TRUEBLUE, INC., 10-Q filed on 4/30/2012
Quarterly Report
DOCUMENT AND ENTITY INFORMATION
3 Months Ended
Mar. 30, 2012
Apr. 20, 2012
Document and Entity Information
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Mar. 30, 2012 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q1 
 
Trading Symbol
TBI 
 
Entity Registrant Name
TrueBlue, Inc. 
 
Entity Central Index Key
0000768899 
 
Current Fiscal Year End Date
--12-28 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
40,397,813 
CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $)
In Thousands, unless otherwise specified
Mar. 30, 2012
Dec. 30, 2011
Current assets:
 
 
Cash and cash equivalents
$ 125,005 
$ 109,311 
Accounts receivable, net of allowance for doubtful accounts of $5.6 million and $5.8 million
144,388 
153,878 
Prepaid expenses, deposits and other current assets
8,928 
9,252 
Income tax receivable
1,474 
1,874 
Deferred income taxes
5,032 
6,300 
Total current assets
284,827 
280,615 
Property and equipment, net
56,296 
56,239 
Restricted cash and investments
130,724 
130,498 
Deferred income taxes
7,092 
4,818 
Goodwill
48,139 
48,139 
Intangible assets, net
18,659 
19,433 
Other assets, net
20,275 
21,027 
Total assets
566,012 
560,769 
Current liabilities:
 
 
Accounts payable and other accrued expenses
23,578 
25,862 
Accrued wages and benefits
36,726 
35,271 
Current portion of workers' compensation claims reserve
42,170 
43,554 
Other current liabilities
9,916 
7,602 
Total current liabilities
112,390 
112,289 
Workers’ compensation claims reserve, less current portion
148,797 
148,289 
Other long-term liabilities
4,828 
6,612 
Total liabilities
266,015 
267,190 
Commitments and contingencies (Note 7)
   
   
Shareholders’ equity:
 
 
Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding
0 
0 
Common stock, no par value, 100,000 shares authorized; 40,405 and 39,933 shares issued and outstanding
1 
1 
Accumulated other comprehensive income
2,904 
2,643 
Retained earnings
297,092 
290,935 
Total shareholders' equity
299,997 
293,579 
Total liabilities and shareholders' equity
$ 566,012 
$ 560,769 
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Mar. 30, 2012
Dec. 30, 2011
Accounts receivable, allowance for doubtful accounts
$ 5,600 
$ 5,800 
Preferred stock, par value
$ 0.131 
$ 0.131 
Preferred stock, shares authorized
20,000 
20,000 
Preferred stock, shares issued
0 
0 
Preferred stock, shares outstanding
0 
0 
Common stock, par value
$ 0.00 
$ 0.00 
Common stock, shares authorized
100,000 
100,000 
Common stock, shares issued
40,405 
39,933 
Common stock, shares outstanding
40,405 
39,933 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 30, 2012
Apr. 1, 2011
Revenue from services
$ 311,187 
$ 274,300 
Cost of services
231,952 
204,269 
Gross profit
79,235 
70,031 
Selling, general and administrative expenses
72,082 
65,159 
Depreciation and amortization
4,768 
3,922 
Income from operations
2,385 
950 
Interest expense
(391)
(273)
Interest and other Income
655 
581 
Interest and other income, net
264 
308 
Income before tax expense
2,649 
1,258 
Income tax expense
1,119 
492 
Net income
1,530 
766 
Net income per common share:
 
 
Basic
$ 0.04 
$ 0.02 
Diluted
$ 0.04 
$ 0.02 
Weighted average shares outstanding:
 
 
Basic
39,425 
43,460 
Diluted
39,914 
43,854 
Comprehensive income
$ 1,791 
$ 1,024 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 30, 2012
Apr. 1, 2011
Cash flows from operating activities:
 
 
Net income
$ 1,530 
$ 766 
Adjustments to reconcile net income to net cash from operating activities:
 
 
Depreciation and amortization
4,768 
3,922 
Provision for doubtful accounts
1,049 
576 
Stock-based compensation
2,902 
2,575 
Deferred income taxes
(1,006)
690 
Other operating activities
(401)
(527)
Changes in operating assets and liabilities:
 
 
Accounts receivable
8,441 
(12,294)
Income taxes
1,037 
(1,264)
Other assets
1,076 
458 
Accounts payable and other accrued expenses
(2,644)
(2,547)
Accrued wages and benefits
1,513 
3,695 
Workers' compensation claims reserve
(876)
(542)
Other liabilities
303 
(103)
Net cash provided by (used in) operating activities
17,692 
(4,595)
Cash flows from investing activities:
 
 
Capital expenditures
(3,704)
(1,691)
Change in restricted cash and cash equivalents
3,529 
(635)
Purchases of restricted investments
(7,662)
(3,106)
Maturities of restricted investments
3,907 
0 
Net cash provided by (used in) investing activities
(3,930)
(5,432)
Cash flows from financing activities:
 
 
Net proceeds from sale of stock through options and employee benefit plans
2,894 
424 
Common stock repurchases for taxes upon vesting of restricted stock
(1,807)
(1,460)
Payments on debt
0 
(103)
Other
637 
541 
Net cash provided by (used in) financing activities
1,724 
(598)
Effect of exchange rates on cash
208 
262 
Net change in cash and cash equivalents
15,694 
(10,363)
CASH AND CASH EQUIVALENTS, beginning of period
109,311 
163,153 
CASH AND CASH EQUIVALENTS, end of period
$ 125,005 
$ 152,790 
ACCOUNTING PRINCIPLES AND PRACTICES
SIGNIFICANT ACCOUNTING POLICIES
NOTE 1:
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 30, 2011.

Recently Adopted Accounting Standards

During the first quarter of 2012, we adopted the accounting standard regarding the presentation of comprehensive income. This standard was issued to increase the prominence of items reported in other comprehensive income. We have presented all non-owner changes in shareholders' equity in a single, continuous statement in our consolidated financial statements as “Consolidated Statements of Comprehensive Income”. The standard does not change the following: items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, the requirement to disclose the tax effect for each component of other comprehensive income or how earnings per share is calculated or presented. Our comprehensive income includes foreign currency translation and unrealized gains and losses on investments. The adoption of this standard in the first quarter of 2012 impacted our financial statement presentation only.

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.

FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT
NOTE 2:
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 which prioritizes the inputs used to measure fair value:

•
Level 1: Investments valued using quoted market prices in active markets for identical assets or liabilities.
•
Level 2: Investments valued using other observable market-based inputs or unobservable inputs that are corroborated by market data.
•
Level 3: Investments with no observable inputs and therefore, are valued using significant management judgment.

The carrying value of our cash and cash equivalents, restricted cash and accounts receivable approximates fair value due to their short term nature. Cash equivalents consist of money market funds and investments with original maturities of three months or less and are classified within Level 1 of the fair value hierarchy. Our cash equivalents included money market funds totaling $69.3 million and $55.5 million as of March 30, 2012 and December 30, 2011, respectively. We held no Level 2 or Level 3 investments as of March 30, 2012 or December 30, 2011.

RESTRICTED CASH AND INVESTMENTS
RESTRICTED CASH AND INVESTMENTS
NOTE 3:
RESTRICTED CASH AND INVESTMENTS

Restricted cash and investments consist primarily 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, highly rated investment grade securities, primarily in U.S. Treasury Securities, 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 30,
2012
 
December 30,
2011
Cash collateral held by insurance carriers
$
21.3

 
$
21.3

Cash and cash equivalents held in Trust (1)
19.2

 
19.2

Investments held in Trust
81.2

 
78.0

Cash collateral backing letters of credit
1.8

 
5.9

Other (2)
7.2

 
6.1

Total Restricted cash and investments
$
130.7

 
$
130.5

__________________
(1)
Included in this amount is $0.8 million of accrued interest at both March 30, 2012 and December 30, 2011.
(2)Primarily consists of restricted cash in money market accounts and deferred compensation plan accounts.

The following is a summary of held-to-maturity investments (in millions):
 
March 30, 2012
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Fair Value
Municipal securities
$
44.9

 
$
0.8

 
$
(0.1
)
 
$
45.6

Corporate bonds
16.1

 
0.2

 
—

 
16.3

Asset backed bonds
14.7

 
0.2

 
—

 
14.9

State government and agency securities
4.5

 
—

 
—

 
4.5

United States Treasury securities
1.0

 
—

 
—

 
1.0

 
$
81.2

 
$
1.2

 
$
(0.1
)
 
$
82.3


 
December 30, 2011
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Fair Value
Municipal securities
$
42.8

 
$
0.8

 
$
(0.1
)
 
$
43.5

Corporate bonds
16.1

 
0.2

 
—

 
16.3

Asset backed bonds
13.6

 
0.1

 
—

 
13.7

State government and agency securities
4.5

 
—

 
—

 
4.5

United States Treasury securities
1.0

 
—

 
—

 
1.0

 
$
78.0

 
$
1.1

 
$
(0.1
)
 
$
79.0


The amortized cost and fair value by maturity of investments are as follows (in millions):
 
March 30, 2012
 
Amortized Cost
 
Fair Value
Due in one year or less
$
13.1

 
$
13.1

Due after one year through five years
41.0

 
41.6

Due after five years through ten years
27.1

 
27.6

 
$
81.2

 
$
82.3


PROPERTY AND EQUIPMENT, NET
PROPERTY AND EQUIPMENT, NET
NOTE 4:
PROPERTY AND EQUIPMENT, NET

Property and equipment are stated at cost and consist of the following (in millions):
 
March 30,
2012
 
December 30,
2011
Buildings and land
$
25.3

 
$
24.5

Computers and software
83.5

 
80.5

Cash dispensing machines
4.3

 
4.5

Furniture and equipment
8.7

 
8.7

Construction in progress
3.6

 
3.6


125.4

 
121.8

Less accumulated depreciation and amortization
(69.1
)
 
(65.6
)
 
$
56.3

 
$
56.2


Capitalized software costs, net of accumulated amortization, were $33.5 million and $34.5 million as of March 30, 2012 and December 30, 2011, respectively, excluding amounts in Construction in progress. Construction in progress consists primarily of internally developed software.

Depreciation and amortization of property and equipment totaled $4.0 million and $3.2 million for the thirteen weeks ended March 30, 2012 and April 1, 2011, respectively.

INTANGIBLE ASSETS
INTANGIBLE ASSETS
NOTE 5:
INTANGIBLE ASSETS

The following table presents our purchased intangible assets other than goodwill (in millions):
 
March 30, 2012
 
December 30, 2011
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Amortizable intangible assets (1):
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
19.1

 
$
(8.8
)
 
$
10.3

 
$
19.1

 
$
(8.3
)
 
$
10.8

Trade name/trademarks
3.3

 
(1.4
)
 
1.9

 
3.3

 
(1.3
)
 
2.0

Non-compete agreements
2.5

 
(1.8
)
 
0.7

 
2.5

 
(1.7
)
 
0.8

 
$
24.9

 
$
(12.0
)
 
$
12.9

 
$
24.9

 
$
(11.3
)
 
$
13.6

Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
     Trade name/trademarks
$
5.8

 
$
—

 
$
5.8

 
$
5.8

 
$
—

 
$
5.8

____________________
(1)Excludes assets that are fully amortized.

Amortization of our definite-lived assets was $0.8 million for both the thirteen weeks ended March 30, 2012 and April 1, 2011.

The following table provides the estimated future amortization of definite-lived intangible assets at March 30, 2012 for the next five years and thereafter (in millions):
Remainder of 2012
$
2.3

2013
2.7

2014
2.7

2015
2.6

2016
2.3

Thereafter
0.3

 
$
12.9

 
We noted no significant indicators of impairment and accordingly did not perform an interim impairment test of our goodwill and indefinite-lived intangibles assets during the thirteen weeks ended March 30, 2012.

WORKERS' COMPENSATION INSURANCE AND RESERVES
WORKERS COMPENSATION INSURANCE AND RESERVES
NOTE 6:
WORKERS’ COMPENSATION INSURANCE AND RESERVES

We provide workers’ compensation insurance for our temporary and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured. Our workers’ compensation insurance policies are renewed annually. We have coverage with Chartis effective July 2011 to July 2012. For all prior years, we had coverage with Chartis and other insurance providers. Furthermore, we have full liability for all further payments on claims that originated between January 2001 and June 2003, without recourse to any third party insurer as the result of a novation agreement we entered into with Kemper Insurance Company in December 2004.
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 30, 2012, the weighted average rate was 2.6%. The claim payments are made over an estimated weighted average period of approximately 4.5 years. As of March 30, 2012 and December 30, 2011, the discounted workers’ compensation claims reserves were $191.0 million and $191.8 million, respectively.

Our workers’ compensation reserve includes estimated expenses related to claims above our deductible limits (“excess claims”), with 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 30, 2012, the weighted average rate was 4.5%. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 18.9 years. The discounted workers’ compensation reserve for excess claims and the corresponding receivable for the insurance on excess claims were $27.0 million and $27.4 million as of March 30, 2012 and December 30, 2011, respectively.
Two of the 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 $7.2 million and $7.3 million against all receivables from Troubled Insurance Companies as of March 30, 2012 and December 30, 2011, respectively. Total discounted receivables from insurance companies, net of the valuation allowance, as of March 30, 2012 and December 30, 2011 were $19.8 million and $20.1 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 we consider in establishing and adjusting these reserves include the estimates provided by our independent actuary and appropriate discount rates. Factors considered by our independent actuary include, among other things:
•Changes in medical and time loss (“indemnity”) costs;
•Mix changes between medical only and indemnity claims;
•Regulatory and legislative developments that have increased benefits and settlement requirements;
•Mix changes and type of work performed;
•The impact of safety initiatives implemented; and,
•Positive or adverse development of claim reserves.
Workers’ compensation expense totaling $11.5 million and $10.2 million was recorded for the thirteen weeks ended March 30, 2012 and April 1, 2011, 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 insurance companies as described above; and other miscellaneous expenses.
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
NOTE 7:
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 75% of the liquidation value of our Tacoma headquarters office building not to exceed $15 million. This borrowing base limit amount is then 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 30, 2012, the maximum $80 million was available and letters of credit in the amount of $8 million had been issued against the facility, leaving an unused portion of $72 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 30, 2012 was $72 million and the amount of cash and cash equivalents under control agreements was $125 million for a total of $197 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 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.
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 a 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 30,
2012
 
December 30,
2011
Cash collateral held by insurance carriers
$
21.3

 
$
21.3

Cash and cash equivalents held in Trust (1)
19.2

 
19.2

Investments held in Trust
81.2

 
78.0

Letters of credit (2)
9.8

 
16.7

Surety bonds (3)
16.1

 
16.2

Total collateral commitments
$
147.6

 
$
151.4

____________________
(1)
Included in this amount is $0.8 million of accrued interest at both March 30, 2012 and December 30, 2011.
(2)
We have agreements with certain financial institutions to issue letters of credit as collateral. We had $1.8 million and $5.9 million of restricted cash collateralizing our letters of credit at March 30, 2012 and December 30, 2011, respectively.
(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
NOTE 8:
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 30,
2012
 
April 1,
2011
Restricted and unrestricted stock and performance share units expense
$
2.8

 
$
2.4

Stock option expense
—

 
0.1

ESPP expense
0.1

 
0.1

Total stock-based compensation expense
$
2.9

 
$
2.6


Restricted and unrestricted stock and performance share units

Stock-based awards are issued under our 2005 Amended Long-Term Equity Incentive Plan. Restricted stock is granted to 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 for the awards that are expected to vest.

Performance share units have been granted to executives since 2010. Vesting of the performance share units is contingent upon the achievement of revenue and profitability 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 and unrestricted stock and performance share units activity was as follows (shares in thousands):
 
Thirteen weeks ended
 
March 30, 2012
 
Shares
 
Price (1)
Non-vested at beginning of period
1,266

 
$
13.92

Granted
578

 
$
16.89

Vested
(308
)
 
$
13.75

Forfeited
(66
)
 
$
12.38

Non-vested at the end of the period
1,470

 
$
15.17

_____________________
(1)
Weighted average market price on grant-date.

As of March 30, 2012, total unrecognized stock-based compensation expense related to non-vested restricted stock was approximately $9.5 million, of which $8.3 million is estimated to be recognized over a weighted average period of 1.8 years through 2016. As of March 30, 2012, total unrecognized stock-based compensation expense related to performance share units, assuming achievement of maximum financial goals, was approximately $8.6 million, of which $5.7 million is currently estimated to be recognized over a weighted average period of 2.5 years through 2014.

Stock options

Our 2005 Amended Long-Term Equity 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. 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 2011 or during the period ended March 30, 2012.

Stock option activity was as follows (shares in thousands):
 
Thirteen weeks ended
 
March 30, 2012
 
Shares
 
Price (1)
Outstanding, December 31, 2011
1,110

 
$
15.64

Granted
—

 
$
—

Exercised
(230
)
 
$
9.15

Expired/Forfeited
(111
)
 
$
17.13

Outstanding, March 30, 2012
769

 
$
17.37


 
 
 
Exercisable, March 30, 2012
764

 
$
17.42

Options expected to vest, March 30, 2012
5

 
$
9.08

____________________
(1)
Weighted average exercise price.

Total unrecognized stock-based compensation expense related to non-vested stock options was de minimis as of March 30, 2012.

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 30, 2012 and April 1, 2011, participants purchased 28,000 and 20,000 shares, respectively, from the plan for cash proceeds of $0.3 million for each period.
INCOME TAXES
INCOME TAXES
NOTE 9:
INCOME TAXES

The effective tax rate was 42.2% for the thirteen weeks ended March 30, 2012. The principal difference between the statutory federal income tax rate of 35% and our effective income tax rate results from state income taxes, federal tax credits and certain non-deductible expenses. As of March 30, 2012 and December 30, 2011, we had unrecognized tax benefits of $1.8 million and $1.7 million, respectively, recorded in accordance with current accounting guidance on uncertain tax positions.
 

NET INCOME PER SHARE
NET INCOME PER SHARE
NOTE 10:
NET INCOME PER SHARE

Adjusted net income and diluted common shares were calculated as follows (in millions, except per share amounts):
 
Thirteen weeks ended
 
March 30,
2012
 
April 1,
2011
   Net income
$
1.5

 
$
0.8

 
 
 
 
Weighted average number of common shares used in basic net income per common share
39.4

 
43.5

Dilutive effect of outstanding stock options and non-vested restricted stock
0.5

 
0.4

Weighted average number of common shares used in diluted net income per common share
39.9

 
43.9

   Net income per common share:
 
 
 
Basic
$
0.04

 
$
0.02

Diluted
$
0.04

 
$
0.02

 
 
 
 
Anti-dilutive stock options and other
0.7

 
0.7


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 and performance share units except where their inclusion would be anti-dilutive.

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. Anti-dilutive shares also include in-the-money options, unvested restricted stock and performance share units for which the sum of the assumed proceeds, including unrecognized compensation expense, exceeds the average stock price during the periods presented.
SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
NOTE 11:
SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosure of cash flow information (in millions):
 
Thirteen weeks ended

March 30,
2012
 
April 1,
2011
Cash paid during the period for:
 
 
 
Interest
$
0.2

 
$
0.2

Income taxes
$
0.8

 
$
1.0


As of March 30, 2012, we had acquired $2.0 million of property, plant and equipment on account that was not yet paid. During the thirteen weeks ended March 30, 2012, we paid $1.6 million for capital expenditures acquired on account as of December 30, 2011. Amounts for the thirteen weeks ended April 1, 2011 were de minimis. These are considered non-cash investing items.