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 2021, we connected approximately 615,000 people with work and served approximately 95,000 clients. Our operations are managed as three business segments:PeopleReady , PeopleManagement and PeopleScout. OurPeopleReady segment offers on-demand, industrial staffing; our PeopleManagement segment offers contingent, on-site industrial staffing and commercial driver services; and our PeopleScout segment offers recruitment process outsourcing ("RPO") and managed service provider ("MSP") solutions. See Note 14: 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 segments and reportable segments.
The COVID-19 pandemic
Beginning in early 2020, the coronavirus pandemic ("COVID-19") has led to a
series of significant economic disruptions globally. Throughout the pandemic,
our business has remained open and we have continued to provide key services to
essential and nonessential businesses as COVID-19 restrictions have lifted.
Consistent with the global pandemic response, in our two largest markets, the
United States of America ("U.S.") and Canada , vaccinations continue to be a top
public health policy priority and are being supported by governmental
organizations. As of January 31, 2022 , approximately 64% of the U.S. and 79% of
the Canadian populations have been fully vaccinated. While the vaccination
programs have helped to reopen these markets, we continue to monitor the
pandemic's evolution closely. Despite an uneven recovery in certain markets and
industries, we are seeing growth in new client wins and higher existing client
volumes, particularly in those markets and industries hit hardest by COVID-19.
In addition, our continued focus on efficiently managing costs while investing
in digital strategies and sales resources has allowed us to accelerate our
strategic priorities and emerge stronger as the economy recovers.
For additional discussion on the uncertainties and business risks associated
with COVID-19, refer to Risk Factors in Part I, Item 1A of this Annual Report on
Form 10-K.
Revenue from services
Total company revenue grew 17.7% to $2.2 billion for the fiscal year ended
December 26, 2021 , compared to the prior year. The increase was due to the
recovery of client demand for our services, which experienced a significant drop
in the prior year due to the negative impact of COVID-19. This increase is
primarily driven by improving volumes from existing clients, including clients
in industries that were disproportionately impacted by COVID-19, as well as new
client wins.
•PeopleReady, our largest segment by revenue, experienced revenue growth of
15.6% to $1.3 billion for the fiscal year ended December 26, 2021 , compared to
the prior year. PeopleReady has seen a steady recovery across most geographies
and industries during the year, especially those industries that were hit the
hardest by COVID-19, such as hospitality, retail, transportation, and
manufacturing. The growth in client demand for our services was partially offset
by a shortage in the supply of workers that we believe has been temporarily
impacted by both COVID-19 and the governmental responses to COVID-19, which have
included stimulus checks, elevated federal unemployment benefits, accelerated
payments of the child tax credit, and other direct payments to individuals. As
compared to our other segments, PeopleReady experienced the most pressure on the
available supply of workers, primarily due to a lower average wage, the
temporary nature of the positions, and the shorter notice period we receive to
fill open positions. However, as workers began to exit federal and state
unemployment programs late in the fiscal third quarter, we saw gradual
improvement in the supply of workers through the end of fiscal 2021.
•PeopleManagement, our second largest segment by revenue, experienced revenue
growth of 9.0% to $639.7 million for the fiscal year ended December 26, 2021 ,
compared to the prior year. PeopleManagement growth was due to significant new
client wins, which contributed approximately $30 million of revenue for fiscal
2021. However, the pace of revenue recovery was adversely impacted by worker
supply and supply chain related production slowdowns in key industries, such as
manufacturing and retail.
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•PeopleScout, our smallest segment by revenue but highest margin segment,
experienced revenue growth of 64.3% to $263.0 million for the fiscal year ended
December 26, 2021 , compared to the prior year. PeopleScout has seen a strong
recovery of volume from existing clients, especially those in industries that
were hit hardest by COVID-19, such as travel and leisure, some of which are back
to pre-pandemic hiring levels. In addition, new client wins contributed
approximately $28 million of revenue for fiscal 2021 within a variety of
industries including retail, health care and transportation.
Gross profit
Total company gross profit as a percentage of revenue for the fiscal year endedDecember 26, 2021 improved 190 basis points to 25.8%, compared to 23.9% for the prior year. OurPeopleReady and PeopleManagement business segments contributed approximately 90 basis points of improvement, primarily attributable to lower workers' compensation expense as a result of a reduction to prior year reserves associated with favorable patterns in claim development. Our PeopleScout business contributed the remaining 100 basis points of expansion from improved recruiter utilization on increasing volumes.
Selling, general and administrative ("SG&A") expense
Total company SG&A expense increased by$56.0 million to$464.3 million , or 21.4% of revenue for the fiscal year endedDecember 26, 2021 , compared to$408.3 million , or 22.1% of revenue for the prior year. As volumes have recovered, variable and discretionary employee compensation levels have risen to reflect improved business performance. However, fiscal 2021 benefited from the comprehensive actions we put in place during fiscal 2020 to reduce SG&A expense as a percentage of revenue in response to rapidly changing market conditions resulting from COVID-19. We are better able to leverage our cost structure and run the company more efficiently today than we did prior to the pandemic, with SG&A expense as a percentage of revenue 40 basis points lower in fiscal 2021 as compared to fiscal 2019. We were able to efficiently manage certain costs throughout fiscal 2021 based on fundamental changes in how we operate our business and leverage technology, while ensuring continued investment in sales resources and digital strategies as our business continues to recover.
Income from operations
Total company income from operations was$68.4 million , or 3.1% of revenue for the fiscal year endedDecember 26, 2021 , compared to loss from operations of$174.9 million , or 9.5% of revenue for the prior year. The loss from operations in 2020 was driven by a goodwill and intangible asset impairment charge of$175.2 million . The increase in income from operations in 2021 was due to improving revenue trends led by recovering industry performance, including those disproportionately impacted by COVID-19, a series of new client wins, expanding gross margin, and efficiently managing our SG&A costs.
Net income
Net income was$61.6 million , or$1.74 per diluted share for the fiscal year endedDecember 26, 2021 , compared to net loss of$141.8 million , or$4.01 per diluted share for the prior year. Net income for fiscal 2021 includes income tax expense of$12.2 million resulting in an effective tax rate of 16.5%, compared to a benefit of$31.4 million resulting in an effective tax rate of 18.1% for the same period in the prior year. The higher effective tax rate in the prior year was primarily due to the intangible asset impairment charge and the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). Other differences between our statutory tax rate of 21% and our effective income tax rate result primarily from hiring credits, including the Work Opportunity Tax Credit ("WOTC"), and state income taxes. WOTC is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. The CARES Act was an emergency economic aid package to help mitigate the impact of COVID-19. Among other things, the CARES Act provided certain changes to tax laws, including the ability to carry back losses to obtain refunds related to prior year tax returns where the federal tax rate was 35%. Additional highlights As ofDecember 26, 2021 , we are in a strong financial position with cash and cash equivalents of$49.9 million , no outstanding debt, and$293.8 million available under our revolving credit agreement ("Revolving Credit Facility"), for total liquidity of$343.7 million . Page - 24
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RESULTS OF OPERATIONS
Total company results
The following table presents selected financial data:
(in thousands, except percentages and per share data) 2021 % of revenue 2020 % of revenue Revenue from services$ 2,173,622 $ 1,846,360 Gross profit 560,320 25.8 % 440,645 23.9 % Selling, general and administrative expense 464,322 21.4 % 408,307 22.1 % Depreciation and amortization 27,556 1.3 % 32,031 1.7 % Goodwill and intangible asset impairment charge - - % 175,189 9.6 % Income (loss) from operations 68,442 3.1 % (174,882) (9.5) % Interest expense and other income, net 5,408 1,620 Income (loss) before tax expense (benefit) 73,850 (173,262) Income tax expense (benefit) 12,216 (31,421) Net income (loss)$ 61,634 2.8 %$ (141,841) (7.7) % Net income (loss) per diluted share$ 1.74 $ (4.01) Revenue from services We report our business as three reportable segments described in Note 14: Segment Information, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K. Revenue from services by reportable segment was as follows: Growth Segment % of Segment % of (in thousands, except percentages) 2021 % total 2020 total Revenue from services: PeopleReady$ 1,270,928 15.6 % 58.5 %$ 1,099,462 59.5 % PeopleManagement 639,741 9.0 29.4 586,822 31.8 PeopleScout 262,953 64.3 12.1 160,076 8.7 Total company$ 2,173,622 17.7 % 100.0 %$ 1,846,360 100.0 %
Our
Our PeopleScout segment transitions our clients' internal candidate sourcing and hiring functions to PeopleScout on a permanent or project basis. Human resource departments are faced with increasingly complex operational and regulatory requirements, increasing candidate expectations, an expanding talent technology landscape, and pressure to achieve efficiencies, which increase the need to migrate non-core functions to outsourced providers like PeopleScout. PeopleScout can more effectively find and engage high-quality talent, leverage talent acquisition technology, and scale their talent acquisition function to keep pace with changing business needs.
As a result of the factors above, client demand for contingent workforce solutions and outsourced recruiting services are dependent on the overall strength of the economy and labor market, and trends in workforce flexibility.
Total company revenue grew to$2.2 billion for the fiscal year endedDecember 26, 2021 , a 17.7% increase compared to the prior year. The increase was primarily due to the recovery of client demand for our services, which experienced a significant drop in the prior year due to the negative impact of COVID-19. This increase was primarily driven by improving volumes from existing clients, including clients in industries that were disproportionately impacted by COVID-19, as well as new client wins. Page - 25
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PeopleReady
PeopleReady revenue grew to $1.3 billion for the fiscal year ended December 26,
2021 , a 15.6% increase compared to the prior year. PeopleReady has seen a steady
recovery across most geographies and industries during the year, especially
those industries that were hit the hardest by COVID-19, such as hospitality,
retail, transportation, and manufacturing. The growth in client demand for our
services was partially offset by a shortage in the supply of workers that we
believe has been temporarily impacted by both COVID-19 and the governmental
responses to COVID-19, which have included stimulus checks, elevated federal
unemployment benefits, accelerated payments of the child tax credit, and other
direct payments to individuals. As compared to our other segments, PeopleReady
experienced the most pressure on the available supply of workers, primarily due
to a lower average wage, the temporary nature of the positions, and the shorter
notice period we receive to fill open positions. However, as workers began to
exit federal and state unemployment programs late in the fiscal third quarter,
we saw gradual improvement in the supply of workers through the end of fiscal
2021.
We believe our revenue results have benefited from the use of our
industry-leading JobStackTM mobile app that digitally connects associates with
jobs. During fiscal 2021, PeopleReady dispatched approximately 3.4 million
shifts via JobStack and achieved a digital fill rate of 58%, an improvement from
a 53% fill rate in the prior year.
PeopleManagement
PeopleManagement revenue grew to$639.7 million for the fiscal year endedDecember 26, 2021 , a 9.0% increase compared to the prior year. PeopleManagement growth was due to significant new client wins, which contributed approximately$30 million of revenue for fiscal 2021. However, the pace of revenue recovery was adversely impacted by worker supply and supply chain related production slowdowns in key industries, such as manufacturing and retail.
PeopleScout
PeopleScout revenue grew to$263.0 million for the fiscal year endedDecember 26, 2021 , a 64.3% increase compared to the prior year. PeopleScout has seen a strong recovery of volume from existing clients, especially those in industries that were hit hardest by COVID-19, such as travel and leisure, some of which are back to pre-pandemic hiring levels. In addition, new client wins contributed approximately$28 million of revenue for fiscal 2021 within a variety of industries including retail, health care and transportation.
Gross profit
Gross profit was as follows:
(in thousands, except percentages) 2021 2020 Gross profit
$ 560,320 $ 440,645 Percentage of revenue 25.8 % 23.9 % Gross profit as a percentage of revenue expanded 190 basis points to 25.8% for the fiscal year endedDecember 26, 2021 , compared to 23.9% for the prior year. Our staffing businesses contributed approximately 90 basis points of expansion, primarily attributable to lower workers' compensation expense as a result of a reduction to prior year reserves associated with favorable patterns in claim development. Our PeopleScout business contributed approximately 100 basis points of expansion from improved recruiter utilization on increasing volumes.
Selling, general and administrative expense
SG&A expense was as follows:
(in thousands, except percentages) 2021 2020
Selling, general and administrative expense
21.4 % 22.1 %
Total company SG&A expense increased by $56.0 million to $464.3 million , or
21.4% of revenue for the fiscal year ended December 26, 2021 , compared to $408.3
million , or 22.1% of revenue for the prior year. As volumes have recovered,
variable and discretionary employee compensation levels have risen to reflect
improved business performance. However, fiscal 2021 benefited from the
comprehensive actions we put in place during fiscal 2020 to reduce SG&A expense
as a percentage of revenue in response to rapidly changing market conditions
resulting from COVID-19. We are better able to leverage our cost structure and
run the company more efficiently today than we did prior to the pandemic, with
SG&A expense as a percentage of
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revenue 40 basis points lower in fiscal 2021 as compared to fiscal 2019. We were
able to efficiently manage certain costs throughout fiscal 2021 based on
fundamental changes in how we operate our business and leverage technology,
while ensuring continued investment in sales resources and digital strategies as
our business continues to recover.
Depreciation and amortization
Depreciation and amortization was as follows:
(in thousands, except percentages) 2021 2020
Depreciation and amortization
1.3 % 1.7 %
Depreciation and amortization decreased primarily due to the impairment to our
acquired client relationships intangible assets of $34.7 million during the
fiscal first quarter of 2020, as discussed below, as well as assets that were
fully amortized or depreciated during fiscal 2021.
No impairment charge was recorded for the fiscal year ended
A summary of the goodwill and intangible asset impairment charges for the fiscal
year ended
(in thousands) PeopleManagement PeopleScout Total company Goodwill $ 45,901$ 94,588 $ 140,489 Client relationships 9,700 25,000 34,700 Total $ 55,601$ 119,588 $ 175,189 As a result of the decrease in demand for our services primarily due to the economic impact caused by COVID-19, we lowered our future expectations, which was the primary trigger of an impairment of our goodwill and acquired client relationships intangible assets recorded during the fiscal year endedDecember 27, 2020 . As a result of our interim impairment test in the fiscal first quarter of 2020, we concluded that the carrying amounts of goodwill for our PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units exceeded their implied fair values and we recorded a non-cash impairment loss of$140.5 million . The total goodwill carrying value of$45.9 million for the PeopleManagement On-Site reporting unit was fully impaired. The goodwill impairment charge for the PeopleScout RPO and PeopleScout MSP reporting units was$92.2 million and$2.4 million , respectively. The impairment to our acquired client relationships intangible assets for our PeopleScout RPO and PeopleManagement On-Site reporting units was$34.7 million .
Income taxes
The income tax expense (benefit) and the effective income tax rate were as follows:
(in thousands, except percentages) 2021 2020 Income tax expense (benefit)
$ 12,216 $ (31,421) Effective income tax rate 16.5 % 18.1 % 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. Page - 27
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Our effective tax rate for the fiscal year ended December 26, 2021 was 16.5%
compared to 18.1% for the prior year. The higher effective tax rate in the prior
year was primarily due to the intangible asset impairment charge and the CARES
Act. Other differences between the statutory federal income tax rate result from
hiring credits, including WOTC, state and foreign income taxes, certain
non-deductible and non-taxable items, and the tax effects of stock-based
compensation.
The items creating differences between income taxes computed at the statutory
federal income tax rate and income taxes reported on the Consolidated Statements
of Operations and Comprehensive Income (Loss) are as follows:
(in thousands, except percentages) 2021 % 2020 %
Income tax expense (benefit) based on statutory
rate $ 15,508 21.0 % $ (36,385) 21.0 %
Increase (decrease) resulting from:
State income taxes, net of federal benefit 3,548 4.8 (6,631) 3.8
Hiring tax credits, net (7,582) (10.3) (7,719) 4.5
CARES Act (468) (0.6) (2,939) 1.7
Non-deductible goodwill impairment charge (1) - - 21,849 (12.6)
Non-deductible and non-taxable items 589 0.8 124 (0.1)
Foreign taxes 211 0.3 (977) 0.5
Other, net 410 0.5 1,257 (0.7)
Total tax expense (benefit) $ 12,216 16.5 %
(1) The non-deductible goodwill and intangible asset impairment charge relates to an impairment of the carrying amounts of goodwill and other intangible assets of$175.2 million in the fiscal first quarter of 2020. Of the total goodwill impairment loss,$84.7 million (tax-effect$21.8 million ) related to reporting units from stock acquisitions and accordingly were not deductible for tax purposes. The remaining goodwill and intangible impairment loss of$90.5 million (tax-effect$23.3 million ) related to reporting units from asset acquisitions and accordingly were deductible for tax purposes. WOTC, our primary hiring tax credit, is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. WOTC is generally calculated as a percentage of wages over a twelve-month period up to worker maximums by targeted groups. 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 groups; 2) the targeted groups 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 an adjustment to prior year hiring credits if credits certified by government offices differ from original estimates. The WOTC program has been approved through the end of 2025. The CARES Act was enacted in theU.S. onMarch 27, 2020 . The CARES Act is an emergency economic aid package to help mitigate the impact of COVID-19. Among other things, the CARES Act provided certain changes to tax laws, including the ability to carry back current year losses to obtain refunds related to prior year tax returns with a higher federal tax rate of 35%.
See Note 12: 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 asset impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest expense, other income and expense, income taxes, and other adjustments not considered to be ongoing. See Note 14: 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 (loss) before tax expense (benefit). Segment profit should not be considered a measure of financial performance in isolation or as an alternative to net income (loss) in the Consolidated Statements of Operations and Comprehensive Income (Loss) in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP") and may not be comparable to similarly titled measures of other companies. Page - 28
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(in thousands, except percentages) 2021 2020 Revenue from services$ 1,270,928 $ 1,099,462 Segment profit$ 82,398 $ 43,200 Percentage of revenue 6.5 % 3.9 %PeopleReady segment profit grew$39.2 million for the fiscal year endedDecember 26, 2021 , compared to the prior year.PeopleReady segment profit and related margin benefited from lower workers' compensation expense as a result of a reduction to prior year reserves largely associated with favorable patterns in claim development, higher bill rates compared to pay rates, and disciplined cost management.
PeopleManagement segment performance was as follows:
(in thousands, except percentages) 2021 2020 Revenue from services$ 639,741 $ 586,822 Segment profit$ 13,196 $ 11,717 Percentage of revenue 2.1 % 2.0 % PeopleManagement segment profit grew$1.5 million for the fiscal year endedDecember 26, 2021 , compared to the prior year. PeopleManagement segment profit and related margin benefited from higher bill rates compared to pay rates as well as a revenue mix shift to higher margin clients.
PeopleScout segment performance was as follows:
(in thousands, except percentages) 2021 2020 Revenue from services$ 262,953 $ 160,076 Segment profit$ 36,163 $ 4,525 Percentage of revenue 13.8 % 2.8 % PeopleScout segment profit grew$31.6 million for the fiscal year endedDecember 26, 2021 , compared to the prior year. PeopleScout segment profit and related margin benefited from operating leverage driven by increased utilization of recruiting staff as volumes recovered with existing clients, especially those in industries hit the hardest by COVID-19, such as travel and leisure, as well as new client wins.
FISCAL 2020 AS COMPARED TO FISCAL 2019
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 27, 2020 for discussion of fiscal 2020 compared to fiscal 2019. Page - 29
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FUTURE OUTLOOK
The following highlights represent our operating outlook for the fiscal first
quarter and full year of fiscal 2022. These expectations are subject to revision
as our business changes with the overall economy.
•We are not providing customary revenue guidance for the fiscal first quarter of
2022. However, our historical first quarter revenue has averaged about 15% lower
than our fourth quarter revenue as the first quarter is historically our quarter
with the lowest volume.
•We anticipate gross margin expansion to be between 140 and 180 basis points for
the fiscal first quarter of 2022, compared to the same period in prior year,
driven by segment revenue mix and higher bill rates compared to pay rates within
our contingent staffing businesses. We anticipate gross margin contraction to be
between 70 and 10 basis points for fiscal 2022 compared to fiscal 2021,
primarily due to expected increases in workers' compensation expense due to the
reserve reduction experienced in 2021.
•For the fiscal first quarter of 2022, we anticipate SG&A expense to be between
$118 million and $122 million . We will continue to exercise disciplined cost
management while making investments in sales resources and digital strategies to
drive profitable revenue growth. We are in the early stages of redesigning our
PeopleReady technology platform to better support our digital strategy, which we
expect will cost approximately $10 million in fiscal 2022, of which $3 million
is expected in the fiscal first quarter.
•We expect our effective income tax rate for fiscal 2022 to be between 14% and 18%.
•We expect our capital expenditures and spending for software as a service assets for the fiscal first quarter of 2022 to be approximately$11 million , and to be between$43 million and$48 million for fiscal 2022. We remain committed to technological innovation to transform our business for a digital future. We continue to make investments in our online and mobile apps to improve access to associates and candidates, as well as improve the speed and ease of connecting them with our clients. We expect these investments will increase the competitive differentiation of our services over the long term, improve the efficiency of our service delivery, and reducePeopleReady's dependence on local branches to find associates and connect them with work. Examples includePeopleReady's JobStack mobile app and PeopleScout's AffinixTM talent acquisition technology.
•We believe the additional government spending on infrastructure projects, as proposed by the current administration, may generate additional demand for industrial staffing businesses during fiscal 2022, especially within the construction, energy and transportation industries.
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LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY (in thousands) 2021 2020 Net income (loss)$ 61,634 $ (141,841) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 27,556 32,031 Goodwill and intangible asset impairment charge - 175,189 Provision for credit losses 6,493 6,300 Stock-based compensation 13,943 9,113 Deferred income taxes
752 (26,791) Non-cash lease expense, net of changes in operating lease liabilities 989
633
Other operating activities (1,968) (686)
Changes in operating assets and liabilities:
Accounts receivable (81,616) 57,146
Income tax receivable 1,602 (1,122)
Operating lease right-of-use asset 8,080 -
Accounts payable and other accrued expenses 16,425 (6,561)
Other accrued wages and benefits 34,581 (2,012)
Deferred employer payroll taxes (57,065) 57,065
Workers' compensation claims reserve 701 (125)
Other assets and liabilities (11,667) (5,808)
Net cash provided by operating activities $
20,440
Cash flows from operating activities
Net cash provided by operating activities decreased to$20.4 million for the fiscal year endedDecember 26, 2021 , compared to$152.5 million for the prior year.
Adjustments to reconcile net income to net cash provided by operating activities
for the fiscal year ended
•Decrease in depreciation and amortization due to the impairment to amortizable intangible assets of$34.7 million during the fiscal first quarter of 2020, as well as assets that were fully amortized or depreciated during fiscal 2021. •Increase in stock-based compensation expense primarily due to performance-based awards tied to company performance, which has improved during the fiscal year endedDecember 26, 2021 . •Increase in deferred income tax expense relative to the prior year benefit primarily due to a$23.3 million discrete tax benefit resulting from goodwill and intangible asset impairment charges in the fiscal first quarter of 2020. •Decrease in other operating activities primarily related to realized gains upon sale of equity securities held supporting our deferred compensation liability in order to reinvest in company-owned life insurance policies.
Changes to operating assets and liabilities for the fiscal year ended
•Cash used by accounts receivable of$81.6 million was primarily due to increased revenue driven by the recovery of client demand for our services, as well as an increase in our days sales outstanding of 3.6 days compared to the fiscal year endedDecember 27, 2020 . The increase in days sales outstanding was primarily due to a higher percentage of receivables with longer payment terms. Cash provided by accounts receivable of$57.1 million for the fiscal year endedDecember 27, 2020 was primarily due to lower revenue from a decline in demand for our services, as well as a decrease in days sales outstanding of 3.7 days compared to the fiscal year endedDecember 29, 2019 due to focused collection efforts. •Cash provided by operating lease right-of-use asset of$8.1 million represents reimbursable costs we incurred for the build-out of ourChicago support center, that were collected from our landlord during the fiscal year endedDecember 26, 2021 . There were no similar amounts collected in the prior year. Page - 31
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•Cash provided by accounts payable and other accrued expenses of $16.4 million
was primarily due to higher costs required to support revenue growth, timing of
these payments, as well as the return of accrued customer rebates as volumes
exceeded minimum thresholds.
Cash used for accounts payable and other accrued expenses of $6.6 million for
the fiscal year ended December 27, 2020 was primarily due to cost control
programs, a decline in accrued customer rebates and timing of payments. The cost
control programs were implemented in response to the economic impact of
COVID-19. Accrued customer rebates declined significantly due to clients not
meeting rebate volume thresholds as a result of the impact of COVID-19 on their
businesses.
•Cash provided by other accrued wages and benefits of
•The CARES Act allowed for the deferral of the employer portion of social security taxes (6.2% of taxable wages) incurred betweenMarch 27, 2020 andDecember 31, 2020 , for both our temporary associates and permanent employees. Cash used by deferred employer payroll taxes of$57.1 million for the fiscal year endedDecember 26, 2021 was primarily due to the full repayment as ofSeptember 15, 2021 . Cash provided by the deferral of employer payroll taxes was$57.1 million for the fiscal year endedDecember 27, 2020 .
Cash flows from investing activities
(in thousands) 2021 2020
Capital expenditures $ (35,006) $ (27,066)
Purchases and sales of restricted investments, net 18,786 (7,345)
Net cash used in investing activities $ (16,220) $ (34,411)
Net cash used in investing activities was
Capital expenditures for the fiscal year endedDecember 26, 2021 include build-out costs for ourChicago support center of$8.6 million , as well as our continued investment in software technology. We remain 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 apps to improve access to associates and candidates, as well as improve the speed and ease of connecting our clients and associates for our staffing businesses, and candidates for our RPO 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 reducePeopleReady's dependence on local branches to find associates and connect them with work. Examples include our JobStack mobile app in ourPeopleReady business and our Affinix talent acquisition technology in our PeopleScout business. Restricted investments consist of collateral that has been provided or pledged to insurance carriers and state workers' compensation programs, as well as collateral to support the deferred compensation plan. Cash provided by net purchases and sales of restricted investments increased$26.1 million during the fiscal year endedDecember 26, 2021 , as compared to the prior year, primarily due to reduced levels of and changes in the timing of collateral contributions as required by our insurance carriers.
Cash flows from financing activities
(in thousands) 2021 2020 Purchases and retirement of common stock$ (16,678) $ (52,346) Net proceeds from employee stock purchase plans 1,135 922 Common stock repurchases for taxes upon vesting of restricted stock (3,238) (2,438) Net change in revolving credit facility
- (37,100)
Other (345) (1,540) Net cash used in financing activities $
(19,126)
Net cash used in financing activities of$19.1 million for the fiscal year endedDecember 26, 2021 , was primarily due to the repurchase of$16.7 million of our common stock in the open market under existing authorizations. As ofDecember 26, 2021 ,$50.0 million remains available for repurchase under existing authorizations. See Note 9: Shareholders' Equity, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on our share repurchase program. Page - 32
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Net cash used in financing activities of $92.5 million for the fiscal year ended
December 27, 2020 , was primarily due to the repurchase of $40.0 million of our
common stock under an accelerated share repurchase agreement and $12.4 million
of our common stock in the open market for a total of $52.4 million of common
stock. In addition, cash of $37.1 million was used to pay down our Revolving
Credit Facility.
FISCAL 2020 AS COMPARED TO FISCAL 2019
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 27, 2020 for discussion of fiscal 2020 compared to fiscal 2019. CAPITAL RESOURCES Revolving credit facility Under our Revolving Credit Facility, which matures onMarch 16, 2025 , we have the ability to increase our Revolving Credit Facility from$300.0 million up to$450.0 million , subject to bank approval.
The following financial covenants were in effect starting the fiscal third quarter of 2021 and thereafter:
•Consolidated leverage ratio less than 4.00 for the third and fourth quarter of 2021 and less than 3.00 thereafter, defined as our funded indebtedness divided by trailing twelve months consolidated EBITDA, as defined in the second amendment to our credit agreement. As ofDecember 26, 2021 , our consolidated leverage ratio was 0.05. •Consolidated fixed charge coverage ratio greater than 1.25, defined as the trailing twelve months bank-adjusted cash flow divided by cash interest expense. As ofDecember 26, 2021 , our consolidated fixed charge coverage ratio was 67.88. Obligations under the Revolving Credit Facility are guaranteed by TrueBlue and materialU.S. domestic subsidiaries, and are secured by substantially all of the assets of TrueBlue and materialU.S. domestic subsidiaries. The second amendment to our credit agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including the financial covenants listed above. See Note 7: 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.
Workers' compensation insurance, collateral and reserves
Workers' compensation insurance
We provide workers' compensation insurance for our associates and permanent employees. The majority of our current workers' compensation insurance policies cover claims for a particular event above a$2.0 million deductible limit, on a "per occurrence" basis and accordingly, we are substantially self-insured.
For workers' compensation claims originating in
Workers' compensation collateral and restricted cash and investments
Our insurance carriers and certain state workers' compensation programs require
us to collateralize a portion of our workers' compensation obligation, for which
they become responsible should we become insolvent. The collateral typically
takes the form of cash and cash-backed instruments, highly rated investment
grade securities, letters of credit, and surety bonds. On a regular basis, these
entities assess the amount of collateral they will require from us relative to
our workers' compensation obligation. Such amounts can increase or decrease
independent of our assessments and reserves. We generally anticipate that our
collateral commitments will continue to grow as we grow our business. We pay our
premiums and deposit our collateral in installments. The majority of the
restricted cash and investments collateralizing our self-insured workers'
compensation policies are held in a trust at the Bank of New York Mellon
("Trust").
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Our total collateral commitments were made up of the following components for the fiscal period end dates presented:
December 26, December 27,
(in thousands) 2021 2020
Cash collateral held by workers' compensation insurance carriers
21,590 29,410 Investments held in Trust 135,419 152,247 Letters of credit (1) 6,160 6,095 Surety bonds (2) 21,969 20,616 Total collateral commitments$ 208,194 $ 230,621 (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.
Total collateral commitments decreased
AtDecember 26, 2021 , we had restricted cash and investments totaling$221.0 million . 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. 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. The majority of our collateral obligations are held in a Trust. See Note 3: 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 Page - 34
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Workers' compensation reserve
The following table provides a reconciliation of our collateral commitments to
our workers' compensation reserve as of the fiscal period end dates presented:
December 26, December 27,
(in thousands) 2021 2020
Total workers' compensation reserve $ 256,194 $ 255,493
Add back discount on workers' compensation reserve (1) 16,806 18,009
Less excess claims reserve (2) (62,684) (54,019)
Reimbursable payments to insurance provider (3) 2,984 6,373
Other (4) (5,106) 4,765
Total collateral commitments $ 208,194 $ 230,621
(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;
•the impact of safety initiatives; and
•positive or adverse development of claims, which considers the potential impact
of COVID-19.
Our workers' compensation claims reserve for claims below the deductible limit
is discounted to their estimated net present value using discount rates based on
returns of "risk-free" U.S. Treasury instruments with maturities comparable to
the weighted average lives of our workers' compensation claims. At December 26,
2021 , the weighted average discount rate was 1.6%. The claim payments are made
over an estimated weighted average period of approximately 5.5 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. The rates used to
discount excess claims incurred during the fiscal years ended December 26, 2021
and December 27, 2020 were 1.8% and 1.3%, respectively. The claim payments are
made and the corresponding reimbursements from our insurance carriers are
received over an estimated weighted average period of approximately 17 years.
The discounted workers' compensation reserve for excess claims were $62.7
million and $54.0 million , as of December 26, 2021 and December 27, 2020 ,
respectively. The discounted receivables from insurance companies, net of
valuation allowance, were $61.4 million and $52.9 million as of December 26,
2021 and December 27, 2020 , respectively.
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The following table provides an analysis of changes in our workers' compensation
claims reserves:
(in thousands) 2021 2020
Beginning balance $ 255,493 $ 255,618
Self-insurance reserve expenses related to current year, net 56,979 61,264
Payments related to current year claims (9,533) (12,594)
Payments related to claims from prior years (32,350) (40,236)
Changes to prior years' self-insurance reserve, net (24,342) (19,205)
Amortization of prior years' discount (1) 1,283 1,880
Net change in excess claims reserve (2) 8,664 8,766
Ending balance 256,194 255,493
Less current portion 61,596 66,007
Long-term portion $ 194,598 $ 189,486
(1)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 (Loss) in the
period when the changes in estimates are made.
(2)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 associates 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 prior year
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 expect our Revolving Credit Facility and strong financial position to provide ample liquidity. AtDecember 26, 2021 , we had no debt outstanding on our Revolving Credit Facility leaving$294 million unused under the Revolving Credit Facility as$6 million was utilized by outstanding standby letters of credit. We have an option to increase the total line of credit amount from$300 million to$450 million , subject to bank approval. As ofDecember 26, 2021 ,$50 million remains available for repurchase of common stock under existing authorizations. OnJanuary 31, 2022 , our Board of Directors authorized a$100 million addition to our share repurchase program for our outstanding common stock. For further information, see Note 15: Subsequent Events, to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. 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 surety bonds. We continue to have risk that these collateral requirements may be increased by our insurers due to our loss history and market dynamics, including from the impact of COVID-19. We believe that cash provided from operations and our capital resources will be adequate to meet our cash requirements for the next 12 months and beyond. See Note 8: Commitments and Contingencies and Note 11: Defined Contribution Plans, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our contractual obligations. Page - 36
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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 withU.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the 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. We have considered COVID-19 related impacts to our estimates, as appropriate, within our financial statements and there may be changes to those estimates in future periods. However, we believe that the accounting estimates used are appropriate after considering the increased uncertainties surrounding the severity and duration of COVID-19. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual future amounts differing from reported estimated amounts.
Workers' compensation reserve
We maintain reserves for workers' compensation claims, including the excess claims portion above our insurance 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 of "risk-free"U.S. Treasury instruments available during the year in which the liability was incurred, 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 (Loss) 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 this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns on "risk-free"U.S. Treasury instruments available during the year in which the liability was incurred. 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. For fiscal 2021 claims, a 5% change in one or more of the above factors would result in a change to workers' compensation cost of approximately$3 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.
Accounts receivable allowance for credit losses
We establish an estimate for the allowance for credit losses resulting from the
failure of our clients to make required payments by applying an aging schedule
to pools of assets with similar risk characteristics. Based on an analysis of
the risk characteristics of our clients and associated receivables, we have
concluded our pools are as follows:
•PeopleReady and Centerline Drivers ("Centerline") have a large, diverse set of
clients, generally with frequent, low dollar invoices due to the daily nature of
the work we perform. This results in high turnover in accounts receivable and
lower rates of non-payment.
•PeopleManagement On-Site has a smaller number of clients and follows a
contractual billing schedule. The invoice amounts are higher than that of
•PeopleScout has a smaller number of clients, and generally sends invoices on a consolidated basis for a client. Invoice amounts are generally higher for PeopleScout than for PeopleManagement On-Site, with similar payment terms.
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When specific clients are identified as no longer sharing the same risk profile
as their current pool, they are removed from the pool and evaluated separately.
The credit loss rates applied to each aging category by pool are based on
current collection efforts, historical collection trends, write-off experience,
client credit risk, current economic data and forecasted information. The
allowance for credit loss is reviewed monthly and represents our best estimate
of the amount of expected credit losses. Each month, past due or delinquent
balances are identified based upon a review of aged receivables performed by
collections and operations. Past due balances are written off when it is
probable the receivable will not be collected. Changes in the allowance for
credit losses are recorded in SG&A expense on the Consolidated Statements of
Operations and Comprehensive Income (Loss).
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 (Loss). 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.
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. Our operating segments arePeopleReady , PeopleManagement Centerline, PeopleManagement On-Site, PeopleScout RPO 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. We estimate the fair value of each reporting unit using 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. Our weighted average cost of capital for our most recent annual impairment test ranged from 11.0% to 12.0%. 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 Page - 38
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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, resulting in a
control premium of 23.2% in our most recent annual impairment test.
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. Based
on our 2021 annual impairment test performed as of March 29, 2021 , all reporting
units' fair values were substantially in excess of their respective carrying
values. Additionally, we did not identify any events or conditions that make it
more likely than not that an impairment may have occurred during the period from
March 29, 2021 to December 26, 2021 . Accordingly, there was no goodwill
impairment charge recorded during fiscal 2021.
During fiscal 2020, we recorded an impairment charge of $140.5 million with
respect to our PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site
reporting units. There was no goodwill impairment charge recorded during fiscal
2019.
Indefinite-lived intangible assets
We have indefinite-lived intangible assets related to our Staff Management | SMX and PeopleScout 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 as ofMarch 29, 2021 , and determined that the estimated fair values exceeded the carrying amounts for our indefinite-lived trade names. Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the period fromMarch 29, 2021 toDecember 26, 2021 . Accordingly, no impairment charge was recorded during fiscal 2021.
No impairment charge was recorded during fiscal 2020 or 2019.
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 charge 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 charge 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 charge was recorded during fiscal 2021 or 2019. During fiscal
2020, we recorded a non-cash impairment charge for our PeopleScout RPO and
PeopleManagement On-Site client relationship intangible assets of
Estimated contingent legal and regulatory liabilities
From time to time, we are subject to compliance audits by federal, state, local
and foreign 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 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.
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Income taxes and related valuation allowances
We account for income taxes by recording taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. We measure these expected future tax consequences based upon the provisions of tax law as currently enacted; the effects of future changes in tax laws are not anticipated. Future tax law changes, such as changes to federal and state corporate tax rates and the mix of states and their taxable income, could have a material impact on our financial condition or results of operations. When appropriate, we record a valuation allowance against deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, we consider whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management's judgments regarding future events and past operating results.
NEW ACCOUNTING STANDARDS
See Note 1: Summary of Significant Accounting Policies, to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
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