ACQUISITION ACQUISITION

9 Months Ended

Sep. 26, 2014

Business Combinations [Abstract]

ACQUISITION

ACQUISITION

We account for our business acquisitions using the purchase method of accounting. 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 property and equipment, intangible assets, useful lives of property and equipment and amortizable lives for acquired intangible assets, as well as liabilities for workers' compensation and legal contingencies. Any excess of the purchase consideration over the identified fair value of the assets acquired and liabilities assumed is recognized as goodwill. All acquisition related costs are expensed as incurred and recorded in operating expenses. Additionally, we recognize liabilities for anticipated restructuring costs that will be necessary due to the elimination of excess capacity, redundant assets, or unnecessary functions and record them as 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. The excess of the purchase price over the estimated fair values of the net assets acquired was recorded as goodwill and is not deductible for tax purposes.

Effective June 30, 2014, we completed the acquisition of all of the outstanding equity interests of Staffing Solutions Holdings, Inc., ("Seaton") a Chicago-based corporation, for a cash purchase price of approximately $308.0 million, net of cash acquired. The Seaton acquisition expanded the scope of our services from specialized temporary blue-collar staffing services. Seaton provides high-volume permanent employee recruitment process outsourcing, outsourced workforce management, and management of outsourced labor service providers through its PeopleScout, hrX, and Staff Management | SMX service lines. Seaton's customers include a broad range of industries such as airline, financial services, retail, manufacturing, and transportation. Seaton's operations will continue to be managed and supported from Chicago.

Effective June 30, 2014, we entered into a Second Amended and Restated Credit Agreement for a secured 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 acquisition price. See Note 10: Debt, for details of our Second Amended and Restated credit facility.

We incurred acquisition and integration-related costs of $2.3 million and $4.3 million for the thirteen and thirty-nine weeks ended September 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. At September 26, 2014, we have a liability for incurred but not yet paid integration costs of $0.1 million included in Accounts payable and other accrued expenses in our Consolidated Balance Sheets.

Purchase price allocation

The estimated purchase price allocation is based on preliminary estimates of fair values, net of cash acquired, as of the acquisition date of June 30, 2014, as follows (in thousands):

	Purchase Price Allocation
Accounts receivable (1)	$	94,635
Prepaid expenses, deposits and other current assets	6,348
Property and equipment	9,424
Other non-current assets	1,230
Intangible assets	118,200
Total assets acquired	229,837
Accounts payable and other accrued expenses	37,247
Workers' compensation liability	18,584
Deferred tax liability	14,925
Other long-term liabilities	1,163
Total liabilities assumed	71,919
Net identifiable assets acquired	157,918
Goodwill (2)	150,054
Net assets acquired	$	307,972

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

(2) Goodwill is attributable to the acquired workforce, the expected synergies and future cash flows after the acquisition of Seaton.The goodwill is not deductible for tax purposes.

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, except for weighted average estimated useful lives, in years):

	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		4.0
Customer relationships	89,100		10.6
Total intangible assets	$	118,200

The acquired assets and liabilities of Seaton are included in our Consolidated Balance Sheets as of September 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 September 26, 2014.

The amount of revenues and income from operations of Seaton included in our Consolidated Statements of Operations and Comprehensive Income were $148.6 million and $2.1 million, respectively, for the thirteen weeks ended September 26, 2014. Income from operations includes depreciation and amortization of $4.6 million for acquired finite-lived intangible assets and developed technology pushed down to Seaton.

Unaudited pro forma financial information

The following table reflects the 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 period being reported on. Any changes required by further procedures over 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 and amortization of debt issuance costs, amortization of developed technology and finite-lived intangible assets, and stock-based compensation. 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 and non-recurring costs of acquisition and integration related costs.

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

	Thirteen weeks ended				Thirty-nine weeks ended
	September 26, 2014		September 27, 2013		September 26, 2014		September 27, 2013
Revenue from services	$	633,365	$	588,399	$	1,929,537	$	1,605,933
Net income	22,314		18,952		40,871		29,744
Net income per common share - diluted	0.54		0.47		1.00		0.74