What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-17 compared with 2021-02-18 · 269 added, 233 removed, 345 unchanged (59% of the section changed)

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Executive Overview

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

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

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

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

Kelly’s strategy and actions are guided by our simple yet powerful Noble Purpose:

“We connect people to work in ways that enrich their lives.” We are 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 post-pandemic landscape, 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.

By aligning ourselves with our Noble Purpose and executing against these behaviors, we are becoming a more agile and focused organization, prepared to achieve new levels of growth and profitability as we develop and reshape 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.

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.

Even before 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.

Global demographic trends are reshaping and redefining the way in which companies find and use talent, and the COVID-19 pandemic changed where and how companies expect work to be performed—a shift we expect will carry over into the future.

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

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

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

2021 saw record-breaking employee resignations in the U.S.

as workers opted out of jobs that did not align with their needs.

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

Kelly is proud to be a career partner of choice for workers in search of a better way to work.

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

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

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

In 2020, we adopted a new operating model and realigned our business into five specialty business units, which are also our reportable segments.

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

and Canada, including our KellyConnect product

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

and Canada and includes our NextGen and Global Technology Associates subsidiaries

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

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

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

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

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

and Canada, including our KellyConnect and Skilled Professional Solutions products

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

and Canada and includes our NextGen and Global Technology Associates subsidiaries, as well as Softworld, a technology staffing and workforce solutions company acquired in 2021

• Education – delivers staffing, direct-hire and executive search services across the full education spectrum from early childhood to higher education in the U.S., and includes 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 Talent Advisory Services to customers on a global basis

• International – delivers staffing, RPO and direct-hire services in 15 countries in Europe, as well as services in Mexico delivered in accordance with recent changes in labor market regulations

In addition, 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.

Ltd, a wholly owned subsidiary of Persol Holdings, a leading provider of HR solutions in Japan, provides staffing and direct hire services to customers in the Asia-Pacific region.

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

Our Perspective

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

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

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

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

These actions included:

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

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

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

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

and Puerto Rico;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Moving Forward

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• Revenue growth (both organic and inorganic)

• Gross profit rate improvement

• Conversion rate and EBITDA margin improvement

Our Perspective and Outlook on Growth

Our 2020 results reflected the substantial decline in demand for our services during the depth of the COVID-19 crisis and the decisive actions we took to reduce costs and protect our balance sheet.

We were successful in positioning Kelly to take advantage of improving economic conditions and the beginning of a recovery in customer demand as we entered 2021.

While 2021 had its share of headwinds, most notably the emergence of the Delta and Omicron variants, continued global supply chain shortages, and a talent supply shortage, Kelly persevered and ended the year better than we began it.

We made our largest-ever acquisition in April 2021 with the purchase of Softworld, a leader in the fast-growing technology staffing and solutions space.

We made structural improvements in our businesses, driving growth in our GP rate;

and we reinstated a dividend, which had been temporarily suspended during the worst of the pandemic.

Within our specialty solutions, customer demand for our services increased throughout 2021, reaching or exceeding pre-pandemic levels at various rates across specialties.

Our P&I and Education segments, the hardest-hit by COVID-19 and its variants, put the worst of the pandemic behind them by year’s end.

Our SET business drove double-digit growth in outcome-based business and Softworld.

Our International segment continued its recovery, led by growth in key European countries.

And OCG, the most resilient of our business segments, continued to deliver double-digit growth throughout 2021.

We enter 2022 having shifted from recovery to growth.

Our permanent placement fee growth points toward our customers’ investments in their future workforce, and increased demand in our staffing and outcome-based businesses reflects strong market demand for the specialty solutions we provide.

Our business is arranged around specialties that target these areas of strong demand, promising growth opportunities, and Kelly’s proven ability to win.

Our segments also reflect our intent to shift our portfolio toward high-margin, higher-value specialties that deliver a competitive edge and increased shareholder value.

As we continue our strategic growth journey in the year ahead, we will also invest in key value drivers.

• We are mapping our digital transformation journey, building a technology foundation to optimize our business, personalize the talent journey and improve the client experience.

For example, in 2021 we launched Helix UX, an industry-leading talent management tool that is enabling our customers to better manage their global workforce across temporary, full-time and cloud-based talent pools.

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

We have reallocated resources to be solely focused on the temporary worker experience, and our Equity@Work initiative is designed to break down long-standing, systemic barriers that make it difficult for many people to participate in the labor market.

• We are investing in the talent experience of our full-time employees, taking action to ensure we have the people coaches and performance management systems that will help our employees thrive in their Kelly careers.

We know that our success is powered by our people, and we are aiming for industry-leading results.

As we execute our specialty growth strategy, we are focused on both the speed and scope of change.

To that end, on February 14, 2022 we announced transactions that will allow us to strategically re-deploy resources to accelerate our growth in high-margin, high-growth specialties.

Specifically, we are unwinding our cross-ownership with Persol Holdings and reducing our ownership interest in our APAC joint venture, PersolKelly.

Monetizing our investments in Persol Holdings and PersolKelly provides us with additional capital, when combined with our available borrowing capacity, that results in approximately $500 million of capital available to invest in our specialty growth strategy and positions us to continue to grow both organically and inorganically in 2022 and beyond.

Financial Measures

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

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

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

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

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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.

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

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

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.

EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDA margin (EBITDA divided by revenue

from services) are measures used for understanding the Company's ability to generate cash flow and for judging overall

operating performance.

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

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

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(52 Weeks) 2020

(52 Weeks) Change 2019 2018 Change

(53 Weeks) Change 2020

(53 Weeks) 2019

(52 Weeks) Change

Revenue from services $ 4,909.7 $ 4,516.0 8.7 % $ 4,516.0 $ 5,355.6 (15.7) %

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SG&A expenses excluding restructuring charges 866.6 792.8 9.3 792.8 877.6 (9.7)

Restructuring charges 12.8 5.5 131.5 5.5 — NM

Restructuring charges 4.0 12.8 (69.0) 12.8 5.5 131.5

Total SG&A expenses 870.6 805.6 8.1 805.6 883.1 (8.8)

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Asset impairment charge — — NM — 15.8 NM

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

Earnings (loss) from operations 48.6 (93.6) NM (93.6) 81.8 NM

Gain (loss) on investment in Persol Holdings 121.8 (16.6) NM (16.6) 35.8 NM

Gain on insurance settlement 19.0 — NM — — NM

Other income (expense), net (3.6) 3.4 (206.5) 3.4 (1.2) 369.5

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Equity in net earnings (loss) of affiliate 5.4 0.8 NM 0.8 (3.6) NM

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

Net earnings (loss) $ 156.1 $ (72.0) NM % $ (72.0) $ 112.4 NM %

Gross profit rate 18.7 % 18.3 % 0.4 pts.

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Conversion rate 5.3 (11.3) 16.6 (11.3) 8.4 (19.7)

Revenue from services for 2021 increased 8.7% on a reported basis and 7.8% on a constant currency basis as demand for our services increased from COVID-crisis driven levels in 2020.

Revenue increased in all operating segments, with the exception of Professional & Industrial.

Our acquisition of Softworld, a technology staffing and solutions firm, in early April 2021 added approximately 220 basis points to the revenue growth rate.

The 2020 fiscal year included a 53rd week.

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

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

Compared to 2020, revenue from staffing services increased 6.6%, revenue from outcome-based services increased 7.3%, and permanent placement income increased 89.7%.

Gross profit increased 11.1% on higher revenue volume and an improving gross profit rate.

The gross profit rate increased 40 basis points in comparison to 2020, primarily due to the impact of higher permanent placement income and the acquisition of Softworld, which generates higher gross profit rates, partially offset by unfavorable product mix and higher employee-related costs.

Gross profit rate improved approximately 30 basis points as a result of the acquisition of Softworld.

The gross profit rate for 2020 includes approximately 20 basis points from COVID-related government wage subsidies.

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

Total SG&A expenses increased 8.1% compared to 2020.

SG&A expenses related to Softworld, including amortization of intangibles and other operating expenses, accounted for approximately 350 basis points to the year-over-year increase.

The increase in SG&A expenses also reflects increases in performance-based incentive compensation expenses and the impact of

temporary expense mitigation efforts in 2020.

With the exception of Professional & Industrial, SG&A expenses increased in all segments in comparison to 2020.

Included in SG&A expenses for 2021 was $4.0 million of restructuring charges, primarily reflecting cost management actions taken in the fourth quarter of 2021 to increase operational efficiencies within enterprise functions that provide centralized support to operating units.

Included in SG&A expenses for 2020 was $12.8 million of restructuring charges and a $9.5 million charge related to a customer dispute.

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

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

Gain on sale of assets of $32.1 million 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 2021 totaled $48.6 million, compared to a loss from operations of $93.6 million in 2020.

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

Gain (loss) on investment in Persol Holdings represents the noncash 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.

The gain on insurance settlement of $19.0 million in 2021 represents a payment received in the fourth quarter of 2021 related to the settlement of claims under a representations and warranties insurance policy purchased by the Company in connection with the acquisition of Softworld.

Other expense for 2021 totaled $3.6 million, compared to other income of $3.4 million for 2020.

Included in the 2021 amount is a one-time, non-cash write-down of an equity investment and transaction-related expenses from the April 2021 acquisition of Softworld.

Income tax expense was $35.1 million for 2021 and income tax benefit was $34.0 million for 2020.

The 2021 income tax expense was impacted by higher pretax earnings and changes in the fair value of the Company's investment in Persol Holdings.

Income taxes for 2021 also includes a charge for gain on insurance settlement and a benefit from a United Kingdom tax rate change.

Income taxes for 2020 includes a tax benefit from the impairment of goodwill and a U.S.

tax benefit from the sale of Brazil operations.

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

The net earnings for 2021 were $156.1 million, compared to a net loss of $72.0 million for 2020.

This change was due primarily to higher earnings from operations and increased gains of Persol Holdings common stock, net of tax.

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

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

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

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

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

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

Actions were taken in the fourth quarter of 2020 to

align costs with expected revenue levels.

Actions were taken in the fourth quarter of 2020 to align costs with expected revenue levels.

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

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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.

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

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

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

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

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

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

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

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

The loss from operations for 2020 of $93.6 million reflected a decline from the $81.8 million of earnings from operations in 2019.

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

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

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

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

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

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

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

These benefits were offset by lower work opportunity credits.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

branch-based staffing operations.

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

Asset impairment charge represents the write-off of previously capitalized costs associated with a new U.S.

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

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

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

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

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

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

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

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

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

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

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

Operating Results By Segment

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(52 Weeks) 2020

(52 Weeks) % Change 2019 2018 % Change

Dollars in millions

(53 Weeks) % Change 2020

(53 Weeks) 2019

(52 Weeks) % Change

Revenue From Services:

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Consolidated Total $ 4,909.7 $ 4,516.0 8.7 % $ 4,516.0 $ 5,355.6 (15.7) %

Professional & Industrial revenue from services decreased 1.1% due primarily to lower demand from our outcome-based call center specialty.

Revenue from staffing services also declined on lower hours volume due to talent supply constraints even as customer demand improved.

Lower hours volume in staffing services was partially offset by higher average bills rates.

These decreases were partially offset by increased outcome-based revenue in other specialties, as well as higher permanent placement income which is included in revenue from services.

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

Science, Engineering & Technology revenue from services increased 13.5% on a reported basis, which includes revenues from the acquisition of Softworld.

On an organic basis, revenue growth was 3.9%, which was driven by hours increases in our staffing business across most specialties, coupled with an increase in outcome-based revenue and permanent placement income.

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

Education revenue from services increased 45.2% reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to a year ago.

In 2020, many districts were using virtual or hybrid instruction methods due to the impact of COVID-19.

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

Outsourcing & Consulting revenue from services increased 18.9% due primarily to increased hours revenue volume in our PPO specialty, coupled with revenue growth in both RPO and MSP products.

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

International revenue from services increased 8.0% on a reported basis and increased 4.9% on a CC basis.

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

Excluding Brazil, revenue increased 9.9% on a reported basis and 6.8% on a constant currency basis.

The increase was primarily due to higher hours volume, particularly in Switzerland, Portugal, Italy and France.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Operating Results By Segment (continued)

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(52 Weeks) 2020

(52 Weeks) Change 2019 2018 Change

Dollars in millions

(53 Weeks) Change 2020

(53 Weeks) 2019

(52 Weeks) Change

Gross Profit:

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18.3 % 18.1 % 0.2 pts.

Gross profit for the Professional & Industrial segment decreased due to a decrease in the gross profit rate, combined with lower revenue volume.

In comparison to the prior year, the gross profit rate decreased 90 basis points.

This decrease reflects the unfavorable year-over-year impact of government wage subsidies, increased costs associated with our outcome-based call center specialties, higher employee-related costs in the staffing product and a shift in product mix compared to the prior year as demand for staffing services, which generally carry lower margins, increased.

These decreases were partially offset by the impact of increased permanent placement income in 2021.

The Science, Engineering & Technology gross profit increased on higher revenue volume and an increase in the gross profit rate.

The gross profit rate increased 140 basis points due to increased permanent placement income and improved specialty mix, including the acquisition of Softworld in April 2021, partially offset by higher employee-related costs.

Gross profit for the Education segment increased on higher revenue volume and an increase in the gross profit rate.

The gross profit rate increased 90 basis points due primarily to higher permanent placement income from Greenwood/Asher, our acquisition in late 2020.

This increase was partially offset by the unfavorable year-over-year impact of government wage subsidies.

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 30 basis points primarily due to a change in product mix within this segment, as revenues increased in our PPO product, which generates lower profit margins.

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

The gross profit rate increased 120 basis points primarily due to customer mix.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Operating Results By Segment (continued)

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(52 Weeks) 2020

(52 Weeks) % Change 2019 2018 % Change

Dollars in millions

(53 Weeks) % Change 2020

(53 Weeks) 2019

(52 Weeks) % Change

SG&A Expenses:

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(52 Weeks) 2020

(52 Weeks) % Change 2019 2018 % Change

Dollars in millions

(53 Weeks) % Change 2020

(53 Weeks) 2019

(52 Weeks) % Change

Restructuring Charges Included in SG&A Expenses:

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Outsourcing & Consulting — 0.3 NM 0.3 — NM

International 1.4 — NM — — NM

Corporate expenses 3.5 — NM — — NM

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

International 1.2 1.4 (10.2) 1.4 — NM

Corporate expenses 2.8 3.5 (18.4) 3.5 — NM

Consolidated Total $ 4.0 $ 12.8 (69.0) % $ 12.8 $ 5.5 131.5 %

Total SG&A expenses in Professional & Industrial decreased 3.5% and decreased 1.4% excluding restructuring charges.

Expenses are lower as a result of cost reductions in response to lower revenue volumes, partially offset by higher performance-based compensation expenses.

Total SG&A expenses in Science, Engineering & Technology increased 34.1%, or 34.7% excluding restructuring charges.

Excluding restructuring charges and the acquisition of Softworld, SG&A expenses increased 13.9%.

Year-over-year comparisons of salaries and related costs were impacted by temporary expense mitigation actions taken in response to the COVID-19 disruption in 2020.

These increases were combined with higher headcount in sales and recruiting talent, and an increase in performance-based incentive compensation.

Total SG&A expenses in Education increased 21.1%, or 23.6% excluding restructuring charges, primarily due to higher salary and incentives expense related to improving revenues.

In addition, year-over-year comparisons of salaries and related costs were impacted by temporary expense mitigation actions taken in 2020 in response to the COVID-19 disruption.

Expenses in 2021 include a charge to adjust the contingent consideration due to the former owners of Greenwood/Asher as a result of better than anticipated performance.

Total SG&A expenses in Outsourcing & Consulting increased 13.3% in comparison to the prior year.

Year-over-year comparisons of salaries and related costs were impacted by temporary expense actions taken in 2020 in response to the impact of the COVID-19 disruption.

These increases were combined with an increase in salaries and performance-based incentive compensation reflecting improving revenue.

Total SG&A expenses in International increased 2.9% on a reported basis and increased 0.1% on a constant currency basis.

Total SG&A expenses in 2021 and 2020 include restructuring charges, and the prior year also included a charge related to a customer dispute in Mexico and SG&A expenses related to our staffing operations in Brazil, which were sold in August 2020.

Excluding these items, SG&A expenses increased 13.6% on a reported basis and 10.4% on a constant currency basis.

This increase was primarily due to higher performance-based compensation and higher salary-related expenses driven by an increase in headcount, reflecting improving revenue in Europe.

Corporate expenses decreased $0.1 million from 2020.

Lower disability, non-restructuring severance and restructuring costs were partially offset by higher performance-based compensation expense.

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

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

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

branch-based staffing operations.

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

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

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

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

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

Corporate expenses were flat year over year.

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

Operating Results By Segment (continued)

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(52 Weeks) 2020

(52 Weeks) % Change 2019 2018 % Change

Dollars in millions

(53 Weeks) % Change 2020

(53 Weeks) 2019

(52 Weeks) % Change

Earnings (Loss) from Operations:

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Science, Engineering & Technology 73.7 75.0 (1.7) 75.0 79.5 (5.8)

Education (9.0) 15.8 NM 15.8 22.9 (31.0)

Outsourcing & Consulting 11.5 3.0 291.3 3.0 (7.0) NM

International (8.9) 18.7 NM 18.7 23.8 (21.6)

Education 3.0 (9.0) NM (9.0) 15.8 NM

Outsourcing & Consulting 18.7 11.5 62.7 11.5 3.0 291.3

International 9.9 (8.9) NM (8.9) 18.7 NM

Corporate (88.1) (203.8) 56.7 (203.8) (97.6) (108.6)

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

Consolidated Total $ 48.6 $ (93.6) NM % $ (93.6) $ 81.8 NM %

Professional & Industrial reported earnings of $31.4 million, a 24.4% decrease from 2020.

The decrease in earnings was primarily due to increased costs of services reducing our gross profit rate in our outcome-based product lines and the year-over-year impact of the government wage subsidies we received in 2020.

These were partially offset by an increase in our permanent placement income.

Science, Engineering & Technology reported earnings of $73.7 million, a 1.7% decrease from 2020.

The decrease in earnings was primarily due to higher expenses related to performance-based incentive compensation and higher salaries.

The increase in higher salaries was related to an investment in additional sales and recruiting resources, which exceeded revenue and gross margin growth.

This was partially offset by earnings from Softworld, which was acquired in April 2021.

Education reported earnings of $3.0 million, compared to a loss of $9.0 million from 2020.

The change was primarily due to an increase in revenue, reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to 2020.

In 2020, many districts were using virtual or hybrid instruction methods due to the impact of COVID-19.

Partially offsetting this improvement is a charge to adjust the contingent consideration due to the former owners of Greenwood/Asher.

Outsourcing & Consulting reported earnings of $18.7 million, a 62.7% increase compared to 2020.

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

International reported earnings of $9.9 million, compared to a loss of $8.9 million in 2020.

The increase in earnings was primarily due to the favorable comparison related to the charge for a customer dispute in Mexico and restructuring charges in 2020, combined with improving revenue in Europe.

Corporate loss from operations was $88.1 million in 2021, compared to a loss of $203.8 million in 2020.

The 2020 loss includes the goodwill impairment charge of $147.7 million, partially offset by a gain on sale of assets of $32.1 million.

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

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

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

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

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

International reported a loss of $8.9 million, compared to earnings of $18.7 million in 2019, largely driven by the impact of COVID-19 on revenue and a charge related to a customer dispute in Mexico, partially offset by cost management initiatives.

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

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

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

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

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

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

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

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

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

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

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

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

Results of Operations

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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 through the fourth quarter.

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

The impact of the COVID-19 crisis on our business began in March 2020.

While we have yet to return to pre-crisis revenue levels, we have experienced improving demand for our services and expect a sustained recovery throughout 2022.

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 totaled $119.5 million at year-end 2021, compared to $228.1 million at year-end 2020.

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

As further described below, during 2021, we generated $85.0 million of cash from operating activities, used $180.7 million of cash for investing activities and used $8.1 million of cash for financing activities.

Operating Activities

In 2021, we generated $85.0 million of net cash from operating activities, as compared to generating $186.0 million in 2020 and generating $102.2 million in 2019.

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

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

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

Net cash from operating activities in 2020 benefited from a deferral of $117.0 million of U.S.

federal payroll taxes.

Net cash from operating activities in 2021 included $29.7 million of cash outflows related to the repayment of the payroll tax deferral.

The change from 2020 to 2021 was primarily due to the impact of changes in the payroll tax deferral, partially offset by the favorable impact of improving global DSO.

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

Trade accounts receivable totaled $1.4 billion at year-end 2021 and $1.3 billion at year-end 2020.

Global DSO for the fourth quarter was 60 days for 2021, compared to 64 days for 2020.

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

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

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

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

DSO at year-end 2020 reflected the impact of customer-driven administrative issues among a limited number of large customers which were resolved in early 2021.

Our working capital position (total current assets less total current liabilities) was $493.5 million at year-end 2021, a decrease of $130.5 million from year-end 2020.

Excluding the decrease in cash, working capital decreased $20.2 million from year-end 2020.

The current ratio (total current assets divided by total current liabilities) was 1.5 at year-end 2021 and 1.7 at year-end 2020.

Investing Activities

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

In 2021, we used $180.7 million of net cash for investing activities, compared to generating $9.8 million in 2020 and using $94.3 million in 2019.

Included in cash used for investing activities in 2021 is $213.0 million of cash used for the acquisition of Softworld in April 2021, net of cash received and including working capital adjustments.

This was partially offset by $19.0 million of proceeds from an insurance settlement that represented a payment received in the fourth quarter of 2021 related to the settlement of claims under a representations and warranties insurance policy purchased by the Company in connection with the acquisition of Softworld.

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

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

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

PersolKelly Pte.

to fund working capital requirements.

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Capital expenditures totaled $11.2 million in 2021, $15.5 million in 2020 and $20.0 million in 2019.

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

Capital expenditures in 2021 primarily related to the Company's IT infrastructure, technology programs and headquarters building improvements.

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

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

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

Financing Activities

In 2020, we used $8.1 million of cash for financing activities, as compared to using $16.1 million in 2019 and using $26.5 million in 2018.

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

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

In both 2021 and 2020, we used $8.1 million of cash for financing activities, as compared to using $16.1 million in 2019.

Changes in net cash from 2019 financing activities were primarily related to dividend payments.

Dividends paid per common share were $0.10 in 2021, $0.075 in 2020 and $0.30 in 2019.

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

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

Debt totaled $0.3 million at year-end 2020 and was $1.9 million at year-end 2019.

There was no debt at year-end 2021 and debt was $0.3 million at year-end 2020.

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 year-end 2020 and 0.1% at year-end 2019.

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

In 2021, 2020 and 2019 the net change in short-term borrowings was primarily due to payments on local lines of credit.

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

Contractual Obligations and Commercial Commitments

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Total $ 564.9 $ 124.8 $ 189.1 $ 67.5 $ 183.5

Purchase obligations above represent unconditional commitments relating primarily to technology services and online tools which we expect to utilize generally within the next two fiscal years, in the ordinary course of business.

Purchase obligations above represent unconditional commitments relating primarily to technology services and online tools which we expect to utilize generally within the next three fiscal years, in the ordinary course of business.

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.

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

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

social security taxes.

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

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 2020, cash generated from operations was supplemented by the deferral of payments of the Company's U.S.

social security taxes as allowed by the Coronavirus Aid, Relief, and Economic Security Act.

Such remaining deferrals are required to be repaid by January 3, 2023.

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

As of the 2021 year end, these reviews have not resulted in plans to repatriate foreign subsidiary cash.

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

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

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

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

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

individual accounts may be positive or negative.

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Throughout 2021 and as of the 2021 year end, we met the debt covenants related to our revolving credit facility and securitization facility.

At year-end 2020, we also had additional unsecured, uncommitted short-term credit facilities totaling $9.6 million, under which we had $0.3 million of borrowings.

At year-end 2021, we also had additional unsecured, uncommitted short-term credit facilities totaling $8.1 million, under which we had no borrowings.

Details of our debt facilities as of the 2021 year end are contained in the Debt footnote in the notes to our consolidated financial statements.

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

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

We expect our working capital requirements to increase over the next several quarters if demand for our services continues to increase and to pay the deferred payroll tax balances, of which $29.5 million was paid on January 3, 2022 and another $57.6 million is due on January 3, 2023.

In February 2022, we entered into transactions to monetize a portion of our assets in the Asia-Pacific region which will allow us to strategically redeploy resources to accelerate our growth.

Specifically, we are unwinding our cross-shareholding arrangement with Persol Holdings and reducing our ownership interest in PersolKelly, our APAC joint venture.

We sold our investment in Persol Holdings common stock in an open market transaction.

We repurchased the 1.6 million Kelly Class A and 1,475 Kelly Class B common shares owned by Persol Holdings at a price based on the last five trading days prior to the transaction.

We will sell almost all of our ownership interest in PersolKelly to our joint venture partner.

The transactions will be complete in the first quarter of 2022.

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

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We utilize third-party valuation specialists to assist us in the determination of the fair value of the intangibles.

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

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

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

Determining the useful lives of intangible assets also requires judgment and are inherently uncertain.

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Judgment is required in determining our income tax expense.

We establish accruals for uncertain tax positions under generally accepted accounting principles, which require that a position taken or expected to be taken in a tax return be recognized in the consolidated financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) the position would be sustained upon examination by tax authorities who have full knowledge of all relevant information.

A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

Our effective tax rate includes the impact of accruals and changes to accruals that we consider appropriate, as well as related interest and penalties.

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We evaluate the accrual regularly throughout the year and make adjustments as needed.

Equity Method Investment

We account for our investment in PersolKelly Pte.

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

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

An impairment assessment requires the exercise of judgment related to financial trends, forecasts, relevant events, as well as any operating, economic, legal or regulatory changes that may have an impact on the investment.

There were no indicators of an other-than-temporary impairment in 2020 or 2019.

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

See the Investment in PersolKelly Pte.

footnote in the notes to our consolidated financial statements.

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

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

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

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

For segments with a goodwill balance, we have determined that our reporting units are the same as our operating and reportable segments based on our organizational structure or one level below our operating segments (the component level).

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

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

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

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

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

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

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

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

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

Based on the result of our interim goodwill impairment test as of the first quarter of 2020, we recorded a goodwill impairment charge of $147.7 million to write off the entire goodwill balance.

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

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

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

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Our analysis used significant assumptions by reporting unit, including:

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

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

expected future revenue growth rates, profit margins and discount rate.

The goodwill resulting from the acquisition of Softworld during the second quarter of 2021 was allocated to the SET reportable segment and Softworld was deemed to be a separate reporting unit.

The goodwill resulting from the acquisition of Greenwood/

Asher during the fourth quarter of 2020 was allocated to the Education reportable segment, which was deemed to be a reporting unit.

See the Acquisitions and Disposition footnote in the notes to our consolidated financial statements for more information.

We completed our annual impairment test for all reporting units with goodwill in the fourth quarter for the fiscal year ended 2021.

We performed a step one quantitative test for the Softworld reporting unit.

As a result of the quantitative assessment, we determined that the estimated fair value of the Softworld reporting unit was more than its carrying value.

Additionally, we performed a step zero qualitative analysis for the Education reporting unit to determine whether a further quantitative analysis was necessary and concluded that a step one quantitative analysis was not necessary.

As a result of the quantitative and qualitative assessments, the Company determined goodwill was not impaired as of year-end 2021.

Our analysis used significant assumptions, including:

expected future revenue growth rates, profit margins and discount rate.

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

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

The estimated fair value of the Softworld reporting unit exceeds the carrying value by more than 10%.

As a measure of sensitivity of the fair value of the reporting unit, while holding all other assumptions constant, an increase in the discount rate of 100 basis points or a decrease of 100 basis points in the revenue growth rate assumptions for each forecasted period used to determine the fair value of the reporting unit would not result in an impairment of goodwill.

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

Based on the result of our interim goodwill impairment test as of the first quarter of 2020, we recorded a goodwill impairment charge of $147.7 million to write off the entire goodwill balance.

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

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

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

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

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

At year-end 2021 and 2020, total goodwill amounted to $114.8 million and $3.5 million, respectively.

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For further discussion, see the Contingencies footnote in the notes to our consolidated financial statements.

At year-end 2020 and 2019, the gross accrual for litigation costs amounted to $1.4 million and $9.9 million, respectively, which are included in accounts payable and accrued liabilities and in accrued workers’ compensation and other claims in the consolidated balance sheet.

At both year-end 2021 and 2020, the gross accrual for litigation costs amounted to $1.4 million which is included in accounts payable and accrued liabilities and in accrued workers’ compensation and other claims in the consolidated balance sheet.

NEW ACCOUNTING PRONOUNCEMENTS

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

The principal important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, 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.

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 impact of the novel coronavirus (COVID-19) outbreak, competitive market pressures including pricing and technology introductions and disruptions, disruption in the labor market and weakened demand for human capital resulting from technological advances, competition law risks, the impact of changes in laws and regulations (including federal, state and international tax laws), unexpected changes in claim trends on workers’ compensation, unemployment, disability and medical benefit plans, or the risk of additional tax liabilities in excess of our estimates, our ability to achieve our business strategy, our ability to successfully develop new service offerings, material changes in demand from or loss of large corporate customers as well as changes in their buying practices, risks particular to doing business with government or government contractors, the risk of damage to our brand, our exposure to risks associated with services outside traditional staffing, including business process outsourcing, services of licensed professionals and services connecting talent to independent work, our increasing dependency on third parties for the execution of critical functions, our ability to effectively implement and manage our information technology strategy, the risks associated with past and future acquisitions, including risk of related impairment of goodwill and intangible assets, exposure to risks associated with investments in equity affiliates including PersolKelly Pte.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis