What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-18 compared with 2020-02-13 · 382 added, 252 removed, 196 unchanged (76% of the section changed)

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Executive Overview

The COVID-19 pandemic and related containment measures have resulted in dramatic shifts in most aspects of the economy and how professional and private lives are conducted.

While the pace of change was unprecedented and the resulting impacts are still being determined, our Noble Purpose, “We connect people to work in ways that enrich their lives,” will continue to guide our strategy and actions.

Kelly remains committed to being a leading talent solutions provider among the talent with whom we choose to specialize and in the global markets in which we choose to compete.

As we navigate the continued uncertainty, we will continue to demonstrate our expected behaviors and actions:

• Employ a talent-first mentality

• Relentlessly deliver for customers

• Grow through discipline and focus

• Deliver efficiency and effectiveness in everything we do

By aligning ourselves with our Noble Purpose and executing against these behaviors, we intend to weather the current situation and emerge as a more agile and focused organization, prepared to achieve new levels of growth and profitability as we further develop our portfolio of businesses.

The Talent Solutions Industry

Labor markets are in the midst of change due to automation, secular shifts in labor supply and demand and skills gaps.

Global demographic trends are reshaping and redefining the way in which companies find and use talent.

Prior to the COVID-19 pandemic, labor markets were in the midst of change due to automation, secular shifts in labor supply and demand and skills gaps, and we expect the current economic situation to further accelerate that change.

Global demographic trends are reshaping and redefining the way in which companies find and use talent and the COVID-19 pandemic is changing where and how companies expect work to be performed.

In response, the talent solutions industry is adjusting how it sources, recruits, trains and places talent.

Our industry is evolving to meet businesses’ growing demand for talent, whether delivered as a single individual or as part of a total workforce solution.

Companies in our industry are using novel sourcing approaches—including gig platforms, independent contractors and other talent pools—to create workforce solutions that are flexible, responsive to the labor market and tailored to meet clients’ needs.

Our industry is evolving to meet businesses’ growing demand for specialized talent, whether delivered as a single individual or as part of a total workforce solution.

Companies in our industry are using novel sourcing approaches—including gig platforms, independent contractors and other talent pools—to create customized workforce solutions that are flexible and responsive to the labor market.

In addition, today’s companies are elevating their commitment to talent, with the growing realization that meeting the changing needs and requirements of talent is essential to remain competitive.

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And as the demand for skilled talent continues to climb, workers’ changing ideas about the integration of work into life are becoming more important.

In this increasingly talent-driven market, a diverse set of workers, empowered by technology, is seeking to take greater control over their career trajectories.

Kelly Services is a talent and global workforce solutions company serving customers of all sizes in a variety of industries.

We offer innovative outsourcing and consulting services, as well as staffing on a temporary, temporary-to-hire and direct-hire basis.

We provide commercial and professional/technical staffing through our branch networks in our Americas Staffing and International Staffing segments and, in APAC, we provide staffing solutions to customers through PersolKelly Asia Pacific, our joint venture with Persol Holdings, a leading provider of HR solutions in Japan.

education market, Kelly Education is the leading provider of substitute teachers to more than 7,000 schools nationwide.

We also provide a suite of talent fulfillment and outcome-based solutions through our Global Talent Solutions (“GTS”) segment, which delivers integrated talent management solutions on a global basis.

GTS provides Contingent Workforce Outsourcing ("CWO"), Recruitment Process Outsourcing ("RPO"), Business Process Outsourcing ("BPO"), Advisory and Talent Fulfillment solutions to help customers plan for, manage and execute their acquisition of contingent labor, full-time labor and free agents, and gain access to service providers and qualified talent quickly, at competitive rates, with minimized risk.

In this increasingly talent-driven market, a diverse set of workers, empowered by technology, is seeking to take greater control over their career trajectories and Kelly’s Talent Promise confirms our responsibility to workers in search of a better way to work.

Kelly is a talent and global workforce solutions company serving customers of all sizes in a variety of industries.

We offer innovative outsourcing and consulting services, as well as staffing on a temporary and direct-hire basis.

At the beginning of the third quarter, we adopted our new Kelly Operating Model and realigned our business into five specialty business units which are also our reportable segments.

• Professional & Industrial – delivers staffing, outcome-based and direct-hire services focused on office, professional, light industrial and contact center specialties in the U.S.

and Canada, including our KellyConnect product

• Science, Engineering & Technology – delivers staffing, outcome-based and direct-hire services focused on science and clinical research, engineering, information technology and telecommunications specialties predominately in the U.S.

and Canada and includes our NextGen and Global Technology Associates subsidiaries

• Education – delivers staffing, direct-hire and executive search services to the K-12, early childhood and higher education markets in the U.S., and includes several acquisitions:

Teachers On Call, Insight Workforce Solutions and Greenwood/Asher & Associates

• Outsourcing & Consulting – delivers Master Service Provider ("MSP"), Recruitment Process Outsourcing ("RPO"), Business Process Outsourcing ("BPO") and Advisory Services to customers on a global basis

• International – delivers staffing and direct-hire services in fifteen countries in Europe, as well as Mexico

In addition, we provide staffing services to customers in the Asia-Pacific region through PersolKelly Pte.

Ltd., our joint venture with Persol Asia Pacific Pte.

Ltd, a wholly owned subsidiary of Persol Holdings, a leading provider of HR solutions in Japan.

We earn revenues from customers that procure the services of our temporary employees on a time and materials basis, that use us to recruit permanent employees, and that rely on our talent advisory and outsourcing services.

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Average days sales outstanding varies within and outside the U.S.

but was 58 days on a global basis as of the 2019 year end and 55 days as of the 2018 year end.

Since receipts from customers generally lag temporary employee payroll, working capital requirements increase substantially in periods of growth.

Our Strategic Intent and Outlook

Kelly is committed to being a leading talent solutions provider among the talent with whom we choose to specialize and in the markets in which we choose to compete, which is the foundation of our strategy in 2019 and beyond.

This strategic intent is underpinned by our Noble Purpose, “We connect people to work in ways that enrich their lives,” and is brought to life by our expected behaviors and actions:

• Employ a talent-first mentality

• Relentlessly deliver for customers

• Grow through discipline and focus

• Deliver efficiency and effectiveness in everything we do

By aligning ourselves with our Noble Purpose, executing against these strategic pillars and investing in additional innovation, we intend to reap the benefits of operating as a more agile and focused organization and we expect to achieve new levels of growth and profitability as we develop further specializations across our portfolio of businesses.

We have continued our progress as a talent solutions company and identified several specialty growth platforms for investment.

We expanded our engineering portfolio with the January 2, 2019 acquisition of Global Technology Associates, LLC (“GTA”) and NextGen Global Resources LLC (“NextGen”), leaders in the growing 5G telecommunications market.

These position Kelly as one of the leading engineering workforce solutions companies in this fast-growing market.

On January 14, 2020, we acquired Insight Workforce Solutions LLC, an educational staffing company, to expand our leadership position in the U.S.

education talent solutions industry.

We intend to further accelerate our efforts to drive revenue and earnings growth through additional inorganic growth platforms, making smart acquisitions that align with Kelly's focus on specialization.

We continue to make investments in technology, particularly those which support greater efficiency in finding talent to answer customer needs.

We are accelerating the implementation of our front office platforms, which, when fully deployed in mid-2020, will streamline the processes and workflows associated with recruiting, onboarding and reassigning workers.

This investment will create the platform from which we will deploy additional operational improvements over the next several years that will enhance the experience of the hundreds of thousands of job seekers who interact and work with Kelly each year.

We completed a review of our commercial staffing operations delivered by our U.S.

branch network in the first quarter of 2019 and reorganized our operations to improve geographic coverage and operational efficiency.

The new structure will allow us to refine our focus on specialties within the commercial staffing portfolio, including light industrial, electronic assembly, office professionals and contact center staffing.

During 2019, we recorded total restructuring charges of $5.5 million as a result of these actions.

While we have already gained efficiency from the restructure, the growth we anticipated has not yet occurred.

We remain committed to delivering revenue growth in our U.S.

market and have initiated further actions to modernize our operations and deliver on that commitment.

While faced with market conditions that may hamper our efforts, including a sluggish manufacturing sector and a tight labor market, Kelly continues to focus on accelerating the execution of our strategic plan and making the necessary investments and adjustments to advance that strategy.

Our objective is to become an even more agile, consultative and profitable company, and we are reshaping our business to make that goal a reality.

We will measure our progress using financial measures, including:

and was 64 days on a global basis as of the end of 2020 and 58 days as of the end of 2019.

Since receipts from customers generally lag temporary employee payroll, working capital requirements increase substantially in periods of growth and decline in periods of economic contraction.

Our Perspective

While far from certain, the impacts of COVID-19 on the global economy, the talent solutions industry, our customers and our talent have become more clear since the beginning of the pandemic.

Year-over-year revenue declines have been substantial and recent trends have pointed to a gradual recovery in demand.

In response to the crisis, in April 2020 we took a series of proactive actions.

These actions were designed to reduce spending, minimize layoffs, and bolster the strength and flexibility of Kelly’s finances.

These actions included:

• a 10% pay cut for full-time salaried employees in the U.S., Puerto Rico and Canada, in addition to certain actions in Europe and Asia-Pacific;

• substantially reduced CEO compensation and reduced compensation of 10% or more for senior leaders;

• temporary furloughing and/or redeployment of some employees until business conditions improve;

• suspension of the Company match to certain retirement accounts in the U.S.

and Puerto Rico;

• reduction of discretionary expenses and projects, including capital expenditures;

• a hiring freeze with the exception of critical revenue-generating positions.

The actions have generated substantial cost savings and have allowed us the time necessary to assess the variety of impacts the crisis has had on our business.

These initial actions were intentionally broad in scope and as we have moved forward our actions are becoming more targeted to the areas of business where demand declines have been more significant and persistent.

Actions such as the 10% pay cut, compensation adjustments for senior leaders and temporary furloughs were ended early in the fourth quarter of 2020.

The suspension of the Company match to retirement accounts ended in January 2021 and others such as reductions in discretionary spending, capital expenditures and carefully managing staffing levels in non-revenue generating positions will continue.

In addition, we benefited from CARES Act provisions allowing deferral of employer social security tax payments.

In the fourth quarter of 2020, management reduced staffing levels to align with expected revenue levels and incurred restructuring charges of $4.4 million for severance and related benefits to be paid to impacted employees, and are included in our fourth quarter results.

Given the level of uncertainty surrounding the duration of the COVID-19 crisis, Kelly’s board also voted to suspend the quarterly dividend effective May, 2020 until conditions improve and continues to assess future actions with respect to our dividend policy.

The impact of the pandemic began in March 2020 with the limitations on public life in the U.S.

and the European markets we serve and continued through the end of 2020 as the effect of the pandemic response slowed global economic activity.

We do expect that there will continue to be a material decline in our year-over-year revenues through the first quarter of 2021 as

demand for our services gradually recovers from the economic slowdown and the effects of customer and talent concerns related to operating safely during a pandemic.

The impact on the revenues of each segment will vary given the differences in pandemic-related measures enacted in each geography, the customer industries served and the skill sets of the talent provided to our customers and their ability to work remotely.

We currently expect a gradual return to pre-crisis levels of customer demand, however, the pace of such a return may be delayed by repeated cycles of increased economic activity and subsequent disruption caused by a resurgence in infection leading to additional containment measures.

In the first quarter of 2021, while our cost reduction efforts are expected to reduce year-over-year expenses, they will not be enough to completely offset declines in revenue and gross profit.

As a result, we expect our first quarter 2021 earnings to decline year-over-year.

For the full year of 2021, we expect that our revenue will reflect a continued gradual improvement in demand and result in improvements in year-over-year gross profit and earnings from operations.

In addition, negative market reaction to the COVID-19 crisis in March 2020, including declines in our common stock price, caused our market capitalization to decline significantly.

This triggered an interim goodwill impairment test and resulted in a $147.7 million non-cash goodwill impairment charge in the first quarter of 2020.

Moving Forward

While the severity of the economic impacts and their duration cannot be precisely predicted, we believe that the mid-term impacts on how people view, find and conduct work will continue to align with our strategic path.

As a result, we have continued to move forward with our specialization strategy, reinventing our operating model and reorganizing our business into five distinct reporting segments.

These specialties represent areas where we see the most robust demand, the most promising growth opportunities, and where we believe we excel in attracting and placing talent.

Our new segments also reflect our desire to shift our portfolio toward high-margin, higher-value specialties.

Kelly has done business in these specialties for many years, but our new operating model represents a new approach – one that brings together both staffing and outcome-based pieces of a specialty under a single specialty leader and aggregates assets to accelerate specialty growth and profitability.

We believe this new specialty structure will give us greater advantages in the market, and we expect our disciplined focus to deliver profitable growth coming out of the crisis.

In addition, we intend to invest in strategic, targeted M&A opportunities in our specialties, while optimizing our portfolio, as demonstrated by the acquisition of Greenwood/Asher & Associates in the fourth quarter of 2020 and the sale of our operations in Brazil during the third quarter of 2020.

Faced with market conditions that may temporarily delay our growth efforts, Kelly continues to focus on accelerating the execution of our strategic plan and making necessary investments to advance that strategy.

• We are making strides in our digital transformation journey, building a technology foundation to sustain growth.

• We are capturing a larger share of voice in the marketplace, using television spots and targeted social media campaigns to re-introduce Kelly to companies, highlight our specialty skills sets, and showcase our refreshed brand.

• We are consistently striving to better understand and support our talent.

And we have affirmed our commitment to that talent, recently introducing our five-point Talent Promise and reallocating resources to be solely focused on the temporary worker experience.

• Using our unique position in the middle of the supply and demand equation, we are stepping up with a new platform called Equity@Work to break down long-standing, systemic barriers that make it difficult for many people to secure enriching work.

This powerful extension of our Noble Purpose will help more people flow into Kelly’s talent pools, while also helping families, communities and economies thrive.

While the COVID-19 pandemic has resulted in uncertainty in the economy and the labor markets that will affect our near-term financial performance, we have determined long-term measures to gauge our progress, including:

• Revenue growth (both organic and inorganic)

• Gross profit rate improvement

• Conversion rate and EBITDA margin.

• Conversion rate and EBITDA margin improvement

Financial Measures

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We use CC results when analyzing the performance of our segments and measuring our results against those of our competitors.

Additionally, substantially all of our foreign subsidiaries derive revenues and incur cost of services and selling, general and administrative (“SG&A”) expenses within a single country and currency which, as a result, provides a natural hedge against currency risks in connection with their normal business operations.

Additionally, substantially all of our foreign subsidiaries derive revenues and incur cost of services and selling, general and administrative (“SG&A”) expenses within a single country and currency which, as a result, provides a natural hedge against transactional currency risks in connection with their normal business operations.

CC measures are non-GAAP (Generally Accepted Accounting Principles) measures and are used to supplement measures in accordance with GAAP.

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Return on sales (earnings from operations divided by revenue from services) and conversion rate (earnings from operations divided by gross profit) in the following tables are ratios used to measure the Company’s operating efficiency.

Not meaningful ("NM") in the following tables is used in place of percentage changes where:

the change is in excess of 500%, the change involves a comparison between earnings and loss amounts, or the comparison amount is zero.

Days sales outstanding (“DSO”) represents the number of days that sales remain unpaid for the period being reported.

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Results of Operations

2019 versus 2018

Total Company

(Dollars in millions except per share data)

2019 2018 Change CC

(Dollars in millions)

2019 2019 vs.

(53 Weeks) 2019

(52 Weeks) Change 2019 2018 Change

Revenue from services $ 4,516.0 $ 5,355.6 (15.7) % $ 5,355.6 $ 5,513.9 (2.9) %

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SG&A expenses excluding restructuring charges 792.8 877.6 (9.7) 877.6 884.8 (0.8)

Restructuring charges 5.5 — NM NM

Restructuring charges 12.8 5.5 131.5 5.5 — NM

Total SG&A expenses 805.6 883.1 (8.8) 883.1 884.8 (0.2)

Goodwill impairment charge 147.7 — NM — — NM

Gain on sale of assets 32.1 12.3 161.6 12.3 — NM

Asset impairment charge 15.8 — NM

Earnings from operations 81.8 87.4 (6.5)

Earnings from operations excluding restructuring charges 87.3 87.4 (0.2)

Diluted earnings per share $ 2.84 $ 0.58 389.7

Staffing fee-based income (included in revenue from services) 60.1 68.6 (12.5) (10.6)

Asset impairment charge — 15.8 NM 15.8 — NM

Earnings (loss) from operations (93.6) 81.8 NM 81.8 87.4 (6.5)

Gain (loss) on investment in Persol Holdings (16.6) 35.8 NM 35.8 (96.2) NM

Other income (expense), net 3.4 (1.2) 369.5 (1.2) (0.6) (86.9)

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate (106.8) 116.4 NM 116.4 (9.4) NM

Income tax expense (benefit) (34.0) 0.4 NM 0.4 (27.1) 101.3

Equity in net earnings (loss) of affiliate 0.8 (3.6) NM (3.6) 5.2 NM

Net earnings (loss) $ (72.0) $ 112.4 NM $ 112.4 $ 22.9 390.2

Gross profit rate $ 18.3 % $ 18.1 % 0.2 pts.

$ 18.1 % $ 17.6 % 0.5 pts.

Conversion rate (11.3) 8.4 (19.7) 8.4 9.0 (0.6)

Conversion rate excluding restructuring charges 9.0 9.0 —

Return on sales 1.5 1.6 (0.1)

Return on sales excluding restructuring charges 1.6 1.6 —

Total Company revenue from services for 2019 declined 2.9% in comparison to the prior year and 1.9% on a CC basis.

As noted in the following discussions, revenue decreases in Americas Staffing and International Staffing were partially offset by an increase in GTS revenue.

Revenue from services for 2020 declined in all segments, reflecting the impact of COVID-19, and resulting in a decline in demand for both our staffing and permanent placement services across a broad range of industries and geographies.

Revenue from staffing services declined 20% compared to 2019.

Permanent placement revenue, which is included in revenue from services, decreased 34% year-over-year as the impact of economic uncertainty depressed full-time hiring in all operating segments.

These declines were partially offset by a 9% increase in outcome-based services as demand from customers utilizing these services increased during the year.

The 2020 fiscal year included a 53rd week.

This fiscal leap year occurs every five or six years and is necessary to align the fiscal and calendar periods.

The 53rd week added approximately 1% to 2020 reported and CC revenue.

Gross profit declined as a result of lower revenue volume, partially offset by an increase in the gross profit rate.

The gross profit rate increased 20 basis points in comparison to 2019.

With the exception of Education and International, the gross profit rate increased in all other operating segments, primarily reflecting improved product mix and lower employee-related costs.

The gross profit rate for Education declined primarily as a result of increased pricing pressures.

International's gross profit rate was negatively impacted by the decrease in permanent placement revenue.

The total Company 2020 gross profit rate includes approximately 20 basis points related to COVID-19 government subsidies.

Total SG&A expenses decreased 8.8% in comparison to 2019.

This decrease was due primarily to lower administrative salaries and performance-based compensation, including short-term cost reductions implemented to further align costs with revenue volume trends.

Included in total SG&A expenses are restructuring charges of $12.8 million in 2020.

Actions were taken in the first quarter of 2020 to position the Company to adopt the new operating model and to align the U.S.

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

Actions were taken in the fourth quarter of 2020 to

align costs with expected revenue levels.

Restructuring charges of $5.5 million in 2019 represent severance costs primarily related to position eliminations within Professional & Industrial staffing operations.

During 2020, the negative reaction to the pandemic by the global equity markets also resulted in a decline in the Company's common stock price.

This triggered an interim goodwill impairment test, resulting in a $147.7 million goodwill impairment charge in the first quarter of 2020.

Gain on sale of assets of $32.1 million represents the excess of the proceeds over the cost of the headquarters properties sold in the first quarter of 2020.

The main headquarters building was subsequently leased back to the Company during the first quarter of 2020.

Gain on sale of assets in 2019 of $12.3 million primarily represents the excess of the proceeds over the cost upon the sale of an unused parcel of land located near the Company headquarters.

Asset impairment charge of $15.8 million in 2019 represents the write-off of previously capitalized costs associated with a new U.S.

front and middle office technology development project which management determined would not be completed but replaced by an enhanced and expanded use of an existing technology platform.

The loss from operations for 2020 of $93.6 million reflects a decline from the $81.8 million of earnings from operations in the prior year.

Earnings from operations declined as a result of the goodwill impairment charge and lower gross profit as a result of the impact of COVID-19 on demand, partially offset by lower expenses due to cost reduction efforts and higher gain on sale of assets.

Gain (loss) on investment in Persol Holdings represents the gain or loss resulting from changes in the market price of our investment in the common stock of Persol Holdings.

The gains or losses fluctuate based on the quoted market price of the Persol Holdings common stock at period end.

Income tax benefit was $34.0 million and expense was $0.4 million for 2020 and 2019, respectively.

The 2020 income tax benefited from lower pretax earnings and includes the impairment of goodwill, a decline in the fair value of the Company's investment in Persol Holdings, and a tax loss on the sale of our Brazil operations.

These benefits were offset by lower work opportunity credits.

The 2019 tax expense benefited from releasing a valuation allowance in the United Kingdom.

The work opportunity credit has been extended through 2025 as part of the Consolidated Appropriations Act, 2021.

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 recording of deferred taxes on the Brazil outside basis differences in the second quarter of 2020 were treated as discrete items.

The net loss for 2020 of $72.0 million, a decrease from net earnings of $112.4 million in 2019, was due primarily to lower earnings from operations due to the goodwill impairment charge taken in the first quarter of 2020, combined with increased losses of Persol Holdings common stock, partially offset by the impact of an income tax benefit in comparison to income tax expense in 2019.

Total Company revenue from services for 2019 declined 2.9% in comparison to 2018.

As noted in the following discussions, revenue decreases in Professional & Industrial and International were partially offset by increases in Science, Engineering & Technology, Education and Outsourcing & Consulting revenue.

On a total Company basis, revenue from staffing services declined 6% compared to 2019, primarily due to the disruption resulting from the restructure of the U.S.

branch-based staffing operations in the first quarter of 2019 and slower achievement of the related benefits.

Additionally, permanent placement revenue, which is included in revenue from services, decreased 13% year-over-year.

These declines were partially offset by a 30% increase in revenue from outcome-based services as demand increased from both new and existing customers.

Revenue from services for 2019 includes the results of NextGen and GTA acquisitions, which added approximately 250 basis points to the total revenue growth rate.

The gross profit rate increased by 50 basis points from the prior year.

As noted in the following discussions, the gross profit rate increased in all segments.

The NextGen and GTA acquisitions accounted for approximately 30 basis points of the gross profit rate growth.

As noted in the following discussions, increases in the gross profit rate for Professional & Industrial and Science, Engineering & Technology were partially offset by decreases in the gross profit rate for Education and Outsourcing & Consulting.

The improved gross profit rate resulted from improved specialty mix in Professional & Industrial and Science, Engineering & Technology, partially offset by pricing pressure in Education.

NextGen and GTA acquisitions drove a portion of the improved product mix and accounted for approximately 30 basis points of the gross profit rate growth.

Total SG&A expenses decreased 0.2% on a reported basis, due primarily to the effect of currency exchange rates.

On a CC basis, SG&A expenses increased 0.7% due primarily to the addition of SG&A expenses from the NextGen and GTA acquisitions.

On a CC basis, SG&A expenses increased 0.7% due primarily to the addition of SG&A expenses from the NextGen and GTA acquisitions, partially offset by cost reduction efforts in Professional & Industrial and Outsourcing & Consulting.

Also included in SG&A expenses for 2019 are restructuring charges of $5.5 million, related primarily to the U.S.

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front and middle office technology development project which management determined would not be completed but replaced by an enhanced and expanded use of an existing technology platform.

Diluted earnings per share for 2019 were $2.84, as compared to diluted earnings per share of $0.58 for 2018.

Diluted earnings per share for 2019 were favorably impacted by a gain, net of tax, of approximately $0.63 per share related to the investment in Persol Holdings, a gain, net of tax, of approximately $0.23 per share related to the sale of assets and a gain, net of tax, of approximately $0.22 per share related to acquisitions.

Diluted earnings per share for 2019 were unfavorably impacted by approximately $0.30 per share related to the asset impairment charge, net of tax, and approximately $0.10 per share related to restructuring charges, net of tax.

Diluted earnings per share for 2018 were unfavorably impacted by a loss, net of tax, of approximately $1.69 per share related to the investment in Persol Holdings.

Americas Staffing

Earnings from operations for 2019 of $81.8 million reflects a decline from the $87.4 million of earnings from operations in 2018.

Our earnings from operations declined as a result of the asset impairment charge and lower gross profit, partially offset by the gain on sale of assets and lower expenses due to cost reduction efforts.

Gain (loss) on investment in Persol Holdings represents the gain or loss resulting from changes in the market price of our investment in the common stock of Persol Holdings.

The gains or losses fluctuate based on the quoted market price of the Persol Holdings common stock at period end.

Income tax expense was $0.4 million for 2019 and benefit was $27.1 million for 2018.

The increase in tax expense for 2019 was driven by gains on the Company's investment in Persol Holdings, compared to losses in 2018 and by a decline in work opportunity credits.

This was partially offset by improved returns on tax exempt income on life insurance policies, and by higher net valuation allowance releases.

Net earnings for 2019 was $112.4 million, compared to net earnings of $22.9 million for 2018.

The increase was primarily due to the impact of the gain on investment in Persol Holding of $35.8 million in 2019, compared to a loss on investment in Persol Holdings of $96.2 million in 2018.

Operating Results By Segment

(Dollars in millions)

2019 2018 Change CC

2019 2019 vs.

(53 Weeks) 2019

(52 Weeks) % Change 2019 2018 % Change

Dollars in millions

Revenue From Services:

Gross profit 429.5 441.3 (2.7) (2.5)

SG&A expenses excluding restructuring charges 367.2 364.2 0.8 1.0

Restructuring charges 5.5 — NM NM

Total SG&A expenses 372.7 364.2 2.3 2.6

Earnings from operations 56.8 77.1 (26.3)

Earnings from operations excluding restructuring charges 62.3 77.1 (19.2)

Gross profit rate 18.5 % 18.3 % 0.2 pts.

Conversion rate 13.2 17.5 (4.3)

Conversion rate excluding restructuring charges 14.5 17.5 (3.0)

Return on sales 2.4 3.2 (0.8)

Return on sales excluding restructuring charges 2.7 3.2 (0.5)

Americas Staffing includes the impact of the January 2019 NextGen acquisition.

Excluding NextGen, Americas Staffing revenue from services reflects a 10% decrease in hours volume and a 2.1% increase in average bill rates (2.3% on a CC basis).

The decrease in hours volume was primarily due to the disruption resulting from the restructure of the U.S.

Professional & Industrial $ 1,858.4 $ 2,213.4 (16.0) % $ 2,213.4 $ 2,430.9 (8.9) %

Science, Engineering & Technology 1,019.1 1,131.8 (9.9) 1,131.8 1,002.6 12.9

Education 286.9 450.7 (36.3) 450.7 428.5 5.2

Outsourcing & Consulting 363.5 377.7 (3.8) 377.7 377.1 0.1

International 988.6 1,182.5 (16.4) 1,182.5 1,275.2 (7.3)

Intersegment revenue (0.5) (0.5) (16.6) (0.5) (0.4) 42.8

Consolidated Total $ 4,516.0 $ 5,355.6 (15.7) % $ 5,355.6 $ 5,513.9 (2.9) %

Professional & Industrial revenue from services decreased due primarily to decreases in our hours volume in our staffing product which was impacted by COVID-19.

These decreases were partially offset by increased revenue in our outcome-based products due to program expansions.

The 53rd week added approximately 1% to 2020 reported revenue from services in Professional & Industrial.

Science, Engineering & Technology revenue from services decreased due to lower hours volume in our staffing product across most specialties due to the continued impact of COVID-19, with the exception of our government staffing business, which has seen increased demand for life sciences support.

The 53rd week added approximately 1% to 2020 reported revenue from services in Science, Engineering & Technology.

Education revenue from services decreased due to the impact of COVID-19.

Temporary school closures, delayed starts and use of virtual or hybrid instructional delivery reduced the demand.

These decreases were partially offset by the revenues from the first quarter 2020 acquisition of Insight.

The 53rd week added less than 1% to 2020 reported revenue from services in Education.

Outsourcing & Consulting revenue from services decreased due primarily to decreases in our PPO, MSP and RPO products due in part to COVID-19 demand declines, as well as lower demand from customers in the oil and gas industry.

The 53rd week added approximately 2% to 2020 reported revenue from services in Outsourcing & Consulting.

International revenue from services decreased 16.4% on a reported basis and 15.6% on a CC basis.

The decline was primarily due to a decrease in hours volume as COVID-19 disruptions continued across operations in all countries, in particular France, Portugal and the U.K.

These decreases were partially offset by increased revenue in Russia, due to higher average bill rates.

The 53rd week added approximately 1% to 2020 reported and CC revenue from services in International.

Professional & Industrial revenue from services decreased as a result of lower staffing revenues.

This decrease was due to the disruption resulting from the restructure of the U.S.

branch-based staffing in the first quarter of 2019 and slower achievement of the related benefits.

The increase in average bill rates was the result of wage increases and stronger revenue growth in our service lines with higher pay rates.

Americas Staffing represented 43% of total Company revenue in 2019 and 44% in 2018.

From a staffing specialty perspective, the change in revenue reflects decreases in volume in our light industrial and office services specialties.

These decreases were partially offset by an increase in engineering (due primarily to the NextGen acquisition), educational staffing and science specialties.

The Americas Staffing gross profit rate increased in comparison to the prior year.

The gross profit rate was positively impacted by the addition of NextGen.

Total SG&A expenses increased 2.3% from the prior year, due primarily to the addition of NextGen SG&A expenses during 2019.

Also included in total SG&A expenses for 2019 are restructuring charges primarily related to U.S.

branch-based staffing operations of $5.5 million, representing primarily severance costs.

The reduction in staffing revenue was partially offset by increases in our KellyConnect and outcome-based services revenues as a result of program expansions and new customer contracts.

Science, Engineering & Technology revenue from services increased due to higher staffing services revenue as a result of the acquisitions of Global Technology Associates and NextGen in the first quarter of 2019.

Revenues also increased in our outcome-based services due to both adding new customers and existing customer program expansions.

Education revenue from services increased as a result of continued sales growth from new contracts with additional school districts coupled with year-over-year revenue increases in existing school districts.

Outsourcing & Consulting revenue from services was flat year over year.

Revenue increases in our MSP product were offset by decreases in our PPO and RPO products.

International revenue decreased 7.3% on a reported basis and 3.4% on a CC basis.

The decline was primarily due to a decrease in hours volume reflecting softening market conditions in Europe, particularly France and Germany.

These decreases were partially offset by increased revenue in Russia, due to higher hours volume.

Operating Results By Segment (continued)

(Dollars in millions)

2019 2018 Change CC

Revenue from services $ 2,024.5 $ 1,997.4 1.4 % 1.6 %

Gross profit 400.5 381.1 5.1 5.6

Total SG&A expenses 293.1 296.5 (1.2) (0.6)

Earnings from operations 107.4 84.6 26.9

Gross profit rate 19.8 % 19.1 % 0.7 pts.

Conversion rate 26.8 22.2 4.6

Return on sales 5.3 4.2 1.1

Revenue from services increased 1.4% compared to last year, due primarily to the increase in revenue from the GTA acquisition, combined with program expansion in our BPO and KellyConnect products.

These increases were partially offset by lower demand from a number of customers in centrally delivered staffing.

GTS revenue represented 38% of total Company revenue in 2019 and 36% in 2018.

The increase in the GTS gross profit rate was due to improving product mix coupled with lower employee-related costs.

Total SG&A expenses decreased 1.2% from the prior year on a reported basis and 0.6% on a CC basis, due to proactive cost management in a growth environment, as we continue to align our resources and spending levels with volumes and gross profit in our products.

These decreases were partially offset by an increase in SG&A expenses related to the January 2019 acquisition of GTA.

International Staffing

2019 2019 vs.

(53 Weeks) 2019

(52 Weeks) Change 2019 2018 Change

Dollars in millions

2019 2018 Change CC

Revenue from services $ 1,025.9 $ 1,116.6 (8.1) % (4.0) %

Gross Profit:

Total SG&A expenses 125.3 132.3 (5.3) (1.2)

Earnings from operations 15.2 20.0 (24.1)

Gross profit rate 13.7 % 13.6 % 0.1 pts.

Conversion rate 10.8 13.2 (2.4)

Return on sales 1.5 1.8 (0.3)

In comparison to the prior year, International Staffing revenue from services decreased 8.1% on a reported basis and 4.0% on a CC basis.

The decline was primarily due to revenue declines in France and Germany, reflecting current staffing market conditions.

These decreases were partially offset by increased revenue in Russia, due to higher hours volume.

International Staffing represented 19% of total Company revenue in 2019 and 20% in 2018.

The International Staffing gross profit decreased 7.7% on a reported basis and 3.6% on a CC basis as a result of declining revenue.

Total SG&A expenses decreased 5.3% on a reported basis and 1.2% on a CC basis due to continued effective cost management to align to revenue trends.

Results of Operations

2018 versus 2017

Total Company

(Dollars in millions except per share data)

2018 2017 Change CC

Revenue from services $ 5,513.9 $ 5,374.4 2.6 % 2.2 %

Gross profit 972.2 954.1 1.9 1.6

SG&A expenses excluding restructuring charges 884.8 868.4 1.9 1.6

Restructuring charges — 2.4 NM NM

Total SG&A expenses 884.8 870.8 1.6 1.4

Earnings from operations 87.4 83.3 5.0

Earnings from operations excluding restructuring charges 87.4 85.7 2.1

Diluted earnings per share $ 0.58 $ 1.81 (68.0)

Staffing fee-based income (included in revenue from services) 68.6 57.3 19.6 19.0

Gross profit rate 17.6 % 17.8 % (0.2) pts.

Conversion rate 9.0 8.7 0.3

Conversion rate excluding restructuring charges 9.0 9.0 —

Return on sales 1.6 1.5 0.1

Return on sales excluding restructuring charges 1.6 1.6 —

Total Company revenue from services for 2018 was up 2.6% in comparison to 2017 on a reported basis, and up 2.2% on a CC basis, reflecting the weakening of the U.S.

dollar against several currencies, primarily the Euro in the first half of 2018.

As more fully described in the following discussions, revenue increased in Americas Staffing and International Staffing, while GTS revenue was relatively flat.

The gross profit rate decreased 20 basis points year over year.

As more fully described in the following discussions, a decline in the gross profit rate in International Staffing was partially offset by an increase in the GTS gross profit rate.

The Americas Staffing gross profit rate was unchanged.

Total SG&A expenses increased 1.6% on a reported basis (1.4% on a CC basis), due primarily to increases in Americas Staffing SG&A expenses, as described in the following discussion.

Included in total SG&A expenses for 2017 are restructuring charges of $2.4 million, relating primarily to an initiative to optimize our GTS service delivery models.

Diluted earnings per share for 2018 were $0.58, as compared to $1.81 for 2017.

Diluted earnings per share for 2018 were impacted by a loss, net of tax, of approximately $1.69 per share related to the investment in Persol Holdings.

Diluted earnings per share for 2017 were impacted by approximately $0.35 per share related to the impact of revaluing net deferred tax assets as a result of the U.S.

Tax Cuts and Jobs Act and approximately $0.04 per share related to restructuring charges.

Americas Staffing

Professional & Industrial $ 330.2 $ 388.4 (15.0) % $ 388.4 $ 419.3 (7.4) %

Science, Engineering & Technology 209.4 226.2 (7.5) 226.2 185.6 21.9

Education 42.2 72.0 (41.3) 72.0 70.7 1.9

Outsourcing & Consulting 119.8 122.3 (2.0) 122.3 124.2 (1.6)

International 126.0 159.5 (21.0) 159.5 172.4 (7.5)

Consolidated Total $ 827.6 $ 968.4 (14.5) % $ 968.4 $ 972.2 (0.4) %

Gross Profit Rate:

Professional & Industrial 17.8 % 17.5 % 0.3 pts.

17.5 % 17.3 % 0.2 pts.

Science, Engineering & Technology 20.5 20.0 0.5 20.0 18.5 1.5

Education 14.7 16.0 (1.3) 16.0 16.5 (0.5)

Outsourcing & Consulting 33.0 32.4 0.6 32.4 32.9 (0.5)

International 12.7 13.5 (0.8) 13.5 13.5 —

Consolidated Total 18.3 % 18.1 % 0.2 pts.

18.1 % 17.6 % 0.5 pts.

Gross profit for the Professional & Industrial segment declined as the result of lower revenue volume, partially offset by an improved gross profit rate.

The gross profit rate increased 30 basis points due to lower employee-related costs coupled with improved product mix, as a greater proportion of the segment revenue came from outcome-based services with higher margins.

The Science, Engineering & Technology gross profit declined as lower revenue volume was partially offset by a higher gross profit rate.

The gross profit rate increased 50 basis points due to lower employee-related costs, partially offset by specialty and customer mix.

Gross profit for the Education segment declined as a result of lower revenue volume, combined with a lower gross profit rate.

The Education gross profit rate decreased 130 basis points due to increased pricing pressures, partially offset by lower employee-related costs.

The Outsourcing & Consulting gross profit declined on lower revenue volume, partially offset by an improved gross profit rate.

The Outsourcing & Consulting gross profit rate increased 60 basis points due to improved customer mix in the RPO product, coupled with lower employee-related costs in the PPO product.

International gross profit declined as a result of lower revenue volume and a decline in the gross profit rate.

The International gross profit rate decreased primarily due to lower permanent placement revenue.

Gross profit for the Professional & Industrial segment declined as the result of lower revenue volume, partially offset by an improved gross profit rate.

The gross profit rate increased 20 basis points due to customer and specialty mix.

The Science, Engineering & Technology gross profit increased as the result of higher revenue volume from the GTA and NextGen acquisitions mentioned previously, combined with a higher gross profit rate.

The gross profit rate increased 150 basis points due primarily to the impact of these acquisitions coupled with improved specialty mix.

Gross profit for the Education segment increased as a result of higher revenue volume, partially offset by a lower gross profit rate.

The Education gross profit rate decreased 50 basis points due to pricing pressures.

The Outsourcing & Consulting gross profit decreased as a result of a decline in the gross profit rate.

The Outsourcing & Consulting gross profit rate decreased 50 basis points due primarily to the reduction in our gross profit rate in our RPO product as a result of customer mix within that product.

International gross profit declined as a result of lower revenue volume and negative currency effects.

The International gross profit rate for 2019 was flat against 2018.

Operating Results By Segment (continued)

(Dollars in millions)

2018 2017 Change CC

Revenue from services $ 2,417.7 $ 2,345.9 3.1 % 3.4 %

Gross profit 441.3 429.1 2.9 3.1

SG&A expenses excluding restructuring charges 364.2 346.0 5.2 5.5

Restructuring charges — 0.4 NM NM

Total SG&A expenses 364.2 346.4 5.1 5.4

Earnings from operations 77.1 82.7 (6.7)

Earnings from operations excluding restructuring charges 77.1 83.1 (7.1)

Gross profit rate 18.3 % 18.3 % — pts.

Conversion rate 17.5 19.3 (1.8)

Conversion rate excluding restructuring charges 17.5 19.3 (1.8)

Return on sales 3.2 3.5 (0.3)

Return on sales excluding restructuring charges 3.2 3.5 (0.3)

The change in Americas Staffing revenue from services reflects the impact of a 2% increase in average bill rates (a 3% increase on a CC basis), combined with the impact of the September 2017 acquisition of TOC, and partially offset by a 1% decrease in hours volume.

The increase in average bill rates was the result of wage increases and stronger revenue growth in our service lines with higher pay rates.

Americas Staffing represented 44% of total Company revenue in both 2018 and 2017.

From a product perspective, the increase in revenue reflects an increase in commercial, including light industrial and educational staffing (due primarily to the TOC acquisition) and professional/technical, including engineering, science and IT products.

These increases were partially offset by a decrease in our commercial office services volume.

The Americas Staffing gross profit rate was unchanged from 2017.

Increases related to higher staffing fee-based income and lower payroll taxes were offset by unfavorable customer mix.

The increase in total SG&A expenses was due primarily to higher costs for recruiting and sales resources and additional effort to attract and place candidates in the current talent environment, combined with SG&A expenses related to TOC.

2019 2019 vs.

(53 Weeks) 2019

(52 Weeks) % Change 2019 2018 % Change

Dollars in millions

2018 2017 Change CC

Revenue from services $ 1,997.4 $ 1,998.9 (0.1) % (0.1) %

Gross profit 381.1 373.7 2.0 1.8

SG&A expenses excluding restructuring charges 296.5 294.7 0.6 0.4

Restructuring charges — 2.0 NM NM

Total SG&A expenses 296.5 296.7 — 0.2

Earnings from operations 84.6 77.0 9.8

Earnings from operations excluding restructuring charges 84.6 79.0 7.1

Gross profit rate 19.1 % 18.7 % 0.4 pts.

Conversion rate 22.2 20.6 1.6

Conversion rate excluding restructuring charges 22.2 21.1 1.1

Return on sales 4.2 3.9 0.3

Return on sales excluding restructuring charges 4.2 4.0 0.2

Revenue from services was flat in comparison to 2017.

Lower demand in specific customers in centrally delivered staffing and PPO was offset by increased revenue in BPO, KellyConnect and CWO from program expansions and new customer wins in each product.

GTS revenue represented 36% of total Company revenue in 2018 and 37% in 2017.

The increase in the GTS gross profit rate was due to improving product mix, partially offset by increases in employee-related healthcare costs.

Total SG&A expenses were flat in comparison to 2017.

Increased headcount and costs related to new programs and expansion of programs in the CWO, BPO and KellyConnect practices were partially offset by lower salary costs in centrally delivered staffing and PPO.

Additionally, the year-over-year change in total SG&A expenses was impacted by restructuring charges of $2.0 million in 2017, representing severance relating to an initiative to optimize our GTS service delivery models.

International Staffing

SG&A Expenses:

Professional & Industrial $ 288.6 $ 326.0 (11.5) % $ 326.0 $ 338.4 (3.7) %

Science, Engineering & Technology 134.4 146.7 (8.4) 146.7 124.7 17.6

Education 51.2 56.2 (8.8) 56.2 47.8 17.6

Outsourcing & Consulting 108.3 119.3 (9.2) 119.3 131.2 (9.0)

International 134.9 140.8 (4.2) 140.8 148.6 (5.2)

Corporate expenses 88.2 94.1 (6.3) 94.1 94.1 0.1

Consolidated Total $ 805.6 $ 883.1 (8.8) % $ 883.1 $ 338.4 (0.2) %

2019 2019 vs.

(53 Weeks) 2019

(52 Weeks) % Change 2019 2018 % Change

Dollars in millions

2018 2017 Change CC

Revenue from services $ 1,116.6 $ 1,048.2 6.5 % 4.0 %

Gross profit 152.3 153.7 (0.9) (3.2)

Total SG&A expenses 132.3 131.6 0.5 (1.4)

Earnings from operations 20.0 22.1 (9.5)

Gross profit rate 13.6 % 14.7 % (1.1) pts.

Conversion rate 13.2 14.4 (1.2)

Return on sales 1.8 2.1 (0.3)

The change in International Staffing revenue from services reflects primarily a 6% increase in average bill rates (a 3% increase on a CC basis), due to customer and country mix.

Hours volume was flat in comparison to 2017.

International Staffing represented 20% of total Company revenue in both 2018 and 2017.

The International Staffing gross profit rate decreased primarily due to unfavorable customer mix and the effect of French payroll tax adjustments.

These decreases were partially offset by an increase in staffing fee-based income.

The increase in total SG&A expenses was due to the effect of currency exchange rates.

On a constant currency basis, SG&A expenses decreased due to effective cost control in expenses across the region.

Restructuring Charges Included in SG&A Expenses:

Professional & Industrial $ 6.0 $ 5.1 16.8 % $ 5.1 $ — NM %

Science, Engineering & Technology 0.6 0.4 74.1 0.4 — NM

Education 1.0 — NM — — NM

Outsourcing & Consulting 0.3 — NM — — NM

International 1.4 — NM — — NM

Corporate expenses 3.5 — NM — — NM

Consolidated Total $ 12.8 $ 5.5 131.5 % $ 5.5 $ — NM %

Total SG&A expenses in Professional & Industrial decreased due primarily to lower salaries and related costs due to cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

The decreased revenue volume also resulted in lower performance-based compensation.

In addition, Professional & Industrial took restructuring actions in both 2020 and 2019, which reduced salaries and related costs and facilities expenses.

Included in total SG&A expenses for 2020 and 2019 are the costs of those restructuring efforts of $6.0 million and $5.1 million, respectively, representing primarily employee severance costs.

Total SG&A expenses in Science, Engineering & Technology decreased due primarily to cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

The decreased revenue volume also resulted in lower performance-based compensation.

Total SG&A expenses in Education decreased due primarily to lower salaries and related costs resulting from the cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

The decreased revenue volume also resulted in lower performance-based compensation.

These decreases were partially offset by the impact of the acquisition of Insight that took place in the first quarter of 2020.

Total SG&A expenses in Outsourcing & Consulting decreased due primarily to lower salaries and related expenses resulting from cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

Total SG&A expenses in International decreased 4.2% on a reported basis and 3.6% on a CC basis.

Included in International SG&A expenses for 2020 is a $9.5 million non-cash charge related to a customer dispute in Mexico that resulted in an additional uncollectible accounts receivable charge.

Excluding this charge, total SG&A expenses decreased 11.0% due primarily to lower salaries, driven by cost management to contend with the COVID-19 disruption, combined with lower incentive-based compensation.

Corporate expenses decreased as a result of lower performance-based compensation expense and lower professional fees, partially offset by restructuring charges incurred during 2020.

Total SG&A expenses in Professional & Industrial decreased due primarily to lower performance-based compensation as well as the lower cost base from the restructuring efforts in the first quarter of 2019 in the U.S.

branch-based staffing operations.

Included in the total SG&A expenses for 2019 are the costs of that restructuring effort of $5.1 million, which were primarily severance costs.

Total SG&A expenses in Science, Engineering & Technology increased due primarily to the impact of the acquisition of GTA and NextGen in the first quarter of 2019.

Total SG&A expenses in Education increased due primarily to increased salaries from additional headcount related to an updated infrastructure put in place to deliver services to customers in this business unit in anticipation of the then-expected revenue growth.

Total SG&A expenses in Outsourcing & Consulting decreased due primarily to lower salaries from reduced headcounts as we continued to streamline the service delivery and support infrastructure in the business unit.

Total SG&A expenses in International decreased 5.2% on a reported basis and 1.3% on a CC basis, due primarily to effective cost management to align to revenue trends.

Corporate expenses were flat year over year.

Lower performance-based compensation expense was offset by higher depreciation expense related to recently completed information technology projects.

Operating Results By Segment (continued)

(Dollars in millions)

2019 2019 vs.

(53 Weeks) 2019

(52 Weeks) % Change 2019 2018 % Change

Dollars in millions

Earnings (Loss) from Operations:

Professional & Industrial $ 41.6 $ 62.4 (33.4) % $ 62.4 $ 80.9 (22.8) %

Science, Engineering & Technology 75.0 79.5 (5.8) 79.5 60.9 30.6

Education (9.0) 15.8 NM 15.8 22.9 (31.0)

Outsourcing & Consulting 11.5 3.0 291.3 3.0 (7.0) NM

International (8.9) 18.7 NM 18.7 23.8 (21.6)

Corporate (203.8) (97.6) (108.6) (97.6) (94.1) (3.8)

Consolidated Total $ (93.6) $ 81.8 NM % $ 81.8 $ 87.4 (6.5) %

Professional & Industrial reported earnings of $41.6 million, a 33.4% decrease from 2019.

The decrease in earnings was primarily due to the impact of COVID-19 on our staffing product, partially offset by increases in our outcome-based products and the cost management initiatives taken to mitigate the impact of the pandemic on our operations.

Science, Engineering & Technology reported earnings of $75.0 million, a 5.8% decrease from 2019.

The decrease in earnings was primarily due to the impact of COVID-19 on demand for our services, partially offset by the cost management initiatives taken to mitigate its impact.

Education reported a loss of $9.0 million, compared to earnings of $15.8 million in 2019.

The decrease is due to the impact of COVID-19 on our revenue, partially offset by the cost management initiatives taken to mitigate its impact.

Outsourcing & Consulting reported earnings of $11.5 million, an $8.5 million increase over 2019.

The increase in earnings was primarily due to the impact of the cost management initiatives taken to mitigate the impact of COVID-19, partially offset by lower revenue volume due to the impact of COVID-19 and lower customer demand in the oil and gas industry.

International reported a loss of $8.9 million, compared to earnings of $18.7 million in 2019, largely driven by the impact of

COVID-19 on revenue and a charge related to a customer dispute in Mexico, partially offset by cost management initiatives.

Corporate loss from operations of $203.8 million for 2020 includes the goodwill impairment charge of $147.7 million and gain on sale of assets of $32.1 million.

Professional & Industrial reported earnings of $62.4 million, a 22.8% decrease from 2018.

The decrease in earnings was primarily due to decreased revenue in 2019 in our staffing product, partially offset by the reduced expenses as a result of the restructuring efforts and lower performance-based compensation.

Science, Engineering & Technology reported earnings of $79.5 million, a 30.6% increase from 2018.

The increase in earnings was primarily due to the impact on earnings from the acquisitions of GTA and NextGen, coupled with continued strong performance and growth in our outcome-based services business.

Education reported earnings of $15.8 million, a 31.0% decrease from 2018.

The decrease is due primarily to the increased costs associated with building out the Education service delivery infrastructure in order to prepare for the then-expected future sustained revenue growth.

The impact of these additional costs on earnings was partially offset by the additional revenue resulting from new customer contracts and year-over-year increases related to existing customers.

Outsourcing & Consulting reported earnings of $3.0 million, compared to a loss of $7.0 million in 2018.

The increase in earnings was primarily due to lower expenses as a result of actions to streamline operations.

International reported earnings of $18.7 million, a decrease of 21.6% from 2018.

The decrease was due to lower revenue volume, reflecting softening market conditions primarily in Europe, partially offset by lower SG&A expenses due to effective cost management.

Results of Operations

1 unchanged sentence

Historically, we have financed our operations through cash generated by operating activities and access to credit markets.

Our working capital requirements are primarily generated from temporary employee payroll and customer accounts receivable.

Since receipts from customers generally lag payroll to temporary employees, working capital requirements increase substantially in periods of growth.

Our working capital requirements are primarily generated from temporary employee payroll, which is generally paid weekly or monthly, and customer accounts receivable, which is generally outstanding for longer periods.

Since receipts from customers lag payroll paid to temporary employees, working capital requirements increase substantially in periods of growth.

Conversely, when economic activity slows, working capital requirements may substantially decrease.

1 unchanged sentence

however, any such increase would not be sustainable in the event that an economic downturn continued for an extended period.

The impact of the current economic slow-down resulting from the COVID-19 crisis began in March 2020 and continued through the fourth quarter.

Consistent with our historical results, the impact of the current economic conditions resulted in declines in working capital requirements, primarily trade accounts receivable, and increases in cash flows from operations as revenues slowed.

As highlighted in the consolidated statements of cash flows, our liquidity and available capital resources are impacted by four key components:

2 unchanged sentences

Cash, cash equivalents and restricted cash totaled $228.1 million at year-end 2020, compared to $31.0 million at year-end 2019.

As further described below, during 2019, we generated $102.2 million of cash from operating activities, used $94.3 million of cash for investing activities and used $16.1 million of cash for financing activities.

As further described below, during 2020, we generated $186.0 million of cash from operating activities, generated $9.8 million of cash from investing activities and used $8.1 million of cash for financing activities.

Operating Activities

In 2019, we generated $102.2 million of net cash from operating activities, as compared to generating $61.4 million in 2018 and $70.8 million in 2017.

In 2020, we generated $186.0 million of net cash from operating activities, as compared to generating $102.2 million in 2019 and generating $61.4 million in 2018.

The change from 2019 to 2020 was primarily due to the deferral of $117.0 million of payroll tax payments, partially offset by the impact of higher global DSO, as discussed below.

The change from 2018 to 2019 was primarily driven by working capital changes.

The change from 2017 to 2018 was primarily driven by working capital changes and an increase in performance-based compensation payments.

Trade accounts receivable totaled $1.3 billion at year-end 2020 and 2019.

Global DSO for the fourth quarter was 64 days for 2020, compared to 58 days for 2019.

The increase in DSO reflects both increasing pressure to extend payment terms from our large customers and the timing of customer payments at year end.

The increase of six days was due to certain customers taking advantage of full payment terms, along with a shift in customer mix to larger customers with longer payment terms.

The accounts receivable balances for a limited number of large customers increased during the fourth quarter of 2020 due to short-term, customer-driven administrative issues, which also contributed to the year-over-year increase in DSO.

Our working capital position (total current assets less total current liabilities) was $624.0 million at year-end 2020, an increase of $102.4 million from year-end 2019.

The current ratio (total current assets divided by total current liabilities) was 1.6 at year-end 2019 and 2018.

Excluding additional cash, working capital declined $94.8 million from year-end 2019.

The current ratio (total current assets divided by total current liabilities) was 1.7 at year-end 2020 and 1.6 at year-end 2019.

Investing Activities

In 2019, we used $94.3 million of net cash for investing activities, compared to using $29.8 million in 2018 and using $61.0 million in 2017.

Included in cash used for investing activities in 2019 is $50.8 million for the acquisition of NextGen in January 2019, net of cash received, $35.6 million for the acquisition of GTA in January 2019, net of cash received, and $4.4 million for loans to PersolKelly Asia Pacific to fund working capital requirements.

In 2020, we generated $9.8 million of net cash from investing activities, compared to using $94.3 million in 2019 and using $29.8 million in 2018.

Included in cash generated from investing activities in 2020 is $55.5 million of proceeds representing the cash received, net of transaction expenses, for the sale of three headquarters properties as a part of a sale and leaseback transaction and $5.6 million received from a payment on the loans to PersolKelly Pte.

This was partially offset by cash used for the acquisitions of Insight in January 2020 and Greenwood/Asher in November 2020.

Cash used for the acquisition of Insight totaled $36.4 million, net of the cash received and including working capital adjustments.

Cash used for the acquisition of Greenwood/Asher totaled $2.8 million, net of the cash received and including working capital adjustments.

to fund working capital requirements.

These uses of cash were partially offset by proceeds of $13.8 million primarily from the sale of unused land during the second quarter of 2019.

Included in cash used for investing activities in 2018 is $7.0 million for loans to PersolKelly Asia Pacific to fund working capital requirements as a result of their sustained revenue growth and $5.0 million for an investment in equity securities relating to the Company’s investment in Business Talent Group, LLC, partially offset by $7.9 million for proceeds from company-owned life insurance.

Included in cash used for investing activities in 2017 is $37.2 million for the acquisition of Teachers On Call, net of the cash received.

Capital expenditures, which totaled $20.0 million in 2019, $25.6 million in 2018 and $24.6 million in 2017, were primarily related to the Company’s technology programs in 2019 and primarily related to the Company's technology programs, IT infrastructure and headquarters building improvements in 2018 and 2017.

Capital expenditures totaled $15.5 million in 2020, $20.0 million in 2019 and $25.6 million in 2018.

Capital expenditures in 2020 were primarily related to the Company's headquarters building improvements, IT infrastructure and technology programs.

Capital expenditures in 2019 primarily related to the Company’s technology programs.

Capital expenditures in 2018 primarily related to the Company's technology programs, IT infrastructure and headquarters building improvements.

Financing Activities

1 unchanged sentence

Changes in net cash from financing activities were primarily related to dividend payments in 2020, 2019 and 2018.

Dividends paid per common share were $0.30 in 2019, 2018 and 2017.

Dividends paid per common share were $0.075 in 2020 and $0.30 in 2019 and 2018.

Payments of dividends are restricted by the financial covenants contained in our debt facilities.

4 unchanged sentences

Our ratio of debt-to-total capital was 0.0% at year-end 2020 and 0.1% at year-end 2019.

In 2019, the net change in short-term borrowings was primarily due to payments on local lines of credit.

In 2020 and 2019, the net change in short-term borrowings was primarily due to payments on local lines of credit.

In 2018, the net change in short-term borrowings was primarily due to payments on our revolving credit facility.

In 2017, the net change in short-term borrowings was primarily due to borrowings on our revolving credit facility.

Contractual Obligations and Commercial Commitments

8 unchanged sentences

Accrued retirement benefits 223.1 17.4 35.1 35.0 135.6

Accrued payroll taxes 117.0 58.5 58.5 — —

Other liabilities 10.6 1.9 3.4 2.9 2.4

5 unchanged sentences

We expect to meet our ongoing short-term and long-term cash requirements principally through cash generated from operations, available cash and equivalents, securitization of customer receivables and committed unused credit facilities.

We are reviewing other potential sources of liquidity, such as wage subsidy receivables outside the U.S., in an effort to potentially monetize such sources.

Additional funding sources could include asset-based lending or additional bank facilities.

In addition, on December 4, 2019, we entered into an agreement to sell three headquarters properties.

See the Assets Held for Sale footnote in the notes to our consolidated financial statements for more information.

To meet expected future cash requirements related to our nonqualified retirement plan, we may utilize proceeds from Company-owned life insurance policies.

During 2020, cash generated from operations will continue to be supplemented by recent enactment of laws providing COVID-19 relief, most notably the Coronavirus Aid, Relief, and Economic Security Act which allows for the deferral of payments of the Company's U.S.

social security taxes.

Such deferrals are required to be repaid in 2021 and 2022.

We utilize intercompany loans, dividends, capital contributions and redemptions to effectively manage our cash on a global basis.

2 unchanged sentences

As of the 2020 year end, these reviews have not resulted in any specific plans to repatriate a majority of our international cash balances.

We expect much of our international cash will be needed to fund working capital growth in our local operations.

The majority of our international cash is concentrated in a cash pooling arrangement (the “Cash Pool”) and is available to fund general corporate needs internationally.

The Cash Pool is a set of cash accounts maintained with a single bank that must, as a whole, maintain at least a zero balance;

We expect much of our international cash will be needed to fund working capital growth in our local operations as working capital needs, primarily trade accounts receivable, increase during periods of growth.

A cash pooling arrangement (the “Cash Pool”) is available to fund general corporate needs internationally.

The Cash Pool is a set of cash accounts maintained with a single bank

that must, as a whole, maintain at least a zero balance;

individual accounts may be positive or negative.

This allows countries with excess cash to invest and countries with cash needs to utilize the excess cash.

We manage our cash and debt very closely to optimize our capital structure.

As our cash balances build, we tend to pay down debt as appropriate.

Conversely, when working capital needs grow, we tend to use corporate cash and cash available in the Cash Pool first, and then access our borrowing facilities.

At year-end 2020, we had $200.0 million of available capacity on our $200.0 million revolving credit facility and $97.0 million of available capacity on our $150.0 million securitization facility.

The securitization facility had no short-term borrowings and $52.3 million of standby letters of credit related to workers’ compensation.

Together, the revolving credit and securitization facilities provide the Company with committed funding capacity that may be used for general corporate purposes.

While we believe these facilities will cover our working capital needs over the short term, if economic conditions or operating results change significantly, we may need to seek additional sources of funds.

The securitization facility carried no short-term borrowings and $53.0 million of standby letters of credit related to workers’ compensation.

Together, the revolving credit and securitization facilities provide the Company with committed funding capacity that may be used for general corporate purposes subject to financial covenants and restrictions.

While we believe these facilities will cover our working capital needs over the short term, if economic conditions or operating results change significantly from our current expectations, we may need to seek additional sources of funds.

Throughout 2020 and as of the 2020 year end, we met the debt covenants related to our revolving credit facility and securitization facility.

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Details of our debt facilities as of the 2020 year end are contained in the Debt footnote in the notes to our consolidated financial statements.

On January 14, 2020, we acquired the membership interests of a company for $34.5 million, using cash on hand.

See the Subsequent Event footnote in the notes to our consolidated financial statements for more information.

We have historically managed our cash and debt very closely to optimize our capital structure.

As our cash balances build, we tend to pay down debt as appropriate.

Conversely, when working capital needs grow, we tend to use corporate cash and cash available in the Cash Pool first, and then access our borrowing facilities.

We believe that we may utilize a portion of our existing cash balances to fund working capital requirements over the next several quarters if demand for our services continues to increase and to pay 50% of deferred payroll tax balances which are due in the fourth quarter of 2021.

We monitor the credit ratings of our major banking partners on a regular basis and have regular discussions with them.

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In the event we determine that a smaller or larger accrual is appropriate, we would record a credit or a charge to cost of services in the period in which we made such a determination.

The accrual for workers’ compensation, net of related receivables which are included in prepaid expenses

and other current assets and other assets in the consolidated balance sheet, was $59.5 million and $61.4 million at year-end 2019 and 2018, respectively.

The accrual for workers’ compensation, net of related receivables which are included in prepaid expenses and other current assets and other assets in the consolidated balance sheet, was $54.6 million and $59.5 million at year-end 2020 and 2019, respectively.

Business Combinations

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Equity Method Investment

We account for our investment in PersolKelly Asia Pacific under the equity method of accounting on a one quarter lag.

We account for our investment in PersolKelly Pte.

under the equity method of accounting on a one-quarter lag.

We review our equity method investment for indicators of impairment on a quarterly basis or whenever events or circumstances indicate the carrying amount may be other-than-temporarily impaired.

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As of year-end 2020 and 2019, the equity method investment was $118.5 million and $117.2 million, respectively.

See the Investment in PersolKelly Asia Pacific footnote in the notes to our consolidated financial statements.

See the Investment in PersolKelly Pte.

footnote in the notes to our consolidated financial statements.

We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred.

Generally accepted accounting principles require that goodwill be tested for impairment at a reporting unit level.

We have determined that our reporting units are the same as our operating and reportable segments based on our organizational structure.

Goodwill is tested for impairment by comparing the estimated fair value of a reporting unit to its carrying value.

For segments with a goodwill balance, we have determined that our reporting units are the same as our operating and reportable segments based on our organizational structure.

We may first use a qualitative assessment for the annual impairment test if we have determined that it is more likely than not that the fair value for one or more reporting units is greater than their carrying value.

In conducting the qualitative assessment, we assess the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit.

Such events and circumstances may include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, entity-specific events and events affecting a reporting unit.

If we elect to forgo the qualitative assessment for a reporting unit, goodwill is tested for impairment by comparing the estimated fair value of a reporting unit to its carrying value.

If the estimated fair value of a reporting unit exceeds the carrying value of the net assets assigned to a reporting unit, goodwill is not considered impaired and no further testing is required.

If the carrying value of the net assets assigned to a reporting unit exceeds the estimated fair value of a reporting unit, goodwill is deemed impaired and is written down to the extent of the difference.

To derive the estimated fair value of reporting units, we primarily relied on an income approach.

We also utilized various market approaches to validate the fair value determined using the income approach.

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 our reporting units with goodwill 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 the entire goodwill balance.

To derive the estimated fair value of reporting units, we primarily relied on an income approach, which was validated through reconciliation to observable market capitalization data.

Under the income approach, estimated fair value is determined based on estimated future cash flows discounted by an estimated market participant weighted-average cost of capital, which reflects the overall level of inherent risk of the reporting unit being measured.

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They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts.

We completed our annual impairment test for all reporting units with goodwill in the fourth quarter for the fiscal year ended 2019 and 2018 and determined that goodwill was not impaired.

In 2019 and 2018, we performed a step one quantitative assessment for the Americas Staffing and GTS reporting units.

Our analysis used significant assumptions by segment, including:

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

Although we believe the assumptions and estimates we have made are reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results.

Different assumptions of the anticipated future results and growth from these businesses could result in an impairment charge, which would decrease operating income and result in lower asset values on our consolidated balance sheet.

As a measure of sensitivity, both reporting units have an estimated fair value more than 150% of the carrying value in 2019 and reducing our revenue growth rate assumptions by 45% would not result in the estimated fair value falling below carrying value for both reporting units.

Our analysis used significant assumptions by reporting unit, including:

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

In the fourth quarter of 2020, the Company elected to perform a qualitative analysis (a "step zero" test) to determine whether a further quantitative assessment was necessary for the reporting unit with goodwill.

The step zero test included making judgments and assessments to determine whether any events or circumstances have occurred that makes it more likely than not that the fair value of a reporting unit is less than its carrying amount.

As a result of this qualitative assessment, a step one quantitative analysis was not deemed necessary and the goodwill was not impaired.

We completed our annual impairment test for all reporting units with goodwill in the fourth quarter for the fiscal year ended 2019 and determined that goodwill was not impaired.

In 2019, we performed a step one quantitative assessment for the Americas Staffing and GTS reporting units.

At year-end 2020 and 2019, total goodwill amounted to $3.5 million and $127.8 million, respectively.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this report are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Certain statements contained herein and in our investor conference call related to these results are “forward-looking” statements within the meaning of the applicable securities laws and regulations.

These forward-looking statements are based on current expectations and assumptions and are subject to a number of significant risks and uncertainties.

Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or variations or negatives thereof or by similar or comparable words or phrases.

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Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors.

The principal important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, competitive market pressures including pricing and technology introductions and disruptions, changing market and economic conditions, our ability to achieve our business strategy, the risk of damage to our brand, the risk our intellectual property assets could be infringed upon or compromised, our ability to successfully develop new service offerings, our exposure to risks associated with services outside traditional staffing, including business process outsourcing and services connecting talent to independent work, our increasing dependency on third parties for the execution of critical functions, the risks associated with past and future acquisitions, exposure to risks associated with investments in equity affiliates including PersolKelly Asia Pacific, material changes in demand from or loss of large corporate customers as well as changes in their buying practices, risks particular to doing business with the government or government contractors, risks associated with conducting business in foreign countries, including foreign currency fluctuations, the exposure to potential market and currency exchange risks relating to our investment in Persol Holdings, risks associated with violations of anti-corruption, trade protection and other laws and regulations, availability of qualified full-time employees, availability of temporary workers with appropriate skills required by customers, liabilities for employment-related claims and losses, including class action lawsuits and collective actions, risks arising from failure to preserve the privacy of information entrusted to us or to meet our obligations under global privacy laws, the risk of cyberattacks or other breaches of network or information technology security, our ability to sustain critical business applications through our key data centers, our ability to effectively implement and manage our information technology projects, our ability to maintain adequate financial and management processes and controls, risk of potential impairment charges triggered by adverse industry developments or operational circumstances, unexpected changes in claim trends on workers’ compensation, unemployment, disability and medical benefit plans, the impact of changes in laws and regulations (including federal, state and international tax laws), competition law risks, the risk of additional tax or unclaimed property liabilities in excess of our estimates, our ability to realize value from our tax credit and net operating loss carryforwards, our ability to maintain specified financial covenants in our bank facilities to continue to access credit markets, and other risks, uncertainties and factors discussed in this report and in our other filings with the Securities and Exchange Commission.

Actual results may differ materially from any forward-looking statements contained herein, and we have no intention to update these statements.

The principal important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, changing market and economic conditions, the recent novel coronavirus (COVID-19) outbreak, competitive market pressures including pricing and technology introductions and disruptions, disruption in the labor market and weakened demand for human capital resulting from technological advances, competition law risks, the impact of changes in laws and regulations (including federal, state and international tax laws), unexpected changes in claim trends on workers’ compensation, unemployment, disability and medical benefit plans, or the risk of additional tax liabilities in excess of our estimates, our ability to achieve our business strategy, our ability to successfully develop new service offerings, material changes in demand from or loss of large corporate customers as well as changes in their buying practices, risks particular to doing business with government or government contractors, the risk of damage to our brand, our exposure to risks associated with services outside traditional staffing, including business process outsourcing, services of licensed professionals and services connecting talent to independent work, our increasing dependency on third parties for the execution of critical functions, our ability to effectively implement and manage our information technology strategy, the risks associated with past and future acquisitions, including risk of related impairment of goodwill and intangible assets, exposure to risks associated with investments in equity affiliates including PersolKelly Pte.

Ltd., risks associated with conducting business in foreign countries, including foreign currency fluctuations, the exposure to potential market and currency exchange risks relating to our investment in Persol Holdings, risks associated with violations of anti-corruption, trade protection and other laws and regulations, availability of qualified full-time employees, availability of temporary workers with appropriate skills required by customers, liabilities for employment-related claims and losses, including class action lawsuits and collective actions, our ability to sustain critical business applications through our key data centers, risks arising from failure to preserve the privacy of information entrusted to us or to meet our obligations under global privacy laws, the risk of cyberattacks or other breaches of network or information technology security, our ability to realize value from our tax credit and net operating loss carryforwards, our ability to maintain specified financial covenants in our bank facilities to continue to access credit markets, and other risks, uncertainties and factors discussed in this report and in our other filings with the Securities and Exchange Commission.

Actual results may differ materially from any forward-looking statements contained herein, and we undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.

Certain risk factors are discussed more fully under “Risk Factors” in Part I, Item 1A of this report.

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-K

Item 7. Management’s Discussion and Analysis