What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-06 · 275 added, 192 removed, 540 unchanged (46% of the section changed)

5 unchanged sentences

13 Weeks Ended 39 Weeks Ended

2020 June 30,

2019 June 28,

2020 June 30,

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Revenue from services $ 1,038.2 $ 1,267.7 $ 3,274.6 $ 4,017.8

23 unchanged sentences

13 Weeks Ended 39 Weeks Ended

2020 June 30,

2019 June 28,

2020 June 30,

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Net earnings (loss) $ 16.7 $ ( 10.5 ) $ ( 95.4 ) $ 95.4

Other comprehensive income (loss), net of tax:

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

Foreign currency translation adjustments, net of tax expense of $0.4, tax benefit of $0.2, tax expense of $0.0 and tax benefit of $0.1, respectively 5.1 ( 6.2 ) 0.4 ( 0.8 )

Reclassification adjustments included in net earnings ( 1.5 ) — ( 1.5 ) —

7 unchanged sentences

(In millions)

September 27,

2020 December 29,

23 unchanged sentences

(In millions)

September 27,

2020 December 29,

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13 Weeks Ended 39 Weeks Ended

2020 June 30,

2019 June 28,

2020 June 30,

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Capital Stock

37 unchanged sentences

39 Weeks Ended

2020 June 30,

September 27,

2020 September 29,

Cash flows from operating activities:

5 unchanged sentences

Operating lease asset amortization 15.9 16.9

Provision for bad debts 0.1 1.8

Provision for credit losses and sales allowances 10.7 3.2

Stock-based compensation 2.9 4.7

7 unchanged sentences

Capital expenditures ( 12.3 ) ( 13.8 )

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

Proceeds from sale of assets 55.5 13.8

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

Proceeds from company-owned life insurance 2.3 3.0

Proceeds from sale of Brazil, net of cash disposed 1.2 —

Loans to equity affiliate — ( 4.4 )

Investment in equity securities ( 0.2 ) ( 1.0 )

Other investing activities 0.2 —

18 unchanged sentences

39 Weeks Ended

2020 June 30,

September 27,

2020 September 29,

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 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.

The Company’s third fiscal quarter ended on September 27, 2020 (2020) and September 29, 2019 (2019), each of which contained 13 weeks.

The corresponding September year to date periods for 2020 and 2019 each contained 39 weeks.

Noncurrent accrued payroll and related taxes of $ 75.7 million in the consolidated balance sheet as of third quarter-end 2020 represent deferred U.S.

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

Approximately half of the balance is expected to be paid by the end of fiscal 2021, with the remaining amount expected to be paid by the end of fiscal 2022.

As discussed in the Segment Disclosures footnote, the Company has changed its reportable segments during the third quarter of 2020.

As a result, certain reclassifications have been made to the prior year's financial statements to conform to the current year's presentation.

KELLY SERVICES, INC.

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Revenue Disaggregated by Service Type

Staffing solutions can be branch-delivered (Americas and EMEA regions) or centrally delivered (within Global Talent Solutions ("GTS")).

Our Americas Staffing segment is organized to deliver services in a number of specialty staffing solutions, which are summarized as:

commercial, specialized professional/technical ("PT") and educational staffing.

Permanent placement solutions can be branch-delivered (Americas and EMEA regions) or centrally delivered (within GTS).

In addition to centrally delivered staffing services, our GTS segment also includes talent solutions (contingent workforce outsourcing "CWO," payroll process outsourcing "PPO," and recruitment process outsourcing "RPO,") and outcome-based services (business process outsourcing "BPO," KellyConnect, career transition/outplacement services and talent advisory services).

Kelly has five specialty segments:

Professional & Industrial (“P&I” formerly Commercial), Science, Engineering & Technology (“SET”), Education, Outsourcing & Consulting Group ("Outsourcing & Consulting," "OCG") and International.

Other than OCG, each segment delivers talent through staffing services, permanent placement or outcome-based services.

Our OCG segment delivers talent solutions including managed service provider ("MSP"), payroll process outsourcing ("PPO"), recruitment process outsourcing ("RPO"), and talent advisory services.

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

Second Quarter June Year to Date

Third Quarter September Year to Date

2020 2019 2020 2019

Branch-Delivered Staffing

Americas Staffing

Staffing Solutions

Commercial $ 233.6 $ 384.1 $ 542.1 $ 776.6

Education 25.2 117.4 168.3 257.0

Professional/Technical 63.8 87.3 139.2 172.8

Professional & Industrial

Staffing services $ 341.3 $ 445.0 $ 1,033.1 $ 1,398.5

Permanent placement 2.3 4.2 7.0 14.4

Total Americas Staffing 326.7 597.6 860.1 1,224.1

International Staffing

Staffing Solutions 181.4 261.7 403.3 513.9

Outcome-based services 102.9 88.8 306.6 255.8

Total Professional & Industrial 446.5 538.0 1,346.7 1,668.7

Science, Engineering & Technology

Staffing services 181.6 213.5 562.3 646.7

Permanent placement 3.1 4.3 9.0 11.8

Total International Staffing 184.6 268.1 412.2 527.0

Global Talent Solutions

Talent Fulfillment

Staffing Solutions 216.5 258.2 461.0 513.8

Outcome-based services 59.3 67.4 190.2 201.2

Total Science, Engineering & Technology 244.0 285.2 761.5 859.7

Staffing services 27.4 56.9 194.9 313.3

Permanent placement 0.1 0.2 0.2 0.6

Total Education 27.5 57.1 195.1 313.9

Outsourcing & Consulting

Talent solutions 87.9 94.4 261.0 282.3

Total Talent Fulfillment 297.1 352.0 628.1 697.6

Outcome-Based Services 169.8 153.9 342.0 309.3

Total Global Talent Solutions 466.9 505.9 970.1 1,006.9

Total Outsourcing & Consulting 87.9 94.4 261.0 282.3

International

Staffing services 228.8 287.0 697.9 873.6

Permanent placement 3.6 6.4 12.7 20.0

Total International 232.4 293.4 710.6 893.6

Total Intersegment ( 0.1 ) ( 0.4 ) ( 0.3 ) ( 0.4 )

5 unchanged sentences

Our operations are subject to different economic and regulatory environments depending on geographic location.

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

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.

Our P&I and Education segments operate in the Americas region, our SET segment operates in the Americas and Europe regions, and OCG operates in the Americas, Europe and Asia-Pacific regions.

The International segment includes Europe and our Brazil and Mexico operations, which are included in the Americas region.

Our Brazil operations were sold in August 2020 (see Acquisitions and Disposition footnote).

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

Second Quarter June Year to Date

Third Quarter September Year to Date

2020 2019 2020 2019

4 unchanged sentences

Brazil 1.8 8.4 17.0 25.1

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

Total Americas Region 818.5 997.4 2,609.6 3,186.5

Switzerland 49.6 50.6 141.2 150.0

France 48.8 59.7 141.2 188.6

Russia 29.3 28.8 61.4 54.2

Portugal 31.7 44.0 99.1 135.5

Russia 27.2 29.9 88.6 84.1

United Kingdom 16.4 24.9 56.5 81.6

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Other 12.0 16.6 38.7 51.5

Total EMEA 194.2 278.9 431.8 548.9

Total APAC 6.8 6.6 13.5 12.1

Total Europe Region 212.1 262.8 643.9 811.7

Total Asia-Pacific Region 7.6 7.5 21.1 19.6

Total Kelly Services, Inc.

$ 1,038.2 $ 1,267.7 $ 3,274.6 $ 4,017.8

Deferred Costs

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The below table presents our SET, OCG and International segment revenues disaggregated by geographic region (in millions):

Third Quarter September Year to Date

2020 2019 2020 2019

Science, Engineering & Technology

Americas $ 242.8 $ 283.2 $ 757.3 $ 852.3

Europe 1.2 2.0 4.2 7.4

Total Science, Engineering & Technology $ 244.0 $ 285.2 $ 761.5 $ 859.7

Outsourcing & Consulting

Americas $ 72.9 $ 78.9 $ 215.9 $ 238.2

Europe 7.4 8.0 24.0 24.5

Asia-Pacific 7.6 7.5 21.1 19.6

Total Outsourcing & Consulting $ 87.9 $ 94.4 $ 261.0 $ 282.3

International

Americas $ 28.9 $ 40.5 $ 94.9 $ 113.8

Europe 203.5 252.9 615.7 779.8

Total International $ 232.4 $ 293.4 $ 710.6 $ 893.6

Deferred Costs

Deferred sales commissions, which are included in other assets in the consolidated balance sheet, were $ 1.0 million as of third quarter-end 2020 and $ 1.5 million as of year-end 2019.

Amortization expense for the deferred costs for the third quarter and September year to date 2020 was $ 0.2 million and $ 0.8 million, respectively.

Amortization expense for the deferred costs for the third quarter and September year to date 2019 was $ 0.4 million and $ 1.3 million, respectively.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 4.0 million as of third quarter-end 2020 and $ 3.6 million as of year-end 2019.

Amortization expense for the deferred costs for the third quarter and September year to date 2020 was $ 5.3 million and $ 14.9 million, respectively.

Amortization expense for the deferred costs for the third quarter and September year to date 2019 was $ 3.8 million and $ 10.3 million, respectively.

Credit Losses

7 unchanged sentences

The Company reviews the adequacy of the allowance for uncollectible accounts receivable on a quarterly basis and, if necessary, increases or decreases the balance by recording a charge or credit to selling, general and administrative ("SG&A") expenses for the portion of the adjustment relating to uncollectible accounts receivable, and a charge or credit to revenue from services for the portion of the adjustment relating to sales allowances.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Allowance for Credit Losses - Other Financial Assets The Company measures expected credit losses on qualified financial assets that do not result from revenue transactions using a probability of default method by type of financing receivable.

7 unchanged sentences

We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.

We are engaged in litigation with a customer over a disputed accounts receivable balance of approximately $ 10 million for certain services rendered more than five years ago, which is recorded as a long-term receivable in other assets in the consolidated balance sheet.

In September 2020, a ruling was issued in favor of the customer, which we have appealed.

Upon receiving the ruling, we increased our allowance for credit losses by $ 9.2 million to reflect the likelihood of collection, which is recorded in other assets in the consolidated balance sheet.

We are also exposed to credit losses from our loan to PersolKelly Pte.

and other receivables measured at amortized cost.

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

No other allowances related to the loan or other receivables were material for September year to date 2020.

See Investment in PersolKelly Pte.

footnote for more information on the loan to PersolKelly Pte.

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

June Year to Date

Allowance for bad debt:

The rollforward of our allowance for credit losses related to trade accounts receivable, which is recorded in trade accounts receivable, less allowance in the consolidated balance sheet, is as follows (in millions):

September Year to Date

Allowance for credit losses:

Beginning balance $ 9.7

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Ending balance $ 9.4

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.

Write-offs are presented net of recoveries, which were not material for September year to date 2020.

The rollforward of our allowance for credit losses related to the long-term customer receivable, which is recorded in other assets in the consolidated balance sheet, is as follows (in millions):

September Year to Date

Allowance for credit losses:

Beginning balance $ 1.0

Impact of adopting ASC 326 0.7

Current period provision 9.5

Currency exchange effects ( 0.3 )

Ending Balance $ 10.9

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Acquisitions and Disposition

In the first quarter of 2020, Kelly Services USA, LLC, a wholly owned subsidiary of the Company, acquired Insight Workforce Solutions LLC and its affiliate, Insight EDU LLC (collectively, "Insight"), as detailed below.

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The purchase price of the acquisition also includes contingent consideration with an estimated fair value of $ 1.6 million related to an earnout payment in the event certain conditions are met per the terms of the agreement.

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.

The initial fair value of the earnout was established using a Monte Carlo simulation and the liability is recorded in accounts payable and accrued liabilities in the consolidated balance sheet (see Fair Value Measurements footnote).

In the third quarter of 2020, the earnout was revalued, resulting in an increase to the liability of $ 0.5 million.

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

1 unchanged sentence

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

Insight's results of operations are included in the Americas Staffing segment.

Insight's results of operations are included in the Education segment.

Pro forma results of operations for this acquisition have not been presented as it is not material to the consolidated statements of earnings.

13 unchanged sentences

The customer relationships will be amortized over 10 years with no residual value.

Goodwill generated from the acquisition is primarily attributable to the expected synergies from combining operations and expanding market potential, and is assigned to the Americas Staffing reporting unit (see Goodwill footnote).

Goodwill generated from the acquisition was primarily attributable to the expected synergies from combining operations and expanding market potential, and was assigned to the Americas Staffing reporting unit (see Goodwill footnote).

The amount of goodwill expected to be deductible for tax purposes is approximately $ 18.6 million.

NextGen Global Resources

On January 2, 2019, the Company acquired 100 % of the membership interests of NextGen, a leading provider of telecommunications staffing solutions, for a purchase price of $ 51.0 million.

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 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)

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).

NextGen Global Resources

On January 2, 2019, the Company acquired 100 % of the membership interests of NextGen, a leading provider of telecommunications staffing solutions, for a purchase price of $ 51.0 million.

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

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

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 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).

Due to the date of the acquisition, the third quarter and September year to date 2019 actual results represent the third quarter and September 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 was assigned to the GTS reporting unit (see Goodwill footnote).

As noted above, goodwill related to these acquisitions was assigned to the Americas Staffing and GTS reporting units and was included in the goodwill impairment charge taken in the first quarter of 2020.

The goodwill impairment charge resulted from an interim goodwill impairment test triggered by declines in our common stock price as a result of negative market reaction to the COVID-19 crisis (see Goodwill footnote).

On August 18, 2020, the Company sold its Brazil operations for a purchase price of $ 1.4 million.

The Company received cash proceeds of $ 1.2 million, net of cash disposed.

As a part of the transaction, the Company has agreed to indemnify the buyer for losses and costs incurred in connection with certain events or occurrences initiated within a six-year period after closing.

The aggregate losses for which the Company will provide indemnification shall not exceed $ 8.8 million.

Accordingly, the Company recorded an indemnification liability of $ 2.5 million in other long-term liabilities in the consolidated balance sheet, which represents the fair value of the liability (see Fair Value Measurements footnote) and completely offset the gain on the sale.

Investment in Persol Holdings

2 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 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.

A gain on the investment of $ 16.8 million and a loss on the investment of $ 31.4 million in the third quarter and September year to date 2020, respectively, and a loss on the investment of $ 39.3 million and a gain on the investment of $ 35.1 million in the third quarter and September year to date 2019, respectively, was recorded in gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 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.

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 gain of $ 1.8 million and a loss of $ 1.0 million in the third quarter and September year to date 2020, respectively, and a loss of $ 0.9 million and $ 1.0 million in the third quarter and September year to date 2019, respectively.

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 $ 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 investment in equity affiliate on the Company’s consolidated balance sheet totaled $ 115.6 million as of third quarter-end 2020 and $ 117.2 million as of year-end 2019.

The net amount due from the JV, a related party, was $ 10.9 million as of the third quarter-end 2020 and 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 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 loans, which are outstanding as of third quarter-end 2020, are included in the net amounts due from the JV.

Subsequent to the third quarter of 2020, the JV repaid $ 5.6 million of the outstanding loan balance;

therefore, as of the third quarter-end 2020, $ 5.6 million of the loan balance is included in prepaid expenses and other current assets, and the remaining balance is included in other assets in the consolidated balance sheet.

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

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.

Accrued interest receivable, which is included in prepaid expenses and other current assets in the consolidated balance sheet, was not material at third quarter-end 2020 and year-end 2019.

The JV is a supplier to certain MSP programs in the region and the amounts for services provided to the Company, which are included in trade accounts payable in the consolidated balance sheet, are not material.

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 second quarter-end 2020.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The allowance was not material at the third quarter-end 2020.

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

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Trade accounts receivable, short-term borrowings, accounts payable, accrued liabilities and accrued payroll and related taxes approximate their fair values due to the short-term maturities of these assets and liabilities.

Assets Measured at Fair Value on a Recurring Basis

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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present assets and liabilities measured at fair value on a recurring basis as of third 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 Second Quarter-End 2020

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of Third Quarter-End 2020

Description Total Level 1 Level 2 Level 3

3 unchanged sentences

Total assets at fair value $ 299.3 $ 299.3 $ — $ —

Brazil indemnification ( 2.5 ) — — ( 2.5 )

Insight earnout ( 2.1 ) — — ( 2.1 )

Total liabilities at fair value $ ( 4.6 ) $ — $ — $ ( 4.6 )

As of Year-End 2019

4 unchanged sentences

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

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.

Money market funds as of third quarter-end 2020 and year-end 2019 represent investments in money market funds that hold government securities, of which $ 5.3 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 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 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 third 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 $ 19.3 million as of the second 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 $ 19.6 million as of the third quarter-end 2020 and $ 18.9 million at year-end 2019.

As of third quarter-end 2020, the Company had an indemnification liability of $ 2.5 million in other long-term liabilities on the consolidated balance sheet related to the sale of the Brazil operations (see Acquisitions and Disposition footnote).

The valuation of the indemnification liability was established using a discounted cash flow methodology based on probability weighted-average cash flows discounted by weighted-average cost of capital.

The valuation, which represents the fair value, is considered a level 3 liability, and will be measured on a recurring basis.

During the third quarter and September year to date 2020, the Company recognized $ 2.5 million in expenses related to the indemnification liability in other income (expense), net in the consolidated statements of earnings.

In connection with the first quarter 2020 acquisition of Insight, the Company has recorded an earnout liability totaling

$ 2.1 million as of third quarter-end 2020 in accounts payable and accrued liabilities in the consolidated balance sheet (see Acquisitions and Disposition footnote).

The valuation of the earnout liability was initially established using a Monte Carlo simulation and represents the fair value and is considered a level 3 liability.

The Company recognized $ 0.5 million of expense related to the earnout liability in the third quarter of 2020, in SG&A expenses in the consolidated statements of earnings.

KELLY SERVICES, INC.

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

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

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

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

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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 second 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 third 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

Due to the negative market reaction to the COVID-19 crisis, including declines in our common stock price, management determined that a triggering event occurred during the first quarter of 2020.

We therefore performed an interim step one quantitative impairment test for both of our reporting units with goodwill, Americas Staffing and GTS.

We therefore performed an interim step one quantitative impairment test for both of our previous reporting units with goodwill.

As a result of this quantitative assessment, we determined that the estimated fair value of the reporting units no longer exceeded the carrying value, and recorded a goodwill impairment charge of $ 147.7 million in the first quarter of 2020 (see Goodwill footnote).

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Lease Termination Costs Severance Costs Total

Americas Staffing $ 4.1 $ 1.4 $ 5.5

Global Talent Solutions — 0.8 0.8

International Staffing 0.7 0.4 1.1

Professional & Industrial $ 3.5 $ 0.8 $ 4.3

Science, Engineering & Technology 0.5 — 0.5

Education 0.1 0.7 0.8

International 0.7 0.4 1.1

Corporate — 1.7 1.7

5 unchanged sentences

Balance as of year-end 2019 $ 0.3

Additions charged to Americas Staffing 5.6

Additions charged to Global Talent Solutions 0.9

Additions charged to International Staffing 1.1

Additions charged to Professional & Industrial 4.4

Additions charged to Science, Engineering & Technology 0.5

Additions charged to Education 0.9

Additions charged to International 1.1

Additions charged to Corporate 1.8

5 unchanged sentences

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.

Reductions for cash payments related to all restructuring activities ( 0.8 )

Accrual adjustments ( 0.1 )

Balance as of third quarter-end 2020 $ 0.7

The remaining balance of $ 0.7 million as of third 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.

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.

The Company performs its annual goodwill impairment testing in the fourth quarter each year and regularly assesses whenever events or circumstances make it more likely than not that an impairment may have occurred.

During the first quarter of 2020, negative market reaction to the COVID-19 crisis, including declines in our common stock price, caused our market capitalization to decline significantly compared to the fourth quarter of 2019, causing a triggering event.

Therefore, we performed an interim step one quantitative test for reporting units with goodwill, Americas Staffing and GTS, and determined that the estimated fair values of both reporting units no longer exceeded their carrying values.

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.

Therefore, we performed an interim step one quantitative test for our previous reporting units with goodwill, Americas Staffing and GTS, and determined that the estimated fair values of both reporting units no longer exceeded their carrying values.

Based on the result of our interim goodwill impairment test as of the 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.

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

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

Due to the complete write-off of goodwill in the first quarter of 2020, reallocation of goodwill to the new reporting units as part of the third quarter 2020 change in segment reporting (see Segment Disclosures footnote) was not necessary.

There were no additions to goodwill during the third quarter of 2020.

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

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Total $ 127.8 $ 19.9 $ ( 147.7 ) $ —

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accumulated Other Comprehensive Income (Loss)

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.

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

Amounts in parentheses indicate debits.

Second Quarter June Year to Date

Reclassification adjustments out of accumulated other comprehensive income (loss), as shown in the table below, were recorded in the other income (expense), net line item in the consolidated statements of earnings.

Third Quarter September Year to Date

2020 2019 2020 2019

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Total accumulated other comprehensive income (loss) $ ( 16.9 ) $ ( 17.9 ) $ ( 16.9 ) $ ( 17.9 )

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

Third Quarter September Year to Date

2020 2019 2020 2019

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Diluted earnings (loss) per share $ 0.42 $ ( 0.27 ) $ ( 2.43 ) $ 2.41

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Dividends paid per share for Class A and Class B common stock were $ 0.00 for the third quarter 2020, $ 0.075 for the third quarter 2019 and September year to date 2020, and $ 0.225 for September year to date 2019.

Stock-Based Compensation

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.

For the third quarter of 2020, the Company recognized stock compensation expense of $ 0.5 million, and related tax benefit of $ 0.2 million.

For the third quarter of 2019, the Company recognized stock compensation benefit of $ 0.5 million, and related tax benefit of $ 0.4 million.

For September year to date 2020, the Company recognized stock compensation expense of $ 2.9 million, and related tax benefit of $ 0.2 million.

For September year to date 2019, the Company recognized stock compensation expense of $ 4.7 million, and related tax benefit of $ 1.1 million.

Performance Shares

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.

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

There has been no grant of performance shares since year-end 2019.

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

The majority of the forfeited shares in the table below is related to the separation of two former senior officers during the third quarter of 2020.

The vesting adjustment in the table below represents the 2017 Total Shareholder Return ("TSR") performance shares that did not vest because actual achievement was below the threshold level and resulted in no payout.

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Vesting adjustment — — ( 62 ) 20.15

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

Nonvested at third quarter-end 2020 251 $ 22.32 47 $ 31.38

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2018 Grant Update

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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 second quarter-end 2020 and year-to-date changes is presented as follows below (in thousands of shares except per share data).

A summary of the status of nonvested restricted stock as of third 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.

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Forfeited ( 30 ) 24.64

Nonvested at second quarter-end 2020 297 $ 22.98

Nonvested at third quarter-end 2020 280 $ 22.91

Sale of Assets

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 third 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.

On March 20, 2020, the Company sold three of our four headquarters properties for a purchase price of $ 58.5 million as a part of a sale and leaseback transaction.

The properties include the parcels of land, together with all rights and easements, in addition to all improvements located on the land, including buildings.

The Company received cash proceeds of $ 55.5 million, which is net of transaction expenses.

The properties included the parcels of land, together with all rights and easements, in addition to all improvements located on the land, including buildings.

The Company received cash proceeds of $ 55.5 million, which was net of transaction expenses.

As of the date of the sale, the properties had a combined net carrying amount of $ 23.4 million.

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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.

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.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other Income (Expense), Net

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

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

Third Quarter September Year to Date

2020 2019 2020 2019

6 unchanged sentences

Other income (expense), net $ ( 0.7 ) $ ( 0.2 ) $ 3.6 $ ( 1.1 )

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.

Income tax benefit was $ 1.2 million and $ 12.8 million for the third quarter of 2020 and 2019, respectively.

Income tax benefit was $ 36.5 million and expense was $ 6.3 million for September 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 $ 5.2 million for the third quarter of 2020 and a benefit of $ 9.6 million for September year to date 2020, compared to a benefit of $ 12.1 million for the third quarter of 2019 and a charge of $ 10.7 million for September year to date 2019.

September year to date 2020 includes a tax benefit of $ 23.0 million on the impairment of goodwill and a second quarter tax benefit of $ 7.7 million from Brazil outside basis differences.

September year to date 2019 includes a second quarter net benefit of $ 10.4 million from valuation allowance changes in the United Kingdom and Germany.

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

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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 impairment of goodwill in the first quarter of 2020, the recording of deferred taxes on Brazil outside basis differences in the second quarter of 2020, and the valuation allowance changes in the second quarter of 2019 were treated as discrete items.

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

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No adjustment to the beginning balance of earnings invested in the business was necessary as a result of adopting this standard.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

During the first quarter 2020, the Company sold its main headquarters building and entered into a leaseback agreement, which is accounted for as an operating lease.

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

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)

At third quarter-end 2020 and year-end 2019, the gross accrual for litigation costs amounted to $ 0.8 million and $ 9.9 million, respectively.

The decrease in the gross accrual from year-end 2019 was due to cash payments made and the liabilities related to our Brazil operations which were sold during 2020.

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 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.

At third 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 third 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.

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While the ultimate outcome of these matters cannot be predicted with certainty, we believe that the resolution of any such proceedings will not have a material adverse effect on our financial condition, results of operations or cash flows.

We are also currently engaged in litigation with a customer over a disputed accounts receivable balance for certain services rendered, which is recorded as a long-term receivable in other assets in the consolidated balance sheet.

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

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Segment Disclosures

The Company’s segments are based on the organizational structure for which financial results are regularly evaluated by the Company’s chief operating decision-maker ("CODM", the Company’s CEO) to determine resource allocation and assess performance.

The Company’s three reportable segments, (1) Americas Staffing, (2) GTS and (3) International Staffing, reflect how the Company delivers services to customers and how its business is organized internally.

Beginning in the third quarter of 2020, the Company adopted a new operating model reflecting the Company's focus on delivering specialty talent solutions.

The Company’s new operating segments, which also represent its reporting segments, are based on the organizational structure for which financial results are regularly evaluated by the Company’s chief operating decision-maker ("CODM", the Company’s CEO) to determine resource allocation and assess performance.

The Company’s five reportable segments, (1) Professional & Industrial, (2) Science, Engineering & Technology, (3) Education, (4) Outsourcing & Consulting, and (5) International, reflect the specialty services the Company provides to customers and represent how the business is organized internally.

Intersegment revenue represents revenue earned between the reportable segments and is eliminated from total segment revenue from services.

Americas Staffing represents the Company’s branch-delivered staffing business in the U.S., Canada, Puerto Rico, Mexico and Brazil.

International Staffing represents the EMEA region branch-delivered staffing business.

Americas Staffing and International Staffing both deliver temporary staffing, as well as direct-hire placement services, in office-clerical, light industrial, and professional/technical specialties within their geographic regions.

Americas Staffing also includes educational staffing in the U.S.

GTS combines the delivery structure of the Company’s outsourcing and consulting group and centrally delivered staffing business.

It reflects the trend of customers towards the adoption of holistic talent solutions which combine contingent labor, full-time hiring and outsourced services.

GTS includes centrally delivered staffing, RPO, CWO, BPO, PPO, KellyConnect, career transition/outplacement services and talent advisory services.

Corporate expenses that directly support the operating units have been allocated to Americas Staffing, GTS and International Staffing based on work effort, volume or, in the absence of a readily available measurement process, proportionately based on gross profit realized.

Professional & Industrial specializes in delivering professional and industrial talent to customers including staffing, KellyConnect, and outcome-based solutions in the Americas region.

Science, Engineering & Technology delivers both staffing and outcome-based solutions in the specialty areas of science, technology, telecom and engineering primarily in the U.S.

Education primarily specializes in K-12 substitute teachers and support staff, as well as some early childhood and higher education support, in the Americas region.

Outsourcing & Consulting is focused on providing RPO, MSP and PPO solutions in the Americas, Europe and Asia-Pacific regions.

International provides talent to customers across all specialties primarily through staffing services within Europe as well as Brazil and Mexico in the Americas region.

Our Brazil operations were sold in August 2020 (see Acquisitions and Disposition footnote).

Corporate expenses that directly support the operating units have been allocated to Professional & Industrial, Science, Engineering & Technology, Education, Outsourcing & Consulting, and International based on work effort, volume or, in the absence of a readily available measurement process, proportionately based on gross profit realized.

Unallocated corporate expenses include those related to incentive compensation, law and risk management, certain finance and accounting functions, executive management, corporate campus facilities, IT production support, certain legal costs and expenses related to corporate initiatives that do not directly benefit a specific operating segment.

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 second quarter and June year to date 2020 and 2019.

The following tables present information about the reported revenue from services and gross profit of the Company by segment, along with a reconciliation to earnings (loss) before taxes and equity in net earnings (loss) of affiliate, for the third quarter and September year to date 2020 and 2019 based on the new operating model.

Prior year reportable segment results were recast to align with the current presentation.

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.

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

Third Quarter September Year to Date

2020 2019 2020 2019

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Revenue from Services:

Americas Staffing $ 326.7 $ 597.6 $ 860.1 $ 1,224.1

Global Talent Solutions 466.9 505.9 970.1 1,006.9

International Staffing 184.6 268.1 412.2 527.0

Professional & Industrial $ 446.5 $ 538.0 $ 1,346.7 $ 1,668.7

Science, Engineering & Technology 244.0 285.2 761.5 859.7

Education 27.5 57.1 195.1 313.9

Outsourcing & Consulting 87.9 94.4 261.0 282.3

International 232.4 293.4 710.6 893.6

Intersegment revenue ( 0.1 ) ( 0.4 ) ( 0.3 ) ( 0.4 )

Consolidated Total $ 1,038.2 $ 1,267.7 $ 3,274.6 $ 4,017.8

Second Quarter June Year to Date

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Third Quarter September Year to Date

2020 2019 2020 2019

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Earnings (loss) from Operations:

Americas Staffing gross profit $ 63.4 $ 108.8 $ 157.0 $ 226.0

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

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

Global Talent Solutions SG&A expenses ( 64.2 ) ( 74.3 ) ( 137.9 ) ( 149.0 )

Global Talent Solutions earnings from operations 38.8 25.4 65.3 51.1

International Staffing gross profit 23.2 36.1 53.1 70.7

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

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

Professional & Industrial gross profit $ 77.1 $ 91.8 $ 241.1 $ 291.6

Professional & Industrial SG&A expenses ( 65.3 ) ( 77.6 ) ( 210.4 ) ( 246.9 )

Professional & Industrial earnings (loss) from operations 11.8 14.2 30.7 44.7

Science, Engineering & Technology gross profit 50.7 58.3 156.0 171.8

Science, Engineering & Technology SG&A expenses ( 31.3 ) ( 36.0 ) ( 99.1 ) ( 111.4 )

Science, Engineering & Technology earnings (loss) from operations 19.4 22.3 56.9 60.4

Education gross profit 4.1 8.6 28.8 49.9

Education SG&A expenses ( 11.6 ) ( 13.8 ) ( 37.7 ) ( 41.5 )

Education earnings (loss) from operations ( 7.5 ) ( 5.2 ) ( 8.9 ) 8.4

Outsourcing & Consulting gross profit 29.1 29.5 87.1 90.7

Outsourcing & Consulting SG&A expenses ( 25.4 ) ( 29.1 ) ( 79.1 ) ( 90.9 )

Outsourcing & Consulting earnings (loss) from operations 3.7 0.4 8.0 ( 0.2 )

International gross profit 30.0 39.5 90.5 119.3

International SG&A expenses ( 39.9 ) ( 35.3 ) ( 101.4 ) ( 107.2 )

International earnings (loss) from operations ( 9.9 ) 4.2 ( 10.9 ) 12.1

Intersegment gross profit — — — —

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Earnings (loss) before taxes and equity in net earnings (loss) of affiliate $ 13.7 $ ( 22.4 ) $ ( 130.9 ) $ 102.7

KELLY SERVICES, INC.

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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.

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.

We recognized $ 0.3 million of amortization expense for capitalized implementation costs incurred in hosting arrangements September year to date 2020 as a component of SG&A expenses in our consolidated statements of earnings.

We recognized $ 3.6 million of payments for capitalized implementation costs September 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.

The Company does not have the ability to take possession of the software without

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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.

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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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 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.

Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.

Subsequent Event

In October 2020, management made the decision to begin reducing staffing levels in all segments and Corporate through involuntary terminations.

Restructuring charges of approximately $ 4 -$ 5 million for severance and related benefits to be paid to impacted employees will be recognized as a charge to SG&A expenses in the fourth quarter of 2020.

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