What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-02-17 compared with 2021-02-18 · 493 added, 453 removed, 1348 unchanged (41% of the section changed)

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OTHER INFORMATION.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable.

Information required by Part III with respect to Directors, Executive Officers and Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (Item 12), Certain Relationships and Related Transactions, and Director Independence (Item 13) and Principal Accounting Fees and Services (Item 14), except as set forth under the titles “Executive Officers of the Registrant,” which is included on pages 42-43, and “Code of Business Conduct and Ethics,” which is included on page 44, (Item 10), and except as set forth under the title “Equity Compensation Plan Information,” which is included on pages 44-45, (Item 12), is to be included in a definitive proxy statement filed not later than 120 days after the close of our fiscal year and the proxy statement, when filed, is incorporated in this report by reference.

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Senior Vice President

Chief Administrative Officer

Chief People Officer 53 2020 September 2020 - Present

Served as officer of the Company.

January 2016 - August 2020

Executive Director - Talent Management -

Ally Financial, Detroit Michigan

Senior Vice President

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The Company has no plans to issue additional shares under the Evergreen provision that was in effect prior to May 10, 2017.

The number of shares to be issued upon exercise of outstanding options, warrants and rights under the Evergreen provision excludes:

24,550 shares of restricted stock;

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

There are no restricted stock awards, financial measure performance awards, total shareholder return performance awards, or single financial measure performance awards to exclude as of January 2, 2022 or going forward as there are no longer any unvested/unearned shares related to the Evergreen provision.

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

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performance shares that have been earned but not yet vested totaling zero of financial measure performance awards, zero total shareholder return performance awards, and 12,776 single financial measure performance awards;

and performance shares granted to employees and not yet earned or

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

and performance shares granted to employees and not yet earned or vested totaling 104,436 shares of single financial measure performance awards and 873,343 shares of financial

measure performance awards, calculated using an assumed maximum award performance level of 200%, where applicable, at January 2, 2022.

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

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Management’s Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )

Consolidated Statements of Earnings for the three fiscal years ended January 2, 2022

Consolidated Statements of Comprehensive Income for the three fiscal years ended January 2, 2022

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

Consolidated Balance Sheets at January 2, 2022 and January 3, 2021

Consolidated Statements of Stockholders’ Equity for the three fiscal years ended January 2, 2022

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Consolidated Statements of Comprehensive Income for the three fiscal years ended January 2, 2022

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

Consolidated Balance Sheets at January 2 , 202 2 and January 3 , 20 2 1

Consolidated Statements of Stockholders' Equity for the three fiscal years ended January 2, 2022

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Notes to Consolidated Financial Statements

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

Financial Statement Schedule - Schedule II - Valuation Reserves at January 2 , 202 2 , January 3, 2021 and D ecember 29, 2019

Management’s Report on Internal Control Over Financial Reporting

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

On April 5, 2021, we completed the acquisition of Softworld.

Given the significance of the Softworld acquisition and the complexity of systems and business processes, we have excluded the acquired Softworld business from our assessment of the effectiveness of internal control over financial reporting for the year ending January 2, 2022.

Softworld accounted for approximately 2% of the Company's total assets as of January 2, 2022 and approximately 2% of the Company's total revenue for the year ended 2021.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of January 2, 2022.

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

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

and its subsidiaries (the “Company”) as of January 2, 2022 and January 3, 2021, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity and cash flows for the years ended January 2, 2022, January 3, 2021, and December 29, 2019, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of January 2, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 2, 2022 and January 3, 2021, and the results of its operations and its cash flows for the years ended January 2, 2022, January 3, 2021, and December 29, 2019 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 2, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

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

Basis for Opinions

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Softworld, Inc.

from its assessment of internal control over financial reporting as of January 2, 2022 because it was acquired by the Company in a purchase business combination during 2021.

We have also excluded Softworld, Inc.

from our audit of internal control over financial reporting.

Softworld, Inc.

is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting each represent approximately 2% of the related consolidated financial statement amounts as of and for the year ended January 2, 2022.

Definition and Limitations of Internal Control over Financial Reporting

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

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

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

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

As disclosed by management, as of January 2, 2022, the accrual for accrued workers’ compensation, net of related receivables, is $48.4 million.

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

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

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

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

Management performs its annual goodwill impairment testing in the fourth quarter each year and regularly assesses whenever events or circumstances make it more likely than not that an impairment may have occurred.

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

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

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

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

capitalization data.

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

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

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

Acquisition of Softworld, Inc.

– Valuation of Trade Name and Customer Relationships

As described in Notes 1 and 4 to the consolidated financial statements, in 2021, the Company completed the acquisition of Softworld, Inc.

(Softworld) for $217.0 million, which resulted in $79.4 million of intangible assets being recorded.

Those intangible assets were comprised of a trade name of $23.1 million and customer relationships of $54.9 million.

Fair value of the trade name intangible asset was estimated by management using a relief-from-royalty valuation method and customer relationships intangible asset was estimated using a multi-period excess earnings valuation method.

Management’s determination of the fair value of the trade name included assumptions related to projected revenue growth rates, royalty rates and discount rates.

Management’s determination of the fair value of the customer relationships included assumptions related to projected revenue growth rates, customer attrition rates, profit margins and discount rates.

The principal considerations for our determination that performing procedures relating to the valuation of trade name and customer relationships acquired in the Softworld acquisition is a critical audit matter are (i) the significant judgment by management when determining the fair value of the intangibles;

(ii) a high degree of auditor judgment, subjectivity and effort in

performing procedures and evaluating management’s significant assumptions related to projected revenue growth rates, royalty rate and discount rate for the trade name intangible asset and projected revenue growth rates, customer attrition rate, profit margins and discount rate for the customer relationships intangible asset;

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

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

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

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

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

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

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

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

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

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

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

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the intangible assets and controls over development of the significant assumptions related to projected revenue growth rates, royalty rate and discount rate for the trade name intangible asset and projected revenue growth rates, customer attrition rate, profit margins and discount rate for the customer relationships intangible asset.

These procedures also included, among others (i) reading the purchase agreement and (ii) testing management’s process for determining the fair value of the intangible assets.

Testing management’s process included evaluating the appropriateness of the valuation methods, testing the completeness and accuracy of underlying data used in the valuations, and evaluating the reasonableness of significant assumptions related to projected revenue growth rates, royalty rate and discount rate for the trade name intangible asset and projected revenue growth rates, customer attrition rate, profit margins and discount rate for the customer relationships intangible asset.

Evaluating the reasonableness of the projected revenue growth rates and profit margins involved considering the past performance of the acquired business, as well as economic and industry forecasts.

Evaluating the customer attrition rate involved considering the past performance of the acquired business.

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

Professionals with specialized skill and knowledge were used to assist in the evaluation of the valuation methods and the royalty rate and discount rate significant assumptions.

/s/ PricewaterhouseCoopers LLP

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

Gain on insurance settlement 19.0 — —

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

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Other comprehensive income (loss), net of tax:

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

Foreign currency translation adjustments, net of tax expense of $0.1 million, tax expense of $0.2 million and tax benefit of $0.1 million, respectively ( 24.2 ) 13.9 2.5

Reclassification adjustments included in net earnings — ( 1.5 ) —

Foreign currency translation adjustments ( 24.2 ) 12.4 2.5

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

Pension liability adjustments, net of tax expense of $0.2 million, tax benefit of $0.1 million and tax benefit of $0.3 million, respectively 0.5 ( 0.9 ) ( 1.3 )

Reclassification adjustments included in net earnings 0.2 0.1 0.1

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Prepaid expenses and other current assets 52.8 61.4

Properties held for sale — 21.2

Total current assets 1,588.7 1,549.6

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Class A common stock, 100.0 million shares authorized;

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

36.7 million shares issued at 2021 and 2020 36.7 36.7

Class B common stock, 10.0 million shares authorized;

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

3.4 million shares issued at 2021 and 2020 3.4 3.4

Treasury stock, at cost

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

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

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

Net earnings (loss) 156.1 ( 72.0 ) 112.4

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Balance at beginning of year ( 4.2 ) ( 15.8 ) ( 17.1 )

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

Other comprehensive income (loss), net of tax ( 23.5 ) 11.6 1.3

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

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

Gain on insurance settlement ( 19.0 ) — —

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

Asset impairment charge — — 15.8

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Proceeds from company-owned life insurance 12.2 2.3 3.0

Proceeds from insurance settlement 19.0 — —

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

Proceeds (payments) related to loans to equity affiliate 5.9 5.6 ( 4.4 )

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

Proceeds from (investment in) equity securities 5.0 ( 0.2 ) ( 1.0 )

Other investing activities 1.4 0.1 0.7

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

Net cash (used in) from investing activities ( 180.7 ) 9.8 ( 94.3 )

Cash flows from financing activities:

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Payments of tax withholding for stock awards ( 0.6 ) ( 1.2 ) ( 2.5 )

Contingent consideration payments ( 1.6 ) — —

Other financing activities ( 0.2 ) ( 0.2 ) ( 0.7 )

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

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

The three most recent years ended on January 2, 2022 (2021, which contained 52 weeks), January 3, 2021 (2020, which contained 53 weeks) and December 29, 2019 (2019, which contained 52 weeks).

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

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The Company’s equity method investment in PersolKelly Pte.

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

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

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

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Deferred Costs

Sales commissions paid at initial contract inception and upon contract renewal by our sales team are considered incremental and recoverable costs of obtaining a contract with a customer.

The sales commissions (and related fringe benefits such as taxes and benefits) are deferred and then amortized on a straight-line basis over an appropriate period of benefit that we have determined to be contract duration.

We determined the period of benefit by taking into consideration our customer contracts and other relevant factors.

Anticipated renewal periods are not included in the amortization period of the initial commission.

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

As a practical expedient, sales commissions with amortization periods of 12 months or less are expensed as incurred.

These costs are recorded in SG&A expenses in the consolidated statements of earnings.

Occasionally, fulfillment costs are incurred after obtaining a contract in order to generate a resource that will be used to provide our services.

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

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Unsatisfied Performance Obligations

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

The Company reviews the adequacy of the allowance for uncollectible accounts receivable on a quarterly basis and, if necessary, increases or decreases the balance by recording a charge or credit to SG&A expenses for the portion of the adjustment relating to uncollectible accounts receivable, and a charge or credit to revenue from services for the portion of the adjustment relating to sales allowances.

The Company reviews the adequacy of the allowance for uncollectible accounts

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

receivable on a quarterly basis and, if necessary, increases or decreases the balance by recording a charge or credit to SG&A expenses for the portion of the adjustment relating to uncollectible accounts receivable, and a charge or credit to revenue from services for the portion of the adjustment relating to sales allowances.

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

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

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Category 2021 2020 Life

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Total property and equipment $ 205.1 $ 222.3

The Company capitalizes external costs and internal payroll costs directly incurred in the development of software for internal use as required by the Internal-Use Software Subtopic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Standards Codification (“ASC”).

Work in process represents capitalized costs for internal use software not yet in service.

Depreciation expense was $ 16.4 million for 2021, $ 16.8 million for 2020 and $ 25.3 million for 2019.

Cloud Computing Arrangements The Company has cloud computing arrangements that are comprised of internal use software platforms that are accounted for as service contracts.

The Company does not have the ability to take possession of the software without significant penalty nor can the Company run the software on its own hardware or contract with another party unrelated to the vendor to host the software.

Implementation costs associated with these cloud computing arrangements are capitalized when incurred during the application development phase.

Amortization is calculated on a straight-line basis and is a component of SG&A expenses in our consolidated statements of earnings.

Amortization expense was $ 2.2 million for 2021 and $ 1.0 million for 2020.

The related accumulated amortization totaled $ 3.2 million in 2021 and $ 1.0 million in 2020.

Capitalized amounts related to such arrangements are recorded within prepaid and other current assets and non-current other assets in the consolidated balance sheets.

As of year-end 2021 and 2020, the Company had $ 2.7 million and $ 2.9 million, respectively, recorded in prepaid expenses and other current assets in the consolidated balance sheets and $ 13.9 million and $ 7.2 million, respectively, recorded in non-current other assets in the consolidated balance sheets related to capitalized cloud computing arrangements (see Other Assets footnote).

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

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

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

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.

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

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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 the estimated fair value of a reporting unit exceeds the carrying value of

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

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

the net assets assigned to a reporting unit, goodwill is not considered impaired and no further testing is required.

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

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

To derive the estimated fair value of reporting units, 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.

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

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

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

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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.

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

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

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The value of awards is recognized as expense, net of forfeitures as they occur, over the requisite service periods in SG&A expense in the Company’s consolidated statements of earnings.

Earnings Per Share Restricted stock that entitle their holders to receive nonforfeitable dividends before vesting are considered participating securities and, therefore, are included in the calculation of earnings per share using the two-class method.

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings.

two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings.

Under this method, earnings from continuing operations (or net earnings) is reduced by the amount of dividends declared, and the remaining undistributed earnings is allocated to common stock and participating securities based on the proportion of each class’s weighted average shares outstanding to the total weighted average shares outstanding.

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The Company evaluates the accrual quarterly throughout the year and makes adjustments as needed, and the ultimate cost of these claims may be greater than or less than the established accrual.

Adoption of ASC Topic 606, Revenue from Contracts with Customers

On January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.

Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605.

We recorded a net increase to opening earnings invested in the business of $ 3.4 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606.

The impact is primarily driven by the deferral of contract costs related to our customer contracts of $ 5.2 million, partially offset by deferring revenue billed at a point in time for services performed over time of $ 0.6 million and a deferred tax liability of $ 1.2 million.

As of and for year to date 2018, the consolidated financial statements were not materially impacted as a result of the application of Topic 606 compared to Topic 605.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Revenue Disaggregated by Service Type

Kelly has five operating segments:

Professional & Industrial (“P&I” formerly Commercial), Science, Engineering & Technology (“SET”), Education, Outsourcing & Consulting Group ("Outsourcing & Consulting," "OCG") and International.

Professional & Industrial (“P&I”), Science, Engineering & Technology (“SET”), Education, Outsourcing & Consulting Group ("Outsourcing & Consulting," "OCG") and International.

Other than OCG, each segment delivers talent through staffing services, permanent placement or outcome-based services.

Our OCG segment delivers talent solutions including managed service provider ("MSP"), payroll process outsourcing ("PPO"), recruitment process outsourcing ("RPO"), and talent advisory services.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

International also delivers RPO talent solutions within its local markets.

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

December Year to Date

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Permanent placement 21.3 16.8 25.7

Talent solutions 13.6 — —

Total International 1,067.8 988.6 1,182.5

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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):

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

December Year to Date

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Canada 155.0 122.5 136.1

Mexico 114.4 123.6 125.0

Puerto Rico 102.1 77.0 74.6

Mexico 92.7 114.4 123.6

Brazil — 17.0 34.1

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Russia 132.2 118.5 117.6

United Kingdom 73.7 103.1 108.8

Italy 74.2 58.2 75.9

United Kingdom 68.3 73.7 103.1

Germany 34.0 30.1 41.6

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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):

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

December Year to Date

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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 year-end 2020 and $ 1.5 million as of 2019.

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

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

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 1.3 million as of year-end 2021 and $ 4.1 million as of 2020.

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Credit Losses

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

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

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

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

On December 30, 2019, we adopted 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 of dollars):

December Year to Date

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Ending balance $ 9.4 $ 9.8

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

We are engaged in litigation with a customer over a disputed accounts receivable balance of approximately $ 10 million for certain services rendered more than five years ago, which is recorded as a long-term receivable in other assets in the consolidated balance sheet.

In September 2020, a ruling was issued in favor of the customer, which we have appealed.

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

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

Write-offs are presented net of recoveries, which were not material for December year to date 2021 and 2020.

We were engaged in litigation with a customer over a disputed accounts receivable balance for certain services rendered more than five years ago, which was recorded as a long-term receivable in other assets in the consolidated balance sheet.

In September 2020, a ruling was issued in favor of the customer, which we appealed.

Upon receiving the ruling, we increased our

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allowance for credit losses by $ 9.2 million in the third quarter of 2020 to reflect the likelihood of collection, which was recorded in other assets in the consolidated balance sheet.

In September 2021, a final ruling in the case was entered in favor of the customer.

As a result, in the third quarter of 2021, we wrote off the entire receivable balance with this customer, including $ 0.6 million not previously reserved.

The unreserved portion was recorded in SG&A expenses in the consolidated statements of earnings.

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

December Year to Date

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Currency exchange effects — ( 0.3 )

Write-offs ( 11.5 ) —

Ending Balance $ — $ 10.9

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

and other receivables measured at amortized cost.

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

See Investment in PersolKelly Pte.

footnote for more information on the loan to PersolKelly Pte.

Assets Held for Sale

Upon approval of the Company's board of directors, Kelly Properties, LLC, a wholly owned subsidiary of the Company, entered into an agreement on December 4, 2019 to sell three headquarters properties in Troy, Michigan.

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

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

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

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

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

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

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No other allowances related to other receivables were material for December year to date 2021 and 2020.

Acquisitions and Disposition

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

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

In the second quarter of 2021, the Company acquired Softworld, Inc.

("Softworld"), as detailed below.

In the fourth quarter of 2020, Kelly Services USA, LLC ("KSU"), a wholly owned subsidiary of the Company, acquired Greenwood/Asher & Associates, LLC ("Greenwood/Asher"), as detailed below.

In the first quarter of 2020, KSU acquired Insight Workforce Solutions LLC and its affiliate, Insight EDU LLC (collectively, "Insight"), as detailed below.

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

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

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 is intended to expand our capabilities, scale and solution set in our technology specialty.

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

In the third quarter of 2021, the Company received cash for a post-close working capital adjustment of $ 6.0 million.

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

The purchase price allocation for this acquisition is preliminary and could change.

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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 name, and $ 1.4 million for non-compete agreements.

The customer relationships and trade name 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.

During the third quarter of 2021, the Company filed a claim, in excess of policy limits, under a representations and warranties insurance policy purchased by the Company in connection with the acquisition of Softworld.

The claim asserted damages arising out of alleged breaches by the sellers of Softworld of certain representations and warranties contained in the purchase agreement relating to periods prior to the closing of the acquisition.

In the fourth quarter of 2021, the Company reached a settlement with the insurer for $ 19.0 million and received the payment.

The payment is recorded entirely in gain on insurance settlement in the consolidated statements of earnings and included within cash flows from investing activities in the consolidated statements of cash flows.

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

For the year ended 2021, our consolidated revenues and net earnings included $ 98.0 million and $ 4.7 million from Softworld, respectively.

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.

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):

December Year to Date

Pro forma revenues $ 4,940.9 $ 4,626.5

Pro forma net earnings (loss) $ 157.7 $ ( 70.8 )

The pro forma results for 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 2021 to 2020, deferred compensation from 2020 and applicable taxes.

The unaudited pro forma information presented has been prepared for comparative purposes only and is not

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

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

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

The earnout is revalued quarterly, resulting in a net increase of $ 2.5 million to the liability in 2021.

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

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

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

As of third quarter-end 2021, the purchase price allocation for this acquisition was final.

This acquisition is intended to expand our revenue opportunities in the education industry in the U.S.

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

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

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

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

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.

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The initial fair value of the earnout was established using a Monte Carlo simulation and the liability is recorded in accounts payable and accrued liabilities in the consolidated balance sheet (see Fair Value Measurements footnote).

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

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

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

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

This acquisition will increase our market share in the education staffing market in the U.S.

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.

In the third quarter of 2021, the Company paid the final earnout amount of $ 1.8 million in cash.

In our consolidated statements of cash flows, $ 1.6 million of the payment is reflected as a financing activity representing the initial fair value of the earnout, with the remainder flowing through operating activities.

There is no remaining liability for the earnout as of year-end 2021.

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

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

This acquisition is intended to increase our market share in the education staffing market in the U.S.

Insight's results of operations are included in the Education segment.

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

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

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

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

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

NextGen Global Resources

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

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

Our consolidated revenues and net earnings for the year ended 2019 included $ 78.3 million and $ 4.5 million, respectively, from NextGen.

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

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

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

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Trade accounts receivable 19.7

Other current assets 0.3

Goodwill 13.7

Intangibles 21.5

Other noncurrent assets 0.5

Current liabilities ( 4.9 )

Assets acquired net of liabilities assumed $ 54.3

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

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

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

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

All of the goodwill is deductible for tax purposes.

Global Technology Associates

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

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

Our consolidated revenues and net earnings for the year ended 2019 included $ 62.8 million and $ 4.5 million, respectively, from GTA.

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

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

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

Trade accounts receivable 13.9

Other current assets 0.1

Intangibles 17.3

Other noncurrent assets 0.4

Current liabilities ( 2.9 )

Assets acquired net of liabilities assumed $ 35.7

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

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

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

All of the goodwill is deductible for tax purposes.

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

The goodwill related to these

KELLY SERVICES, INC.

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acquisitions was included in the goodwill impairment charge taken in the first quarter of 2020.

The goodwill impairment charge resulted from an interim goodwill impairment test triggered by declines in our common stock price as a result of negative market reaction to the COVID-19 crisis (see Goodwill and Intangible Assets footnote).

Pro Forma Information

Our consolidated revenues and net earnings for the year ended 2019 included $ 78.3 million and $ 4.5 million, respectively, from NextGen and $ 62.8 million and $ 4.5 million, respectively, from GTA.

The following unaudited pro forma information presents a summary of the operating results as if the NextGen and GTA acquisitions had been completed as of January 1, 2018 (in millions of dollars, except per share data):

December Year to Date

Pro forma revenues $ 5,355.6 $ 5,624.2

Pro forma net earnings 112.4 29.8

Pro forma basic earnings per share 2.85 0.76

Pro forma diluted earnings per share 2.84 0.75

Due to the date of the acquisitions, the 2019 actual results represent the 2019 pro forma results.

For December year to date 2018, NextGen pro forma revenues and net earnings were $ 67.8 million and $ 3.0 million, respectively, and GTA pro forma revenues and net earnings were $ 42.5 million and $ 3.3 million, respectively.

The pro forma results for December year to date 2018 reflect amortization of the intangible assets, applicable taxes, adjustments for the accounting for revenue under ASC 606, and transaction expenses, none of which had a material impact on the pro forma results.

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

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 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 and completely offset the gain on the sale.

The indemnification liability is revalued on a quarterly basis (see Fair Value Measurements footnote).

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).

The Company adopted ASU 2016-01 and as a result, effective January 1, 2018, all changes in fair value on the investment are recognized in net earnings which previously were recorded in other comprehensive income.

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

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

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A gain on the investment of $ 121.8 million, a loss on the investment of $ 16.6 million, and a gain on the investment of $ 35.8 million for the years ended 2021, 2020 and 2019, respectively, was recorded entirely in gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.

Refer to Subsequent Event footnote for a description of transactions with Persol Holdings.

Investment in PersolKelly Pte.

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

The operating results of the Company’s interest in the JV are accounted for on a one-quarter lag under the equity method and are reported in equity in net earnings (loss) of affiliate in the consolidated statements of earnings, which amounted to earnings of $ 0.8 million in 2020, a loss of $ 3.6 million in 2019 and earnings of $ 5.2 million in 2018.

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 earnings of $ 5.4 million in 2021, earnings of $ 0.8 million in 2020 and a loss of $ 3.6 million in 2019.

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.

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The investment in equity affiliate on the Company’s consolidated balance sheet totaled $ 123.4 million as of year-end 2021 and $ 118.5 million as of year-end 2020.

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

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

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

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

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

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.

In the fourth quarter of 2020, the JV repaid $ 5.6 million of the outstanding loan balance and in the second quarter of 2021, the JV repaid the remaining $ 5.8 million of the loan balance.

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

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

Accrued interest receivable, which is included in prepaid expenses and other current assets in the consolidated balance sheet, was not material at year-end 2021 or 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 trade accounts payable in the consolidated balance sheet, are not material.

Expected credit losses are estimated over the contractual term of the loans.

The required allowance is based on current and projected financial information from the JV, market-specific information and other relevant data available to the Company, as applicable.

The 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.

Prior to receiving full repayment of the loans, the expected credit losses were estimated over the contractual term of the loans.

The required allowance was based on current and projected financial information from the JV, market-specific information and other relevant data available to the Company, as applicable.

The allowance was not material at year-end 2020.

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

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

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

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

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

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

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

Refer to Subsequent Event footnote for a description of transactions with Persol Holdings.

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Fair Value Measurements

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Level 3 measurements include significant unobservable inputs.

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Fair Value Measurements on a Recurring Basis As of Year-End 2021

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

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

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

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

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

Insight earnout ( 1.7 ) — — ( 1.7 )

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

Money market funds represent investments in money market funds that hold government securities, of which $ 6.5 million as of year-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 balances and represent cash balances that are required to be maintained to fund disability claims in California.

The remaining money market funds as of year-end 2021 and 2020 are included in cash and equivalents in the consolidated balance sheet.

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

The increase in money market funds from year-end 2019 was the result of higher cash and cash equivalent balances as of the end of the year from an increase in cash flows from operations.

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

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

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

The valuation of the indemnification liability was established using a discounted cash flow methodology based on probability weighted-average cash flows discounted by weighted-average cost of capital.

The valuation, which represents the fair value, is considered a level 3 liability, and will be measured on a recurring basis and fluctuates based on foreign exchange rates.

During year to date 2020, the Company recognized $ 2.6 million, including foreign currency fluctuations, in expenses related to the indemnification liability in other income (expense), net in the consolidated statements of earnings.

In connection with the first quarter 2020 acquisition of Insight, the Company has recorded an earnout liability of $ 1.7 million as of year-end 2020 in accounts payable and accrued liabilities in the consolidated balance sheet (see Acquisitions and Dispositions footnote).

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

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

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

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Dispositions footnote).

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

earnings (see Investment in Persol Holdings footnote).

The cost of this yen-denominated investment, which fluctuates based on foreign exchange rates, was $ 18.0 million at year-end 2021 and $ 20.1 million at year-end 2020.

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

The valuation, which represents the fair value, is considered a level 3 liability, and is being measured on a recurring basis.

During year to date 2021, the Company recognized a decrease 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 Greenwood/Asher, totaling $ 4.6 million at year-end 2021 with $ 2.3 million in accounts payable and accrued liabilities and $ 2.3 million in other long-term liabilities in the consolidated balance sheet and $ 2.1 million at year-end 2020 in other long-term liabilities in the consolidated balance sheet (see Acquisitions and Dispositions 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 year to date 2021, the Company recorded an increase of $ 2.5 million to the earnout liability in SG&A expenses in the consolidated statements of earnings.

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

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

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

During the third quarter of 2021, the Company paid the earnout totaling $ 1.8 million.

Equity Investments 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 year-end 2020 and 2019 represents the purchase price.

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

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

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

The investment totaled $ 1.4 million as of year-end 2020 and $ 1.3 million at year-end 2019, representing total cost plus observable price changes to date.

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.

On March 8, 2021, Kenzie entered into a transaction to sell its assets.

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 year to date consolidated statements of earnings.

Assets Measured at Fair Value on a Nonrecurring Basis

In the fourth quarter of 2021, we performed a step one quantitative goodwill impairment test for the Softworld reporting unit.

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

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

Additionally, we performed a qualitative analysis for the Education reporting unit to determine whether a further quantitative analysis was necessary.

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

Due to the negative market reaction to the COVID-19 crisis, including declines in our common stock prices, management determined that a triggering event occurred during the first quarter of 2020.

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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.

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

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

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

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

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

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Restructuring

In the fourth quarter of 2021, the Company initiated a series of cost management actions designed to increase operational efficiencies within enterprise functions that provide centralized support to our operating units.

The actions are designed to align expenses with current expectations for top-line growth.

Restructuring costs incurred in 2021 totaled $ 4.0 million and are recorded entirely in SG&A expenses in the consolidated statements of earnings, as detailed below (in millions of dollars):

Severance Costs

International $ 1.2

Corporate 2.8

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

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

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

Restructuring costs incurred in 2020 totaled $ 12.8 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

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Total $ 4.8 $ 8.0 $ 12.8

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Restructuring costs incurred in 2019 totaled $ 5.5 million.

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

No restructuring costs were incurred in 2018.

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accrual Summary

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

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Balance as of year-end 2020 3.5

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

Additions charged to International 1.2

Additions charged to Corporate 2.8

Reductions for cash payments related to all restructuring activities ( 4.6 )

Balance as of year-end 2021 $ 2.9

The remaining balance of $ 2.9 million as of year-end 2021 primarily represents severance costs and the majority is expected to be paid by the second quarter-end 2022.

No material adjustments are expected to be recorded.

Goodwill and Intangible Assets

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 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 (see Acquisitions and Disposition footnote) was allocated to the Education reportable segment, which was deemed to be a reporting unit.

The Company performs its annual goodwill impairment testing in the fourth quarter each year and regularly assesses whenever events or circumstances make it more likely than not that an impairment may have occurred.

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

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

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

A portion of the goodwill balance was deductible for tax purposes.

See impairment adjustments in the table below.

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

In performing the step one quantitative test and consistent with our prior practice, we determined the fair value of the reporting unit using the income approach.

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

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

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

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

Our analysis used significant assumptions by reporting unit, including:

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

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

Due to the complete write-off of goodwill in the first quarter of 2020, reallocation of goodwill to the new reporting units as part of the third quarter 2020 change in segment reporting was not necessary.

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

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

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

Our analysis used significant assumptions for the reporting unit, including:

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

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

As a result of this qualitative assessment, a step one quantitative analysis was not deemed necessary and the Company determined goodwill was not impaired as of year-end 2020.

In the fourth quarter of 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.

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

A portion of the goodwill balance was deductible for tax purposes.

During the fourth quarter of 2020, the Company performed a step zero qualitative analysis for the Education reporting unit to determine whether a further quantitative analysis was necessary.

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 Company determined goodwill was not impaired as of year-end 2020.

The changes in the carrying amount of goodwill for the fiscal years 2021 and 2020 are included in the tables below.

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

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(In millions of dollars)

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

Education 3.5 — — 3.5

Total $ 3.5 $ 111.3 $ — $ 114.8

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

(In millions of dollars)

Americas Staffing $ 58.5 $ 19.9 $ ( 78.4 ) $ —

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Total $ 152.1 $ 30.1 $ 122.0 $ 72.7 $ 17.1 $ 55.6

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

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

Intangible amortization expense, which is included in SG&A expense in the consolidated statements of earnings, was $ 13.0 million, $ 6.8 million and $ 5.4 million in 2021, 2020 and 2019, respectively.

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

The amortization expense will be $ 14.6 million in 2022 and 2023, $ 14.3 million in 2024 and 2025 and $ 14.1 million in 2026.

KELLY SERVICES, INC.

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Life insurance cash surrender value (see Retirement Benefits footnote) $ 232.9 $ 220.3

French CICE (1)

Intangibles, net of accumulated amortization of $39.1 million in 2021 and $26.7 million in 2020 (1)

Long-term hosted software (2)

Long-term customer receivable (3)

Noncurrent restricted cash 6.6 5.1

Workers' compensation and other claims receivable (4)

Other 35.5 35.3

Other assets $ 389.1 $ 319.9

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

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

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

(2) Long-term hosted software represents cloud computing arrangements that are comprised of internal-use software platforms that are accounted for as service contracts (see Summary of Significant Accounting Policies footnote).

(3) The long-term customer receivable was written off in 2021 (see Credit Losses footnote).

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

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

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

We elected the package of practical expedients permitted under the transition guidance, which allowed us to carry forward our historical lease classification, our assessment on whether a contract is or contains a lease, and our initial direct costs for any leases that existed prior to adoption of the new standard.

We also elected to combine lease and non-lease components, to keep leases with an initial term of 12 months or less off the consolidated balance sheet and recognize the associated lease payments in the consolidated statements of earnings on a straight-line basis over the lease term.

(5) The investment in BTG of $ 5.0 million was cancelled in 2021 (see Fair Value Measurements footnote).

The Company has operating and financing leases for field offices and various equipment.

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We determine if an arrangement is a lease at inception.

We recorded $ 74.1 million of right-of-use (“ROU”) assets within operating lease right-of-use assets, $ 19.8 million of current lease liabilities within operating lease liabilities, current and $ 54.3 million of noncurrent lease liabilities within operating lease liabilities, noncurrent in the consolidated balance sheet on the date of adoption.

No adjustment to the beginning balance of earnings invested in the business was necessary as a result of adopting this standard.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

December Year to Date December Year to Date

December Year to Date

Description Statements of Earnings Location 2021 2020 2019

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Total lease cost $ 35.7 $ 39.1 $ 37.5

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

December Year to Date December Year to Date

December Year to Date

Weighted average remaining lease term (years):

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Financing leases 5.3 % 5.4 %

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

December Year to Date December Year to Date

December Year to Date

2021 2020 2019

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

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Financing leases — 3.1 4.1

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Maturities of lease liabilities as of year-end 2021 were as follows (in millions of dollars):

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2023 14.7 0.9

2023 12.6 0.9

Thereafter 34.9 —

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Total $ 78.9 $ 3.1

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

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

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trade accounts receivable.

At year-end 2020, there were no borrowings under the Facility and a remaining borrowing capacity of $ 200.0 million.

At year-end 2019, there were no borrowings under the Facility and the remaining borrowing capacity was $ 200.0 million.

At year-end 2021 and 2020, there were no borrowings under the Facility and a remaining borrowing capacity of $ 200.0 million.

To maintain availability of the funds, we pay a facility fee on the full amount of the Facility, regardless of usage.

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The Facility’s financial covenants and restrictions are described below, all of which were met at year-end 2021:

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

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

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

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

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

On December 30, 2021, the Company and Kelly Receivables Funding, LLC, a wholly owned bankruptcy remote special purpose subsidiary of the Company (the “Receivables Entity”), amended the Receivables Purchase Agreement related to its $ 150.0 million, three-year, securitization facility (the “Securitization Facility”).

The amendment changed certain of the terms and conditions, including that the Securitization Facility will bear interest at a rate based on the applicable Bloomberg Short-Term Bank Yield Index ("BSBY"), and extended the maturity date to December 5, 2024.

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

The Receivables Entity may from time to time sell an undivided variable percentage ownership interest in the Receivables.

The Receivables Entity may from time to time sell an undivided variable percentage

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

ownership interest in the Receivables.

The Securitization Facility, which contains a cross-default clause that could result in termination if defaults occur under our other loan agreements, also allows for the issuance of standby letters of credit (“SBLC”) and contains certain restrictions based on the performance of the Receivables.

As of year-end 2020, the Securitization Facility had no short-term borrowings, SBLCs of $ 53.0 million related to workers’ compensation at a rate of 0.90 % and a remaining capacity of $ 97.0 million.

As of year-end 2019, the Securitization Facility had no short-term borrowings, SBLCs of $ 52.3 million related to workers’ compensation at a rate of 0.90 % and a remaining capacity of $ 97.7 million.

The rate for short-term borrowings includes the LIBOR interest rate and a utilization rate on the amount of our borrowings.

As of year-end 2021 and 2020, the Securitization Facility had no short-term borrowings, SBLCs of $ 53.0 million related to workers’ compensation at a rate of 0.90 % and a remaining capacity of $ 97.0 million.

As of year-end 2021, the rate for short-term borrowings includes the applicable BSBY rate and a utilization rate on the amount of our borrowings.

As of year-end 2020, the rate for short-term borrowings included the LIBOR interest rate and a utilization rate on the amount of our borrowings.

The rates for the SBLCs represent a utilization rate on the outstanding amount of the SBLCs.

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The Company had total unsecured, uncommitted short-term local credit facilities of $ 8.1 million as of year-end 2021.

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

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

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

There were no borrowings under these lines at year-end 2021, compared to $ 0.3 million at year-end 2020.

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

Retirement Benefits

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

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The liability for the nonqualified plans was $ 237.2 million and $ 216.8 million as of year-end 2021 and 2020, respectively, and is included in current accrued payroll and related taxes and noncurrent accrued retirement benefits in the consolidated balance sheet.

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

The cost of participants’ earnings or loss on this liability, which were included in SG&A expenses in the consolidated statements of earnings, were earnings of $ 27.0 million in 2021, earnings of $ 23.0 million in 2020 and earnings of $ 32.5 million in 2019.

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

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During 2021, 2020 and 2019, proceeds of $ 12.2 million, $ 2.3 million and $ 3.0 million, respectively, were received in connection with these policies.

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

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

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

Tax-free earnings or loss on these assets, which were included in SG&A expenses in the consolidated statements of earnings and which offset the related earnings or loss on the liability, were earnings of $ 26.0 million in 2021, earnings of $ 23.1 million in 2020 and earnings of $ 32.2 million in 2019.

The net expense for retirement benefits for the qualified and nonqualified plans, including Company-matching contributions for full-time employees, totaled $ 10.0 million in 2021, $ 3.2 million in 2020 and $ 9.1 million in 2019, and is included in total SG&A expenses in the consolidated statements of earnings.

The 2020 expense reflects the temporary suspension of Company-matching contributions from April to December, 2020 to mitigate the impact of the COVID-19 pandemic on the results of our

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The expense related to retirement plan contributions for temporary employees, which is included in cost of services, is reimbursed by our customers.

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As a result, a cash dividend may be declared on the Class A shares without declaring a cash dividend on the Class B shares.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accumulated Other Comprehensive Income (Loss)

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Amounts in parentheses indicate debits.

See Investment in Persol Holdings footnote for a description of the cumulative-effect adjustment from the adoption of ASU 2016-01.

2021 2020 2019

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Ending balance ( 25.0 ) ( 0.8 ) ( 13.2 )

Unrealized gains and losses on investment:

Beginning balance — — 140.0

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

Other comprehensive income (loss) before classifications — — —

Amounts reclassified from accumulated other comprehensive income — — —

Net current-period other comprehensive income (loss) — — ( 140.0 )

Ending balance — — —

Pension liability adjustments:

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Total accumulated other comprehensive income (loss) $ ( 27.7 ) $ ( 4.2 ) $ ( 15.8 )

(1) Amount was recorded in the other expense, net line item in the consolidated statements of earnings.

(1) Amount was recorded in the other income (expense), net line item in the consolidated statements of earnings.

(2) Amount was recorded in the SG&A expenses line item in the consolidated statements of earnings.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Earnings Per Share

The reconciliation of basic earnings per share on common stock for the year-end 2020, 2019 and 2018 follows (in millions of dollars except per share data).

Earnings (Loss) Per Share

The reconciliation of basic earnings (loss) per share on common stock for the year-end 2021, 2020 and 2019 follows (in millions of dollars except per share data).

2021 2020 2019

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Diluted earnings (loss) per share $ 3.91 $ ( 1.83 ) $ 2.84

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

Potentially dilutive shares outstanding for 2021 are primarily related to deferred common stock related to non-employee directors deferred compensation plan.

Potentially dilutive shares outstanding for 2019 are primarily related to performance shares (see Stock-Based Compensation footnote for a description of performance shares).

We have presented earnings per share for our two classes of common stock on a combined basis.

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

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

Dividends paid per share for Class A and Class B common stock were $ 0.10 for 2021, $ 0.075 for 2020 and $ 0.30 for 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Stock-Based Compensation

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The Company presently has no intent to repurchase additional shares for the purpose of satisfying stock-based awards.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company recognized stock-based compensation cost of $ 5.1 million in 2021, $ 3.9 million in 2020 and $ 5.6 million in 2019, as well as related tax benefits of $ 0.8 million in 2021, $ 0.4 million in 2020 and $ 1.3 million in 2019.

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During 2021, 2020 and 2019, the Company granted performance awards associated with the Company’s Class A stock to certain senior officers.

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

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

No dividends are paid on these performance shares.

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

Additionally, the Company also granted single financial measure performance shares to certain senior officers, which will be satisfied with the issuance of shares out of treasury stock, and is contingent upon the achievement of one performance measure with a one-year performance period.

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The annual 2021 performance share grant ("2021 grant") consisted of 180,000 financial measure performance awards, which are contingent upon the achievement of specific revenue growth and EBITDA margin performance goals.

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

These awards have three one-year performance periods:

2021, 2022 and 2023, with the payout for each performance period based on separate financial measure goals that are set in February of each of the three performance periods.

For the 2021 and 2022 performance periods, half of the shares earned in each respective performance period will vest after achievement of the respective performance goals for the year and approval of the financial results by the Compensation Committee, in early 2022 and 2023, respectively, if not forfeited by the recipient.

The remaining half of the shares earned for the 2021 and 2022 performance periods will vest in early 2024, based on continuous employment.

For the 2023 performance period, any shares earned will vest after achievement of the 2023 performance goals for the year and approval of the financial results by the Compensation Committee in early 2024, if not forfeited by the recipient.

No dividends are paid on these performance shares.

Based upon the level of achievement of specific financial performance goals for the 2021 annual grant, participants had the ability to receive up to 200 % of the target number of shares originally granted.

On February 15, 2022, the Compensation Committee approved the actual performance achievement for the 2021 performance period of the annual 2021 grant.

Actual performance resulted in participants achieving 30 % of target.

Half of the shares earned for the 2021 performance period will vest in 2022 after the approval of the Compensation Committee and the remaining half of the shares earned will vest in early 2024, if not forfeited by the recipient.

In December 2021, the Compensation Committee approved an additional retention-based grant of 308,000 financial measure performance awards to certain senior officers and may be earned upon achievement of three financial goals over a performance period beginning in fiscal 2022 through third quarter of 2024, with each goal having a unique projected achievement date.

Each goal can be earned independent of the other two goals.

A goal is considered earned once it is achieved and maintained for two consecutive quarters at any point during the performance period.

Any goal not achieved within one year of projected achievement date, will result in that portion of the award being forfeited.

Any shares earned during the performance period will cliff-vest three years after achievement of the respective performance goals and approval of the financial results by the Compensation Committee.

These awards earn dividends once the goal is achieved, but are not paid until the awards vest.

The 2021 financial measure performance awards have a weighted average grant date fair value of $ 18.06 , which was determined by the market price on the date of grant less the present value of the expected dividends not received during the vesting period.

The total nonvested shares related to 2021 financial measure performance awards at year-end 2021 is 477,000 .

The 2020 performance share grant ("2020 grant") consisted of 115,000 single financial measure performance shares, which have a one-year performance period based on a specific operating earnings performance goal.

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

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

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

The number of shares earned based on financial measures’ results will be reduced, increased or remain the same based on the Company’s TSR relative to the S&P SmallCap 600 Index.

The maximum number of performance shares that may be earned is 200 % of the target shares originally granted and the TSR modifier will not increase payouts above the maximum.

The 2020 single financial measure performance awards have a weighted average grant date fair value of $ 22.59 per share, which was determined by the market price on the date of grant.

On February 15, 2022, the Compensation Committee approved the actual performance achievement of the 2020 single financial measure performance award.

These awards will vest over the next four years, if not forfeited by the recipient.

The total nonvested shares related to 2020 single financial performance awards at year-end 2021 is 104,000 .

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

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

The number of shares earned based on financial measures’ results could have been reduced, increased or remain the same based on the Company’s TSR relative to the S&P SmallCap 600 Index.

The maximum number of performance shares that could have been earned was 200 % of the target shares originally granted and the TSR modifier could not increase payouts above the maximum.

No dividends were paid on these performance shares.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

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

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

The financial measure performance awards have a weighted average grant date fair value of $ 28.40 .

For each of the two financial measures, there are annual goals set in February of each year, with the total award payout based on a cumulative average of the 2018, 2019, and 2020 goals.

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

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

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

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

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

The total nonvested shares related to 2019 financial measure performance awards at year-end 2021 is 113,000 .

Based upon the level of achievement of specific financial performance goals for the 2019 grant, participants had the ability to receive up to 200 % of the target number of shares originally granted.

On February 15, 2022, the Compensation Committee approved the actual performance achievement of the financial measure performance awards, which was below the threshold level and resulted in no payout for the 2019 grant.

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

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

A summary of the status of all nonvested performance shares at target for 2021 is presented as follows below (in thousands of shares except per share data).

The majority of the vested shares in the table below is related to the 2017 performance share grant, which cliff-vested after approval from the Compensation Committee during the first quarter of 2020.

The majority of the forfeited shares in the table below is related to the separation of two former senior officers during the third quarter of 2020.

The vesting adjustment in the table below represents the 2017 Total Shareholder Return ("TSR") performance shares that did not vest because actual achievement was below the threshold level and resulted in no payout.

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.

Financial Measure

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The total fair value of financial measure performance shares and TSR performance shares, which vested during 2021, was $ 0.3 million and $ 0.0 million , respectively.

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Sale of Assets

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

Although the sale of receivables is with recourse, the Company did not record a recourse obligation as of year-end 2020 as the Company has concluded the receivables are collectible.

The net cash proceeds related to the sale are included in operating activities in the consolidated statements of cash flows and the fees related to the sale are included in SG&A expenses in the consolidated statements of earnings.

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 main headquarters building on the same date;

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The gain on sale of assets also includes proceeds of $ 2.1 million from the transfer of customer contracts related to the Company’s legal specialty operations to a third party during the second quarter of 2019.

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Asset Impairment Charge

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Other Income (Expense), Net $ ( 3.6 ) $ 3.4 $ ( 1.2 )

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

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Included in Other for 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).

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate for the years 2021, 2020 and 2019 were taxed under the following jurisdictions:

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Total $ 185.8 $ ( 106.8 ) $ 116.4

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The provision for income taxes was as follows:

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Net deferred tax assets $ 231.2 $ 242.3

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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foreign tax credit carryforwards.

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

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

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

foreign source income to fully utilize foreign tax credit carryforwards, represented sufficient negative evidence to require a valuation allowance under ASC 740.

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

The Company intends to maintain a valuation allowance until sufficient positive evidence exists to

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support realization of the foreign deferred tax assets.

At this time, we have no valuation allowance against our Mexican deferred tax asset of $ 3.8 million, though it is possible this may change as we continue to assess the impact of the new labor laws that became effective in the third quarter of 2021 on our Mexican business operations.

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

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Sale of Brazil operations — ( 6.6 ) —

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

Foreign-derived intangible income ( 0.7 ) ( 0.9 ) ( 0.9 )

Foreign business taxes 2.1 3.0 3.8

Non-deductible expenses 0.2 0.7 2.6

Tax law change ( 5.2 ) ( 1.7 ) ( 0.2 )

Change in deferred tax realizability ( 0.7 ) 0.4 ( 10.6 )

Stock compensation 0.6 ( 0.6 ) ( 3.0 )

Non-deductible goodwill impairment — 11.9 —

Other ( 0.2 ) — ( 0.3 )

Total $ 35.1 $ ( 34.0 ) $ 0.4

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work opportunity credits and the change in cash surrender value of non-taxable 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, or the tax effects of stock compensation.

With the Company’s adoption of ASU 2016-01 in the first quarter of 2018, changes in the fair value of the Company’s investment in Persol Holdings are now recognized in the consolidated statements of earnings.

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 or changes in judgment regarding the realizability of deferred tax assets.

Changes in the fair value of the Company’s investment in Persol Holdings are recognized in the consolidated statements of earnings.

These investment gains or losses are treated as discrete since they cannot be estimated.

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

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

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

Income tax expense for 2021 included $ 37.3 million from the gain on our investment in Persol Holdings and $ 4.8 million from the gain on insurance settlement, and benefited $ 5.2 million from a change in tax rate in the United Kingdom.

The 2020 income tax benefited from lower pretax earnings and included $ 5.1 million from the loss on our investment in Persol Holdings, $ 6.6 million from the sale of Brazil operations and $ 23 million from the impairment of tax deductible goodwill.

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

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

General business credits primarily represent U.S.

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

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

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

The work opportunity credit program generates a significant tax benefit.

It is a temporary provision in the U.S.

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

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

Provision has not been made for additional income taxes on an estimated $ 167.8 million of undistributed earnings which are indefinitely reinvested.

If these earnings were to be repatriated, the Company could be subject to foreign withholding tax, federal and state income tax, net of federal benefit, and income taxes on foreign exchange gains or losses, of $ 10.8 million.

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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

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

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

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

The Company recognized expense of $ 0.1 million in 2021 and a benefit of $ 0.1 million in 2020 for interest and penalties.

Interest and penalties expense in 2019 was not significant.

Accrued interest and penalties were $ 0.2 million at year-end 2021 and $ 0.1 million at year-end 2020.

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

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

for fiscal years 2018 forward, Canada for fiscal years 2014 forward, France for fiscal years 2013 forward, Portugal for fiscal years 2018 forward, Puerto Rico for fiscal years 2017 forward, Russia for fiscal years 2019 forward, and Switzerland for fiscal years 2012 forward.

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

The unrecognized tax benefit and related interest and penalty balances include approximately $ 0.2 million for 2021, related to tax positions which are reasonably possible to change within the next twelve months due to income tax audits, settlements and statute expirations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Supplemental Cash Flow Information

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(Increase) decrease in ROU assets 7.7 0.2 0.7

Increase (decrease) increase in accounts payable and accrued liabilities 10.5 ( 43.0 ) 17.0

Increase (decrease) in accounts payable and accrued liabilities 155.8 10.5 ( 43.0 )

Increase (decrease) in operating lease liabilities ( 29.7 ) ( 21.1 ) ( 21.6 )

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Non-cash capital accruals totaled $ 1.0 million, $ 1.4 million and $ 1.6 million at year-end 2021, 2020 and 2019, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

In addition to lease agreements (see Leases footnote) and the indemnification agreement related to the sale of our Brazil operations (see Acquisitions and Disposition footnote), the Company has entered into noncancelable purchase obligations totaling $ 69.7 million.

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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 year-end 2020 and 2019, the gross accrual for litigation costs amounted to $ 1.4 million and $ 9.9 million, respectively.

The decrease in the gross accrual from year-end 2019 was due to cash payments made and the liabilities related to our Brazil operations which were sold during 2020.

The Company maintains insurance coverage which may cover certain claims.

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

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

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

The gross accrual for litigation costs amounted to $ 1.4 million at both year-end 2021 and 2020.

The Company maintains insurance coverage which may cover certain losses.

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

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

During the third quarter of 2021, the Company filed a claim under a representations and warranties insurance policy purchased by the Company in connection with the acquisition of Softworld.

The claim asserts damages arising out of alleged breaches by the sellers of Softworld of certain representations and warranties contained in the purchase agreement relating to periods prior to the closing of the acquisition.

During the fourth quarter of 2021, the Company entered into a settlement agreement and mutual release with the insurer resolving all claims under the policy in exchange for a payment of $ 19.0 million, which was received prior to year-end 2021.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is $ 0.7 million to $ 9.3 million as of year-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.

The aggregate range only represents matters in which we are currently able to estimate a range of loss and does not represent our maximum loss exposure.

The estimated range is subject to significant judgment and a variety of

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assumptions and only based upon currently available information.

The estimated range is subject to significant judgment and a variety of assumptions and only based upon currently available information.

For other matters, we are currently not able to estimate the reasonably possible loss or range of loss.

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Segment Disclosures

Beginning in the third quarter of 2020, the Company adopted a new operating model reflecting the Company's focus on delivering specialty talent solutions.

The Company’s new operating segments, which also represent its reporting segments, are based on the organizational structure for which financial results are regularly evaluated by the Company’s chief operating decision-maker ("CODM", the Company’s CEO) to determine resource allocation and assess performance.

The Company’s operating segments, which also represent its reporting segments, are based on the organizational structure for which financial results are regularly evaluated by the Company’s chief operating decision-maker ("CODM", the Company’s CEO) to determine resource allocation and assess performance.

The Company’s five reportable segments, (1) Professional & Industrial, (2) Science, Engineering & Technology, (3) Education, (4) Outsourcing & Consulting, and (5) International, reflect the specialty services the Company provides to customers and represent how the business is organized internally.

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Professional & Industrial delivers staffing, outcome-based and direct-hire services focused on office, Professional, Light Industrial and Contact Center specialties in the U.S.

and Canada, including our KellyConnect product.

Science, Engineering & Technology delivers both staffing and outcome-based solutions in the specialty areas of science, technology, telecom and engineering primarily in the U.S.

Education primarily specializes in K-12 substitute teachers and support staff, as well as early childhood and higher education support, in the U.S.

Outsourcing & Consulting is focused on providing RPO, MSP and PPO solutions in the Americas, Europe and Asia-Pacific regions.

International provides talent to customers across all specialties primarily through staffing services within Europe as well as Brazil and Mexico in the Americas region.

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

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.

Education delivers staffing, direct-hire and executive search services across the full education spectrum from early childhood to higher education in the U.S.

Outsourcing & Consulting is focused on providing MSP, RPO, PPO and Talent

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Advisory Services to customers on a global basis.

International delivers staffing, RPO and direct-hire services in Europe, as well as services in Mexico in accordance with recent changes in labor market regulations and, prior to August 2020, Brazil (see Acquisitions and Disposition footnote).

Corporate expenses that directly support the operating units have been allocated to Professional & Industrial, Science, Engineering & Technology, Education, Outsourcing & Consulting and International based on work effort, volume or, in the absence of a readily available measurement process, proportionately based on gross profit realized.

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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 is included in Corporate expenses.

The following tables present information about the reported revenue from services and gross profit of the Company by segment, along with a reconciliation to earnings (loss) before taxes and equity in net earnings (loss) of affiliate, for 2020, 2019 and 2018 based on the new operating model.

Prior year reportable segment results were recast to align with the current presentation.

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

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 2021, 2020 and 2019.

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.

2021 2020 2019

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Earnings (loss) before taxes and equity in net earnings (loss) of affiliate $ 185.8 $ ( 106.8 ) $ 116.4

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

2021 2020 2019

(In millions of dollars)

Depreciation and amortization:

Professional & Industrial $ 5.3 $ 5.5 $ 5.5

Science, Engineering & Technology 10.6 4.2 4.2

Education 3.6 3.6 2.1

Outsourcing & Consulting 0.7 0.7 0.5

International 2.0 2.3 4.3

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A summary of revenue from services by geographic area for 2021, 2020 and 2019 follows:

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

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A summary of long-lived assets information by geographic area as of year-end 2021 and 2020 follows:

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Total $ 111.1 $ 124.2

Long-lived assets represent property and equipment.

Long-lived assets represent property and equipment and ROU assets.

No single foreign country’s long-lived assets represented more than 10% of the consolidated long-lived assets of the Company.

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Recently Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

ASU 2020-04 was effective for the Company in the first quarter of fiscal 2021.

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

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.

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.

The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted.

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

In December 2019, the FASB issued ASU 2019-12 simplifying various aspects related to the accounting for income taxes.

The guidance removes exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted.

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

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

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See Summary of Significant Accounting Policies footnote.

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

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

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

See Credit Losses footnote for the impact on the consolidated financial statements.

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

1 unchanged sentence

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

those classified as operating leases.

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

Consistent with current U.S.

GAAP, the presentation of expenses and cash flows will depend primarily on the classification of the lease as either a finance or an operating lease.

The new standard also requires additional quantitative and qualitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases in order to provide additional information about the nature of an organization's leasing activities.

An additional optional transition method to adopt the new lease standard at the adoption date, as compared to the beginning of the earliest period presented, and recognize a cumulative-effect adjustment to the beginning balance of retained earnings in the period of adoption is allowed.

We adopted this guidance with the optional transition method effective December 31, 2018.

See Leases footnote for the impact on the consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01 amending the current guidance for how entities measure certain equity investments, the accounting for financial liabilities under the fair value option, and the presentation and disclosure requirements relating to financial instruments.

The new guidance requires entities to use fair value measurement for equity investments in unconsolidated entities, excluding equity method investments, and to recognize the changes in fair value in net income at the end of each reporting period.

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

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

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

This ASU was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017.

Early adoption was only permitted for the financial liability provision.

We adopted this guidance effective January 1, 2018.

See Investment in Persol Holdings footnote for the impact on the financial statements.

In May 2014, the FASB issued new revenue recognition guidance under ASU 2014-09 that superseded the existing revenue recognition guidance under U.S.

The new standard focused on creating a single source of revenue guidance for revenue arising from contracts with customers for all industries.

The objective of the new standard was for companies to recognize revenue when it transfers the promised goods or services to its customers at an amount that represents what the company expects to be entitled to in exchange for those goods or services.

In July 2015, the FASB deferred the effective date by one year (ASU 2015-14).

This ASU was effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2017.

Since the issuance of the original standard, the FASB issued several other subsequent updates including the following:

1) clarification of the implementation guidance on principal versus agent considerations (ASU 2016-08);

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

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

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

and 5) technical corrections and improvements (ASU 2016-20).

We adopted this guidance with the modified retrospective approach effective January 1, 2018.

See Revenue footnote for the impact on the financial statements.

Not Yet 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.

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.

The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted.

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

In December 2019, the FASB issued ASU 2019-12 simplifying various aspects related to the accounting for income taxes.

The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers.

At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts.

The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations that occur after the effective date.

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

10 unchanged sentences

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

Subsequent Events

On February 11, 2022, the Company’s board of directors approved transactions related to our investments in the Asia-Pacific region.

Investment in Persol Holdings

As of January 2, 2022, the investment in Persol Holdings was recorded at its fair value of $ 264.3 million based on quoted market prices of the stock on the Tokyo Stock Exchange.

In addition, a deferred income tax liability of $ 70.9 million has been provided.

On February 15, 2022, the Company’s Kelly Services Japan subsidiary sold the investment in the common stock of Persol Holdings in an open market transaction.

The proceeds were $ 197.4 million, less transaction expenses.

The investment was purchased in 2005 and 2006 at a cost of $ 33.9 million.

The February 15, 2022 transaction will result in a taxable gain in Japan.

Since the beginning of fiscal year 2022 through the date of transaction, we recorded losses of $ 52.4 million related to changes in the fair value of the investment.

The estimated total loss on Persol common stock, of $ 46.5 million, net of tax, including losses related to changes in the fair value up to the date of the transaction, will be reflected in our statement of earnings in the first quarter of 2022.

Investment in PersolKelly Pte.

As of January 2, 2022, the investment in the JV, accounted for under the equity method, was recorded at $ 123.4 million and a deferred income tax liability of $ 13.3 million has been provided.

On February 14, 2022, the Company entered into an agreement to sell 95 % of its shares in the JV to our partner, Persol Asia Pacific Pte.

Ltd., for $ 119.5 million.

After this transaction, the Company will have a remaining ownership interest in the JV of 2.5 %.

The gain or loss on the sale in the first quarter of 2022 is not expected to be material.

The transaction will result in a taxable gain in the U.S.

Share repurchase

The Company repurchased its 1,576,169 Class A and 1,475 Class B common shares held by Persol Holdings on February 14, 2022 at a price based on the average closing price of the last 5 business days prior to the transaction.

The cost of the shares was $ 27.2 million.

The shares were subsequently retired and returned to authorized but unissued status.

KELLY SERVICES, INC.

6 unchanged sentences

Deferred tax assets valuation allowance $ 20.2 0.5 — ( 0.8 ) ( 0.9 ) $ 19.0

Fiscal year ended December 29, 2019

Fiscal year ended January 3, 2021

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

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

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

11 unchanged sentences

Kelly Services, Inc.

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

Short-Term Incentive Plan, as amended and restated January 1, 2020 (Reference is made to Exhibit 10.1 to the Form 10-K filed with the Commission on February 18, 2021, which is incorporated herein by reference).

Kelly Services, Inc.

1 unchanged sentence

Kelly Services, Inc.

Senior Executive Severance Plan (Reference is made to Exhibit 10.3 to the Form 10-Q filed with the Commission on May 11, 2017, which is incorporated herein by reference).

Amended and Restated Senior Executive Severance Plan (Reference is made to Exhibit 10.1 to the Form 8-K filed with the Commission on May 4, 2021, which is incorporated herein by reference).

Kelly Services, Inc.

6 unchanged sentences

Kelly Services, Inc.

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

Management Retirement Plan as amended and restated January 1, 2020 (Reference is made to Exhibit 10.12 to the Form 10-K filed with the Commission on February 18, 2021, which is incorporated herein by reference)..

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

First Amended and Restated Receivables Purchase Agreement Amendment No.

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

2, dated December 30, 2021 (Reference is made to Exhibit 10.15 to the Form 8-K filed with the Commission on January 5, 2022, which is incorporated herein by reference).

INDEX TO EXHIBITS

33 unchanged sentences

February 17, 2022 * /s/ R.

February 17, 2022 /s/ A.

February 17, 2022 * /s/ J.

February 17, 2022 /s/ I.

February 17, 2022 * /s/ T.

10 unchanged sentences

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

What changed 10-K

Item 9A. Controls and Procedures