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ACQUISITIONS (Notes) | 3 Months Ended
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Mar. 25, 2016
Business Combinations [Abstract] |
Acquisitions | ACQUISITIONS 2016 Acquisition We account for our business acquisitions using the purchase method of accounting in accordance with ASC 805, Business Combinations. The fair value of the net assets acquired and the results of the acquired business are included in the financial statements from the acquisition date forward. We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and results of operations during the reporting period. Estimates are used in accounting for, among other things, the fair value of acquired net operating assets, property and equipment, intangible assets, useful lives of property and equipment and amortizable lives for acquired intangible assets. Any excess of the purchase consideration over the identified fair value of the assets and liabilities acquired is recognized as goodwill. All acquisition related costs are expensed as incurred and recorded in operating expenses. We estimate the preliminary fair value of acquired assets and liabilities as of the date of acquisition based on information available at that time. The valuation of these tangible and identifiable intangible assets and liabilities is subject to further management review and may change between the preliminary allocation and the final allocation. Any changes to these estimates may have a material impact on our operating results or financial condition. Effective January 4, 2016, we acquired certain assets and assumed certain liabilities of the recruitment process outsourcings ("RPO") business of Aon Hewitt for a cash purchase price of $72.0 million, subject to a working capital adjustment. We amended our existing credit facility to temporarily increase the borrowing capacity by $30.0 million, which was used to fund the acquisition. . The RPO business of Aon Hewitt broadens our PeopleScout RPO services and will be fully integrated into our PeopleScout RPO service line, which is part of our Managed Services reportable segment. We incurred acquisition and integration-related costs of $1.1 million in connection with the acquisition of the RPO business of Aon Hewitt, 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 thirteen weeks ended March 25, 2016. 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 intangible assets acquired 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, and expect to complete our purchase accounting during the second quarter of fiscal 2016. The following table reflects our preliminary allocation of the purchase price (in thousands):
| Purchase Price Allocation
Cash purchase price | $ | 72,000 |
Purchase price allocated as follows: |
Accounts receivable | $ | 12,198 |
Prepaid expenses, deposits and other current assets | 203 |
Customer relationships | 34,500 |
Technologies | 400 |
Total assets acquired | 47,301 |
Accrued wages and benefits | 1,172 |
Other long-term liabilities | 128 |
Total liabilities assumed | 1,300 |
Net identifiable assets acquired | 46,001 |
Goodwill (1) | 25,999 |
Total consideration allocated | $ | 72,000 |
(1) | Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers, and future cash flows after the acquisition of the RPO business of Aon Hewitt. Goodwill is deductible for income tax purposes over 15 years as of January 4, 2016.
Intangibles assets include identifiable intangible assets for customer relationships and developed technologies. We estimated the fair value of the acquired identifiable intangible assets, which are subject to amortization, using the income approach for customer relationships and the cost approach for developed technologies. 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 January 4, 2016 (in thousands, except for estimated useful lives, in years):
| Estimated Fair Value |  | Estimated Useful Lives in Years
Customer relationships | $ | 34,500 |  |  | 9.0
Technologies | 400 |  |  | 3.0
Total acquired identifiable intangible assets | $ | 34,900 |  |  |
The acquired assets and liabilities assumed of the RPO business of Aon Hewitt are included in our Consolidated Balance Sheets as of March 25, 2016, 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 January 4, 2016 to March 25, 2016. The amount of revenue from the RPO business of Aon Hewitt included in our Consolidated Statements of Operations and Comprehensive Income was $16.0 million for the period from the acquisition date to March 25, 2016. The acquired operations were substantially integrated with our existing PeopleScout operations. The nature of the customers and the services provided by PeopleScout and the former RPO business of Aon Hewitt are substantially the same. We competed in the marketplace for the same customers, candidates, and recruiters. Accordingly, subsequent to merging our operations, it is not possible to segregate and to reasonably estimate the operating expenses related exclusively to the former RPO business of Aon Hewitt. The acquisition of the RPO business of Aon Hewitt was not material to our consolidated results of operations and as such, pro forma financial information was not required. 2015 Acquisition Effective December 1, 2015, we acquired SIMOS Insourcing Solutions Corporation ("SIMOS"), an Atlanta-based provider of on-premise workforce management solutions for a cash purchase price of $66.6 million, net of the final working capital adjustment, which was funded by our existing credit facility. An additional cash payment between zero and $22.5 million of contingent consideration is payable in mid-2017, depending on SIMOS achieving a fiscal 2016 earnings before interest, taxes, depreciation and amortization target ("EBITDA target"). Actual results must be in excess of 87.5% of the EBITDA target before any amounts are earned. The final undiscounted fair value of the contingent consideration as of the acquisition date was determined to be $21.1 million. Using a risk adjusted weighted average cost of capital of 10.0%, the present value of the contingent consideration was estimated to be $18.3 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. SIMOS broadens our Staff Management on-premise contingent staffing solution, which is part of our Staffing Services reportable segment. The following table reflects our final allocation of the purchase price (in thousands):
| Purchase Price Allocation
Purchase price: |
Cash purchase price, net of working capital adjustment | $ | 66,603 |
Contingent consideration (2) | 18,300 |
Total consideration | $ | 84,903 |
Purchase price allocated as follows: |
Accounts receivable (1) | $ | 19,207 |
Prepaid expenses, deposits and other current assets | 461 |
Property and equipment | 464 |
Customer relationships (2) | 39,000 |
Trade name/trademarks | 800 |
Technologies | 100 |
Restricted cash (2) | 4,277 |
Other non-current assets | 2,439 |
Total assets acquired | 66,748 |
Accounts payable and other accrued expenses | 3,741 |
Accrued wages and benefits | 4,075 |
Workers' compensation liability | 8,520 |
Total liabilities assumed | 16,336 |
Net identifiable assets acquired | 50,412 |
Goodwill (3) | 34,491 |
Total consideration allocated | $ | 84,903 |
(1) | The gross contractual amount of accounts receivable was $19.3 million of which $0.1 million was estimated to be uncollectible.
(2) | The preliminary valuation of customer relationships was increased by $0.6 million and contingent consideration decreased by $1.0 million as a result of our final valuation. The preliminary purchase price allocation for restricted cash was increased by $3.0 million for confirmation of cash held by third-party administrators for payment of workers' compensation claims.
(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 developed technologies. We estimated the fair value of the acquired identifiable intangible assets, which are subject to amortization, using the income approach for customer relationships and trade name/trademarks, and the cost approach for developed technologies. 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 | $ | 39,000 |  |  | 9.0
Trade name/trademarks | 800 |  |  | 3.0
Technologies | 100 |  |  | 2.0
Total acquired identifiable intangible assets | $ | 39,900 |  |  |
The amount of revenue and income from operations of SIMOS included in our Consolidated Statements of Operations and Comprehensive Income were $36.1 million and $1.9 million, respectively, for the thirteen weeks ended March 25, 2016. SIMOS income from operations includes $1.1 million of amortization expense for finite-lived intangibles assets for the thirteen weeks ended March 25, 2016.

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