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EX-32.1 - SECTION 906 CEO AND CFO CERTIFICATIONS - TrueBlue, Inc.tbi10k122614ex321.htm
EX-21.1 - SUBSIDIARIES OF TRUEBLUE, INC. - TrueBlue, Inc.tbi10k122614ex211.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - TrueBlue, Inc.tbi10k122614ex312.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - TrueBlue, Inc.tbi10k122614ex311.htm
EXCEL - IDEA: XBRL DOCUMENT - TrueBlue, Inc.Financial_Report.xls
EX-23.1 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - TrueBlue, Inc.tbi10k122614ex231.htm

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
    ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 26, 2014
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-14543
____________________________________ 
TrueBlue, Inc.
(Exact name of Registrant as specified in its charter)
______________________________________ 
 
Washington
 
91-1287341
(State of Incorporation)
 
(IRS Employer ID)
 
 
1015 A Street, Tacoma, Washington
 
98402
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:    (253) 383-9101
______________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock no par value
 
The New York Stock Exchange
Securities registered under Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
¨
 Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
 
 
 
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
The aggregate market value (based on the NYSE quoted closing price) of the common stock held by non-affiliates of the registrant as of the last business day of the second fiscal quarter, June 27, 2014, was approximately $1.1 billion.
As of February 2, 2015, there were 41,543,267 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE



The information required by Part III of this report is incorporated by reference from the registrant’s definitive proxy statement relating to the Annual Meeting of Shareholders scheduled to be held May 13, 2015, which definitive proxy statement will be filed no later than 120 days after the end of the fiscal year to which this report relates.
 



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







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TrueBlue, Inc.
Form 10-K

PART I
COMMENT ON FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-K, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including the following sections: “Business,” “Management’s Discussion and Analysis,” and “Risk Factors.” Forward-looking statements involve risks and uncertainties, and future events and circumstances could differ significantly from those anticipated in the forward-looking statements. Actual events or results may differ materially. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We describe risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements in “Risk Factors” (Part I, Item 1A of this Form 10-K), “Quantitative and Qualitative Disclosures about Market Risk” (Part II, Item 7A of this Form 10-K), and “Management’s Discussion and Analysis” (Part II, Item 7 of this Form 10-K). We undertake no duty to update or revise publicly any of the forward-looking statements after the date of this report to conform such statements to actual results or to changes in our expectations, whether because of new information, future events, or otherwise.
Item 1.
BUSINESS
OUR COMPANY
TrueBlue, Inc. (“TrueBlue,” “we,” “us,” “our”) is a leading provider of specialized workforce solutions, helping clients improve growth and performance by providing staffing, recruitment process outsourcing, and managed service provider solutions. Our workforce solutions meet clients’ needs for a reliable, efficient workforce in a wide variety of industries. Through our workforce solutions, we help over 135,000 businesses be more productive and we connect as many as 750,000 people and work each year. We are headquartered in Tacoma, Washington.
We began operations in 1989, specializing in on-demand, general labor staffing services with the objective of providing customers with talent and flexible workforce solutions to enhance the performance of their business. We expanded our on-demand, general labor staffing services through organic geographic expansion throughout the United States, Canada, and Puerto Rico. Commencing in 2004, we began expanding through acquisitions to meet the needs of our customers for a full range of blue-collar staffing solutions. With this growth, we are better positioned to help businesses be more productive with a reliable contingent labor workforce and rapidly respond to changing business needs.
Effective June 30, 2014, we acquired Staffing Solutions Holdings, Inc. ("Seaton") which added a full service line of on-premise temporary blue-collar staffing together with complementary outsourced service offerings in recruitment process outsourcing ("RPO") and managed services provider ("MSP") solutions. On-premise staffing is large scale sourcing, screening, recruiting and management of the contingent labor workforce at a customer's facility. RPO is high-volume sourcing, screening, and recruiting of permanent employees for all major industries and jobs. MSP solutions provide customers with improved quality and spend management of their contingent labor vendors. The addition of Seaton added new services and capabilities to better meet our objective of providing customers with talent and flexible workforce solutions they need to enhance business performance.
BUSINESS OVERVIEW
We operate as two reportable segments: Staffing Services and Managed Services. As a result of our acquisition of Seaton, we added the Staff Management | SMX ("Staff Management") on-premise blue-collar temporary staffing service line to our previously reported segment of blue-collar temporary staffing, which is now called Staffing Services. Managed Services includes the PeopleScout and hrX (RPO) service lines and MSP solutions under the Staff Management brand.
Financial information regarding our reportable segments is included in Note 18: Segment Information, to our Consolidated Financial Statements found in Part II Item 8 of this Annual Report on Form 10-K.


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Staffing Services
Staffing Services provides a wide range of blue-collar staffing services including general labor, light industrial, skilled trades, aviation and transportation mechanics and technicians, and drivers. The acquisition of Seaton expanded our service offerings to include Staff Management, which provides technology-enabled on-premise contingent staffing and management of a facility's contingent workforce. Customers use Staff Management to outsource a portion of a facility's workforce in order to achieve faster hiring, lower total cost of workforce, increased safety and compliance, improved retention, greater volume flexibility, and enhanced strategic decision making through robust reporting and analytics. Staff Management has experienced high customer retention and expanded utilization of their services at customers' facilities.
Staffing Services helped over 134,000 businesses in 2014 be more productive through easy access to dependable blue-collar contingent labor. Through our Staffing Services we connect approximately 500,000 people and work each year. We service a broad range of industries that include construction, manufacturing, transportation, aviation, waste, hospitality, retail, energy, and many more. We have a network of 692 branches across all 50 states, Puerto Rico, and Canada, plus 162 on-premise locations at customer's facilities.
We use distinct brands to market our specialized blue-collar staffing services, operating as Labor Ready for on-demand general labor, Spartan Staffing for skilled manufacturing and logistics labor, CLP Resources for skilled trades for commercial, industrial, and energy construction as well as building and plant maintenance, PlaneTechs for skilled mechanics and technicians for the aviation and transportation industries, Centerline Drivers for temporary and dedicated drivers for the transportation and distribution industries, and newly acquired Staff Management for on-premise temporary staffing and management of a facility's contingent workforce for manufacturing, assembly, and logistics.
Our Staffing Services operations are all in the blue-collar staffing market of the temporary staffing industry. All of our service lines:
Provide blue-collar temporary labor services to our customers;
Build a temporary workforce through recruiting, screening, and on-boarding through a broad network of local branch locations, customer on-premise locations, and national service centers;
Assign temporary workers to customers' work sites where they ultimately work under the supervision of our customers;
Drive profitability by managing the bill rates to our customers and the pay rates to our temporary workers. Profitable growth requires increased volume, bill rates that grow faster than pay rates, and/or leveraging our cost structure;
Utilize centralized support services to service our customers; and
Use innovative technology to improve our ability to recruit quality workers, effectively match workers to the needs of our customers, manage our contingent workforce, and meet our customers' needs to efficiently and effectively improve productivity. We are focused on improving the ease of doing business with us for both our customers and temporary workers.
Our long-term financial performance expectations of all our staffing service lines are similar as are the underlying financial and economic metrics used to manage those service lines. Profitable growth is driven by leveraging our cost structure across all service lines to achieve economies of scale and investing in technology that improves our productivity.
Temporary Staffing Industry (the terms temporary and contingent are used interchangeably)
The temporary staffing industry supplies staffing services to minimize the cost and effort of hiring and administering permanent employees in order to rapidly respond to changes in business conditions, to temporarily replace absent employees, to temporarily fill new positions, and to convert fixed or permanent labor costs to variable costs. Temporary staffing companies act as intermediaries in matching available temporary workers to employer work assignments. The work assignments vary widely in duration, level of skill, and experience. The temporary staffing industry is large and highly fragmented with many competing companies. No single company has a dominant share of the industry. Staffing companies compete both to recruit and retain a supply of temporary workers and to attract and retain customers to employ these workers. Customer demand for temporary staffing services is dependent on the overall strength of the labor market and workforce flexibility trends. The temporary staffing industry is subject to volatility based on overall economic conditions. Historically, in periods of economic growth, the number of companies providing contingent labor services has increased due to low barriers to entry and during recessionary periods the number of companies has decreased through consolidation, bankruptcies, or other events. The temporary staffing industry is currently experiencing increased demand in relation to total job growth as demand for a flexible workforce continues to grow with competitive and economic pressures to reduce costs and respond to rapidly changing market conditions with a more flexible workforce.


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Managed Services
Managed Services includes our newly acquired PeopleScout and Australia-based hrX service lines, together with the MSP portion of the Staff Management service line, which were acquired effective June 30, 2014 as part of the Seaton acquisition. PeopleScout and hrX provide recruitment process outsourcing solutions ("RPO"). RPO is high-volume sourcing, screening and recruitment of permanent employees for all major industries and jobs. The RPO solution delivers improved talent quality, faster hiring, increased scalability, reduced turnover, lower cost of recruitment, greater flexibility, and increased compliance. We leverage our proprietary candidate and applicant tracking systems, called myPeopleScout and Springboard, along with dedicated service delivery teams to work as an integrated partner with our customers in providing end-to-end talent acquisition services from sourcing candidates through on-boarding employees. The solution is highly scalable and flexible, allowing for outsourcing of all or a subset of skill categories across a series of recruitment process and on-boarding steps. Customer contracts are generally multi-year in duration and pricing is typically composed of a fee for each hire. Volume, job type, degree of recruiting difficulty, and number of recruiting process steps from sourcing to on-boarding factor into pricing.
Our RPO services are delivered through our highly centralized operations in Chicago, Illinois for PeopleScout and Sydney, Australia for hrX with support from on-site and virtual employee teams. In 2014, PeopleScout and hrX placed over 250,000 individuals into permanent jobs at 70 customers. Our commitment to superior customer service is key to our high customer retention.
Managed Services also includes our newly acquired MSP solution. MSP solutions manage our customer's overall contingent labor program including vendor selection, vendor performance management, vendor compliance monitoring and risk management, and reducing vendor costs. As the customer's exclusive MSP solution provider, we manage multiple workforce vendors utilizing vendor management systems.
Human Resource Outsourcing Market
The human resource outsourcing market involves transitioning various functions handled by internal human resources and labor procurement to outside service providers on a permanent or selective basis. Human resource outsourcing companies allow customers to shed non-core activities in order to reduce costs, free up management time and energy, and gain access to the high-quality services of specialty providers. Human resource departments are continually faced with increased operational complexity, heightened regulatory requirements and pressure to achieve cost savings, which increase the need to migrate non-core functions to outsourced providers. RPO and MSP services are in the early stages of their adoption cycles and therefore we believe they have significantly higher growth potential.
Key trends contributing to RPO growth are as follows:
Cost: The majority of customers are able to reduce cost by deploying a RPO solution to reduce their internal human resource cost structure. Companies are increasingly viewing RPO as an attractive and cost effective alternative to contingent search firms.
Scalability: RPO providers can add significant scalability to a company's recruiting and hiring efforts, including accommodating seasonal, irregular, and burst hiring without being overstaffed during less busy periods. Providers also help customers increase efficiency by standardizing processes and facilitating transitions for candidates and employees.
Access to Talent: RPO programs can access numerous sources to prospect for the best talent more quickly, thereby delivering a better outcome for the customer.
Sophisticated Recruitment and Retention: RPO solutions are typically able to source higher quality candidates well suited to the position, leading to a lower turnover rate than an internal recruitment would have achieved. Companies are facing rapidly changing employment demographics, shortage of skilled professional workers, and dynamic changes to how workers connect to work opportunities. RPO offers sophisticated recruiting solutions to these challenges.
Key trends contributing to MSP growth are as follows:
Vendor Consolidation: Vendor consolidation can achieve significant efficiencies through enhanced scale and cost advantages such as consolidated invoicing, single reporting, single point of contact, and standardized contracts. An MSP solution allows a company access to a large variety of vendors with the efficiency of working with one supplier.
Compliance Pressure: Demand for contingent employee sourcing and workforce management solutions is driven by increasing taxation complexity, work eligibility legislation and compliance monitoring to ensure correct worker classification in order to properly address tax withholding, overtime, social security, unemployment, and healthcare obligations to avoid government penalties and lawsuits.


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Cost Savings and Access to Talent: MSP programs achieve cost savings through economies of scale with suppliers that would not be obtainable otherwise. An MSP can access numerous sources to prospect for the best talent at the best price more quickly, thereby delivering a better outcome for the customer.
Sophisticated Deployment and Monitoring: As an organization's spend on contingent workforces rises, it becomes increasingly interested in having consistency among contractors and processes, robust performance tracking and analytics, and reducing the administrative burden of managing multiple outside vendors. Our MSP solution addresses these needs.
BUSINESS STRATEGY
Organic growth of our specialized workforce solutions.
Our customers have a variety of challenges in running their businesses, many of which are unique to the industry in which they operate, their competitive pressures, and business performance. The addition of Seaton added new services and capabilities to better meet our objective of providing customers with the talent and flexible workforce solutions they need to enhance business performance. Each of our service lines are industry experts dedicated to tailoring solutions which meet the unique needs of our customers and the industries in which they operate. We offer differentiated solutions that meet their current needs and keep pace with their changing needs. We plan to continue building the specialization of our sales and services teams while creating a more seamless experience for our customers to access all of our service lines.
As the economy grows, we will continue to evaluate opportunities to expand our market presence for staffing services. All of our multi-location service lines have opportunities to expand their geographical reach through new physical locations, expanded use of existing locations to provide the full range of blue-collar staffing services, and centralized recruitment and dispatch of our temporary workers to areas without branches. The acquisition of Seaton provides new opportunities to leverage technology and best practice processes in centralized, high-volume, and rapid recruitment of quality workers which are deployed to customers with multi-location demand for temporary staffing. These centralized capabilities when combined with our local presence will accelerate our staffing services growth.

The acquisition of Seaton further accelerates our opportunity to offer a full range of workforce solutions to our combined customer base of large, national customers. Our service lines offer complementary workforce solutions each with unique value propositions. We will leverage our sales channel to provide customers with more comprehensive solutions to enhance their performance and our growth.

Our MSP solution is focused on domestic middle market companies with a growing dependence on contingent labor. We are uniquely positioned to supply blue-collar temporary workers to our customers and with our MSP solution to manage the full range of their contingent labor needs.

Our RPO services are recognized as industry leaders. RPO services are in the early stages of their adoption cycles and therefore we believe they have significantly higher growth potential. The success of early adopters is generating greater opportunity to expand our service offering. We have a differentiated service that leverages innovative technology for high-volume sourcing and dedicated client service teams for connecting workers to opportunities. We have a track record of helping our customers reduce the cost of hiring, add significant scalability to recruiting and hiring, and access numerous sources to prospect for the best talent more quickly, thereby delivering a better outcome for the customer. Companies are facing rapidly changing employment demographics, shortage of skilled professional workers, and dynamic changes to how workers connect to work opportunities. Our solution addresses these growing challenges.
Growth through expansion into complimentary workforce services.
Our customers utilize our workforce solutions to improve the performance of their businesses. With growing demands for improved productivity and connecting to workers, our customers are looking for a full range of services. We are well positioned to offer additional complementary human capital solutions to help our customers achieve further optimization of their workforce and talent acquisition. We expect to leverage our access to workers, innovative technology, and customer relationships to offer tailored solutions that expand our core services and offer greater access to talent.
Leverage technology to improve the temporary worker and customer experience and our efficiency.
We are committed to technology innovation that makes it easier for our customers to do business with us and easier to connect workers and work opportunities. We are making significant investments in online and mobile applications to improve access, speed, and ease of connecting our customers and workers.


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We will continue to invest in technology which increases our sustainability, scalability, and agility. These investments improve the efficiency and effectiveness of delivering our service. We expect to be the service leader. We believe that the combination of our technology in the hands of our dedicated service teams, differentiates our service. Recent examples of technology investments, which are delivering superior service and increased efficiency, include online and mobile solutions. We made enhancements to the applicant tracking system, electronic dispatch, and electronic pay capabilities used by our branch network of staffing services. Applicant tracking system enhancements have improved our online sourcing, mobile recruitment, and talent matching capabilities. Electronic dispatch investments have increased the efficiency and speed of delivering services while providing more appealing and efficient methods to interact with candidates and workers. These investments are reducing our dependence on local branches. In 2014 we consolidated 65 branch locations. Additionally, these investments advance our ability to centralize high-volume activities which have increased the reliability of our service delivery and allowed our field personnel to focus on matching the customer's needs with the best solution to enhance their performance.
Growth through acquisitions which enhance our organic growth and technology advances.
Strategic acquisitions continue to be a key growth strategy. We believe we have a core competence in assessing, valuing, and integrating acquisitions culminating in higher shareholder returns. We are excited about the future of the staffing industry and human resource outsourcing and believe we can continue to create shareholder value through acquisitions, which expand our workforce solutions in high-growth markets, enhance our use of technology to better serve our customers, and increase our own efficiency.
CUSTOMERS
Our customers range from small and medium-sized businesses to Fortune 100 customers.
During 2014, we served approximately 135,000 customers in industries including construction, manufacturing, waste, wholesale, retail, transportation, aviation, hospitality, energy and many more. Our ten largest customers accounted for 19.4% of total revenue for 2014, 15.7% for 2013, and 21.7% for 2012. No individual customer accounted for more than 10% of revenue for any of the periods presented.
EMPLOYEES
As of December 26, 2014, we employed approximately 5,000 full-time equivalent employees.
CONTINGENT WORKERS
Our Staffing Services placed approximately 500,000 contingent workers on assignments with our customers during 2014. We recruit contingent workers daily so that we can be responsive to the planned, as well as unplanned, needs of the customers we serve. We attract our pool of contingent workers through online resources, extensive internal databases, advertising, job fairs, and various other methods. We identify the skills, knowledge, abilities, and personal characteristics of a temporary worker and match their competencies and capabilities to a customer’s requirements. This enables our customers to obtain immediate value by placing a highly productive employee on the job site. We use a variety of proprietary programs and methods for identifying and assessing the skill level of our temporary workers when selecting a particular individual for a specific assignment and retaining those workers for future assignments. We believe that our programs and methods enable us to offer a higher quality of service by increasing productivity, decreasing turnover, and reducing absenteeism.
We provide a bridge to permanent, full-time employment for thousands of contingent workers each year. Workers also come to us because of the flexibility we offer to fill a short-term financial need and/or longer-term contingent labor opportunities. Workers may be assigned to different jobs and job sites, and their assignments could last for as little as a few hours or extend for several weeks or months. We provide our workers meaningful work and the opportunity to improve their skills. We are considered the legal employer, and laws regulating the employment relationship are applicable to our operations. We consider our relations with our contingent workers to be good.
COMPETITION
We compete with other large publicly-held staffing companies as well as privately-owned staffing companies on a national, regional, and local level.
Staffing Services - The strongest staffing services competitor in a particular market is a company with established relationships and a track record of meeting the customer's needs. We also experience competition from internet-based companies providing a variety of flexible workforce solutions. Competition exists in attracting customers as well as qualified temporary workers for our customers. No single company has a dominant share of the industry. Competitive forces have historically limited our ability to


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raise our prices to immediately and fully offset increased costs of doing business, some of which include increased contingent worker wages, costs for workers’ compensation, unemployment insurance, and health care.
The most significant competitive factors are price, ability to promptly fill customer orders, success in meeting customers’ expectations of recruiting temporary workers, and appropriately addressing customer service issues. We believe we derive a competitive advantage from our service history, and our specialized approach in serving the industries of our customers. Our national presence, industry specialization, investment in technology and proprietary systems and processes together with specialized programs focused on worker safety, risk management, and legal and regulatory compliance are also key differentiators from many of our competitors.
Managed Services - The strongest competitors for large customers are large publicly-held and privately-owned staffing companies. No one provider dominates the market. Competition also includes in-house human resource departments who have not or are not considering outsourcing. The most significant competitive factors for RPO services are the ability to reduce customer cost by deploying an RPO solution and reducing the internal human resource cost structure of our customers. The ability to add significant scalability to a customer's recruiting and hiring efforts, including accommodating seasonal and irregular hiring, the ability to increase efficiency by standardizing processes and facilitating transitions for candidates and employees, and the ability to source the most attractive talent at the best price are important. Our tailored solutions, customer partnership, proprietary technology, and service delivery are key differentiators from many of our competitors.
MSPs generally compete with in-house contingent labor procurement and national staffing firms. The most significant competitive factors for outsourcing MSP services are vendor consolidation, compliance pressure, cost savings, access to diverse talent pools, and sophisticated deployment and monitoring.
CYCLICAL NATURE OF OUR BUSINESS
The workforce solutions business has historically been cyclical, often acting as an indicator of both economic downturns and upswings. Customers tend to use temporary staffing to supplement their existing workforce and generally hire permanent workers when long-term demand is expected to increase. As a consequence, our revenues tend to increase quickly when the economy begins to grow. Conversely, our revenues also decrease quickly when the economy begins to weaken and temporary staff positions are eliminated and permanent hiring is frozen and turnover replacement diminishes.
SEASONAL NATURE OF OUR BUSINESS
Our business experiences seasonal fluctuations for staffing services. Demand is lower during the first and second quarters, in part due to limitations to outside work during the winter months and slowdown in manufacturing and logistics after the holiday season. Our working capital requirements are primarily driven by contingent worker payroll and customer accounts receivable. Since receipts from customers lag payroll to contingent workers, working capital requirements increase substantially in periods of growth. Demand for contingent labor peaks during the third quarter for outdoor work and the fourth quarter for manufacturing and logistics for the holiday season.
REGULATION
Our services are subject to a variety of complex federal and state laws and regulations. We continuously monitor legislation and regulatory changes for their potential effect on our business. We invest in technology and process improvements to implement required changes while minimizing the impact to our operating efficiency and effectiveness. Regulatory cost increases are passed through to our customers to the fullest extent possible.
RISK MANAGEMENT
We have developed an integrated risk management program that focuses on loss analysis, education, and improvement programs to reduce our operational costs and risk exposure. We regularly analyze our losses on labor matters and workers' compensation claims to identify trends. This allows us to focus our resources on those areas that may have the greatest impact on us, price our services appropriately and adjust our sales and operational approach in these areas. We have also developed educational materials for distribution to our customers and workers to address specific safety risks unique to their industry.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
For information regarding revenue from operations and long-lived assets by domestic and foreign operations, please refer to the information presented in Note 18: Segment Information, to our Consolidated Financial Statements found in Part II Item 8 of this Annual Report on Form 10-K.


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AVAILABLE INFORMATION
Our Annual Report on Form 10-K, along with all other reports and amendments filed with or furnished to the Securities and Exchange Commission (“SEC”) are publicly available, free of charge, on our website at www.trueblue.com or at www.sec.gov as soon as reasonably practicable after such reports are filed with or furnished to the SEC. Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and Board Committee Charters are also posted to our website. The information on our website is not part of this or any other report we file with, or furnish to, the SEC.


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Item 1A.
RISK FACTORS
Investing in our securities involves risk. The following risk factors and all other information set forth in this Annual Report on Form 10-K should be considered in evaluating our future prospects. If any of the events described below occurs, our business, financial condition, results of operations, liquidity, or access to the capital markets could be materially and adversely affected.
Our workforce solutions and services are significantly affected by fluctuations in general economic conditions.
The demand for workforce solutions and services is highly dependent upon the state of the economy and upon the workforce needs of our customers which creates uncertainty and volatility. As economic activity slows, companies tend to reduce their use of contingent workers and reduce their recruitment of new employees. Significant declines in demand of any region or specific industry in which we have a significant presence may severely reduce the demand for our services and thereby significantly decrease our revenues and profits. Deterioration in economic conditions or the financial or credit markets could also have adverse impacts on our customers' ability to pay us for services we have already provided.
It is difficult for us to forecast future demand for our services due to the inherent difficulty in forecasting the direction and strength of economic cycles, and the project nature of our staffing assignments. This situation can be exacerbated by uncertain and volatile economic conditions, which may cause clients to reduce or defer projects for which they utilize our services, thereby negatively affecting demand for them. When it is difficult for us to accurately forecast future demand, we may not be able to determine the optimal level of personnel and investment necessary to profitably take advantage of growth opportunities.
Our workforce solutions and services are subject to extensive government regulation or the imposition of additional regulations that could materially harm our future earnings.
Our workforce solutions and services are subject to extensive regulation. The cost to comply, and any inability to comply with government regulation could have a material adverse effect on our business and financial results. Increased government regulation of the workplace or of the employer-employee relationship, or judicial or administrative proceedings related to such regulation, could materially harm our business.
Our temporary staffing services employ contingent workers. The wage rates we pay to temporary workers are based on many factors, including government mandated minimum wage requirements, payroll taxes and benefits. If we are not able to increase the fees charged to customers to absorb any increased costs related to government mandated minimum wages, payroll-related taxes and benefits, our results of operations and financial condition could be adversely affected.
We offer our temporary workers in the United States government mandated health insurance in compliance with the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”). Because the requirements, regulations, and legislation related to the ACA may change, the full financial effect of the ACA is not yet known, and additional requirements, regulations, or legislation changes could increase our costs. If we are unable to comply with such additional changes, or sufficiently raise the rates we charge our customers to cover any additional costs, such increases in costs could materially harm our business.
We may incur employment related claims and costs that could materially harm our business.
We are in the business of employing people and placing them in the workplaces of other business. We incur a risk of liability for claims for personal injury, wage and hour violations, immigration, discrimination, harassment, and other liabilities arising from the actions of our customers and temporary workers. Some or all of these claims may give rise to negative publicity and/or litigation, including class action litigation. A material adverse impact on our financial statements could occur for the period in which the effect of an unfavorable final outcome becomes probable and can be reasonably estimated.
We maintain insurance with respect to certain claims and costs. We cannot be certain that our insurance will be available, or if available, is in sufficient amount or scope to cover all claims that may be asserted against us. Should the ultimate judgments or settlements exceed our insurance coverage, they could have a material effect on our business. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future, that adequate replacement policies will be available on acceptable terms, or at all, or that the companies from which we have obtained insurance will be able to pay claims we make under such policies.



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We are dependent on workers' compensation insurance coverage at commercially reasonable terms. Unexpected changes in claim trends on our workers' compensation may negatively impact our financial condition.
Our temporary staffing services employ contingent workers for which we provide workers' compensation insurance. Our workers' compensation insurance policies are renewed annually. The majority of our insurance policies are with AIG. Our insurance carriers require us to collateralize a significant portion of our workers' compensation obligation. The majority of collateral is held in trust by a third-party for the payment of these claims. The loss or decline in value of the collateral could require us to seek additional sources of capital to pay our workers' compensation claims. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on acceptable terms. As our business grows or if our financial results deteriorate, the amount of collateral required will likely increase and the timing of providing collateral could be accelerated. Resources to meet these requirements may not be available. The loss of our workers' compensation insurance coverage would prevent us from doing business in the majority of our markets. Further, we cannot be certain that our current and former insurance carriers will be able to pay claims we make under such policies.
We self-insure, or otherwise bear financial responsibility for, a significant portion of expected losses under our workers' compensation program. Unexpected changes in claim trends, including the severity and frequency of claims, changes in state laws regarding benefit levels and allowable claims, actuarial estimates, or medical cost inflation, could result in costs that are significantly different than initially reported. There can be no assurance that we will be able to increase the fees charged to our customers in a timely manner and in a sufficient amount to cover increased costs as a result of any changes in claims-related liabilities.
We actively manage the safety of our temporary workers with our safety programs and actively control costs with our network of workers’ compensation related service providers. These activities have had a positive impact creating favorable adjustments to workers’ compensation liabilities recorded in prior periods. The benefit of these adjustments has been declining and there can be no assurance that we will be able to continue to reduce accident rates and control costs to produce these results in the future.
Our level of debt and restrictions in our credit agreement could negatively affect our operations and limit our liquidity and our ability to react to changes in the economy.
Extensions of credit under our Second Amended and Restated Revolving Credit Agreement ("Revolving Credit Facility") are permitted based on a borrowing base, which is an agreed percentage of eligible accounts receivable and an agreed percentage of the appraised value of our Tacoma headquarters building, less required reserves and other adjustments. If the amount or quality of our accounts receivable deteriorates, then our ability to borrow under the Revolving Credit Facility will be directly affected. Our lenders can impose additional conditions which may reduce the amounts available to us under the Revolving Credit Facility.
Our principal sources of liquidity are funds generated from operating activities, available cash and cash equivalents, and borrowings under our Revolving Credit Facility. We must have sufficient sources of liquidity to meet our working capital requirements, fund our workers' compensation collateral requirements, service our outstanding indebtedness, and finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our operations or we may not be able to pursue promising business opportunities.
Our Revolving Credit Facility and term loan contain restrictive covenants that require us to maintain certain financial conditions. Our failure to comply with these restrictive covenants could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. We may not have sufficient funds on hand to repay these loans, and if we are forced to refinance these borrowings on less favorable terms, or are unable to refinance at all, our results of operations and financial condition could be materially adversely affected by increased costs and rates.
Our increased debt levels could have significant consequences for the operation of our business, including: requiring us to dedicate a significant portion of our cash flow from operations to servicing our debt rather than using it for our operations; limiting our ability to obtain additional debt financing for future working capital, capital expenditures, or other corporate purposes; limiting our ability to take advantage of significant business opportunities, such as acquisition opportunities; limiting our ability to react to changes in market or industry conditions; and putting us at a competitive disadvantage compared to competitors with less debt.
Acquisitions and new business initiatives may have an adverse effect on our business.
We expect to continue making acquisitions and entering into new business initiatives as part of our business strategy. This strategy may be impeded, however, if we cannot identify suitable acquisition candidates or new business initiatives, or if acquisition candidates are not available under terms that are acceptable to us. Future acquisitions could result in our incurring additional debt and contingent liabilities, an increase in interest expense, an increase in amortization expense, and/or significant charges related to integration costs. Acquisitions and new business initiatives, including initiatives outside of our workforce solutions and services business, could involve significant unanticipated challenges and risks, including that they may not advance our business strategy, we may not realize our anticipated return on our investment, we may experience difficulty in implementing initiatives or integrating


Page - 12


acquired operations, or management's attention may be diverted from our other business. These events could cause material harm to our business, operating results, or financial condition.
If our acquired intangible assets become impaired we may be required to record a significant charge to earnings.
We regularly review acquired intangible assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. We test goodwill and indefinite-lived intangible assets for impairment at least annually. Factors that may be considered a change in circumstances, indicating that the carrying value of the intangible assets may not be recoverable, include: macroeconomic conditions, such as deterioration in general economic conditions; industry and market considerations, such as deterioration in the environment in which we operate; cost factors, such as increases in labor or other costs that have a negative effect on earnings and cash flows; our financial performance, such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods; and other relevant entity-specific events, such as changes in management, key personnel, strategy, or customers, and sustained decreases in share price. We may be required to record a significant charge in our financial statements during the period in which we determine an impairment of our acquired intangible assets has occurred, negatively impacting our financial results.
We operate in a highly competitive business and may be unable to retain customers or market share.
Our business is highly competitive and rapidly innovating. Our competitors include large, well-financed competitors, small local competitors, and internet-based companies providing a variety of flexible workforce solutions. We face extensive pricing pressure and the requirement to innovate changes in the way we do business to remain relevant to our customers. Therefore, there can be no assurance that we will be able to retain customers or market share in the future. Nor can there be any assurance that we will, in light of competitive pressures, be able to remain profitable or, if profitable, maintain our current profit margins.
The loss of or substantial decline in revenue from a major customer could have a material adverse effect on our revenues, profitability, and liquidity.
We experience revenue concentration with large customers. The loss of, or reduced demand for our services related to major customers could have a material adverse effect on our business, financial condition and results of operations. In addition, customer concentration exposes us to concentrated credit risk, as a significant portion of our accounts receivable may be from a small number of customers.
Our management information systems may not perform as anticipated and are vulnerable to damage and interruption.
The efficient operation of our business is dependent on our management information systems. We rely heavily on proprietary and third-party management information systems, mobile device technology, and related services, and other technology which may not yield the intended results. Our systems may experience problems with functionality and associated delays. The failure of our systems to perform as we anticipate could disrupt our business and could result in decreased revenue and increased overhead costs, causing our business and results of operations to suffer materially. Our primary computer systems and operations are vulnerable to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, catastrophic events, and errors in usage by our employees. Failure of our systems to perform may require significant additional capital and management resources to resolve, causing material harm to our business.
Improper disclosure of, or access to, our confidential and/or proprietary information or our employees' or customers' information could materially harm our business.
Our business involves the use, storage, and transmission of information about applicants, candidates, contingent workers, permanent placements, our employees, and customers. Additionally, our employees may have access or exposure to confidential customer information about applicants, candidates, contingent workers, permanent placements, other employees, and customers. We and our third parties have established policies and procedures to help protect the security and privacy of this information. It is possible that our security controls over sensitive or confidential data and other practices we and our third party vendors follow may not prevent the improper access to, disclosure of, or loss of such information, resulting in increased costs or loss of revenue. Failure to protect the integrity and security of such confidential and/or proprietary information, could expose us to litigation and materially damage our relationships. Further, data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions. Our failure to adhere to or successfully implement changes in response to the changing regulatory requirements could result in legal liability, additional compliance costs, and damage to our reputation.
Our results of operations could materially deteriorate if we fail to attract, develop and retain qualified employees.
Our performance is dependent on attracting and retaining qualified employees who are able to meet the needs of our customers. We believe our competitive advantage is providing unique solutions for each individual customer, which requires us to have trained and engaged employees. Our success depends upon our ability to attract, develop and retain a sufficient number of qualified


Page - 13


employees, including management, sales, recruiting, service and administrative personnel. The turnover rate in the employment services industry is high, and qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply. Our inability to recruit, train, and motivate a sufficient number of qualified individuals may delay or affect the speed of our strategy execution and planned growth. Delayed expansion, significant increases in employee turnover rates or significant increases in labor costs could have a material adverse effect on our business, financial condition and results of operations.
We may be unable to attract sufficient qualified candidates to meet the needs of our customer.
We compete to meet our customer needs for workforce solutions and services and we must continually attract qualified candidates to fill positions. Attracting qualified candidates depends on factors such as desirability of the assignment, location, and the associated wages and other benefits. We have in the past experienced shortages of qualified candidates and we may experience such shortages in the future. Further, if there is a shortage, the cost to employ these individuals could increase. If we are unable to pass those costs through to our customers, it could materially and adversely affect our business. Organized labor periodically engages in efforts to represent various groups of our contingent workers. If we are subject to unreasonable collective bargaining agreements or work disruptions, our business could be adversely affected.
We may have additional tax liabilities that exceed our estimates.
We are subject to federal taxes and a multitude of state and local taxes in the United States and taxes in foreign jurisdictions. In the ordinary course of our business, there are transactions and calculations where the ultimate tax determination is uncertain. We are regularly subject to audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical tax provisions and accruals. The results of an audit or litigation could materially harm our business.
Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting.
If our management is unable to certify the effectiveness of our internal controls or if our independent registered public accounting firm cannot render an opinion on the effectiveness of our internal control over financial reporting, or if material weaknesses in our internal controls are identified, we could be subject to regulatory scrutiny and a loss of public confidence. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to accurately report our financial performance on a timely basis, which could cause our stock price to fall.
Outsourcing certain aspects of our business could result in disruption and increased costs.
We have outsourced certain aspects of our business to third party vendors that subject us to risks, including disruptions in our business and increased costs. For example, we have engaged third parties to host and manage certain aspects of our data center, information and technology infrastructure, mobile texting and electronic pay solutions, to provide certain back office support activities, and to support business process outsourcing for our customers. Accordingly, we are subject to the risks associated with the vendor's ability to provide these services to meet our needs. If the cost of these services is more than expected, or if we or the vendor are unable to adequately protect our data and information is lost, or our ability to deliver our services is interrupted, then our business and results of operations may be negatively impacted.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
We lease the building space at all our branches and other offices except for one that we own in Florida. Under the majority of the branch leases, we have the right to terminate the lease on 90 days notice. We own an office building in Tacoma, Washington, which serves as our corporate headquarters. Management believes all our facilities are currently suitable for their intended use.
Item 3.    LEGAL PROCEEDINGS
See Note 10: Commitments and Contingencies, to our Consolidated Financial Statements found in Part II of Item 8 of this Annual Report on Form 10-K.


Page - 14


Item 4.
MINE SAFETY DISCLOSURES
None.


Page - 15


PART II

Item 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on the New York Stock Exchange under the ticker symbol TBI. The table below sets forth the high and low sales prices for our common stock as reported by the New York Stock Exchange during the last two fiscal years:
 
High
 
Low
2014
 
 
 
Fourth Quarter
$
27.03

 
$
20.00

Third Quarter
$
31.30

 
$
24.88

Second Quarter
$
30.64

 
$
25.38

First Quarter
$
29.53

 
$
22.50

2013
 
 
 
Fourth Quarter
$
27.43

 
$
23.22

Third Quarter
$
27.76

 
$
20.35

Second Quarter
$
23.82

 
$
19.31

First Quarter
$
21.43

 
$
15.36

Holders of the Corporation’s Common Stock
We had approximately 517 shareholders of record as of February 2, 2015. This number does not include shareholders for whom shares were held in “nominee” or “street name.”
Dividends
No cash dividends have been declared on our common stock to date nor have any decisions been made to pay a dividend in the future. Payment of dividends is evaluated on a periodic basis and if a dividend were paid, it would be subject to the covenants of our Second Amended and Restated Revolving Credit Agreement, which may have the effect of restricting our ability to pay dividends.
Stock Repurchases The table below includes repurchases of our common stock pursuant to publicly announced plans or programs and those not made pursuant to publicly announced plans or programs during the thirteen weeks ended December 26, 2014.
Period
Total number
of shares
purchased (1)
 
Weighted
average price
paid per
share (2)
 
Total number of shares
purchased as part of
publicly announced plans
or programs
 
Maximum number of shares (or
approximate dollar value) that
may yet be purchased under
plans or programs at period
end (3)
9/27/14 through 10/24/14
755

 

$24.61

 

 
$35.2 million
10/25/14 through 11/21/14
1,864

 

$25.24

 

 
$35.2 million
11/22/14 through 12/26/14
1,860

 

$22.96

 

 
$35.2 million
Total
4,479

 

$24.19

 

 
 

(1)
During the thirteen weeks ended December 26, 2014, we purchased 4,479 shares in order to satisfy employee tax withholding obligations upon the vesting of restricted stock. These shares were not acquired pursuant to any publicly announced purchase plan or program.
(2)
Weighted average price paid per share does not include any adjustments for commissions.
(3)
Our Board of Directors authorized a $75.0 million share repurchase program in July 2011 that does not have an expiration date. As of December 26, 2014, $35.2 million remains available for repurchase of our common stock under the current authorization.
TrueBlue Stock Comparative Performance Graph
The following graph depicts our stock price performance from December 24, 2009 through December 26, 2014, relative to the performance of the S&P SmallCap 600 Index, S&P 1500 Human Resources and Employment Services Index, and a peer group


Page - 16


of companies in the staffing and human resource outsourcing industries we have selected in good faith. Previously, the graph did not include the S&P 1500 Human Resources and Employment Services Index, however, as we are included in this index along with other US-based industry peers, we believe it provides a more meaningful comparison. We will replace our peer group with this index in future comparisons.
All indices shown in the graph have been reset to a base of 100 as of December 24, 2009 and assume an investment of $100 on that date and the reinvestment of dividends, if any, paid since that date. The returns of each company in our selected peer group have been weighted to reflect relative stock market capitalization at the beginning of each annual period plotted.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN


Total Return Analysis                                
2009
 
2010
 
2011
 
2012
 
2013
 
2014
TrueBlue, Inc.
$
100

 
$
120

 
$
93

 
$
104

 
$
173

 
$
151

Peer Group (1)
100

 
114

 
74

 
90

 
147

 
134

S&P SmallCap 600 Index
100

 
125

 
126

 
144

 
207

 
220

S&P 1500 Human Resources and Employment Services Index
100

 
114

 
97

 
107

 
191

 
194

(1)
The peer group includes Kelly Services, Inc., Manpower, Inc., Robert Half International Inc., Adecco SA and Randstad.


Page - 17


Item 6.
SELECTED FINANCIAL DATA
The following selected financial data is derived from our audited Consolidated Financial Statements. The data below should be read in conjunction with Item 1A “Risk Factors,” Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the notes included in Item 8 of this Annual Report on Form 10-K.
Summary Consolidated Financial and Operating Data
As of and for the Fiscal Years Ended (1)
(in thousands, except per share data)
 
2014 (52 Weeks)
 
2013
(52 Weeks)
 
2012
(52 Weeks)
 
2011
(52 Weeks)
 
2010
(53 Weeks)
Statements of Operations Data:
 
 
 
 
 
 
 
 
 
Revenue from services
$
2,174,045

 
$
1,668,929

 
$
1,389,530

 
$
1,316,013

 
$
1,149,367

Cost of services
1,637,066

 
1,226,626

 
1,017,145

 
968,967

 
845,916

Gross profit
536,979

 
442,303

 
372,385

 
347,046

 
303,451

Selling, general and administrative expenses
425,777

 
362,248

 
300,459

 
282,828

 
258,722

Depreciation and amortization
29,474

 
20,472

 
18,890

 
16,384

 
16,468

Interest and other income, net
116

 
1,354

 
1,569

 
1,490

 
901

Income before tax expenses
81,844

 
60,937

 
54,605

 
49,324

 
29,162

Income tax expense
16,169

 
16,013

 
20,976

 
18,533

 
9,323

Net income
$
65,675

 
$
44,924

 
$
33,629

 
$
30,791

 
$
19,839

 
 
 
 
 
 
 
 
 
 
Net income per diluted share
$
1.59

 
$
1.11

 
$
0.84

 
$
0.73

 
$
0.46

 
 
 
 
 
 
 
 
 
 
Weighted average diluted shares outstanding
41,176

 
40,502

 
39,862

 
42,322

 
43,540

 
 
 
 
 
 
 
 
 
 
  
At Fiscal Year End
 
2014
 
2013
 
2012
 
2011
 
2010
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Working capital
$
228,577

 
$
235,049

 
$
203,610

 
$
168,326

 
$
207,577

Total assets
$
1,066,671

 
$
719,461

 
$
601,743

 
$
560,769

 
$
546,466

Long-term liabilities
$
410,107

 
$
204,692

 
$
154,513

 
$
154,901

 
$
147,836

Total liabilities
$
597,337

 
$
326,101

 
$
268,069

 
$
267,190

 
$
233,759


(1)
Our fiscal year ends on the last Friday in December. The 2014 fiscal year, which ended on December 26, 2014, included 52 weeks. The 2010 fiscal year, which ended on December 31, 2010, included 53 weeks, with the 53rd week falling in our fourth fiscal quarter. All other prior years presented included 52 weeks.
The operating results reported above include the results of significant acquisitions subsequent to their respective purchase dates. In June 2014, we acquired all of the outstanding equity interests of Staffing Solutions Holdings, Inc. In February 2013, we acquired substantially all of the assets and assumed certain liabilities of MDT Personnel, LLC. In October 2013, we acquired substantially all of the assets and assumed certain liabilities of The Work Connection, Inc.



Page - 18


Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide the reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect future results. Our MD&A is presented in the following sections:
Overview
Results of Operations
Liquidity and Capital Resources
Contractual Obligations and Commitments
Summary of Critical Accounting Estimates
New Accounting Standards

OVERVIEW

TrueBlue, Inc. (“TrueBlue,” “we,” “us,” “our”) is a leading provider of specialized workforce solutions helping clients improve
growth and performance by providing staffing, recruitment process outsourcing, and managed service provider solutions. Our
workforce solutions meet clients’ needs for a reliable, efficient workforce in a wide variety of industries. Through our workforce solutions, we help over 135,000 businesses be more productive and we connect as many as 750,000 people and work each year. We are headquartered in Tacoma, Washington.
Revenue grew to $2,174.0 million for the year ended December 26, 2014, a 30.3% increase compared to the prior year. The revenue increase is primarily due to the acquisition of Staffing Solutions Holdings, Inc. ("Seaton"), which we completed effective June 30, 2014, the first business day of our third quarter. Revenue for Seaton was $394.4 million from the date of acquisition to our year ended December 26, 2014, or 23.6% of our revenue growth.
The Seaton acquisition added a full service line of on-premise blue-collar temporary staffing and added complementary outsourced service offerings in recruitment process outsourcing ("RPO") and managed services provider ("MSP") solutions. On-premise temporary staffing is a large scale exclusive recruitment and management of a customer's on-premise contingent labor workforce at a customer's facility. RPO is high-volume sourcing, screening and recruitment of permanent employees for all major industries and jobs. MSP solutions provide customers with improved quality and spend management of their contingent labor vendors. The Seaton acquisition added new services and capabilities to better meet our objective of providing our customers with talent and flexible workforce solutions they need to enhance their business performance. We are pleased with the Seaton integration and the retention of the senior leadership team and all but a few customers. See Note 2: Acquisitions, to our Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K for additional details of our acquisition of Seaton.
Approximately 4.6% of the revenue growth for the year ended December 26, 2014 was generated from the acquisitions of MDT Personnel, LLC ("MDT") and The Work Connection, Inc. ("TWC") in the prior year with retention of senior management and strong retention of customers. Effective February 4, 2013, we acquired substantially all of the assets and assumed certain liabilities of MDT, the third-largest general-labor staffing provider in the United States. Effective October 1, 2013, we acquired substantially all of the assets and assumed certain liabilities of TWC, a light industrial staffing provider. The acquisitions were fully integrated in 2013.
In addition to revenue growth from acquisitions, we experienced organic revenue growth for the year ended December 26, 2014 of approximately 2.0%, or 4.2%, excluding our service to the green energy industry. Green energy projects declined and slowed during 2014 as compared to 2013.
Gross profit as a percentage of revenue for the year ended December 26, 2014 was 24.7% compared to 26.5% in 2013. The decline was largely due to the impact of the acquisitions which carried lower gross margins in comparison with the blended company average prior to the acquisition. This was partially offset by improved gross margin in our organic business through disciplined pricing and management of our increasing minimum wage for temporary labor and payroll taxes.
Selling, general and administrative ("SG&A") expenses as a percentage of revenue decreased to 19.6% for the year ended December 26, 2014 from 21.7% for the same period in 2013, primarily due to Seaton's lower cost of doing business as a percent of sales. The acquired service lines offer workforce solutions as an integrated partner with our customers, which are delivered through highly centralized operations in Chicago, Illinois with support from on-site and virtual employee teams. We do not operate a branch network to service these customers and accordingly these services utilize a more flexible centralized support structure resulting in lower SG&A as a percent of sales.


Page - 19


SG&A spending increased by $63.5 million to $425.8 million for the year ended December 26, 2014 compared to 2013. The increase is primarily related to the acquired operations of Seaton, TWC, and MDT of approximately $54 million. We completed the acquisition of Seaton on the first business day of our third quarter of 2014. The integration of Seaton is substantially complete. SG&A spending includes a full year of MDT and TWC operations acquired and fully integrated in 2013. The remaining increase is primarily due to variable SG&A expenses associated with organic revenue growth
Depreciation and amortization increased $9.0 million for the year ended December 26, 2014 primarily due to the amortization of intangible assets acquired in connection with the Seaton acquisition on the first business day of our third quarter of 2014, and includes a full year related to MDT and TWC acquired in the prior year.
Income tax expense for the year ended December 26, 2014 was reduced by Work Opportunity Tax Credit ("WOTC") benefits. The Tax Increase Protection Act of 2014 was signed into law on December 19, 2014, retroactively restoring the WOTC for 2014. This tax credit is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. Increased credits over the prior year are primarily due to qualified workers working longer, mix of workers generating higher credits, such as veterans, and states processing a backlog of credit applications with higher than expected certification rates.
Net income grew to $65.7 million, or $1.59 per diluted share, for the year ended December 26, 2014, compared to $44.9 million, or $1.11 per diluted share, for the same period in 2013.
We believe we are in a strong financial position to fund working capital needs for planned 2015 growth and expansion opportunities. We had cash, cash equivalents, and highly liquid marketable securities of $21.2 million at December 26, 2014. As of December 26, 2014, we had $101.3 million available under the Revolving Credit Facility.
RESULTS OF OPERATIONS
Total company results
The following table presents selected financial data (in thousands, except percentages and per share amounts):
 
Years ended
 
2014
 
% of revenue
 
2013
 
% of revenue
 
2012
 
% of revenue
Revenue from services
$
2,174,045

 
100.0
%
 
$
1,668,929

 
100.0
%
 
$
1,389,530

 
100.0
%
Total revenue growth %
30.3
%
 
 
 
20.1
%
 
 
 
5.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
$
536,979

 
24.7
%
 
$
442,303

 
26.5
%
 
$
372,385

 
26.8
%
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
$
425,777

 
19.6
%
 
$
362,248

 
21.7
%
 
$
300,459

 
21.6
%
Depreciation and amortization
$
29,474

 
1.4
%
 
$
20,472

 
1.2
%
 
$
18,890

 
1.4
%
Income from operations
$
81,728

 
3.8
%
 
$
59,583

 
3.6
%
 
$
53,036

 
3.8
%
 
 
 
 
 
 
 
 
 
 
 
 
Interest and other income, net
$
116

 
%
 
$
1,354

 
0.1
%
 
$
1,569

 
0.1
%
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
65,675

 
3.0
%
 
$
44,924

 
2.7
%
 
$
33,629

 
2.4
%
Net income per diluted share
$
1.59

 
 
 
$
1.11

 
 
 
$
0.84

 
 

Our year over year trends are significantly impacted by acquisitions as follows:

We completed the acquisition of all of the outstanding equity interests of Seaton effective June 30, 2014, the first business day of our third quarter. Revenue was $394.4 million for the period from the acquisition date to December 26, 2014 or 23.6% of our consolidated revenue growth. The Seaton acquisition added a full service line of on-premise blue-collar contingent staffing and added new complementary outsourced service offerings in RPO and MSP solutions. On-premise temporary staffing is large scale sourcing, screening, recruitment and management of a customer's on-premise contingent labor workforce. RPO is high-volume sourcing, screening, and recruiting of permanent employees for all major industries and jobs. The MSP solution provides customers with improved quality and spend management of their contingent labor vendors. Through the Seaton acquisition we added industry leaders Staff Management | SMX ("Staff Management") for on-premise contingent staffing, PeopleScout and Australia-based hrX for RPO services, and MSP solutions under the Staff Management brand. The service lines offer staffing and outsourced workforce solutions as an integrated partner with their customers. They have dedicated customer on-site and virtual teams which leverage highly centralized


Page - 20


support services for recruiting and delivering services to the specialized needs of each customer. They do not operate a branch network and accordingly operate more flexible service lines. We are pleased with the Seaton integration and the retention of the senior leadership team and customers. The Seaton acquisition added new services and capabilities to better meet our objective of providing our customers with talent and flexible workforce solutions they need to enhance their business performance. See Note 2: Acquisitions, to our Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K for additional details of our acquisition of Seaton.

We incurred $5.2 million of costs related to our acquisition and integration of Seaton during the year ended December 26, 2014, and expect to complete our integration by mid-2015.

The impact of Seaton on our consolidated results is highlighted as follows (in thousands):
 
Years ended
 
December 26, 2014
 
December 27, 2013
 
Legacy TrueBlue
 
Seaton (1)
 
Total Company
 
Total Company
Revenue from services
$
1,779,616

 
$
394,429

 
$
2,174,045

 
$
1,668,929

 
 
 
 
 
 
 
 
Earnings before interest, depreciation and amortization
89,089

 
22,113

 
111,202

 
80,055

Depreciation and amortization
 
 
 
 
29,474

 
20,472

Income from operations
 
 
 
 
81,728

 
59,583

Interest and other income, net
 
 
 
 
116

 
1,354

Income before tax expense
 
 
 
 
81,844

 
60,937

Income tax expense
 
 
 
 
16,169

 
16,013

Net income
 
 
 
 
$
65,675

 
$
44,924

(1) Seaton was acquired effective June 30, 2014. Therefore, the comparative prior year amounts are not presented.

Effective February 4, 2013, we acquired substantially all of the assets and assumed certain liabilities of MDT, the third-largest general-labor staffing provider in the United States. 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. MDT operations were primarily integrated with our Labor Ready service line. We consolidated 65 branch locations, blended our sales and service teams, and fully integrated all former MDT locations into our enterprise systems. The acquisition of MDT deepened our expertise and strengthened our position in the key industries we serve. The customers of MDT were fully integrated with our existing customer base and serviced by our blended operations. We completed the integration of all remaining administrative services during the second quarter of 2013. Due to full consolidation of the MDT branches, blending our sales and service teams, and fully integrating all former MDT locations into our enterprise systems, we cannot accurately segregate the acquisition revenue from our organic revenue growth.

Effective October 1, 2013, we acquired substantially all of the assets and assumed certain liabilities of TWC, a light industrial staffing provider with 37 branches located predominantly in the Midwest with minimal overlap with existing TrueBlue branch offices. TWC delivered specialized blue-collar staffing solutions for more than 25 years to customers in industries similar to those served by TrueBlue. TWC’s operations were primarily integrated with those of our Spartan Staffing service line during the fourth quarter of 2013. Revenue for TWC was approximately $81.3 million for the full year ended December 26, 2014 as compared to $24.0 million for the prior year from the date of acquisition.
Revenue from services
Revenue from services was as follows (in thousands, except percentages): 
 
Years ended
 
2014

2013
 
2012
Revenue from services
$
2,174,045

 
$
1,668,929

 
$
1,389,530

Total revenue growth %
30.3
%
 
20.1
%
 
5.6
%


Page - 21


Fiscal 2014 as compared to fiscal 2013
Revenue grew to $2,174.0 million for fiscal 2014, a 30.3% increase compared to the same period in the prior year. The revenue increase is primarily due to the acquisition of Seaton in the current year effective June 30, 2014 and the prior year acquisitions of MDT, effective February 4, 2013 and TWC, effective October 1, 2013. Revenue for Seaton was $394.4 million for the period from the acquisition date to December 26, 2014 or 23.6% of our revenue growth. Approximately 4.6% of the revenue growth for fiscal 2014 was generated from the acquisitions of MDT and TWC in the prior year with retention of senior management and strong retention of customers.
In addition to revenue growth from acquisitions, we experienced organic revenue growth for fiscal 2014 across most geographies and industries we serve of approximately 2.0%, or 4.2% excluding our services to the green energy industry. Green energy projects declined and slowed during 2014 as compared to 2013.
Fiscal 2013 as compared to fiscal 2012
Revenue grew to $1,668.9 million for fiscal 2013, a 20.1% increase compared to the prior year. The increase was primarily due to revenue resulting from the acquisition of MDT in the first quarter of 2013 and TWC in the fourth quarter of 2013. Additionally, we experienced strong organic growth in demand for our services across all geographies and industries we served with a continued increase in construction. The increased demand largely offset the expected drop in revenue from a large aviation customer project nearing completion of $42.5 million.
We continued to see success with our focus on generating strong organic growth by making it easier for our customers to access reliable workers and for our workers to access work opportunities. We improved the productivity of our customers with temporary staffing solutions which are specialized and tailored to their needs. We made substantial investments in technology solutions that improved both the customer and worker experience as well as our business efficiency.
Gross profit
Gross profit was as follows (in thousands, except percentages):
 
Years ended
 
2014
 
2013
 
2012
Gross profit
$
536,979

 
$
442,303

 
$
372,385

Percentage of revenue
24.7
%
 
26.5
%
 
26.8
%
Fiscal 2014 as compared to fiscal 2013
Gross profit as a percentage of revenue for fiscal 2014 was 24.7% compared to 26.5% for the same period in the prior year. This was due largely to the impact of the acquisitions of Seaton, TWC, and MDT, which carried lower gross margins in comparison to our blended company average prior to the acquisitions. Excluding the impact of acquisitions on our blended company average, gross profit as a percentage of revenue improved through disciplined pricing and management of our temporary labor wages and payroll taxes.
Workers’ compensation expense as a percentage of revenue was 3.6% for fiscal 2014, compared to 3.8%, for the same period in the prior year. The decline is due in part to the acquisition of Seaton and the lower cost of workers' compensation cost as a percentage of revenue due to the nature of their business. In addition, we continue to actively manage workers’ compensation expense through the safety of our temporary workers with our safety programs and actively control costs with our network of service providers. These actions have had a positive impact creating favorable adjustments to workers’ compensation liabilities recorded in prior periods. Continued favorable adjustments to our workers' compensation liabilities are dependent on our ability to continue to aggressively lower accident rates and costs of our claims. We expect diminishing favorable adjustments to our workers' compensation liabilities as the opportunity for significant reduction to frequency and severity of accident rates diminishes.
Fiscal 2013 as compared to fiscal 2012
Gross profit as a percentage of revenue for fiscal 2013 of 26.5% decreased by 0.3% compared to the prior year. The decrease was primarily due to the acquisitions of MDT and TWC, which carried lower gross margins in comparison with our blended company average, largely offset by the favorable impact from disciplined pricing and revenue mix.
Workers’ compensation expense as a percentage of revenue remained constant at 3.8% for fiscal 2013 compared to the prior year. We actively managed the safety of our temporary workers with our risk management programs and worked together with our network


Page - 22


of service providers to control costs. MDT and TWC were fully integrated into our workers' compensation insurance and safety programs.
Selling, general and administrative expenses
SG&A expenses were as follows (in thousands, except percentages):
 
Years ended
 
2014
 
2013
 
2012
Selling, general and administrative expenses
$
425,777

 
$
362,248

 
$
300,459

Percentage of revenue
19.6
%
 
21.7
%
 
21.6
%
Fiscal 2014 as compared to fiscal 2013
SG&A as a percentage of revenue decreased to 19.6% for fiscal 2014 from 21.7% for the same period in 2013 primarily due to Seaton's lower cost of doing business as a percent of sales. The acquired service lines offer workforce solutions as an integrated partner with our customers, which are delivered through highly centralized operations in Chicago, Illinois with support from on-site and virtual employee teams. We do not operate a branch network to service these customers and accordingly these services utilize a more flexible centralized support structure resulting in lower SG&A as a percent of sales.

SG&A spending increased $63.5 million to $425.8 million for fiscal 2014. The increase is primarily related to the acquired operations of Seaton of $43.2 million. We completed the acquisition of Seaton on the first business day of our third quarter of 2014. We incurred $5.2 million of costs related to our acquisition and integration of Seaton during fiscal 2014. The integration of Seaton is substantially complete. SG&A spending also increased by approximately $11 million due to a full year of the MDT and TWC operations acquired in the prior year. We incurred non-recurring acquisition and integration costs for MDT and TWC of $7.4 million during fiscal 2013.
The remaining increase is primarily due to variable SG&A expenses associated with organic revenue growth and continued investments in our strategy to align the dedicated sales, recruiting, and services of our branch-based service lines to better serve our customers and enable further branch consolidation and centralization of services, which we believe will continue to increase our operating efficiency. We consolidated 65 branches during fiscal 2014 and expect to consolidate additional branches in the future. We expect further leverage benefit from branch consolidations in the future.
Fiscal 2013 as compared to fiscal 2012
The increase in SG&A spending of $61.7 million was primarily due to ongoing branch and field management and operating costs associated with the MDT and TWC acquisitions, non-recurring acquisition and integration costs of $7.4 million, and variable SG&A expenses associated with organic revenue growth. The non-recurring acquisition and integration costs consisted of closing, consolidating and relocating certain branch and administrative operations, eliminating redundant assets and reducing excess administrative workforce and capacity together with other integration program costs.
SG&A as a percentage of revenue remained relatively constant at 21.7% for fiscal 2013 as compared to 21.6% for the prior year. Excluding the non-recurring acquisition and integration costs, SG&A as a percentage of revenue for fiscal 2013 decreased compared to the prior year. The decrease was due to leveraging our revenue growth across our existing cost structure.
The improvements to our SG&A leverage were partially offset by the anticipated decline in revenue from a large customer. This customer was serviced from a centralized service center with a largely fixed cost structure. Consequently, we did not experience a decline in variable SG&A commensurate with the decline in revenue.
Depreciation and amortization
Depreciation and amortization were as follows (in thousands, except percentages):
 
Years ended
 
2014
 
2013
 
2012
Depreciation and amortization
$
29,474

 
$
20,472

 
$
18,890

Percentage of revenue
1.4
%
 
1.2
%
 
1.4
%


Page - 23


Fiscal 2014 as compared to fiscal 2013
Depreciation and amortization increased $9.0 million for the year ended December 26, 2014 primarily due to the amortization of intangible assets acquired in connection with the Seaton acquisition on the first business day of our third quarter of 2014 and includes a full year related to MDT and TWC acquired in the prior year. We continue to make significant investments in projects that are designed to further improve our efficiency and effectiveness in recruiting, retaining our temporary workers, and attracting and retaining our customers.
Fiscal 2013 as compared to 2012
Depreciation and amortization expense remained relatively constant as a percentage of revenue. The 2013 increase over 2012 of $1.6 million was primarily from increased amortization related to the finite-lived intangible and tangible assets acquired through acquisitions of MDT and TWC.
Interest and other income, net
Interest and other income, net is as follows (in thousands):
 
Years ended
 
2014
 
2013
 
2012
Interest and other income, net
$
116

 
$
1,354

 
$
1,569

Fiscal 2014 as compared to fiscal 2013
Net interest income for fiscal 2014 was $0.1 million compared to net interest income of $1.4 million over the same period in 2013. The decline in net interest income is due to lower cash investments as a result of cash used in the Seaton acquisition plus increased interest expense on the use of our Revolving Credit Facility to acquire Seaton at the beginning of the third quarter.
Fiscal 2013 as compared to 2012
Net interest income remained relatively flat for the comparative periods.
Segment results
In the fourth quarter of 2014, we changed our organizational structure as a result of our acquisition of Seaton (see Note 2: Acquisitions,to our Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K for details). Historically, our operations were all in the blue-collar staffing market of the temporary staffing industry and supplied customers with temporary workers, which we aggregated into one reportable segment in accordance with U.S. GAAP. The acquisition of Seaton added a full service line of on-premise temporary blue-collar staffing. On-premise staffing is large scale exclusive sourcing, screening, recruitment and management of an on-premise contingent labor workforce at a customer's facility. This service line is an operating segment which is aggregated with our blue-collar staffing services and reported as Staffing Services.

The acquisition of Seaton also added complementary outsourced service offerings in RPO and MSP solutions. RPO is high-volume sourcing, screening and recruitment of permanent employees for all major industries and jobs. MSP solutions provide customers with improved quality and spend management of their contingent labor vendors. The complementary service lines are operating segments which are aggregated and reported as Managed Services.
See Note 18: Segment Information, to our Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K for additional details of our new segment structure.


Page - 24


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

 
27.4%
 
$
1,668,929

 
20.1%
 
$
1,389,530

 
5.6%
Managed Services
48,130

 
 
 

 
 
 

 
 
Total Company
$
2,174,045

 
30.3%
 
$
1,668,929

 
20.1%
 
$
1,389,530

 
5.6%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% of revenue
 
 
 
% of revenue
 
 
 
% of revenue
Income from operations
 
 
 
 
 
 
 
 
 
 
 
Staffing Services
$
138,205

 
6.5%
 
$
113,230

 
6.8%
 
$
92,512

 
6.7%
Managed Services
5,937

 
12.3%
 

 
 
 

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

 
3.8%
 
59,583

 
3.6%
 
53,036

 
3.8%
Interest and other income, net
116

 
 
 
1,354

 
 
 
1,569

 
 
Income before tax expense
$
81,844

 
 
 
$
60,937

 
 
 
$
54,605

 
 

No customer accounted for 10% or more of our revenues for Staffing Services, Managed Services, or total Company for the fiscal years ended 2014, 2013, or 2012.
Income taxes
The income tax expense and the effective income tax rate were as follows (in thousands, except percentages):
 
Years ended
 
2014
 
2013
 
2012
Income tax expense
$
16,169

 
$
16,013

 
$
20,976

Effective income tax rate
19.8
%
 
26.3
%
 
38.4
%

Fiscal 2014 compared to fiscal 2013
Our effective tax rate on earnings for fiscal 2014 was 19.8%, compared to 26.3%, for the same period in 2013. The principal difference between the statutory federal income tax rate of 35.0% and our effective income tax rate results from the Work Opportunity Tax Credit ("WOTC"), state and foreign income taxes, and certain non-deductible expenses.

Changes to our effective tax rate as a result of the WOTC were as follows:
 
Years ended
 
2014
 
2013
 
2012
Effective income tax rate without WOTC
41.1
 %
 
43.4
 %
 
41.7
 %
WOTC estimate from current year wages 
(10.7
)
 
(9.5
)
 
(1.6
)
Effective income tax rate before prior year adjustments
30.4

 
33.9

 
40.1

Additional WOTC from prior year wages
(10.6
)
 
(7.6
)
 
(1.7
)
Effective income tax rate with WOTC
19.8
 %
 
26.3
 %
 
38.4
 %

The Tax Increase Protection Act of 2014 was signed into law on December 19, 2014, retroactively restoring the WOTC for 2014. This tax credit is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. We generated more credits in 2014 as compared to the prior year primarily because more veterans with higher credits qualified, our qualified workers worked longer generating more credits, and many states processed a backlog of credit applications with higher than expected certification rates.



Page - 25


Fiscal 2013 compared to fiscal 2012
Our effective tax rate on earnings for 2013 was 26.3% compared to 38.4% for 2012. The effective tax rate for 2012 excluded benefits of WOTC because it had largely expired at the end of 2011. The American Taxpayer Relief Act of 2012 (the “Act”) was signed into law on January 2, 2013, and retroactively restored the WOTC for 2012 and extended it through 2013. Because a change in the law is accounted for in the period of enactment, the retroactive effect of the Act on our U.S. federal taxes for 2012 was recognized in the year ended December 27, 2013. Accordingly, the decrease in the effective tax rate is due primarily to the benefit of the retroactively restored WOTC. The impact of WOTC on our effective tax rate is greater when our pre-tax income is lower.

Results of Operations Future Outlook
The following highlights represent our expectations regarding operating trends for the fiscal year 2015. These expectations are subject to revision as our business changes with the overall economy:
Our top priority is to produce strong organic revenue and gross profit growth and leverage our cost structure to generate increasing operating income as a percentage of revenue. The addition of Seaton added new services and capabilities to better meet our objective of providing customers with talent and flexible workforce solutions they need to enhance business performance. We will leverage our sales channel to provide customers with more comprehensive solutions to enhance their performance and our growth. We will expand the geographical reach of our staffing services through new physical locations, expanded use of existing locations to provide the full range of blue-collar staffing services and centralized recruitment and dispatch of our temporary workers to areas without branches. The acquisition of Seaton provides new opportunities to leverage technology and best practice processes in centralized, high-volume, and rapid recruitment of quality workers which are deployed to customers with multi-location demand for temporary staffing. These centralized capabilities when combined with our local presence will accelerate our staffing services growth. PeopleScout and hrX are recognized industry leaders of RPO services which are in the early stages of their adoption cycles. We expect continued growth with a differentiated service that leverages innovative technology for high-volume sourcing and dedicated client service teams for connecting workers to opportunities. We expect to leverage our track record of helping our customers reduce the cost of hiring, add significant scalability to recruiting and hiring, access numerous sources to prospect for the best talent more quickly, thereby delivering a better outcome for the customer.
Acquisitions are a key element of our growth strategy. We have a proven track record of successfully acquiring and integrating companies and believe we have a strong business competence to continue to do so.
Commencing in 2015, we are required by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”) to offer health care benefits to our temporary workers. We began offering health care coverage in 2015 to all temporary employees eligible for coverage under the ACA. We increased our customer bill rates for the estimated cost increases related to offering healthcare coverage to our temporary workers. Our best estimate of this increased cost is approximately 0.1% to 0.4% of estimated 2015 revenue. This estimate of increased cost is based upon various assumptions regarding our temporary workers and their participation rates and related factors which may change. As the regulatory requirements continue to be modified and clarified, any such modifications and clarifications may impact the estimated cost to us. Although we intend to pass on to our customers any cost increases related to our temporary workers, there is no assurance that we will be fully successful in doing so.
We are committed to technology innovation that makes it easier for our customers to do business with us and easier to connect workers to work opportunity. We are making significant investments in online and mobile applications to improve access, speed and ease of connecting our customers and workers. We will continue to invest in technology which increases our sustainability, scalability and agility. These investments improve the efficiency and effectiveness of delivering our service. These investments are reducing our dependence on local branches. Additionally, these investments advance our ability to centralize high-volume activities which have increased the reliability of our service delivery and allowed our field personnel to focus on matching the customer's needs with the best solution to enhance their performance.
LIQUIDITY AND CAPITAL RESOURCES
As of December 26, 2014, our cash, cash equivalents, and marketable securities totaled $21.2 million compared to $142.7 million as of December 27, 2013, a decrease of $121.5 million. This decrease was primarily driven by cash used to purchase Seaton for an aggregate purchase price of $305.9 million, net of cash acquired. We entered into a Revolving Credit Facility at the end of the second quarter for a secured revolving credit facility of up to a maximum of $300.0 million, $187.0 million of which was used to fund the Seaton acquisition in addition to $118.9 million of existing cash.


Page - 26


The following discussion highlights our cash flow activities for the fiscal years ended 2014, 2013, and 2012.
Cash flows from operating activities
Our cash flows from operating activities were as follows (in thousands):
 
Years ended
 
2014
 
2013
 
2012
Net income
$
65,675

 
$
44,924

 
$
33,629

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
 
 
Depreciation and amortization
29,474

 
20,472

 
18,890

Provision for doubtful accounts
11,815

 
12,063

 
6,994

Stock-based compensation
11,051

 
8,412

 
7,917

Deferred income taxes
12,663

 
(3,844
)
 
3,091

Other operating activities
898

 
2,116

 
1,946

Changes in operating assets and liabilities, net of acquisition:
 
 
 
 
 
Accounts receivable
(77,629
)
 
(4,181
)
 
(20,408
)
Income taxes
(5,696
)
 
4,113

 
(3,748
)
Accounts payable and other accrued expenses
3,386

 
(7,235
)
 
1,342

Workers' compensation claims reserve
1,579

 
9,859

 
3,746

Other assets and liabilities
(5,691
)
 
(631
)
 
(1,076
)
Net cash provided by operating activities
$
47,525

 
$
86,068

 
$
52,323

Fiscal 2014 compared to fiscal 2013
Net cash provided by operating activities was $47.5 million for fiscal 2014, compared to $86.1 million for the same period in 2013.
Net income of $65.7 million increased over 2013 primarily due to the acquisition of Seaton.
Depreciation and amortization increased over 2013 by $9.0 million primarily due to the amortization of acquired finite-lived intangible assets in connection with the acquisition of Seaton at the start of our third quarter 2014 and TWC at the start of our fourth quarter 2014.
Stock-based compensation increased for performance shares due to estimated improvements to company performance with the acquisition of Seaton.
The change to deferred income taxes is due primarily to nondeductible intangibles acquired in connection with the acquisition of Seaton.
The increase in accounts receivable over the prior year is due to revenue growth primarily related to the acquisition of Seaton. Demand for Staff Management on-premise temporary worker services is significantly higher during the fourth quarter in connection with manufacturing and distributing for the holiday season.
Income taxes receivable increased due to the Tax Increase Protection Act of 2014, which was signed into law on December 19, 2014 and retroactively restored the WOTC for 2014.
The increase in accounts payable and accrued expenses over the prior year is primarily due to business expansion with the acquisition of Seaton.
Generally, our workers' compensation reserve for estimated claims increases as temporary labor services increase and decreases as temporary labor services decline. During the current year, our workers' compensation reserve increased as we increased the delivery of temporary labor services with the acquisition of Seaton, which was partially offset by claim payments.
Fiscal 2013 compared to fiscal 2012
Net cash provided by operating activities was $86.1 million for fiscal 2013 as compared to $52.3 million for the same period in 2012.
The increase in cash from operations was primarily due to net income of $44.9 million.


Page - 27


Depreciation and amortization expense increased over 2012 by $1.6 million primarily from increased amortization related to the finite-lived intangible and tangible assets acquired through our acquisitions of MDT and TWC.
Accounts receivable increased in fiscal 2013 due primarily to revenue growth which was largely offset by collections of receivables acquired as part of the acquisitions of MDT and TWC and improvement to our time to collect. The provision for doubtful accounts increased in 2013 primarily due to revenue growth and an increase in probable credit losses associated primarily with the construction industry.
Accounts payable and other accrued expenses decreased in 2013 primarily due to the payment of nearly all of the acquired accounts payable from our acquisitions of MDT and TWC during the year, partially offset by increased wages due to growth and higher payroll tax rates.
The income tax receivable declined due to refunds of prior year amended returns related primarily to additional WOTC realized.
Generally our workers' compensation reserve for estimated claims increases as temporary labor services increase and decreases as temporary labor services decline. During 2013, our workers' compensation reserve increased as we increased the delivery of temporary labor services, which was partially offset by claim payments.
Cash flows from investing activities
Our cash flows from investing activities were as follows (in thousands):
 
Years ended
 
2014
 
2013
 
2012
Capital expenditures
$
(16,918
)
 
$
(13,003
)
 
$
(17,826
)
Acquisition of businesses, net of cash acquired
(305,876
)
 
(77,560
)
 

Purchases of marketable securities
(25,057
)
 
(40,800
)
 

Sales and maturities of marketable securities
44,167

 
20,050

 

Change in restricted cash and cash equivalents
(9,283
)
 
(16,122
)
 
7,587

Purchase of restricted investments
(18,196
)
 
(13,411
)
 
(33,778
)
Maturities of restricted investments
12,726

 
15,581

 
18,116

Other

 

 
(250
)
Net cash used in investing activities
$
(318,437
)
 
$
(125,265
)
 
$
(26,151
)
Fiscal 2014 compared to fiscal 2013
Cash flows used in investing activities was $318.4 million for fiscal 2014 as compared to $125.3 million for the same period in 2013.
Cash flows used in investing activities increased primarily due to the acquisition of Seaton for $305.9 million.
Our marketable securities consisted of CDs, variable rate demand notes ("VRDNs"), corporate debt securities, municipal debt securities, and commercial paper, which are classified as available-for-sale. We sold all of our VRDNs, corporate and municipal debt securities, and commercial paper during the thirteen weeks ended June 27, 2014, for our acquisition of Seaton.
Restricted cash and investments consist primarily of collateral that has been provided or pledged to insurance carriers and state workers' compensation programs. When combining the change in restricted cash and cash equivalents with purchases of restricted investments net of maturities of restricted investments, restricted cash and investments increased by $14.8 million for fiscal 2014. This increase is primarily due to an increase in the collateral requirements by our workers' compensation insurance providers related to the acquisition of Seaton.
Fiscal 2013 compared to fiscal 2012
Cash flows used in investing activities was $125.3 million for fiscal 2013 as compared to $26.2 million for the same period in 2012.
Cash flows used in investing activities increased primarily due to acquisitions. Effective February 4, 2013, we acquired substantially all of the assets and assumed certain liabilities of MDT for $53.4 million in cash. MDT supplied blue-collar


Page - 28


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 fully integrated and blended MDT's operations with our existing service lines. MDT was primarily integrated into the Labor Ready service line. The integration of the MDT sales and branch operations was completed during the first quarter of 2013. We 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 during the first quarter of 2013. We completed the integration of all remaining administrative services during the second quarter ended June 28, 2013.
We acquired certain assets and liabilities of TWC in October 2013. The total cost of the acquisition was $22.7 million. TWC was founded in 1986 and provided light industrial services out of 37 branches in nine states. This acquisition provided geographic expansion into new markets for our Spartan Staffing service line. TWC’s operations were integrated with those of our Spartan Staffing service line during the fourth quarter ended December 27, 2013.
We also acquired certain assets of Crowley in June 2013. The total cost of the acquisition was $2.4 million, including contingent consideration of $0.6 million.
Marketable securities consisted of CDs, VRDNs, and commercial paper, which were classified as available-for-sale. VRDNs are long-term municipal and corporate securities with an interest rate that is reset frequently. All the VRDNs in our portfolio were backed by a bank Letter of Credit. Our VRDNs may be tendered at any time with a typical settlement date of less than one week. We did not hold any marketable securities at December 28, 2012.
Restricted cash and investments consisted primarily of collateral that was provided or pledged to insurance carriers and state workers' compensation programs. The change in restricted cash and cash equivalents was primarily a product of purchasing restricted investments, maturities on restricted investments, and payments to workers' compensation insurance providers. When combining this change with purchases of restricted investments net of maturities of restricted investments, restricted cash and investments increased by $14.0 million for the year ended December 27, 2013. This increase was primarily due to an increase in the collateral requirements by our workers' compensation insurance providers related to growth in operations, which was partially offset by claim payments.
Capital spending decreased as we completed a major investment in the operating system of our Labor Ready service line during 2012. In 2013 we realized the benefits of this investment through improved operating efficiency. We completed the full deployment of our new mobile dispatch technology during mid-2013. This proved to drive productivity gains by increasing the number and quality of our applicant pool as well as the number and speed with which jobs are filled. Our ability to reach a wide range of applicants expanded the geographic reach of our branches and provided the opportunity to reduce occupancy costs by consolidating local branches and increasing our operating efficiency. The convenience this technology offered our workers, and our ability to get them on the job faster translated into a larger, higher-quality workforce and improved customer sales and service.


Page - 29


Cash flows from financing activities
Our cash flows from financing activities were as follows (in thousands):
 
Years ended
 
2014
 
2013
 
2012
Purchases and retirement of common stock
$

 
$

 
$
(4,386
)
Net proceeds from stock option exercises and employee stock purchase plans
2,191

 
9,136

 
4,164

Common stock repurchases for taxes upon vesting of restricted stock
(3,114
)
 
(2,800
)
 
(2,154
)
Net change in revolving credit facility
171,994

 

 

Proceeds from long-term debt

 
34,000

 

Payments on debt and other liabilities
(2,267
)
 
(8,681
)
 
(4,548
)
Other
978

 
713

 
751

Net cash provided by (used in) financing activities
$
169,782

 
$
32,368

 
$
(6,173
)
Fiscal 2014 compared to fiscal 2013
The increase to net cash provided by financing activities is primarily due to financing a portion of the Seaton acquisition with the Revolving Credit Facility in the amount of $187.0 million. See Note 9: Long-Term Debt, to our Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K, for details of our Revolving Credit Facility.
Fiscal 2013 compared to fiscal 2012
In the prior year, the change in cash provided by financing activities was mainly due to proceeds from our Term Loan Agreement with Synovus Bank of $34.0 million in connection with our acquisition of MDT in February 2013.
Future outlook
Our cash-generating capability provides us with financial flexibility in meeting our operating and investing needs. Our current financial position is highlighted as follows:
Our Revolving Credit Facility of up to a maximum of $300.0 million expires on June 30, 2019. We borrowed $187.0 million under the Revolving Credit Facility on June 30, 2014 to purchase Seaton. The Revolving Credit Facility is an asset backed facility which is secured by a pledge of substantially all of the assets of TrueBlue, Inc, and material U.S. domestic subsidiaries. The additional amount available to borrow at December 26, 2014 was $101.3 million. We believe the Revolving Credit Facility provides adequate borrowing availability.
We had cash, cash equivalents, and highly liquid marketable securities of $21.2 million at December 26, 2014. We expect to apply any excess cash towards the outstanding balance on our Revolving Credit Facility.
The majority of our workers’ compensation payments are made from restricted cash rather than cash from operations. At December 26, 2014, we had restricted cash and investments totaling $168.4 million.
We believe that cash provided from operations and our capital resources will be adequate to meet our cash requirements for the foreseeable future.
Capital resources
Revolving Credit Facility
See Note 9: Long-term Debt, to our Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K, for details of our Revolving Credit Facility.
Restricted Cash and Investments
Restricted cash and investments consist principally of collateral that has been provided or pledged to insurance carriers for workers' compensation and state workers' compensation programs. Our insurance carriers and certain state workers' compensation programs require us to collateralize a portion of our workers' compensation obligation. We have agreements with certain financial institutions that allow us to restrict cash and cash equivalents and investments for the purpose of providing collateral instruments to our


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insurance carriers to satisfy workers' compensation claims. At December 26, 2014, we had restricted cash and investments totaling $168.4 million. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon ("Trust").
We established investment policy directives for the Trust, with the first priority to ensure sufficient liquidity to pay workers' compensation claims, second to maintain and ensure a high degree of liquidity, and third to maximize after-tax returns. Trust investments must meet minimum acceptable quality standards. The primary investments include U.S. Treasury securities, U.S. agency debentures, U.S. agency mortgages, corporate securities, and municipal securities. For those investments rated by the Nationally Recognized Statistical Rating Organizations the minimum ratings are:
 
 
S&P
 
Moody's
 
Fitch
Short-term Rating
 
A-1/SP-1
 
P-1/MIG-1
 
F-1
Long-term Rating
 
A-
 
A3
 
A-
Workers’ compensation insurance, collateral and claims reserves
Workers' compensation insurance
We provide workers’ compensation insurance for our temporary and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured.
For workers’ compensation claims originating in Washington, North Dakota, Ohio, Wyoming, Canada and Puerto Rico (our “monopolistic jurisdictions”), we pay workers’ compensation insurance premiums and obtain full coverage under government-administered programs (with the exception of our Labor Ready service line in the state of Ohio where we have a self-insured policy). Accordingly, because we are not the primary obligor, our financial statements do not reflect the liability for workers’ compensation claims in these monopolistic jurisdictions.
Workers' compensation collateral
Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation, for which they become responsible should we become insolvent. The collateral typically takes the form of cash and cash-backed instruments, highly rated investment grade securities, letters of credit, and/or surety bonds. On a regular basis, these entities assess the amount of collateral they will require from us relative to our workers’ compensation obligation. Such amounts can increase or decrease independent of our assessments and reserves. We generally anticipate that our collateral commitments will continue to grow as we grow our business. We pay our premiums and deposit our collateral in installments. The majority of the restricted cash and investments collateralizing our self-insured workers' compensation policies are held in the Trust.
Our total collateral commitments were made up of the following components for the fiscal period end dates presented (in thousands):
 
2014
 
2013
Cash collateral held by insurance carriers
$
22,639

 
$
23,747

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

 
31,474

Investments held in Trust
90,095

 
86,678

Letters of credit (2)
6,513

 
7,867

Surety bonds (3)
16,861

 
16,099

Total collateral commitments
$
179,964

 
$
165,865

(1)
Included in this amount is $0.7 million and $0.8 million of accrued interest at December 26, 2014 and December 27, 2013.
(2)
We have agreements with certain financial institutions to issue letters of credit as collateral. We had $1.9 million of restricted cash collateralizing our letters of credit as of December 26, 2014 and December 27, 2013.
(3)
Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which is determined by each independent surety carrier. These fees do not exceed 2.0% of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days notice.


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Workers' compensation reserve
The following table provides a reconciliation of our collateral commitments to our workers’ compensation reserve as of the fiscal period end dates presented (in thousands):
 
2014
 
2013
Total workers’ compensation reserve
$
242,839

 
$
214,829

Add back discount on workers' compensation reserve (1)
13,381

 
19,624

Less excess claims reserve (2)
(42,612
)
 
(34,100
)
Reimbursable payments to insurance provider (3)
8,336

 
9,500

Less portion of workers' compensation not requiring collateral (4)
(41,980
)
 
(43,988
)
Total collateral commitments
$
179,964

 
$
165,865

(1)
Our workers’ compensation reserves are discounted to their estimated net present value while our collateral commitments are based on the gross, undiscounted reserve.
(2)
Excess claims reserve includes the estimated obligation for claims above our deductible limits. These are the responsibility of the insurance carriers against which there are no collateral requirements.
(3)
This amount is included in restricted cash and represents a timing difference between claim payments made by our insurance carrier and the reimbursement from cash held in the Trust. When claims are paid by our carrier, the amount is removed from the workers' compensation reserve but not removed from collateral until reimbursed to the carrier.
(4)
Represents deductible and self-insured reserves where collateral is not required.
Our workers’ compensation reserve is established using estimates of the future cost of claims and related expenses, which are discounted to their estimated net present value. We discount our workers' compensation liability as we believe the estimated future cash outflows are readily determinable. The discounted workers’ compensation claims reserve was $242.8 million at December 26, 2014.
Our workers' compensation reserve for deductible and self-insured claims is established using estimates of the future cost of claims and related expenses that have been reported but not settled, as well as those that have been incurred but not reported. Reserves are estimated for claims incurred in the current year, as well as claims incurred during prior years.
Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment. Factors considered in establishing and adjusting these reserves include, among other things:
Changes in medical and time loss (“indemnity”) costs;
Mix changes between medical only and indemnity claims;
Regulatory and legislative developments impacting benefits and settlement requirements;
Type and location of work performed;
The impact of safety initiatives; and
Positive or adverse development of claims.
Our workers’ compensation claims reserves are discounted to their estimated net present value using discount rates based on returns of “risk-free” U.S. Treasury instruments with maturities comparable to the weighted average lives of our workers’ compensation claims. At December 26, 2014, the weighted average rate was 1.7%. The claim payments are made over an estimated weighted average period of approximately 4.5 years.
Our workers’ compensation reserves include estimated expenses related to claims above our deductible limits (“excess claims”), and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. At December 26, 2014, the weighted average rate was 3.7%. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 14.5 years. The discounted workers’ compensation reserve for excess claims and the corresponding receivable for the insurance on excess claims were $42.6 million and $34.1 million as of December 26, 2014 and December 27, 2013, respectively.


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The following table provides an analysis of changes in our workers’ compensation claims reserves (in thousands): 
 
Years ended
 
2014
 
2013
 
2012
Beginning balance
$
214,829

 
$
195,588

 
$
191,842

Self-insurance reserve expenses related to current year, net (1)
82,102

 
68,249

 
55,738

Payments related to current year claims (2)
(17,482
)
 
(14,784
)
 
(11,342
)
Payments related to claims from prior years (2)
(43,164
)
 
(34,329
)
 
(26,925
)
Changes to prior years’ self-insurance reserve, net (3)
(22,426
)
 
(19,092
)
 
(13,680
)
Amortization of prior years’ discount (4)
6,182

 
3,767

 
200

Net change in excess claims reserve (5)
2,216

 
7,032

 
(245
)
Liability assumed from acquired business, net (6)
20,582

 
8,398

 

Ending balance
242,839

 
214,829

 
195,588

Less current portion
64,556

 
49,942

 
44,652

Long-term portion
$
178,283

 
$
164,887

 
$
150,936


(1)
Our self-insurance reserves are discounted to their estimated net present value using discount rates based on returns of “risk-free” U.S. Treasury instruments with maturities comparable to the weighted average lives of our workers’ compensation claims. At December 26, 2014, the weighted average rate was 1.7%.
(2)
Payments made against self-insured claims are made over a weighted average period of approximately 4.5 years.
(3)
Changes in reserve estimates are reflected in the statement of operations in the period when the changes in estimates are made.
(4)
Amortization of discount over the estimated weighted average life. In addition, any changes to the estimated weighted average lives and corresponding discount rates for actual payments made are reflected in the statement of operations in the period when the changes in estimates are made.
(5)
Changes to our excess claims are discounted to its estimated net present value using the risk-free rates associated with the actuarially determined weighted average lives of our excess claims. Certain workers’ compensation insurance companies with which we formerly did business are in liquidation and have failed to pay a number of excess claims to date. We have recorded a valuation allowance against all of the insurance receivables from the insurance companies in liquidation.
(6)
Effective June 30, 2014, we acquired Seaton. As part of the acquisition of Seaton we assumed their workers compensation' liability of $26.4 million. For the period ended December 26, 2014, the assumed liability was reduced for payments and changes to actuarial estimates. On February 4, 2013, we acquired substantially all of the assets and assumed certain liabilities of MDT, including $9.4 million of workers' compensation liability. For the periods ended December 26, 2014 and December 27, 2013, we had paid approximately $1.8 million and $1.0 million, respectively, of the liability. See Note 2, Acquisitions, to our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Certain workers’ compensation insurance companies with which we formerly did business are in liquidation and have failed to pay a number of excess claims to date. We have recorded a valuation allowance against all of the insurance receivables from the insurance companies in liquidation.


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CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table provides a summary of our contractual obligations as of the end of fiscal 2014. We expect to fund these commitments with existing cash and cash equivalents, and cash flows from operations.
 
 
Payments Due by Period (in thousands)
Contractual Obligations
 
Total
 
Less than 1 year
 
1-3 years
 
3-5 years
 
More than 5 years
Long-term debt obligations, including interest and fees (1):
 
 
 
 
 
 
 
 
 
 
Revolving Credit Facility
 
$
189,280

 
$
3,842

 
$
7,683

 
$
177,755

 
$

Term Loan
 
31,027

 
2,751

 
5,388

 
22,888

 

Workers' compensation claims (2)
 
200,227

 
64,556

 
60,773

 
25,477

 
49,421

Deferred compensation (3)
 
1,155

 
463

 
437

 
140

 
115

Operating leases (4)
 
19,447

 
4,417

 
6,343

 
5,114

 
3,573

Purchase obligations (5)
 
15,556

 
10,247

 
5,102

 
207

 

Total contractual cash obligations
 
$
456,692

 
$
86,276

 
$
85,726

 
$
231,581

 
$
53,109

(1)
Interest and fees are calculated based on the rates in effect at December 31, 2014. Our Revolving Credit Facility expires in 2019. For additional information, see Note 9: Long-term Debt to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
(2)
Excludes estimated expenses related to claims above our self-insured limits, for which we have a corresponding receivable based on the contractual policy agreements we have with insurance carriers. For additional information, see Note 8: Workers' Compensation Insurance to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
(3)
Represents scheduled distributions based on the elections of plan participants. Additional payments may be made if plan participants terminate, retire, or schedule distributions during the periods presented. For additional information, see Note 13: Defined Contribution Plans to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
(4)
Excludes all payments related to branch leases cancelable within 90 days. For additional information, see Note 10: Commitments and Contingencies to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
(5)
Purchase obligations include agreements to purchase goods and services that are enforceable, legally binding, and specify all significant terms. Purchase obligations do not include agreements that are cancelable without significant penalty.
Liability for unrecognized tax benefits has been excluded from the table above, as the timing and/or amounts of any cash payment is uncertain. For additional information, see Note 14: Income Taxes, respectively, to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
SUMMARY OF CRITICAL ACCOUNTING ESTIMATES
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective, or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.
Workers’ compensation reserves
We maintain reserves for workers’ compensation claims, including the excess claims portion above our deductible, using actuarial estimates of the future cost of claims and related expenses. These estimates include claims that have been reported but not settled and claims that have been incurred but not reported. These reserves, which reflect potential liabilities to be paid in future periods based on estimated payment patterns, are discounted to estimated net present value using discount rates based on average returns on “risk-free” U.S. Treasury instruments, which are evaluated on a quarterly basis. We evaluate the reserves regularly throughout


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the year and make adjustments accordingly. If the actual cost of such claims and related expenses exceeds the amounts estimated, additional reserves may be required. Changes in reserve estimates are reflected in the statement of operations in the period when the changes in estimates are made.
Our workers’ compensation reserves include estimated expenses related to claims above our self-insured limits (“excess claims”) and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance companies. We discount the reserve and its corresponding receivable to its respective estimated net present value using the risk-free rates associated with the actuarially determined weighted average lives of our excess claims. When appropriate, based on our best estimate, we record a valuation allowance against the insurance receivable to reflect amounts that may not be realized.
There are two main factors that impact workers’ compensation expense: the number of claims and the cost per claim. The number of claims is driven by the volume of hours worked, the business mix which reflects the type of work performed, and the safety of the environment where the work is performed. The cost per claim is driven primarily by the severity of the injury, the state in which the injury occurs, related medical costs, and lost-time wage costs. A 5% change in the cost of claims incurred would result in a change to workers' compensation expense of approximately $4.4 million. Our reserve balances have been positively impacted primarily by the success of our accident prevention programs. In the event that we are not able to further reduce our accident rates, the positive impacts to our reserve balance will diminish.
Allowance for doubtful accounts
We establish an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments. The allowance for doubtful accounts is determined based on historical write-off experience, expectations of future write-offs, and current economic data, and represents our best estimate of the amount of probable credit losses. The allowance for doubtful accounts is reviewed quarterly and past due balances are written-off when it is probable the receivable will not be collected. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Business acquisition

We account for our business acquisitions using the purchase method of accounting. The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. We determine the estimated fair values after review and consideration of relevant information including discounted cash flows, quoted market prices, and estimates made by management. Determining the fair value of an acquired company is judgmental in nature and involves the use of significant estimates and assumptions. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on forecasts, estimation of the long-term rate of growth, estimation of the useful life over which cash flows will occur, and determination of a weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the business being purchased. Intangible assets that arise from contractual/legal rights, or are capable of being separated, are measured and recorded at fair value and amortized over the estimated useful life. If practicable, assets acquired and liabilities assumed arising from contingencies are measured and recorded at fair value. If not practicable, such assets and liabilities are measured and recorded when it is probable that a gain or loss has occurred and the amount can be reasonably estimated. The residual balance of the purchase price, after fair value allocations to all identified assets and liabilities, represents goodwill.

Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date. Acquisition-related costs are expensed as incurred. Our acquisitions may include contingent consideration, which require us to recognize the fair value of the estimated liability at the time of the acquisition. Subsequent changes in the estimate of the amount to be paid under the contingent consideration arrangement are recognized in the consolidated statements of operations. Cash payments for contingent or deferred consideration are classified within cash flows from investing activities within the Consolidated Statements of Cash Flows.
Goodwill and intangible assets
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. We evaluate our reporting units on an annual basis. If necessary, we reassign goodwill using a relative fair value allocation approach.
We evaluate goodwill for impairment on an annual basis as of the first day of our second fiscal quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.


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We test for goodwill impairment at the reporting unit level. Prior to the acquisition of Seaton, we considered our service lines Labor Ready, Spartan Staffing, CLP Resources, PlaneTechs, and Centerline to be our reporting units for goodwill impairment testing. There were no substantial changes to our previously reported reporting units. Effective June 30, 2014, we acquired Seaton which added a full service line of on-premise blue-collar staffing with Staff Management and added complementary service offerings in recruitment process outsourcing ("RPO") with the People Scout and hrX service lines and the managed services provider ("MSP") solutions portion of Staff Management. We consider the acquired service lines to be reporting units for goodwill impairment testing. The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds carrying value, then we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, a second step is required to measure possible goodwill impairment loss. The second step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit’s goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions to evaluate the impact of operating and macroeconomic changes on each reporting unit. The fair value of each reporting unit is estimated using a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. Our weighted average cost of capital for our most recent impairment test ranged from 13% to 15%.
We also identify similar publicly traded companies and develop a correlation, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples we compare to are revenue and earnings before interest, taxes, depreciation, and amortization. These combined fair values are then reconciled to our aggregate market value of our shares of common stock on the date of valuation, while considering a reasonable control premium.

In our annual impairment test, performed as of the first day of our fiscal second quarter, our reporting units' fair values were substantially in excess of their carrying values. Accordingly, no impairment loss was required to be recognized. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at 20% or greater. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. Based on our test, all of our reporting units' fair values were substantially in excess of their carrying values. The estimated fair value of our PlaneTechs reporting unit was in excess of its carrying value, however, the operations of this reporting unit continue to be in the process of transitioning from a concentrated portfolio with one significant customer in the aviation industry to a more diversified customer portfolio for aviation and expanding their services for mechanics and technicians to other transportation industries. As such, we believe this reporting unit carries more risk of impairment in comparison to our other reporting units. In the event the forecasted revenue growth rate declines by 10% or gross margins as a percent of revenue decline by 2%, the carrying value of our PlaneTechs reporting unit would exceed its fair value. In that event, we would be required to measure for possible goodwill impairment. We will continue to closely monitor the operational performance of the PlaneTechs reporting unit.

Our services are subject to volatility based on overall economic conditions. As a consequence, our revenues tend to increase quickly when the economy begins to grow. Conversely, our revenues also decrease quickly when the economy begins to weaken, as occurred during the most recent recession. If actual results were to significantly deviate from management's estimates and assumptions of future performance, we could experience a material impairment to our goodwill.

We have indefinite-lived intangible assets related to our CLP Resources, Spartan Staffing, Staff Management | SMX, and PeopleScout trade names. We test our trade names annually for impairment, or when indications of potential impairment exist. We utilize the relief from royalty method to determine the fair value of each of our trade names. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess. Considerable management judgment is necessary to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates. We performed our annual indefinite-lived intangible asset impairment test as the first day of our second fiscal quarter on our CLP and Spartan trade names and determined that the estimated fair value exceeded the carrying amount. Accordingly, no impairment loss was required to be recognized.



Page - 36


An impairment assessment of physical assets is necessary whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. In such cases, the asset must be written down to the greater of the net realizable value or fair market value.
Reserves for contingent legal and regulatory liabilities
From time to time we are subject to compliance audits by federal, state, and local authorities relating to a variety of regulations including wage and hour laws, taxes, workers’ compensation, immigration, and safety. We are also subject to legal proceedings in the ordinary course of our operations. We have established reserves for contingent legal and regulatory liabilities. We record a liability when our management judges that it is probable that a legal claim will result in an adverse outcome and the amount of liability can be reasonably estimated. To the extent that an insurance company is contractually obligated to reimburse us for a liability, we record a receivable for the amount of the probable reimbursement. We evaluate our reserve regularly throughout the year and make adjustments as needed. If the actual outcome of these matters is different than expected, an adjustment is charged or credited to expense in the period the outcome occurs or the period in which the estimate changes.
Income taxes and related valuation allowances
We account for income taxes by recording taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. We measure these expected future tax consequences based upon the provisions of tax law as currently enacted; the effects of future changes in tax laws are not anticipated. Future tax law changes, such as changes to federal and state corporate tax rates and the mix of states and their taxable income, could have a material impact on our financial condition or results of operations. When appropriate, we record a valuation allowance against deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, we consider whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results.
NEW ACCOUNTING STANDARDS
See Note 1: Summary of Significant Accounting Policies, to our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.


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Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in interest rates and foreign currency exchange rates, each of which could adversely affect the value of our investments. We do not currently use derivative financial instruments.
Interest Rate Risks
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our long-term debt.
Trust Assets
Restricted cash and investments consist principally of collateral that has been provided or pledged to insurance carriers for workers' compensation and state workers' compensation programs. Our insurance carriers and certain state workers' compensation programs require us to collateralize a portion of the workers' compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in municipal debt securities, corporate debt securities, asset-backed securities, and U.S. agency debentures. The majority of our collateral obligations are held in a trust ("Trust") at the Bank of New York Mellon. The individual investments within the Trust are subject to credit risk due to possible rating changes, default or impairment. We monitor the portfolio to ensure this risk does not exceed prudent levels. We consistently apply and adhere to our investment policy of holding high quality, diversified securities. We have the positive intent and ability to hold these investments until maturity and accordingly have classified them as held-to-maturity. For additional information, see Note 5: Restricted Cash and Investments, to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Any fluctuation or change in interest rates would not impact our net income. Furthermore, an increase or decrease in interest rates immediately and uniformly by 10% would not have a material effect on our restricted cash and investments or cash and cash equivalents balances.
Corporate Investments
Our available-for-sale securities are comprised of investments with original maturities greater than three months and are classified as marketable securities. Our marketable securities consist of CDs. The primary objectives of these investments are to preserve capital and liquidity. Available-for-sale securities are recorded on the consolidated balance sheets at fair value with unrealized gains and losses reported as a component of accumulated other comprehensive income. We do not hedge the interest rate exposure on our available-for-sale securities. For additional information, see Note 4: Marketable Securities to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Because our investments have maturities of three months or less we believe that the risk of material loss is low and that the carrying amount of these balances approximates fair value.
Long-term Debt
We are subject to the risk of fluctuating interest rates on our Revolving Credit Facility and Term Loan, which bear interest at variable rates. For additional information, see Note 9: Long-term Debt, to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Based on the principal balance of our outstanding Term Loan of $29.7 million and Revolving Credit Facility of $172.0 million as of December 26, 2014, an increase or decrease of 10% in the interest rate over the next year would not have a material effect on our annual interest expense.
Foreign Currency Exchange Rate Risk
The majority of our revenue, expense, liabilities, and capital purchasing activities are transacted in U.S. dollars. However, because a portion of our operations consists of activities outside of the U.S., we have transactions in other currencies, primarily the Canadian and Australian dollar. We have not hedged our foreign currency translation risk. We have the ability to hold our foreign-currency denominated assets indefinitely and do not expect that a sudden or significant change in foreign exchange rates will have a material impact on future operating results or cash flows.


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Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and its subsidiaries are included herein as indicated below:


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of TrueBlue, Inc.
Tacoma, Washington

We have audited the accompanying consolidated balance sheets of TrueBlue, Inc. and subsidiaries (the “Company”) as of December 26, 2014 and December 27, 2013, and the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 26, 2014. Our audits also included the financial statement schedules listed in the Index at Item 15(a)(2). These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of TrueBlue, Inc. and subsidiaries as of December 26, 2014 and December 27, 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 26, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 26, 2014, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.


/s/ Deloitte & Touche LLP

Seattle, Washington
February 23, 2015


Page - 40


TRUEBLUE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value data)
 
December 26,
2014
 
December 27,
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
19,666

 
$
122,003

Marketable securities
1,500


14,745

Accounts receivable, net of allowance for doubtful accounts of $7,603 and $5,710
359,903

 
199,519

Prepaid expenses, deposits and other current assets
18,778

 
9,491

Income tax receivable
10,516

 
3,060

Deferred income taxes
5,444

 
7,640

Total current assets
415,807

 
356,458

Property and equipment, net
61,392

 
54,473

Restricted cash and investments
168,426

 
154,558

Deferred income taxes

 
4,213

Goodwill
241,855

 
82,239

Intangible assets, net
136,560

 
31,505

Other assets, net
42,631

 
36,015

Total assets
$
1,066,671

 
$
719,461

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and other accrued expenses
$
50,256

 
$
29,850

Accrued wages and benefits
69,692

 
39,094

Current portion of workers' compensation claims reserve
64,556

 
49,942

Other current liabilities
2,726

 
2,523

Total current liabilities
187,230

 
121,409

Workers’ compensation claims reserve, less current portion
178,283

 
164,887

Long-term debt, less current portion
199,383

 
29,656

Deferred income taxes
19,768

 

Other long-term liabilities
12,673

 
10,149

Total liabilities
597,337

 
326,101

 
 
 
 
Commitments and contingencies (Note 10)

 

 
 
 
 
Shareholders’ equity:
 
 
 
Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding

 

Common stock, no par value, 100,000 shares authorized; 41,530 and 41,085 shares issued and outstanding
1

 
1

Accumulated other comprehensive income
871

 
2,033

Retained earnings
468,462

 
391,326

Total shareholders’ equity
469,334

 
393,360

Total liabilities and shareholders’ equity
$
1,066,671

 
$
719,461

See accompanying notes to consolidated financial statements


Page - 41


TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
 
Fiscal years ended
 
2014
 
2013
 
2012
Revenue from services
$
2,174,045

 
$
1,668,929

 
$
1,389,530

Cost of services
1,637,066

 
1,226,626

 
1,017,145

Gross profit
536,979

 
442,303

 
372,385

Selling, general and administrative expenses
425,777

 
362,248

 
300,459

Depreciation and amortization
29,474

 
20,472

 
18,890

Income from operations
81,728

 
59,583

 
53,036

Interest expense
(3,156
)
 
(1,248
)
 
(1,131
)
Interest and other income
3,272

 
2,602

 
2,700

Interest and other income, net
116

 
1,354

 
1,569

Income before tax expense
81,844

 
60,937

 
54,605

Income tax expense
16,169

 
16,013

 
20,976

Net income
$
65,675

 
$
44,924

 
$
33,629

 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
Basic
$
1.61

 
$
1.12

 
$
0.85

Diluted
$
1.59

 
$
1.11

 
$
0.84

Weighted average shares outstanding:
 
 
 
 
 
Basic
40,734

 
40,166

 
39,548

Diluted
41,176

 
40,502

 
39,862

 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
Foreign currency translation adjustment, net of tax
$
(1,281
)
 
$
(689
)
 
$
175

Unrealized gain (loss) on investments, net of tax
119

 
(96
)
 

Total other comprehensive income (loss), net of tax
(1,162
)
 
(785
)
 
175

Comprehensive income
$
64,513

 
$
44,139

 
$
33,804

See accompanying notes to consolidated financial statements
 


Page - 42


TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED 2014, 2013, AND 2012
(in thousands)
 
Common stock
 
 
 
Accumulated other comprehensive income
 
Total shareholders' equity  
 
Shares    
 
Amount    
 
Retained earnings  
 
 
Balances, December 30, 2011
39,933

 
$
1

 
$
290,935

 
$
2,643

 
$
293,579

Net income
 
 
 
 
33,629

 
 
 
33,629

Foreign currency translation adjustment, net of tax
 
 
 
 
 
 
175

 
175

Purchases and retirement of common stock
(306
)
 
 
 
(4,386
)
 
 
 
(4,386
)
Issuances under equity plans, including tax benefits
593

 
 
 
2,760

 
 
 
2,760

Stock-based compensation
 
 
 
 
7,917

 
 
 
7,917

Balances, December 28, 2012
40,220

 
$
1

 
$
330,855

 
$
2,818

 
$
333,674

Net income
 
 
 
 
44,924

 
 
 
44,924

Foreign currency translation adjustment, net of tax
 
 
 
 
 
 
(689
)
 
(689
)
Unrealized loss on investments
 
 
 
 
 
 
(96
)
 
(96
)
Issuances under equity plans, including tax benefits
865

 
 
 
7,135

 
 
 
7,135

Stock-based compensation
 
 
 
 
8,412

 
 
 
8,412

Balances, December 27, 2013
41,085

 
$
1

 
$
391,326

 
$
2,033

 
$
393,360

Net income
 
 
 
 
65,675

 
 
 
65,675

Foreign currency translation adjustment, net of tax
 
 
 
 
 
 
(1,281
)
 
(1,281
)
Unrealized gain on investments, net of tax
 
 
 
 
 
 
119

 
119

Issuances under equity plans, including tax benefits
445

 
 
 
410

 
 
 
410

Stock-based compensation
 
 
 
 
11,051

 
 
 
11,051

Balances, December 26, 2014
41,530

 
$
1

 
$
468,462

 
$
871

 
$
469,334

 See accompanying notes to consolidated financial statements




Page - 43


TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Years ended
 
December 26, 2014
 
December 27, 2013
 
December 28, 2012
Cash flows from operating activities:
 
 
 
 
 
Net income
$
65,675

 
$
44,924

 
$
33,629

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
 
 
Depreciation and amortization
29,474

 
20,472

 
18,890

Provision for doubtful accounts
11,815

 
12,063

 
6,994

Stock-based compensation
11,051

 
8,412

 
7,917

Deferred income taxes
12,663

 
(3,844
)
 
3,091

Other operating activities
898

 
2,116

 
1,946

Changes in operating assets and liabi