TrueBlue, Inc. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of TrueBlue, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of TrueBlue, Inc. and subsidiaries (the “Company”) as of December 26, 2021 and December 27, 2020, and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 26, 2021 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 26, 2021 and December 27, 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 26, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 26, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 16, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matters arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Workers’ Compensation Claims Reserves - Refer to Note 1 and Note 6 to the Financial Statements Critical Audit Matter Description The Company bears the financial responsibility for a significant portion of expected losses under its workers’ compensation program and records reserves for workers’ compensation claims based on estimates of the future cost of claims and related expenses, which are discounted to their estimated net present value. The determination of the undiscounted reserve requires significant estimates and assumptions related to the future cost of claims and related expenses for claims that have been reported but not settled, as well as those that have been incurred but not reported. The undiscounted workers’ compensation obligation was $ 273.0 million as of December 26, 2021. Given the fact that changes in actuarial assumptions could have a significant impact on the reserve, auditing management judgments regarding the workers’ compensation reserve, including estimates of the future cost of claims and related expenses, involved a high degree of auditor judgment, including the need to involve our actuarial specialists. Page - 41 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the workers’ compensation reserve included the following, among others: • We tested the effectiveness of controls over workers’ compensation, including those over payments and related expenses, claims data provided to the actuary, and review of actuarial results. • We evaluated the methods and assumptions used by management to estimate the workers’ compensation reserve by: ◦ Making selections of the underlying claims data that serves as the basis for the actuarial analysis, including claims payments and related expenses, to evaluate whether the inputs to the actuarial estimate were reasonable; and ◦ Comparing management’s prior-year assumptions of expected future cost of claims and related expenses to actuals incurred during the current year to identify potential bias in the determination of the workers’ compensation reserve. • With the assistance of our actuarial specialists, we developed independent estimates of the reserve and compared our estimates to the Company’s recorded reserve. /s/ Deloitte & Touche, LLP Seattle, Washington February 16, 2022 We have served as the Company’s auditor since 2009. Page - 42 Table of Contents TRUEBLUE, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value data) December 26, 2021 December 27, 2020 ASSETS Current assets: Cash and cash equivalents $ 49,896 $ 62,507 Accounts receivable, net of allowance of $ 6,687 and $ 2,921 353,882 278,343 Prepaid expenses and other current assets 31,614 26,137 Income tax receivable 9,681 11,898 Total current assets 445,073 378,885 Property and equipment, net 88,090 71,734 Restricted cash and investments 221,026 240,534 Deferred income taxes, net 29,330 30,019 Goodwill 94,538 94,873 Intangible assets, net 22,211 28,929 Operating lease right-of-use assets, net 55,197 65,940 Workers’ compensation claims receivable, net 61,386 52,934 Other assets, net 16,375 16,729 Total assets $ 1,033,226 $ 980,577 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable and other accrued expenses $ 77,172 $ 58,447 Accrued wages and benefits 100,173 122,657 Current portion of workers’ compensation claims reserve 61,596 66,007 Current operating lease liabilities 12,097 13,938 Other current liabilities 7,508 7,918 Total current liabilities 258,546 268,967 Workers’ compensation claims reserve, less current portion 194,598 189,486 Long-term deferred compensation liabilities 28,806 26,361 Long-term operating lease liabilities 54,927 54,797 Other long-term liabilities 3,282 3,776 Total liabilities 540,159 543,387 Commitments and contingencies (Note 8) Shareholders’ equity: Preferred stock, $ 0.131 par value, 20,000 shares authorized; No shares issued and outstanding — — Common stock, no par value, 100,000 shares authorized; 34,861 and 35,493 shares issued and outstanding 1 1 Accumulated other comprehensive loss ( 15,747 ) ( 14,828 ) Retained earnings 508,813 452,017 Total shareholders’ equity 493,067 437,190 Total liabilities and shareholders’ equity $ 1,033,226 $ 980,577 See accompanying notes to consolidated financial statements Page - 43 Table of Contents TRUEBLUE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) 2021 2020 2019 Revenue from services $ 2,173,622 $ 1,846,360 $ 2,368,779 Cost of services 1,613,302 1,405,715 1,748,831 Gross profit 560,320 440,645 619,948 Selling, general and administrative expense 464,322 408,307 516,220 Depreciation and amortization 27,556 32,031 37,549 Goodwill and intangible asset impairment charge — 175,189 — Income (loss) from operations 68,442 ( 174,882 ) 66,179 Interest expense and other income, net 5,408 1,620 3,865 Income (loss) before tax expense (benefit) 73,850 ( 173,262 ) 70,044 Income tax expense (benefit) 12,216 ( 31,421 ) 6,971 Net income (loss) $ 61,634 $ ( 141,841 ) $ 63,073 Net income (loss) per common share: Basic $ 1.77 $ ( 4.01 ) $ 1.63 Diluted $ 1.74 $ ( 4.01 ) $ 1.61 Weighted average shares outstanding: Basic 34,798 35,365 38,778 Diluted 35,434 35,365 39,179 Other comprehensive income (loss): Foreign currency translation adjustment $ ( 919 ) $ ( 1,590 ) $ 1,411 Total other comprehensive income (loss), net of tax ( 919 ) ( 1,590 ) 1,411 Comprehensive income (loss) $ 60,715 $ ( 143,431 ) $ 64,484 See accompanying notes to consolidated financial statements Page - 44 Table of Contents TRUEBLUE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Common stock Accumulated other comprehensive loss Total shareholders ’ equity (in thousands) Shares Amount Retained earnings Balances, December 30, 2018 40,054 $ 1 $ 606,087 $ ( 14,649 ) $ 591,439 Net income — — 63,073 — 63,073 Foreign currency translation adjustment — — — 1,411 1,411 Purchases and retirement of common stock ( 1,855 ) — ( 38,826 ) — ( 38,826 ) Issuances under equity plans, including tax benefits 365 — ( 893 ) — ( 893 ) Stock-based compensation 29 — 9,769 — 9,769 Balances, December 29, 2019 38,593 1 639,210 ( 13,238 ) 625,973 Net loss — — ( 141,841 ) — ( 141,841 ) Foreign currency translation adjustment — — — ( 1,590 ) ( 1,590 ) Purchases and retirement of common stock ( 3,557 ) — ( 52,346 ) — ( 52,346 ) Issuances under equity plans, including tax benefits 429 — ( 1,517 ) — ( 1,517 ) Stock-based compensation 28 — 9,113 — 9,113 Change in accounting standard cumulative-effect adjustment — — ( 602 ) — ( 602 ) Balances, December 27, 2020 35,493 1 452,017 ( 14,828 ) 437,190 Net income — — 61,634 — 61,634 Foreign currency translation adjustment — — — ( 919 ) ( 919 ) Purchases and retirement of common stock ( 620 ) — ( 16,678 ) — ( 16,678 ) Issuances under equity plans, including tax benefits ( 12 ) — ( 2,103 ) — ( 2,103 ) Stock-based compensation — — 13,943 — 13,943 Balances, December 26, 2021 34,861 $ 1 $ 508,813 $ ( 15,747 ) $ 493,067 See accompanying notes to consolidated financial statements Page - 45 Table of Contents TRUEBLUE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) 2021 2020 2019 Cash flows from operating activities: Net income (loss) $ 61,634 $ ( 141,841 ) $ 63,073 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 27,556 32,031 37,549 Goodwill and intangible asset impairment charge — 175,189 — Provision for credit losses 6,493 6,300 7,661 Stock-based compensation 13,943 9,113 9,769 Deferred income taxes 752 ( 26,791 ) 1,263 Non-cash lease expense 14,446 15,195 14,823 Other operating activities ( 1,968 ) ( 686 ) ( 1,589 ) Changes in operating assets and liabilities Accounts receivable ( 81,616 ) 57,146 5,450 Income tax receivable 1,602 ( 1,122 ) ( 6,480 ) Operating lease right-of-use asset 8,080 — — Other assets ( 13,715 ) ( 2,124 ) ( 12,575 ) Accounts payable and other accrued expenses 16,425 ( 6,561 ) 6,921 Other accrued wages and benefits 34,581 ( 2,012 ) ( 9,494 ) Deferred employer payroll taxes ( 57,065 ) 57,065 — Workers’ compensation claims reserve 701 ( 125 ) ( 10,828 ) Operating lease liabilities ( 13,457 ) ( 14,562 ) ( 15,178 ) Other liabilities 2,048 ( 3,684 ) 3,166 Net cash provided by operating activities 20,440 152,531 93,531 Cash flows from investing activities: Capital expenditures ( 35,006 ) ( 27,066 ) ( 28,119 ) Payments for company-owned life insurance ( 4,000 ) ( 12,031 ) ( 12,210 ) Proceeds from company-owned life insurance 832 — — Purchases of restricted available-for-sale investments ( 43 ) ( 2,896 ) ( 7,667 ) Sales of restricted available-for-sale investments 7,333 12,311 20,859 Purchases of restricted held-to-maturity investments ( 9,411 ) ( 32,495 ) ( 22,963 ) Maturities of restricted held-to-maturity investments 23,935 27,561 28,254 Other 140 205 215 Net cash used in investing activities ( 16,220 ) ( 34,411 ) ( 21,631 ) Cash flows from financing activities: Purchases and retirement of common stock ( 16,678 ) ( 52,346 ) ( 38,826 ) Net proceeds from employee stock purchase plans 1,135 922 1,329 Common stock repurchases for taxes upon vesting of restricted stock ( 3,238 ) ( 2,438 ) ( 2,222 ) Net change in revolving credit facility — ( 37,100 ) ( 42,900 ) Other ( 345 ) ( 1,540 ) ( 296 ) Net cash used in financing activities ( 19,126 ) ( 92,502 ) ( 82,915 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 521 ) 623 936 Net change in cash, cash equivalents and restricted cash ( 15,427 ) 26,241 ( 10,079 ) Cash, cash equivalents and restricted cash, beginning of period 118,612 92,371 102,450 Cash, cash equivalents and restricted cash, end of period $ 103,185 $ 118,612 $ 92,371 Supplemental disclosure of cash flow information: Cash paid (received) during the period for: Interest $ 1,425 $ 3,149 $ 2,432 Income taxes 9,773 ( 3,441 ) 12,166 Operating lease liabilities 16,590 16,995 17,643 Non-cash transactions: Property and equipment purchased but not yet paid 3,949 1,347 993 Right-of-use assets obtained in exchange for new operating lease liabilities 11,878 38,847 18,759 See accompanying notes to consolidated financial statements Page - 46 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business 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. We serve clients in a wide variety of industries through our PeopleReady segment which offers general, industrial and skilled trade staffing, our PeopleManagement segment which offers contingent, on-site industrial staffing and commercial driver services, and our PeopleScout segment which offers recruitment process outsourcing (“RPO”) and managed service provider (“MSP”) solutions to a wide variety of industries. We are headquartered in Tacoma, Washington. Basis of presentation The consolidated financial statements (“financial statements”) include the accounts of TrueBlue and all of its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Reclassifications Certain previously reported immaterial prior year amounts have been reclassified within current liabilities on our Consolidated Balance Sheets to conform to current year presentation. Additionally, we have separately presented deferred employer payroll taxes from prior period reported amounts within operating activities on our Consolidated Statements of Cash Flows. Fiscal period end The financial statements are presented on a 52/53-week fiscal year-end basis, with the last day of the fiscal year ending on the Sunday closest to the last day of December. In fiscal years consisting of 53 weeks, the final quarter will consist of 14 weeks, while in fiscal years consisting of 52 weeks, all quarters will consist of 13 weeks. All years presented include 52 weeks. Use of estimates Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates in our financial statements include, but are not limited to, acquisition method of accounting, allowance for credit losses, estimates for asset and goodwill impairments, stock-based performance awards, assumptions underlying self-insurance reserves, contingent legal, regulatory and government incentive liabilities, and the potential outcome of future tax consequences of events that have been recognized in the financial statements. Actual results and outcomes may differ from these estimates and assumptions. We also considered the coronavirus pandemic (“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. These estimates and assumptions are subject to inherent uncertainties, which may result in actual future amounts differing from reported estimated amounts. Revenue recognition We account for a contract when both parties to the contract have approved the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Consolidated revenues are presented net of intercompany eliminations. Additionally, consolidated revenues are recognized net of any discounts, allowances and sales incentives, including rebates. Revenues are recognized over time using an output measure, as the control of the promised services is transferred to the client, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The majority of our contracts are short-term in nature as they are filling the contingent staffing needs of our clients, or include termination clauses that allow either party to cancel within a short notice period, without cause. Revenue includes billable travel and other reimbursable costs and are reported net of sales, use or other transaction taxes collected from clients and remitted to taxing authorities. Payment terms vary by client and the services Page - 47 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS offered, however we do not extend payment terms beyond one year. Substantially all of our contracts include payment terms of 90 days or less. We primarily record revenue on a gross basis as a principal versus on a net basis as an agent on the Consolidated Statements of Operations and Comprehensive Income (Loss). We have determined that gross reporting as a principal is the appropriate treatment based upon the following key factors: • We maintain the direct contractual relationship with the client and are responsible for fulfilling the service promised to the client. • We demonstrate control over the services provided to our clients. • We establish our billing rates. Contingent staffing We recognize revenue for our PeopleReady and PeopleManagement contingent staffing services over time as services are performed in an amount that reflects the consideration we expect to be entitled to collect in exchange for our services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate. The client simultaneously receives and consumes the benefits of the services as they are provided. We incur immaterial costs to obtain our contingent staffing contracts. We have concluded that the amortization period for these costs would be less than one year and have elected to use the practical expedient to expense as incurred. Also, we incur immaterial costs to fulfill some contingent staffing contracts, which are expensed as incurred. Human resource outsourcing We primarily recognize revenue for our PeopleScout outsourced recruitment of permanent employees over time in an amount that reflects the consideration we expect to be entitled to in exchange for our services. The client simultaneously receives and consumes the benefits of the services as they are provided. We incur immaterial costs to obtain our outsourced recruitment of permanent employee contracts. We have concluded that the amortization period for these costs would be less than one year and have elected to use the practical expedient to expense as incurred. Also, we incur immaterial costs to fulfill these contracts, which are expensed as incurred. Unsatisfied performance obligations As a practical expedient, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an expected original duration of one year or less and (ii) contracts for which we recognize revenue at an amount for which we have the right to invoice for services performed. Cost of services Cost of services refers to costs directly associated with the earning of revenue and primarily includes wages and related payroll taxes and workers’ compensation expenses. Cost of services also includes billable travel as well as other reimbursable and non-reimbursable expenses. Advertising costs Advertising costs consist primarily of print and other promotional activities. We expense advertisements as of the first date the advertisements take place. Advertising expenses included in selling, general and administrative (“SG&A”) were $ 9.7 million, $ 5.5 million and $ 6.8 million in fiscal 2021, 2020 and 2019, respectively. Cash, cash equivalents and marketable securities We consider all highly liquid instruments purchased with an original maturity of three months or less at date of purchase to be cash equivalents. Investments with original maturities greater than three months are classified as marketable securities. We do not buy and hold securities principally for the purpose of selling them in the near future. Our investment policy is focused on the preservation of capital, liquidity and return. From time to time, we may sell certain securities but the objective is not to generate profits on short-term differences in price. We manage our cash equivalents and marketable securities as a single portfolio of highly liquid securities. Page - 48 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accounts receivable and allowance for credit losses Accounts receivable are recorded at the invoiced amount. 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 PeopleReady and Centerline, with longer payment terms. • 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. 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 and represents our best estimate of the amount of expected credit losses. 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). As a result of our adoption of the accounting standard for current expected credit losses (“CECL”) on the first day of fiscal 2020, we recognized a cumulative-effect adjustment to our accounts receivable allowance of $ 0.5 million as of that date. Restricted cash and investments Cash and investments pledged as collateral and restricted for use in workers’ compensation insurance programs are included as restricted cash and investments on our Consolidated Balance Sheets. Our investments consist of highly rated investment grade debt securities, which at the time of purchase, were rated A1/P1 or higher for short-term securities and A or higher for long-term securities, by nationally recognized rating organizations. We have the positive intent and ability to hold our restricted investments until maturity in accordance with our investment policy and, accordingly, all of our restricted investments are classified as held-to-maturity. In the event that an investment is downgraded below our investment policy criteria, it may be replaced with a new security. We establish an allowance for credit loss for our held-to-maturity debt securities using a discounted cash flow method including a probability of default rate based on the issuer’s credit rating. The cumulative-effect adjustment to our held-to-maturity debt securities as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of December 26, 2021. We have an agreement with American International Group, Inc. and the Bank of New York Mellon Corporation creating a trust (“Trust”), which holds the majority of our collateral obligations under existing workers’ compensation insurance policies. Placing the collateral in the Trust allows us to manage the investment of the assets and provides greater protection of those assets. Fair value of financial instruments and investments Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For assets and liabilities recorded or disclosed at fair value on a recurring basis, we determine fair value based on the following: • Level 1: Inputs are valued using quoted market prices in active markets for identical assets or liabilities. • Level 2: Inputs other than quoted prices in active markets for identical assets and liabilities are used. • Level 3: Assets and liabilities with unobservable inputs. Page - 49 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The carrying value of our cash and cash equivalents and restricted cash approximates fair value because of the short-term maturity of those instruments. We hold money market funds to support our workers’ compensation program and have historically held mutual funds and money market funds to support our deferred compensation liability, which are carried at fair value based on quoted market prices in active markets for identical assets. There are inherent limitations when estimating the fair value of financial instruments, and the fair values reported are not necessarily indicative of the amounts that would be realized in current market transactions. The carrying value of our accounts receivable, accounts payable and other accrued expenses, and accrued wages and benefits approximates fair value due to their short-term nature. We have company-owned life insurance policies that fund our deferred compensation liability. Company-owned life insurance policies are carried at cash surrender value, which approximates fair value. We hold certain restricted investments to collateralize our workers’ compensation programs, which are classified as held-to-maturity and carried at amortized cost on our Consolidated Balance Sheets. We determine the fair value of these restricted investments based on comparisons to similar financial instruments or financial models based on observable inputs to arrive at consensus pricing. Certain items such as goodwill and other intangible assets are recognized or disclosed at fair value on a non-recurring basis. We typically determine the fair value of these items using internal estimates and assumptions that market participants would use in pricing the asset or liability. Property and equipment Property and equipment are recorded at cost. We compute depreciation using the straight-line method over the estimated useful lives of the assets as follows: Years Buildings 40 Software 3 - 8 Computers, furniture and equipment 3 - 10 Leasehold improvements are amortized over the shorter of the related non-cancelable lease term or their estimated useful lives. Non-capital expenditures associated with opening new locations are expensed as incurred. When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss, net of proceeds, is reflected on the Consolidated Statements of Operations and Comprehensive Income (Loss). Repairs and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated. Costs associated with the acquisition or development of software for internal use are capitalized and amortized over the expected useful life of the software, from three to eight years . A subsequent addition, modification or upgrade to internal-use software is capitalized to the extent that it enhances the software’s functionality or extends its useful life. Software maintenance and training costs are expensed in the period incurred. Leases We conduct our branch operations primarily from leased locations. We also lease office spaces for our centralized support functions, office equipment, and machinery for use at client sites. Many leases require variable payments of property taxes, insurance, and common area maintenance, in addition to base rent. The variable portion of these lease payments is not included in our right-of-use assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). We determine if an arrangement meets the definition of a lease at inception, at which time we also perform an analysis to determine whether the lease qualifies as operating or financing. The terms of our lease agreements generally range from three to five years , with some as high as 15 years and many containing options to renew. Under the majority of our leases, we have the right to terminate the lease with 90 days’ notice. Operating leases are included in operating lease right-of-use assets, net and current and long-term operating lease liabilities on our Consolidated Balance Sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term and is included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). Page - 50 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Lease right-of-use assets and lease liabilities are measured using the present value of future minimum lease payments over the lease term at commencement date. The right-of-use asset also includes any lease payments made on or before the commencement date of the lease, less any lease incentives received. As the rate implicit in the lease is not readily determinable in our leases, we use our incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rates used are estimated based on what we would be required to pay for a collateralized loan over a similar term. We have lease agreements with lease and non-lease components, which are accounted for as a single lease component. For leases with an initial non-cancelable lease term of less than one year and no option to purchase, we have elected not to recognize the lease on our Consolidated Balance Sheets and instead recognize rent payments on a straight-line basis over the lease term within SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). In addition, for those leases where the right to cancel the lease is available to both TrueBlue (as the lessee) and the lessor, the lease term is the initial non-cancelable period plus the notice period, which is typically 90 days, and not greater than one year. Goodwill and indefinite-lived intangible assets We evaluate goodwill 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. 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 are PeopleReady, PeopleManagement On-Site, PeopleManagement Centerline, 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. We also apply a market approach, which identifies similar publicly traded companies and develops a correlation, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization. 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. There were no goodwill impairment charges recorded during fiscal 2021 or 2019. Refer to Note 5: Goodwill and Intangible Assets for further details regarding the goodwill impairment charge recorded during fiscal 2020. 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 indications 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. There were no indefinite-lived intangible asset impairment charges recorded during fiscal 2021, 2020 or 2019. Other long-lived assets Other long-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Other long-lived assets include property and equipment, lease right-of-use assets, finite-lived intangible assets and capitalized implementation costs for cloud computing arrangements that are service contracts. Page - 51 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We have finite-lived intangible assets related to acquired company customers, trade names/trademarks, and technology, as well as purchased trade names/trademarks. During fiscal 2020, we recorded a non-cash impairment charge for our PeopleScout RPO and PeopleManagement On-Site client relationship intangible assets of $ 34.7 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended December 27, 2020. Refer to Note 5: Goodwill and Intangible Assets for further details. There were no long-lived asset impairment charges recorded during fiscal 2021 or 2019. We capitalize implementation costs incurred in a cloud computing arrangement that is a service contract. Capitalized implementation costs are recorded as a prepaid asset in other assets, net on our Consolidated Balance Sheets, with the related amortization recorded in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss) on a straight-line basis over the fixed, non-cancelable term of the associated arrangement plus any reasonably certain renewal periods. Software license fees incurred during the development period are expensed as incurred. Workers’ compensation claims reserves We maintain reserves for workers’ compensation claims 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” United States of America (“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 exceeds the amounts 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 are made. 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 companies. 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. When appropriate, based on our best estimate, we record a valuation allowance against the insurance receivable to reflect amounts that may not be realized. We also establish an allowance for credit loss for our insurance receivables using a probability of default and losses expected upon default method, with the probability of default rate based on the third-party insurance carrier’s credit rating. Changes in the allowance for credit losses are recorded in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our workers’ compensation insurance receivables as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of December 26, 2021. Legal contingency reserves and regulatory liabilities From time to time we are subject to compliance audits by federal, state and local authorities relating to a variety of regulations including wage and hour laws, taxes, workers’ compensation, immigration, and safety. In addition, we are subject to legal proceedings in the ordinary course of our operations. We establish accruals for contingent legal and regulatory liabilities 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. We evaluate our reserve regularly throughout the year and make adjustments as needed. If the actual outcome of these matters is different than expected, an adjustment is charged or credited to expense in the period the outcome occurs or the period in which the estimate changes. Income taxes and related valuation allowance We account for income taxes by recording taxes payable or receivable 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. These expected future tax consequences are measured based on 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 the 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. Based on that analysis, we have determined that a valuation allowance is appropriate for certain net Page - 52 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS operating losses (“NOLs”) and tax credits that we expect will not be utilized within the permitted carryforward periods as of December 26, 2021 and December 27, 2020. A significant driver of fluctuations in our effective income tax rate is the Work Opportunity Tax Credit (“WOTC”). WOTC is designed to encourage hiring of workers from certain disadvantaged targeted categories and is generally calculated as a percentage of wages over a twelve month period up to worker maximum by targeted category. Based on historical results and business trends, we estimate the amount of WOTC we expect to earn related to wages of the current year. However, the estimate is subject to variation because 1) a small percentage of our associates qualify for one or more of the many targeted categories; 2) the targeted categories are subject to different incentive credit rates and limitations; 3) credits fluctuate depending on economic conditions and qualified worker retention periods; and 4) state and federal offices can delay their credit certification processing and have inconsistent certification rates. We recognize an adjustment to prior year hiring credits if credits certified by government offices differ from original estimates. Deferred compensation plan We offer a non-qualified defined contribution plan (the “Plan”) to eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation. The Plan allows participants to direct their account based on the investment options determined by TrueBlue and offers discretionary matching contributions. The current portion of the deferred compensation liability is included in accrued wages and benefits on our Consolidated Balance Sheets. The total deferred compensation liability is largely funded through company-owned life insurance policies, mutual funds and money market funds recorded in restricted cash and investments on our Consolidated Balance Sheets. The carrying value of company-owned life insurance policies is based on the cash surrender value of the policies and, accordingly, approximates fair value. Changes in the cash surrender value of the company-owned life insurance policies are recorded in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). The deferred compensation mutual funds and money market funds are measured at fair value, with unrealized gains and losses recognized in SG&A expense, while realized gains and losses are recorded in other income on our Consolidated Statements of Operations and Comprehensive Income (Loss). As of December 26, 2021, all of the mutual funds and money market funds have been converted into company-owned life insurance policies. Stock-based compensation Under various plans, our Board of Directors (the “Board”), executive officers and key employees have received or may receive grants of restricted stock awards, restricted stock units or performance share units (collectively, “stock-based awards”). We also have an employee stock purchase plan (“ESPP”). Compensation expense for stock-based awards is generally recognized on a straight-line basis over the vesting period, based on our stock’s fair market value on the grant date. For performance share unit grants issued with performance conditions, compensation expense is recognized over each vesting period based on assessment of the likelihood of meeting these conditions. We recognize compensation expense for only the portion of stock-based awards that are expected to vest. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods. Foreign currency Our financial statements are reported in U.S. dollars. Assets and liabilities of international subsidiaries with non-U.S. dollar functional currencies are translated to U.S. dollars at the exchange rates in effect on the balance sheet date. Revenues and expenses for each subsidiary are translated to U.S. dollars using a weighted average rate for the relevant reporting period. Translation adjustments resulting from this process are included, net of tax, in other comprehensive income, when applicable. Purchases and retirement of our common stock We purchase our common stock under a program authorized by our Board. Under applicable Washington State law, shares purchased are not displayed separately as treasury stock on the Consolidated Balance Sheets and are treated as authorized but unissued shares. It is our accounting policy to first record these purchases as a reduction to our common stock account. Once the common stock account has been reduced to a nominal balance, remaining purchases are recorded as a reduction to our retained earnings. Furthermore, activity in our common stock account related to stock-based compensation is also recorded to retained earnings until such time as the reduction to retained earnings due to stock repurchases has been recovered. Page - 53 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net income per share Basic net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares include the dilutive effects of vested and non-vested restricted stock, performance share units and shares issued under the ESPP, except where their inclusion would be anti-dilutive. Anti-dilutive shares primarily include non-vested restricted stock and performance share units for which the sum of the assumed proceeds, including unrecognized compensation expense, exceeds the average stock price during the periods presented. Segments Our operating segments are based on the organizational structure for which financial results are regularly reviewed by our chief operating decision-maker, our Chief Executive Officer, to determine resource allocation and assess performance. We evaluate performance based on segment revenue and segment profit. Segment revenue is net of intercompany eliminations. 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. Government incentives On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), which among other things, provided employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 outbreak. Also during fiscal 2020, the Canadian and Australian governments enacted subsidy programs to help employers offset a portion of their employee wages and rent for a limited period. We elected to treat qualified government incentives from the U.S., Canadian and Australian governments as offsets to the related operating expenses. During fiscal 2021, Canadian subsidies reduced our operating expenses by $ 3.9 million on our Consolidated Statement of Operations and Comprehensive Income (Loss). During 2020, U.S., Canadian and Australian subsidies reduced our operating expenses by $ 9.9 million on our Consolidated Statement of Operations and Comprehensive Income (Loss). Additionally, under the CARES Act, we were allowed to delay payments for the employer portion of social security taxes (6.2% of taxable wages) incurred between March 27, 2020 and December 31, 2020, for both our temporary associates and permanent employees. Deferred employer payroll taxes of $ 59.9 million were paid in full on September 15, 2021. Business combinations We account for our business acquisitions using the acquisition 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 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. Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date. We estimate the fair value of acquired assets and liabilities as of the date of the acquisition based on information available at that time. The initial 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. All acquisition-related costs are expensed as incurred and recorded in SG&A expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). 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 SG&A expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). Recently issued accounting pronouncements not yet adopted There are no new accounting pronouncements, issued or effective during the fiscal year, that are expected to have a significant impact on our financial statements and related disclosures. Page - 54 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: FAIR VALUE MEASUREMENT Assets measured at fair value on a recurring basis Our assets measured at fair value on a recurring basis consisted of the following: December 26, 2021 (in thousands) Total fair value Quoted prices in active markets for identical assets (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Cash and cash equivalents $ 49,896 $ 49,896 $ — $ — Restricted cash and cash equivalents 53,289 53,289 — — Cash, cash equivalents and restricted cash (1) $ 103,185 $ 103,185 $ — $ — Municipal debt securities $ 58,505 $ — $ 58,505 $ — Corporate debt securities 78,357 — 78,357 — Agency mortgage-backed securities 152 — 152 — U.S. government and agency securities 1,070 — 1,070 — Restricted investments classified as held-to-maturity (2) $ 138,084 $ — $ 138,084 $ — Deferred compensation investments (3) $ — $ — $ — $ — December 27, 2020 (in thousands) Total fair value Quoted prices in active markets for identical assets (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Cash and cash equivalents $ 62,507 $ 62,507 $ — $ — Restricted cash and cash equivalents 56,105 56,105 — — Cash, cash equivalents and restricted cash (1) $ 118,612 $ 118,612 $ — $ — Municipal debt securities $ 70,723 $ — $ 70,723 $ — Corporate debt securities 85,937 — 85,937 — Agency mortgage-backed securities 512 — 512 — U.S. government and agency securities 1,124 — 1,124 — Restricted investments classified as held-to-maturity (2) $ 158,296 $ — $ 158,296 $ — Deferred compensation investments (3) $ 5,915 $ 5,915 $ — $ — (1) Cash, cash equivalents and restricted cash include money market funds and deposits. (2) Refer to Note 3: Restricted Cash and Investments for additional details on our held-to-maturity debt securities. (3) Deferred compensation investments include mutual funds and money market funds. Refer to Note 3: Restricted Cash and Investments for additional details on these investments. As of December 26, 2021, all of the mutual funds and money market funds supporting the deferred compensation liability have been converted into company-owned life insurance policies. Assets measured at fair value on a nonrecurring basis We measure the fair value of certain non-financial assets on a non-recurring basis, including goodwill and certain intangible assets. During the first quarter of 2020, we performed an interim impairment test as of the last day of our first fiscal quarter (March 29, 2020). As a result of the test, goodwill and client relationship intangible assets with a total carrying value of $ 221.6 million were written down to their fair value, and an impairment charge of $ 175.2 million was recognized on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended December 27, 2020. There were no goodwill or intangible asset impairment charges recorded during fiscal 2021 or 2019. Refer to Note 5: Goodwill and Intangible Assets for additional details on the impairment charge and valuation methodologies. Page - 55 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The impairment was comprised as follows: March 29, 2020 (in thousands) Total fair value Quoted prices in active markets for identical assets (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Total impairment charge Goodwill $ 31,705 $ — $ — $ 31,705 $ ( 140,489 ) Client relationships 14,700 — — 14,700 ( 34,700 ) Total $ 46,405 $ — $ — $ 46,405 $ ( 175,189 ) NOTE 3: RESTRICTED CASH AND INVESTMENTS The following is a summary of the carrying value of our restricted cash and investments: (in thousands) December 26, 2021 December 27, 2020 Cash collateral held by insurance carriers $ 28,957 $ 26,025 Cash and cash equivalents held in Trust 21,590 29,410 Investments held in Trust 135,419 152,247 Deferred compensation investments — 5,915 Company-owned life insurance policies 32,318 26,267 Other restricted cash and cash equivalents 2,742 670 Total restricted cash and investments $ 221,026 $ 240,534 Held-to-maturity Restricted cash and investments include collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in debt and asset-backed securities. The majority of our collateral obligations are held in a Trust. The amortized cost and estimated fair value of our held-to-maturity investments held in Trust, aggregated by investment category as of December 26, 2021 and December 27, 2020, were as follows: December 26, 2021 (in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value Municipal debt securities $ 56,346 $ 2,159 $ — $ 58,505 Corporate debt securities 77,925 995 ( 563 ) 78,357 Agency mortgage-backed securities 148 4 — 152 U.S. government and agency securities 1,000 70 — 1,070 Total held-to-maturity investments $ 135,419 $ 3,228 $ ( 563 ) $ 138,084 December 27, 2020 (in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value Municipal debt securities $ 67,287 $ 3,436 $ — $ 70,723 Corporate debt securities 83,467 2,511 ( 41 ) 85,937 Agency mortgage-backed securities 493 19 — 512 U.S. government and agency securities 1,000 124 — 1,124 Total held-to-maturity investments $ 152,247 $ 6,090 $ ( 41 ) $ 158,296 Page - 56 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows: December 26, 2021 (in thousands) Amortized cost Fair value Due in one year or less $ 23,828 $ 24,023 Due after one year through five years 109,572 112,010 Due after five years through ten years 2,019 2,051 Total held-to-maturity investments $ 135,419 $ 138,084 Actual maturities may differ from contractual maturities because the issuers of certain debt securities have the right to call or prepay their obligations without penalty. We have no significant concentrations of counterparties in our held-to-maturity investment portfolio. Deferred compensation investments and company-owned life insurance policies We hold company-owned life insurance policies, mutual funds and money market funds to support our deferred compensation liability. As of December 26, 2021, all of the mutual funds and money market funds were converted into company-owned life insurance policies. Unrealized gains and losses related to these investments held at December 26, 2021, December 27, 2020 and December 29, 2019, included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), were as follows: (in thousands) 2021 2020 2019 Unrealized gains (losses) $ 1,061 $ 723 $ 2,814 NOTE 4: SUPPLEMENTAL BALANCE SHEET INFORMATION Accounts receivable allowance for credit losses (in thousands) 2021 2020 2019 Beginning balance $ 2,921 $ 4,288 $ 5,026 Cumulative-effect adjustment (1) — 524 — Current period provision 6,493 6,300 7,661 Write-offs ( 2,713 ) ( 8,181 ) ( 8,358 ) Foreign currency translation ( 14 ) ( 10 ) ( 41 ) Ending balance $ 6,687 $ 2,921 $ 4,288 (1) As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to our accounts receivable allowance of $ 0.5 million as of the beginning of the first quarter of 2020. Page - 57 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Prepaid expenses and other current assets (in thousands) December 26, 2021 December 27, 2020 Prepaid software agreements $ 10,078 $ 8,643 Other prepaid expenses 8,858 8,631 Other current assets 12,678 8,863 Prepaid expenses and other current assets $ 31,614 $ 26,137 Property and equipment (in thousands) December 26, 2021 December 27, 2020 Buildings and land $ 50,444 $ 44,479 Software 139,363 127,715 Computers, furniture and equipment 47,816 42,846 Construction in progress 16,574 9,997 Gross property and equipment 254,197 225,037 Less accumulated depreciation ( 166,107 ) ( 153,303 ) Property and equipment, net $ 88,090 $ 71,734 Capitalized software costs, net of accumulated depreciation, were $ 29.3 million and $ 27.6 million as of December 26, 2021 and December 27, 2020, respectively, excluding amounts in construction in progress. Construction in progress consists primarily of purchased and internally-developed software. Depreciation expense of property and equipment totaled $ 20.9 million, $ 21.9 million and $ 19.7 million for the fiscal years ended December 26, 2021, December 27, 2020 and December 29, 2019, respectively. Page - 58 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5: GOODWILL AND INTANGIBLE ASSETS Goodwill The following table reflects changes in the carrying amount of goodwill during the period by reportable segments: (in thousands) PeopleReady PeopleManagement PeopleScout Total company Balance at December 29, 2019 Goodwill before impairment $ 106,304 $ 81,092 $ 145,181 $ 332,577 Accumulated impairment charge ( 46,210 ) ( 33,700 ) ( 15,169 ) ( 95,079 ) Goodwill, net 60,094 47,392 130,012 237,498 Impairment charge — ( 45,901 ) ( 94,588 ) ( 140,489 ) Foreign currency translation — — ( 2,136 ) ( 2,136 ) Balance at December 27, 2020 Goodwill before impairment 106,304 81,092 143,045 330,441 Accumulated impairment charge ( 46,210 ) ( 79,601 ) ( 109,757 ) ( 235,568 ) Goodwill, net 60,094 1,491 33,288 94,873 Foreign currency translation — — ( 335 ) ( 335 ) Balance at December 26, 2021 Goodwill before impairment 106,304 81,092 142,710 330,106 Accumulated impairment charge ( 46,210 ) ( 79,601 ) ( 109,757 ) ( 235,568 ) Goodwill, net $ 60,094 $ 1,491 $ 32,953 $ 94,538 Intangible assets Finite-lived intangible assets The following table presents our purchased finite-lived intangible assets: December 26, 2021 December 27, 2020 (in thousands) Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount Finite-lived intangible assets (1): Customer relationships $ 102,016 $ ( 87,134 ) $ 14,882 $ 113,382 $ ( 91,956 ) $ 21,426 Trade names/trademarks 2,066 ( 737 ) 1,329 2,088 ( 585 ) 1,503 Total finite-lived intangible assets $ 104,082 $ ( 87,871 ) $ 16,211 $ 115,470 $ ( 92,541 ) $ 22,929 (1) Excludes assets that are fully amortized. Balances at December 27, 2020 are net of impairment charge of $ 34.7 million. Amortization expense of our finite-lived intangible assets was $ 6.7 million, $ 10.1 million and $ 17.9 million for the fiscal years ended December 26, 2021, December 27, 2020 and December 29, 2019, respectively. Page - 59 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table provides the estimated future amortization of finite-lived intangible assets as of December 26, 2021: (in thousands) 2022 $ 5,786 2023 5,132 2024 4,158 2025 326 2026 125 Thereafter 684 Total future amortization $ 16,211 Indefinite-lived intangible assets We also held indefinite-lived trade names/trademarks of $ 6.0 million as of December 26, 2021 and December 27, 2020. Impairments Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions to evaluate the impact of operating and macroeconomic changes on each reporting unit. The fair value of each reporting unit is estimated using a combination of a discounted cash flow methodology and the market valuation approach using publicly traded company multiples in similar businesses. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally developed forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows would 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. There were no goodwill or intangible asset impairment charges recorded during fiscal 2021 or 2019. 2020 impairments Goodwill During the fiscal year ended December 27, 2020, we recorded a non-cash impairment charge of $ 140.5 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss). The goodwill carrying value of $ 45.9 million for our PeopleManagement On-Site reporting unit was fully impaired. The goodwill impairment charge for PeopleScout RPO and PeopleScout MSP was $ 92.2 million and $ 2.4 million, respectively. The charge was primarily the result of expected continued weakness in pricing and demand for our staffing services in a volatile economic climate, which resulted in a decline in our stock price. The decline in stock price pushed our market capitalization significantly below the recorded value of our consolidated net assets. This was further impacted by COVID-19, which created a significant drop in client demand. The weighted average cost of capital used ranged from 11.5 % to 12.0 %. The combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of common stock on the date of valuation, while considering a reasonable control premium. The remaining goodwill balances for PeopleScout RPO and PeopleScout MSP was $ 23.6 million and $ 9.7 million , respectively, as of December 27, 2020. Finite-lived intangible assets During the fiscal year ended December 27, 2020, we recorded a non-cash impairment charge for our PeopleScout RPO and PeopleManagement On-Site client relationship intangible assets of $ 34.7 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss). The charge was primarily due to the decrease in demand for our services associated with government and societal actions taken to address the impact of COVID-19, which resulted in lower future expectations. The impairment charge for PeopleScout RPO and PeopleManagement On-Site client relationship intangible assets was $ 25.0 million and $ 9.7 million, respectively. The remaining client relationship intangible asset balances related to assets impaired for PeopleScout RPO and PeopleManagement On-Site was $ 5.1 million and $ 7.2 million, respectively, as of December 27, 2020. Considerable management judgment was necessary to determine key assumptions, including projected revenue of acquired clients and an appropriate discount rate of 12.0 %. Page - 60 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6: WORKERS’ COMPENSATION INSURANCE AND RESERVES 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. This results in our being substantially self-insured. Our workers’ compensation reserve for claims below the deductible limit is discounted to its 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. The weighted average discount rate was 1.6 % and 1.8 % at December 26, 2021 and December 27, 2020, respectively. Payments made against self-insured claims are made over a weighted average period of approximately 5.5 years as of December 26, 2021. The following table presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented: (in thousands) December 26, 2021 December 27, 2020 Undiscounted workers’ compensation reserve $ 273,000 $ 273,502 Less discount on workers’ compensation reserve 16,806 18,009 Workers’ compensation reserve, net of discount 256,194 255,493 Less current portion 61,596 66,007 Long-term portion $ 194,598 $ 189,486 Payments made against self-insured claims were $ 41.9 million, $ 52.8 million and $ 63.1 million for the fiscal years ended December 26, 2021, December 27, 2020 and December 29, 2019, respectively. Our workers’ compensation reserve includes estimated expenses related to claims above our self-insured limits (“excess claims”), and we record 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. The activity related to the insurance receivable allowance for credit losses was as follows: (in thousands) 2021 2020 2019 Beginning balance $ 85 $ 629 $ 3,314 Cumulative-effect adjustment (1) — 72 — Charged to expense 13 13 120 Release of allowance — ( 629 ) ( 2,805 ) Ending balance $ 98 $ 85 $ 629 (1) As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to our insurance receivable valuation allowance of $ 0.1 million as of the beginning of the first quarter of 2020. Refer to Note 1: Summary of Significant Accounting Policies for further details. 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; • impact of safety initiatives; and Page - 61 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • positive or adverse development of claims, which considers the potential impact of COVID-19. The table below presents the estimated future payout of our discounted workers’ compensation claims reserve for the next five years and thereafter as of December 26, 2021: (in thousands) 2022 $ 61,596 2023 32,921 2024 19,117 2025 12,694 2026 9,363 Thereafter 57,819 Sub-total 193,510 Excess claims (1) 62,684 Total $ 256,194 (1) Estimated expenses related to claims above our self-insured limits for which we have a corresponding receivable for the insurance coverage based on contractual policy agreements. Workers’ compensation cost consists primarily of changes in self-insurance reserves net of changes in discount, monopolistic jurisdictions’ premiums, insurance premiums and other miscellaneous expenses. Workers’ compensation cost of $ 39.8 million, $ 49.4 million and $ 60.2 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal years ended December 26, 2021, December 27, 2020 and December 29, 2019, respectively. NOTE 7: LONG-TERM DEBT We have a revolving credit agreement with Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, N.A., KeyBank, N.A. and HSBC Bank USA, N.A., which provides for a revolving line of credit of up to $ 300.0 million, and currently set to mature on March 16, 2025 (“Revolving Credit Facility”). We have an option to increase the amount to $ 450.0 million, subject to lender approval. Included in the Revolving Credit Facility is a $ 30.0 million sub-limit for “Swingline” loans and a $ 125.0 million sub-limit for letters of credit. At December 26, 2021, $ 6.2 million was utilized by outstanding standby letters of credit, leaving $ 293.8 million unused and available under the Revolving Credit Facility. At December 27, 2020, $ 6.1 million was utilized by outstanding standby letters of credit. Under the terms of the Revolving Credit Facility, we pay a variable rate of interest on funds borrowed under the revolving line of credit in excess of the Swingline loans, based on the U.S. Dollar London Interbank Offered Rate (“LIBOR”) plus an applicable spread between 1.25 % and 3.50 %. Alternatively, at our option, we may pay interest based on a base rate plus an applicable spread between 0.25 % and 1.50 %. The base rate is the greater of the prime rate (as announced by Bank of America), or the federal funds rate plus 0.50 %. The applicable spread is determined by the consolidated leverage ratio, as defined under the Revolving Credit Facility. Under the terms of the Revolving Credit Facility, we are required to pay a variable rate of interest on funds borrowed under the Swingline loan based on the base rate plus applicable spread between 0.25 % and 1.50 %, as described above. A commitment fee between 0.25 % and 0.50 % is applied against the Revolving Credit Facility’s unused borrowing capacity, with the specific rate determined by the consolidated leverage ratio, as defined in the second amendment to our credit agreement. Letters of credit are priced at a margin between 1.00 % and 3.25 %, plus a fronting fee of 0.50 %. Obligations under the Revolving Credit Facility are guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by substantially all of the assets of TrueBlue and material U.S. domestic subsidiaries. The second amendment to our credit agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants. The following financial covenants, as defined in the second amendment to our credit agreement, were in effect starting the third quarter of 2021 and remained as of December 26, 2021: Page - 62 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • Consolidated leverage ratio less than 4.00 for the third and fourth quarters 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 of December 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 of December 26, 2021, our consolidated fixed charge coverage ratio was 67.88 . As of December 26, 2021, and throughout fiscal 2021, we were in compliance with all effective covenants related to the Revolving Credit Facility. NOTE 8: COMMITMENTS AND CONTINGENCIES Workers’ compensation commitments We have provided our insurance carriers and certain states with commitments in the form and amounts listed below: (in thousands) December 26, 2021 December 27, 2020 Cash collateral held by workers’ compensation insurance carriers $ 23,056 $ 22,253 Cash and cash equivalents held in Trust 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 are 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. Operating leases We have contractual commitments in the form of operating leases related to office space, vehicles and equipment. Our leases have remaining terms of up to 15 years. Most leases include one or more options to renew, which can extend the lease term up to 10 years. The exercise of lease renewal options is at our sole discretion. Typically, at the commencement of a lease, we are not reasonably certain we will exercise renewal options, and accordingly they are not considered in determining the initial lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We rent or sublease real estate to third parties in limited circumstances. Operating lease costs were comprised of the following: (in thousands) 2021 2020 Operating lease costs $ 16,502 $ 16,607 Short-term lease costs 8,392 7,781 Other lease costs, net (1) 3,886 3,922 Total lease costs $ 28,780 $ 28,310 (1) Other lease costs include variable lease costs, net of sublease income. Other information related to our operating leases was as follows: December 26, 2021 December 27, 2020 Weighted average remaining lease term in years 8.8 9.0 Weighted average discount rate 4.9 % 5.0 % Page - 63 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Future non-cancelable minimum lease payments under our operating lease commitments as of December 26, 2021, are as follows for each of the next five years and thereafter: (in thousands) 2022 $ 14,898 2023 12,344 2024 9,402 2025 7,565 2026 5,395 Thereafter 33,412 Total undiscounted future non-cancelable minimum lease payments (1) 83,016 Less: Imputed interest (2) 15,992 Present value of lease liabilities $ 67,024 (1) Operating lease payments exclude approximately $ 1.9 million of legally binding minimum lease payments for leases signed but not yet commenced. (2) Amount necessary to reduce net minimum lease payments to present value calculated using our incremental borrowing rates, which are consistent with the lease terms at adoption date (for those leases in existence as of the adoption date of the new lease standard) or lease inception (for those leases entered into after the adoption date). Purchase obligations Purchase obligations include agreements to purchase goods and services in the ordinary course of business that are enforceable, legally binding and specify all significant terms. Purchase obligations do not include agreements that are cancellable without significant penalty. We had $ 33.3 million of purchase obligations as of December 26, 2021, of which $ 20.2 million are expected to be paid in 2022, $ 11.4 million in 2023, $ 1.6 million in 2024, and the remaining $ 0.1 million in 2025. Legal contingencies and developments We are involved in various proceedings arising in the normal course of conducting business. We believe the liabilities included in our financial statements reflect the probable loss that can be reasonably estimated and are immaterial. We also believe that the aggregate range of reasonably possible losses for the Company's exposure in excess of the amount accrued is expected to be immaterial to the Company. It remains possible that despite our current belief, material differences in actual outcomes or changes in management's evaluation or predictions could arise that could have a material effect on the Company's financial condition, results of operations or cash flows. NOTE 9: SHAREHOLDERS’ EQUITY Common stock Shares of common stock outstanding include shares of unvested restricted stock. Unvested restricted stock included in reportable shares outstanding was 0.5 million and 0.9 million shares as of December 26, 2021 and December 27, 2020, respectively. On September 15, 2017, our Board authorized a $ 100.0 million addition to our share repurchase program for our outstanding common stock (“2017 authorization”). On October 16, 2019, our Board authorized a $ 100.0 million addition to our share repurchase program for our outstanding common stock (“2019 authorization”). The share repurchase program does not obligate us to acquire any particular amount of common stock and does not have an expiration date. We may choose to purchase shares in the open market, from individual holders, through an accelerated share repurchase agreement or otherwise. Refer to Note 15: Subsequent Event for further details regarding an additional authorization. During fiscal 2020, we repurchased shares using the remaining $ 19.0 million available under the 2017 authorization. Under this authorization, we repurchased and retired 4.7 million shares of our common stock at an average share price of $ 21.14 , which excludes commissions. As of December 27, 2020, $ 66.7 million remained available for repurchase of common stock under the 2019 authorization. During fiscal 2021, we repurchased shares using $ 16.7 million under the 2019 authorization. As of December 26, 2021, $ 50.0 million remains available for repurchase of common stock under the 2019 authorization. Page - 64 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The details of shares repurchased as part of our existing share repurchase authorizations are as follows: Fiscal year Number of shares repurchased Average price per share Amount (in thousands) 2021 Open market purchases 620,280 $ 26.90 $ 16,678 2020 Open market purchases 779,068 $ 15.85 $ 12,346 ASR (1) 2,777,486 $ 14.40 $ 40,000 Total 2020 3,556,554 $ 14.72 $ 52,346 (1) On February 28, 2020, we entered into an accelerated share repurchase (“ASR”) agreement with a third-party financial institution to repurchase our common stock. On July 2, 2020, we settled our ASR agreement, resulting in the receipt of a total of 2,777,486 shares over the term of the ASR agreement with a volume weighted average price of $ 14.40 . Preferred stock We have authorized 20.0 million shares of blank check preferred stock. The blank check preferred stock is issuable in one or more series, each with such designations, preferences, rights, qualifications, limitations and restrictions as our Board may determine and set forth in supplemental resolutions at the time of issuance, without further shareholder action. The initial series of blank check preferred stock authorized by the Board was designated as Series A Preferred Stock. We had no outstanding shares of preferred stock in any of the years presented. NOTE 10: STOCK-BASED COMPENSATION We record stock-based compensation expense for restricted stock awards, restricted stock units, performance share units (collectively, “stock-based awards”), and shares purchased under an employee stock purchase plan (“ESPP”). Our 2016 Omnibus Incentive Plan (“Incentive Plan”), effective May 11, 2016, applies to directors, officers, employees and consultants of the Company and permits the granting of nonqualified and incentive stock options, restricted stock awards, performance share units, restricted stock units and stock appreciation rights. Upon adoption, the Incentive Plan provided for the issuance or delivery of up to 1.5 million shares of our common stock. Effective May 9, 2018, an additional 1.8 million shares were authorized under the Incentive Plan. Stock-based awards Under the Incentive Plan, stock-based awards are granted to the Board, executive officers and key employees. Stock-based awards granted to executive officers and key employees generally vest annually over three or four years . Beginning in fiscal 2020, stock-based awards granted to members of our Board vest over an eight month period. Prior to fiscal 2020, stock-based awards granted to members of our Board vested immediately. Receipt of the vested shares may be deferred until after a director leaves the Board. Compensation expense related to these grants is calculated based on the grant-date fair value. We recognize compensation expense on a straight-line basis over the vesting period, net of forfeitures. Beginning in fiscal 2020, performance share units are only granted to certain executive officers. Prior to fiscal 2020, performance share units were also granted to certain employees. Vesting of performance share units is contingent upon the achievement of return on equity, profitability, or individual performance goals at the end of each three-year performance period. Each performance share unit is equivalent to one share of common stock. Compensation expense for these grants is calculated based on the grant-date market value of our stock and is recognized ratably over the performance period only for the performance share units expected to vest. Our estimate of the performance units expected to vest is reviewed and adjusted as appropriate each quarter. Page - 65 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS S tock-based award activity for the fiscal year ended December 26, 2021, was as follows: (shares in thousands) Shares Weighted-average grant-date fair value Non-vested at beginning of period 1,523 $ 22.77 Granted 953 $ 20.21 Vested ( 579 ) $ 22.43 Forfeited ( 184 ) $ 19.91 Non-vested at the end of the period 1,713 $ 21.71 The following table summarizes the weighted-average grant-date fair value per share for stock-based awards granted during fiscal 2021, 2020 and 2019: 2021 2020 2019 Weighted-average grant-date fair value $ 20.21 $ 17.06 $ 23.05 As of December 26, 2021, total unrecognized stock-based compensation expense was approximately $ 17.5 million, which is estimated to be recognized over a weighted average remaining period of 1.7 years. The total fair value of stock-based awards that vested during fiscal 2021, 2020 and 2019 was $ 20.6 million, $ 7.0 million and $ 8.7 million, respectively. Employee Stock Purchase Plan Our ESPP reserves 1.0 million shares of common stock for purchase. The plan allows eligible employees to contribute up to 10 % of their earnings toward the monthly purchase of the company’s common stock. The employee’s purchase price is 85 % of the lesser of the company’s common stock price on either the first day or the last day of each calendar month. We consider our ESPP to be a component of stock-based compensation and accordingly we recognize compensation expense over the requisite service period for stock purchases made under the plan. The requisite service period begins on the enrollment date and ends on the purchase date, the duration of which is one month . The following table summarizes transactions under our ESPP during fiscal 2021, 2020 and 2019: (shares in thousands) 2021 2020 2019 Shares issued 44 68 73 Average price per share $ 19.77 $ 13.46 $ 18.31 Stock-based compensation expense Total stock-based compensation expense for fiscal 2021, 2020 and 2019, which is included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), was $ 13.9 million, $ 9.1 million and $ 9.8 million, respectively. The related tax benefit was $ 2.9 million, $ 1.9 million and $ 2.1 million for fiscal 2021, 2020 and 2019, respectively. NOTE 11: DEFINED CONTRIBUTION PLANS We offer both qualified and non-qualified defined contribution plans to eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation. The plans offer discretionary matching contributions. The liability for the non-qualified plan was $ 33.8 million and $ 30.6 million as of December 26, 2021 and December 27, 2020, respectively, of which $ 5.0 million and $ 4.2 million have been included in accrued wages and benefits on our Consolidated Balance Sheets. The expense for our qualified and non-qualified deferred compensation plans, including our discretionary matching contributions, totaled $ 6.5 million, $ 3.7 million and $ 5.5 million for fiscal 2021, 2020 and 2019, respectively, and is recorded in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). Page - 66 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12: INCOME TAXES The provision for income taxes is comprised of the following: (in thousands) 2021 2020 2019 Current taxes: Federal $ 4,925 $ ( 7,318 ) $ ( 933 ) State 4,067 ( 382 ) 3,835 Foreign 2,393 3,045 2,806 Total current taxes 11,385 ( 4,655 ) 5,708 Deferred taxes: Federal 617 ( 22,416 ) 846 State 88 ( 3,369 ) 1,216 Foreign 126 ( 981 ) ( 799 ) Total deferred taxes 831 ( 26,766 ) 1,263 Provision for income taxes $ 12,216 $ ( 31,421 ) $ 6,971 The items accounting for the difference 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 % 2019 % Income tax expense (benefit) based on statutory rate $ 15,508 21.0 % $ ( 36,385 ) 21.0 % $ 14,709 21.0 % Increase (decrease) resulting from: State income taxes, net of federal benefit 3,548 4.8 ( 6,631 ) 3.8 3,666 5.3 Hiring tax credits, net ( 7,582 ) ( 10.3 ) ( 7,719 ) 4.5 ( 13,627 ) ( 19.4 ) CARES Act ( 468 ) ( 0.6 ) ( 2,939 ) 1.7 — — Non-deductible goodwill impairment charge — — 21,849 ( 12.6 ) — — Non-deductible/non-taxable items 589 0.8 124 ( 0.1 ) 1,559 2.2 Foreign taxes 211 0.3 ( 977 ) 0.5 282 0.4 Other, net 410 0.5 1,257 ( 0.7 ) 382 0.5 Total tax expense (benefit) $ 12,216 16.5 % $ ( 31,421 ) 18.1 % $ 6,971 10.0 % Our effective tax rate for fiscal 2021 was 16.5 %. The difference between the statutory federal income tax rate of 21.0 % and our effective income tax rate results primarily from WOTC. Other differences result from state and foreign income tax, certain non-taxable income and non-deductible expenses, CARES Act and tax effects of stock-based compensation. The non-deductible goodwill and intangible asset impairment charge relates to an impairment charge of the carrying amounts of goodwill and other intangible assets of $ 175.2 million, recorded in the first quarter of 2020. Of the total 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 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. U.S. and international components of income (loss) before tax expense (benefit) was as follows: (in thousands) 2021 2020 2019 U.S. $ 61,433 $ ( 148,492 ) $ 61,610 International 12,417 ( 24,770 ) 8,434 Income (loss) before tax expense (benefit) $ 73,850 $ ( 173,262 ) $ 70,044 Page - 67 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The components of deferred tax assets and liabilities were as follows: (in thousands) December 26, 2021 December 27, 2020 Deferred tax assets: Allowance for credit losses $ 1,750 $ 991 Workers’ compensation 1,653 — Accounts payable and other accrued expenses 8,970 7,933 Net operating loss carryforwards 2,002 3,679 Tax credit carryforwards 11,920 18,461 Accrued wages and benefits 9,227 7,938 Deferred compensation 9,083 10,130 Lease liabilities 16,762 21,771 Other 137 1,047 Total 61,504 71,950 Valuation allowance ( 2,368 ) ( 3,072 ) Total deferred tax asset, net of valuation allowance 59,136 68,878 Deferred tax liabilities: Prepaid expenses, deposits and other current assets ( 515 ) ( 1,840 ) Lease right-of-use assets ( 13,638 ) ( 20,692 ) Depreciation and amortization ( 15,653 ) ( 13,274 ) Workers’ compensation — ( 3,053 ) Total deferred tax liabilities ( 29,806 ) ( 38,859 ) Deferred income taxes, net $ 29,330 $ 30,019 Deferred taxes related to our foreign currency translation were immaterial for fiscal 2021, 2020 and 2019. The activity related to the income tax valuation allowance was as follows: (in thousands) 2021 2020 2019 Beginning balance $ 3,072 $ 1,780 $ 2,079 Charged to expense 26 1,292 — Release of allowance ( 730 ) — ( 299 ) Ending balance $ 2,368 $ 3,072 $ 1,780 The following table summarizes our NOLs and credit carryforwards along with their respective valuation allowance as of December 26, 2021: (in thousands) Carryover tax benefit Valuation allowance Expected benefit Year expiration begins Year-end tax attributes: Federal WOTCs $ 10,508 $ — $ 10,508 2039 State NOLs 2,002 ( 957 ) 1,045 Various California Enterprise Zone credits 1,411 ( 1,411 ) — 2026 Foreign alternative minimum tax credits 359 — 359 2032 Total $ 14,280 $ ( 2,368 ) $ 11,912 As of December 26, 2021, our liability for unrecognized tax benefits was $ 1.9 million. If recognized, $ 1.5 million would impact our effective tax rate. We do not believe the amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the fiscal year ended December 26, 2021. This liability is recorded in other long-term liabilities on our Consolidated Balance Sheets. In general, the tax years 2018 through 2020 remain open to examination by the major taxing jurisdictions where we conduct business. Page - 68 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the activity related to our unrecognized tax benefits: (in thousands) 2021 2020 2019 Beginning balance $ 1,930 $ 2,078 $ 2,190 Increases for tax positions related to the current year 188 218 318 Decreases for tax positions related to prior years ( 52 ) — — Reductions due to lapsed statute of limitations ( 185 ) ( 366 ) ( 430 ) Ending balance $ 1,881 $ 1,930 $ 2,078 We recognize interest and penalties related to unrecognized tax benefits within income tax expense on the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). Accrued interest and penalties are included within other long-term liabilities on the Consolidated Balance Sheets. Related to the unrecognized tax benefits noted above, we accrued an immaterial amount for interest and penalties during fiscal 2021 and, in total, as of December 26, 2021, have recognized a liability for penalties of $ 0.1 million and interest of $ 0.6 million. NOTE 13: NET INCOME (LOSS) PER SHARE Diluted common shares were calculated as follows: (in thousands, except per share data) 2021 2020 2019 Net income (loss) $ 61,634 $ ( 141,841 ) $ 63,073 Weighted average number of common shares used in basic net income (loss) per common share 34,798 35,365 38,778 Dilutive effect of non-vested stock-based awards 636 — 401 Weighted average number of common shares used in diluted net income (loss) per common share 35,434 35,365 39,179 Net income (loss) per common share: Basic $ 1.77 $ ( 4.01 ) $ 1.63 Diluted $ 1.74 $ ( 4.01 ) $ 1.61 Anti-dilutive shares 36 894 225 As we reported a loss for the fiscal year ended December 27, 2020, all potentially dilutive securities were antidilutive and accordingly, basic net loss per share and diluted net loss per share were equal. NOTE 14: SEGMENT INFORMATION Our operating segments and reportable segments are described below: Our PeopleReady reportable segment provides blue-collar, contingent staffing through the PeopleReady operating segment. PeopleReady provides on-demand and skilled labor in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, retail, waste and recycling, energy, hospitality and general labor. Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-site at the client’s facility, through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP: • PeopleManagement On-Site : On-site management and recruitment for the contingent industrial workforce of manufacturing, warehousing and distribution facilities; and • PeopleManagement Centerline : Recruitment and management of contingent and dedicated commercial drivers to the transportation and distribution industries. Page - 69 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing, employer branding services and management of outsourced labor service providers through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP: • PeopleScout RPO : Outsourced recruitment of permanent employees on behalf of clients and employer branding services; and • PeopleScout MSP : Management of multiple third-party staffing vendors on behalf of clients. The following table presents our revenue disaggregated by major source and segment and a reconciliation of segment revenue from services to total company revenue: (in thousands) 2021 2020 2019 Revenue from services: Contingent staffing PeopleReady $ 1,270,928 $ 1,099,462 $ 1,474,062 PeopleManagement 639,741 586,822 642,233 Human resource outsourcing PeopleScout 262,953 160,076 252,484 Total company $ 2,173,622 $ 1,846,360 $ 2,368,779 The following table presents a reconciliation of segment profit to income (loss) before tax expense (benefit): (in thousands) 2021 2020 2019 Segment profit: PeopleReady $ 82,398 $ 43,200 $ 82,106 PeopleManagement 13,196 11,717 12,593 PeopleScout 36,163 4,525 37,831 Total segment profit 131,757 59,442 132,530 Corporate unallocated ( 27,937 ) ( 20,714 ) ( 21,870 ) Third-party processing fees for hiring tax credits ( 734 ) ( 495 ) ( 960 ) Amortization of software as a service assets ( 2,709 ) ( 2,307 ) ( 1,624 ) Acquisition/integration costs — — ( 1,562 ) Goodwill and intangible asset impairment charge — ( 175,189 ) — Gain on deferred compensation assets ( 2,897 ) ( 1,725 ) ( 495 ) Workforce reduction costs ( 1,993 ) ( 12,570 ) ( 3,301 ) COVID-19 government subsidies, net 4,222 6,211 — Other benefits (costs) ( 3,711 ) 4,496 1,010 Depreciation and amortization ( 27,556 ) ( 32,031 ) ( 37,549 ) Income (loss) from operations 68,442 ( 174,882 ) 66,179 Interest expense and other income, net 5,408 1,620 3,865 Income (loss) before tax expense (benefit) $ 73,850 $ ( 173,262 ) $ 70,044 Asset information by reportable segment is not presented since we do not manage our segments on a balance sheet basis. Our international operations are primarily in Canada, Australia and the United Kingdom. Revenue by region was as follows: (in thousands, except percentages) 2021 % 2020 % 2019 % United States $ 2,017,529 92.8 % $ 1,729,171 93.7 % $ 2,222,543 93.8 % International operations 156,093 7.2 117,189 6.3 146,236 6.2 Total revenue from services $ 2,173,622 100.0 % $ 1,846,360 100.0 % $ 2,368,779 100.0 % Page - 70 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS No single client represented more than 10.0% of total company revenue for fiscal 2021, 2020 or 2019. Client concentration for our reportable segments was as follows: • No single client represented 10.0% or more of our PeopleReady reportable segment revenue for fiscal 2021, 2020, or 2019. • No single client represented 10.0 % or more of our PeopleManagement reportable segment revenue for fiscal 2021. One client represented 10.1 % and 10.0% of our PeopleManagement reportable segment revenue for fiscal 2020 and 2019, respectively. • One client represented 10.9 %, 10.1 % and 12.5 % of our PeopleScout reportable segment revenue for fiscal 2021, 2020 and 2019, respectively. Property and equipment located in international operations was approximately 5.6 % and 6.5 % of total property and equipment, net as of December 26, 2021 and December 27, 2020, respectively. NOTE 15: SUBSEQUENT EVENT On January 31, 2022, our Board of Directors authorized a $ 100 million addition to our share repurchase program for our outstanding common stock. The share repurchase program does not obligate us to acquire any particular amount of common stock and does not have an expiration date. We evaluated events and transactions occurring after the balance sheet date through the date the financial statements were issued, and identified no other events that were subject to recognition or disclosure. Page - 71 Table of Contents Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.