What changed in this filing

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Item 1. Financial Statements

2021-08-12 compared with 2021-05-13 · 230 added, 148 removed, 523 unchanged (42% of the section changed)

4 unchanged sentences

(In millions of dollars except per share data)

13 Weeks Ended

2021 March 29,

13 Weeks Ended 26 Weeks Ended

2021 June 28,

Revenue from services $ 1,258.1 $ 975.3 $ 2,464.0 $ 2,236.4

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(In millions of dollars)

13 Weeks Ended

2021 March 29,

13 Weeks Ended 26 Weeks Ended

2021 June 28,

Net earnings (loss) $ 24.0 $ 41.1 $ 49.6 $ ( 112.1 )

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments, net of tax expense of $0.5 and $0.1, respectively ( 13.6 ) ( 7.4 )

Foreign currency translation adjustments, net of tax benefit of $0.1 and $0.5, tax expense of $0.4 and tax benefit of $0.4, respectively 2.0 2.7 ( 11.6 ) ( 4.7 )

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

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(In millions of dollars)

13 Weeks Ended

2021 March 29,

13 Weeks Ended 26 Weeks Ended

2021 June 28,

Capital Stock

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26 Weeks Ended

2021 March 29,

2021 June 28,

Cash flows from operating activities:

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Capital expenditures ( 4.9 ) ( 7.7 )

Proceeds from company-owned life insurance 10.4 —

Proceeds from sale of assets — 55.5

Acquisition of companies, net of cash received ( 219.0 ) ( 36.4 )

Investment in equity securities — ( 0.3 )

Proceeds (payments) related to loans with equity affiliate 5.8 —

Proceeds from company-owned life insurance 10.4 2.3

Proceeds from (investment in) equity securities 5.0 —

Other investing activities 1.0 ( 0.4 )

Net cash from investing activities 7.9 15.9

Net cash (used in) from investing activities ( 201.7 ) 13.3

Cash flows from financing activities:

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Other financing activities — ( 0.1 )

Net cash from (used in) financing activities 0.1 ( 4.6 )

Net cash used in financing activities ( 1.0 ) ( 6.2 )

Effect of exchange rates on cash, cash equivalents and restricted cash ( 2.3 ) 5.7

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26 Weeks Ended

2021 March 29,

2021 June 28,

Reconciliation of cash, cash equivalents and restricted cash:

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The unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended January 3, 2021, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 18, 2021 (the 2020 consolidated financial statements).

The Company’s first fiscal quarter ended on April 4, 2021 (2021) and March 29, 2020 (2020), each of which contained 13 weeks.

The Company’s second fiscal quarter ended on July 4, 2021 (2021) and June 28, 2020 (2020), each of which contained 13 weeks.

The corresponding June year to date periods for 2021 and 2020 each contained 26 weeks.

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

As a result, certain reclassifications have been made to the financial statements for the first quarter of 2020 to conform to our updated reportable segment presentation.

As a result, certain reclassifications have been made to the financial statements for the second quarter of 2020 and June year to date 2020 to conform to our updated reportable segment presentation.

KELLY SERVICES, INC.

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International also delivers RPO talent solutions within its local markets.

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

First Quarter

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

Second Quarter June Year to Date

2021 2020 2021 2020

Professional & Industrial

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

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

First Quarter

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

Second Quarter June Year to Date

2021 2020 2021 2020

United States $ 894.6 $ 700.1 $ 1,753.1 $ 1,628.6

Mexico 34.6 28.7

Canada 39.5 25.6 73.6 58.4

Mexico 33.1 22.5 67.7 51.2

Puerto Rico 26.9 20.0 51.1 37.7

Brazil — 6.1 — 15.2

Total Americas Region 994.1 774.3 1,945.5 1,791.1

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

First Quarter

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

Second Quarter June Year to Date

2021 2020 2021 2020

Science, Engineering & Technology

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Deferred Costs

Deferred sales commissions, which are included in other assets in the consolidated balance sheet, were $ 1.0 million as of first quarter-end 2021 and year-end 2020.

Amortization expense for the deferred costs for the first quarter 2021 was $ 0.2 million and in the first quarter 2020 was $ 0.3 million.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 2.4 million as of first quarter-end 2021 and $ 4.1 million as of year-end 2020.

Amortization expense for the deferred costs for the first quarter 2021 was $ 6.8 million and in the first quarter 2020 was $ 4.8 million.

Deferred sales commissions, which are included in other assets in the consolidated balance sheet, were $ 0.9 million as of second quarter-end 2021 and $ 1.0 million as of year-end 2020.

Amortization expense for the deferred costs for the second quarter and June year to date 2021 was $ 0.2 million and $ 0.4 million, respectively.

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

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 2.0 million as of second quarter-end 2021 and $ 4.1 million as of year-end 2020.

Amortization expense for the deferred costs for the second quarter and June year to date 2021 was $ 5.2 million and $ 12.1 million, respectively.

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

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.

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

First Quarter

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

June Year to Date

Allowance for credit losses:

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Ending balance $ 8.9 $ 9.3

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Write-offs are presented net of recoveries, which were not material for first quarter-end 2020 and 2021.

Write-offs are presented net of recoveries, which were not material for June year to date 2021 and 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.

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

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

First Quarter

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

June Year to Date

Allowance for credit losses:

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Ending Balance $ 10.9 $ 1.7

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 first quarter-end 2021.

See Investment in PersolKelly Pte.

footnote for more information on the loan to PersolKelly Pte.

We are also exposed to credit losses for other receivables measured at amortized cost, including the working capital adjustment receivable for Softworld (see Acquisitions and Disposition footnote).

No other allowance s related to the working capital adjustment receivable or other receivables were material for second quarter-end 2021 .

Acquisitions and Disposition

In the first quarter of 2020, Kelly Services USA ("KSU"), LLC, 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 second quarter of 2021, the Company acquired Softworld, Inc.

("Softworld"), as detailed below.

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.

On April 5, 2021, the Company acquired 100 % of the shares of Softworld for a purchase price of $ 215.0 million.

Softworld is a leading technology staffing and workforce solutions firm that serves clients across several end-markets, including financial services, life sciences, aerospace, defense, insurance, retail and IT consulting.

This acquisition will expand our capabilities, scale and solution set in our technology specialty.

Under terms of the purchase agreement, the purchase price was adjusted for

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

cash held by Softworld at the closing date and estimated working capital adjustments resulting in the Company paying cash of $ 220.4 million.

Total consideration includes $ 2.6 million of additional consideration that is payable to the seller in 2022.

The Company recorded a post-close receivable for a working capital adjustment of $ 6.0 million, which is included in prepaid expenses and other current assets in the consolidated balance sheet.

There are no expected credit losses associated with the receivable as of second quarter-end 2021.

The total consideration is as follows (in millions of dollars):

Cash consideration paid $ 220.4

Additional consideration payable 2.6

Net working capital adjustment ( 6.0 )

Total consideration $ 217.0

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

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 21.6

Prepaid expenses and other current assets 3.3

Net property and equipment 1.2

Operating lease right-of-use assets 7.6

Non-current deferred tax 5.9

Goodwill 111.3

Intangibles 79.4

Other assets, noncurrent 1.2

Accounts payable and accrued liabilities, current ( 2.5 )

Operating lease liabilities, current ( 1.3 )

Accrued payroll and related taxes, current ( 4.6 )

Income and other taxes, current ( 1.2 )

Operating lease liabilities, noncurrent ( 6.3 )

Total consideration, including working capital adjustments $ 217.0

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

Included in the assets purchased in the Softworld acquisition was $ 79.4 million of intangible assets, made up of $ 54.9 million in customer relationships, $ 23.1 million associated with Softworld's trade names and trademarks, and $ 1.4 million for non-compete agreements.

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

Goodwill generated from the acquisition was primarily attributable to expanding market potential and the expected revenue synergies and was assigned to the SET operating segment (see Goodwill footnote).

All of the goodwill is expected to be deductible for tax purposes.

Softworld's results of operations are included in the SET segment in 2021.

Our consolidated revenues and net earnings for the second quarter and June year to date 2021 included $ 30.4 million and $ 1.7 million, respectively, from Softworld.

The date of the acquisition was the first day of our second quarter, therefore, our first quarter results do not include any revenue or earnings from Softworld.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Pro Forma Information

The following unaudited pro forma information presents a summary of the operating results as if the Softworld acquisition had been completed as of December 30, 2019 (in millions of dollars):

Second Quarter June Year to Date

2021 2020 2021 2020

Pro forma revenues $ 1,258.1 $ 1,001.3 $ 2,495.2 $ 2,290.6

Pro forma net earnings (loss) $ 24.0 $ 42.0 $ 51.2 $ ( 112.8 )

Due to the date of the acquisition, the second quarter 2021 pro forma results reflect actual results for the period.

The pro forma results for June year to date 2021 and 2020 reflect amortization of the intangible assets of $ 2.0 million per quarter, a non-recurring adjustment to reclassify $ 1.3 million of transaction expenses from June year to date 2021 to June year to date 2020 and applicable taxes.

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 date, nor is it necessarily an indication of future operating results.

Greenwood/Asher

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

On January 14, 2020, Kelly Services USA, LLC 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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 included 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 in 2020 and there were no material adjustments to the liability in the first quarter of 2021.

Subsequently, the earnout was revalued, resulting in a net increase to the liability of $ 0.1 million in 2020 and a further increase of $ 0.1 million in the second quarter of 2021, and is expected to be paid in the third quarter of 2021.

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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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 at the time of disposition 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.

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 at the time of disposition (see Fair Value Measurements footnote) and completely offset the gain on the sale.

Investment in Persol Holdings

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

A gain on the investment of $ 30.0 million in the first quarter of 2021 and a loss on the investment of $ 77.8 million in the first quarter of 2020 was recorded in gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.

A gain on the investment of $ 6.3 million and $ 36.3 million in the second quarter and June year to date 2021, respectively, a gain on the investment of $ 29.6 million and a loss on the investment of $ 48.2 million in the second quarter and June year to date 2020, respectively, was recorded in gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.

Investment in PersolKelly Pte.

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

The operating results of the Company’s interest in the JV are accounted for on a one-quarter lag under the equity method and are reported in equity in net earnings (loss) of affiliate in the consolidated statements of earnings, which amounted to a loss of $ 1.1 million in the first quarter of 2021 and a loss of $ 1.5 million in the first quarter of 2020.

The operating results of the Company’s interest in the JV are accounted for on a one-quarter lag under the equity method and are reported in equity in net earnings (loss) of affiliate in the consolidated statements of earnings, which amounted to a gain of $ 1.7 million and $ 0.6 million in the second quarter and June year to date 2021, respectively, and a loss of $ 1.3 million and $ 2.8 million in the second quarter and June year to date 2020, respectively.

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 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 $ 118.7 million as of first quarter-end 2021 and $ 118.5 million as of year-end 2020.

The net amount due from the JV, a related party, was $ 5.2 million as of the first quarter-end 2021 and $ 5.6 million as of year-end 2020.

The Company made loans in prior years, proportionate to its 49 % ownership, to the JV to fund working capital requirements as a result of their sustained revenue growth.

As of first quarter-end 2021, the outstanding loan balance is $ 5.8 million and is recorded in prepaid expenses and other current assets in the consolidated balance sheet and included in the net amounts due from the JV.

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

The allowance for credit losses related to the loan is not material as of the first quarter-end 2021.

The Company received payment from the JV for the remaining balance of the loan in April 2021.

Accrued interest receivable, which is included in prepaid expenses and other current assets in the consolidated balance sheet, was not material at first quarter-end 2021 and year-end 2020.

The JV is a supplier to certain MSP programs in the region and the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

amounts for services provided to the Company, which are included in accounts payable and accrued liabilities in the consolidated balance sheet, are not material.

The investment in equity affiliate on the Company’s consolidated balance sheet totaled $ 120.0 million as of second quarter-end 2021 and $ 118.5 million as of year-end 2020.

The net amount due to the JV, a related party, was not material as of the second quarter-end 2021 and the net amount due from the JV was $ 5.6 million as of year-end 2020.

The Company made loans in prior years, proportionate to its 49 % ownership, to the JV to fund working capital requirements as a result of its sustained revenue growth.

In April 2021, the Company received $ 5.8 million from the JV for the outstanding balance of the loan.

As of second quarter-end 2021, there is no outstanding loan balance or accrued interest receivable relating to the loan.

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.

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 accounts payable and accrued liabilities in the consolidated balance sheet, are not material.

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

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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 first quarter-end 2021 and year-end 2020 in the consolidated balance sheet by fair value hierarchy level, as described below.

The following tables present assets and liabilities measured at fair value on a recurring basis as of second quarter-end 2021 and year-end 2020 in the consolidated balance sheet by fair value hierarchy level, as described below.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

As of First Quarter-End 2021

As of Second Quarter-End 2021

Description Total Level 1 Level 2 Level 3

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

Money market funds represent investments in money market funds that hold government securities, of which $ 5.6 million as of first quarter-end 2021 and $ 5.1 million as of year-end 2020, are restricted as to use and are included in other assets in the consolidated balance sheet.

Money market funds represent investments in money market funds that hold government securities, of which $ 6.1 million as of second quarter-end 2021 and $ 5.1 million as of year-end 2020, 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 remaining money market funds as of year-end 2020 are included in cash and equivalents in the consolidated balance sheet.

The valuations

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The decrease in money market funds from year-end 2020 resulted from the transfer to other cash and cash equivalent accounts at the end of the first quarter of 2021.

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

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

The cost of this yen-denominated investment, which fluctuates based on foreign exchange rates, was $ 18.7 million as of the first quarter-end 2021 and $ 20.1 million at year-end 2020.

As of first quarter-end 2021 and year-end 2020, the Company had an indemnification liability of $ 2.4 million and $ 2.6 million, respectively, in other long-term liabilities on the consolidated balance sheet related to the sale of the Brazil operations (see Acquisitions and Disposition footnote).

The cost of this yen-denominated investment, which fluctuates based on foreign exchange rates, was $ 18.7 million as of the second quarter-end 2021 and $ 20.1 million at year-end 2020.

As of second quarter-end 2021 and year-end 2020, the Company had an indemnification liability of $ 2.7 million and $ 2.6 million, respectively, 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 is being measured on a recurring basis.

During the first quarter of 2021, the Company recorded a reduction of $ 0.2 million to the indemnification liability related to exchange rate fluctuations in other income (expense), net in the consolidated statements of earnings.

The Company recorded an earnout liability relating to the 2020 acquisition of Insight, totaling $ 1.7 million at first quarter-end 2021 and year-end 2020 in accounts payable and accrued liabilities in the consolidated balance sheet (see Acquisitions and Disposition footnote).

During year to date 2021, the Company recognized an increase of $ 0.1 million to the indemnification liability related to exchange rate fluctuations in other income (expense), net in the consolidated statements of earnings.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company recorded an earnout liability relating to the 2020 acquisition of Insight, totaling $ 1.8 million at second quarter-end 2021 and $ 1.7 million at year-end 2020 in accounts payable and accrued liabilities in the consolidated balance sheet (see Acquisitions and Disposition footnote).

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

The Company recorded an earnout liability relating to the 2020 acquisition of Greenwood/Asher, totaling $ 1.7 million at first quarter-end 2021 in accounts payable and accrued liabilities and other long-term liabilities in the consolidated balance sheet and $ 2.1 million as of year-end 2020 in other long-term liabilities in the consolidated balance sheet (see Acquisitions and Dispositions footnote).

The Company recorded an earnout liability relating to the 2020 acquisition of Greenwood/Asher, totaling $ 1.7 million at second quarter-end 2021 in accounts payable and accrued liabilities and other long-term liabilities in the consolidated balance sheet and $ 2.1 million as of year-end 2020 in other long-term liabilities in the consolidated balance sheet (see Acquisitions and Disposition footnote).

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

During the first quarter of 2021, the Company recorded a reduction of $ 0.4 million to the earnout liability in SG&A expenses in the consolidated statements of earnings.

During year to date 2021, the Company recorded a reduction of $ 0.4 million to the earnout liability in selling, general & administrative ("SG&A") expenses in the consolidated statements of earnings.

Equity Investment Without Readily Determinable Fair Value

The Company has a minority investment in Business Talent Group, LLC, which is included in other assets in the consolidated balance sheet.

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

Prior to April 2021, the Company had a minority investment in Business Talent Group, LLC, which was included in other assets in the consolidated balance sheet.

This investment was 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 the first quarter-end 2021 and year-end 2020 represents the purchase price.

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

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

In the second quarter of 2021, BTG entered into a merger agreement which resulted in all of the Company's shares of BTG being automatically canceled upon approval of the merger and resulted in the receipt of $ 5.0 million in cash, which is equal to the carrying value and purchase price of the BTG investment.

Prior to March 2021, the Company had a minority investment in Kenzie Academy Inc., which was included in other assets in the consolidated balance sheet.

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

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As of the date of the sale and year-end 2020, the investment had a carrying value of $ 1.4 million, representing total cost plus observable price changes to date.

The asset was written down as a result of the sale and the loss of $ 1.4 million was recorded in other income (expense), net in the consolidated statements of earnings.

The asset was written down as a result of the sale and the loss of $ 1.4 million was recorded in other income (expense), net in the year to date consolidated statements of earnings.

Assets Measured at Fair Value on a Nonrecurring Basis

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

Restructuring

There were no restructuring charges incurred in the first quarter of 2021.

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 in the third

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

quarter of 2020 and to align the U.S.

Restructuring

There were no restructuring charges incurred for June year-to-date 2021.

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 in the third quarter of 2020 and to align the U.S.

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

Restructuring costs incurred in the first quarter of 2020 totaled $ 8.7 million and were 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

Restructuring costs incurred in June year-to-date 2020 totaled $ 8.5 million and were recorded entirely in SG&A expenses in the consolidated statements of earnings, as detailed below (in millions of dollars):

Termination Costs Severance Costs Total

Professional & Industrial $ 3.5 $ 0.9 $ 4.4

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Balance as of first quarter-end 2021 1.5

The remaining balance of $ 1.5 million as of first quarter-end 2021 primarily represents severance costs, and the majority is expected to be paid by the end of 2021.

Reductions for cash payments related to all restructuring activities ( 0.9 )

Balance as of second quarter-end 2021 $ 0.6

The remaining balance of $ 0.6 million as of second quarter-end 2021 primarily represents severance costs, and the majority is expected to be paid by the end of 2021.

No material adjustments are expected to be recorded.

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

As of first quarter-end 2021, there were no changes in the carrying amount of goodwill from year-end 2020.

The changes in the carrying amount of goodwill as of June year to date 2021 are included in the table below.

The goodwill resulting from the acquisition of Softworld during the second quarter of 2021 (see Acquisitions and Disposition footnote) was allocated to the SET reportable segment.

Year-End 2020 Additions to Goodwill Impairment Adjustments As of Second Quarter-End 2021

(In millions of dollars)

Science, Engineering & Technology $ — $ 111.3 $ — $ 111.3

Education 3.5 — — 3.5

Total $ 3.5 $ 111.3 $ — $ 114.8

Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the first quarter 2021 and 2020 are included in the table below.

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the second quarter and June year to date 2021 and 2020 are included in the table below.

Amounts in parentheses indicate debits.

First Quarter

Second Quarter June Year to Date

2021 2020 2021 2020

(In millions of dollars)

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Earnings (Loss) Per Share

The reconciliation of basic and diluted earnings (loss) per share on common stock for the first quarter 2021 and 2020 follows (in millions of dollars except per share data):

First Quarter

The reconciliation of basic and diluted earnings (loss) per share on common stock for the second quarter and June year to date 2021 and 2020 follows (in millions of dollars except per share data):

Second Quarter June Year to Date

2021 2020 2021 2020

Net earnings (loss) $ 24.0 $ 41.1 $ 49.6 $ ( 112.1 )

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Diluted earnings (loss) per share $ 0.60 $ 1.04 $ 1.25 $ ( 2.86 )

Potentially dilutive shares outstanding are primarily related to performance shares for the first quarter 2021.

There were no dividends paid per share for Class A and Class B common stock for the first quarter of 2021.

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

Potentially dilutive shares outstanding are primarily related to performance shares (see Stock-Based Compensation footnote for a description of performance shares) for the second quarter and June year to date 2021 and 2020.

There were no dividends paid for Class A and Class B common stock for second quarter 2021 and 2020, and June year to date 2021.

Dividends paid per share for Class A and Class B common stock were $ 0.075 for June year to date 2020.

Stock-Based Compensation

For the first quarter of 2021, the Company recognized stock compensation expense of $ 1.4 million, and related tax benefit of $ 0.1 million.

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

For the second quarter of 2021, the Company recognized stock compensation expense of $ 1.4 million, and a related tax benefit of $ 0.3 million.

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

For June year to date 2021, the Company recognized stock compensation expense of $ 2.8 million, and a related tax benefit of $ 0.4 million.

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

Performance Shares

During 2021, the Company granted performance share awards associated with the Company’s Class A common stock to certain senior officers.

The payment of performance share awards, which will be satisfied with the issuance of shares out of treasury stock, is contingent upon the achievement of specific revenue growth and EBITDA margin performance goals ("financial measure performance share awards") over a stated period of time.

The payment of performance share awards, which will be satisfied with the issuance of shares out of treasury stock, is contingent upon the achievement of specific revenue growth and earnings before interest, taxes, depreciation and amortization ("EBITDA") margin performance goals ("financial measure performance share awards") over a stated period of time.

The maximum number of performance shares that may be earned is 200% of the target shares originally granted.

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No dividends are paid on these performance shares.

A summary of the status of all nonvested performance shares at target as of first quarter-end 2021 and changes during this period is presented as follows below (in thousands of shares except per share data).

The vesting adjustment in the table below represents the 2018 financial measure performance shares and the 2018 Total Shareholder Return ("TSR") performance shares that did not vest because actual achievement was below the threshold level and resulted in no payout.

On May 18, 2021, the Compensation Committee approved a modification to the performance goals of our 2021 and 2020 financial measure performance awards to increase the goals to reflect the results of the acquisition of Softworld.

We accounted for this change as a Type I modification under ASC 718 as the expectation of the achievement of certain performance conditions related to these awards remained a probable-to-probable post-modification.

The Company did not record any incremental stock compensation expense since the fair value of the modified awards immediately after the modification was not

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

greater than the fair value of the original awards immediately before the modification.

All service-based vesting conditions were unaffected by the modification.

A summary of the status of all nonvested performance shares at target as of second quarter-end 2021 and year-to-date changes is presented as follows below (in thousands of shares except per share data).

Financial Measure

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Vesting adjustment ( 94 ) 16.99 ( 47 ) 31.38

Nonvested at first quarter-end 2021 430 $ 23.69 — $ —

Nonvested at second quarter-end 2021 423 $ 22.50 — $ —

Restricted Stock

A summary of the status of nonvested restricted stock as of first quarter-end 2021 and changes during this period is presented as follows below (in thousands of shares except per share data).

A summary of the status of nonvested restricted stock as of second quarter-end 2021 and year-to-date changes is presented as follows below (in thousands of shares except per share data).

Shares Weighted Average Grant Date Fair Value

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Forfeited ( 15 ) 24.19

Nonvested at first quarter-end 2021 383 $ 21.70

Nonvested at second quarter-end 2021 390 $ 21.78

Sale of Assets

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

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

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

Although the sale of receivables is with recourse, the Company did not record a recourse obligation as the Company concluded the receivables were collectible.

The net cash proceeds related to the sale were included in operating activities in the consolidated statements of cash flows and the fees related to the sale were 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.

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other Income (Expense), Net

Included in other income (expense), net for the first quarter 2021 and 2020 are the following:

First Quarter

Included in other income (expense), net for the second quarter and June year to date 2021 and 2020 are the following:

Second Quarter June Year to Date

2021 2020 2021 2020

(In millions of dollars)

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Interest expense ( 0.6 ) ( 0.8 ) ( 1.2 ) ( 1.7 )

Dividend income 1.0 1.3 1.0 1.3

Foreign exchange gains (losses) ( 0.7 ) 1.3 ( 0.9 ) 3.7

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Other Income (Expense), Net $ ( 0.3 ) $ 2.6 $ ( 3.7 ) $ 4.3

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Included in Other for the first quarter of 2021 is a loss from the sale of the assets related to our minority investment in Kenzie Academy (see Fair Value Measurements footnote) and transaction-related expenses from the April 2021 acquisition of Softworld (see Subsequent Event footnote).

Income tax expense was $ 10.5 million for 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.

Included in Other for June year to date 2021 is a loss from the sale of the assets related to our minority investment in Kenzie Academy (see Fair Value Measurements footnote) and transaction-related expenses from the April 2021 acquisition of Softworld (see Acquisitions and Disposition footnote).

Income tax benefit was $ 2.6 million and expense was $ 0.9 million for the second quarter of 2021 and 2020, respectively.

Income tax expense was $ 7.9 million and income tax benefit was $ 35.3 million for June year to date 2021 and 2020, respectively.

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in a charge of $ 1.9 million for the second quarter of 2021 and $ 11.1 million for June year to date 2021, compared to a charge of $ 9.0 million for the second quarter of 2020 and a benefit of $ 14.8 million for June year to date 2020.

The second quarter of 2021 benefited $ 5.2 million from a change in United Kingdom tax rates, while the second quarter of 2020 benefited $ 7.7 million from Brazil outside basis differences.

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

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

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

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

The United Kingdom rate change benefit in the second quarter of 2021, impairment of goodwill in the first quarter of 2020 and the Brazil outside basis differences in the second quarter of 2020 were treated as discrete.

The Company provides valuation allowances against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

At this time, we have no valuation allowance against our Mexican deferred tax asset of $ 4.4 million, though it is possible this may change as we assess the impacts of the new labor laws enacted in the second quarter of 2021 on our Mexican business operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Contingencies

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

At first quarter-end 2021 and year-end 2020, the gross accrual for litigation costs amounted to $ 1.2 million and $ 1.4 million, respectively.

At second quarter-end 2021 and year-end 2020, the gross accrual for litigation costs amounted to $ 1.3 million and $ 1.4 million, respectively.

The Company maintains insurance coverage which may cover certain claims.

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

At first quarter-end 2021 and year-end 2020, there were no related insurance receivables.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is $ 0.1 million to $ 1.8 million as of first quarter-end 2021.

At second quarter-end 2021 and year-end 2020, there were no related insurance receivables.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is $ 0.4 million to $ 4.3 million as of second quarter-end 2021.

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Segment Disclosures

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Consistent with the information provided to and evaluated by the CODM, the goodwill impairment charge in the first quarter of 2020 was 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 the first quarter 2021 and 2020.

The following tables present information about the reported revenue from services and gross profit of the Company by reportable segment, along with a reconciliation to earnings (loss) before taxes and equity in net earnings (loss) of affiliate, for the second quarter and June year to date 2021 and 2020.

The Company changed its reportable segments during the third quarter of 2020.

As a result, certain reclassifications have been made to the reportable segment results for the first quarter of 2020 to conform to the updated reportable segment 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.

First Quarter

As a result, certain reclassifications have been made to the reportable segment results for the second quarter of 2020 and June year to date 2020 to conform to the updated reportable segment presentation.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Second Quarter June Year to Date

2021 2020 2021 2020

(In millions of dollars)

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Consolidated Total $ 1,258.1 $ 975.3 $ 2,464.0 $ 2,236.4

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

First Quarter

Second Quarter June Year to Date

2021 2020 2021 2020

(In millions of dollars)

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Earnings (loss) before taxes and equity in net earnings (loss) of affiliate $ 19.7 $ 43.3 $ 56.9 $ ( 144.6 )

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Depreciation and amortization expense included in SG&A expenses by segment above are as follows:

Second Quarter June Year to Date

2021 2020 2021 2020

(In millions of dollars)

Depreciation and amortization:

Professional & Industrial $ 1.4 $ 1.3 $ 2.8 $ 2.7

Science, Engineering & Technology 3.3 1.1 4.3 2.1

Education 0.9 0.9 1.9 1.8

Outsourcing & Consulting 0.2 0.2 0.4 0.3

International 0.5 0.5 1.0 1.1

New Accounting Pronouncements

Recently Adopted

In January 2020, the FASB issued ASU 2020-01 which clarifies the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities.

In January 2020, the FASB issued Accounting Standards Update ("ASU") 2020-01 which clarifies the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities.

The guidance clarifies how to account for the transition into and out of the equity method of accounting when considering observable transactions under the measurement alternative.

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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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Subsequent Event

On April 5, 2021, the Company acquired 100 % of the shares of Softworld, Inc.

("Softworld") for $ 215.0 million of cash, subject to working capital adjustments.

The related acquisition costs, which are included in other income (expense), net in the consolidated statements of earnings, were $ 1.3 million.

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 assumed or pro forma revenue and earnings.

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

What changed 10-Q

Item 1. Financial Statements