87.8

 
$
1.8

 
$
(0.1
)
 
$
89.5


 
December 28, 2012
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Fair Value
Municipal securities
$
57.3

 
$
1.0

 
$
(0.1
)
 
$
58.2

Corporate bonds
17.9

 
0.3

 

 
18.2

Asset backed bonds
16.0

 
0.3

 

 
16.3

 
$
91.2

 
$
1.6

 
$
(0.1
)
 
$
92.7


The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows (in millions):
 
March 29, 2013
 
Amortized Cost
 
Fair Value
Due in one year or less
$
12.3

 
$
12.3

Due after one year through five years
43.7

 
44.7

Due after five years through ten years
31.8

 
32.5

 
$
87.8

 
$
89.5


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.
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 millions):
 
March 29,
2013
 
December 28,
2012
Buildings and land
$
26.0

 
$
25.9

Computers and software
92.8

 
91.7

Cash dispensing machines
1.0

 
1.0

Furniture and equipment
9.0

 
8.9

Construction in progress
9.7

 
7.7


138.5

 
135.2

Less accumulated depreciation and amortization
(80.8
)
 
(77.0
)
 
$
57.7

 
$
58.2


Capitalized software costs, net of accumulated amortization, were $28.2 million and $30.9 million as of March 29, 2013 and December 28, 2012, 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 $4.1 million and $4.0 million for the thirteen weeks ended March 29, 2013 and March 30, 2012, respectively.
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS
We acquired MDT during the thirteen weeks ended March 29, 2013. The assets acquired and liabilities assumed were recorded at the date of acquisition at their preliminary, respective estimated fair values. Assets acquired included finite-lived intangible assets of $10.2 million with an estimated weighted average useful life of 7.0 years. The excess of the purchase price over the estimated fair values of the net assets acquired in the amount of $22.5 million was recorded as goodwill and primarily represents synergies with our existing business, the acquired assembled workforce, and potential new customers. There were no significant changes in the carrying amount of goodwill for the quarter ended March 30, 2012.
Changes in the carrying amount of goodwill were as follows (in millions):
 
Goodwill
Accumulated Impairment Losses
Goodwill, net
Balance at December 28, 2012
$
94.3

$
(46.2
)
$
48.1

Goodwill acquired during the year
22.5


22.5

Impairment losses



Balance at March 29, 2013
$
116.8

$
(46.2
)
$
70.6


Intangible assets other than goodwill are broken out separately on our Consolidated Balance Sheets. The following table presents our purchased intangible assets other than goodwill (in millions):
 
March 29, 2013
 
December 28, 2012
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Amortizable intangible assets (1):
 
 
 
 
 
 
 
 
 
 
 
Customer relationships (2)
$
26.9

 
$
(11.2
)
 
$
15.7

 
$
19.1

 
$
(10.5
)
 
$
8.6

Trade name/trademarks (2)
4.9

 
(2.2
)
 
2.7

 
3.5

 
(1.6
)
 
1.9

Non-compete agreements (2)
1.8

 
(0.2
)
 
1.6

 
1.8

 
(1.4
)
 
0.4

 
$
33.6

 
$
(13.6
)
 
$
20.0

 
$
24.4

 
$
(13.5
)
 
$
10.9

Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Trade name/trademarks
 
 
 
 
$
5.7

 
 
 
 
 
$
5.7

____________________
(1)
Excludes assets that are fully amortized.
(2)
Includes customer relationships, trade name, and non-compete agreement resulting from the MDT acquisition with preliminary values of $7.8 million, $1.0 million, and $1.4 million, respectively.
Intangible assets are amortized using the straight-line method over their estimated useful lives. Amortization of our finite-lived intangible assets was $1.0 million and $0.8 million for the thirteen weeks ended March 29, 2013 and March 30, 2012, respectively.
The following table provides the estimated future amortization of definite-lived intangible assets at March 29, 2013 (in millions):
Remainder of 2013
$
2.1

2014
4.3

2015
3.9

2016
3.9

2017
2.4

Thereafter
3.4

 
$
20.0


Long-lived intangible assets are reviewed for impairment whenever events and circumstances indicate the carrying value may not be recoverable. We noted no such event or circumstance and accordingly no impairment loss has been recognized during the thirteen weeks ended March 29, 2013 and March 30, 2012.

Goodwill and indefinite-lived intangible assets are reviewed for impairment annually or when triggering events indicate impairment is more likely than not. We noted no significant events or circumstances that indicated a more likely than not potential impairment and accordingly did not perform an interim impairment test of our goodwill and indefinite-lived intangibles assets during the thirteen weeks ended March 29, 2013 .
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.
In connection with the acquisition of MDT, we assumed the workers' compensation insurance policies which cover claims for the policy year ended February 13, 2013.
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 brand 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. At March 29, 2013, the weighted average rate was 2.4%. The claim payments are made over an estimated weighted average period of approximately 5.5 years. As of March 29, 2013 and December 28, 2012, the discounted workers’ compensation claims reserves were $205.9 million and $195.6 million, respectively.
Our workers’ compensation reserve includes estimated expenses related to claims above our deductible limits (“excess claims”), and we record a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. At March 29, 2013, the weighted average rate was 4.1%. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 19.8 years. The discounted workers’ compensation reserve for excess claims and the corresponding receivable for the insurance on excess claims were $28.3 million and $27.1 million as of March 29, 2013 and December 28, 2012, respectively.
Certain workers’ compensation insurance companies (“Troubled Insurance Companies”) with which we formerly did business are in liquidation and have failed to pay a number of excess claims to date. These excess claims have been presented to the state guaranty funds of the states in which the claims originated. Some of these excess claims have been rejected by the state guaranty funds due to statutory eligibility limitations. We have recorded a valuation allowance of $6.2 million and $5.6 million against all receivables from Troubled Insurance Companies as of March 29, 2013 and December 28, 2012, respectively. Total discounted receivables from insurance companies, net of the valuation allowance, as of March 29, 2013 and December 28, 2012 were $22.4 million and $21.4 million, respectively and were included in Other assets, net in 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 that have increased benefits and settlement requirements;
type and location of work performed;
impact of safety initiatives; and
positive or adverse development of claim reserves.
Workers’ compensation expense totaling $13.1 million and $11.5 million was recorded in Cost of services for the thirteen weeks ended March 29, 2013 and March 30, 2012, respectively. Workers’ compensation expense consists of: self-insurance reserves net of changes in discount; monopolistic jurisdictions’ premiums; insurance premiums; changes in the valuation allowance related to receivables from the Troubled Insurance Companies as described above; and other miscellaneous expenses.
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Revolving credit facility
We have a credit agreement with Bank of America, N.A. and Wells Fargo Capital Finance, LLC for a secured revolving credit facility of up to a maximum of $80 million (the “Revolving Credit Facility”). The Revolving Credit Facility expires in September 2016.
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 85% of our eligible accounts receivable and the liquidation value of our Tacoma headquarters office building not to exceed $15 million, which is reduced quarterly by $0.4 million. As of March 29, 2013, the Tacoma headquarters office building liquidation value totaled $13.1 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. As of March 29, 2013, the maximum $80 million was available and letters of credit in the amount of $6.7 million had been issued against the facility, leaving an unused portion of $73.3 million. The letters of credit collateralize a portion of our workers' compensation obligation.
The Revolving Credit Facility requires that we maintain liquidity in excess of $12 million. We are required to satisfy a fixed charge coverage ratio in the event we do not meet that requirement. Liquidity is defined as the amount we are entitled to borrow as advances under the Revolving Credit Facility plus the amount of cash and cash equivalents held in accounts subject to a control agreement benefiting the lenders. The amount we were entitled to borrow at March 29, 2013 was $73.3 million and the amount of cash and cash equivalents under control agreements was $110.6 million for a total of $183.9 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) or the Prime Rate, at our option, plus an applicable spread based on excess liquidity as set forth below:
Excess Liquidity
 
Prime Rate Loans
 
LIBOR Rate Loans
Greater than $40 million
 
0.50%
 
1.50%
Between $20 million and $40 million
 
0.75%
 
1.75%
Less than $20 million
 
1.00%
 
2.00%

A fee on borrowing availability of 0.25% is also 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 secured by substantially all of our domestic personal property and our headquarters located in Tacoma, Washington.
Term Loan Agreement
In connection with our acquisition of MDT on February 4, 2013, we entered into an unsecured Term Loan Agreement (the “Loan”) with Synovus Bank in the principal amount of $34.0 million. The Loan has a five year maturity with fixed monthly principal payments which total $2.3 million annually based on a loan amortization term of fifteen 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 Loan by five consecutive one-year extensions.
As of March 29, 2013, the remaining balance of the Loan was $33.7 million, of which, $2.3 million is short-term and is included in Other current liabilities in our Consolidated Balance Sheets. The long term portion of $31.4 million is reported as Notes payable.
Our obligations under the Loan may be accelerated upon the occurrence of an event of default under the Loan, which includes customary events of default, as well as cross-defaults related to indebtedness under our Revolving Credit Facility, and other Loan specific defaults. The 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 Loan, and other Loan specific covenants. We are in compliance with all covenants related to the Loan. As of March 29, 2013, the remaining balance of the Loan approximated fair value.
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 at the Bank of New York Mellon.
We have provided our insurance carriers and certain states with commitments in the form and amounts listed below (in millions):
 
March 29,
2013
 
December 28,
2012
Cash collateral held by insurance carriers
$
28.1

 
$
21.5

Cash and cash equivalents held in Trust (1)
17.6

 
14.8

Investments held in Trust
87.8

 
91.2

Letters of credit (2)
8.5

 
9.0

Surety bonds (3)
15.9

 
16.2

Total collateral commitments
$
157.9

 
$
152.7

____________________
(1)
Included in this amount is $0.9 million of accrued interest at both March 29, 2013 and December 28, 2012.
(2)
We have agreements with certain financial institutions to issue letters of credit as collateral. We had $1.8 million of restricted cash collateralizing our letters of credit at both March 29, 2013 and December 28, 2012.
(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 is determined by each independent surety carrier, but do not exceed 2.0% of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days notice.
Legal contingencies and developments
We are involved in various proceedings arising in the normal course of conducting business. We believe the amounts provided in our financial statements are adequate in consideration of the probable and estimable liabilities. The resolution of those proceedings is not expected to have a material effect on our results of operations or financial condition.
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION
Stock-based compensation includes expense charges for all stock-based awards to employees and directors. Such awards include restricted and unrestricted stock awards, performance share units, stock options, and shares purchased under an employee stock purchase plan (“ESPP”).
Stock-based compensation expense was as follows (in millions):
 
Thirteen weeks ended
 
March 29, 2013
 
March 30, 2012
Restricted and unrestricted stock and performance share units expense
$
2.8

 
$
2.8

ESPP expense
0.1

 
0.1

Total stock-based compensation expense
$
2.9

 
$
2.9


Restricted and unrestricted stock and performance share units
Stock-based awards are issued under our 2005 Long-Term Equity Incentive Plan as amended. Restricted stock is granted to executive officers and key employees and vests annually over periods ranging from three to four years. Unrestricted stock granted to our 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 since 2010. Vesting of the performance share units is contingent upon the achievement of revenue and profitability growth goals at the end of each three year performance period. Each performance share unit is equivalent to a 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, unrestricted stock and performance share units activity for the thirteen weeks ended March 29, 2013 was as follows (shares in thousands):
 
Shares
 
Price (1)
Non-vested at beginning of period
1,435

 
$
15.23

Granted
548

 
$
18.31

Vested
(396
)
 
$
15.36

Forfeited
(72
)
 
$
17.65

Non-vested at the end of the period
1,515

 
$
16.20

_____________________
(1)
Weighted average market price on grant-date.
As of March 29, 2013, total unrecognized stock-based compensation expense related to non-vested restricted stock was approximately $9.7 million, of which $8.5 million is estimated to be recognized over a weighted average period of 1.8 years through 2017. As of March 29, 2013, total unrecognized stock-based compensation expense related to performance share units, assuming achievement of maximum financial goals was approximately $10.3 million, of which $4.8 million is currently estimated to be recognized over a weighted average period of 2.1 years through 2016.
Stock options
Our 2005 Long-Term Equity Incentive Plan as amended 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. The majority of our unvested stock options “cliff vest” in three years from the date of grant and expire if not exercised within seven years from the date of grant. The maximum contractual term for our outstanding awards is ten years.
The fair value of each stock option granted is estimated on the grant date using the Black-Scholes valuation model, and the resulting expense is recognized over the requisite service period for each separately vesting portion of the award. The assumptions used to calculate the fair value of options granted reflect market conditions and our experience. Compensation expense is recognized only for those options expected to vest, with forfeitures estimated based on our historical experience and future expectations.
There were no stock options granted during the thirteen weeks ended March 29, 2013 or during 2012.
Stock option activity was as follows (shares in thousands):
 
Shares
 
Weighted Average Exercise Price
Outstanding, December 28, 2012
639

 
$
16.91

Exercised
(152
)
 
$
13.31

Expired/Forfeited
(124
)
 
$
21.04

Outstanding, March 29, 2013
363

 
$
17.02


 
 
 
Exercisable, March 29, 2013
363

 
$
17.02

Total unrecognized stock-based compensation expense related to non-vested stock options was de minimis as of March 29, 2013.
Employee stock purchase plan
Our Employee Stock Purchase Plan (“ESPP”) 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. Under our ESPP we have reserved for purchase 1.0 million shares of common stock. 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.
During the thirteen weeks ended March 29, 2013 and March 30, 2012, participants purchased 24,000 and 28,000 share respectively, from the plan for cash proceeds of $0.3 million for each period.
INCOME TAXES
INCOME TAXES
INCOME TAXES
Our effective tax rate on earnings for the thirteen weeks ended March 29, 2013 was 83.4% compared to 42.2% for the same period in 2012. The effective tax rate of 83.4% is due primarily to the retroactive restoration of the Work Opportunity Tax Credit. The American Taxpayer Relief Act of 2012 ("the Act") was signed into law on January 2, 2013. The Act retroactively restored the Work Opportunity Tax Credit. Because a change in tax law is accounted for in the period of enactment, the retroactive effect of the Act on the Company's U.S. federal taxes for 2012, a benefit of approximately $3.2 million, was recognized as of March 29, 2013. This tax credit benefit increased our effective tax rate on losses for the thirteen weeks ended March 29, 2013 from the anticipated 2013 rate of 34.2% to 83.4%.
The principal difference between the statutory federal income tax rate of 35.0% and our effective income tax rate of 34.2%, excluding the retroactive restoration of the Work Opportunity Tax Credit, is from current year federal tax credits, state income taxes, and certain non-deductible expenses. As of March 29, 2013 and December 28, 2012 we had unrecognized tax benefits of $2.0 million and $1.9 million, respectively, recorded in accordance with current accounting guidance on uncertain tax positions.
Deferred taxes related to our foreign currency translation were de minimis for both thirteen weeks ended March 29, 2013 and March 30, 2012.
NET INCOME (LOSS) PER SHARE
NET INCOME PER SHARE
NET INCOME (LOSS) PER SHARE
Adjusted net income (loss) and diluted common shares were calculated as follows (in millions, except per share amounts):
 
Thirteen weeks ended
 
March 29, 2013

March 30, 2012
Net income (loss)
$
(1.1
)
 
$
1.5

 
 
 
 
Weighted average number of common shares used in basic net income (loss) per common share
39.8

 
39.4

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

 
0.5

Weighted average number of common shares used in diluted net income (loss) per common share
39.8

 
39.9

   Net income (loss) per common share:
 
 
 
Basic
$
(0.03
)
 
$
0.04

Diluted
$
(0.03
)
 
$
0.04

 
 
 
 
Anti-dilutive shares
0.3

 
0.7


Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares include the dilutive effects of outstanding options, non-vested restricted stock and performance share units 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. Potentially dilutive common shares are anti-dilutive in a period when a net loss is reported. Therefore, they are not included in the diluted net loss per share amount for the thirteen weeks ended March 29, 2013.
SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information (in millions):
 
Thirteen weeks ended

March 29, 2013
 
March 30, 2012
Cash paid during the period for:
 
 
 
Interest
$
0.2

 
$
0.2

Income taxes
$
0.2

 
$
0.8


As of March 29, 2013 and March 30, 2012, we had acquired $0.8 million and $2.0 million, respectively, of property, plant and equipment on account that was not yet paid. During the thirteen weeks ended March 29, 2013, we paid $1.6 million for capital expenditures acquired on account as of December 28, 2012. These are considered non-cash investing items.
SUBSEQUENT EVENTS (Notes)
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS
We evaluated other events and transactions occurring after the balance sheet date through the date that the financial statements were issued, and noted no other events that were subject to recognition or disclosure.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
ACCOUNTING PRINCIPLES AND PRACTICES
ACCOUNTING PRINCIPLES AND PRACTICES
The accompanying unaudited consolidated financial statements (“financial statements”) are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with GAAP have been condensed or omitted. The unaudited financial statements reflect all adjustments which, in the opinion of management, are necessary to fairly state the consolidated financial statements for the interim periods presented. We follow the same accounting policies for preparing both quarterly and annual financial information. These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2012.
ACQUISITION (Tables)
the pro forma financial data as presented below (in millions, except per share data).
 
Thirteen weeks ended
 
March 29, 2013
 
March 30, 2012
Revenue from services
$
370.6

 
$
360.4

Net income (loss)
(0.2
)
 
0.3

Net income (loss) per common share - diluted
(0.01
)
 
0.01

The following table summarizes the preliminary allocation of the purchase price, based on the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date of February 4, 2013 (in millions):
Accounts receivable, net of allowance for doubtful accounts (1)
$
31.2

Prepaid expenses, deposits and other current assets
1.2

Property and equipment, net
0.5

Restricted cash and investments
6.9

Intangible assets, net
10.2

Total assets acquired
50.0

 
 
Accounts payable and other accrued expenses
7.4

Accrued wages and benefits
2.0

Workers' compensation claims reserve
9.8

Other long-term liabilities
0.1

Total liabilities assumed
19.3

 
 
Net identifiable assets acquired
30.7

Goodwill (2)
22.5

Net assets acquired
$
53.2

___________________
(1)
The gross contractual amount of accounts receivable is $32.9 million and, of this amount, we expect $1.7 million to be uncollectible.
(2)
Goodwill is deductible for income tax purposes over 15 years as of March 29, 2013.
The following table sets forth the preliminary estimate for the components of identifiable intangible assets and their estimated useful lives (in millions, except for estimated useful lives, in years):
 
Estimated Fair Value
 
Estimated Useful Life
Customer relationships
$
7.8

 
8.0
Trade name/trademarks
1.0

 
1.5
Non-compete agreements
1.4

 
5.0
FAIR VALUE MEASUREMENT (Tables)
Schedule of fair value hierarchy for cash equivalents and restricted investments
The following table presents the fair value and hierarchy for our cash equivalents and restricted investments (in millions):
 
March 29,
2013
 
December 28,
2012
Level 1:
 
 
 
Cash equivalents (1)
$
95.0

 
$
94.6

Restricted cash equivalents (1)
34.5

 
26.8

Other restricted investments (2)
4.4

 
3.5

Level 2:
 
 
 
Restricted investments classified as held-to-maturity (3)
89.5

 
92.7

____________________
(1)
Cash equivalents and restricted cash equivalents consist of money market funds, deposits and investments with original maturities of three months or less.
(2)
Level 1 other restricted investments consist of deferred compensation investments which are comprised of mutual funds. We have an equal and offsetting accrued liability related to the deferred compensation plan.
(3)
Level 2 restricted investments classified as held-to-maturity consist of Municipal Securities, Corporate Securities, U.S. Agency Mortgages and U.S. Agency Debentures.
RESTRICTED CASH AND INVESTMENTS (Tables)
The following is a summary of restricted cash and investments (in millions):
 
March 29,
2013
 
December 28,
2012
Cash collateral held by insurance carriers
$
28.1

 
$
21.5

Cash and cash equivalents held in Trust (1)
17.6

 
14.8

Investments held in Trust
87.8

 
91.2

Cash collateral backing letters of credit
1.8

 
1.8

Other (2)
9.1

 
7.0

Total restricted cash and investments
$
144.4

 
$
136.3

__________________
(1)
Included in this amount is $0.9 million of accrued interest at both March 29, 2013 and December 28, 2012.
(2)
Primarily consists of restricted cash in money market accounts and 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 millions):
 
March 29, 2013
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Fair Value
Municipal securities
$
54.4

 
$
1.1

 
$
(0.1
)
 
$
55.4

Corporate bonds
18.6

 
0.3

 

 
18.9

Asset backed bonds
14.8

 
0.4

 

 
15.2

 
$
87.8

 
$
1.8

 
$
(0.1
)
 
$
89.5


 
December 28, 2012
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Fair Value
Municipal securities
$
57.3

 
$
1.0

 
$
(0.1
)
 
$
58.2

Corporate bonds
17.9

 
0.3

 

 
18.2

Asset backed bonds
16.0

 
0.3

 

 
16.3

 
$
91.2

 
$
1.6

 
$
(0.1
)
 
$
92.7

The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows (in millions):
 
March 29, 2013
 
Amortized Cost
 
Fair Value
Due in one year or less
$
12.3

 
$
12.3

Due after one year through five years
43.7

 
44.7

Due after five years through ten years
31.8

 
32.5

 
$
87.8

 
$
89.5

PROPERTY AND EQUIPMENT, NET (Tables)
Schedule of property and equipment
Property and equipment are stated at cost and consist of the following (in millions):
 
March 29,
2013
 
December 28,
2012
Buildings and land
$
26.0

 
$
25.9

Computers and software
92.8

 
91.7

Cash dispensing machines
1.0

 
1.0

Furniture and equipment
9.0

 
8.9

Construction in progress
9.7

 
7.7


138.5

 
135.2

Less accumulated depreciation and amortization
(80.8
)
 
(77.0
)
 
$
57.7

 
$
58.2

GOODWILL AND INTANGIBLE ASSETS (Tables)
Changes in the carrying amount of goodwill were as follows (in millions):
 
Goodwill
Accumulated Impairment Losses
Goodwill, net
Balance at December 28, 2012
$
94.3

$
(46.2
)
$
48.1

Goodwill acquired during the year
22.5


22.5

Impairment losses



Balance at March 29, 2013
$
116.8

$
(46.2
)
$
70.6


The following table presents our purchased intangible assets other than goodwill (in millions):
 
March 29, 2013
 
December 28, 2012
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Amortizable intangible assets (1):
 
 
 
 
 
 
 
 
 
 
 
Customer relationships (2)
$
26.9

 
$
(11.2
)
 
$
15.7

 
$
19.1

 
$
(10.5
)
 
$
8.6

Trade name/trademarks (2)
4.9

 
(2.2
)
 
2.7

 
3.5

 
(1.6
)
 
1.9

Non-compete agreements (2)
1.8

 
(0.2
)
 
1.6

 
1.8

 
(1.4
)
 
0.4

 
$
33.6

 
$
(13.6
)
 
$
20.0

 
$
24.4

 
$
(13.5
)
 
$
10.9

Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Trade name/trademarks
 
 
 
 
$
5.7

 
 
 
 
 
$
5.7

____________________
(1)
Excludes assets that are fully amortized.
(2)
Includes customer relationships, trade name, and non-compete agreement resulting from the MDT acquisition with preliminary values of $7.8 million, $1.0 million, and $1.4 million, respectively.
The following table provides the estimated future amortization of definite-lived intangible assets at March 29, 2013 (in millions):
Remainder of 2013
$
2.1

2014
4.3

2015
3.9

2016
3.9

2017
2.4

Thereafter
3.4

 
$
20.0

COMMITMENTS AND CONTINGENCIES (Tables)
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) or the Prime Rate, at our option, plus an applicable spread based on excess liquidity as set forth below:
Excess Liquidity
 
Prime Rate Loans
 
LIBOR Rate Loans
Greater than $40 million
 
0.50%
 
1.50%
Between $20 million and $40 million
 
0.75%
 
1.75%
Less than $20 million
 
1.00%
 
2.00%
We have provided our insurance carriers and certain states with commitments in the form and amounts listed below (in millions):
 
March 29,
2013
 
December 28,
2012
Cash collateral held by insurance carriers
$
28.1

 
$
21.5

Cash and cash equivalents held in Trust (1)
17.6

 
14.8

Investments held in Trust
87.8

 
91.2

Letters of credit (2)
8.5

 
9.0

Surety bonds (3)
15.9

 
16.2

Total collateral commitments
$
157.9

 
$
152.7

____________________
(1)
Included in this amount is $0.9 million of accrued interest at both March 29, 2013 and December 28, 2012.
(2)
We have agreements with certain financial institutions to issue letters of credit as collateral. We had $1.8 million of restricted cash collateralizing our letters of credit at both March 29, 2013 and December 28, 2012.
(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 is determined by each independent surety carrier, but 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.
STOCK-BASED COMPENSATION (Tables)
Stock-based compensation expense was as follows (in millions):
 
Thirteen weeks ended
 
March 29, 2013
 
March 30, 2012
Restricted and unrestricted stock and performance share units expense
$
2.8

 
$
2.8

ESPP expense
0.1

 
0.1

Total stock-based compensation expense
$
2.9

 
$
2.9

Restricted, unrestricted stock and performance share units activity for the thirteen weeks ended March 29, 2013 was as follows (shares in thousands):
 
Shares
 
Price (1)
Non-vested at beginning of period
1,435

 
$
15.23

Granted
548

 
$
18.31

Vested
(396
)
 
$
15.36

Forfeited
(72
)
 
$
17.65

Non-vested at the end of the period
1,515

 
$
16.20

_____________________
(1)
Weighted average market price on grant-date.
Stock option activity was as follows (shares in thousands):
 
Shares
 
Weighted Average Exercise Price
Outstanding, December 28, 2012
639

 
$
16.91

Exercised
(152
)
 
$
13.31

Expired/Forfeited
(124
)
 
$
21.04

Outstanding, March 29, 2013
363

 
$
17.02


 
 
 
Exercisable, March 29, 2013
363

 
$
17.02

NET INCOME (LOSS) PER SHARE (Tables)
Schedule of adjusted net income and diluted common shares
Adjusted net income (loss) and diluted common shares were calculated as follows (in millions, except per share amounts):
 
Thirteen weeks ended
 
March 29, 2013

March 30, 2012
Net income (loss)
$
(1.1
)
 
$
1.5

 
 
 
 
Weighted average number of common shares used in basic net income (loss) per common share
39.8

 
39.4

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

 
0.5

Weighted average number of common shares used in diluted net income (loss) per common share
39.8

 
39.9

   Net income (loss) per common share:
 
 
 
Basic
$
(0.03
)
 
$
0.04

Diluted
$
(0.03
)
 
$
0.04

 
 
 
 
Anti-dilutive shares
0.3

 
0.7

SUPPLEMENTAL CASH FLOW INFORMATION (Tables)
Schedule of supplemental cash flow information
Supplemental disclosure of cash flow information (in millions):
 
Thirteen weeks ended

March 29, 2013
 
March 30, 2012
Cash paid during the period for:
 
 
 
Interest
$
0.2

 
$
0.2

Income taxes
$
0.2

 
$
0.8

ACQUISITION - Narrative (Details) (MDT Personnel, LLC, USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 29, 2013
Feb. 4, 2013
state
branch
MDT Personnel, LLC
 
 
Business Acquisition [Line Items]
 
 
Total consideration paid
 
$ 53.2 
Number of branch locations operated by acquiree
 
105 
Number of states in which acquiree operates
 
25 
Number of acquired entity's branches consolidated
 
65 
Integration related costs
2.2 
 
Integration related costs accrual
$ 1.6 
 
ACQUISITION - Preliminary Allocation of Fair Value of Assets Acquired and Liabilities Assumed (Details) (USD $)
0 Months Ended
Mar. 29, 2013
Dec. 28, 2012
Feb. 4, 2013
MDT Personnel, LLC
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net [Abstract]
 
 
 
Accounts receivable, net of allowance for doubtful accounts
 
 
$ 31,200,000 1
Prepaid expenses, deposits and other current assets
 
 
1,200,000 
Property and equipment, net
 
 
500,000 
Restricted cash and investments
 
 
6,900,000 
Intangible assets, net
 
 
10,200,000 
Total assets acquired
 
 
50,000,000 
Accounts payable and other accrued expenses
 
 
7,400,000 
Accrued wages and benefits
 
 
2,000,000 
Workers' compensation claims reserve
 
 
9,800,000 
Other long-term liabilities
 
 
100,000 
Total liabilities assumed
 
 
19,300,000 
Net identifiable assets acquired
 
 
30,700,000 
Goodwill
70,613,000 
48,079,000 
22,500,000 2
Net assets acquired
 
 
53,200,000 
Business Combination, Acquired Receivables [Abstract]
 
 
 
Gross contractual accounts receivable
 
 
32,900,000 
Estimated uncollectible accounts receivable
 
 
1,700,000 
Goodwill, expected tax deductible amount
 
 
$ 22,500,000 
Goodwill, expected tax deductible amount period
 
 
15 years 
ACQUISITION - Preliminary Estimate for the Components of Identifiable Intangible Assets and Their Estimated Useful Lives (Details) (MDT Personnel, LLC, USD $)
In Millions, unless otherwise specified
0 Months Ended
Feb. 4, 2013
Acquired Finite-Lived Intangible Assets [Line Items]
 
Estimated Fair Value
$ 10.2 
Estimated Useful Life
6 years 11 months 13 days 
Customer relationships
 
Acquired Finite-Lived Intangible Assets [Line Items]
 
Estimated Fair Value
7.8 
Estimated Useful Life
8 years 
Trade name/trademarks
 
Acquired Finite-Lived Intangible Assets [Line Items]
 
Estimated Fair Value
1.0 
Estimated Useful Life
1 year 6 months 
Non-compete agreements
 
Acquired Finite-Lived Intangible Assets [Line Items]
 
Estimated Fair Value
$ 1.4 
Estimated Useful Life
5 years 
ACQUISITION - Pro Forma Financial Data (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 29, 2013
Mar. 30, 2012
Business Combination, Pro Forma Information [Abstract]
 
 
Revenue from services
$ 370.6 
$ 360.4 
Net income (loss)
$ (0.2)
$ 0.3 
Net income (loss) per common share - diluted (in dollars per share)
$ (0.01)
$ 0.01 
FAIR VALUE MEASUREMENT (Details) (USD $)
In Millions, unless otherwise specified
Mar. 29, 2013
Dec. 28, 2012
Unrestricted Assets |
Level 1
 
 
Fair Value Measurement [Line Items]
 
 
Cash equivalents
$ 95.0 1
$ 94.6 1
Restricted Assets |
Level 1
 
 
Fair Value Measurement [Line Items]
 
 
Cash equivalents
34.5 1
26.8 1
Other restricted investments
4.4 2
3.5 2
Restricted Assets |
Level 2
 
 
Fair Value Measurement [Line Items]
 
 
Restricted investments classified as held-to-maturity
$ 89.5 3
$ 92.7 3
RESTRICTED CASH AND INVESTMENTS (Details) (USD $)
Mar. 29, 2013
Dec. 28, 2012
Restricted Cash and Investments [Line Items]
 
 
Cash collateral held by insurance carriers
$ 28,100,000 
$ 21,500,000 
Cash and cash equivalents held in Trust
17,600,000 1
14,800,000 1
Investments held in Trust
87,800,000 
91,200,000 
Cash collateral backing letters of credit
1,800,000 
1,800,000 
Other
9,100,000 2
7,000,000 2
Total restricted cash and investments
144,375,000 
136,259,000 
Accrued interest on trust investments
900,000 
900,000 
Held-to-maturity Securities, Reconciliation to Fair Value [Abstract]
 
 
Amortized Cost
87,800,000 
91,200,000 
Gross Unrealized Gain
1,800,000 
1,600,000 
Gross Unrealized Loss
(100,000)
(100,000)
Fair Value
89,500,000 
92,700,000 
Held-to-maturity Securities, Investment Maturities, Amortized Cost [Abstract]
 
 
Due in one year or less
12,300,000 
 
Due after one year through five years
43,700,000 
 
Due after five years through ten years
31,800,000 
 
Amortized Cost
87,800,000 
91,200,000 
Held-to-maturity Securities, Investment Maturities, Fair Value [Abstract]
 
 
Due in one year or less
12,300,000 
 
Due after one year through five years
44,700,000 
 
Due after five years through ten years
32,500,000 
 
Fair Value
89,500,000 
92,700,000 
Municipal securities
 
 
Held-to-maturity Securities, Reconciliation to Fair Value [Abstract]
 
 
Amortized Cost
54,400,000 
57,300,000 
Gross Unrealized Gain
1,100,000 
1,000,000 
Gross Unrealized Loss
(100,000)
(100,000)
Fair Value
55,400,000 
58,200,000 
Held-to-maturity Securities, Investment Maturities, Amortized Cost [Abstract]
 
 
Amortized Cost
54,400,000 
57,300,000 
Held-to-maturity Securities, Investment Maturities, Fair Value [Abstract]
 
 
Fair Value
55,400,000 
58,200,000 
Corporate bonds
 
 
Held-to-maturity Securities, Reconciliation to Fair Value [Abstract]
 
 
Amortized Cost
18,600,000 
17,900,000 
Gross Unrealized Gain
300,000 
300,000 
Gross Unrealized Loss
Fair Value
18,900,000 
18,200,000 
Held-to-maturity Securities, Investment Maturities, Amortized Cost [Abstract]
 
 
Amortized Cost
18,600,000 
17,900,000 
Held-to-maturity Securities, Investment Maturities, Fair Value [Abstract]
 
 
Fair Value
18,900,000 
18,200,000 
Asset backed bonds
 
 
Held-to-maturity Securities, Reconciliation to Fair Value [Abstract]
 
 
Amortized Cost
14,800,000 
16,000,000 
Gross Unrealized Gain
400,000 
300,000 
Gross Unrealized Loss
Fair Value
15,200,000 
16,300,000 
Held-to-maturity Securities, Investment Maturities, Amortized Cost [Abstract]
 
 
Amortized Cost
14,800,000 
16,000,000 
Held-to-maturity Securities, Investment Maturities, Fair Value [Abstract]
 
 
Fair Value
$ 15,200,000 
$ 16,300,000 
PROPERTY AND EQUIPMENT, NET (Details) (USD $)
3 Months Ended
Mar. 29, 2013
Mar. 30, 2012
Dec. 28, 2012
Property and Equipment, Net, by Type [Abstract]
 
 
 
Property and equipment, gross
$ 138,500,000 
 
$ 135,200,000 
Less accumulated depreciation and amortization
(80,800,000)
 
(77,000,000)
Property and equipment, net
57,695,000 
 
58,171,000 
Capitalized software costs, net of accumulated amortization
28,200,000 
 
30,900,000 
Depreciation and amortization of property and equipment
4,100,000 
4,000,000 
 
Buildings and land
 
 
 
Property and Equipment, Net, by Type [Abstract]
 
 
 
Property and equipment, gross
26,000,000 
 
25,900,000 
Computers and software
 
 
 
Property and Equipment, Net, by Type [Abstract]
 
 
 
Property and equipment, gross
92,800,000 
 
91,700,000 
Cash dispensing machines
 
 
 
Property and Equipment, Net, by Type [Abstract]
 
 
 
Property and equipment, gross
1,000,000 
 
1,000,000 
Furniture and equipment
 
 
 
Property and Equipment, Net, by Type [Abstract]
 
 
 
Property and equipment, gross
9,000,000 
 
8,900,000 
Construction in progress
 
 
 
Property and Equipment, Net, by Type [Abstract]
 
 
 
Property and equipment, gross
$ 9,700,000 
 
$ 7,700,000 
GOODWILL AND INTANGIBLE ASSETS - Narrative (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 0 Months Ended 3 Months Ended 0 Months Ended
Mar. 29, 2013
Mar. 30, 2012
Feb. 4, 2013
MDT Personnel, LLC
Mar. 29, 2013
MDT Personnel, LLC
Feb. 4, 2013
MDT Personnel, LLC
Customer relationships
Feb. 4, 2013
MDT Personnel, LLC
Trade name/trademarks
Feb. 4, 2013
MDT Personnel, LLC
Non-compete agreements
Intangible Assets [Line Items]
 
 
 
 
 
 
 
Acquired finite-lived intangible assets
 
 
$ 10.2 
 
$ 7.8 
$ 1.0 
$ 1.4 
Estimated Useful Life
 
 
6 years 11 months 13 days 
 
8 years 
1 year 6 months 
5 years 
Goodwill acquired during the year
22.5 
 
 
22.5 
 
 
 
Amortization of intangible assets
$ 1.0 
$ 0.8 
 
 
 
 
 
GOODWILL AND INTANGIBLE ASSETS - Changes in Carrying Amount of Goodwill (Details) (USD $)
3 Months Ended
Mar. 29, 2013
Goodwill
 
Balance at December 28, 2012
$ 94,300,000 
Goodwill acquired during the year
22,500,000 
Balance at March 29, 2013
116,800,000 
Accumulated Impairment Losses
 
Balance at December 28, 2012
(46,200,000)
Impairment losses
Balance at March 29, 2013
(46,200,000)
Goodwill, net
 
Balance at December 28, 2012
48,079,000 
Goodwill acquired during the year
22,500,000 
Balance at March 29, 2013
$ 70,613,000 
GOODWILL AND INTANGIBLE ASSETS - Intangible Assets Other Than Goodwill (Details) (USD $)
In Millions, unless otherwise specified
Mar. 29, 2013
Dec. 28, 2012
Amortizable intangible assets (1):
 
 
Gross Carrying Amount
$ 33.6 1
$ 24.4 1
Accumulated Amortization
(13.6)1
(13.5)1
Net Carrying Amount
20.0 1
10.9 1
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
 
 
Remainder of 2013
2.1 
 
2014
4.3 
 
2015
3.9 
 
2016
3.9 
 
2017
2.4 
 
Thereafter
3.4 
 
Net Carrying Amount
20.0 1
10.9 1
Trade name/trademarks
 
 
Indefinite-lived intangible assets:
 
 
Indefinite-lived trade name/trademarks
5.7 
5.7 
Customer relationships
 
 
Amortizable intangible assets (1):
 
 
Gross Carrying Amount
26.9 1 2
19.1 1 2
Accumulated Amortization
(11.2)1 2
(10.5)1 2
Net Carrying Amount
15.7 1 2
8.6 1 2
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
 
 
Net Carrying Amount
15.7 1 2
8.6 1 2
Trade name/trademarks
 
 
Amortizable intangible assets (1):
 
 
Gross Carrying Amount
4.9 1
3.5 1
Accumulated Amortization
(2.2)1
(1.6)1
Net Carrying Amount
2.7 1
1.9 1
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
 
 
Net Carrying Amount
2.7 1
1.9 1
Non-compete agreements
 
 
Amortizable intangible assets (1):
 
 
Gross Carrying Amount
1.8 1
1.8 1
Accumulated Amortization
(0.2)1
(1.4)1
Net Carrying Amount
1.6 1
0.4 1
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
 
 
Net Carrying Amount
$ 1.6 1
$ 0.4 1
WORKERS' COMPENSATION INSURANCE AND RESERVES (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 29, 2013
Mar. 30, 2012
Dec. 28, 2012
Workers' Compensation Insurance and Reserves [Abstract]
 
 
 
Workers' compensation claim deductible limit
$ 2.0 
 
 
Weighted average discount rate - claims below deductible limit
2.40% 
 
 
Weighted average period - claim payments below deductible limit
5 years 6 months 
 
 
Workers' compensation liability
205.9 
 
195.6 
Weighted average discount rate - claims and receivables above deductible limit
4.10% 
 
 
Weighted average period - claim payments and receivables above deductible limit
19 years 9 months 18 days 
 
 
Workers' compensation liability - claim payments reserve
28.3 
 
27.1 
Workers' compensation liabilty - claims receivable from insurance carriers
28.6 
 
27.1 
Workers compensation valuation allowance
6.2 
 
5.6 
Workers' compensation claim receivables net of valuation allowance
22.4 
 
21.4 
Workers' compensation expense
$ 13.1 
$ 11.5 
 
COMMITMENTS AND CONTINGENCIES - Revolving Credit Facility (Details) (Revolving credit facility, Bank of America, N.A. and Wells Fargo Capital Finance, LLC, USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 29, 2013
Revolving Credit Facility [Line Items]
 
Maximum borrowing capacity
$ 80 
Revolving credit facility, letter of credit
6.7 
Fee percentage on unused capacity
0.25% 
Excess Liquidity Greater than $40 million |
Minimum
 
Revolving Credit Facility [Line Items]
 
Revolving credit facility, excess liquidity
40 
Excess Liquidity Between $20 million and $40 million |
Minimum
 
Revolving Credit Facility [Line Items]
 
Revolving credit facility, excess liquidity
20 
Excess Liquidity Between $20 million and $40 million |
Maximum
 
Revolving Credit Facility [Line Items]
 
Revolving credit facility, excess liquidity
40 
Excess Liquidity Less than $20 million |
Maximum
 
Revolving Credit Facility [Line Items]
 
Revolving credit facility, excess liquidity
20 
Prime Rate Loans |
Excess Liquidity Greater than $40 million
 
Revolving Credit Facility [Line Items]
 
Basis spread on variable rate
0.50% 
Prime Rate Loans |
Excess Liquidity Between $20 million and $40 million
 
Revolving Credit Facility [Line Items]
 
Basis spread on variable rate
0.75% 
Prime Rate Loans |
Excess Liquidity Less than $20 million
 
Revolving Credit Facility [Line Items]
 
Basis spread on variable rate
1.00% 
LIBOR Rate Loans
 
Revolving Credit Facility [Line Items]
 
Additional basis rate on LIBOR margin
0.125% 
LIBOR Rate Loans |
Excess Liquidity Greater than $40 million
 
Revolving Credit Facility [Line Items]
 
Basis spread on variable rate
1.50% 
LIBOR Rate Loans |
Excess Liquidity Between $20 million and $40 million
 
Revolving Credit Facility [Line Items]
 
Basis spread on variable rate
1.75% 
LIBOR Rate Loans |
Excess Liquidity Less than $20 million
 
Revolving Credit Facility [Line Items]
 
Basis spread on variable rate
2.00% 
Liquidity requirement component
 
Revolving Credit Facility [Line Items]
 
Revolving credit facility, unused portion
73.3 
Cash and cash equivalents under control agreements
110.6 
Revolving credit facility, total liquidity
183.9 
Liquidity requirement component |
Minimum
 
Revolving Credit Facility [Line Items]
 
Revolving credit facility, liquidity requirement
12 
Percent of eligible accounts receivable
 
Revolving Credit Facility [Line Items]
 
Revolving credit facility borrowing limits, % of accounts receivable
85.00% 
Liquidation value of pledged real estate
 
Revolving Credit Facility [Line Items]
 
Revolving credit facility borrowing limits, pledged real estate
15 
Revolving credit facility borrowing limits, quarterly reduction of pledged real estate
0.4 
Revolving credit facility borrowing limits, liquidation value of pledged real estate
$ 13.1 
COMMITMENTS AND CONTINGENCIES - Term Loans (Details) (USD $)
0 Months Ended
Mar. 29, 2013