TRUEBLUE, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is designed to provide the reader of our accompanying
consolidated financial statements ("financial statements") with a narrative from
the perspective of management on our financial condition, results of operations,
liquidity and certain other factors that may affect future results. MD&A is
provided as a supplement to, and should be read in conjunction with, our
financial statements and the accompanying notes to our financial statements.
OVERVIEW
TrueBlue, Inc. (the "company," "TrueBlue," "we," "us" and "our") is a leading
provider of specialized workforce solutions that help clients achieve business
growth and improve productivity. In 2019, we connected approximately 724,000
people with work and served approximately 139,000 clients. We report our
business as three reportable segments: PeopleReady , PeopleManagement and
PeopleScout . Our PeopleReady segment offers on-demand, industrial staffing;
PeopleManagement segment offers contingent, on-site industrial staffing and
commercial driver services; and PeopleScout segment offers recruitment process
outsourcing ("RPO") and managed service provider ("MSP") solutions to a wide
variety of industries. See Note 16: Segment Information, to our consolidated
financial statements found in Item 8 of this Annual Report on Form 10-K, for
additional details on our operating and reportable segments.
We experienced challenges in fiscal 2019, evidenced by a 5.2% revenue decline
and a 4.1% decline in net income. Some of the decline in revenue was expected
and came from a small number of large clients that experienced issues within
their businesses. As the year unfolded, we saw a broader softening in revenue
trends, similar to other industrial staffing providers, as clients pulled back
in response to lower volumes. While overall job data was positive for the United
States , the contingent portion, which makes up approximately 2% of the
workforce, experienced a pull back as businesses used contingent services more
sparingly in light of economic uncertainty.
Fiscal 2019 highlights
Revenue from services
Total company revenue declined 5.2% to $2.4 billion , for the year ended
December 29, 2019 , compared to the prior year. This decline was primarily driven
by less demand for our services attributable to lower volumes within the
businesses of our clients and continued economic uncertainty. Revenue trends
slowed over the course of the year as clients moderated contingent labor spend.
Declines were broad-based across multiple geographies and industries with
manufacturing experiencing the most pressure.
PeopleReady , our largest segment, experienced a revenue decline of 3.2%, due
primarily to less demand for our services and continued economic uncertainty.
PeopleManagement, our lowest margin segment, experienced a revenue decline of
11.8%. In addition to less demand from existing clients, PeopleManagement
experienced the impact of the loss of several key clients in the prior year.
PeopleScout , our highest margin segment, experienced revenue growth of 1.4%. Our
year-over-year PeopleScout trends are impacted by our acquisition on June 12,
2018 of TMP Holdings LTD ("TMP"). The TMP acquisition contributed 9.9% growth to
PeopleScout for the year ended December 29, 2019 , compared to the prior year. In
addition to less demand from existing clients, PeopleScout continues to
experience the impact of the loss of a large client after being acquired in the
first quarter of 2019 and lower volume and margin on another large industrial
client due to adverse business conditions.
Gross profit
Total company gross profit as a percentage of revenue for the year ended
December 29, 2019 was 26.4%, compared to 26.6% for the prior year. The decrease
was primarily due to client mix, partially offset by a decrease to workers'
compensation cost.
Selling, general and administrative ("SG&A") expense
Total company SG&A expense decreased by $29 million to $522 million , or 22.1% of
revenue for the year ended December 29, 2019 , compared to $551 million , or 22.0%
of revenue for the prior year. The decrease in SG&A expense is primarily due to
cost control programs, while remaining committed to investing in customer
acquisition and retention initiatives to drive growth, and our digital
strategies to differentiate our services and grow market share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Income from operations
Total company income from operations was $66 million , or 2.8% of revenue for the
year ended December 29, 2019 , compared to $74 million , or 3.0% of revenue for
the prior year. The decrease in gross profit from the decline in revenue was
largely offset by the decrease in SG&A expense due to cost control programs.
Net income
Net income was $63 million , 2.7% of revenue or $1.61 per diluted share for the
year ended December 29, 2019 , compared to $66 million , 2.6% of revenue or $1.63
per diluted share for the prior year. The net income decline was primarily
driven by declining income from operations partially offset by lower interest
expense due to a lower debt balance of $37 million at the end of 2019 compared
to $80 million at the end of 2018.
Additional highlights
We believe we are taking the right steps with our disciplined cost management to
address the continued economic uncertainty and slowed contingent labor spend
while investing in strategic growth initiatives to produce long-term growth for
shareholders. We also believe we are in a strong financial position to fund
working capital needs for growth opportunities. As of December 29, 2019 , we had
cash and cash equivalents of $38 million and $257 million available under our
revolving credit agreement ("Revolving Credit Facility") for total liquidity of
$295 million .
We continue to return cash to shareholders through our share repurchase program.
We repurchased $39 million of common stock during the fiscal year ended
December 29, 2019 , which leaves $119 million available under the existing
authorizations.
RESULTS OF OPERATIONS
The following table presents selected financial data for fiscal 2019 compared to
fiscal 2018 for the total company:
Years ended
(in thousands, except percentages and per
share data) 2019 % of revenue 2018 % of revenue
Revenue from services $ 2,368,779 $ 2,499,207
Total revenue decline % (5.2 )% (0.4 )%
Gross profit $ 626,158 26.4 % $ 665,600 26.6 %
Selling, general and administrative expense 522,430 22.1 % 550,632 22.0 %
Depreciation and amortization 37,549 1.6 % 41,049 1.6 %
Income from operations 66,179 2.8 % 73,919 3.0 %
Interest and other income (expense), net 3,865 1,744
Income before tax expense 70,044 75,663
Income tax expense 6,971 9,909
Net income $ 63,073 2.7 % $ 65,754 2.6 %
Net income per diluted share $ 1.61 $ 1.63
We report our business as three reportable segments described below and in Note
16: Segment Information, to our consolidated financial statements found in
Item 8 of this Annual Report on Form 10-K. We do not have any off-balance sheet
arrangements.
Page - 22-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS
•
and
contingent general and skilled labor.
a broad range of industries that include construction, manufacturing and
logistics, warehousing and distribution, waste and recycling, energy, retail,
hospitality, and others.
fiscal 2019 to be more productive by providing easy access to dependable,
blue-collar contingent labor. Through our
connected approximately 317,000 people with work in fiscal 2019. We have a
network of 614 branches across all 50 states,
Complementing our branch network is our mobile application, JobStackTM, which
connects workers with jobs, creates a virtual exchange between our workers
and clients, and allows our branch resources to expand their recruiting and
sales efforts and service delivery. JobStack is helping to competitively
differentiate our services, expand our reach into new demographics, and
improve both service delivery and work order fill rates as we lead our
business into a digital future.
• PeopleManagement predominantly provides a wide range of on-site contingent
staffing and workforce management solutions to larger multi-site
manufacturing, distribution and fulfillment clients. In comparison with
service teams are located at the client's facility. Effective
2019 (first day of our 2020 fiscal year), we combined our two on-site
contingent industrial workforce operating segments, Staff Management | SMX
("Staff Management") and
operating segment titled "On-site," which continues to be reported under
PeopleManagement. On-site includes our branded service offerings for hourly
and productivity-based industrial staffing solutions serving the same
industries and similar customers. PeopleManagement also includes Centerline
Drivers ("Centerline"), which specializes in dedicated and contingent
commercial truck drivers to the transportation and distribution industries.
Effective
business from our PeopleManagement reportable segment.
•
acquisition services from candidate sourcing and engagement through the
onboarding of employees. Our solution is highly scalable and flexible, which
allows for the outsourcing of all or a subset of skill categories across a
series of recruitment, hiring and onboarding steps. Our solution delivers
improved talent quality and candidate experience, faster hiring, increased
scalability, lower cost of recruitment, greater flexibility, and increased
compliance. Our clients outsource the recruitment process to
all major industries and jobs. We leverage our proprietary technology
platform (AffinixTM) for sourcing, screening and delivering a permanent
workforce, along with dedicated service delivery teams to work as an
integrated partner with our clients. Affinix uses artificial intelligence and
machine learning to search the web and source candidates, which means we can
create the first slate of candidates for a job posting within minutes rather
than days.
Our year-over-year trends are impacted by our acquisition onJune 12, 2018 of TMP, a mid-sized RPO and employer branding services provider operating in theUnited Kingdom , which is the second largest RPO market in the world. This acquisition increases our ability to win multi-continent engagements by adding a physical presence inEurope , referenceable clients and employer branding capabilities. This acquisition expands and complements ourPeopleScout services and has been integrated into this operating segment. OurPeopleScout reportable segment also includes a managed service provider business, which provides clients with improved quality and spend management of their contingent labor vendors. Global employment trends are reshaping and redefining traditional employment models, sourcing strategies and human resource capability requirements due to changing demographics, worker shortages, employee preferences, and employer workforce needs. In response, the staffing industry has accelerated its evolution from commercial staffing into specialized and outsourced staffing solutions. Client demand for staffing services is dependent on the overall strength of the labor market and trends toward greater workforce flexibility. Improving economic growth typically results in increasing demand for labor, resulting in greater demand for our staffing services. This may create volatility based on overall economic conditions. Page - 23 -------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS Revenue from services Revenue from services by reportable segment was as follows: Years ended Growth (decline) Segment % Segment %
(in thousands, except percentages) 2019 % of total
2018 of total Revenue from services: PeopleReady$ 1,474,062 (3.2 )% 62.2 %$ 1,522,076 60.9 % PeopleManagement 642,233 (11.8 ) 27.1 728,254 29.1 PeopleScout 252,484 1.4 10.7 248,877 10.0 Total company$ 2,368,779 (5.2 )% 100.0 %$ 2,499,207 100.0 % Total company revenue declined to$2.4 billion for the year endedDecember 29, 2019 , a 5.2% decrease compared to the prior year.PeopleReady PeopleReady revenue declined to$1.5 billion for the year endedDecember 29, 2019 , a 3.2% decrease compared to the prior year. The revenue decline was primarily due to less demand for our services attributable to lower volumes within the businesses of our clients and continued economic uncertainty. Revenue trends slowed over the course of the year as clients moderated contingent labor spend. Declines were broad-based across multiple geographies and industries. We believe the decline was partially offset by the strategic use of our industry-leading JobStack mobile application that digitally connects workers with jobs. During fiscal 2019,PeopleReady dispatched 4 million shifts via JobStack and achieved a digital fill rate of 48%. The mobile application is used by 21,300 clients with 87% worker adoption, which is up 8.7% and 62.6%, respectively, compared to the prior year. Wage growth has accelerated due to various minimum wage increases and a need for higher wages to attract talent in tight labor markets. We have increased bill rates for the higher wages, payroll burdens and our traditional mark-ups. While we believe our pricing strategy is the right long-term decision, these actions can have an impact on our revenue trends in the near term. PeopleManagement PeopleManagement revenue declined to$642 million for the year endedDecember 29, 2019 , an 11.8% decrease compared to the prior year. The decline included 3.3% from the loss of Amazon's Canadian business in the second half of 2018 when they insourced the recruitment and management of contingent labor for their warehouse fulfillment centers, 2.1% from the substantially reduced volumes and price reductions with a large existing retail client, and 1.1% from the divestiture of our PlaneTechs business inmid-March 2018 . The remaining decline of 5.3% was primarily due to slowing demand attributable to lower volumes within the business of our existing clients and continued economic uncertainty.PeopleScout PeopleScout revenue grew to$252 million for the year endedDecember 29, 2019 , an 1.4% increase compared to the prior year. The increase was due primarily to the acquisition of TMP during the second quarter of 2018, which represents a 9.9% increase inPeopleScout's revenue for the year endedDecember 29, 2019 , compared to the prior year. Revenue growth was constrained primarily due to the loss of one large client after being acquired by a strategic buyer in the prior year and substantially reduced project-based recruiting volumes at another large client, which declined throughout the year due to adverse business conditions resulting in no order volume in the fourth quarter of 2019. Page - 24 -------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS Gross profit Gross profit was as follows: Years ended
(in thousands, except percentages) 2019 2018 Gross profit
$ 626,158 $ 665,600 Percentage of revenue 26.4 % 26.6 % Gross profit as a percentage of revenue declined to 26.4% for the year endedDecember 29, 2019 , compared to 26.6% for the prior year. The decline was primarily due to client mix, which was partially offset by lower workers' compensation costs. The lower workers' compensation costs of 0.2% was from additional insurance coverage in our staffing business associated with former workers' compensation carriers that are in liquidation. This was due to improvements in their balance sheets which allowed these carriers to cover a larger proportion of outstanding claims. Improvements to the gross margin of our staffing businesses were more than offset by declines to thePeopleScout gross margin primarily due to the lower margins associated with the acquired TMP business due to the pass-through nature of recruitment media purchases made on behalf of certain clients, the loss of one large client after being acquired by a strategic buyer in the prior year and substantially reduced project-based recruiting volumes at another large client due to adverse business conditions. We continue to manage the rising cost of claims by reducing workplace accidents. Continued favorable adjustments to our workers' compensation liabilities are dependent on our ability to continue to lower accident rates and claim costs. For additional discussion on the adjustments to our workers' compensation liability, see the "Workers' compensation insurance, collateral and claims reserves" section within Liquidity and Capital Resources. Selling, general and administrative expense SG&A expense was as follows: Years ended (in thousands, except percentages) 2019 2018
Selling, general and administrative expense
22.1 % 22.0 %
Total company SG&A expense decreased by $29 million to $522 million , or 22.1% of
revenue for the year ended December 29, 2019 , compared to $551 million , or 22.0%
of revenue for the prior year. The decrease in SG&A expense was primarily due to
cost control programs, while remaining committed to investing in customer
acquisition and retention initiatives to drive growth and our digital strategies
to differentiate our services and grow market share.
Depreciation and amortization
Depreciation and amortization was as follows:
Years ended
(in thousands, except percentages) 2019 2018
Depreciation and amortization
1.6 % 1.6 %
Depreciation and amortization decreased primarily due to several intangible
assets which became fully amortized in the second quarter of 2019, which
resulted in a decline in amortization expense for the year ended
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Income taxes
The income tax expense and the effective income tax rate were as follows:
Years ended
(in thousands, except percentages) 2019 2018 Income tax expense
$ 6,971 $ 9,909 Effective income tax rate 10.0 % 13.1 % Our tax provision and our effective tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss by jurisdiction, tax credits, government audit developments, changes in laws, regulations and administrative practices, and relative changes of expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income. For example, the impact of tax credits and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower. Our effective tax rate for the year endedDecember 29, 2019 was 10.0% compared to 13.1% for the prior year. A significant driver of fluctuations in our effective income tax rate is the Work Opportunity Tax Credit ("WOTC"). WOTC is designed to encourage hiring of workers from certain disadvantaged targeted categories and is generally calculated as a percentage of wages over a twelve month period up to worker maximums by targeted category. Based on historical results and business trends, we estimate the amount of WOTC we expect to earn related to wages of the current year. However, the estimate is subject to variation because 1) a small percentage of our workers qualify for one or more of the many targeted categories; 2) the targeted categories are subject to different incentive credit rates and limitations; 3) credits fluctuate depending on economic conditions and qualified worker retention periods; and 4) state and federal offices can delay their credit certification processing and have inconsistent certification rates. We recognize additional prior year job credits if credits in excess of original estimates have been certified by government offices. WOTC was extended throughDecember 31, 2020 as a result of the Further Consolidated Appropriations Act of 2020 (H.R. 1865). Approval fromCongress will be required to extend WOTC beyondDecember 31, 2020 . Changes to our effective tax rate as a result of WOTC and other job tax credits were as follows: Years ended 2019 2018
Effective income tax rate without adjustments below 28.1 % 29.1 % WOTC job credits estimate from current year wages (15.8 ) (14.6 ) WOTC additional job credits from prior year wages (1.9 ) (1.4 ) Other job tax credits
(0.4 ) -
Effective income tax rate 10.0 % 13.1 %
See Note 13: Income Taxes, to our consolidated financial statements found in
Item 8 of this Annual Report on Form 10-K, for additional information.
Segment performance
We evaluate performance based on segment revenue and segment profit. Segment
profit includes revenue, related cost of services, and ongoing operating
expenses directly attributable to the reportable segment. Segment profit
excludes goodwill and intangible impairment charges, depreciation and
amortization expense, unallocated corporate general and administrative expense,
interest, other adjustments not considered to be ongoing. See Note 16: Segment
Information, to our consolidated financial statements found in Item 8 of this
Annual Report on Form 10-K, for additional details on our reportable segments,
as well as a reconciliation of segment profit to income before tax expense.
Segment profit should not be considered a measure of financial performance in
isolation or as an alternative to net income in the Consolidated Statements of
Operations and Comprehensive Income in accordance with accounting principles
generally accepted in the United States of America and may not be comparable to
similarly titled measures of other companies.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Years ended
(in thousands, except percentages) 2019 2018
Revenue from services $ 1,474,062 $ 1,522,076
Segment profit $ 82,106 $ 85,998
Percentage of revenue 5.6 % 5.7 %
PeopleReady segment profit declined to $82 million , or 5.6% of revenue for the
year ended December 29, 2019 , compared to $86 million , or 5.7% of revenue for
the prior year. The decline was primarily due to less demand for our services
attributable to lower volumes within the businesses of our clients and continued
economic uncertainty. Revenue trends slowed over the course of the year as
clients moderated contingent labor spend. Declines were broad based across
multiple geographies and industries. The decline in revenue was largely offset
by our cost control programs which have reduced our SG&A expense in line with
our plans.
PeopleManagement segment performance was as follows:
Years ended
(in thousands, except percentages) 2019 2018
Revenue from services $ 642,233 $ 728,254
Segment profit $ 12,593 $ 21,627
Percentage of revenue 2.0 % 3.0 %
PeopleManagement segment profit decreased to $13 million , or 2.0% of revenue for
the year ended December 29, 2019 , compared to $22 million , or 3.0% of revenue
for the prior year. The decline in revenue and related segment profit was
primarily due to the loss of Amazon's Canadian business in the second half of
fiscal 2018 and volume and price reductions at another large industrial
workforce client. Additionally, PeopleManagement experienced lower volumes due
to our clients experiencing slowing demand in their businesses. Due to the
decline in revenue, we put in place cost control measures and have reduced SG&A
expense in line with our plans.
PeopleScout segment performance was as follows:
Years ended
(in thousands, except percentages) 2019 2018
Revenue from services $ 252,484 $ 248,877
Segment profit $ 37,831 $ 47,383
Percentage of revenue 15.0 % 19.0 %
PeopleScout segment profit decreased to $38 million , or 15.0% of revenue for the
year ended December 29, 2019 , compared to $47 million , or 19.0% of revenue for
the prior year. The decline in segment profit and profit margin was primarily
driven by the acquisition of TMP and client mix. TMP margins are lower than
those of PeopleScout due to the pass-through nature of media-related purchases
on behalf of certain clients. Client mix margins were impacted by substantially
reduced project-based recruiting volumes at a large industrial client due to
adverse business conditions and the loss of another higher margin client which
was acquired by a strategic buyer in late 2018. Due to the decline in segment
profit, we put in place cost control measures and have reduced SG&A expense in
line with our plans.
FISCAL 2018 AS COMPARED TO FISCAL 2017
See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, found in Part II of the Annual Report on Form 10-K for
the fiscal year ended December 30, 2018 for discussion of fiscal 2018 compared
to fiscal 2017.
Page - 27-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS FUTURE OUTLOOK We have limited visibility into future demand for our services. However, we believe there is value in providing highlights of our expectations for future financial performance. The following highlights represent our expectations regarding operating trends for fiscal 2020. These expectations are subject to revision as our business changes with the overall economy. • We expect additional pressure on our revenue trends in 2020 due primarily to
a widespread decline in same client demand as clients continue to experience
weaker volumes within their own businesses across most geographies and
industries.
revenue declines in 2019 and experienced growing revenue pressure as the year
progressed. Similar to
segment, experienced less demand from existing clients and continued economic
uncertainty.
anniversary of the TMP acquisition in
further pressure due to the continued impact of the loss of a key client that
was acquired by a strategic buyer which will anniversary in the first quarter
of 2020 and substantially reduced project-based recruiting volumes at another
large industrial client due to adverse business conditions which will
anniversary in the third quarter of 2020. We expect continued challenges in
the industrial markets we serve, but we are encouraged by recent improvements
in the demand trend for
• We believe there is a changing pace of underlying economic activity in some
of the industries we serve. Our belief is based on our same client revenue
trends and the softening demand for our
project-based nature of
early indicator of changing demand patterns. We remain focused on client
expansion and retention, disciplined cost management, and investing in our
digital strategies to differentiate our service offerings.
• We are committed to technological innovation to transform our business for a
digital future that makes it easier for our clients to do business with us
and easier to connect people to work. We continue making investments in
online and mobile applications to improve access to workers and candidates,
as well as improve the speed and ease of connecting our clients and workers
for our staffing businesses, and candidates for our recruitment process
outsourcing business. We expect these investments will increase the
competitive differentiation of our services over the long-term, improve the
efficiency of our service delivery, and reduce our
local branches to find contingent workers and connect them with work.
Examples include our new JobStack mobile application in the
business and our Affinix talent acquisition technology in our
business.
since its inception and is currently filling a job every nine seconds.
and candidate satisfaction. We believe our digital strategies provide further
opportunity to differentiate our services, capture additional market share
and deliver industry-leading growth.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Cash flows from operating activities
Our cash flows from operating activities for fiscal 2019 as compared to fiscal
2018 were as follows:
Years ended
(in thousands) 2019 2018
Net income $ 63,073 $ 65,754
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 37,549 41,049
Provision for doubtful accounts 7,661
10,042
Non-cash lease expense, net of changes in operating lease liabilities (355 ) - Stock-based compensation 9,769 13,876 Other operating activities (326 ) 3,225 Changes in operating assets and liabilities, net of amounts acquired and divested: Accounts receivable 5,450 11,640 Income tax receivable (6,480 ) (996 ) Change in all other assets (12,575 ) (12,928 ) Workers' compensation claims reserve (10,828 ) (7,877 ) Change in all other liabilities 593
1,907
Net cash provided by operating activities$ 93,531
Net cash provided by operating activities was$94 million for the year endedDecember 29, 2019 , compared to$126 million for the prior year. Net cash provided by operating activities is primarily due to net income of$63 million for the year endedDecember 29, 2019 compared to$66 million for the prior year. Changes to adjustments to reconcile net income to net cash provided by operating activities for fiscal 2019 were primarily due to: • Depreciation and amortization decreased primarily due to certain fixed assets
and intangible assets becoming fully depreciated during the prior year.
Additionally, a greater portion of our investment funds are being directed
toward non-capitalized third-party cloud-based solutions.
• Provision for doubtful accounts decreased primarily due to the overall
reduction in revenue during fiscal 2019. Additionally, 2019 benefited from
the recovery of receivables which had been reserved for in 2018 when a
customer filed for bankruptcy protection.
• Stock-based compensation decreased primarily due to
stock compensation costs associated with the CEO transition in fiscal 2018.
Changes to operating assets and liabilities, net of amounts acquired and divested for fiscal 2019 were primarily due to: • The decrease in accounts receivable in fiscal 2019 was primarily due to the
decline in revenue due to less demand for our services attributable to lower
volumes within the businesses of our clients. This was partially offset by
higher days sales outstanding due to continued economic uncertainty and
longer payment terms.
• The increase in income tax receivable in fiscal 2019 was primarily due to
delays in foreign jurisdiction processing of refunds and higher than expected
WOTC benefits.
• Change in all other assets decreased primarily due to unrealized gains on
deferred compensation assets as both equity and bond markets strengthened
into fiscal 2019, verses unrealized losses in fiscal 2018 after a sharp
decline in equity markets in the fourth quarter of 2018.
• Generally, our workers' compensation claims reserve for estimated claims
decreases as contingent labor services declines, as is the case in the
current and prior year. Additionally, our worker safety programs have had a
positive impact and have created favorable adjustments to our workers'
compensation liabilities recorded in each period. Continued favorable
adjustments to our workers' compensation liabilities are dependent on our
ability to continue to lower accident rates and claim costs.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Cash flows from investing activities
Our cash flows from investing activities for fiscal 2019 as compared to fiscal
2018 were as follows:
Years ended
(in thousands) 2019 2018
Capital expenditures $ (28,119 ) $ (17,054 )
Acquisition of business, net of divestiture of business 215 (12,155 )
Purchases and sales of restricted investments 18,483 8,694
Net cash used in investing activities$ (21,631 ) $
(20,515 )
Net cash used in investing activities was
a cost savings initiative to upgrade our telephone system to voice over
internet protocol, an expansion of our India shared services center, a
computer hardware upgrade cycle, and further investment in software
technology to support our digital strategy.
• Net cash used in investing activities in fiscal 2018 was impacted by the
acquisition of the outstanding equity interests of TMP for a cash purchase
price of
partially offset by the divestiture of all the assets and certain liabilities
of our PlaneTechs business for a sales price of
Acquisition and Divestiture, to our consolidated financial statements found
in Item 8 of this Annual Report on Form 10-K, for additional details on the
purchase of TMP and divestiture of PlaneTechs.
• Restricted investments consist primarily of collateral that has been provided
or pledged to insurance carriers and state workers' compensation programs.
The decrease in the cash provided by the selling of securities was primarily
due to lower collateral requirements from our workers' compensation insurance
providers, as well as the timing of collateral payments.
Cash flows from financing activities
Our cash flows from financing activities for fiscal 2019 as compared to fiscal
2018 were as follows:
Years ended
(in thousands) 2019 2018
Purchases and retirement of common stock $ (38,826 ) $ (34,818 )
Net proceeds from employee stock purchase plans 1,329 1,503
Common stock repurchases for taxes upon vesting of restricted stock (2,222 ) (3,404 )
Net change in Revolving Credit Facility (42,900 ) (15,900 )
Payments on debt - (22,397 )
Other (296 ) -
Net cash used in financing activities $
(82,915 )
Net cash used in financing activities was
available for repurchase of common stock under existing authorizations.
• During fiscal 2019, we increased net repayments on our Revolving Credit
Facility of
in the prior year. Draws on the Revolving Credit Facility during fiscal 2018
enabled the pre-payment of the outstanding balance of our existing long-term
debt of
FISCAL 2018 AS COMPARED TO FISCAL 2017 See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, found in Part II of the Annual Report on Form 10-K for the fiscal year endedDecember 30, 2018 for discussion of fiscal 2018 compared to fiscal 2017. Page - 30
-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS CAPITAL RESOURCES Revolving credit facility See Note 8: Long-term Debt, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our Revolving Credit Facility. Restricted cash and investments Restricted cash and investments consist principally of collateral that has been provided or pledged to insurance carriers for workers' compensation and state workers' compensation programs. Our insurance carriers and certain state workers' compensation programs require us to collateralize a portion of our workers' compensation obligation. We have agreements with certain financial institutions that allow us to restrict cash and cash equivalents and investments for the purpose of providing collateral instruments to our insurance carriers to satisfy workers' compensation claims. AtDecember 29, 2019 , we had restricted cash and investments totaling$231 million . The majority of our collateral obligations are held in a trust at the Bank of New York Mellon ("Trust"). See Note 4: Restricted Cash and Investments, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our restricted cash and investments. We established investment policy directives for the Trust with the first priority to preserve capital, second to ensure sufficient liquidity to pay workers' compensation claims, third to diversify the investment portfolio and fourth to maximize after-tax returns. Trust investments must meet minimum acceptable quality standards. The primary investments includeU.S. Treasury securities,U.S. agency debentures,U.S. agency mortgages, corporate securities and municipal securities. For those investments rated by nationally recognized statistical rating organizations the minimum ratings at time of purchase are: S&P Moody's Fitch Short-term rating A-1/SP-1 P-1/MIG-1 F-1 Long-term rating A A2 A Workers' compensation insurance, collateral and claims reserves Workers' compensation insurance We provide workers' compensation insurance for our contingent and permanent employees. The majority of our current workers' compensation insurance policies cover claims for a particular event above a$2 million deductible limit, on a "per occurrence" basis and accordingly, we are substantially self-insured. For workers' compensation claims originating inWashington ,North Dakota ,Ohio ,Wyoming ,Canada andPuerto Rico (our "monopolistic jurisdictions"), we pay workers' compensation insurance premiums and obtain full coverage under government-administered programs (with the exception ofPeopleReady inOhio 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. Page - 31 -------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS
Our total collateral commitments were made up of the following components for the fiscal period end dates presented:
December 30,
(in thousands) December 29, 2019 2018
Cash collateral held by workers' compensation insurance carriers $ 22,256 $ 22,264
Cash and cash equivalents held in Trust 23,681 28,021
Investments held in Trust 149,373 156,618
Letters of credit (1) 6,202 6,691
Surety bonds (2) 20,731 21,881
Total collateral commitments $ 222,243 $ 235,475 (1) We have agreements with certain financial institutions to issue letters of
credit as collateral.
(2) Our surety bonds are issued by independent insurance companies on our behalf
and bear annual fees based on a percentage of the bond, which is determined
by each independent surety carrier. These fees do not exceed 2.0% of the bond
amount, subject to a minimum charge. The terms of these bonds are subject to
review and renewal every one to four years and most bonds can be canceled by
the sureties with as little as 60 days' notice.
Workers' compensation reserve
The following table provides a reconciliation of our collateral commitments to
our workers' compensation reserve as of the fiscal period end dates presented:
December 30,
(in thousands) December 29, 2019 2018
Total workers' compensation reserve $ 255,618 $ 266,446
Add back discount on workers' compensation reserve (1) 19,316 18,179
Less excess claims reserve (2) (45,253 ) (48,229 )
Reimbursable payments to insurance provider (3) 8,121 7,866
Other (4) (15,559 ) (8,787 )
Total collateral commitments $
222,243
(1) Our workers' compensation reserves are discounted to their estimated net
present value while our collateral commitments are based on the gross,
undiscounted reserve.
(2) Excess claims reserve includes the estimated obligation for claims above our
deductible limits. These are the responsibility of the insurance carriers
against which there are no collateral requirements.
(3) This amount is included in restricted cash and represents a timing difference
between claim payments made by our insurance carrier and the reimbursement
from cash held in the Trust. When claims are paid by our carrier, the amount
is removed from the workers' compensation reserve but not removed from
collateral until reimbursed to the carrier.
(4) Represents the difference between the self-insured reserves and collateral
commitments.
Our workers' compensation reserve is established using estimates of the future
cost of claims and related expenses, which are discounted to their estimated net
present value. We discount our workers' compensation liability as we believe the
estimated future cash outflows are readily determinable.
Our workers' compensation reserve for deductible and self-insured claims is
established using estimates of the future cost of claims and related expenses
that have been reported but not settled, as well as those that have been
incurred but not reported. Reserves are estimated for claims incurred in the
current year, as well as claims incurred during prior years.
Management evaluates the adequacy of the workers' compensation reserves in
conjunction with an independent quarterly actuarial assessment. Factors
considered in establishing and adjusting these reserves include, among other
things:
• changes in medical and time loss ("indemnity") costs;
• changes in mix between medical only and indemnity claims;
• regulatory and legislative developments impacting benefits and settlement
requirements;
• type and location of work performed;
Page - 32-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS
• 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. AtDecember 29, 2019 , the weighted average discount rate was 2.0%. The claim payments are made over an estimated weighted average period of approximately 5 years. Our workers' compensation reserves include estimated expenses related to claims above our self-insured limits ("excess claims"), and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of "risk-free"U.S. Treasury instruments available during the year in which the liability was incurred. AtDecember 29, 2019 , the weighted average rate was 2.4%. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 16 years. The discounted workers' compensation reserve for excess claims was$45 million and$48 million as ofDecember 29, 2019 andDecember 30, 2018 , respectively. The discounted receivables from insurance companies, net of valuation allowance, were$45 million as ofDecember 29, 2019 andDecember 30, 2018 . The following table provides an analysis of changes in our workers' compensation claims reserves: Years ended (in thousands) 2019 2018 Beginning balance$ 266,446 $ 274,323
Self-insurance reserve expenses related to current year, net 78,367 79,874 Payments related to current year claims (1)
(14,997 ) (17,413 )
Payments related to claims from prior years (1) (48,177 ) (47,242 )
Changes to prior years' self-insurance reserve, net (2) (21,748 ) (24,899 )
Amortization of prior years' discount (3) (1,393 ) 2,404
Net change in excess claims reserve (4) (2,880 ) (601 ) Ending balance 255,618 266,446 Less current portion 73,020 76,421 Long-term portion$ 182,598 $ 190,025
(1) Payments made against self-insured claims are made over a weighted average
period of approximately 5 years at
(2) Changes in reserve estimates are reflected in cost of services on the
Consolidated Statement of Operations and Comprehensive Income in the period
when the changes are made.
(3) The discount is amortized over the estimated weighted average life. In
addition, any changes to the estimated weighted average lives and
corresponding discount rates for actual payments made are reflected in cost
of services on the Consolidated Statement of Operations and Comprehensive
Income in the period when the changes in estimates are made.
(4) Changes to our excess claims are discounted to its estimated net present
value using the risk-free rates associated with the actuarially determined
weighted average lives of our excess claims. Certain workers' compensation
insurance companies with which we formerly did business are in liquidation
and have failed to pay a number of excess claims to date. We have recorded a
valuation allowance against all of the insurance receivables from the
insurance companies in liquidation.
We continue to actively manage workers' compensation cost through the safety of our contingent workers with our safety programs and actively control costs with our network of service providers. These actions have had a positive impact creating favorable adjustments to workers' compensation liabilities recorded in the current and prior periods. Continued favorable adjustments to our workers' compensation liabilities are dependent on our ability to continue to aggressively lower accident rates and costs of our claims. We expect diminishing favorable adjustments to our workers' compensation liabilities as the opportunity for significant reduction to frequency and severity of accident rates diminishes. Future outlook We believe we are in a strong financial position to fund working capital needs for growth opportunities. As ofDecember 29, 2019 , we had cash and cash equivalents of$38 million and$257 million available under our Revolving Credit Facility for total liquidity of$295 million . Page - 33 -------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS We continue to return cash to shareholders through our share repurchase program. During the year endedDecember 29, 2019 , we repurchased$39 million of common stock. As ofDecember 29, 2019 ,$119 million remains available for repurchase of common stock under existing authorizations. We believe that cash provided from operations and our capital resources will be adequate to meet our cash requirements for the foreseeable future. CONTRACTUAL OBLIGATIONS AND COMMITMENTS The following table provides a summary of our contractual obligations as of the end of fiscal 2019. We expect to fund these commitments with existing cash and cash equivalents, restricted cash and investments, and cash flows from operations. Payments due by period (in thousands) Less than 1 More than 5 Contractual obligations Total year 1-3 years 3-5 years years Long-term debt obligations, including interest and fees (1):$ 31,861 $ 1,610 $ 30,251 $ - $ - Workers' compensation claims (2) 229,681 73,729 63,804 25,956 66,192 Deferred compensation (3) 8,232 2,930 2,383 1,343 1,576 Operating leases (4) 49,100 16,328 19,798 8,062 4,912 Purchase obligations (5) 29,811 13,837 14,730 1,244 - Total contractual cash obligations$ 348,685 $ 108,434 $
130,966
(1) Interest and fees are calculated based on the rates in effect at
2019. Our Revolving Credit Facility expires in 2023. For additional
information, see Note 8: Long-term Debt to the consolidated financial
statements included in Item 8 of this Annual Report on Form 10-K.
(2) Excludes estimated expenses related to claims above our self-insured limits,
for which we have a corresponding receivable based on the contractual policy
agreements we have with insurance carriers. For additional information, see
Note 7:
financial statements included in Item 8 of this Annual Report on Form 10-K.
(3) Represents scheduled distributions based on the elections of plan
participants. Additional payments may be made if plan participants terminate,
retire, or schedule additional distributions during the periods presented.
For additional information, see Note 12: Defined Contribution Plans to the
consolidated financial statements included in Item 8 of this Annual Report on
Form 10-K.
(4) Excludes all payments related to branch leases with short-term cancellation
provisions, typically within 90 days. Operating lease payments exclude
approximately
leases signed but not yet commenced. For additional information, see Note 9:
Commitments and Contingencies to the consolidated financial statements
included in Item 8 of this Annual Report on Form 10-K.
(5) Purchase obligations include agreements to purchase goods and services that
are enforceable, legally binding and specify all significant terms. Purchase
obligations do not include agreements that are cancelable without significant
penalty.
Liability for unrecognized tax benefits has been excluded from the table above, as the timing and/or amounts of any cash payment is uncertain. For additional information, see Note 13: Income Taxes, to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. SUMMARY OF CRITICAL ACCOUNTING ESTIMATES Management's discussion and analysis of financial condition and results of operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes that the following accounting estimates are the most critical to understand and evaluate our reported financial results, and they require management's most subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Page - 34
-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS Workers' compensation reserve We maintain reserves for workers' compensation claims, including the excess claims portion above our deductible, using actuarial estimates of the future cost of claims and related expenses. These estimates include claims that have been reported but not settled and claims that have been incurred but not reported. These reserves, which reflect potential liabilities to be paid in future periods based on estimated payment patterns, are discounted to estimated net present value using discount rates based on average returns on "risk-free"U.S. Treasury instruments, which are evaluated on a quarterly basis. We evaluate the reserves regularly throughout the year and make adjustments accordingly. If the actual cost of such claims and related expenses exceed the amount estimated, additional reserves may be required. Changes in reserve estimates are reflected in cost of services on the Consolidated Statements of Operations and Comprehensive Income in the period when the changes in estimates are made. Our workers' compensation reserves include estimated expenses related to excess claims and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance companies. We discount the reserve and its corresponding receivable to their estimated net present values using the risk-free rates associated with the actuarially determined weighted average lives of our excess claims. When appropriate, we record a valuation allowance against the insurance receivable to reflect amounts that may not be realized. There are two main factors that impact workers' compensation cost: the number of claims and the cost per claim. The number of claims is driven by the volume of hours worked, the business mix which reflects the type of work performed, and the safety of the environment where the work is performed. The cost per claim is driven primarily by the severity of the injury, the state in which the injury occurs, related medical costs, and lost-time wage costs. A 5% change in one or more of the above factors would result in a change to workers' compensation cost of approximately$4 million . Our reserve balances have been positively impacted primarily by the success of our accident prevention programs. In the event that we are not able to further reduce our accident rates, the positive impacts to our reserve balance will diminish. Allowance for doubtful accounts We establish an allowance for doubtful accounts for estimated probable losses resulting from the failure of our clients to make required payments. The allowance for doubtful accounts is determined based on historical write-off experience, expectations of future write-offs, and current economic data, and represents our best estimate of the amount of probable credit losses. The allowance for doubtful accounts is reviewed quarterly and past due balances are written-off when it is likely the receivable will not be collected. If the financial condition of our clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Business combinations We account for our business acquisitions using the acquisition method of accounting. The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. We determine the estimated fair values after review and consideration of relevant information including discounted cash flows, quoted market prices and estimates made by management. Determining the fair value of an acquired company is judgmental in nature and involves the use of significant estimates and assumptions. The significant judgments include estimation of future cash flows, which is dependent on forecasts; estimation of the long-term rate of growth; estimation of the useful life over which cash flows will occur; and determination of a weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the business being purchased. Intangible assets that arise from contractual/legal rights, or are capable of being separated, are measured and recorded at fair value and amortized over the estimated useful life. If practicable, assets acquired and liabilities assumed arising from contingencies are measured and recorded at fair value. If not practicable, such assets and liabilities are measured and recorded when it is probable that a gain or loss has occurred and the amount can be reasonably estimated. The residual balance of the purchase price, after fair value allocations to all identified assets and liabilities, represents goodwill.Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date. Acquisition-related costs are expensed as incurred. Our acquisitions may include contingent consideration, which require us to recognize the fair value of the estimated liability at the time of the acquisition. Subsequent changes in the estimate of the amount to be paid under the contingent consideration arrangement are recognized on the Consolidated Statements of Operations and Comprehensive Income. Cash payments for contingent or deferred consideration are classified within cash flows from investing activities for the purchase price fair value of the contingent consideration while amounts paid in excess are classified within cash flows from operating activities on the Consolidated Statements of Cash Flows. Page - 35
-------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSISGoodwill and indefinite-lived intangible assets We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter, and whenever events or circumstances make it more likely than not that an impairment may have occurred. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, client engagement, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.Goodwill We test for goodwill impairment at the reporting unit level. We consider our operating segments to be our reporting units for goodwill impairment testing. As ofDecember 29, 2019 , our operating segments arePeopleReady , Centerline, Staff Management, SIMOS,PeopleScout , and PeopleScout MSP. The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds the carrying value, we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value of the goodwill. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions to evaluate the impact of operational and macroeconomic changes on each reporting unit. The fair value of each reporting unit is a weighted average of the income and market valuation approaches. The income approach applies a fair value methodology based on discounted cash flows. This analysis requires significant estimates and judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. We also apply a market approach, which identifies similar publicly traded companies and develops a correlation, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches were equally weighted in our most recent annual impairment test. These combined fair values are reconciled to our aggregate market value of our shares of common stock outstanding on the date of valuation. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We consider a reporting unit's fair value to be substantially in excess of its carrying value at a 20% premium or greater. Annual impairment test Based on our 2019 annual impairment test, the estimated fair value of all our reporting units were substantially in excess of their carrying value, except our SIMOS reporting unit, which was in excess of its carrying value by approximately 10%. The current carrying value of goodwill for this reporting unit is$35 million . There are two key clients that individually account for more than 10% of revenue for the SIMOS reporting unit. For each client we service multiple sites. The loss of a key client, loss of a significant number of key sites, or a significant downturn in the economy could give rise to an impairment. Should any one of these events occur, we may need to record an impairment loss to goodwill for the amount by which the carrying value exceeds the reporting unit's fair value, not to exceed the total amount of goodwill. A discount rate of 12.5% was used in calculating the fair value of this reporting unit. In the event that the discount rate increases by approximately 1 percentage point, the forecasted revenue growth rate declines by approximately 3 percentage points, or gross margin as a percentage of revenue declines by approximately 1 percentage point, the carrying value of the reporting unit would have exceeded its fair value. Should any one of these events occur, we may need to record an impairment loss to goodwill for the amount by which the carrying value exceeds the reporting unit's fair value, not to exceed the total amount of goodwill. Our weighted average cost of capital for all our reporting units ranged from 11.5% to 12.5%, and our control premium was 15.2%, which management has determined to be reasonable. Interim impairment test EffectiveDecember 30, 2019 (the first day of fiscal 2020), our SIMOS and Staff Management | SMX reporting units were combined into one reporting unit (On-site) due to common customers and contingent workers, similar nature of services and economic characteristics. Therefore, we tested the SIMOS reporting unit for impairment prior to the combination due to its sensitivity to impairment as of our annual impairment test, as explained above. Our SMX reporting unit's fair value was substantially in excess of its carrying as of the annual impairment test, or approximately 48%, and there were no indicators of impairment during the interim period. Therefore, no interim impairment test was performed. Based on the interim impairment test of our SIMOS reporting unit, the estimated fair value was in excess of its carrying value by approximately 7%. A discount rate of 12.0% was used in calculating the fair value of this reporting unit. If the discount rate was approximately 1 percentage point higher, the forecasted Page - 36 -------------------------------------------------------------------------------- Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS revenue growth rate was approximately 5 percentage points lower, or gross margin as a percentage of revenue was approximately 1 percentage point lower, the carrying value of the reporting unit would have exceeded its fair value. Based on the results of our annual and interim impairment tests, there was no impairment loss recognized for the year endedDecember 29, 2019 . Based on our 2018 and 2017 annual impairment tests, all reporting units' fair values were substantially in excess of their respective carrying values. Accordingly, there was no impairment loss recognized for the years endedDecember 30, 2018 orDecember 31, 2017 . Indefinite-lived intangible assets We have indefinite-lived intangible assets related to our Staff Management andPeopleScout trade names. We test our trade names annually for impairment, and when indicators of potential impairment exist. We utilize the relief from royalty method to determine the fair value of each of our trade names. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates. We performed our annual indefinite-lived intangible asset impairment test for 2019, 2018 and 2017 and determined that the estimated fair values exceeded the carrying amounts for our indefinite-lived trade names. Accordingly, no impairment loss was recognized for the years endedDecember 29, 2019 ,December 30, 2018 orDecember 31, 2017 . Finite-lived intangible assets and other long-lived assets We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Factors considered important that could result in an impairment review include, but are not limited to, significant underperformance relative to historical or planned operating results, or significant changes in business strategies. We estimate the recoverability of these assets by comparing the carrying amount of the asset to the future undiscounted cash flows that we expect the asset to generate. An impairment loss is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on discounted cash flow analysis or other valuation techniques. No impairment loss was recognized for the years endedDecember 29, 2019 ,December 30, 2018 orDecember 31, 2017 . Estimated contingent legal and regulatory liabilities From time to time we are subject to compliance audits by federal, state and local authorities relating to a variety of regulations including wage and hour laws, taxes, workers' compensation, immigration, and safety. We are also subject to legal proceedings in the ordinary course of our operations. We have established reserves for contingent legal and regulatory liabilities. We record a liability when our management determines that it is probable that a legal claim will result in an adverse outcome and the amount of liability can be reasonably estimated. To the extent that an insurance company or other third-party is legally obligated to reimburse us for a liability, we record a receivable for the amount of the probable reimbursement. We evaluate our estimated liability regularly throughout the year and make adjustments as needed. If the actual outcome of these matters is different than expected, an adjustment is charged or credited to expense in the period the outcome occurs or the period in which the estimate changes. Income taxes and related valuation allowances We account for income taxes by recording taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. We measure these expected future tax consequences based upon the provisions of tax law as currently enacted; the effects of future changes in tax laws are not anticipated. Future tax law changes, such as changes to federal and state corporate tax rates and the mix of states and their taxable income, could have a material impact on our financial condition or results of operations. When appropriate, we record a valuation allowance against deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, we consider whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management's judgments regarding future events and past operating results. NEW ACCOUNTING STANDARDS See Note 1: Summary of Significant Accounting Policies, to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. Page - 37
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