What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-13 compared with 2020-11-05 · 177 added, 260 removed, 179 unchanged (71% of the section changed)

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Executive Overview

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

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

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

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

As we navigate the uncertainty over the next several quarters, we will continue to demonstrate our expected behaviors and actions:

As we navigate a world of work now impacted by these changes, we will continue to demonstrate our expected behaviors and actions:

• Employ a talent-first mentality

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• Deliver efficiency and effectiveness in everything we do

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

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

By aligning ourselves with our Noble Purpose and executing against these behaviors, we have weathered the past year and are emerging as a more agile and focused organization, prepared to achieve new levels of growth and profitability as we further develop our portfolio of businesses.

The Talent Solutions Industry

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

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

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

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

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

In 2020, we adopted the Kelly Operating Model and realigned our business into five specialty business units which are also our reportable segments.

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

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

and Canada and includes our NextGen and Global Technology Associates subsidiaries

• Education – delivers staffing and direct-hire services to the K-12, early childhood and higher education market in the U.S., including our recent acquisitions, Teachers On Call and Insight Workforce Solutions

and Canada and includes our NextGen and Global Technology Associates subsidiaries, as well as our Softworld, Inc.

subsidiary as of the beginning of the second quarter of 2021

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

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

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

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

In addition, we provide staffing services to customers in APAC through PersolKelly Pte.

Ltd., our joint venture with Persol Holdings, a leading provider of HR solutions in Japan.

• International – delivers staffing and direct-hire services in 15 countries in Europe, as well as Mexico

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

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

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

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

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

and was 61 days on a global basis as of the 2020 third quarter end, 58 days as of the 2019 year end and 59 days as of the 2019 third quarter end.

and was 60 days on a global basis as of the end of the first quarter of 2021 and 59 days as of the end of the first quarter of 2020.

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

Our Perspective

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

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

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

During 2020 and into the first quarter of 2021, year-over-year revenue declines have been substantial while recent trends have pointed to a slow recovery in demand.

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

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

These actions include:

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

These actions included:

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

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

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

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

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

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

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

In October 2020, management made the decision to begin reducing staffing levels through involuntary terminations, and restructuring charges of approximately $4-$5 million for severance and related benefits to be paid to impacted employees are expected to be recognized in our fourth quarter results.

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

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

These initial actions were intentionally broad in scope and became more targeted to the areas of business where demand declines have been more significant and persistent.

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

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

In addition, we benefited in 2020 from CARES Act provisions allowing deferral of employer social security tax payments.

In connection with expiration of the temporary cost reduction measures noted above, management reduced staffing levels to align with expected revenue levels and recorded restructuring charges of $4.4 million for severance and related benefits for impacted employees in the fourth quarter of 2020.

Given the level of uncertainty surrounding the duration of the COVID-19 crisis, Kelly’s board also voted to suspend the quarterly dividend in May 2020 and has continued to assess economic and business conditions to determine future actions with respect to our dividend policy.

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

and the European markets we serve and have continued in the second and third quarters as the effect of the pandemic response has slowed global economic activity.

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

of 2021 as demand for our services is dampened by reaction to the economic slowdown and by companies and talent concerns related to operating safely during a pandemic.

and the European markets we serve and has continued through the end of first quarter of 2021 as the effect of the pandemic response slowed global economic activity.

We expect that demand for our services will gradually recover from the economic slowdown and the effects of

customer and talent concerns related to operating safely during a pandemic.

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

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

While our cost reduction efforts are expected to reduce year-over-year expenses significantly in the fourth quarter, they will not be enough to completely offset declines in revenue and gross profit.

As a result, we expect our fourth quarter and full year earnings to decline year-over-year.

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

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

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

The negative market reaction to the COVID-19 crisis in March 2020 also resulted in a decline in our common stock price which caused our market capitalization to decline significantly at the end of the first quarter of 2020.

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

Moving Forward

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

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

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

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

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

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

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

In addition, we intend to invest in strategic, targeted M&A opportunities in our specialties, while optimizing our portfolio, as demonstrated by the sale of our operations in Brazil during the third quarter.

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

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

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

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

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

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

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

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

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

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

In addition, we intend to invest in strategic, targeted M&A opportunities in our specialties, while optimizing our portfolio, as demonstrated by the recent announcement of our acquisition of Softworld, Inc.

in the second quarter of 2021, the completed acquisition of Greenwood/Asher & Associates in the fourth quarter of 2020 and the sale of our operations in Brazil during the third quarter of 2020.

Faced with market conditions that may continue to be uneven in the near term, Kelly continues to focus on accelerating the execution of our strategic plan and making necessary investments to advance that strategy.

• We are making strides in our digital transformation journey, building a technology foundation to sustain growth and to support our teams, clients and talent with powerful new technologies that make it faster and easier than ever to connect.

• We are using our platform, Equity@Work, to break down long-standing, systemic barriers that make it difficult for many people to secure enriching work.

This powerful extension of our Noble Purpose uses our unique position in the middle of the supply and demand equation to help more people flow into Kelly’s talent pools, while also helping families, communities and economies thrive.

• We are committed to helping each Kelly team define the fastest, most efficient and creative paths to achieving their business goals by removing unnecessary work and refocusing efforts in the right places to achieve our defined performance expectations in the most effective way possible.

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

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Financial Measures

The constant currency (“CC”) change amounts in the following tables refer to the year-over-year percentage changes resulting from translating 2020 financial data into U.S.

The constant currency (“CC”) change amounts refer to the year-over-year percentage changes resulting from translating 2021 financial data into U.S.

dollars using the same foreign currency exchange rates used to translate financial data for 2020.

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Non-GAAP measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

Reported and CC percentage changes in the following tables were computed based on actual amounts in thousands of dollars.

Reported and CC percentage changes were computed based on actual amounts in thousands of dollars.

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

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(Dollars in millions)

Third Quarter September Year to Date

2020 2019 % Change 2020 2019 % Change

First Quarter

2021 2020 % Change

Revenue from services $ 1,205.9 $ 1,261.1 (4.4) %

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SG&A expenses excluding restructuring charges 202.7 210.8 (3.8)

Restructuring charges (0.1) (0.1) 68.5 8.4 5.6 49.1

Restructuring charges — 8.7 NM

Total SG&A expenses 202.7 219.5 (7.7)

Goodwill impairment charge — 147.7 NM

Gain on sale of assets — — — 32.1 12.3 161.6

Earnings (loss) from operations (2.4) 17.1 NM (103.1) 68.7 NM

Gain (loss) on investment in Persol Holdings 16.8 (39.3) NM (31.4) 35.1 NM

Gain on sale of assets — (32.1) NM

Earnings (loss) from operations 10.6 (111.8) NM

Gain (loss) on investment in Persol Holdings 30.0 (77.8) NM

Other income (expense), net (3.4) 1.7 (308.2)

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

Income tax expense (benefit) (1.2) (12.8) 90.9 (36.5) 6.3 NM

Equity in net earnings (loss) of affiliate 1.8 (0.9) NM (1.0) (1.0) (1.8)

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

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate 37.2 (187.9) NM

Income tax expense (benefit) 10.5 (36.2) 129.0

Equity in net earnings (loss) of affiliate (1.1) (1.5) 29.7

Net earnings (loss) $ 25.6 $ (153.2) NM

Gross profit rate 17.7 % 17.7 % — pts.

18.4 % 18.0 % 0.4 pts.

Conversion rate 5.0 (50.1) 55.1

Third Quarter Results

Revenue from services in the third quarter declined in all segments, reflecting the continuing impact of the COVID-19 pandemic and resulting mitigation efforts.

These efforts have resulted in a decline in demand for our temporary staffing and permanent placement services across a broad range of industries and geographies.

Revenue from staffing services declined 22% compared to the third quarter of 2019.

Additionally, permanent placement revenue, which is included in revenue from services, decreased 40% year-over-year as the impact of economic uncertainty depressed full-time hiring in all operating segments.

These declines were partially offset by an increase in outcome-based services of 4% as demand from customers utilizing these services increased during the quarter.

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

The gross profit rate increased 40 basis points from the prior year.

The increase in the gross profit rate was due to the impact of lower employee-related costs and improved product mix.

This was partially offset by the negative impact of lower permanent placement revenue and unfavorable customer mix.

The recovery of demand for temporary staffing services from large customers with lower margins outpaced the recovery for small and medium-sized customers.

First Quarter Results

Revenue from services in the first quarter declined 4.4% on a reported basis and 5.5% on a constant currency basis.

Revenue declined in the Professional & Industrial, Science, Engineering & Technology and Education segments, reflecting the continuing impact of the COVID-19 pandemic and resulting mitigation efforts.

Revenue increased in the Outsourcing & Consulting and International segments.

Revenue from staffing services declined 7.5% compared to the first quarter of 2020.

This decline was partially offset by a 2.5% increase in outcome-based services, as demand from customers utilizing these services increased during the quarter, and a 29.9% increase in permanent placement revenue, which is included in revenue from services.

Gross profit declined as a result of lower revenue volume.

The gross profit rate was flat year over year, as the impact of higher permanent placement income was offset by the negative impact of higher employee-related benefit costs.

Decreases in the gross profit rate for Professional & Industrial and Outsourcing & Consulting were partially offset by increases in the gross profit rate for Science, Engineering & Technology, Education and International.

This variability in gross profit rates reflects shifts in customer and product mix, along with the impact of certain one-time costs associated with expected increases in customer demand in Professional & Industrial.

Total SG&A expenses decreased 7.7% compared to last year.

This decrease reflects lower salaries and benefits costs as a result of temporary expense mitigation actions that were taken in response to the COVID-19 crisis, lower incentive compensation expenses and the benefit of COVID-19 government subsidies related to full-time employees recognized in the third quarter.

Included in SG&A expenses in the third quarter of 2020 is a $9.5 million non-cash charge in the International segment related to a customer dispute that resulted in additional uncollectible accounts receivable charges.

The loss from operations for the quarter of $2.4 million reflects a decline from the $17.1 million of earnings from operations in the prior year.

Our earnings from operations declined as a result of lower gross profit, partially offset by lower expenses due to cost reduction efforts.

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

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

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

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in an income tax charge of $5.2 million for the third quarter of 2020 compared to an income tax benefit of $12.1 million for the third quarter of 2019.

The change in income taxes also reflects a decline in earnings from operations in the third quarter of 2020.

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

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

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

The net earnings for the period of $16.7 million, an increase of $27.2 million from the third quarter of 2019, was due primarily to increased gains of Persol Holdings common stock and a lower effective income tax rate, partially offset by lower earnings from operations.

September Year-to-Date Results

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

Revenue from staffing services declined 23% compared to last year.

Permanent placement revenue, which is included in revenue from services, decreased 38% year-over-year as the impact of economic uncertainty depressed full-time hiring in all operating segments.

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

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

The gross profit rate increased 40 basis points in comparison to the prior year.

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

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

Government subsidies accounted for approximately 20 basis points of the increase for the year.

Total SG&A expenses decreased 11.4% in comparison to the prior year.

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

Included in total SG&A expenses are restructuring charges of $8.4 million in the first nine months of 2020.

This is related to actions taken to position the Company to adopt the new operating model and to align the U.S.

Included in SG&A expenses in the first quarter of 2020 was $8.7 million of restructuring charges.

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

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

Restructuring charges of $5.6 million in the first nine months of 2019 represent severance costs primarily related to U.S.

branch-based staffing operations.

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

Overall, SG&A expense reductions in all segments reflect management of expense levels in line with revenue trends.

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

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

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

the first quarter of 2020.

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

Gain on sale of assets of $12.3 million 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.

The loss from operations for the first nine months of 2020 of $103.1 million reflects a decline from the $68.7 million of earnings from operations in the prior year.

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

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

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

Earnings from operations for the first quarter of 2021 totaled $10.6 million, compared to a loss from operations of $111.8 million in the first quarter of 2020.

The increase in earnings from operations from the prior year primarily reflects the impact of the goodwill impairment charge and restructuring charge in 2020, partially offset by the 2020 gain on sale of assets.

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

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

Income tax benefit was $36.5 million and expense was $6.3 million for September year to date 2020 and 2019, respectively.

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in an income tax benefit of $9.6 million for September year to date 2020, compared to an income tax charge of $10.7 million for September year to date 2019.

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

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

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

Other expense for the first quarter of 2021 totaled $3.4 million, compared to other income of $1.7 million for the first quarter of 2020.

Included in the 2021 first quarter amount are transaction-related expenses from the April 2021 acquisition of Softworld, Inc., a technology staffing and solutions firm, and a one-time non-cash write-down of an equity investment.

Income tax expense was $10.5 million in the first quarter of 2021 and income tax benefit was $36.2 million for the first quarter of 2020.

The first quarter of 2021 includes tax expense of $9.2 million for the gain on the Company's investment in Persol Holdings.

The first quarter of 2020 includes a tax benefit of $23.0 million on the impairment of goodwill and a tax benefit of $23.8 million for the loss on the Company's investment in Persol Holdings.

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

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

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

The net loss for the period of $95.4 million, a decrease of $190.8 million from the prior year, was due primarily to lower earnings from operations due to the goodwill impairment charge taken in the first quarter of 2020, combined with increased losses of Persol Holdings common stock, partially offset by the impact of an income tax benefit in comparison to income tax expense last year.

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

The net earnings for the period were $25.6 million, compared to a net loss of $153.2 million from the first quarter of 2020.

This change was due primarily to higher earnings from operations and increased gains of Persol Holdings common stock, partially offset by a higher effective income tax rate.

Operating Results By Segment

(Dollars in millions)

Third Quarter September Year to Date

2020 2019 % Change 2020 2019 % Change

First Quarter

2021 2020 % Change

(Dollars in millions)

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Consolidated Total $ 1,205.9 $ 1,261.1 (4.4) %

Third Quarter Results

Professional & Industrial revenue from services decreased due primarily to decreases in our hours volume in our staffing businesses which continue to be impacted by COVID-19 due to a slow recovery rate.

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

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

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

School districts delayed starts and when instruction did begin, many districts used a virtual or hybrid instructional style, reducing the typical demand for Education services.

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

Outsourcing & Consulting revenue from services decreased due primarily to decreases in our PPO, MSP and RPO products due somewhat to COVID-19-related demand impacts as well as lower demand in the Oil and Gas Industry, partially offset by increases in our Career Transitions product.

International revenue from services decreased 20.8% on a reported basis and 21.1% in CC.

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

Revenue was also impacted following the sale of operations in Brazil in August 2020.

Overall, although COVID-19 related demand declines continued, demand for our services in the third quarter of 2020 in each segment has increased sequentially since the second quarter of 2020.

September Year-to-Date Results

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

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

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

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

Temporary school closures, delayed starts and use of virtual or hybrid instructional styles reduced the typical demand for our Education services.

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

Outsourcing & Consulting revenue from services decreased due primarily to decreases in our PPO, MSP and RPO products due somewhat to COVID-19 as well as lower demand in the Oil and Gas Industry.

International revenue from services decreased 20.5% on a reported basis and 18.7% on a CC basis.

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

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

First Quarter Results

Professional & Industrial revenue from services decreased due primarily to decreases in the hours volume in our staffing businesses, which continue to be impacted by COVID-19, as talent supply constraints and internal fulfillment challenges have resulted in a gradual recovery rate.

These decreases were partially offset by increased revenue in our outcome-based businesses due to program expansions and increased permanent placement income in our staffing business.

Science, Engineering & Technology revenue from services decreased due to lower hours volume in our staffing business across most specialties due to the continued impact of COVID-19, except where we have experienced a steady demand for talent to support life sciences and clinical research.

The staffing decrease was partially offset by an increase in permanent placement income.

Education revenue from services decreased due primarily to the impact of COVID-19 as many districts continued to use virtual or hybrid instruction, reducing the historical demand for our Education services.

Outsourcing & Consulting revenue from services increased due primarily to the increase in revenue volume in our payroll processing outsourcing specialty.

International revenue from services increased 2.9% on a reported basis and decreased 1.1% in constant currency.

Year-over-year revenue comparisons were unfavorably impacted by the sale of our staffing operations in Brazil in August 2020.

Excluding Brazil, revenue increased 6.5% on a reported basis and 2.4% on a constant currency basis.

The increase was primarily due to higher hours volume, particularly in Mexico.

Operating Results By Segment (continued)

(Dollars in millions)

Third Quarter September Year to Date

2020 2019 Change 2020 2019 Change

First Quarter

2021 2020 Change

(Dollars in millions)

8 unchanged sentences

Professional & Industrial 16.2 % 17.2 % (1.0) pts.

17.9 % 17.5 % 0.4 pts.

Science, Engineering & Technology 20.9 20.3 0.6

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Consolidated Total 17.7 % 17.7 % — pts.

18.4 % 18.0 % 0.4 pts.

Third Quarter Results

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

The gross profit rate increased 20 basis points due to lower employee-related costs coupled with improved product mix, as a greater proportion of the segment revenue came from outcome-based services with higher margins.

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

The gross profit rate increased 40 basis points due to lower employee-related costs, partially offset by specialty mix.

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

The gross profit rate increased 20 basis points due to lower employee-related costs, partially offset by increased pricing pressures.

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

The gross profit rate increased by 180 basis points due to improved product mix coupled with lower employee-related costs in the PPO product.

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

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

First Quarter Results

Gross profit for the Professional & Industrial segment declined as the result of lower revenue volume and a decline in the gross profit rate.

The gross profit rate decreased 100 basis points due to one-time costs associated with expected future volume increases in our contact center business, partially offset by the impact of an increase in permanent placement income this year.

Permanent placement revenue, which is included in revenue from services and has very low direct costs of services, has a disproportionate impact on gross profit rates.

September Year-to-Date Results

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

The gross profit rate increased 40 basis points due to lower employee-related costs coupled with improved product mix, as a greater proportion of the segment revenue came from outcome-based services with higher margins.

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

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

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

The Education gross profit rate decreased 110 basis points due to increased pricing pressures, partially offset by lower employee-related costs.

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

The Outsourcing & Consulting gross profit rate increased 120 basis points due to improved product mix coupled with lower employee-related costs in the PPO product.

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

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

The gross profit rate increased 60 basis points due to increased permanent placement income, coupled with improved specialty mix.

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

The gross profit rate increased 110 basis points due primarily to higher permanent placement fee income and lower employee-related costs, partially offset by the impact of unfavorable customer mix.

The Outsourcing & Consulting gross profit increased on higher revenue volume, partially offset by a decrease in the gross profit rate.

The gross profit rate decreased by 70 basis points primarily due to a change in product mix within this segment.

International gross profit increased on higher revenue volume and an increase in the gross profit rate.

The gross profit rate increased 20 basis points primarily due to customer mix, partially offset by lower permanent placement income.

Operating Results By Segment (continued)

(Dollars in millions)

Third Quarter September Year to Date

2020 2019 % Change 2020 2019 % Change

First Quarter

2021 2020 % Change

(Dollars in millions)

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Consolidated Total $ 202.7 $ 219.5 (7.7) %

Third Quarter September Year to Date

2020 2019 % Change 2020 2019 % Change

First Quarter

2021 2020 % Change

(Dollars in millions)

Restructuring Charges Included in SG&A Expenses:

Professional & Industrial $ (0.1) $ (0.1) (24.7) % $ 4.3 $ 5.2 (18.8) %

Science, Engineering & Technology — — — 0.5 0.4 45.2

Professional & Industrial $ — $ 4.4 NM %

Science, Engineering & Technology — 0.5 NM

Education — 0.9 NM

Outsourcing & Consulting — — — — — —

Outsourcing & Consulting — — NM

International — 1.1 NM

Corporate expenses — 1.8 NM

Consolidated Total $ (0.1) $ (0.1) 68.5 % $ 8.4 $ 5.6 49.1 %

Third Quarter Results

Total SG&A expenses in Professional & Industrial decreased 15.8% due primarily to lower salaries and related costs from cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption, coupled with the impact of the restructuring actions taken in the first quarter of this year.

Total SG&A expenses in Science, Engineering & Technology decreased 13.0% due primarily to lower salaries and related costs resulting from the cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

Total SG&A expenses in Education decreased 15.5% due primarily to lower salaries and related costs as a result of cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

This decrease was partially offset by the impact of the acquisition of Insight that took place in the first quarter.

Total SG&A expenses in Outsourcing & Consulting decreased 12.7% due primarily to lower salaries and related costs due to cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption, partially offset by higher performance-based compensation.

Total SG&A expenses in International increased 13.1% due to a specific customer credit loss provision in Mexico as a result of an unfavorable ruling in on-going litigation.

The disputed accounts receivable balance relates to services rendered more than five years ago.

Excluding this provision, total SG&A expenses decreased 14.0% driven by cost management to contend with the COVID-19 disruption, due primarily to lower salaries, combined with the effect of the sale of operations in Brazil in August 2020.

Corporate expenses increased due to the year-over-year impact of adjustments which lowered performance-based compensation expense in the third quarter of 2019, along with increased rent expense for the headquarters building as a result of the 2020 first quarter sale-leaseback transaction.

These increases were partially offset by lower employee salaries and benefits related to COVID-19 cost-saving actions taken.

Subsequent to the end of the third quarter, several temporary expense mitigation actions taken in response to COVID-19 such as furloughs and reductions in compensation for officers and employees in the U.S., were ended in the fourth quarter.

Reductions in staffing levels in areas of the business in which the demand declines have been the most severe and pervasive have been initiated.

September Year-to-Date Results

Total SG&A expenses in Professional & Industrial decreased 14.8% due primarily to lower salaries and related costs due to cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption, coupled with the impact of the restructuring actions taken in the first quarter of this year which reduced salaries and related costs and facilities expenses.

Total SG&A expenses in Science, Engineering & Technology decreased 11.1% due primarily to cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

Total SG&A expenses in Education decreased 9.1% due primarily to lower salaries and related costs resulting from the cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

This decrease was partially offset by the impact of the acquisition of Insight that took place in the first quarter.

Total SG&A expenses in Outsourcing & Consulting decreased 13.0% due primarily to lower salaries and related expenses resulting from cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

Total SG&A expenses in International decreased 5.4%.

Excluding the previously mentioned specific customer credit loss provision in Mexico, total SG&A expenses decreased 14.3% due primarily to lower salaries, driven by cost management to contend with the COVID-19 disruption, combined with lower incentive-based compensation.

Corporate expenses decreased as a result of lower performance-based compensation expense and lower employee salaries and benefits related to COVID-19 cost-saving actions taken.

These decreases were partially offset by rent expense for the headquarters building as a result of the 2020 first quarter sale-leaseback transaction.

Consolidated Total $ — $ 8.7 NM %

First Quarter Results

Total SG&A expenses in Professional & Industrial decreased 13.8%, or 8.8% excluding restructuring charges, due primarily to lower salaries and related costs from cost management actions and initiatives taken to mitigate the impact of lower revenue volume as a result of the COVID-19 disruption, coupled with the impact of the restructuring actions taken in the first quarter of last year prior to the impact of COVID-19.

Total SG&A expenses in Science, Engineering & Technology decreased 2.1% in total from a year ago and decreased 0.7% excluding last year’s restructuring charges.

This reduction was due primarily to lower travel and non-salary related sales costs due to continued COVID-19 disruption.

Total SG&A expenses in Education decreased 14.5%, or 9.6% excluding restructuring charges, due primarily to lower salaries and related costs as a result of cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

Total SG&A expenses in Outsourcing & Consulting decreased 0.6%.

This reduction was due primarily to lower travel and non-salary related sales costs due to continued COVID-19 disruption.

Total SG&A expenses in International decreased 0.4% on a reported basis and decreased 5.2% on a constant currency basis.

Excluding the restructuring charge in the first quarter of 2020, expenses decreased 2.1% on a constant currency basis.

Expenses were lower as a result of cost management, combined with the impact of the sale of staffing operations in Brazil in August 2020.

Corporate expenses decreased 9.5% due primarily to lower employee-related costs and the 2020 restructuring charges, partially offset by higher incentive-based compensation.

Operating Results By Segment (continued)

(Dollars in millions)

Third Quarter September Year to Date

2020 2019 % Change 2020 2019 % Change

First Quarter

2021 2020 % Change

(Dollars in millions)

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Science, Engineering & Technology 17.5 18.2 (4.2)

Education (7.5) (5.2) (43.2) (8.9) 8.4 NM

Outsourcing & Consulting 3.7 0.4 NM 8.0 (0.2) NM

International (9.9) 4.2 NM (10.9) 12.1 NM

Education 3.0 3.8 (21.2)

Outsourcing & Consulting 2.9 0.2 NM

International 2.6 1.1 135.1

Corporate (21.9) (139.7) 84.3

Consolidated Total $ (2.4) $ 17.1 NM $ (103.1) $ 68.7 NM

Third Quarter Results

Professional & Industrial reported earnings of $11.8 million for the quarter, a 17.6% decrease from a year ago.

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

Consolidated Total $ 10.6 $ (111.8) NM %

First Quarter Results

Professional & Industrial reported earnings of $6.5 million for the quarter, a 42.3% increase from a year ago.

The increase in earnings was primarily due to decreased expenses of $11.1 million described above, partially offset by the lower staffing services volumes and one-time costs in the call center business.

Science, Engineering & Technology reported earnings of $17.5 million for the quarter, a 4.2% decrease from a year ago.

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

Education reported a loss of $7.5 million for the quarter, a 43.2% increase from a year ago.

The increased loss was primarily due to the impact of COVID-19 on our operations, partially offset by the cost management initiatives taken to mitigate its impact.

Outsourcing & Consulting reported earnings of $3.7 million for the quarter, a $3.3 million increase over a year ago.

The increase in earnings was primarily due to the impact of the cost management initiatives taken to mitigate the impact of COVID-19 as well as improved product mix.

International reported a loss for the quarter, driven by a specific customer provision in Mexico.

Excluding this effect, the loss was $0.4 million, as the cost management actions only partially offset the lower revenues due to the COVID-19 impact on operations.

September Year-to-Date Results

Professional & Industrial reported earnings of $30.7 million, a 31.4% decrease from a year ago.

Science, Engineering & Technology reported earnings of $56.9 million, a 5.9% decrease from a year ago.

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

Education reported a loss of $8.9 million.

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

Outsourcing & Consulting reported earnings of $8.0 million, an $8.2 million increase over a year ago.

The increase in earnings was primarily due to the impact of the cost management initiatives taken to mitigate the impact of COVID-19 as well as improved product mix.

International reported a loss on a year-to-date basis, largely driven by a specific customer provision in Mexico.

Excluding this effect, the loss was $1.4 million, as the cost management actions only partially offset the lower revenues due to the COVID-19 impact on operations.

Education reported earnings of $3.0 million for the quarter, a 21.2% decrease from a year ago.

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

Outsourcing & Consulting reported earnings of $2.9 million for the quarter, compared to earnings of $0.2 million a year ago.

The increase in earnings was primarily due to the impact of increased revenue volumes within the segment.

International reported earnings of $2.6 million for the quarter, compared to earnings of $1.1 million a year ago.

The increase in earnings was primarily due to the year-over-year impact of restructuring charges incurred in the first quarter of 2020.

Financial Condition

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

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

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

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

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

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

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

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

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

The impact of the current economic slow-down resulting from the COVID-19 crisis began in March 2020 and continued during the first quarter of 2021.

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

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Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash totaled $254.4 million at the end of the third quarter of 2020 and $31.0 million at year-end 2019.

As further described below, we generated $216.5 million of cash from operating activities, generated $10.3 million of cash from investing activities and used $6.8 million of cash for financing activities.

Cash, cash equivalents and restricted cash totaled $245.2 million at the end of the first quarter of 2021 and $228.1 million at year-end 2020.

As further described below, we generated $10.5 million of cash from operating activities, generated $7.9 million of cash from investing activities and generated $0.1 million of cash from financing activities.

Operating Activities

In the first nine months of 2020, we generated $216.5 million of net cash from operating activities, as compared to generating $74.2 million in the first nine months of 2019.

This change was due to reduced working capital requirements as revenues slowed.

In addition, the Company deferred $75.7 million of tax payments as allowed by COVID-19 economic relief in several jurisdictions.

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

for $16.9 million in cash.

Trade accounts receivable totaled $1.1 billion at the end of the third quarter of 2020.

Global DSO was 61 days at the end of the third quarter of 2020 and 59 days at the end of the third quarter of 2019.

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

Our working capital position (total current assets less total current liabilities) was $634.5 million at the end of the third quarter of 2020, an increase of $112.9 million from year-end 2019.

In the first three months of 2021, we generated $10.5 million of net cash from operating activities, as compared to generating $8.4 million in the first three months of 2020, due to recurring working capital changes.

Trade accounts receivable totaled $1.3 billion at the end of the first quarter of 2021.

Global DSO was 60 days at the end of the first quarter of 2021, 64 days at year-end 2020 and 59 days at the end of the first quarter of 2020.

The decrease since year-end 2020 reflects the collection of receivables from several large customers who were carrying higher balances due to customer-driven administrative issues at year end.

Our working capital position (total current assets less total current liabilities) was $632.7 million at the end of the first quarter of 2021, an increase of $8.7 million from year-end 2020.

Excluding additional cash, working capital declined $7.7 million from year-end 2020.

The current ratio (total current assets divided by total current liabilities) was 1.8 at the end of the third quarter of 2020 and 1.6 at year-end 2019.

The current ratio (total current assets divided by total current liabilities) was 1.7 at the end of the first quarter of 2021 and at year-end 2020.

Investing Activities

In the first nine months of 2020, we generated $10.3 million of cash from investing activities, as compared to using $88.8 million in the first nine months of 2019.

Included in cash from investing activities in the first nine months of 2020 is $55.5 million of proceeds representing the cash received, net of transaction expenses, for the sale of three headquarters properties as a part of a sale and leaseback transaction.

This was partially offset by $36.4 million of cash used for the acquisition of Insight in January 2020, net of the cash received and including working capital adjustments.

Included in cash used for investing activities in the first nine months of 2019 is $50.8 million for the acquisition of NextGen in January 2019, net of the cash received, and $35.6 million for the acquisition of GTA in January 2019, net of the cash received.

These amounts were partially offset by proceeds of $13.8 million primarily from the sale of unused land.

In the first three months of 2021, we generated $7.9 million of cash from investing activities, as compared to generating $15.9 million in the first three months of 2020.

Included in cash from investing activities in the first three months of 2021 is $10.4 million of proceeds from company-owned life insurance.

Included in cash from investing activities in the first three months of 2020 is $55.5 million of proceeds representing the cash received, net of transaction expenses, for the sale of three headquarters properties as a part of a sale and leaseback transaction.

This was partially offset by $36.3 million of cash used for the acquisition of Insight in January 2020, net of the cash received.

Financing Activities

In the first nine months of 2020, we used $6.8 million of cash for financing activities, as compared to generating $3.6 million in the first nine months of 2019.

The change in cash used in financing activities was primarily related to the year-over-year change in short-term borrowing activities.

Debt totaled $0.5 million at the end of the third quarter of 2020 and was $1.9 million at year-end 2019.

In the first three months of 2021, we generated $0.1 million of cash from financing activities, as compared to using $4.6 million in the first three months of 2020.

The change in cash from financing activities was primarily related to the year-over-year change in dividend payments.

Dividends paid per common share were $0.075 in first three months of 2020, while no dividends were paid in the first three months of 2021.

Changes in net cash from financing activities are also impacted by short-term borrowing activities.

Debt totaled $1.1 million at the end of the first quarter of 2021 and was $0.3 million at year-end 2020, and represented local borrowings in both periods.

Debt-to-total capital (total debt reported in the consolidated balance sheet divided by total debt plus stockholders’ equity) is a common ratio to measure the relative capital structure and leverage of the Company.

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

The change in short-term borrowings in the first nine months of 2020 was primarily due to payments on local lines of credit.

The change in short-term borrowings in the first nine months of 2019 was primarily due to borrowings on our securitization facility.

We made dividend payments of $3.0 million in the first nine months of 2020 and $8.9 million in the first nine months of 2019.

Our ratio of debt-to-total capital was 0.1% at the end of the first quarter of 2021 and 0.0% at year-end 2020.

The change in short-term borrowings in the first three months of 2021 was primarily due to borrowings on local lines of credit.

The change in short-term borrowings in the first three months of 2020 was primarily due to payments on local lines of credit.

New Accounting Pronouncements

2 unchanged sentences

For a discussion of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K.

For a discussion of the goodwill impairment charge recognized during the first quarter of 2020, see the Goodwill footnote in the Notes to our Consolidated Financial Statements of this Quarterly Report on Form 10-Q for more information.

Contractual Obligations and Commercial Commitments

There were no significant changes to our contractual obligations and commercial commitments from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Form 10-K, with the exception of the sale and leaseback of the main headquarters building and the indemnification agreement related to the sale of our Brazil operations.

Details of the lease payments by year are disclosed in the Leases footnote in the Notes to Consolidated Financial Statements in this Form 10-Q filing.

Details of the indemnification agreement are disclosed in the Acquisitions and Disposition footnote and the Fair Value Measurements footnote in the Notes to the Consolidated Financial Statements in this Form 10-Q filing.

We have no material unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated entities.

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

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

Additional funding sources could include asset-based lending, additional bank facilities or sale of non-core assets.

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

During 2021, cash generated from operations will continue to be supplemented by recent enactment of laws providing COVID-19 relief, most notably the Coronavirus Aid, Relief, and Economic Security Act which allows for the deferral of payments of the Company's U.S.

social security taxes.

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

Such deferrals are required to be repaid by the end of 2021 and 2022.

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

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As part of those reviews, we may identify cash that we feel should be repatriated to optimize the Company’s overall capital structure.

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

As of the 2021 first quarter end, these reviews have not resulted in any specific plans to repatriate a majority of our international cash balances.

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

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

As of the end of the third quarter of 2020, we had $200.0 million of available capacity on our $200.0 million revolving credit facility and $96.8 million of available capacity on our $150.0 million securitization facility.

As of the end of the first quarter of 2021, we had $200.0 million of available capacity on our $200.0 million revolving credit facility and $97.0 million of available capacity on our $150.0 million securitization facility.

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

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

As of the end of the third quarter of 2020, we met the debt covenants related to our revolving credit facility and securitization facility.

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

As of the end of the first quarter of 2021, we met the debt covenants related to our revolving credit facility and securitization facility.

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

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

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

As cash flows generated from operations through the third quarter of 2020 have been higher than our historical results and uncertainty remains surrounding the duration of the

COVID-19 crisis, we anticipate maintaining a higher level of cash than our prior practice.

We do believe that we may begin to utilize a portion of our existing cash balances to fund working capital requirements over the next several quarters if demand for our services continues to increase.

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

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

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

Ltd., material changes in demand from or loss of large corporate customers as well as changes in their buying practices, risks particular to doing business with the government or government contractors, risks associated with conducting business in foreign countries, including foreign currency fluctuations, the exposure to potential market and currency exchange risks relating to our investment in Persol Holdings, risks associated with violations of anti-corruption, trade protection and other laws and regulations, availability of qualified full-time employees, availability of temporary workers with appropriate skills required by customers, liabilities for employment-related claims and losses, including class action lawsuits and collective actions, risks arising from failure to preserve the privacy of information entrusted to us or to meet our obligations under global privacy laws, the risk of cyberattacks or other breaches of network or information technology security, our ability to sustain critical business applications through our key data centers, our ability to effectively implement and manage our information technology projects, our ability to maintain adequate financial and management processes and controls, risk of potential impairment charges triggered by adverse industry developments or operational circumstances, unexpected changes in claim trends on workers’ compensation, unemployment, disability and medical benefit plans, the impact of changes in laws and regulations (including federal, state and international tax laws), competition law risks, the risk of additional tax or unclaimed property liabilities in excess of our estimates, our ability to realize value from our tax credit and net operating loss carryforwards, our ability to maintain specified financial covenants in our bank facilities to continue to access credit markets, and other risks, uncertainties and factors discussed in this report and in our other filings with the Securities and Exchange Commission.

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

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

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

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

Certain risk factors are discussed more fully under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis