What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-05-07 · 157 added, 116 removed, 575 unchanged (32% of the section changed)

4 unchanged sentences

(In millions of dollars except per share data)

13 Weeks Ended

2020 March 31,

13 Weeks Ended 26 Weeks Ended

2020 June 30,

2019 June 28,

2020 June 30,

Revenue from services $ 975.3 $ 1,367.5 $ 2,236.4 $ 2,750.1

22 unchanged sentences

(In millions of dollars)

13 Weeks Ended

2020 March 31,

13 Weeks Ended 26 Weeks Ended

2020 June 30,

2019 June 28,

2020 June 30,

Net earnings (loss) $ 41.1 $ 83.8 $ ( 112.1 ) $ 105.9

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments, net of tax expense of $0.1 and $0.1, respectively ( 7.4 ) ( 1.5 )

Foreign currency translation adjustments, net of tax benefit of $0.5, tax expense of $0.0, tax benefit of $0.4 and tax expense of $0.1, respectively 2.7 6.9 ( 4.7 ) 5.4

Reclassification adjustments included in net earnings — — — —

44 unchanged sentences

Operating lease liabilities 69.9 43.3

Accrued payroll and related taxes 38.4 —

Accrued workers’ compensation and other claims 45.6 45.8

22 unchanged sentences

(In millions of dollars)

13 Weeks Ended

2020 March 31,

13 Weeks Ended 26 Weeks Ended

2020 June 30,

2019 June 28,

2020 June 30,

Capital Stock

37 unchanged sentences

26 Weeks Ended

2020 March 31,

2020 June 30,

Cash flows from operating activities:

16 unchanged sentences

Acquisition of companies, net of cash received ( 36.4 ) ( 86.4 )

Investment in equity securities ( 0.3 ) —

Proceeds from sale of assets 55.5 13.8

Proceeds from company-owned life insurance 2.3 3.0

Other investing activities ( 0.4 ) ( 1.3 )

18 unchanged sentences

26 Weeks Ended

2020 March 31,

2020 June 30,

Reconciliation of cash, cash equivalents and restricted cash:

15 unchanged sentences

The unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended December 29, 2019, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 13, 2020 (the 2019 consolidated financial statements).

The Company’s first fiscal quarter ended on March 29, 2020 (2020) and March 31, 2019 (2019), each of which contained 13 weeks.

Certain reclassifications have been made to the prior year's consolidated financial statements to conform to the current year's presentation.

The Company’s second fiscal quarter ended on June 28, 2020 (2020) and June 30, 2019 (2019), each of which contained 13 weeks.

The corresponding June year to date periods for 2020 and 2019 each contained 26 weeks.

Noncurrent accrued payroll and related taxes of $ 38.4 million on the consolidated balance sheet as of second quarter-end 2020 represent deferred U.S.

tax payments as allowed by COVID-19 economic relief legislation.

KELLY SERVICES, INC.

8 unchanged sentences

The following table presents our segment revenues disaggregated by service type (in millions):

First Quarter

Second Quarter June Year to Date

2020 2019 2020 2019

Branch-Delivered Staffing

26 unchanged sentences

Our GTS segment operates in the Americas, EMEA and APAC regions.

In the first quarter of 2020 and 2019, GTS made up $ 486.5 million and $ 484.4 million in total Americas, respectively, $ 10.0 million and $ 11.1 million in total EMEA, respectively, and the entire balance in APAC.

In the second quarter of 2020 and 2019, GTS made up $ 450.5 million and $ 488.4 million in total Americas, respectively, $ 9.5 million and $ 10.9 million in total EMEA, respectively, and the entire balance in APAC.

For June year to date in 2020 and 2019, GTS made up $ 937.0 million and $ 972.8 million in total Americas, respectively, $ 19.5 million and $ 22.0 million in total EMEA, respectively, and the entire balance in APAC.

The below table presents our revenues disaggregated by geography (in millions):

First Quarter

Second Quarter June Year to Date

2020 2019 2020 2019

United States $ 700.1 $ 991.3 $ 1,628.6 $ 2,010.2

4 unchanged sentences

Total Americas 774.3 1,082.0 1,791.1 2,189.1

France 52.5 64.3

Switzerland 47.4 49.9 91.6 99.4

Portugal 43.6 44.8

France 39.9 64.6 92.4 128.9

Russia 29.3 28.8 61.4 54.2

Portugal 23.8 46.7 67.4 91.5

United Kingdom 17.8 30.5 40.1 56.7

8 unchanged sentences

Deferred Costs

Deferred sales commissions, which are included in other assets in the consolidated balance sheet, were $ 1.3 million as of first quarter-end 2020 and $ 1.5 million as of year-end 2019.

Amortization expense for the deferred costs for the first quarter 2020 was $ 0.3 million and in the first quarter 2019 was $ 0.5 million.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 2.8 million as of first quarter-end 2020 and $ 3.6 million as of year-end 2019.

Amortization expense for the deferred costs for the first quarter 2020 was $ 4.8 million and in the first quarter 2019 was $ 3.4 million.

Deferred sales commissions, which are included in other assets in the consolidated balance sheet, were $ 1.1 million as of second quarter-end 2020 and $ 1.5 million as of year-end 2019.

Amortization expense for the deferred costs for the second quarter and June year to date 2020 was $ 0.3 million and $ 0.6 million, respectively.

Amortization expense for the deferred costs for the second quarter and June year to date 2019 was $ 0.4 million and $ 0.9 million, respectively.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 3.4 million as of second quarter-end 2020 and $ 3.6 million as of year-end 2019.

Amortization expense for the deferred costs for the second quarter and June year to date 2020 was $ 4.8 million and $ 9.6 million, respectively.

Amortization expense for the deferred costs for the second quarter and June year to date 2019 was $ 3.1 million and $ 6.5 million, respectively.

KELLY SERVICES, INC.

16 unchanged sentences

Credit risk with respect to accounts receivable is limited due to short payment terms.

The Company also performs ongoing credit evaluations of its customers to help analyze credit risk.

The Company also performs ongoing credit evaluations using applicable credit ratings of its customers to help analyze credit risk.

We monitor ongoing credit exposure thr ough frequent review of past due accounts (based on the payment terms of the contract) and follow-up with customers, as appropriate.

2 unchanged sentences

and other receivables measured at amortized cost.

The allowances were not material for the first-quarter end 2020.

The allowances were not material for the second-quarter end 2020.

See Investment in PersolKelly Pte.

1 unchanged sentence

The rollforward of our allowance for credit losses is as follows (in millions):

First Quarter

June Year to Date

Allowance for bad debt:

5 unchanged sentences

Ending balance $ 9.3

Write-offs are presented net of recoveries, which were not material for first quarter-end 2020.

Write-offs are presented net of recoveries, which were not material for second quarter-end 2020.

Allowances for credit losses are recorded in trade accounts receivable, less allowances and other assets in the consolidated balance sheet.

9 unchanged sentences

The fair value of the earnout was established using a Monte Carlo simulation and the liability is recorded in other long-term liabilities in the consolidated balance sheet.

In the second quarter of 2020, the Company paid a working capital adjustment of $ 0.1 million.

The purchase price allocation for this acquisition is preliminary and could change.

This acquisition will increase our market share in the education staffing market in the U.S.

20 unchanged sentences

Under terms of the purchase agreement, the purchase price was adjusted for cash held by NextGen at the closing date and estimated working capital adjustments resulting in the Company paying cash of $ 54.3 million.

Due to the date of the acquisition, the first quarter 2019 actual results represent the first quarter 2019 pro forma results.

Goodwill generated from this acquisition is primarily attributable to the market potential as a staffing solutions provider to the expanding telecommunications industry, and is assigned to the Americas Staffing reporting unit (see Goodwill footnote).

Due to the date of the acquisition, the second quarter and June year to date 2019 actual results represent the second quarter and June year to date 2019 pro forma results.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Global Technology Associates

1 unchanged sentence

Under terms of the purchase agreement, the purchase price was adjusted for cash held by GTA at the closing date and estimated working capital adjustments resulting in the Company paying cash of $ 35.7 million.

Due to the date of the acquisition, the first quarter 2019 actual results represent the first quarter 2019 pro forma results.

Due to the date of the acquisition, the second quarter and June year to date 2019 actual results represent the second quarter and June year to date 2019 pro forma results.

Goodwill generated from this acquisition is primarily attributable to the market potential as a solutions provider to the expanding telecommunications industry, and is assigned to the GTS reporting unit (see Goodwill footnote).

5 unchanged sentences

As our investment is a noncontrolling interest in Persol Holdings, this investment is recorded at fair value based on the quoted market price of Persol Holdings stock on the Tokyo Stock Exchange as of the period end (see Fair Value Measurements footnote).

A loss on the investment of $ 77.8 million in the first quarter of 2020 and a gain on the investment of $ 13.2 million in the first quarter of 2019 was recorded in gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.

A gain on the investment of $ 29.6 million and a loss on the investment of $ 48.2 million in the second quarter and June year to date 2020, respectively, and a gain on the investment of $ 61.2 million and $ 74.4 million in the second quarter and June year to date 2019, respectively, was recorded in gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.

Investment in PersolKelly Pte.

The Company has a 49 % ownership interest in the JV (see Investment in Persol Holdings footnote above), a staffing solutions business operating in more than 10 countries in the Asia-Pacific region.

The operating results of the Company’s interest in the JV are accounted for on a one-quarter lag under the equity method and are reported in equity in net earnings (loss) of affiliate in the consolidated statements of earnings, which amounted to a loss of $ 1.5 million in the first quarter of 2020 and a loss of $ 0.4 million in the first quarter of 2019.

The Company has a 49 % ownership interest in the JV (see Investment in Persol Holdings footnote above), a staffing solutions business operating in eight geographies in the Asia-Pacific region.

The operating results of the Company’s interest in the JV are accounted for on a one-quarter lag under the equity method and are reported in equity in net earnings (loss) of affiliate in the consolidated statements of earnings, which amounted to a loss of $ 1.3 million and $ 2.8 million in the second quarter and June year to date of 2020, respectively, and a gain of $ 0.3 million and a loss of $ 0.1 million in the second quarter and June year to date of 2019.

This investment is evaluated for indicators of impairment on a periodic basis or whenever events or circumstances indicate the carrying amount may be other-than-temporarily impaired.

If we conclude that there is an other-than-temporary impairment of this equity investment, we will adjust the carrying amount of the investment to the current fair value.

The investment in equity affiliate on the Company’s consolidated balance sheet totaled $ 116.3 million as of first quarter-end 2020 and $ 117.2 million as of year-end 2019.

The net amount due from the JV, a related party, was $ 10.0 million as of the first quarter-end 2020 and $ 10.9 million as of year-end 2019.

The investment in equity affiliate on the Company’s consolidated balance sheet totaled $ 113.6 million as of second quarter-end 2020 and $ 117.2 million as of year-end 2019.

The net amount due from the JV, a related party, was $ 10.5 million as of the second quarter-end 2020 and $ 10.9 million as of year-end 2019.

The Company made loans, proportionate to its 49 % ownership, to the JV for $ 7.0 million in 2018 and an additional $ 4.4 million in 2019 to fund working capital requirements as a result of their sustained revenue growth.

The loans, which are outstanding as of first quarter-end 2020, are included in other assets in the consolidated balance sheet and included in the net amounts due from the JV.

The loans, which are outstanding as of second quarter-end 2020, are included in other assets in the consolidated balance sheet and included in the net amounts due from the JV.

The carrying value of the loans approximates the fair value based on market interest rates.

Accrued interest receivable totaled $ 0.1 million at first-quarter end 2020 and $ 0.2 million at year-end 2019 and is included in prepaid expenses and other current assets in the consolidated balance sheet.

The amount included in trade accounts payable for staffing services provided by the JV as a supplier to the Company’s CWO programs was $ 0.1 million as of first quarter-end 2020 and $ 0.2 million as of year-end 2019.

Accrued interest receivable totaled $ 0.1 million at second-quarter end 2020 and $ 0.2 million at year-end 2019 and is included in prepaid expenses and other current assets in the consolidated balance sheet.

The amount included in trade accounts payable for staffing services provided by the JV as a supplier to the Company’s CWO programs was $ 0.1 million as of second quarter-end 2020 and $ 0.2 million as of year-end 2019.

Expected credit losses are estimated over the contractual term of the loans.

The required allowance is based on current and projected financial information from the JV, market-specific information and other relevant data available to the Company, as applicable.

The allowance was not material for the first quarter-end 2020.

The Company has accrued interest receivable from our loan to the JV.

If applicable, we write off the uncollectible accrued interest receivable balance related to our loan to the JV within the same quarter the interest is determined to be uncollectible,

The allowance was not material for the second quarter-end 2020.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

which is considered timely.

The Company has accrued interest receivable from our loan to the JV.

If applicable, we write off the uncollectible accrued interest receivable balance related to our loan to the JV within the same quarter the interest is determined to be uncollectible, which is considered timely.

As such, an allowance for credit losses is not deemed necessary.

Any write offs, if necessary, are recorded by reversing interest income.

Subsequent to first quarter-end 2020, 100 % of the shares of Kelly Services Australia Pty Ltd and Kelly Services (New Zealand) Limited, both subsidiaries of the JV, were sold on April 1, 2020 to an affiliate of Persol Holdings.

On April 1, 2020, 100 % of the shares of Kelly Services Australia Pty Ltd and Kelly Services (New Zealand) Limited, both subsidiaries of the JV, were sold to an affiliate of Persol Holdings.

The JV received proceeds of $ 17.5 million upon the sale and the Company received a direct royalty payment of $ 0.7 million.

2 unchanged sentences

Assets Measured at Fair Value on a Recurring Basis

The following tables present assets measured at fair value on a recurring basis as of first quarter-end 2020 and year-end 2019 in the consolidated balance sheet by fair value hierarchy level, as described below.

The following tables present assets measured at fair value on a recurring basis as of second quarter-end 2020 and year-end 2019 in the consolidated balance sheet by fair value hierarchy level, as described below.

Level 1 measurements consist of unadjusted quoted prices in active markets for identical assets or liabilities.

1 unchanged sentence

Level 3 measurements include significant unobservable inputs.

As of First Quarter-End 2020

As of Second Quarter-End 2020

Description Total Level 1 Level 2 Level 3

9 unchanged sentences

Total assets at fair value $ 178.1 $ 178.1 $ — $ —

Money market funds as of first quarter-end 2020 and year-end 2019 represent investments in money market accounts, all of which are restricted as to use and included in other assets in the consolidated balance sheet.

Money market funds as of second quarter-end 2020 and year-end 2019 represent investments in money market accounts, of which $ 5.1 million and $ 4.9 million, respectively, are restricted as to use and included in other assets in the consolidated balance sheet.

The money market funds that are restricted as to use account for the majority of our restricted cash balance and represents cash balances that are required to be maintained to fund disability claims in California.

The valuations of money market funds were based on quoted market prices of those accounts as of the respective period end.

The valuations of money market funds are based on quoted market prices of those accounts as of the respective period end.

The increase in money market funds from year-end 2019 was the result of higher cash and cash equivalent balances as of the end of the second quarter from an increase in cash flows from operations.

The valuation of the investment in Persol Holdings is based on the quoted market price of Persol Holdings stock on the Tokyo Stock Exchange as of the period end, and the related changes in fair value are recorded in the consolidated statements of earnings (see Investment in Persol Holdings footnote).

The cost of this yen-denominated investment, which fluctuates based on foreign exchange rates, was $ 19.2 million as of the first quarter-end 2020 and $ 18.9 million at year-end 2019.

The cost of this yen-denominated investment, which fluctuates based on foreign exchange rates, was $ 19.3 million as of the second quarter-end 2020 and $ 18.9 million at year-end 2019.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Equity Investment Without Readily Determinable Fair Value

2 unchanged sentences

The measurement alternative represents cost, less impairment, plus or minus observable price changes.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The carrying amount of $ 5.0 million as of the first quarter-end 2020 and year-end 2019 represents the purchase price.

The carrying amount of $ 5.0 million as of the second quarter-end 2020 and year-end 2019 represents the purchase price.

There have been no observable price changes to the carrying amount or impairments.

1 unchanged sentence

This investment is also measured using the measurement alternative for equity investments without a readily determinable fair value as described above.

The investment totaled $ 1.4 million as of the first quarter-end 2020 and $ 1.3 million at year-end 2019, representing total cost plus observable price changes to date.

The investment totaled $ 1.4 million as of the second quarter-end 2020 and $ 1.3 million at year-end 2019, representing total cost plus observable price changes to date.

Assets Measured at Fair Value on a Nonrecurring Basis

5 unchanged sentences

branch network facilities footprint with a more technology-enabled service delivery methodology.

Restructuring costs incurred in the first quarter of 2020 totaled $ 8.7 million and are recorded entirely in SG&A expenses in the consolidated statements of earnings, as detailed below (in millions of dollars).

Restructuring costs incurred in 2020 totaled $ 8.5 million and are recorded entirely in SG&A expenses in the consolidated statements of earnings, as detailed below (in millions of dollars).

Lease Termination Costs Severance Costs Total

4 unchanged sentences

Total $ 4.8 $ 3.7 $ 8.5

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of the global restructuring balance sheet accrual, included in accrued payroll and related taxes and accounts payable and accrued liabilities in the consolidated balance sheet, is detailed below (in millions of dollars).

7 unchanged sentences

Balance as of first quarter-end 2020 3.9

The remaining balance of $ 3.9 million as of first quarter-end 2020 primarily represents severance costs, and the majority is expected to be paid by the end of 2020.

Reductions for cash payments related to all restructuring activities ( 2.1 )

Accrual adjustments ( 0.2 )

Balance as of second quarter-end 2020 $ 1.6

The remaining balance of $ 1.6 million as of second quarter-end 2020 primarily represents severance costs, and the majority is expected to be paid by the end of 2020.

No material adjustments are expected to be recorded.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The changes in the carrying amount of goodwill as of first quarter-end 2020 are included in the table below.

The changes in the carrying amount of goodwill as of June year to date 2020 are included in the table below.

See Acquisitions footnote for a description of the addition to goodwill in the first quarter of 2020.

3 unchanged sentences

Based on the result of our interim goodwill impairment test as of first quarter of 2020, we recorded a goodwill impairment charge of $ 147.7 million to write off goodwill for both reporting units.

A portion of the goodwill balance was deductible for tax purposes.

See impairment adjustments in the table below.

5 unchanged sentences

expected future revenue and expense growth rates, profit margins, cost of capital, discount rate and forecasted capital expenditures and working capital.

As of Year-End 2019 Additions to Goodwill Impairment Adjustments As of First Quarter-End 2020

As of Year-End 2019 Additions to Goodwill Impairment Adjustments As of Second Quarter-End 2020

(In millions of dollars)

6 unchanged sentences

Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the first quarter 2020 and 2019 are included in the table below.

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the second quarter and June year to date 2020 and 2019 are included in the table below.

Amounts in parentheses indicate debits.

First Quarter

Second Quarter June Year to Date

2020 2019 2020 2019

(In millions of dollars)

12 unchanged sentences

Total accumulated other comprehensive income (loss) $ ( 20.5 ) $ ( 11.7 ) $ ( 20.5 ) $ ( 11.7 )

Earnings Per Share

The reconciliation of basic and diluted earnings (loss) per share on common stock for the first quarter 2020 and 2019 follows (in millions of dollars except per share data):

First Quarter

Earnings (Loss) Per Share

The reconciliation of basic and diluted earnings (loss) per share on common stock for the second quarter and June year to date 2020 and 2019 follows (in millions of dollars except per share data):

Second Quarter June Year to Date

2020 2019 2020 2019

Net earnings (loss) $ 41.1 $ 83.8 $ ( 112.1 ) $ 105.9

7 unchanged sentences

Diluted earnings (loss) per share $ 1.04 $ 2.12 $ ( 2.86 ) $ 2.68

Potentially dilutive shares outstanding are primarily related to performance shares for the first quarter 2019.

Dividends paid per share for Class A and Class B common stock were $ 0.075 for the first quarter 2020 and 2019.

Potentially dilutive shares outstanding are primarily related to performance shares for the second quarter and June year to date 2020 and 2019.

Dividends paid per share for Class A and Class B common stock were $ 0.00 for the second quarter 2020, $ 0.075 for second quarter 2019 and June year to date 2020, and $ 0.15 for June year to date 2019.

KELLY SERVICES, INC.

2 unchanged sentences

Stock-Based Compensation

For the first quarter of 2020, the Company recognized stock compensation expense of $ 1.2 million, and related tax expense of $ 0.2 million.

For the first quarter of 2019, the Company recognized stock compensation expense of $ 3.2 million, and related tax benefit of $ 0.4 million.

For the second quarter of 2020, the Company recognized stock compensation expense of $ 1.2 million, and related tax benefit of $ 0.2 million.

For the second quarter of 2019, the Company recognized stock compensation expense of $ 2.0 million, and related tax benefit of $ 0.3 million.

For June year to date 2020, the Company recognized stock compensation expense of $ 2.4 million, and related tax benefit of $ 0.0 million.

For June year to date 2019, the Company recognized stock compensation expense of $ 5.2 million, and related tax benefit of $ 0.7 million.

Performance Shares

A summary of the status of all nonvested performance shares at target as of first quarter-end 2020 is presented as follows below (in thousands of shares except per share data).

A summary of the status of all nonvested performance shares at target as of second quarter-end 2020 and year-to-date changes is presented as follows below (in thousands of shares except per share data).

The majority of the vested shares below is related to the 2017 performance share grant, which cliff-vested after approval from the Compensation Committee during the first quarter of 2020.

10 unchanged sentences

Vesting adjustment — — ( 62 ) 20.15

Nonvested at first quarter-end 2020 331 $ 23.00 50 $ 31.38

Nonvested at second quarter-end 2020 328 $ 22.90 50 $ 31.38

2018 Grant Update

3 unchanged sentences

The grant date fair value per share will remain fixed for the remaining performance period.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Restricted Stock

A summary of the status of nonvested restricted stock as of first quarter-end 2020 is presented as follows below (in thousands of shares except per share data).

The restricted stock granted related to new hires in the first quarter of 2020.

A summary of the status of nonvested restricted stock as of second quarter-end 2020 and year-to-date changes is presented as follows below (in thousands of shares except per share data).

The majority of the restricted stock granted related to new hires in the first quarter of 2020.

Shares Weighted Average Grant Date Fair Value

3 unchanged sentences

Forfeited ( 20 ) 24.46

Nonvested at first quarter-end 2020 310 $ 23.09

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Nonvested at second quarter-end 2020 297 $ 22.98

Sale of Assets

4 unchanged sentences

The resulting gain on the sale of the assets was $ 32.1 million which is recorded in gain on sale of assets in the consolidated statements of earnings.

The Company leased back the headquarters buildings on the same date, see the Leases footnote for discussion of the sale and leaseback transaction.

The Company leased back the headquarters buildings on the same date;

see the Leases footnote for discussion of the sale and leaseback transaction.

In the second quarter of 2020, the Company monetized wage subsidy receivables outside the U.S.

for $ 16.9 million, net of fees and 5 % retainer.

The sale of these receivables was accounted for as a sale of financial assets with certain recourse provisions in which we derecognized the receivables.

Although the sale of receivables is with recourse, the Company did not record a recourse obligation as of the second quarter 2020 as the Company has concluded the receivables are collectible.

The net cash proceeds related to the sale are included in operating activities in the consolidated statements of cash flows and the fees related to the sale are included in SG&A expenses in the consolidated statements of earnings.

Gain on sale of assets of $ 12.3 million in the second quarter of 2019 primarily represents the sale of unused land located near the Company headquarters, and includes the excess of the $ 11.7 million sale proceeds over the cost of the parcel.

The gain on sale of assets also includes proceeds of $ 2.1 million from the transfer of customer contracts related to the Company's legal specialty operations to a third party during the second quarter of 2019.

Other Income (Expense), Net

Included in other income (expense), net for the first quarter 2020 and 2019 are the following:

First Quarter

Included in other income (expense), net for the second quarter and June year to date 2020 and 2019 are the following:

Second Quarter June Year to Date

2020 2019 2020 2019

(In millions of dollars)

2 unchanged sentences

Dividend income 1.3 1.3 1.3 1.3

Foreign exchange gain (loss) 2.4 ( 0.6 )

Foreign exchange gains (losses) 1.3 ( 0.1 ) 3.7 ( 0.7 )

Other 0.7 — 0.6 0.4

Other income (expense), net $ 2.6 $ 0.2 $ 4.3 $ ( 0.9 )

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Income tax expense was $ 0.9 million and $ 12.7 million for the second quarter of 2020 and 2019, respectively.

Income tax benefit was $ 35.3 million and expense was $ 19.1 million for June year to date 2020 and 2019, respectively.

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in a charge of $ 9.1 million for the second quarter of 2020 and a benefit of $ 14.8 million for June year to date 2020, compared to a charge of $ 18.7 million for the second quarter of 2019 and $ 22.8 million for June year to date 2019.

The second quarter of 2020 benefited $ 7.7 million from Brazil outside basis differences, while the second quarter of 2019 had a net benefit of $ 10.4 million from valuation allowance changes in the United Kingdom and Germany.

June year to date 2020 includes a tax benefit of $ 23.0 million on the impairment of goodwill.

Our tax expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S.

work opportunity credits and the change in cash surrender value of tax exempt investments in life insurance policies.

It is also affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law changes, changes in judgment regarding the realizability of deferred tax assets, the tax effects of stock compensation, and changes in the fair value of the Company’s investment in Persol Holdings, which are treated as discrete since they cannot be estimated.

The impairment of goodwill in the first quarter of 2020 and the Brazil outside basis differences in the second quarter of 2020 were treated as discrete items.

The work opportunity credit program is a temporary provision in the U.S.

tax law and expires for employees hired after 2020.

While the program has routinely been extended, it is uncertain whether it will again be extended.

In the event the program is not renewed, we will continue to receive credits for qualified employees hired prior to 2021.

The impact of the current economic slow-down resulting from the COVID-19 crisis did not change our judgment on the realizability of deferred tax assets or our plans to repatriate cash from foreign subsidiaries.

The Company has operating and financing leases for field offices and various equipment.

13 unchanged sentences

$ 3.4 million in fiscal 2025 and $ 34.0 million thereafter.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Contingencies

2 unchanged sentences

Such accruals are recorded in accounts payable and accrued liabilities and in accrued workers’ compensation and other claims in the consolidated balance sheet.

At first quarter-end 2020 and year-end 2019, the gross accrual for litigation costs amounted to $ 2.9 million and $ 9.9 million, respectively.

At second quarter-end 2020 and year-end 2019, the gross accrual for litigation costs amounted to $ 2.9 million and $ 9.9 million, respectively.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company maintains insurance coverage which may cover certain claims.

When claims exceed the applicable policy deductible and realization of recovery of the claim from existing insurance policies is deemed probable, the Company records receivables from the insurance company for the excess amount, which are included in prepaid expenses and other current assets in the consolidated balance sheet.

At first quarter-end 2020 and year-end 2019, the related insurance receivables amounted to $ 0.3 million and $ 4.1 million, respectively.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is $ 0.0 million to $ 2.4 million as of first quarter-end 2020.

At second quarter-end 2020 and year-end 2019, the related insurance receivables amounted to $ 0.0 million and $ 4.1 million, respectively.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is $ 0.0 million to $ 1.4 million as of second quarter-end 2020.

This range includes matters where a liability has been accrued but it is reasonably possible that the ultimate loss may exceed the amount accrued and for matters where a loss is believed to be reasonably possible, but a liability has not been accrued.

5 unchanged sentences

While we believe the balance of approximately $ 10 million is collectible, there is a reasonably possible risk of an unfavorable outcome.

Income tax benefit was $ 36.2 million for the first quarter of 2020 and income tax expense was $ 6.4 million for the first quarter of 2019.

The first quarter of 2020 includes a tax benefit of $ 23.0 million on the impairment of goodwill and a tax benefit of $ 23.8 million for the loss on the Company's investment in Persol Holdings, compared with tax expense in the first quarter of 2019 of $ 4.1 million from a gain on this investment.

The first quarter of 2020 benefit was partially offset by losses on tax exempt investments in life insurance policies and income from the sale of assets discussed in the Sale of Assets footnote.

Our tax expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S.

work opportunity credits and the change in cash surrender value of tax exempt investments in life insurance policies.

The first quarter of 2020 impairment of goodwill was treated as discrete.

The work opportunity credit program is a temporary provision in the U.S.

tax law and expires for employees hired after 2020.

While the program has routinely been extended, it is uncertain whether it will again be extended.

In the event the program is not renewed, we will continue to receive credits for qualified employees hired prior to 2021.

The impact of the current economic slow-down resulting from the COVID-19 crisis did not begin until March 2020.

At the end of the first quarter, the impact of the pandemic did not change our judgement on the realizability of deferred tax assets or our plans to repatriate cash from foreign subsidiaries.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Segment Disclosures

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Consistent with the information provided to and evaluated by the CODM, the goodwill impairment charge in the first quarter of 2020 is included in Corporate expenses.

The following tables present information about the reported revenue from services and gross profit of the Company by segment, along with a reconciliation to consolidated earnings (loss) before taxes and equity in net earnings (loss) of affiliate, for the first quarter 2020 and 2019.

Asset information by reportable segment is not presented, since the Company does not produce such information internally nor does it use such data to manage its business.

First Quarter

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Beginning in the third quarter of 2020, in connection with the adoption of a new operating model reflecting the Company's focus on delivering specialty talent solutions, the Company will be revising the reportable segments and recasting prior year reportable segment results.

Second Quarter June Year to Date

2020 2019 2020 2019

(In millions of dollars)

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Consolidated Total $ 975.3 $ 1,367.5 $ 2,236.4 $ 2,750.1

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

First Quarter

Second Quarter June Year to Date

2020 2019 2020 2019

(In millions of dollars)

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Americas Staffing SG&A expenses ( 69.7 ) ( 93.2 ) ( 163.2 ) ( 194.4 )

Americas Staffing Earnings from Operations 0.1 16.0

Americas Staffing earnings (loss) from operations ( 6.3 ) 15.6 ( 6.2 ) 31.6

Global Talent Solutions gross profit 103.0 99.7 203.2 200.1

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International Staffing SG&A expenses ( 25.1 ) ( 32.6 ) ( 54.4 ) ( 63.9 )

International Staffing Earnings from Operations 0.6 3.3

International Staffing earnings (loss) from operations ( 1.9 ) 3.5 ( 1.3 ) 6.8

Intersegment gross profit ( 0.4 ) ( 0.6 ) ( 0.8 ) ( 1.2 )

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Earnings (loss) before taxes and equity in net earnings (loss) of affiliate $ 43.3 $ 96.2 $ ( 144.6 ) $ 125.1

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

New Accounting Pronouncements

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This presentation is consistent with the presentation of the prepayment of fees for the hosting arrangement.

During the first quarter of 2020, we recognized $ 0.1 million of amortization expense for capitalized implementation costs incurred in hosting arrangements as a component of SG&A expenses in our consolidated statements of earnings.

During the first quarter of 2020, we recognized $ 0.9 million of payments for capitalized implementation costs in the same manner as payments made for fees associated with the related hosting arrangements as a component of net cash from operating activities in our consolidated statements of cash flows.

We recognized $ 0.2 million of amortization expense for capitalized implementation costs incurred in hosting arrangements June year to date 2020 as a component of SG&A expenses in our consolidated statements of earnings.

We recognized $ 2.0 million of payments for capitalized implementation costs June year to date 2020 in the same manner as payments made for fees associated with the related hosting arrangements as a component of net cash from operating activities in our consolidated statements of cash flows.

The Company's cloud computing arrangements are comprised of internal-use software platforms accounted for as service contracts.

The Company does not have the ability to take possession of the software without significant penalty nor can the Company run the software on its own hardware or contract with another party unrelated to the vendor to host the software.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

In June 2016, the FASB issued ASU 2016-13 (ASC Topic 326), as clarified in ASU 2019-04, ASU 2019-05, ASU 2019-11 and ASU 2018-19, amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses.

Under this model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions and forecasted information rather than the current methodology of delaying recognition of credit losses until it is probable a loss has been incurred.

Under this model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions and forecasted information rather than the prior methodology of delaying recognition of credit losses until it is probable a loss has been incurred.

The standard also requires additional quantitative and qualitative disclosures regarding credit risk inherent in a reporting entity's portfolio, how management monitors this risk, management's estimate of expected credit losses, and the changes in the estimate that has taken place during the period.

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The guidance removes exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted.

The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

periods within those annual periods, with early adoption permitted.

We are currently evaluating the impact of the new guidance on our consolidated financial statements and related disclosures.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements