What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-02-18 compared with 2020-02-13 · 696 added, 500 removed, 1105 unchanged (52% of the section changed)

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Attestation Report of Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP, independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 29, 2019, as stated in their report which appears herein.

PricewaterhouseCoopers LLP, independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of January 3, 2021, as stated in their report which appears herein.

Changes in Internal Control Over Financial Reporting

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OTHER INFORMATION.

Information required by Part III with respect to Directors, Executive Officers and Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (Item 12), Certain Relationships and Related Transactions, and Director Independence (Item 13) and Principal Accounting Fees and Services (Item 14), except as set forth under the titles “Executive Officers of the Registrant,” which is included on page 40, and “Code of Business Conduct and Ethics,” which is included on page 41, (Item 10), and except as set forth under the title “Equity Compensation Plan Information,” which is included on pages 41-42, (Item 12), is to be included in a definitive proxy statement filed not later than 120 days after the close of our fiscal year and the proxy statement, when filed, is incorporated in this report by reference.

Information required by Part III with respect to Directors, Executive Officers and Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (Item 12), Certain Relationships and Related Transactions, and Director Independence (Item 13) and Principal Accounting Fees and Services (Item 14), except as set forth under the titles “Executive Officers of the Registrant,” which is included on pages 45-46, and “Code of Business Conduct and Ethics,” which is included on page 47, (Item 10), and except as set forth under the title “Equity Compensation Plan Information,” which is included on pages 47-48, (Item 12), is to be included in a definitive proxy statement filed not later than 120 days after the close of our fiscal year and the proxy statement, when filed, is incorporated in this report by reference.

EXECUTIVE OFFICERS OF THE REGISTRANT.

The following individuals serve as executive officers of the Company as of December 29, 2019:

The following individuals serve as executive officers of the Company as of January 3, 2021:

Name/Office Age Served as an

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& Co., San Francisco, CA

Senior Vice President, Global

Business Services and Global

Talent Solutions

Senior Vice President

Chief Administrative Officer

56 1996 Served as officer of the Company.

Senior Vice President and

Chief Legal Officer

48 2017 September 2017 - Present

Senior Vice President

President, KellyOCG

47 2018 October 2018 - Present

Served as officer of the Company.

October 2010 - April 2018

Deputy General Counsel, Chief Litigation

Counsel & Assistant Corporate Secretary -

PSEG, Newark, NJ

June 2012 - September 2016

VP, Chief Litigation & Chief Compliance

Counsel - ADT Corp, Boca Raton, FL

SVP Global Operations - Yoh

Senior Vice President

President, Kelly Professional &

44 2014 Served as officer of the Company.

Dinette Koolhaas

Senior Vice President

President, Kelly International

51 2008 Served as officer of the Company.

EXECUTIVE OFFICERS OF THE REGISTRANT (continued)

Name/Office Age Served as an

Officer Since

Business Experience

During Last 5 Years

Daniel Hugo Malan

Senior Vice President

President, Kelly Science,

Engineering & Technology

51 2020 March 2020 - Present

Served as officer of the Company.

December 2019 - February 2020

Managing Partner - Talent Capital Advisors

August 2018 - November 2019

Chief Operating Officer - Employbridge

December 2016 - July 2018

President, Commercial Business -

November 2014 - November 2016

EVP & President - North America Staffing,

Senior Vice President

President, Kelly Education

52 2011 Served as officer of the Company.

Senior Vice President

General Counsel

Assistant Secretary

49 2020 October 2020 - Present

Served as officer of the Company.

February 2020 - September 2020

SVP, Division General Counsel-

Transportation and Third Party

Risk Management and Compliance -

December 2016 - February 2020

VP, Division General Counsel -

Transportation - IHS Markit

February 2014 - December 2016

VP, Chief Legal Counsel & Global Privacy

Officer - IHS Markit

Vice President, Corporate Controller

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24,550 shares of restricted stock;

performance shares that have been earned but not yet vested totaling 48,680 shares of financial measure performance awards, zero shares of total shareholder return performance awards, and 12,701 shares of single financial measure performance awards.

zero shares of financial measure performance shares that have been earned but not yet vested, zero shares of total shareholder return performance awards, and 3,632 shares of single financial measure performance awards.

(3) The Fixed Share provision applies to shares granted on and after May 10, 2017, and the amended Equity Incentive Plan provides that the maximum number of shares available for grants is 4,700,000.

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256,310 shares of restricted stock;

performance shares that have been earned but not yet vested totaling 20,232 of financial measure performance awards, zero total shareholder return performance awards, and 78,208 single financial measure performance awards;

and performance shares granted to employees and not yet earned or vested totaling 570,980 shares of financial measure performance awards and 103,684 shares of total shareholder

return performance awards, each calculated using an assumed maximum award performance level of 200%, at December 29, 2019.

performance shares that have been earned but not yet vested totaling zero of financial measure performance awards, zero total shareholder return performance awards, and 136,226 single financial measure performance awards;

and performance shares granted to employees and not yet earned or

vested totaling 264,160 shares of financial measure performance awards, calculated using an assumed maximum award performance level of 200%, at January 3, 2021.

(4) The Non-Employee Directors Deferred Compensation Plan is an equity compensation plan that has not been approved by our stockholders.

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The plan is intended to be a non-qualified deferred compensation arrangement in compliance with Section 409A of the Code.

Shares acquired by participants in this plan will be issued from the share reserve stated in the EIP.

Shares acquired by participants in this plan will be issued from the share reserve stated in the Equity Incentive Plan.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

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Report of Independent Registered Public Accounting Firm

Consolidated Statements of Earnings for the three fiscal years ended December 29, 2019

Consolidated Statements of Comprehensive Income for the three fiscal years ended December 29, 2019

Consolidated Balance Sheets at December 29, 2019 and December 30, 2018

Consolidated Statements of Stockholders’ Equity for the three fiscal years ended December 29, 2019

Consolidated Statements of Cash Flows for the three fiscal years ended December 29, 2019

Consolidated Statements of Earnings for the three fiscal years ended January 3, 2021

Consolidated Statements of Comprehensive Income for the three fiscal years ended January 3, 2021

Consolidated Balance Sheets at January 3, 2021 and December 29, 2019

Consolidated Statements of Stockholders’ Equity for the three fiscal years ended January 3, 2021

Consolidated Statements of Cash Flows for the three fiscal years ended January 3, 2021

Notes to Consolidated Financial Statements

(ii) Financial Statement Schedule -

For the three fiscal years ended December 29, 2019:

For the three fiscal years ended January 3, 2021:

Schedule II - Valuation Reserves

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Report of Independent Registered Public Accounting Firm

Consolidated Statements of Earnings for the three fiscal years ended December 29, 2019

Consolidated Statements of Comprehensive Income for the three fiscal years ended December 29, 2019

Consolidated Balance Sheets at December 29, 2019 and December 30, 2018

Consolidated Statements of Stockholders' Equity for the three fiscal years ended December 29, 2019

Consolidated Statements of Cash Flows for the three fiscal years ended December 29, 2019

Consolidated Statements of Earnings for the three fiscal years ended January 3, 2021

Consolidated Statements of Comprehensive Income for the three fiscal years ended January 3, 2021

Consolidated Balance Sheets at January 3, 20 21 and December 29, 2019

Consolidated Statements of Stockholders' Equity for the three fiscal years ended January 3, 2021

Consolidated Statements of Cash Flows for the three fiscal years ended January 3, 2021

Notes to Consolidated Financial Statements

Financial Statement Schedule - Schedule II - Valuation Reserves at December 29, 2019, December 30, 2018 and December 31, 2017

Financial Statement Schedule - Schedule II - Valuation Reserves at January 3, 2021, December 29, 2019 and December 30, 2018

Management’s Report on Internal Control Over Financial Reporting

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may change.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 29, 2019.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of January 3, 2021.

In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).

Based on our assessment, management determined that, as of December 29, 2019, the Company’s internal control over financial reporting was effective based on those criteria.

The effectiveness of the Company’s internal control over financial reporting as of December 29, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on pages 46-48.

Based on our assessment, management determined that, as of January 3, 2021, the Company’s internal control over financial reporting was effective based on those criteria.

The effectiveness of the Company’s internal control over financial reporting as of January 3, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on pages 52-54.

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Kelly Services, Inc.

and its subsidiaries (the “Company”) as of December 29, 2019 and December 30, 2018, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity and cash flows for the years ended December 29, 2019, December 30, 2018, and December 31, 2017, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 29, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 29, 2019 and December 30, 2018, and the results of its operations and its cash flows for the years ended December 29, 2019, December 30, 2018, and December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

and its subsidiaries (the “Company”) as of January 3, 2021 and December 29, 2019, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity and cash flows for the years ended January 3, 2021, December 29, 2019, and December 30, 2018, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of January 3, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 3, 2021 and December 29, 2019, and the results of its operations and its cash flows for the years ended January 3, 2021, December 29, 2019, and December 30, 2018, in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 3, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 25 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers and investments in equity securities in 2018.

As discussed in Note 26 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenue from contracts with customers and investments in equity securities in 2018.

Basis for Opinions

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Management establishes the accrual for workers’ compensation claims utilizing actuarial methods to estimate the undiscounted future cash payments that will be made to satisfy the claims, including an allowance for incurred-but-not-reported claims.

As of December 29, 2019, the accrual for workers’ compensation, net of related receivables, is $59.5 million.

As of January 3, 2021, the accrual for workers’ compensation, net of related receivables, is $54.6 million.

Management retains an independent consulting actuary to establish loss development factors, based on historical claims experience as well as industry experience, and applies those factors to current claims information to derive an estimate of the ultimate claims liability.

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Management evaluates the accrual quarterly throughout the year and makes adjustments as needed.

The principal considerations for our determination that performing procedures relating to workers’ compensation is a critical audit matter are (i) there was significant judgment by management when determining the actuarial methods and the significant assumptions to use in establishing the accrual for workers’ compensation claims, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing our procedures and evaluating management’s actuarial methods and significant assumptions, including the loss development factors and (ii) the audit effort included the involvement of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

The principal considerations for our determination that performing procedures relating to workers’ compensation is a critical audit matter are (i) the significant judgment by management when determining the actuarial methods and the significant assumptions to use in establishing the accrual for workers’ compensation claims;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s actuarial methods and significant assumptions related to the loss development factors;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s accrual for workers’ compensation, including controls over the actuarial methods and development of significant assumptions.

These procedures also included, among others, obtaining and evaluating the Company’s workers’ compensation plan documents and testing the completeness and accuracy of data used in management’s accrual, including incurred and paid claims.

Testing management’s process included evaluating the actuarial methods and significant assumptions, including the loss development factors used by management to estimate the workers’ compensation accrual, and using professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Acquisitions of NextGen Global Resources and Global Technology Associates –Valuation of Intangible Assets

As described in Notes 1 and 4 to the consolidated financial statements, in 2019, the Company completed acquisitions of NextGen Global Resources LLC (NextGen) for $54.3 million and Global Technology Associates, LLC (GTA) for $35.7 million, for which approximately $21.5 million and $17.3 million of intangible assets were recorded, respectively.

The fair value of trade name intangibles is determined using the relief-from-royalty method, which relies on the use of estimates and assumptions about projected revenue growth and discount rates.

The fair value of customer relationship intangibles is determined using the multi-period excess earnings method, which relies on the use of estimates and assumptions about projected revenue growth, customer attrition, and discount rates.

The principal considerations for our determination that performing procedures relating to the acquisitions of NextGen and GTA and the related valuation of intangible assets is a critical audit matter are (i) there was a high degree of auditor subjectivity in applying our procedures relating to the fair value measurement of the intangible assets due to the significant judgment by management when developing these estimates, (ii) significant audit effort and auditor judgment was required in assessing the

significant assumptions used in the valuation of the intangible assets, including the revenue growth rates, the customer attrition rates, and the discount rates, and (iii) the audit effort included the involvement of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

These procedures included testing the effectiveness of controls relating to management’s accrual for workers’ compensation claims, including controls over the actuarial methods and development of significant assumptions.

These procedures also included, among others (i) the involvement of professionals with specialized skill and knowledge to assist in developing an independent estimate for the accrual for workers’ compensation claims and (ii) comparing the independent estimate to management’s estimate to evaluate the reasonableness of management’s estimate.

Developing the independent estimate involved (i) testing the completeness and accuracy of underlying data provided by management;

(ii) evaluating management’s actuarial methods and significant assumptions related to the loss development factors;

and (iii) independently developing the loss development factors and actuarial methods used.

Goodwill Impairment Assessment - Americas Staffing and Global Talent Solutions (“GTS”) Reporting Units

As described in Note 10 to the consolidated financial statements, the Company’s consolidated goodwill balance was $3.5 million as of January 3, 2021.

Management 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 the Company’s common stock price, caused the market capitalization to decline significantly compared to the fourth quarter of 2019, causing a triggering event.

Therefore, management 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 the interim goodwill impairment test in the first quarter of 2020, management recorded a goodwill impairment charge of $147.7 million to write off goodwill for both reporting units.

Management determined the fair value of each reporting unit using the income approach, which was validated through reconciliation to observable market

capitalization data.

Management’s analysis used significant assumptions including expected future revenue and expense growth rates, profit margins, discount rate, forecasted capital expenditures and working capital.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for the Americas Staffing and GTS reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value measurement of the reporting units;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to expected future revenue growth rates, profit margins and the discount rate;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the intangible assets and controls over development of the significant assumptions related to the valuation of the intangible assets, including the revenue growth rates, the customer attrition rates, and the discount rates.

These procedures also included, among others, reading the purchase agreements and testing management’s process for estimating the fair value of the intangible assets.

Testing management’s process included evaluating the appropriateness of the valuation methods, testing the completeness, accuracy, and relevance of underlying data used in calculating the estimates, and the reasonableness of significant assumptions, including the revenue growth rates, the customer attrition rates, and the discount rates, including using professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Evaluating the reasonableness of the revenue growth rates and customer attrition rates involved considering the past performance of the acquired businesses, as well as economic and industry forecasts.

The discount rates were evaluated by considering the cost of capital of comparable businesses and other industry factors.

These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Americas Staffing and GTS reporting units.

These procedures also included, among others (i) testing management’s process for developing the fair value measurement of the reporting units;

(ii) evaluating the appropriateness of the income approach, including testing management’s reconciliation to observable market capitalization data;

(iii) testing the completeness and accuracy of underlying data used in the model;

and (iv) evaluating the significant assumptions used by management related to the expected future revenue growth rates, profit margins and the discount rate.

Evaluating management’s assumptions related to the expected future revenue growth rates and profit margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting units;

(ii) the consistency with external market and industry data;

and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of management’s income approach and the discount rate assumption.

/s/ PricewaterhouseCoopers LLP

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Selling, general and administrative expenses 805.6 883.1 884.8

Goodwill impairment charge 147.7 — —

Gain on sale of assets ( 32.1 ) ( 12.3 ) —

Asset impairment charge — 15.8 —

Earnings from operations 81.8 87.4 83.3

Earnings (loss) from operations ( 93.6 ) 81.8 87.4

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

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

Net earnings $ 112.4 $ 22.9 $ 71.6

Basic earnings per share $ 2.85 $ 0.59 $ 1.84

Diluted earnings per share $ 2.84 $ 0.58 $ 1.81

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

Basic earnings (loss) per share $ ( 1.83 ) $ 2.85 $ 0.59

Diluted earnings (loss) per share $ ( 1.83 ) $ 2.84 $ 0.58

Average shares outstanding (millions):

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(In millions of dollars)

Net earnings $ 112.4 $ 22.9 $ 71.6

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

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments, net of tax benefit of $0.1 million, tax benefit of $0.4 million and tax expense of $0.2 million, respectively 2.5 ( 8.4 ) 16.4

Foreign currency translation adjustments, net of tax expense of $0.2 million, tax benefit of $0.1 million and tax benefit of $0.4 million, respectively 13.9 2.5 ( 8.4 )

Reclassification adjustments included in net earnings ( 1.5 ) — ( 0.4 )

Foreign currency translation adjustments 12.4 2.5 ( 8.8 )

Unrealized gains (losses) on investment, net of tax expense of $0.0 million, $0.0 million and $30.2 million, respectively — — 56.2

Pension liability adjustments, net of tax benefit of $0.3 million, tax expense of $0.2 million and tax benefit of $0.1 million, respectively ( 1.3 ) 0.8 ( 0.6 )

Pension liability adjustments, net of tax benefit of $0.1 million, tax benefit of $0.3 million and tax expense of $0.2 million, respectively ( 0.9 ) ( 1.3 ) 0.8

Reclassification adjustments included in net earnings 0.1 0.1 0.1

Pension liability adjustments ( 0.8 ) ( 1.2 ) 0.9

Other comprehensive income (loss) 1.3 ( 7.9 ) 72.1

Comprehensive income $ 113.7 $ 15.0 $ 143.7

Other comprehensive income (loss), net of tax 11.6 1.3 ( 7.9 )

Comprehensive income (loss) $ ( 60.4 ) $ 113.7 $ 15.0

See accompanying Notes to Consolidated Financial Statements.

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Operating lease liabilities 67.5 43.3

Accrued payroll and related taxes 58.5 —

Accrued workers' compensation and other claims 42.2 45.8

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Class A common stock, 100.0 million shares authorized;

36.6 million shares issued at 2019 and 2018 36.6 36.6

36.7 million shares issued at 2020 and 36.6 million at 2019 36.7 36.6

Class B common stock, 10.0 million shares authorized;

3.5 million shares issued at 2019 and 2018 3.5 3.5

3.4 million shares issued at 2020 and 3.5 million at 2019 3.4 3.5

Treasury stock, at cost

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Balance at beginning of year 1,238.6 1,138.1 983.6

Cumulative-effect adjustment from adoption of ASU 2016-13, Credit Losses ( 0.7 ) — —

Cumulative-effect adjustment from adoption of ASU 2016-01, Financial Instruments — — 140.0

Cumulative-effect adjustment from adoption of ASU 2014-09, Revenue — — 3.4

Net earnings 112.4 22.9 71.6

Net earnings (loss) ( 72.0 ) 112.4 22.9

Dividends ( 3.0 ) ( 11.9 ) ( 11.8 )

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Cash flows from operating activities:

Net earnings $ 112.4 $ 22.9 $ 71.6

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

Adjustments to reconcile net earnings to net cash from operating activities:

Goodwill impairment charge 147.7 — —

Deferred income taxes ( 57.1 ) ( 18.3 ) ( 47.5 )

Depreciation and amortization 24.2 31.6 26.2

Operating lease asset amortization 21.1 22.3 —

Provision for bad debts 4.1 3.0 5.6

Provision for credit losses and sales allowances 12.8 4.1 3.0

Stock-based compensation 3.9 5.6 8.1

Deferred income taxes ( 18.3 ) ( 47.5 ) ( 5.9 )

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

(Gain) on sale of assets ( 12.3 ) — —

(Gain) loss on sale of assets ( 32.1 ) ( 12.3 ) —

Asset impairment charge — 15.8 —

Equity in net (earnings) loss of PersolKelly Asia Pacific 3.6 ( 5.2 ) ( 2.7 )

Equity in net (earnings) loss of PersolKelly Pte.

( 0.8 ) 3.6 ( 5.2 )

Other, net 1.4 ( 0.4 ) ( 0.8 )

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Capital expenditures ( 15.5 ) ( 20.0 ) ( 25.6 )

Acquisition of companies, net of cash received ( 86.4 ) — ( 37.2 )

Investment in equity securities ( 1.0 ) ( 5.0 ) —

Loans to equity affiliate ( 4.4 ) ( 7.0 ) 0.6

Proceeds from sale of assets 55.5 13.8 —

Acquisition of companies, net of cash received ( 39.2 ) ( 86.4 ) —

Proceeds from company-owned life insurance 2.3 3.0 7.9

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

Proceeds (payments) related to loans to equity affiliate 5.6 ( 4.4 ) ( 7.0 )

Investment in equity securities ( 0.2 ) ( 1.0 ) ( 5.0 )

Other investing activities 0.1 0.7 ( 0.1 )

Net cash used in investing activities ( 94.3 ) ( 29.8 ) ( 61.0 )

Net cash from (used in) investing activities 9.8 ( 94.3 ) ( 29.8 )

Cash flows from financing activities:

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Dividend payments ( 3.0 ) ( 11.9 ) ( 11.8 )

Payments of tax withholding for restricted shares ( 2.5 ) ( 6.9 ) ( 1.8 )

Payments of tax withholding for stock awards ( 1.2 ) ( 2.5 ) ( 6.9 )

Other financing activities ( 0.2 ) ( 0.7 ) —

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Current assets:

Cash and cash equivalents $ 25.8 $ 35.3 $ 32.5

Cash and equivalents $ 223.0 $ 25.8 $ 35.3

Restricted cash included in prepaid expenses and other current assets — 0.2 0.1

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Fiscal Year The Company’s fiscal year ends on the Sunday nearest to December 31.

The three most recent years ended on December 29, 2019 (2019), December 30, 2018 (2018) and December 31, 2017 (2017), all of which contained 52 weeks.

The three most recent years ended on January 3, 2021 (2020, which contained 53 weeks), December 29, 2019 (2019, which contained 52 weeks) and December 30, 2018 (2018, which contained 52 weeks).

Period costs included in selling, general and administrative (“SG&A”) expenses are recorded on a calendar-year basis.

The Company’s operations in Brazil are accounted for on a one-month lag.

The Company’s equity method investment in PersolKelly Asia Pacific are accounted for on a one-quarter lag (see Investment in PersolKelly Asia Pacific footnote).

The Company’s operations in Brazil were accounted for on a one-month lag, until the Company sold the Brazil operations in the third quarter of 2020.

The Company’s equity method investment in PersolKelly Pte.

are accounted for on a one-quarter lag (see Investment in PersolKelly Pte.

Any material transactions in the intervening period are disclosed or accounted for in the current reporting period.

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All intercompany accounts and transactions have been eliminated.

Certain prior period amounts have been reclassified to conform to the current presentation.

Investment in Persol Holdings The Company’s investment in Persol Holdings, as further described in the Investment in Persol Holdings footnote, is carried at fair value with the changes in fair value recognized in net earnings.

The fair value of the investment is based on the quoted market price.

Investment in PersolKelly Asia Pacific The Company has a 49 % ownership interest in its equity affiliate, PersolKelly Asia Pacific, which is accounted for under the equity method.

Investment in PersolKelly Pte.

The Company has a 49 % ownership interest in its equity affiliate, PersolKelly Pte.

Ltd., which is accounted for under the equity method.

The operating results of the equity affiliate are recorded on a one-quarter lag and included in equity in net earnings (loss) of affiliate in the consolidated statements of earnings.

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We generate revenue from:

the hourly sales of services by our temporary employees to customers (“staffing solutions” revenue), the recruiting of permanent employees for our customers (“permanent placement” revenue), and through our talent fulfillment and outcome-based activities (“talent solutions” and “outcome-based services” revenue).

the hourly sales of services by our temporary employees to customers (“staffing services” revenue), the recruiting of permanent employees for our customers (“permanent placement” revenue), and through our talent fulfillment and outcome-based activities (“talent solutions” and “outcome-based services” revenue).

We record revenues from sales of services and the related direct costs in accordance with the accounting guidance on reporting revenue gross as a principal versus net as an agent.

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When Kelly arranges for other contingent labor suppliers and/or service providers to perform services for the customer, we do not control those services before they are transferred, and therefore, the amounts billed to our customers are net of the amounts paid to the secondary suppliers/service providers and the net amount is recorded as revenues.

Staffing Solutions Revenue

Staffing solutions contracts are short-term in nature.

Staffing Services Revenue

Staffing services contracts are short-term in nature.

Billings are generally negotiated and invoiced on a per-hour or per-unit basis as the temporary staffing services are transferred to the customer.

Revenue from the majority of our staffing solutions services continues to be recognized over time as the customer simultaneously receives and consumes the services we provide.

Revenue from the majority of our staffing services continues to be recognized over time as the customer simultaneously receives and consumes the services we provide.

We have applied the practical expedient to recognize revenue for these services over the term of the agreement in proportion to the amount we have the right to invoice the customer.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Permanent Placement Revenue

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We consider this the point the control transfers to the customer.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Talent Solutions and Outcome-Based Services Revenue

Outcome-Based Services Revenue

Billings are generally negotiated and invoiced on a measure of time (hours, weeks, months) or per-unit basis for our services performed.

We continue to recognize revenue from the majority of our talent solutions services and our outcome-based services over time as the customer simultaneously receives and consumes the services we provide.

We continue to recognize revenue from the majority of our outcome-based services over time as the customer simultaneously receives and consumes the services we provide.

For the majority of our outcome-based services, we have applied the practical expedient to recognize revenue for these services over the term of the agreement in proportion to the amount we have the right to invoice the customer.

Talent Solutions Revenue

Talent Solution services include:

overall program management of our client’s contingent workforce, external vendors and/or independent contractors, end-to-end talent acquisition, and payroll outsourcing.

Billings are generally negotiated and invoiced as a fee-based commission contingent on the amount of services managed through the program, a monthly management fee, measure of time (hours), or a per-unit basis for our services performed.

We continue to recognize revenue for talent solution services over time as the customer simultaneously receives and consumes the services we provide.

We have applied the practical expedient to recognize revenue for these services over the term of the agreement in proportion to the amount we have the right to invoice the customer.

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Amortization expense is included in SG&A expenses in the consolidated statements of earnings.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Unsatisfied Performance Obligations

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

Allowance for Uncollectible Accounts Receivable The Company records an allowance for uncollectible accounts receivable based on historical loss experience, customer payment patterns and current economic trends.

The reserve for sales allowances, as discussed above, is also included in the allowance for uncollectible accounts receivable.

Allowance for Credit Losses - Trade Accounts Receivable The Company records an allowance for uncollectible accounts receivable, billed and unbilled, based on historical loss experience, customer payment patterns, current economic trends, and reasonable and supportable forecasts, as applicable.

The reserve for sales allowances is also included in the allowance for uncollectible accounts receivable.

The Company estimates the current expected credit losses by applying internally developed loss rates to all outstanding receivable balances by aging category.

Accounts receivable are written-off against the allowance when they are deemed uncollectible.

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 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.

We are exposed to credit losses primarily through our sales of workforce solution services to customers.

We establish an allowance for estimated credit losses in the current period resulting from the failure of our customers to make required payments on their trade accounts receivable in future periods.

We pool such assets by geography and other similar risk characteristics, such as accounts in collection, and apply an aging method to estimate future credit losses utilizing inputs such as historical write-off experience, customer payment patterns, current collection data, and reasonable and supportable forecasts, as applicable.

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

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

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

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

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.

The estimate of expected credit losses considers credit ratings, financial data, historical write-off experience, current conditions, and reasonable and supportable forecasts, as applicable, to estimate the risk of loss.

Cost of Services Cost of services are those costs directly associated with the earning of revenue.

The primary examples of these types of costs are temporary employee wages, along with other employee related costs, including associated payroll taxes, temporary employee benefits, such as service bonus and holiday pay, and workers’ compensation costs.

These costs differ

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

fundamentally from SG&A expenses in that they arise specifically from the action of providing our services to customers whereas SG&A costs are incurred regardless of whether or not we place temporary employees with our customers.

These costs differ fundamentally from SG&A expenses in that they arise specifically from the action of providing our services to customers whereas SG&A costs are incurred regardless of whether or not we place temporary employees with our customers.

Advertising Expenses Advertising expenses, which are expensed as incurred and are included in SG&A expenses, were $ 8.1 million in 2020, $ 9.4 million in 2019 and $ 8.7 million in 2018.

Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes.

Estimates are used for, but not limited to, the accounting for the allowance for uncollectible accounts receivable, workers’ compensation, goodwill and long-lived asset impairment, valuation of acquired intangibles, impairment of equity affiliates, litigation costs and income taxes.

Estimates are used for, but not limited to, the accounting for the allowance for uncollectible accounts receivable and credit losses, workers’ compensation, goodwill and long-lived asset impairment, valuation of acquired intangibles, impairment of equity affiliates, litigation costs and income taxes.

Actual results could differ materially from those estimates.

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Cost and estimated useful lives of property and equipment by function are as follows:

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Category 2020 2019 Life

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Equipment, furniture and fixtures 34.8 34.1 5 years

Leasehold improvements 22.9 25.5 The lesser of the life of the lease or 5 years.

Leasehold improvements 21.9 22.9 HQ:

Lesser of the lease or 5 years

Total property and equipment $ 222.3 $ 225.8

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Depreciation expense was $ 16.8 million for 2020, $ 25.3 million for 2019 and $ 24.0 million for 2018.

Leases See Leases footnote for a description of the accounting policy related to leases.

Leases Right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

Since most of the Company’s leases do not have an implicit borrowing rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Our leases may include options allowing us in our sole discretion to extend or terminate the lease, and when it is reasonably certain that we will exercise those options, we will include those periods in our lease term.

Variable costs, such as payments for insurance and tax payments, are expensed when the obligation for those payments is incurred.

Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the acquisition date fair value of net assets acquired.

Purchased intangible assets are primarily comprised of acquired trade name and customer relationships that are recorded at fair value at the date of acquisition.

Purchased intangible assets are primarily comprised of acquired trade names and customer relationships that are recorded at fair value at the date of acquisition.

The fair value of trade name intangibles is determined using the relief-from-royalty method, which relies on the use of estimates and assumptions about projected revenue growth and discount rates.

Purchased intangible assets with definite lives are amortized over their respective useful lives (from 4 to 15 years) on a straight-line basis or, if appropriate, on an accelerated basis commensurate with the related cash flows.

Purchased intangible assets with definite lives are amortized over their respective useful lives (from 4 to 15 years) on a straight-line basis.

Impairment of Long-Lived Assets, Intangible Assets, Goodwill, Equity Method Investments and Equity Securities The Company evaluates long-lived assets and intangible assets with definite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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Assets to be disposed of by sale, if any, are reported at the lower of the carrying amount or estimated fair value less cost to sell.

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.

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

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We test goodwill for impairment at the reporting unit level annually in the fourth quarter and whenever events or circumstances make it more likely than not that an impairment may have occurred.

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.

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.

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, 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.

Estimated future cash flows are based on our internal projection model and reflects management’s outlook for the reporting units.

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 would be deemed impaired and would be written down to the extent of the difference.

Assumptions and estimates about future cash flows and discount rates are complex and often subjective.

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.

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.

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

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Accounts Payable Included in accounts payable are book overdrafts, which are outstanding checks in excess of funds on deposit.

Such amounts totaled $ 5.9 million and $ 7.3 million at year-end 2019 and 2018.

Accrued Payroll and Related Taxes Included in accrued payroll and related taxes are book overdrafts, which are outstanding checks in excess of funds on deposit.

Such amounts totaled $ 9.3 million and $ 5.9 million at year-end 2020 and 2019, respectively.

Accrued Payroll and Related Taxes Included in current accrued payroll and related taxes are book overdrafts, which are outstanding checks in excess of funds on deposit.

Such amounts totaled $ 11.0 million and $ 21.9 million at year-end 2020 and 2019, respectively.

Payroll taxes for temporary employees are recognized proportionately to direct wages for interim periods based on expected full-year amounts.

Included in current and noncurrent accrued payroll and related taxes are deferred U.S.

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

Income Taxes The Company accounts for income taxes using the liability method.

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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 operating 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.

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The table below presents our segment revenues disaggregated by service type (in millions).

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

December Year to Date

Branch-Delivered Staffing

Americas Staffing

Staffing Solutions

Commercial $ 1,502.3 $ 1,679.6

Education 451.9 428.0

Professional/Technical 332.4 272.2

2020 2019 2018

Professional & Industrial

Staffing services $ 1,423.3 $ 1,838.6 $ 2,100.4

Permanent placement 9.9 17.9 21.6

Total Americas Staffing 2,320.1 2,417.7

International Staffing

Staffing Solutions 1,001.1 1,087.7

Outcome-based services 425.2 356.9 308.9

Total Professional & Industrial 1,858.4 2,213.4 2,430.9

Science, Engineering & Technology

Staffing services 751.8 848.2 814.3

Permanent placement 12.5 15.7 15.9

Total International Staffing 1,025.9 1,116.6

Global Talent Solutions

Talent Fulfillment

Staffing Solutions 1,015.5 1,117.6

Outcome-based services 254.8 267.9 172.4

Total Science, Engineering & Technology 1,019.1 1,131.8 1,002.6

Staffing services 286.4 449.8 427.1

Permanent placement 0.5 0.9 1.4

Total Education 286.9 450.7 428.5

Outsourcing & Consulting

Talent solutions 363.5 377.7 377.1

Total Talent Fulfillment 1,383.1 1,482.3

Outcome-Based Services 641.4 515.1

Total Global Talent Solutions 2,024.5 1,997.4

Total Outsourcing & Consulting 363.5 377.7 $ 377.1

International

Staffing services 971.8 1,156.8 1,245.1

Permanent placement 16.8 25.7 30.1

Total International 988.6 1,182.5 1,275.2

Total Intersegment ( 0.5 ) ( 0.5 ) ( 0.4 )

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

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

For 2019 and 2018, GTS made up $ 1,955.5 million and $ 1,929.3 million in total Americas, respectively, $ 42.1 million and $ 45.9 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):

December Year to Date

2020 2019 2018

United States $ 3,260.2 $ 3,892.5 $ 3,930.0

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Brazil 17.0 34.1 35.2

Total Americas 4,260.9 4,329.2

Total Americas Region 3,591.1 4,260.9 4,329.2

France 198.2 248.6 278.9

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Other 54.6 67.5 85.6

Total EMEA 1,067.9 1,162.5

Total APAC 26.8 22.2

Total Europe Region 895.3 1,067.9 1,162.5

Total Asia-Pacific Region 29.6 26.8 22.2

Total Kelly Services, Inc.

$ 4,516.0 $ 5,355.6 $ 5,513.9

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

December Year to Date

2020 2019 2018

Science, Engineering & Technology

Americas $ 1,013.7 $ 1,122.5 $ 989.9

Europe 5.4 9.3 12.7

Total Science, Engineering & Technology $ 1,019.1 $ 1,131.8 $ 1,002.6

Outsourcing & Consulting

Americas $ 302.2 $ 318.1 $ 321.7

Europe 31.7 32.8 33.2

Asia-Pacific 29.6 26.8 22.2

Total Outsourcing & Consulting $ 363.5 $ 377.7 $ 377.1

International

Americas $ 130.4 $ 156.7 $ 158.5

Europe 858.2 1,025.8 1,116.7

Total International $ 988.6 $ 1,182.5 $ 1,275.2

Deferred Costs

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

Amortization expense for the deferred costs was $ 1.6 million for 2019 and $ 1.7 million for 2018.

Amortization expense for the deferred costs was $ 1.0 million for 2020, $ 1.6 million for 2019 and $ 1.7 million for 2018.

As of year-end 2020, there was no impairment loss in relation to the costs capitalized.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 4.1 million as of year-end 2020 and $ 3.6 million as of 2019.

Amortization expense for the deferred costs was $ 14.6 million for 2019 and $ 13.0 million for 2018.

Amortization expense for the deferred costs was $ 21.5 million for 2020, $ 14.6 million for 2019 and $ 13.0 million for 2018.

As of year-end 2020, there was no impairment loss in relation to the costs capitalized.

Credit Losses

On December 30, 2019, we adopted Accounting Standards Codification ("ASC") Topic 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures, as applicable.

Results for reporting periods beginning after December 30, 2019 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

As a result of adopting this guidance, we have updated our accounting policies (see Summary of Significant Accounting Policies footnote).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

December Year to Date

Allowance for credit losses:

Beginning balance $ 9.7

Impact of adopting ASC 326 0.3

Current period provision 2.0

Currency exchange effects 0.1

Write-offs ( 2.3 )

Ending balance $ 9.8

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

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, which is recorded in other assets in the consolidated balance sheet, by $ 9.2 million to reflect the likelihood of collection.

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

December 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

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

and other receivables measured at amortized cost.

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

See Investment in PersolKelly Pte.

footnote for more information on the loan to PersolKelly Pte.

Assets Held for Sale

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Accordingly, during the fourth quarter of 2019, the transaction met the criteria to classify the properties as held for sale.

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

Assets held for sale are recorded at the lower of their carrying value or fair value less estimated costs to sell and

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

Assets held for sale are recorded at the lower of their carrying value or fair value less estimated costs to sell and depreciation is suspended on assets upon classification to held for sale.

The combined net carrying amount of the properties held for sale as of year-end 2019 was $ 21.2 million, which was less than the sales price in the purchase agreement, less costs to sell.

The Company presented these assets as current assets held for sale on the consolidated balance sheet as of year-end 2019, and the properties were sold in the first quarter of 2020 per terms of the purchase agreement.

The main headquarters building included in the sale was leased back (see Sale of Assets footnote).

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

depreciation is suspended on assets upon classification to held for sale.

The combined net carrying amount of the properties held for sale as of year-end 2019 is $ 21.2 million, which is less than the sales price in the purchase agreement, less costs to sell.

The proceeds of the sale are expected to be approximately $ 51 million, net of taxes and transaction expenses.

The Company has presented these assets as current assets held for sale on the consolidated balance sheet as of year-end 2019, as the properties will be sold in the first quarter of 2020 per terms of the purchase agreement.

The main headquarters building included in the sale will be leased back.

Acquisitions and Disposition

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

In the fourth quarter of 2020, KSU acquired Greenwood/Asher & Associates, LLC ("Greenwood/Asher"), as detailed below.

In the first quarter of 2019, the Company acquired NextGen Global Resources LLC (“NextGen”) and Global Technology Associates, LLC (“GTA”), as detailed below.

We have accounted for these acquisitions under Accounting Standards Update (“ASU”) 2017-01, Business Combinations.

Greenwood/Asher

On November 18, 2020, KSU acquired 100 % of the membership interests of Greenwood/Asher, a premier specialty education executive search firm in the U.S., for a purchase price of $ 3.5 million.

Under terms of the purchase agreement, the purchase price was adjusted for cash held by Greenwood/Asher at the closing date and estimated working capital adjustments resulting in the Company paying cash of $ 5.2 million.

The purchase price of the acquisition also includes contingent consideration with an estimated fair value of $ 2.1 million related to an earnout payment in the event certain conditions are met per the terms of the agreement.

The initial fair value of the earnout was established using a Black Scholes model and the liability is recorded in other non-current liabilities in the consolidated balance sheet (see Fair Value Measurements footnote).

The earnout is expected to be paid in 2022 and 2023 after each earn-out year pursuant to the terms of the purchase agreement.

Due to the limited amount of time that has passed since acquiring Greenwood/Asher, the purchase price allocation for this acquisition is preliminary and could change.

This acquisition will expand our revenue opportunities in the education industry in the U.S.

Greenwood/Asher's results of operations are included in the Education segment.

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

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition (in millions of dollars):

Trade accounts receivable 0.4

Property and equipment 0.2

Deferred taxes 0.2

Intangibles 1.9

Other noncurrent assets 0.3

Current liabilities ( 1.2 )

Noncurrent liabilities ( 0.4 )

Assets acquired net of liabilities assumed $ 7.3

The fair value of the acquired receivables represents the contractual value.

Included in the assets purchased in the Greenwood/Asher acquisition was approximately $ 1.9 million of intangible assets, made up of $ 1.3 million of customer relationships and $ 0.6 million associated with Greenwood/Asher's trade name.

The customer relationships will be amortized over 10 years with no residual value and the trade name will be amortized over 10 years with no residual value.

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

The amount of goodwill expected to be deductible for tax purposes is approximately $ 0.9 million.

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

On January 14, 2020, KSU acquired 100 % of the membership interests of Insight, an educational staffing company in the U.S., for a purchase price of $ 34.5 million.

Under terms of the purchase agreement, the purchase price was adjusted for cash held by Insight at the closing date and estimated working capital adjustments resulting in the Company paying cash of $ 38.1 million.

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 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).

Subsequently, the earnout was revalued, resulting in a net increase to the liability of $ 0.1 million.

The earnout is expected to be paid in the next 12 months pursuant to the terms of the purchase agreement.

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

As of year-end 2020, the purchase price allocation is final.

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 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.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition (in millions of dollars):

Trade accounts receivable 9.6

Other current assets 0.2

Property and equipment 0.2

Goodwill 19.9

Intangibles 10.6

Other noncurrent assets 0.2

Current liabilities ( 2.6 )

Noncurrent liabilities ( 0.1 )

Assets acquired net of liabilities assumed $ 39.8

The fair value of the acquired receivables represents the contractual value.

Included in the assets purchased in the Insight acquisition was approximately $ 10.6 million of intangible assets, made up entirely of customer relationships.

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

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.

On January 2, 2019, the Company acquired 100 % of the membership interests of NextGen, a leading provider of telecommunications staffing services, 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.

As of year-end 2019, the purchase price allocation is final.

Due to the date of the acquisition, the December year to date 2019 actual results represent the December year to date 2019 pro forma results.

This acquisition will increase our presence and market share in the telecommunications industry within the engineering staffing solutions market.

NextGen’s results of operations are included in the Americas Staffing segment in 2019.

NextGen’s results of operations are included in the Science, Engineering & Technology segment.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition (in millions of dollars):

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Trade accounts receivable 19.7

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Current liabilities ( 4.9 )

Purchase price paid, including working capital adjustments $ 54.3

Assets acquired net of liabilities assumed $ 54.3

The fair value of the acquired receivables represents the contractual value.

Included in the assets purchased in the NextGen acquisition was approximately $ 21.5 million of intangible assets, made up of $ 12.9 million in customer relationships, $ 8.1 million associated with NextGen’s trade name and $ 0.5 million for non-compete agreements.

The customer relationships will be amortized over 10 years with no residual value, the trade name will be amortized over 15 years with no residual value and the non-compete agreements will be amortized over five years with no residual value.

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 and Intangible Assets footnote).

The customer relationships are being amortized over 10 years with no residual value, the trade name is being amortized over 15 years with no residual value and the non-compete agreements are being amortized over five years with no residual value.

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

All of the goodwill is deductible for tax purposes.

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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.

As of year-end 2019, the purchase price allocation is final.

Due to the date of the acquisition, the December year to date 2019 actual results represent the December year to date 2019 pro forma results.

This acquisition will increase our presence and market share in the telecommunications industry within the engineering outcome-based solutions market.

GTA’s results of operations are included in the GTS segment in 2019.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

GTA’s results of operations are included in Science, Engineering & Technology segment.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition (in millions of dollars):

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Current liabilities ( 2.9 )

Purchase price paid, including working capital adjustments $ 35.7

Assets acquired net of liabilities assumed $ 35.7

The fair value of the acquired receivables represents the contractual value.

Included in the assets purchased in the GTA acquisition was approximately $ 17.3 million of intangible assets, made up of $ 12.1 million in customer relationships, $ 4.0 million associated with GTA’s trade name and $ 1.2 million for non-compete agreements.

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 and Intangible Assets footnote).

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 and Intangible Assets footnote).

All of the goodwill is deductible for tax purposes.

As noted above, goodwill related to the Insight and NextGen acquisitions was assigned to the Americas Staffing reporting unit and the goodwill related to the GTA acquisition was assigned to the GTS reporting unit.

The goodwill related to these

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

acquisitions 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 and Intangible Assets footnote).

Pro Forma Information

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The unaudited pro forma information presented has been prepared for comparative purposes only and is not necessarily indicative of the results of operations as they would have been had the acquisitions occurred on the assumed dates, nor is it necessarily an indication of future operating results.

Teachers On Call

On September 5, 2017, Kelly Services USA, LLC, a wholly owned subsidiary of the Company, acquired 100 % of the issued and outstanding shares of Teachers On Call, Inc.

(“TOC”), an educational staffing firm in the U.S.

for a purchase price of $ 41.0 million.

Under terms of the purchase agreement, the purchase price was adjusted for cash held by TOC at the closing date less an estimated working capital adjustment resulting in the Company paying cash of $ 39.0 million at closing.

In the first quarter of 2018, the Company paid a working capital adjustment of $ 0.2 million, resulting in an increase of goodwill.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition (in millions of dollars):

Other current assets 3.6

Goodwill 18.7

Intangibles 18.3

Other noncurrent assets 0.5

Current liabilities ( 3.9 )

Purchase price paid at closing $ 39.0

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

The amount of goodwill deductible for tax purposes is approximately $ 18.8 million as of year-end 2019.

An indemnification asset of $ 2.8 million was recognized as of the acquisition date related to pre-acquisition tax liabilities.

The indemnification asset was zero as of year-end 2019 and $ 0.1 million as of year-end 2018, with the change driven by cash received from the seller to pay pre-acquisition tax liabilities.

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 represented the fair value of the liability (see Fair Value Measurements footnote) and completely offset the gain on the sale.

Investment in Persol Holdings

The Company has a yen-denominated investment in the common stock of Persol Holdings, the Company’s joint venture partner in PersolKelly Asia Pacific.

The Company has a yen-denominated investment through the Company's subsidiary, Kelly Services Japan, Inc., in the common stock of Persol Holdings Co., Ltd.

("Persol Holdings"), the 100% owner of Persol Asia Pacific Pte.

Ltd., the Company's joint venture partner in PersolKelly Pte.

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).

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A cumulative catch-up adjustment of the prior net unrealized gains previously recorded in other comprehensive income, and in accumulated other comprehensive income (loss), a component of stockholders’ equity, was recorded in earnings invested in the business as of January 1, 2018 for $ 140.0 million, net of $ 69.9 million of taxes.

For the year ended 2019, a gain on the investment of $ 35.8 million was recorded entirely in the gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.

For the year ended 2018, a loss on the investment of $ 96.2 million was recorded entirely in the gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.

Investment in PersolKelly Asia Pacific

The Company has a 49 % ownership interest in PersolKelly Asia Pacific, a staffing solutions business operating in more than 10 countries in the Asia-Pacific region.

The operating results of the Company’s interest in PersolKelly Asia Pacific 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 $ 3.6 million in 2019, and earnings of $ 5.2 million in 2018 and $ 2.7 million in 2017.

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 method 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 $ 117.2 million as of year-end 2019 and $ 121.3 million as of year-end 2018.

The net amount due from PersolKelly Asia Pacific, a related party, was $ 10.9 million as of year-end 2019 and $ 10.2 million as of year-end 2018.

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

The loans, which are outstanding as of year-end 2019, are included in other assets in the consolidated balance sheet and included in the net amounts due from PersolKelly Asia Pacific.

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

The amount included in trade accounts payable for staffing services provided by PersolKelly Asia Pacific as a supplier to secondary supplier programs was $ 0.2 million as of year-end 2019 and 2018.

In 2017, TS Kelly Workforce Solutions, a previous joint venture which was transferred to PersolKelly Asia Pacific in the first quarter of 2017, made a loan repayment of $ 0.6 million to the Company.

A loss on the investment of $ 16.6 million, a gain on the investment of $ 35.8 million, and a loss on the investment of $ 96.2 million for the years ended 2020, 2019, and 2018, respectively, was recorded entirely in gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.

KELLY SERVICES, INC.

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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 services 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 earnings of $ 0.8 million in 2020, a loss of $ 3.6 million in 2019 and earnings of $ 5.2 million in 2018.

This investment is evaluated for indicators of impairment on a quarterly 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 method 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 $ 118.5 million as of year-end 2020 and $ 117.2 million as of year-end 2019.

The net amount due from the JV, a related party, was $ 5.6 million as of year-end 2020 and $ 10.9 million as of year-end 2019.

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

In the fourth quarter of 2020, the JV repaid $ 5.6 million of the outstanding loan balance.

The remaining balance of the loans is included in other assets in the consolidated balance sheet and included in the net amounts due from the JV.

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

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

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

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

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

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

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

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

Fair Value Measurements

Trade accounts receivable, accounts payable, accrued liabilities, accrued payroll and related taxes and short-term borrowings 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 year-end 2019 and 2018 in the consolidated balance sheet by fair value hierarchy level, as described below.

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 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 year-end 2020 and 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.

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Level 3 measurements include significant unobservable inputs.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fair Value Measurements on a Recurring Basis As of Year-End 2020

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Total assets at fair value $ 284.5 $ 284.5 $ — $ —

Brazil indemnification $ ( 2.6 ) $ — $ — $ ( 2.6 )

Greenwood/Asher earnout ( 2.1 ) — — ( 2.1 )

Insight earnout ( 1.7 ) — — ( 1.7 )

Total liabilities at fair value $ ( 6.4 ) $ — $ — $ ( 6.4 )

Fair Value Measurements on a Recurring Basis As of Year-End 2019

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

Money market funds as of year-end 2019 and 2018 represent investments in money market accounts, all of which are restricted as to use and are included in other assets in the consolidated balance sheet.

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

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

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

The 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 year 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).

In 2017, changes in fair value were recorded in other comprehensive income, and in accumulated other comprehensive income (loss), a component of stockholders' equity.

The cost of this yen-denominated investment, which fluctuates based on foreign exchange rates, was $ 20.1 million at year-end 2020 and $ 18.9 million at year-end 2019.

As of year-end 2020, the Company had an indemnification liability of $ 2.6 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 and fluctuates based on foreign exchange rates.

During year to date 2020, the Company recognized $ 2.6 million, including foreign currency fluctuations, 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 of $ 1.7 million as of year-end 2020 in accounts payable and accrued liabilities in the consolidated balance sheet (see Acquisitions and Dispositions 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.

During 2020, the Company recognized $ 0.1 million of expense related to the earnout liability within SG&A expenses in the consolidated statements of earnings.

In connection with the fourth quarter 2020 acquisition of Greenwood/Asher, the Company has recorded an earnout liability of $ 2.1 million as of year-end 2020 in other non-current liabilities in the consolidated balance sheet (see Acquisitions and

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Dispositions footnote).

The valuation of the earnout liability was established using a Black Scholes model and represents the fair value and is considered a level 3 liability.

Equity Investments Without Readily Determinable Fair Value

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

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

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

There have been no adjustments to the carrying amount or impairments on the investment.

During the second quarter of 2019, the Company made an additional $ 1.0 million minority investment in Kenzie Academy Inc., which is included in other assets in the consolidated balance sheet.

This investment is also measured using the measurement

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

The Company also has a minority investment in Kenzie Academy Inc., which is included in other assets in the consolidated balance sheet.

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 year-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 prices, 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 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.

In the fourth quarter of 2020, we performed a qualitative analysis to determine whether a further quantitative analysis was necessary.

As a result of the qualitative assessment, we determined it was more likely than not that the fair value of the reporting unit with goodwill was more than its carrying value and a further quantitative assessment was not necessary (see Goodwill and Intangible Assets footnote).

In 2019, we performed a step one quantitative test for all of our reporting units with goodwill.

The estimated fair value of each reporting unit tested exceeded its related carrying value.

As a result of the quantitative assessment, we determined it was more likely than not that the fair value of each of the reporting units was more than its carrying value.

Restructuring

In the first quarter of 2020, the Company took restructuring actions to align costs with expected revenues, position the organization to adopt a new operating model later in 2020 and to align the U.S.

field office facilities footprint with a more technology-enabled service delivery methodology.

In the fourth quarter of 2020, the Company took several restructuring actions with a goal to provide sustainable cost reductions as a result of the continuing COVID-19 demand disruption.

The restructuring actions included involuntary terminations, a Voluntary Separation Plan ("VSP") and a Voluntary Retirement Plan ("VRP").

Employees were included in the VSP based on the functions that were being reorganized, and not by age or years of service.

For the VRP, eligible employees were selected based on their age and years of service.

Restructuring costs incurred in 2020 totaled $ 12.8 million and are recorded entirely in SG&A expenses in the consolidated statements of earnings, as detailed below (in millions of dollars).

Lease Termination Costs Severance Costs Total

Professional & Industrial $ 3.5 $ 2.5 $ 6.0

Science, Engineering & Technology 0.5 0.1 0.6

Education 0.1 0.9 1.0

Outsourcing & Consulting — 0.3 0.3

International 0.7 0.7 1.4

Corporate — 3.5 3.5

Total $ 4.8 $ 8.0 $ 12.8

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

alternative for equity investments without a readily determinable fair value as described above.

As of year-end 2019, the investment totaled $ 1.3 million, representing total cost plus observable price changes to date.

Assets Measured at Fair Value on a Nonrecurring Basis

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

In 2019 and 2018, we performed a step one quantitative test for all of our reporting units with goodwill.

For both years, the estimated fair value of each reporting unit tested exceeded its related carrying value.

As a result of these quantitative assessments, we determined it was more likely than not that the fair value of each of the reporting units was more than its carrying value.

Restructuring

In the first quarter of 2019, the Company took restructuring actions to transform operations in order to drive growth and operational effectiveness primarily in the U.S.

branch-based staffing operations.

Restructuring costs incurred in 2019 totaled $ 5.5 million, all of which is within the Americas Staffing segment.

The restructuring costs, which are all severance related, were recorded in SG&A expenses in the consolidated statements of earnings.

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

Restructuring costs incurred in 2019 totaled $ 5.5 million.

Professional & Industrial incurred $ 5.1 million and Science, Engineering & Technology incurred $ 0.4 million.

The restructuring costs, which were all severance related, were recorded in SG&A expenses in the consolidated statements of earnings.

No restructuring costs were incurred in 2018.

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

Balance as of year-end 2019 $ 0.3

Additions charged to Americas Staffing 6.3

Reductions for cash payments ( 5.2 )

Accrual adjustments ( 0.8 )

Additions charged to Professional & Industrial 6.0

Additions charged to Science, Engineering & Technology 0.6

Additions charged to Education 1.0

Additions charged to Outsourcing & Consulting 0.3

Additions charged to International 1.4

Additions charged to Corporate 3.5

Reductions for lease termination costs related to fixed assets ( 0.6 )

Reductions for cash payments related to all restructuring activities ( 9.0 )

Balance as of year-end 2020 $ 3.5

The remaining balance of $ 0.3 million as of year-end 2019 primarily represents severance costs and the majority is expected to be paid during the first quarter of 2020.

The remaining balance of $ 3.5 million as of year-end 2020 primarily represents severance costs and the majority is expected to be paid during the first two quarters of 2021.

No material adjustments are expected to be recorded.

Goodwill and Intangible Assets

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 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.

See impairment adjustments in the table below.

In performing the step one quantitative test and consistent with our prior practice, we determined the fair value of each reporting unit using the income approach, which was validated through reconciliation to observable market capitalization data.

Under the income approach, estimated fair value was 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.

Estimated future cash flows were based on our internal projection model and reflects management’s outlook for the reporting units.

Assumptions and estimates about future cash flows and discount rates are complex and often subjective.

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.

As discussed in the Segment Disclosures footnote, during the third quarter of 2020, the Company adopted a new operating model reflecting the Company's focus on delivering specialty talent solutions, which resulted in a change in our operating segments and reporting units.

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 was not necessary.

Subsequently, the goodwill resulting from the acquisition of Greenwood/Asher during the fourth quarter of 2020 (see Acquisitions and Disposition footnote) was allocated to the Education operating segment, which was deemed to be a reporting unit, under the new operating model.

During the fourth quarter of 2020, the Company performed a qualitative analysis (a "step zero" test) to determine whether a further quantitative analysis was necessary.

The step zero test includes 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 Company determined goodwill was not impaired as of year-end 2020.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The changes in the carrying amount of goodwill for the fiscal year 2020 are included in the table below.

See Acquisitions footnote for a description of the additions to goodwill in 2019.

As of Year-End 2018 Additions to Goodwill As of Year-End 2019

See Acquisitions and Disposition footnote for a description of the additions to goodwill.

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

(In millions of dollars)

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Global Talent Solutions 69.3 — ( 69.3 ) —

International Staffing — — —

$ 107.3 $ 20.5 $ 127.8

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Education — 3.5 — 3.5

Total $ 127.8 $ 23.4 $ ( 147.7 ) $ 3.5

Intangible assets, excluding fully-amortized intangibles, are included within other assets on our consolidated balance sheet and consist of the following (in millions of dollars):

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Non-compete agreements 5 years 1.7 0.6 1.1 1.7 0.3 1.4

Trademarks Indefinite 4.8 — 4.8 4.8 — 4.8

Trademarks 10 years 4.8 0.5 4.3 4.8 — 4.8

Total $ 72.7 $ 17.1 $ 55.6 $ 60.2 $ 10.3 $ 49.9

The year-over-year change in total intangible assets was due to the intangibles purchased in connection with the NextGen and GTA acquisitions (see Acquisitions footnote).

The year-over-year change in total intangible assets was due to the intangibles purchased in connection with the Insight and Greenwood/Asher acquisitions (see Acquisitions and Disposition footnote).

Intangible amortization expense, which is included in SG&A expense in the consolidated statements of earnings, was $ 6.8 million, $ 5.4 million and $ 1.8 million in 2020, 2019 and 2018, respectively.

The amortization expense will be $ 5.2 million in 2020, $ 5.1 million in 2021, $ 4.8 million in 2022 and 2023 and $ 4.5 million in 2024.

The amortization expense will be $ 6.7 million in 2021, $ 6.5 million in 2022 and 2023 and $ 6.2 million in 2024 and 2025.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Included in other assets are the following:

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Workers' compensation and other claims receivable (4)

Other 35.5 35.3

Other assets $ 319.9 $ 324.1

(1) French CICE is a wage subsidy receivable related to a law to enhance the competitiveness of businesses in France.

(1) French CICE, a wage subsidy receivable related to a law to enhance the competitiveness of businesses in France, was monetized in the second quarter of 2020.

(2) See Goodwill and Intangible Assets footnote for a detailed listing of intangible assets and related accumulated amortization.

(3) The reserve against the long-term customer receivable was increased during the third quarter of 2020.

(4) Workers’ compensation and other claims receivable represents receivables from the insurance company for U.S.

workers’ compensation and automobile liability claims in excess of the applicable loss limits.

(4) The increase in Other as of year-end 2019 is primarily due to $ 4.4 million related to loans to our equity affiliate (see Investment in PersolKelly Asia Pacific footnote) and $ 1.0 million related to an additional minority investment in Kenzie Academy Inc.

(see Fair Value Measurements footnote).

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

At the beginning of the first quarter of 2019, we adopted ASC 842, Leases, using an optional transition method which allowed us to adopt the new lease standard at the adoption date, as compared to the beginning of the earliest period presented, and recognize a cumulative-effect adjustment to the beginning balance of earnings invested in the business in the period of adoption.

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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.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

Variable costs, such as payments for insurance and tax payments, are expensed when the obligation for those payments is incurred.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The components of lease expense were as follows (in millions of dollars):

December Year to Date

December Year to Date December Year to Date

Description Statements of Earnings Location 2020 2019

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Total lease cost $ 39.1 $ 37.5

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Supplemental consolidated balance sheet information related to leases was as follows (in millions of dollars):

Description Balance Sheet Location As of Year-End 2019

Description Balance Sheet Location As of Year-End 2020 As of Year-End 2019

Operating Operating lease right-of-use assets $ 83.2 $ 60.4

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Weighted average remaining lease terms and discount rates were as follows:

December Year to Date

December Year to Date December Year to Date

Weighted average remaining lease term (years):

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Financing leases 5.4 % 4.9 %

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other information related to leases was as follows (in millions of dollars):

December Year to Date

December Year to Date December Year to Date

Cash paid for amounts included in the measurement of lease liabilities:

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Financing leases 3.1 4.1

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Maturities of lease liabilities as of year-end 2020 were as follows (in millions of dollars):

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Total $ 87.1 $ 4.6

Maturities of operating leases accounted for under ASC 840 as of year-end 2018 were as follows (in millions of dollars):

Later years 4.9

Lease expense for fiscal years 2018 and 2017 amounted to $ 31.4 million and $ 31.3 million, respectively.

Lease expense for fiscal year 2018 amounted to $ 31.4 million.

During the first quarter of 2020, the Company sold its main headquarters building and entered into a leaseback agreement, which is accounted for as an operating lease (see Sale of Assets footnote).

As of first quarter-end 2020, we recognized $ 37.6 million of ROU assets within operating lease right-of-use assets, $ 1.2 million of current lease liabilities within operating lease liabilities, current and $ 36.1 million of noncurrent lease liabilities within operating lease liabilities, noncurrent in the consolidated balance sheet, with a discount rate of 4.8 % over a 15 -year lease term related to this lease.

Short-Term Debt

On December 5, 2019, the Company entered into an agreement with its lenders to amend and restate its existing $ 150.0 million, five-year revolving credit facility (the "Facility").

The amendment increased the size to $ 200.0 million and changed certain of the terms and conditions, with a new maturity date of December 5, 2024.

The Company has a $ 200.0 million, five-year revolving credit facility (the "Facility") with a termination date of December 5, 2024.

The Facility allows for borrowings in various currencies and is available to be used to fund working capital, acquisitions and general corporate needs.

On December 5, 2019, the Company also entered into an Amended and Restated Pledge and Security Agreement under which the Company pledges certain assets as security for this credit facility, excluding U.S.

The Facility is secured by certain assets of the Company, excluding U.S.

trade accounts receivable.

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The facility fee varies based on the Company’s leverage ratio as defined in the agreement.

The Facility, which contains a cross-default clause that could result in termination if defaults occur under our other loan agreements, had a facility fee of 15.0 basis points at year-end 2019 and 17.5 basis points at year-end 2018.

The Facility’s financial covenants and restrictions are described below, all of which were met at year-end 2020:

• We must maintain a certain minimum ratio of earnings before interest, taxes, depreciation, amortization and certain cash and non-cash charges that are non-recurring in nature (“EBITDA”) to interest expense (“Interest Coverage Ratio”) as of the end of any fiscal quarter.

• We must maintain a certain maximum ratio of total indebtedness to the sum of net worth and total indebtedness at all times.

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

• We must maintain a certain maximum ratio of total indebtedness to the sum of net worth and total indebtedness at all times.

• Dividends, stock buybacks and similar transactions are limited to certain maximum amounts.

• We must adhere to other operating restrictions relating to the conduct of business, such as certain limitations on asset sales and the type and scope of investments.

On December 5, 2019, the Company and Kelly Receivables Funding, LLC, a wholly owned bankruptcy remote special purpose subsidiary of the Company (the “Receivables Entity”), amended the Receivables Purchase Agreement related to the $ 200.0 million securitization facility (the “Securitization Facility”).

The amendment decreased the size to $ 150.0 million and changed certain of the terms and conditions, with a new maturity date of December 5, 2022, unless terminated earlier pursuant to its terms.

The Company has a Receivables Purchase Agreement with Kelly Receivables Funding, LLC, a wholly owned bankruptcy remote special purpose subsidiary of the Company (the “Receivables Entity”), related to its $ 150.0 million, three-year, securitization facility (the “Securitization Facility”).

The Receivables Purchase Agreement will terminate December 5, 2022, unless terminated earlier pursuant to its terms.

Under the Securitization Facility, the Company will sell certain trade receivables and related rights (“Receivables”), on a revolving basis, to the Receivables Entity.

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The Company had total unsecured, uncommitted short-term local credit facilities of $ 9.6 million as of year-end 2020.

There were $ 1.1 million borrowings under these lines at year-end 2019, compared to $ 2.2 million at year-end 2018.

The weighted average interest rate for these borrowings, which were related to Malaysia, Brazil and India at year-end 2019 and primarily related to India at year-end 2018, was 6.76 % at year-end 2019 and 8.42 % at year-end 2018.

There were borrowings of $ 0.3 million under these lines at year-end 2020, compared to $ 1.1 million at year-end 2019.

The weighted average interest rate for these borrowings, which was related to Malaysia at year-end 2020 and Malaysia, Brazil and India at year-end 2019, was 4.13 % at year-end 2020 and 6.76 % at year-end 2019.

Included in short-term borrowings at year-end 2019 was $ 0.8 million of bank overdrafts.

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In addition to the plans above, the Company also provides a qualified plan and a nonqualified plan to certain U.S.-based temporary employees.

The liability for the nonqualified plans was $ 202.7 million and $ 174.8 million as of year-end 2019 and 2018, respectively, and is included in current accrued payroll and related taxes and noncurrent accrued retirement benefits in the consolidated balance sheet.

The cost of participants’ earnings or loss on this liability, which were included in SG&A expenses in the consolidated statements of earnings, were earnings of $ 32.5 million in 2019, a loss of $ 8.6 million in 2018 and earnings of $ 22.3 million in 2017.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

To mitigate the impact of the COVID-19 pandemic on the results of our operations, the Company temporarily suspended the Company matching contributions to the qualified and nonqualified defined contribution plans from April to December, 2020.

The liability for the nonqualified plans was $ 216.8 million and $ 202.7 million as of year-end 2020 and 2019, respectively, and is included in current accrued payroll and related taxes and noncurrent accrued retirement benefits in the consolidated balance sheet.

The cost of participants’ earnings or loss on this liability, which were included in SG&A expenses in the consolidated statements of earnings, were earnings of $ 23.0 million in 2020, earnings of $ 32.5 million in 2019 and a loss of $ 8.6 million in 2018.

In connection with the administration of these plans, the Company has purchased company-owned variable universal life insurance policies insuring the lives of certain current and former officers and key employees.

1 unchanged sentence

The cash surrender value of these insurance policies is included in other assets in the consolidated balance sheet.

During 2019 and 2018, proceeds of $ 3.0 million and $ 7.9 million, respectively, were received in connection with these policies.

Tax-free earnings or loss on these assets, which were included in SG&A expenses in the consolidated statements of earnings and which offset the related earnings or loss on the liability, were earnings of $ 32.2 million in 2019, a loss of $ 8.8 million in 2018 and earnings of $ 22.3 million in 2017.

During 2020, 2019 and 2018, proceeds of $ 2.3 million, $ 3.0 million and $ 7.9 million, respectively, were received in connection with these policies.

Tax-free earnings or loss on these assets, which were included in SG&A expenses in the consolidated statements of earnings and which offset the related earnings or loss on the liability, were earnings of $ 23.1 million in 2020, earnings of $ 32.2 million in 2019 and a loss of $ 8.8 million in 2018.

The net expense for retirement benefits for the qualified and nonqualified plans, including Company-matching contributions for full-time employees, totaled $ 3.2 million in 2020, $ 9.1 million in 2019 and $ 9.5 million in 2018.

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2020 2019 2018

Net earnings $ 112.4 $ 22.9 $ 71.6

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

Earnings allocated to participating securities — ( 1.1 ) ( 0.2 )

Net earnings available to common shareholders $ 111.3 $ 22.7 $ 70.5

Net earnings (loss) available to common shareholders $ ( 72.0 ) $ 111.3 $ 22.7

Average common shares outstanding (millions):

2 unchanged sentences

Diluted 39.3 39.2 39.1

Basic earnings per share $ 2.85 $ 0.59 $ 1.84

Diluted earnings per share $ 2.84 $ 0.58 $ 1.81

Basic earnings (loss) per share $ ( 1.83 ) $ 2.85 $ 0.59

Diluted earnings (loss) per share $ ( 1.83 ) $ 2.84 $ 0.58

Potentially dilutive shares outstanding are primarily related to performance shares for 2020, 2019, and 2018.

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As a result, Class B shares can participate equally in any dividends declared on the Class A shares by exercising their conversion rights.

Dividends paid per share for Class A and Class B common stock were $ 0.30 for December year to date 2019, 2018, and 2017.

Dividends paid per share for Class A and Class B common stock were $ 0.075 for 2020 and $ 0.30 for 2019 and 2018.

Stock-Based Compensation

Under the Equity Incentive Plan, amended and restated February 15, 2017 and approved by the stockholders of the Company on May 10, 2017 (the “EIP”), the Company may grant restricted stock and performance awards to key employees associated with the Company’s Class A stock.

Under the Equity Incentive Plan, amended and restated February 15, 2017 and approved by the stockholders of the Company on May 10, 2017 (the “EIP”), the Company may grant restricted stock and performance awards associated with the Company’s Class A stock to key employees.

For shares granted prior to May 10, 2017, the EIP provides that the maximum number of shares available for grants is 15 % of the outstanding Class A Stock, adjusted for EIP activity over the preceding five years .

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Restricted Stock

Restricted stock, which typically vests over four years , is issued to certain key employees and is subject to forfeiture until the end of an established restriction period.

Restricted stock, which typically vests pro-rata over four years , is issued to certain key employees and is subject to forfeiture until the end of an established restriction period.

The Company utilizes the market price of its Class A stock on the date of grant as the fair value of restricted stock and expenses the fair value on a straight-line basis over the vesting period.

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The payment of performance awards, which will be satisfied with the issuance of shares out of treasury stock, is contingent upon the achievement of specific gross profit and operating earnings performance goals ("financial measure performance awards") over a stated period of time or may be earned based on the Company’s total shareholder return (“TSR”) relative to the S&P SmallCap 600 Index (“TSR performance awards”).

Both financial measure performance awards and TSR performance awards have a performance period of three years and will cliff-vest after the approval by the Compensation Committee, if not forfeited by the recipient.

The financial measure performance awards and TSR performance awards have a performance period of three years and will cliff-vest after the approval by the Compensation Committee, if not forfeited by the recipient.

No dividends are paid on these performance shares.

1 unchanged sentence

These single financial measure performance shares vest over four years and earn dividends, which are not paid until the awards vest.

For the 2019 performance share grant (“2019 grant”), the total target number of performance shares granted is 260,000 of which 207,000 shares are eligible to earn up to the maximum number of performance shares of 413,000 , which assumes 200 % of the target shares originally granted, and may be earned upon achievement of two financial goals.

The 2020 performance share grant ("2020 grant") consisted of 114,564 single financial measure performance shares, which have a one-year performance period based on a specific operating earnings performance goal.

The 2020 single financial measure performance awards have a weighted average grant date fair value of $ 22.59 per share.

For the 2019 performance share grant (“2019 grant”), the total target number of performance shares granted was 260,000 of which 207,000 shares were eligible to earn up to the maximum number of performance shares of 413,000 , which assumes 200 % of the target shares originally granted, and may be earned upon achievement of two financial goals.

The 2019 financial measure performance awards were granted with a market condition in the form of a relative TSR modifier, which could impact the number of shares earned as determined at the end of the performance period.

2 unchanged sentences

The 2019 grant also included 53,000 single financial measure performance shares.

The 2019 financial measure performance awards have a weighted average grant date fair value of $ 25.54 per share, which was determined using a Monte Carlo valuation model incorporating assumptions for inputs of expected stock price volatility, dividend yield and risk-free interest rate.

The total nonvested shares at maximum level ( 200 %) related to 2019 financial measure performance awards at year-end 2019 is 364,000 .

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the 2018 performance share grant (“2018 grant”), the total target number of performance shares granted was 222,000 , of which 177,000 shares ( 118,000 of financial measure performance awards and 59,000 of TSR performance awards) are eligible to earn up to the maximum number of performance shares of 355,000 , which assumes 200 % of the target shares originally granted.

The total nonvested shares at maximum level ( 200 %) related to 2019 financial measure performance awards at year-end 2020 is 264,160 .

For the 2018 performance share grant (“2018 grant”), the total target number of performance shares granted was 222,000 , of which 177,000 shares ( 118,000 of financial measure performance awards and 59,000 of TSR performance awards) were eligible to earn up to the maximum number of performance shares of 355,000 , which assumes 200 % of the target shares originally granted.

The 2018 grant also included 45,000 single financial measure performance shares.

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Accordingly, the Company remeasures the fair value of the 2018 financial measure performance shares each reporting period until the 2020 goals are set, after which the fair value will be fixed for the remaining performance period.

As of year-end 2019, the current fair value for the 2018 financial measure performance shares was $ 21.38 .

The TSR performance awards have an estimated fair value of $ 31.38 , which was computed using a Monte Carlo simulation model incorporating assumptions for inputs of expected stock price volatility, dividend yield and risk-free rate.

The total nonvested shares at maximum level ( 200 %) related to 2018 financial measure performance awards and TSR performance awards at year-end 2019 are 207,000 and 104,000 , respectively.

For the 2017 performance share grant (“2017 grant”), the total target number of performance shares granted was 387,000 , of which 304,000 shares ( 203,000 of financial measure performance awards and 101,000 of TSR performance awards) are eligible to earn up to the maximum number of performance shares of 609,000 , which assumes 200 % of the target shares originally granted.

The 2017 grant also included 83,000 single financial measure performance shares.

The financial measure performance shares have a weighted average grant date fair value of $ 21.07 .

For each of the two financial measures, there are annual goals set in February of each year, with the total award payout based on a cumulative average of the 2017, 2018 and 2019 goals.

During the first quarter of 2020, the final year of goals was set and the grant date fair value for the 2018 financial measure performance shares was set at $ 16.99 and remained fixed for the remaining performance period.

The TSR performance shares have an estimated fair value of $ 20.16 , which was computed using a Monte Carlo simulation model incorporating assumptions for inputs of expected stock price volatility, dividend yield and risk-free interest rate.

Based upon the level of achievement of specific financial performance goals and the Company's relative to the S&P SmallCap 600 Index for the 2018 grant, participants had the ability to receive up to 200 % of the target number of shares originally granted.

On February 11, 2020, the Compensation Committee approved the actual performance achievement of the financial measure performance awards, which resulted in achieving approximately 55 % of target.

These shares will cliff-vest after the approval by the Compensation Committee, which will be no later than March 15, 2020, if not forfeited by the recipient.

On February 16, 2021, the Compensation Committee approved the actual performance achievement of the financial measure performance awards, which was below the threshold level and resulted in no payout for the 2018 grant.

The actual achievement of the TSR performance awards was below the threshold level and resulted in no payout for the 2018 grant.

The total nonvested shares related to the 2017 financial measure performance awards and TSR performance awards at year-end 2019 are 69,000 and 0 , respectively.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

There are no nonvested shares related to the 2018 financial measure performance awards and TSR performance awards at year-end 2020.

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

The majority of the vested shares below is related to the 2016 performance share grant, which cliff-vested after approval from the Compensation Committee during the first quarter of 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.

Financial Measure

6 unchanged sentences

Forfeited ( 96 ) 24.85 ( 5 ) 31.38

Vesting Adjustment — — ( 62 ) 20.15

Nonvested at year-end 2020 366 $ 22.40 47 $ 31.38

As of year-end 2020, unrecognized compensation cost related to all unvested financial measure performance shares and TSR performance shares totaled $ 2.6 million and $ 0.0 million, respectively.

The weighted average period over which the costs are expected to be recognized is approximately 1.9 years for financial measure performance shares and 1.0 year for TSR performance shares.

The weighted average period over which the costs are expected to be recognized is approximately 2.5 years for financial measure performance shares and 0 years for TSR performance shares.

The total fair value of financial measure performance shares and TSR performance shares, which vested during 2020, was $ 1.8 million and $ 0.0 million, respectively.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Sale of Assets

During the second quarter of 2019, the Company sold unused land located near the Company headquarters.

The gain on the sale of assets in the consolidated statements of earnings for 2019 includes the excess of the $ 11.7 million sale proceeds over the cost of the parcel.

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 year-end 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 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.

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

The Company leased back the main headquarters building on the same date;

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

Gain on sale of assets of $ 12.3 million in 2019 primarily represents the sale of unused land located near the Company headquarters in the second quarter of 2019, 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.

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We determined that we would not complete a technology project for which we had previously capitalized certain development costs in order to enhance and expand a technology platform already in existence.

This approach should accelerate our solution implementation in mid-2020 and is expected to deliver similar benefits as the original project.

To determine the amount of the impairment charge, we aggregated all capitalized costs related to the project that could not be transferred to the expansion and enhancement of the existing platform.

As a result, we recorded a $ 15.8 million asset impairment charge on the 2019 consolidated statements of earnings.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other Expense, Net

Included in other expense, net are the following:

Other Income (Expense), Net

Included in other income (expense), net are the following:

2020 2019 2018

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Other 0.1 0.2 ( 0.2 )

Other expense, net $ ( 1.2 ) $ ( 0.6 ) $ ( 1.6 )

Other income (expense), net $ 3.4 $ ( 1.2 ) $ ( 0.6 )

Dividend income includes dividends earned on the Company’s investment in Persol Holdings (see Investment in Persol Holdings footnote).

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate for the years 2020, 2019 and 2018 were taxed under the following jurisdictions:

18 unchanged sentences

Total provision $ ( 34.0 ) $ 0.4 $ ( 27.1 )

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Deferred income taxes reflect the temporary differences between the asset and liability basis for financial reporting purposes and the amounts used for income tax purposes, at the relevant tax rate.

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Employee compensation and benefit plans 61.4 58.4

Workers’ compensation 14.8 15.0

Unrealized gain on securities ( 42.5 ) ( 30.9 )

Accrued payroll and related taxes 29.6 —

Accrued workers’ compensation 13.4 14.8

Investment in Persol Holdings ( 39.1 ) ( 42.5 )

Investment in equity affiliate ( 13.1 ) ( 13.8 )

Operating lease liabilities 21.7 15.7

Loss carryforwards 33.6 30.4

3 unchanged sentences

Net deferred tax assets $ 242.3 $ 186.0

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The deferred tax balance is classified in the consolidated balance sheet as:

4 unchanged sentences

The Company has U.S.

general business credit carryforwards of $ 160.9 million which will expire from 2033 to 2039, foreign tax credit carryforwards of $ 6.0 million which will expire from 2022 to 2029 and $ 0.2 million of state credit carryforwards which will expire from 2026 to 2039, or have no expiration.

The net tax effect of state and foreign loss carryforwards at year-end 2019 totaled $ 30.4 million, which will expire as follows (in millions of dollars):

2020-2021 $ 0.5

2022-2036 0.8

No expiration 29.1

general business credit carryforwards of $ 153.3 million which will expire from 2034 to 2040, foreign tax credit carryforwards of $ 7.8 million which will expire from 2022 to 2030 and $ 0.1 million of state credit carryforwards which will expire from 2026 to 2040.

The net tax effect of state and foreign loss carryforwards at year-end 2020 totaled $ 33.6 million, $ 1.9 million of which expire between 2021 to 2037, and $ 31.7 million of which have no expiration.

The Company has established a valuation allowance for loss carryforwards and future deductible items in certain foreign jurisdictions, and for U.S.

foreign tax credit carryforwards.

The valuation allowance is determined in accordance with the provisions of ASC 740, which requires an assessment of both negative and positive evidence when measuring the need for a valuation allowance.

The valuation allowance is determined in accordance with the provisions of ASC Topic 740 (“ASC 740”), Income Taxes, which requires an assessment of both negative and positive evidence when measuring the need for a valuation allowance.

The Company’s recent losses in these foreign jurisdictions, and its recent lack of adequate U.S.

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The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support realization of the foreign deferred tax assets.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The differences between income taxes from continuing operations for financial reporting purposes and the U.S.

statutory rate of 21 % in 2019 and 2018 and 35 % in 2017 as follows:

statutory rate of 21 % in 2020, 2019, and 2018 as follows:

2020 2019 2018

6 unchanged sentences

Foreign items ( 1.8 ) 0.8 1.9

Sale of Brazil operations ( 6.6 ) — —

GILTI, net of foreign tax credit ( 0.1 ) 0.5 0.5

5 unchanged sentences

Stock compensation 0.6 ( 0.6 ) ( 3.0 )

Other, net — — 0.2

Non-deductible goodwill impairment 11.9 — —

Total $ ( 34.0 ) $ 0.4 $ ( 27.1 )

5 unchanged sentences

Several items have contributed to the variance in our income tax benefit or expense over the last three years.

Income tax expense for 2019 included a $ 11.0 million expense from the gain on our investment in Persol Holdings, in addition to a $ 3.9 million charge to establish valuation allowances in Germany.

These charges were offset by a $ 6.5 million benefit from tax-exempt income on life insurance policies, and a $ 14.3 million benefit on the release of valuation allowances in the United Kingdom.

Income tax benefit for 2018 included a $ 29.4 million benefit from the loss on our investment in Persol Holdings, a lower U.S.

income tax rate, and a benefit on the release of valuation allowances in Australia, offset by non-deductible losses on life insurance policies.

Income tax expense for 2017 included a $ 13.9 million charge to revalue net deferred tax assets due to the U.S.

Tax Cuts and Jobs Act (“the Act”), which reduced the U.S.

federal corporate income tax rate from 35 % to 21 %.

This charge was offset by a benefit from tax-exempt income on life insurance policies, and a benefit from the release of valuation allowances in Norway, Germany and France.

The 2020 income tax benefited from lower pretax earnings and included $ 5.1 million from the loss on our investment in Persol Holdings, $ 6.6

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

million from the sale of Brazil operations, and $ 23.0 million from the impairment of tax deductible goodwill.

Income tax expense for 2019 included an $ 11.0 million expense from the gain on our investment in Persol Holdings, in addition to a $ 3.9 million charge to establish valuation allowances in Germany, offset by a $ 14.3 million benefit on the release of valuation allowances in the United Kingdom.

Income tax benefit for 2018 included a $ 29.4 million benefit from the loss on our investment in Persol Holdings and a benefit on the release of valuation allowances in Australia.

General business credits primarily represent U.S.

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Foreign items include foreign tax credits, foreign non-deductible expenses and non-taxable income.

Foreign business taxes include the French business tax and other taxes based on revenue less certain expenses and are classified as income taxes under ASC Topic 740 (“ASC 740”), Income Taxes.

Foreign business taxes include the French business tax and other taxes based on revenue less certain expenses and are classified as income taxes under ASC 740.

Non-deductible expenses include executive compensation and business meals and entertainment.

For 2017, tax law change represents the revaluing of net deferred tax assets as a result of the Act.

Among other things, the Act reduced the U.S.

federal corporate tax rate from 35 % to 21 %, effective January 1, 2018, and imposed a one-time transition tax on the Company's accumulated foreign earnings.

For year-end 2017, the Company anticipated that the one-time transition tax under the Act would be zero .

In accordance with SEC Staff Accounting Bulletin 118, a provisional amount of zero was recorded due to the need for additional analysis of historical data.

During the third quarter of 2018, we completed our analysis of foreign subsidiary earnings and profits and finalized our transition tax calculation.

Consistent with our estimate at year-end 2017, the transition tax was zero .

The work opportunity credit program generates a significant tax benefit.

It is a temporary provision in the U.S.

tax law and expires for employees hired after 2020.

While the work opportunity credit has routinely been extended, it is uncertain whether

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

it will again be extended.

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

tax law which was extended under the Consolidated Appropriations Act, 2021, and expires for employees hired after 2025.

Provision has not been made for additional income taxes on an estimated $ 135.2 million of undistributed earnings which are indefinitely reinvested.

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The Company recognizes both interest and penalties as part of the income tax provision.

The Company recognized a benefit of $ 0.1 million in 2020 for interest and penalties.

Interest and penalties expense in 2019 and 2018 were not significant.

Accrued interest and penalties were $ 0.2 million at year-end 2019 and 2018.

Accrued interest and penalties were $ 0.1 million at year-end 2020 and $ 0.2 million at year-end 2019.

The Company files income tax returns in the U.S.

1 unchanged sentence

The tax periods open to examination by the major taxing jurisdictions to which the Company is subject include the U.S.

for fiscal years 2016 through 2019, Canada for fiscal years 2012 through 2019, France for fiscal years 2013 through 2019, Mexico for fiscal years 2014 through 2019, Portugal for fiscal years 2016 through 2019, Russia for fiscal years 2017 through 2019, Switzerland for fiscal years 2010 through 2019, and the United Kingdom for fiscal years 2002 through 2019.

for fiscal years 2017 and forward, Canada for fiscal years 2013 and forward, France for fiscal years 2013 and forward, Mexico for fiscal years 2015 and forward, Portugal for fiscal years 2017 and forward, Russia for fiscal years 2018 and forward, and Switzerland for fiscal years 2011 and forward.

The Company and its subsidiaries have various income tax returns in the process of examination.

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The Company paid income taxes of $ 26.4 million in 2020, $ 17.7 million in 2019 and $ 18.3 million in 2018.

Non-cash capital expenditures totaled $ 1.6 million, $ 1.8 million and $ 3.0 million at year-end 2019, 2018 and 2017, respectively.

In addition to lease agreements (see Leases footnote), the Company has entered into noncancelable purchase obligations totaling $ 45.6 million.

Non-cash capital accruals totaled $ 1.4 million, $ 1.6 million and $ 1.8 million at year-end 2020, 2019 and 2018, respectively.

In addition to lease agreements (see Leases footnote) and the indemnification agreement related to the sale of our Brazil operations (see Acquisitions and Disposition footnote), the Company has entered into noncancelable purchase obligations totaling $ 36.7 million.

These obligations relate primarily to technology services and online tools which the Company expects to utilize generally within the next two fiscal years, in the ordinary course of business.

2 unchanged sentences

Contingencies

The Company is continuously engaged in litigation, threatened litigation, or investigations arising in the ordinary course of its business, such as matters alleging auto liability, employment discrimination, wage and hour violations, claims for indemnification or liability, or violations of privacy rights, anti-competition regulations, breach of contract and claims or actions related to customer or supplier bankruptcy proceedings or insolvency actions, which could result in a material adverse outcome.

We record accruals for loss contingencies when we believe it is probable that liability has been incurred and the amount of loss can be reasonably estimated.

The Company is continuously engaged in litigation, threatened litigation, claims, audits or investigations arising in the ordinary course of its business, such as matters alleging employment discrimination, wage and hour violations, claims for indemnification or liability, violations of privacy rights, anti-competition regulations, commercial and contractual disputes, and tax-related matters which could result in a material adverse outcome.

We record accruals for loss contingencies when we believe it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

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

At year-end 2020 and 2019, the gross accrual for litigation costs amounted to $ 1.4 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 year-end 2019 and 2018, the related insurance recoveries amounted to $ 4.1 million and $ 6.1 million, respectively.

At year-end 2020 and 2019, the related insurance recoveries amounted to zero and $ 4.1 million, respectively.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is zero to $ 1.3 million as of year-end 2020.

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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 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.

Segment Disclosures

The Company’s segments are based on the organizational structure for which financial results are regularly evaluated by the 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 and 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 supply chain 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.

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 benefit a specific operating segment.

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 2019, 2018 and 2017.

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 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 early childhood and higher education support, in the U.S.

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.

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 earnings (loss) before taxes and equity in net earnings (loss) of affiliate, for 2020, 2019 and 2018 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.

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Revenue from Services:

Americas Staffing $ 2,320.1 $ 2,417.7 $ 2,345.9

Global Talent Solutions 2,024.5 1,997.4 1,998.9

International Staffing 1,025.9 1,116.6 1,048.2

Professional & Industrial $ 1,858.4 $ 2,213.4 $ 2,430.9

Science, Engineering & Technology 1,019.1 1,131.8 1,002.6

Education 286.9 450.7 428.5

Outsourcing & Consulting 363.5 377.7 377.1

International 988.6 1,182.5 1,275.2

Intersegment revenue ( 0.5 ) ( 0.5 ) ( 0.4 )

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(In millions of dollars)

Earnings from Operations:

Americas Staffing gross profit $ 429.5 $ 441.3 $ 429.1

Americas Staffing SG&A expenses ( 372.7 ) ( 364.2 ) ( 346.4 )

Americas Staffing Earnings from Operations 56.8 77.1 82.7

Global Talent Solutions gross profit 400.5 381.1 373.7

Global Talent Solutions SG&A expenses ( 293.1 ) ( 296.5 ) ( 296.7 )

Global Talent Solutions Earnings from Operations 107.4 84.6 77.0

International Staffing gross profit 140.5 152.3 153.7

International Staffing SG&A expenses ( 125.3 ) ( 132.3 ) ( 131.6 )

International Staffing Earnings from Operations 15.2 20.0 22.1

Intersegment gross profit ( 2.1 ) ( 2.5 ) ( 2.4 )

Intersegment SG&A expenses 2.1 2.5 2.4

Net Intersegment Activity — — —

Earnings (Loss) from Operations:

Professional & Industrial gross profit $ 330.2 $ 388.4 $ 419.3

Professional & Industrial SG&A expenses ( 288.6 ) ( 326.0 ) ( 338.4 )

Professional & Industrial earnings (loss) from operations 41.6 62.4 80.9

Science, Engineering & Technology gross profit 209.4 226.2 185.6

Science, Engineering & Technology SG&A expenses ( 134.4 ) ( 146.7 ) ( 124.7 )

Science, Engineering & Technology earnings (loss) from operations 75.0 79.5 60.9

Education gross profit 42.2 72.0 70.7

Education SG&A expenses ( 51.2 ) ( 56.2 ) ( 47.8 )

Education earnings (loss) from operations ( 9.0 ) 15.8 22.9

Outsourcing & Consulting gross profit 119.8 122.3 124.2

Outsourcing & Consulting SG&A expenses ( 108.3 ) ( 119.3 ) ( 131.2 )

Outsourcing & Consulting earnings (loss) from operations 11.5 3.0 ( 7.0 )

International gross profit 126.0 159.5 172.4

International SG&A expenses ( 134.9 ) ( 140.8 ) ( 148.6 )

International earnings (loss) from operations ( 8.9 ) 18.7 23.8

Corporate ( 203.8 ) ( 97.6 ) ( 94.1 )

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

Other expense, net ( 1.2 ) ( 0.6 ) ( 1.6 )

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

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

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United States $ 3,260.2 $ 3,892.5 $ 3,930.0

International 1,463.1 1,583.9 1,479.8

Foreign 1,255.8 1,463.1 1,583.9

Total $ 4,516.0 $ 5,355.6 $ 5,513.9

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No single customer represented more than 10% of the consolidated revenues of the Company.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of long-lived assets information by geographic area as of year-end 2020 and 2019 follows:

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United States $ 94.7 $ 73.1

International 30.4 9.5

Foreign 29.5 30.4

Total $ 124.2 $ 103.5

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Long-lived assets represent property and equipment.

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Recently Adopted

In June 2018, the FASB issued ASU 2018-07 simplifying the accounting for nonemployee share-based payment awards by expanding the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees.

Under the new standard, most of the guidance on stock compensation payments to nonemployees would be aligned with the requirements for share-based payments granted to employees.

The ASU is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods, with early adoption permitted.

The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04 simplifying the accounting for goodwill impairment for all entities.

The new guidance eliminates the requirement to calculate the implied fair value of goodwill (Step 2 of the current two-step goodwill impairment test under ASC 350).

Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (Step 1 of the current two-step goodwill impairment test).

The ASU is effective prospectively for reporting periods beginning after December 15, 2019, with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017.

We elected to early adopt ASU 2017-04 as of year-end 2018 and the adoption of this ASU did not have an impact on our goodwill impairment testing process or our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 amending the existing accounting standards for lease accounting and requiring lessees to recognize lease assets and lease liabilities for all leases with lease terms of more than 12 months, including those classified as operating leases.

In August 2018, the FASB issued ASU 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

The ASU is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual periods, with early adoption permitted.

Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively.

We adopted this guidance prospectively effective December 30, 2019.

In accordance with the standard, we present capitalized implementation costs incurred in a hosting arrangement that is a service contract as other assets on our consolidated balance sheet.

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

We recognized $ 1.0 million of amortization expense for capitalized implementation costs incurred in hosting arrangements for the year ended 2020 as a component of SG&A expenses in our consolidated statements of earnings.

We recognized $ 5.1 million of payments for capitalized implementation costs for the year ended 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.

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

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

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

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

This ASU is effective for interim and annual reporting periods beginning after December 15, 2019 with early adoption permitted for annual reporting periods beginning after December 15, 2018.

We adopted this ASU using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures, as applicable.

Results for reporting periods beginning after December 30, 2019 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

We recorded a decrease to retained earnings of $ 0.7 million, net of tax, in the first quarter 2020 for the cumulative effect of adopting ASC 326.

Related disclosures have been updated throughout the financial statements and footnotes.

In August 2018, the FASB issued ASU 2018-13 which eliminates, adds and modifies certain fair value measurement disclosures.

The ASU is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual periods, with early adoption permitted.

The adoption of this standard did not have a material impact to our consolidated financial statements.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

those classified as operating leases.

Both the asset and liability will initially be measured at the present value of the future minimum lease payments, with the asset being subject to adjustments such as initial direct costs.

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Under the new standard, for any financial liabilities in which the fair value option has been elected, the changes in fair value due to instrument-specific credit risk must be recognized separately in other comprehensive income.

Presentation and disclosure requirements under the new guidance require public business entities to use the exit price when measuring the fair value of financial instruments measured at amortized cost.

Presentation and disclosure requirements under the new guidance require public businesses entities to use the exit price when measuring the fair value of financial instruments measured at amortized cost.

In addition, financial assets and liabilities must now be presented separately in the notes to the financial statements and grouped by measurement category and form of financial asset.

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2) further guidance on identifying performance obligations in a contract as well as clarifications on the licensing implementation guidance (ASU 2016-10):

3) rescission of several SEC Staff Announcements that are codified in Topic 605

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(ASU 2016-11);

3) rescission of several SEC Staff Announcements that are codified in Topic 605 (ASU 2016-11);

4) additional guidance and practical expedients in response to identified implementation issues (ASU 2016-12);

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

The ASU is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual periods, with early adoption permitted.

Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively.

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

In August 2018, the FASB issued ASU 2018-13 which eliminates, adds and modifies certain fair value measurement disclosures.

The ASU is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual periods, with early adoption permitted.

We do not expect the adoption of this standard to have a material impact to our consolidated financial statements.

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

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

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

This ASU is effective for interim and annual reporting periods beginning after December 15, 2019 with early adoption permitted for annual reporting periods beginning after December 15, 2018.

We performed a broad assessment of all of our financial assets and other instruments not measured at fair value through net income and determined that trade accounts receivable is still the most significant financial asset subject to the current expected credit loss model.

Under the new standard, we will continue to use an aging method to calculate the allowance for uncollectible accounts for the majority of our trade accounts receivables.

Other financial assets measured at amortized cost will use the aging method or another acceptable method to measure credit losses.

As we finalize our review of financial assets measured at amortized cost, accounting policies and business practices, we will continue to evaluate the impact of this guidance on our consolidated financial statements, disclosures and internal controls.

Our preliminary assessments are subject to change.

We expect to implement the standard with a cumulative effect adjustment in retained earnings effective December 30, 2019, which recognizes the cumulative effect of application recognized on that date.

The cumulative effect adjustment is not expected to be material.

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.

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Related Party Transactions

Prior to October 9, 2018, Terence E.

Adderley, the former Executive Chairman and Chairman of the Board of our board of directors, and certain trusts with respect to which he acts as trustee or co-trustee, controlled approximately 91.5 % of the outstanding shares of Kelly Class B common stock, which is the only class of our common stock entitled to voting rights.

Adderley received compensation relative to his services as executive chairmen of the Company prior to his retirement.

There were no material transactions between the Company and Terence E.

Adderley in 2018 or 2017.

The Terence E.

Adderley Revocable Trust K (“Trust K”), which became irrevocable upon the death of Terence E.

Adderley on October 9, 2018, now controls approximately 91.5 % of the outstanding shares of Kelly Class B common stock.

Adderley (the former Chairman of the Company's board of directors) on October 9, 2018, controls approximately 91.6 % of the outstanding shares of Kelly Class B common stock.

There were no material transactions between the Company and Trust K or its trustees in 2020, 2019 or 2018.

See Investment in PersolKelly Asia Pacific footnote for a description of related party activity with PersolKelly Asia Pacific.

Subsequent Event

On January 14, 2020, the company acquired 100 % of the membership interests of Insight Workforce Solutions LLC and Insight EDU LLC ("Insight") for $ 34.5 million of cash, subject to working capital adjustments, plus possible future contingent earn-out consideration of up to $ 11.4 million if future performance conditions are met per an agreement dated January 14, 2020.

Insight is an educational staffing company in the U.S.

and will serve to expand the Company's leadership position in the education workforce solutions industry.

The related acquisition costs, which are included in other income (expense), net in the 2019 consolidated statements of earnings, were not material.

The initial accounting for the business combination is incomplete at the time of this filing due to the limited amount of time since the acquisition date and the ongoing status of the valuation.

Therefore, it is impracticable for the Company to provide the major classes of assets acquired and liabilities and contingent liabilities assumed or pro forma revenue and earnings.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Selected Quarterly Financial Data (unaudited)

Fiscal Year 2019

Quarter Second

Quarter Third

Quarter Fourth

(In millions of dollars except per share data)

Revenue from services $ 1,382.6 $ 1,367.5 $ 1,267.7 $ 1,337.8 $ 5,355.6

Gross profit 251.6 244.0 227.7 245.1 968.4

SG&A expenses 234.8 221.5 210.6 216.2 883.1

Restructuring charges included in SG&A expenses 6.3 ( 0.6 ) ( 0.1 ) ( 0.1 ) 5.5

Gain on sale of assets (2)

— 12.3 — — 12.3

Asset impairment charge (3)

— — — 15.8 15.8

Gain (loss) on investment in Persol Holdings 13.2 61.2 ( 39.3 ) 0.7 35.8

Net earnings (loss) 22.1 83.8 ( 10.5 ) 17.0 112.4

Basic earnings (loss) per share (1)

0.56 2.12 ( 0.27 ) 0.43 2.85

Diluted earnings (loss) per share (1)

0.56 2.12 ( 0.27 ) 0.43 2.84

Dividends per share 0.075 0.075 0.075 0.075 0.30

Fiscal Year 2018

Quarter Second

Quarter Third

Quarter Fourth

(In millions of dollars except per share data)

Revenue from services $ 1,369.9 $ 1,386.9 $ 1,342.4 $ 1,414.7 $ 5,513.9

Gross profit 238.2 240.5 239.1 254.4 972.2

SG&A expenses 226.2 220.1 217.2 221.3 884.8

Gain (loss) on investment in Persol Holdings 23.7 ( 52.5 ) 15.8 ( 83.2 ) ( 96.2 )

Net earnings (loss) 29.1 ( 15.4 ) 33.1 ( 23.9 ) 22.9

Basic earnings (loss) per share (1)

0.74 ( 0.40 ) 0.84 ( 0.62 ) 0.59

Diluted earnings (loss) per share (1)

0.74 ( 0.40 ) 0.84 ( 0.62 ) 0.58

Dividends per share 0.075 0.075 0.075 0.075 0.30

(1) Earnings per share amounts for each quarter are required to be computed independently and may not equal the amounts computed for the total year.

(2) Gain on sale of assets primarily represents the excess of the proceeds over the cost of an unused parcel of land located near the Company headquarters sold during the second quarter of 2019.

(3) Asset impairment charge 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.

See Investment in PersolKelly Pte.

footnote for a description of related party activity with PersolKelly Pte.

KELLY SERVICES, INC.

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Balance at beginning of year Charged to costs and expenses Charged to other accounts Currency exchange effects Deductions from reserves Balance at end of year

Fiscal year ended December 29, 2019

Fiscal year ended January 3, 2021

Reserve deducted in the balance sheet from the assets to which it applies -

Allowance for doubtful accounts $ 13.2 3.4 0.7 (1) — ( 4.4 ) $ 12.9

Deferred tax assets valuation allowance $ 19.0 3.7 — 0.5 ( 3.0 ) $ 20.2

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Reserve deducted in the balance sheet from the assets to which it applies -

Allowance for doubtful accounts $ 12.9 3.5 ( 0.5 ) (1) ( 0.4 ) ( 2.3 ) $ 13.2

Allowance for doubtful accounts - trade accounts receivable $ 13.2 3.4 0.7 (1) — ( 4.4 ) $ 12.9

Deferred tax assets valuation allowance $ 27.8 6.1 — ( 0.3 ) ( 14.6 ) $ 19.0

1 unchanged sentence

Reserve deducted in the balance sheet from the assets to which it applies -

Allowance for doubtful accounts $ 12.5 5.3 0.3 (1) 0.6 ( 5.8 ) $ 12.9

Allowance for doubtful accounts - trade accounts receivable $ 12.9 3.5 ( 0.5 ) (1) ( 0.4 ) ( 2.3 ) $ 13.2

Deferred tax assets valuation allowance $ 34.6 2.6 — ( 1.8 ) ( 7.6 ) $ 27.8

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By-laws, effective November 6, 2018 (Reference is made to Exhibit 3.1 to the Form 8-K filed with the Commission on November 7, 2018, which is incorporated herein by reference).

Description of Securities.

Description of Securities (Reference is made to Exhibit 4 to the Form 10-K filed with the Commission on February 13, 2020, which is incorporated herein by reference).

Kelly Services, Inc.

Short-Term Incentive Plan, as amended and restated February 12, 2015 (Reference is made to Exhibit 10.1 to the Form 10-Q filed with the Commission on August 5, 2015, which is incorporated herein by reference).

Short-Term Incentive Plan, as amended and restated January 1, 2020.

Kelly Services, Inc.

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First Amendment to the Kelly Services, Inc.

Non-Employee Directors Deferred Compensation Plan.

Non-Employee Directors Deferred Compensation Plan (Reference is made to Exhibit 10.5 to the Form 10-K filed with the Commission on February 13, 2020, which is incorporated herein by reference).

Third Amended and Restated Credit Agreement, dated December 5, 2019 (Reference is made to Exhibit 10.6 to the Form 8-K filed with the Commission on December 9, 2019, which is incorporated herein by reference).

Agreement of Purchase and Sale, A.F.J.

Development Company and Kelly Properties, LLC.

Development Company and Kelly Properties, LLC (Reference is made to Exhibit 10.7 to the Form 10-K filed with the Commission on February 13, 2020, which is incorporated herein by reference).

Kelly Services, Inc.

2008 Management Retirement Plan – Post 2004 (Reference is made to Exhibit 10.12 to the Form 10-Q filed with the Commission on November 7, 2012, which is incorporated herein by reference).

First Amendment to the Kelly Services, Inc.

2008 Management Retirement Plan (Reference is made to Exhibit 10.13 to the Form 10-Q filed with the Commission on November 7, 2012, which is incorporated herein by reference).

Management Retirement Plan as amended and restated January 1, 2020.

Amended and Restated Pledge and Security Agreement, dated December 5, 2019 (Reference is made to Exhibit 10.14 to the Form 8-K filed with the Commission on December 9, 2019, which is incorporated herein by reference).

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1, dated December 5, 2019 (Reference is made to Exhibit 10.15 to the Form 8-K filed with the Commission on December 9, 2019, which is incorporated herein by reference).

Amendment to Kelly Services, Inc.

2008 Management Retirement Plan.

(Reference is made to Exhibit 10.21 to the Form 8-K filed with the commission on August 11, 2014, which is incorporated herein by reference.)

INDEX TO EXHIBITS

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REGULATION S-K (continued)

Code of Business Conduct and Ethics, revised August 2019.

(Reference is made to Exhibit 14 to the Form 10-Q filed with the commission on November 6, 2019 which is incorporated herein by reference.)

Code of Business Conduct and Ethics, revised August 2020 (Reference is made to Exhibit 14 to the Form 10-Q filed with the commission on November 5, 2020, which is incorporated herein by reference).

Subsidiaries of Registrant.

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101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Indicates a management contract or compensatory plan or arrangement.

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February 18, 2021 * /s/ L.

February 13, 2020 * /s/ T.

SIGNATURES (continued)

8 unchanged sentences

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 9A. Controls and Procedures