ACQUISITIONS

2015 Acquisition

Effective December 1, 2015, we acquired SIMOS Insourcing Solutions Corporation ("SIMOS"), an Atlanta-based provider of on-premise contingent staffing solutions for a cash purchase price of $67.5 million, which was funded by our existing credit facility. An additional cash payment between zero and $22.5 million of contingent consideration will be payable in 2017, depending on SIMOS achieving a fiscal 2016 earnings target. SIMOS broadens our Staff Management on-premise contingent staffing solution, which is part of our Staffing Services reportable segment.

We incurred acquisition and integration-related costs of $0.7 million in connection with the SIMOS acquisition, which are included in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income and cash flows from operating activities on the Consolidated Statements of Cash Flows for the year ended December 25, 2015.

The purchase price allocation for this acquisition as set forth in the table below reflects various preliminary fair value estimates and analysis, including work performed by third-party valuation specialists, which are subject to change within the measurement period as valuations are finalized. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair values of certain workers compensation related tangible assets and liabilities acquired, intangible assets acquired, contingent consideration, and residual goodwill. We expect to continue to obtain information to assist in determining the fair value of the net assets acquired at the acquisition date during the measurement period. We expect to complete our purchase accounting during the first quarter of fiscal 2016.

The following table reflects our preliminary allocation of the purchase price (in thousands):



	Purchase Price Allocation
Purchase price:
Cash purchase price	$	67,500
Contingent consideration (1)	19,300
Total consideration	$	86,800

Purchase price allocated as follows:
Accounts receivable (2)	$	19,230
Prepaid expenses, deposits and other current assets	2,501
Property and equipment	464
Customer relationships	38,400
Trade name/trademarks	800
Technologies	100
Other non-current assets	2,500
Total assets acquired	63,995
Accounts payable and other accrued expenses	3,603
Accrued wages and benefits	4,174
Workers' compensation liability	8,520
Total liabilities assumed	16,297
Net identifiable assets acquired	47,698
Goodwill (3)	39,102
Total consideration allocated	$	86,800

(1)

The purchase price included contingent consideration of zero to $22.5 million depending on achieving a fiscal 2016 earnings before interest, taxes, depreciation and amortization target ("EBITDA target"), which will be paid out in mid fiscal 2017. Actual results must be in excess of 87.5% of the EBITDA target before any amounts are earned. The preliminary undiscounted fair value of the contingent consideration as of the acquisition date was determined to be $22.2 million. Using a risk adjusted weighted average cost of capital of 10.0%, the present value of the contingent consideration was estimated to be $19.3 million, as of the acquisition date. The contingent consideration liability was based on a probability weighted fair value measurement using unobservable inputs (Level 3) which rely on management's estimates of assumptions that market participants would use in pricing the liability. The valuation is judgmental in nature and involves the use of significant estimates and assumptions in forecasting fiscal 2016 results.


(2)	The gross contractual amount of accounts receivable was $19.3 million of which $0.1 million was estimated to be uncollectible.


(3)	Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers, and future cash flows after the acquisition of SIMOS. Goodwill is deductible for income tax purposes over 15 years as of December 1, 2015.

Intangible assets include identifiable intangible assets for customer relationships, trade name/trademarks, and technologies. We estimated the fair value of the acquired identifiable intangible assets, which are subject to amortization, using the income approach. The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of December 1, 2015 (in thousands):



	Estimated Fair Value		Estimated Useful Lives in Years
Customer relationships	$	38,400	9.0
Trade name/trademarks	800		3.0
Technologies	100		2.0
Total intangible assets	$	39,300

The acquired assets and liabilities assumed of SIMOS are included in our Consolidated Balance Sheets as of December 25, 2015, and the results of its operations and cash flows are reported in our Consolidated Statements of Operations and Comprehensive Income and Consolidated Statements of Cash Flows for the period from December 1, 2015 to December 25, 2015.

The amount of revenue and income from operations of SIMOS included in our Consolidated Statements of Operations and Comprehensive Income were $22.2 million and $2.2 million, respectively, for the period from the acquisition date to December 25, 2015.

Unaudited pro forma financial information

Had the acquisition of SIMOS occurred as of the beginning of fiscal year 2015 and 2014, such unaudited pro forma revenue would have been approximately $160.7 million and $129.3 million, respectively. Unaudited pro forma revenue is presented for illustrative purposes only and is not indicative of the results of operations that would have been realized if the acquisition had been completed at the beginning of the period, nor is it indicative of future operating results.

Pro forma results of operations and potential adjustments for differences in workers' compensation expense, non-business related costs of the prior owner, amortization of finite-lived intangible assets, stock-based compensation expense, and non-recurring acquisition and integration related costs were not practical to determine, and accordingly have not been presented.

2014 Acquisition

Effective June 30, 2014, we completed the acquisition of all of the outstanding equity interests of Seaton, a Chicago-based corporation, for a cash purchase price of approximately $305.9 million, net of cash acquired. The Seaton acquisition added a full service line of on-premise blue-collar staffing, complementary service offerings in recruitment process outsourcing, and managed services provider solutions. We have continued to manage and support Seaton's operations from Chicago.

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

We incurred acquisition and integration-related costs of $3.8 million and $5.2 million during the years ended December 25, 2015 and December 26, 2014, respectively. These costs are included in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income and cash flows from operating activities in the Consolidated Statements of Cash Flows.

Purchase price allocation

We have completed the allocation of the purchase price, net of cash acquired, to the assets acquired and liabilities assumed based on fair value assessments. The following information reflects our allocation of the purchase price (in thousands):



	Purchase Price Allocation
Accounts receivable (1)	$	94,571
Prepaid expenses, deposits and other current assets	7,111
Property and equipment	6,957
Other non-current assets	7,848
Restricted cash	1,227
Intangible assets	117,100
Total assets acquired	234,814

Accounts payable and other accrued expenses (2)	28,916
Accrued wages and benefits	18,528
Workers' compensation claims reserve (3)	26,433
Deferred tax liability	13,514
Other long-term liabilities	1,163
Total liabilities assumed	88,554

Net identifiable assets acquired	146,260
Goodwill (4)	159,616
Net assets acquired	$	305,876


(1)	The gross contractual amount of accounts receivable was $96.7 million of which $2.1 million was estimated to be uncollectible.


(2)	The preliminary purchase price allocation for accounts payable and accrued expenses was increased by approximately $9.6 million related to additional commitments and obligations assumed.


(3)	The preliminary purchase price allocation for the workers' compensation liability was increased by approximately $7.8 million for estimated excess claims with a corresponding receivable due from the insurance provider.


(4)	Goodwill is attributable to the acquired workforce, the expected synergies, and future cash flows after the acquisition of Seaton. Synergies consist primarily of increasing service capacity through acquiring workforce and facilities, increasing market share and economies of scale, increasing operational efficiency and expertise, and leveraging technology investments.

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



	Estimated Fair Value		Weighted Average Estimated Useful Lives in Years
Trade name/trademarks	$	10,500	Indefinite
Trade name/trademarks	300		4.0
Technologies	18,300		4.6
Customer relationships	88,000		9.7
Total intangible assets	$	117,100

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

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

Unaudited pro forma financial information

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

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

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

Unaudited pro forma financial data is presented below (in thousands, except per share data):



	Years ended
	2014		2013
Revenue from services	$	2,472,289	$	2,274,742
Net income	$	64,713	$	47,464
Net income per common share - diluted	$	1.57	$	1.17

2013 Acquisitions

MDT Personnel, LLC

Effective February 4, 2013, we acquired substantially all of the assets and assumed certain liabilities of MDT Personnel, LLC and its subsidiaries ("MDT") for $53.1 million, net of cash acquired. Assets acquired included finite-lived intangible assets of $10.2 million. The excess of the purchase price over the estimated fair values of the net assets acquired in the amount of $25.7 million was recorded as goodwill and primarily represents synergies with our existing business, the acquired assembled workforce, and potential new customers. Through its network of 105 branches in 25 states, MDT supplied blue-collar labor to industries similar to those served by TrueBlue, including construction, event staffing, disaster recovery, hospitality, and manufacturing.

We incurred acquisition and integration-related costs of $6.0 million.We have fully integrated and blended MDT's operations with our existing service lines, primarily into the Labor Ready service line. These activities consisted of integrating our branch network capacity, sales and services teams, and infrastructure by closing, consolidating, and relocating certain branch offices and administrative operations, eliminating redundant assets, and reducing excess administrative workforce and capacity. These integration costs are included in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income and cash flows from operating activities on the Consolidated Statements of Cash Flows for the year ended December 27, 2013.

Purchase price allocation

The following table summarizes the final allocation of the MDT purchase price, net of cash acquired, based on the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date of February 4, 2013 (in thousands):



	Purchase Price Allocation
Accounts receivable (1)	$	29,910
Prepaid expenses, deposits and other current assets	614
Property and equipment	299
Restricted cash	6,877
Intangible assets	10,200
Total assets acquired	47,900

Accounts payable and other accrued expenses	6,273
Accrued wages and benefits	4,781
Workers' compensation claims reserve	9,381
Other long-term liabilities	76
Total liabilities assumed	20,511

Net identifiable assets acquired	27,389
Goodwill (2)	25,686
Net assets acquired	$	53,075


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


(2)	Goodwill is deductible for income tax purposes over 15 years as of March 29, 2013.

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



	Estimated Fair Value		Weighted Average Estimated Useful Lives in Years
Customer relationships	$	7,800	8.0
Trade name/trademarks	1,000		1.5
Non-compete agreement	1,400		5.0
Total intangible assets	$	10,200

The acquired assets and liabilities of MDT were included in our Consolidated Balance Sheets as of December 27, 2013 and the results of its operations and cash flows are reported in our Consolidated Statements of Operations and Comprehensive Income and Consolidated Statements of Cash Flows from February 4, 2013.

MDT's operations have been fully integrated with our existing operations and our customers, contingent workforce, field employees, and locations have been merged. The nature of the customers and the services provided by TrueBlue and the former MDT are substantially the same. We competed in the marketplace for the same customers, contingent workers, and sales and service personnel. Accordingly, subsequent to merging our operations, it is not possible to segregate and to accurately estimate the revenues and expenses related exclusively to the former MDT operations.

Unaudited pro forma financial information

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

The unaudited pro forma financial information combines our results of operations with the unaudited financial information of MDT used by MDT management for internal reporting purposes. Any changes required by an audit of the MDT financial information could be material. The unaudited pro forma financial information presented is for illustrative purposes only and is not indicative of the results of operations that would have been realized if the acquisition had been completed on the dates indicated, nor is it indicative of future operating results.

The unaudited pro forma consolidated results of operations do not include, among other items, the effects of potential losses in gross profit due to revenue attrition from combining the two companies, and differences in our operating costs structure. It does include differences in workers' compensation and certain payroll taxes for contingent workers, and amortization of finite-lived intangible assets. 2013 pro forma net income was adjusted to exclude $6.0 million of acquisition and integration-related costs incurred in 2013. 2012 pro forma earnings were adjusted to include these charges.

Pro forma financial data (unaudited) is presented below (in thousands, except per share data).



	Years ended
	2013		2012
Revenue from services	$	1,693,073	$	1,612,467
Net income	$	48,988	$	25,939
Net income per common share - diluted	$	1.21	$	0.65

The Work Connection, Inc.

Effective October 1, 2013, we acquired certain assets and liabilities of The Work Connection, Inc. ("TWC"). TWC was founded in 1986 and provided light industrial services out of 37 branches in nine states. This acquisition provided us geographic expansion into new markets for our Spartan Staffing service line. TWC’s operations were integrated with those of our Spartan Staffing service line. The total cost of the acquisition was $22.7 million. We incurred acquisition and integration-related costs of $1.2 million for the purchase of TWC. Assets acquired included finite-lived intangible assets of $8.2 million. The excess of the purchase price over the estimated fair values of the net assets acquired in the amount of $7.6 million was recorded as goodwill and primarily represents synergies with our existing business, acquired assembled workforce, and potential new customers.

The following table summarizes the final allocation of the TWC purchase price, based on the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date of October 1, 2013 (in thousands):



	Purchase Price Allocation
Accounts receivable (1)	$	10,198
Prepaid expenses	41
Plant and equipment	107
Intangible assets	8,200
Total assets acquired	18,546

Accounts payable	614
Accrued wages and benefits	2,853
Total liabilities assumed	3,467

Net identifiable assets acquired	15,079
Goodwill	7,610
Net assets acquired	$	22,689


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

The acquisition of TWC was not material individually or in the aggregate to our consolidated results of operations and as such,

pro forma financial information was not required.