Business Realignment and Strategy - The company has realigned its business into five specialty business units, which are also its reportable segments, to enhance focus and growth opportunities [147]. - The company plans to invest in strategic, targeted M&A opportunities while optimizing its portfolio, as evidenced by the sale of operations in Brazil [161]. - The company is focusing on digital transformation and building a technology foundation to sustain growth [163]. - The company has introduced a five-point Talent Promise to better support its talent and enhance the temporary worker experience [163]. Financial Performance - Revenue from services in Q3 2020 was $1,038.2 million, a decline of 18.1% compared to $1,267.7 million in Q3 2019 [171]. - Staffing services revenue decreased by 22% year-over-year, while permanent placement revenue fell by 40% due to economic uncertainty [172]. - Gross profit for Q3 2020 was $191.0 million, down 16.1% from $227.7 million in Q3 2019, despite a 40 basis points increase in gross profit rate [173]. - The loss from operations for Q3 2020 was $2.4 million, a decline from earnings of $17.1 million in Q3 2019 [175]. - Net earnings for Q3 2020 were $16.7 million, an increase of $27.2 million from a net loss of $10.5 million in Q3 2019 [179]. - Year-to-date revenue from services for the first nine months of 2020 declined by 23% compared to the previous year [180]. - The net loss for the first nine months of 2020 was $95.4 million, a decrease of $190.8 million from the prior year, primarily due to a goodwill impairment charge [189]. Cost Management and Expenses - Cost reduction efforts are expected to significantly lower year-over-year expenses in Q4 2020, but will not fully offset revenue declines [157]. - The company has implemented a 10% pay cut for full-time salaried employees and reduced CEO compensation to manage costs during the pandemic [156]. - Total SG&A expenses decreased by 8.2% year-over-year to $193.4 million, reflecting cost reduction measures taken in response to COVID-19 [174]. - Total SG&A expenses for the first nine months of 2020 decreased by 11.4%, including restructuring charges of $8.4 million [182]. International and Segment Performance - International revenue from services decreased by 20.8% in Q3 2020, primarily due to COVID-19 disruptions and the sale of operations in Brazil [196]. - Science, Engineering & Technology revenue from services decreased due to lower hours volume, with a gross profit decline of 13.1% to $50.7 million compared to $58.3 million in 2019 [200][204]. - Education revenue from services decreased significantly by 51.1% to $4.1 million, impacted by COVID-19, with a gross profit decline of 42.2% year-to-date [200][204]. - Professional & Industrial reported earnings of $11.8 million for the quarter, a 17.6% decrease from a year ago, primarily due to COVID-19 impacts [232]. - Science, Engineering & Technology reported earnings of $19.4 million for the quarter, a 13.2% decrease from a year ago, also primarily due to COVID-19 impacts [233]. - Education reported a loss of $7.5 million for the quarter, a 43.2% increase from a year ago, mainly due to COVID-19 impacts [234]. Cash Flow and Financial Position - Cash, cash equivalents, and restricted cash totaled $254.4 million at the end of the third quarter of 2020, up from $31.0 million at year-end 2019 [244]. - The company generated $216.5 million of net cash from operating activities in the first nine months of 2020, compared to $74.2 million in the same period of 2019 [245]. - The company had $200.0 million of available capacity on its revolving credit facility at the end of the third quarter of 2020 [256]. Market Risks - The company is exposed to foreign currency risk primarily related to its foreign subsidiaries, impacting the U.S. dollar value of reported earnings and investments [263]. - The investment in Persol Holdings is subject to market and currency risks, with foreign currency fluctuations reflected in other comprehensive income [265]. - The company faces market risk from its obligation to pay benefits under its nonqualified deferred compensation plan, which is influenced by equity and debt market movements [266].

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29%2E) This section presents Kelly Services' unaudited consolidated financial statements and detailed notes for Q2 and YTD 2020 and 2019 [Consolidated Statements of Earnings](index=4&type=section&id=Consolidated%20Statements%20of%20Earnings) Consolidated Statements of Earnings (13 Weeks Ended) | Metric | June 28, 2020 (Millions $) | June 30, 2019 (Millions $) | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Revenue from services | 975.3 | 1,367.5 | -28.7% | | Gross profit | 189.2 | 244.0 | -22.5% | | Earnings (loss) from operations | 11.1 | 34.8 | -68.2% | | Net earnings (loss) | 41.1 | 83.8 | -51.0% | | Basic earnings (loss) per share | 1.04 | 2.12 | -50.9% | | Diluted earnings (loss) per share | 1.04 | 2.12 | -50.9% | Consolidated Statements of Earnings (26 Weeks Ended) | Metric | June 28, 2020 (Millions $) | June 30, 2019 (Millions $) | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Revenue from services | 2,236.4 | 2,750.1 | -18.7% | | Gross profit | 412.5 | 495.6 | -16.8% | | Earnings (loss) from operations | (100.7) | 51.6 | NM | | Net earnings (loss) | (112.1) | 105.9 | NM | | Basic earnings (loss) per share | (2.86) | 2.69 | NM | | Diluted earnings (loss) per share | (2.86) | 2.68 | NM | [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) Consolidated Statements of Comprehensive Income (Loss) (13 Weeks Ended) | Metric | June 28, 2020 (Millions $) | June 30, 2019 (Millions $) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net earnings (loss) | 41.1 | 83.8 | | Foreign currency translation adjustments | 2.7 | 6.9 | | Comprehensive income (loss) | 43.8 | 90.7 | Consolidated Statements of Comprehensive Income (Loss) (26 Weeks Ended) | Metric | June 28, 2020 (Millions $) | June 30, 2019 (Millions $) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net earnings (loss) | (112.1) | 105.9 | | Foreign currency translation adjustments | (4.7) | 5.4 | | Comprehensive income (loss) | (116.8) | 111.3 | [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets | Asset/Liability | June 28, 2020 (Millions $) | December 29, 2019 (Millions $) | | :-------------------------------- | :------------ | :---------------- | | **Assets** | | | | Cash and equivalents | 216.2 | 25.8 | | Trade accounts receivable, net | 1,085.0 | 1,282.2 | | Total current assets | 1,377.2 | 1,405.7 | | Goodwill, net | — | 127.8 | | Total Assets | 2,318.7 | 2,480.6 | | **Liabilities & Equity** | | | | Total current liabilities | 791.4 | 884.1 | | Total noncurrent liabilities | 381.7 | 332.0 | | Total stockholders' equity | 1,145.6 | 1,264.5 | | Total Liabilities and Stockholders' Equity | 2,318.7 | 2,480.6 | [Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Consolidated Statements of Stockholders' Equity (26 Weeks Ended June 28, 2020 vs. June 30, 2019) | Metric | June 28, 2020 (Millions $) | June 30, 2019 (Millions $) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Balance at beginning of period (Earnings Invested in Business) | 1,238.6 | 1,138.1 | | Net earnings (loss) | (112.1) | 105.9 | | Dividends | (3.0) | (5.9) | | Accumulated Other Comprehensive Income (Loss) at end of period | (20.5) | (11.7) | | Stockholders' Equity at end of period | 1,145.6 | 1,268.2 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (26 Weeks Ended) | Activity | June 28, 2020 (Millions $) | June 30, 2019 (Millions $) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash from operating activities | 178.1 | 73.5 | | Net cash from (used in) investing activities | 13.3 | (79.6) | | Net cash (used in) from financing activities | (6.2) | 8.6 | | Net change in cash, cash equivalents and restricted cash | 190.9 | 2.4 | | Cash, cash equivalents and restricted cash at end of period | 221.9 | 42.5 | [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. Basis of Presentation](index=12&type=section&id=1.%20Basis%20of%20Presentation) These unaudited statements adhere to Regulation S-X, with necessary adjustments for fair interim reporting, and include deferred U.S. tax payments - Noncurrent accrued payroll and related taxes of **$38.4 million** as of Q2 2020 include deferred U.S. tax payments due to COVID-19 economic relief legislation[29](index=29&type=chunk) [2. Revenue](index=13&type=section&id=2.%20Revenue) Revenue is disaggregated by service type and geography, showing significant declines in Q2 and YTD 2020 due to the COVID-19 pandemic Revenue from Services by Segment (Second Quarter, in millions) | Segment | 2020 (Millions $) | 2019 (Millions $) | Change (%) | | :---------------------- | :----- | :----- | :--------- | | Americas Staffing | 326.7 | 597.6 | -45.3% | | International Staffing | 184.6 | 268.1 | -31.1% | | Global Talent Solutions | 466.9 | 505.9 | -7.7% | | Total Revenue | 975.3 | 1,367.5 | -28.7% | Revenue from Services by Segment (June Year to Date, in millions) | Segment | 2020 (Millions $) | 2019 (Millions $) | Change (%) | | :---------------------- | :----- | :----- | :--------- | | Americas Staffing | 860.1 | 1,224.1 | -29.7% | | International Staffing | 412.2 | 527.0 | -21.8% | | Global Talent Solutions | 970.1 | 1,006.9 | -3.7% | | Total Revenue | 2,236.4 | 2,750.1 | -18.7% | Revenue from Services by Geography (Second Quarter, in millions) | Region | 2020 (Millions $) | 2019 (Millions $) | Change (%) | | :------------- | :----- | :----- | :--------- | | Americas | 774.3 | 1,082.0 | -28.4% | | EMEA | 194.2 | 278.9 | -30.4% | | APAC | 6.8 | 6.6 | 3.0% | | Total Revenue | 975.3 | 1,367.5 | -28.7% | Revenue from Services by Geography (June Year to Date, in millions) | Region | 2020 (Millions $) | 2019 (Millions $) | Change (%) | | :------------- | :----- | :----- | :--------- | | Americas | 1,791.1 | 2,189.1 | -18.2% | | EMEA | 431.8 | 548.9 | -21.4% | | APAC | 13.5 | 12.1 | 11.6% | | Total Revenue | 2,236.4 | 2,750.1 | -18.7% | - Deferred sales commissions were **$1.1 million** at Q2 2020, down from **$1.5 million** at year-end 2019. Amortization expense for these costs was **$0.3 million** for Q2 2020 and **$0.6 million** YTD 2020[37](index=37&type=chunk) - Deferred fulfillment costs were **$3.4 million** at Q2 2020, down from **$3.6 million** at year-end 2019. Amortization expense for these costs was **$4.8 million** for Q2 2020 and **$9.6 million** YTD 2020[38](index=38&type=chunk) [3. Credit Losses](index=16&type=section&id=3.%20Credit%20Losses) The Company adopted ASC Topic 326, changing credit loss measurement, with a Q2 2020 allowance of $9.3 million - Adopted ASC Topic 326 on December 30, 2019, for credit losses, resulting in a **$0.7 million** decrease to retained earnings, net of tax, in Q1 2020[126](index=126&type=chunk) Rollforward of Allowance for Credit Losses (June Year to Date 2020, in millions) | Item | Amount (Millions $) | | :---------------------- | :----- | | Beginning balance | 9.7 | | Impact of adopting ASC 326 | 0.3 | | Current period provision | 0.4 | | Currency exchange effects | (0.4) | | Write-offs | (0.7) | | Ending balance | 9.3 | [4. Acquisitions](index=17&type=section&id=4.%20Acquisitions) Kelly Services made strategic acquisitions in 2019 and 2020 to expand staffing, but goodwill from these was impaired in Q1 2020 - Acquired Insight Workforce Solutions LLC on January 14, 2020, for **$34.5 million** (**$38.1 million** cash paid), to expand U.S. education staffing market share. This acquisition resulted in **$19.9 million** in goodwill and **$10.6 million** in customer relationships (intangible assets)[50](index=50&type=chunk)[51](index=51&type=chunk) - Acquired NextGen Global Resources LLC on January 2, 2019, for **$51.0 million** (**$54.3 million** cash paid), a telecommunications staffing provider[52](index=52&type=chunk) - Acquired Global Technology Associates, LLC on January 2, 2019, for **$34.0 million** (**$35.7 million** cash paid), an engineering, technology, and business consulting provider in telecommunications[55](index=55&type=chunk) - Goodwill from these acquisitions was included in the **$147.7 million** impairment charge taken in Q1 2020 due to the COVID-19 crisis[57](index=57&type=chunk) [5. Investment in Persol Holdings](index=18&type=section&id=5.%20Investment%20in%20Persol%20Holdings) The yen-denominated investment in Persol Holdings, recorded at fair value, generated a Q2 2020 gain but a YTD loss Gain (Loss) on Investment in Persol Holdings (in millions) | Period | 2020 (Millions $) | 2019 (Millions $) | | :---------------------- | :----- | :----- | | Second Quarter | 29.6 | 61.2 | | June Year to Date | (48.2) | 74.4 | - Investment in Persol Holdings is recorded at fair value based on Tokyo Stock Exchange quoted prices[58](index=58&type=chunk) [6. Investment in PersolKelly Pte. Ltd.](index=18&type=section&id=6.%20Investment%20in%20PersolKelly%20Pte.%20Ltd%2E) The 49% equity interest in PersolKelly, accounted for using the equity method, reported a loss in Q2 and YTD 2020 Equity in Net Earnings (Loss) of Affiliate (in millions) | Period | 2020 (Millions $) | 2019 (Millions $) | | :---------------------- | :----- | :----- | | Second Quarter | (1.3) | 0.3 | | June Year to Date | (2.8) | (0.1) | - Investment in equity affiliate totaled **$113.6 million** at Q2 2020, down from **$117.2 million** at year-end 2019[60](index=60&type=chunk) - The JV sold its Australian and New Zealand subsidiaries on April 1, 2020, for **$17.5 million**, with the Company receiving a direct royalty payment of **$0.7 million**[64](index=64&type=chunk) [7. Fair Value Measurements](index=19&type=section&id=7.%20Fair%20Value%20Measurements) Assets measured at fair value include money market funds and Persol Holdings investment, with a Q1 2020 goodwill impairment Assets Measured at Fair Value on a Recurring Basis (in millions of dollars) | Description | June 28, 2020 (Total, Millions $) | December 29, 2019 (Total, Millions $) | | :---------------------- | :-------------------- | :------------------------ | | Money market funds | 121.5 | 4.9 | | Investment in Persol Holdings | 127.2 | 173.2 | | Total assets at fair value | 248.7 | 178.1 | - Money market funds increased significantly due to higher cash and cash equivalent balances from increased cash flows from operations[68](index=68&type=chunk) - A goodwill impairment charge of **$147.7 million** was recorded in Q1 2020 due to a triggering event from negative market reaction to the COVID-19 crisis, impacting fair value measurements on a nonrecurring basis[73](index=73&type=chunk) [8. Restructuring](index=21&type=section&id=8.%20Restructuring) Q1 2020 restructuring actions, totaling $8.5 million, aimed to align costs and optimize operations, with most payments due by year-end Restructuring Costs Incurred in 2020 (in millions of dollars) | Segment | Lease Termination Costs (Millions $) | Severance Costs (Millions $) | Total (Millions $) | | :---------------------- | :---------------------- | :-------------- | :---- | | Americas Staffing | 4.1 | 1.4 | 5.5 | | Global Talent Solutions | — | 0.8 | 0.8 | | International Staffing | 0.7 | 0.4 | 1.1 | | Corporate | — | 1.1 | 1.1 | | Total | 4.8 | 3.7 | 8.5 | Global Restructuring Balance Sheet Accrual (in millions of dollars) | Item | Amount (Millions $) | | :------------------------------------------------ | :----- | | Balance as of year-end 2019 | 0.3 | | Additions charged to segments and Corporate | 8.7 | | Reductions for lease termination costs | (0.6) | | Reductions for cash payments | (6.6) | | Accrual adjustments | (0.2) | | Balance as of second quarter-end 2020 | 1.6 | [9. Goodwill](index=22&type=section&id=9.%20Goodwill) A $147.7 million goodwill impairment charge was recorded in Q1 2020 due to the COVID-19 crisis's negative market impact - A goodwill impairment charge of **$147.7 million** was recorded in Q1 2020, writing off all goodwill for Americas Staffing (**$78.4 million**) and Global Talent Solutions (**$69.3 million**)[80](index=80&type=chunk)[83](index=83&type=chunk) - The impairment was triggered by declines in the Company's common stock price due to the COVID-19 crisis[80](index=80&type=chunk) [10. Accumulated Other Comprehensive Income (Loss)](index=23&type=section&id=10.%20Accumulated%20Other%20Comprehensive%20Income%20%28Loss%29) This section details changes in accumulated other comprehensive income, primarily foreign currency translation and pension liability adjustments Changes in Accumulated Other Comprehensive Income (Loss) (in millions of dollars) | Component | Q2 2020 (Millions $) | Q2 2019 (Millions $) | YTD 2020 (Millions $) | YTD 2019 (Millions $) | | :-------------------------------------- | :------ | :------ | :------- | :------- | | Foreign currency translation adjustments (beginning balance) | (20.6) | (17.2) | (13.2) | (15.7) | | Net current-period other comprehensive income (loss) | 2.7 | 6.9 | (4.7) | 5.4 | | Foreign currency translation adjustments (ending balance) | (17.9) | (10.3) | (17.9) | (10.3) | | Pension liability adjustments (ending balance) | (2.6) | (1.4) | (2.6) | (1.4) | | Total accumulated other comprehensive income (loss) | (20.5) | (11.7) | (20.5) | (11.7) | [11. Earnings (Loss) Per Share](index=23&type=section&id=11.%20Earnings%20%28Loss%29%20Per%20Share) Diluted EPS decreased significantly in Q2 and YTD 2020, primarily due to goodwill impairment and investment losses Earnings (Loss) Per Share (in millions of dollars except per share data) | Metric | Q2 2020 (Millions $) | Q2 2019 (Millions $) | YTD 2020 (Millions $) | YTD 2019 (Millions $) | | :-------------------------------- | :------ | :------ | :------- | :------- | | Net earnings (loss) | 41.1 | 83.8 | (112.1) | 105.9 | | Net earnings (loss) available to common shareholders | 40.8 | 83.0 | (112.1) | 104.9 | | Basic earnings (loss) per share | 1.04 | 2.12 | (2.86) | 2.69 | | Diluted earnings (loss) per share | 1.04 | 2.12 | (2.86) | 2.68 | | Average diluted shares outstanding (millions) | 39.4 | 39.2 | 39.2 | 39.2 | - Dividends paid per share for Class A and Class B common stock were **$0.00** for Q2 2020, compared to **$0.075** for Q2 2019[87](index=87&type=chunk) [12. Stock-Based Compensation](index=25&type=section&id=12.%20Stock-Based%20Compensation) Stock compensation expense decreased to $1.2 million in Q2 2020 from $2.0 million in Q2 2019, and to $2.4 million year-to-date 2020 from $5.2 million year-to-date 2019 Stock Compensation Expense (in millions of dollars) | Period | 2020 (Millions $) | 2019 (Millions $) | | :---------------------- | :----- | :----- | | Second Quarter | 1.2 | 2.0 | | June Year to Date | 2.4 | 5.2 | Nonvested Performance Shares at Target (in thousands of shares) | Item | Financial Measure Performance Shares (Thousands of Shares) | TSR Performance Shares (Thousands of Shares) | | :---------------------- | :----------------------------------- | :--------------------- | | Nonvested at year-end 2019 | 502 | 114 | | Vested | (155) | — | | Forfeited | (19) | (2) | | Vesting adjustment | — | (62) | | Nonvested at second quarter-end 2020 | 328 | 50 | Nonvested Restricted Stock (in thousands of shares) | Item | Shares (Thousands) | | :---------------------- | :----- | | Nonvested at year-end 2019 | 360 | | Granted | 65 | | Vested | (108) | | Forfeited | (20) | | Nonvested at second quarter-end 2020 | 297 | [13. Sale of Assets](index=26&type=section&id=13.%20Sale%20of%20Assets) The Company sold headquarters properties for a $32.1 million gain in Q1 2020 and monetized wage subsidy receivables in Q2 2020 - Sold three headquarters properties for **$58.5 million** (**$55.5 million** cash proceeds) in Q1 2020, generating a **$32.1 million** gain[98](index=98&type=chunk) - Monetized **$16.9 million** in wage subsidy receivables outside the U.S. in Q2 2020[99](index=99&type=chunk) - Gain on sale of assets in Q2 2019 was **$12.3 million**, primarily from the sale of unused land and customer contracts[100](index=100&type=chunk) [14. Other Income (Expense), Net](index=26&type=section&id=14.%20Other%20Income%20%28Expense%29%2C%20Net) Other income (expense), net, increased in Q2 and YTD 2020, driven by foreign exchange gains offsetting interest expense Other Income (Expense), Net (in millions of dollars) | Item | Q2 2020 (Millions $) | Q2 2019 (Millions $) | YTD 2020 (Millions $) | YTD 2019 (Millions $) | | :---------------------- | :------ | :------ | :------- | :------- | | Interest income | 0.1 | 0.2 | 0.4 | 0.4 | | Interest expense | (0.8) | (1.2) | (1.7) | (2.3) | | Dividend income | 1.3 | 1.3 | 1.3 | 1.3 | | Foreign exchange gains (losses) | 1.3 | (0.1) | 3.7 | (0.7) | | Other | 0.7 | — | 0.6 | 0.4 | | Total | 2.6 | 0.2 | 4.3 | (0.9) | [15. Income Taxes](index=27&type=section&id=15.%20Income%20Taxes) Income tax expense decreased in Q2 2020, with a YTD benefit due to goodwill impairment and Persol Holdings investment impacts Income Tax Expense (Benefit) (in millions of dollars) | Period | 2020 (Millions $) | 2019 (Millions $) | | :---------------------- | :----- | :----- | | Second Quarter | 0.9 | 12.7 | | June Year to Date | (35.3) | 19.1 | - YTD 2020 income tax benefit includes **$23.0 million** on goodwill impairment and a **$14.8 million** benefit related to the investment in Persol Holdings[103](index=103&type=chunk) - Q2 2020 benefited **$7.7 million** from Brazil outside basis differences[103](index=103&type=chunk) [16. Leases](index=27&type=section&id=16.%20Leases) The Company adopted ASC 842 in Q1 2019 and recognized ROU assets and lease liabilities from a headquarters sale and leaseback in Q1 2020 - Adopted ASC 842, Leases, in Q1 2019, recognizing **$74.1 million** of ROU assets and **$74.1 million** of lease liabilities[107](index=107&type=chunk) - In Q1 2020, recognized **$37.6 million** of ROU assets and **$37.3 million** of lease liabilities (current and noncurrent) related to the sale and leaseback of the headquarters building, with a **15-year** lease term[108](index=108&type=chunk) [17. Contingencies](index=27&type=section&id=17.%20Contingencies) The Company faces various legal proceedings, with accruals for loss contingencies totaling $2.9 million at Q2 2020 - Gross accrual for litigation costs amounted to **$2.9 million** at Q2 2020, down from **$9.9 million** at year-end 2019[110](index=110&type=chunk) - Estimated aggregate range of reasonably possible losses, in excess of amounts accrued, is **$0.0 million** to **$1.4 million** as of Q2 2020[113](index=113&type=chunk) - Engaged in litigation with a customer over a disputed accounts receivable balance of approximately **$10 million**[115](index=115&type=chunk) [18. Segment Disclosures](index=28&type=section&id=18.%20Segment%20Disclosures) The Company operates through Americas Staffing, Global Talent Solutions, and International Staffing, with plans to revise segments in Q3 2020 Revenue from Services by Segment (in millions of dollars) | Segment | Q2 2020 (Millions $) | Q2 2019 (Millions $) | YTD 2020 (Millions $) | YTD 2019 (Millions $) | | :---------------------- | :------ | :------ | :------- | :------- | | Americas Staffing | 326.7 | 597.6 | 860.1 | 1,224.1 | | Global Talent Solutions | 466.9 | 505.9 | 970.1 | 1,006.9 | | International Staffing | 184.6 | 268.1 | 412.2 | 527.0 | | Consolidated Total | 975.3 | 1,367.5 | 2,236.4 | 2,750.1 | Earnings (Loss) from Operations by Segment (in millions of dollars) | Segment | Q2 2020 (Millions $) | Q2 2019 (Millions $) | YTD 2020 (Millions $) | YTD 2019 (Millions $) | | :---------------------- | :------ | :------ | :------- | :------- | | Americas Staffing | (6.3) | 15.6 | (6.2) | 31.6 | | Global Talent Solutions | 38.8 | 25.4 | 65.3 | 51.1 | | International Staffing | (1.9) | 3.5 | (1.3) | 6.8 | | Corporate | (19.5) | (9.7) | (158.5) | (37.9) | | Consolidated Total | 11.1 | 34.8 | (100.7) | 51.6 | - Beginning in Q3 2020, the Company will revise reportable segments and recast prior year results due to a new operating model focusing on specialty talent solutions[122](index=122&type=chunk) [19. New Accounting Pronouncements](index=31&type=section&id=19.%20New%20Accounting%20Pronouncements) The Company adopted ASU 2018-15 and ASU 2016-13 in Q1 2020, and is evaluating other pronouncements for future impact - Adopted ASU 2018-15 (capitalizing implementation costs for hosting arrangements) prospectively effective December 30, 2019[125](index=125&type=chunk) - Adopted ASU 2016-13 (credit losses) using the modified retrospective method, resulting in a **$0.7 million** decrease to retained earnings, net of tax, in Q1 2020[126](index=126&type=chunk) - Evaluating ASU 2020-01 (equity securities, equity method, forward contracts) and ASU 2019-12 (income taxes) for future impact[128](index=128&type=chunk)[129](index=129&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%2E) This section analyzes Kelly Services' financial performance, condition, and the significant impact of the COVID-19 pandemic on its operations [Executive Overview](index=33&type=section&id=Executive%20Overview) The COVID-19 pandemic has dramatically shifted the economy, but Kelly Services remains committed to its talent solutions strategy - The COVID-19 pandemic has caused dramatic shifts in the economy, impacting the Company's operations[134](index=134&type=chunk) - Kelly Services remains committed to being a leading talent solutions provider, guided by its Noble Purpose: 'We connect people to work in ways that enrich their lives'[134](index=134&type=chunk) - The Company's strategy focuses on a talent-first mentality, customer delivery, disciplined growth, and efficiency to emerge as a more agile and focused organization[135](index=135&type=chunk)[141](index=141&type=chunk) [The Talent Solutions Industry](index=33&type=section&id=The%20Talent%20Solutions%20Industry) The talent solutions industry is evolving due to automation, labor shifts, skills gaps, and the accelerating impact of COVID-19 - The talent solutions industry is evolving due to automation, shifts in labor supply/demand, skills gaps, and the COVID-19 pandemic, which is accelerating changes in how work is performed[136](index=136&type=chunk) - Companies are increasingly demanding specialized talent and customized workforce solutions, utilizing gig platforms, independent contractors, and other talent pools[137](index=137&type=chunk) - There's a growing realization that meeting the changing needs of talent is essential for competitiveness, with workers seeking greater control over their careers[138](index=138&type=chunk) [Our Business](index=33&type=section&id=Our%20Business) Kelly provides global workforce solutions across Americas Staffing, International Staffing, and Global Talent Solutions segments - Kelly is a talent and global workforce solutions company offering outsourcing, consulting, and staffing services (temporary, temporary-to-hire, direct-hire)[139](index=139&type=chunk) - Segments include Americas Staffing, International Staffing, and Global Talent Solutions (GTS), which provides integrated talent management solutions like CWO, RPO, BPO, and Talent Fulfillment[139](index=139&type=chunk)[140](index=140&type=chunk) - Working capital requirements are primarily driven by temporary employee payroll and customer accounts receivable, with average global days sales outstanding (DSO) at **61 days** as of Q2 2020[143](index=143&type=chunk) [Our Perspective](index=35&type=section&id=Our%20Perspective) [Short Term](index=35&type=section&id=Short%20Term) The COVID-19 pandemic has caused substantial revenue declines, leading to proactive cost reductions and a goodwill impairment charge - Revenue declines have been substantial and are likely to continue for the next several quarters due to COVID-19[144](index=144&type=chunk) - Proactive cost reduction actions implemented in April 2020 include[144](index=144&type=chunk) * **10%** pay cut for full-time salaried employees in the U.S., Puerto Rico, and Canada, with similar actions in EMEA and APAC * Substantially reduced CEO compensation and **10%+** reduction for senior leaders * Temporary furloughing and/or redeployment of some employees * Suspension of Company match to certain retirement accounts * Reduction of discretionary expenses and projects, including capital expenditures * Hiring freeze, except for critical revenue-generating positions - The quarterly dividend was suspended until conditions improve[145](index=145&type=chunk) - A **$147.7 million** non-cash goodwill impairment charge was recorded in Q1 2020 due to negative market reaction to COVID-19[147](index=147&type=chunk) [Moving Forward](index=35&type=section&id=Moving%20Forward) Kelly is pursuing a specialized talent solutions strategy, investing in growth platforms, accelerating technology, and optimizing its branch network - Continuing specialized talent solutions strategy, with investments in engineering (GTA, NextGen acquisitions in 2019) and education staffing (Insight acquisition in 2020)[148](index=148&type=chunk) - Accelerated implementation of a new front office platform, deployed to most U.S. operations in June 2020, to streamline recruiting and onboarding[149](index=149&type=chunk) - Reduced U.S. and International branch network locations, incurring **$4.8 million** in lease termination costs and fixed asset write-offs, and **$3.7 million** in severance costs for **123** positions in H1 2020[150](index=150&type=chunk) - Expected annual expense savings from Q1 2020 actions are approximately **$20 million**[150](index=150&type=chunk) - New reportable segments will be introduced in Q3 2020, reflecting a focus on specialty talent solutions[151](index=151&type=chunk) [Financial Measures](index=36&type=section&id=Financial%20Measures) The Company uses constant currency, return on sales, conversion rate, and days sales outstanding to analyze financial performance - Constant currency (CC) change amounts are used to analyze year-over-year percentage changes, translating 2020 financial data using 2019 foreign currency exchange rates to remove distortion from currency fluctuations[153](index=153&type=chunk) - Return on sales (earnings from operations / revenue from services) and conversion rate (earnings from operations / gross profit) are used to measure operating efficiency[155](index=155&type=chunk) - Days sales outstanding (DSO) is calculated by dividing average net sales per day (rolling three-month) into trade accounts receivable, net of allowances[156](index=156&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) The COVID-19 pandemic significantly impacted Q2 and YTD 2020 results, causing revenue declines and a diluted loss per share [Total Company - Second Quarter](index=37&type=section&id=Total%20Company%20-%20Second%20Quarter) Q2 2020 saw a 28.7% revenue decline, but gross profit rate increased due to wage subsidies and lower employee costs Total Company Performance (Second Quarter, in millions) | Metric | 2020 (Millions $) | 2019 (Millions $) | Change (%) | CC Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :------------ | | Revenue from services | 975.3 | 1,367.5 | (28.7)% | (27.7)% | | Gross profit | 189.2 | 244.0 | (22.5)% | (21.7)% | | SG&A expenses | 178.1 | 221.5 | (19.6)% | (18.9)% | | Earnings from operations | 11.1 | 34.8 | (68.2)% | | | Diluted earnings per share | 1.04 | 2.12 | (50.9)% | | | Gross profit rate | 19.4% | 17.8% | 1.6 pts. | | - Revenue from services declined primarily due to lower demand from the COVID-19 pandemic, with the Insight acquisition adding approximately **40 basis points** to growth[158](index=158&type=chunk) - Gross profit rate increased by **160 basis points**, mainly due to government wage subsidies (approx. **100 basis points**), lower employee-related costs, and improved product mix[159](index=159&type=chunk) - Diluted EPS was impacted by a **$0.52** per share gain (net of tax) from the investment in Persol Holdings in 2020, compared to a **$1.07** gain in 2019[162](index=162&type=chunk) [Americas Staffing - Second Quarter](index=38&type=section&id=Americas%20Staffing%20-%20Second%20Quarter) Americas Staffing revenue declined 45.3% in Q2 2020 due to COVID-19, with a slight increase in gross profit rate Americas Staffing Performance (Second Quarter, in millions) | Metric | 2020 (Millions $) | 2019 (Millions $) | Change (%) | CC Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :------------ | | Revenue from services | 326.7 | 597.6 | (45.3)% | (44.1)% | | Gross profit | 63.4 | 108.8 | (41.7)% | (40.9)% | | SG&A expenses | 69.7 | 93.2 | (25.1)% | (24.3)% | | Earnings (loss) from operations | (6.3) | 15.6 | NM | | | Gross profit rate | 19.4% | 18.2% | 1.2 pts. | | - Revenue decline reflects a **40%** decrease in hours volume and a **9%** decrease in average bill rates, primarily due to COVID-19 impacts on education (school closures) and manufacturing[165](index=165&type=chunk) - Gross profit rate increased by **120 basis points** due to lower overall employee costs[166](index=166&type=chunk) - SG&A expenses decreased **25.1%** due to lower administrative salaries, performance-based compensation, and short-term cost reductions[167](index=167&type=chunk) [GTS - Second Quarter](index=39&type=section&id=GTS%20-%20Second%20Quarter) GTS revenue decreased 7.7% in Q2 2020, but earnings from operations increased 53.3% due to improved gross profit rate and cost management GTS Performance (Second Quarter, in millions) | Metric | 2020 (Millions $) | 2019 (Millions $) | Change (%) | CC Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :------------ | | Revenue from services | 466.9 | 505.9 | (7.7)% | (7.5)% | | Gross profit | 103.0 | 99.7 | 3.3% | 3.8% | | SG&A expenses | 64.2 | 74.3 | (13.6)% | (13.4)% | | Earnings from operations | 38.8 | 25.4 | 53.3% | | | Gross profit rate | 22.1% | 19.7% | 2.4 pts. | | - Revenue decreased **7.7%** due to volume declines in centrally delivered staffing and PPO businesses (automotive, industrial, energy), partially offset by growth in KellyConnect and BPO[170](index=170&type=chunk) - Gross profit rate increased due to lower employee-related costs and continued structural improvement in product mix[171](index=171&type=chunk) - SG&A expenses decreased **13.6%** due to effective cost management and short-term cost reduction actions[171](index=171&type=chunk) [International Staffing - Second Quarter](index=40&type=section&id=International%20Staffing%20-%20Second%20Quarter) International Staffing revenue declined 31.1% in Q2 2020 due to COVID-19, with a decrease in gross profit rate International Staffing Performance (Second Quarter, in millions) | Metric | 2020 (Millions $) | 2019 (Millions $) | Change (%) | CC Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :------------ | | Revenue from services | 184.6 | 268.1 | (31.1)% | (29.3)% | | Gross profit | 23.2 | 36.1 | (36.0)% | (34.3)% | | SG&A expenses | 25.1 | 32.6 | (23.2)% | (21.5)% | | Earnings (loss) from operations | (1.9) | 3.5 | NM | | | Gross profit rate | 12.5% | 13.5% | (1.0) pts. | | - Revenue decreased **31.1%** due to lower hours volume from COVID-19 disruptions, particularly in Portugal, France, and the U.K., partially offset by increased revenue in Russia[174](index=174&type=chunk) - Gross profit rate decreased primarily due to lower permanent placement income and unfavorable customer mix[175](index=175&type=chunk) - SG&A expenses decreased **23.2%** due to cost management to mitigate COVID-19 impact[176](index=176&type=chunk) [Total Company - June Year to Date](index=41&type=section&id=Total%20Company%20-%20June%20Year%20to%20Date) YTD 2020 saw an 18.7% revenue decline and a diluted loss per share due to goodwill impairment and investment losses Total Company Performance (June Year to Date, in millions) | Metric | 2020 (Millions $) | 2019 (Millions $) | Change (%) | CC Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :------------ | | Revenue from services | 2,236.4 | 2,750.1 | (18.7)% | (18.0)% | | Gross profit | 412.5 | 495.6 | (16.8)% | (16.2)% | | SG&A expenses | 397.6 | 456.3 | (12.9)% | (12.4)% | | Goodwill impairment charge | 147.7 | — | NM | | | Gain on sale of assets | 32.1 | 12.3 | 161.6% | | | Earnings (loss) from operations | (100.7) | 51.6 | NM | | | Diluted earnings (loss) per share | (2.86) | 2.68 | NM | | | Gross profit rate | 18.4% | 18.0% | 0.4 pts. | | - Revenue from services declined **18.7%** due to COVID-19, with the Insight acquisition adding approximately **70 basis points** to growth[179](index=179&type=chunk) - Gross profit rate increased by **40 basis points**[180](index=180&type=chunk) - Diluted loss per share of **$2.86** was impacted by a **$3.18** per share goodwill impairment charge (net of tax) and a **$0.85** per share loss (net of tax) on investment in Persol Holdings[184](index=184&type=chunk) [Americas Staffing - June Year to Date](index=43&type=section&id=Americas%20Staffing%20-%20June%20Year%20to%20Date) Americas Staffing revenue declined 29.7% YTD 2020 due to COVID-19, with a decrease in gross profit rate Americas Staffing Performance (June Year to Date, in millions) | Metric | 2020 (Millions $) | 2019 (Millions $) | Change (%) | CC Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :------------ | | Revenue from services | 860.1 | 1,224.1 | (29.7)% | (29.0)% | | Gross profit | 157.0 | 226.0 | (30.5)% | (30.1)% | | SG&A expenses | 163.2 | 194.4 | (16.0)% | (15.6)% | | Earnings (loss) from operations | (6.2) | 31.6 | NM | | | Gross profit rate | 18.3% | 18.5% | (0.2) pts. | | - Revenue decline reflects a **28%** decrease in hours volume and a **5%** decrease in average bill rates, primarily due to COVID-19 impacts on education and manufacturing[188](index=188&type=chunk) - Gross profit rate decreased due to customer mix[190](index=190&type=chunk) - SG&A expenses decreased **16.0%** due to lower administrative salaries, performance-based compensation, and short-term cost reductions, including **$5.5 million** in restructuring costs[191](index=191&type=chunk) [GTS - June Year to Date](index=44&type=section&id=GTS%20-%20June%20Year%20to%20Date) GTS revenue decreased 3.7% YTD 2020, but earnings from operations increased 27.8% due to improved gross profit rate and cost management GTS Performance (June Year to Date, in millions) | Metric | 2020 (Millions $) | 2019 (Millions $) | Change (%) | CC Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :------------ | | Revenue from services | 970.1 | 1,006.9 | (3.7)% | (3.5)% | | Gross profit | 203.2 | 200.1 | 1.6% | 1.9% | | SG&A expenses | 137.9 | 149.0 | (7.5)% | (7.2)% | | Earnings from operations | 65.3 | 51.1 | 27.8% | | | Gross profit rate | 20.9% | 19.9% | 1.0 pts. | | - Revenue decreased **3.7%** due to volume declines in centrally delivered staffing and PPO businesses, partially offset by growth in BPO and KellyConnect[194](index=194&type=chunk) - Gross profit rate increased due to continued structural improvement in product mix and lower employee-related costs[195](index=195&type=chunk) - SG&A expenses decreased **7.5%** due to effective cost management and short-term cost reduction actions, including **$0.8 million** in restructuring charges[196](index=196&type=chunk) [International Staffing - June Year to Date](index=45&type=section&id=International%20Staffing%20-%20June%20Year%20to%20Date) International Staffing revenue declined 21.8% YTD 2020 due to COVID-19, with a decrease in gross profit rate International Staffing Performance (June Year to Date, in millions) | Metric | 2020 (Millions $) | 2019 (Millions $) | Change (%) | CC Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :------------ | | Revenue from services | 412.2 | 527.0 | (21.8)% | (20.2)% | | Gross profit | 53.1 | 70.7 | (24.9)% | (23.3)% | | SG&A expenses | 54.4 | 63.9 | (14.9)% | (13.4)% | | Earnings (loss) from operations | (1.3) | 6.8 | NM | | | Gross profit rate | 12.9% | 13.4% | (0.5) pts. | | - Revenue decreased **21.8%** due to lower hours volume in France, Portugal, and Italy from COVID-19, partially offset by increased revenue in Russia[200](index=200&type=chunk) - Gross profit rate decreased due to lower permanent placement income and unfavorable customer mix[201](index=201&type=chunk) - SG&A expenses decreased **14.9%** due to cost management and increased productivity, including **$1.1 million** in restructuring charges[202](index=202&type=chunk) [Financial Condition](index=46&type=section&id=Financial%20Condition) Cash and equivalents significantly increased at Q2 2020, driven by operating cash flows and reduced working capital requirements - Cash, cash equivalents, and restricted cash totaled **$221.9 million** at Q2 2020, a significant increase from **$31.0 million** at year-end 2019[207](index=207&type=chunk) - Net cash from operating activities was **$178.1 million** in H1 2020, up from **$73.5 million** in H1 2019, driven by reduced working capital requirements as revenues slowed[208](index=208&type=chunk) - Working capital position increased by **$64.2 million** to **$585.8 million** at Q2 2020, and the current ratio improved to **1.7** from **1.6**[210](index=210&type=chunk) - Net cash from investing activities was **$13.3 million** in H1 2020, compared to using **$79.6 million** in H1 2019, primarily due to **$55.5 million** from the sale of headquarters properties, partially offset by the Insight acquisition[211](index=211&type=chunk) - Net cash used in financing activities was **$6.2 million** in H1 2020, compared to generating **$8.6 million** in H1 2019, mainly due to changes in short-term borrowing activities and dividend payments[212](index=212&type=chunk)[213](index=213&type=chunk) [Liquidity](index=47&type=section&id=Liquidity) The Company expects to meet cash requirements through operations, available cash, securitization, and credit facilities, maintaining higher cash levels - The Company expects to meet cash requirements through operations, available cash, securitization of receivables, and committed unused credit facilities[217](index=217&type=chunk) - Cash generated from operations in 2020 is supplemented by deferred U.S. social security tax payments allowed by COVID-19 relief legislation, to be repaid in 2021 and 2022[217](index=217&type=chunk) - As of Q2 2020, the Company had **$200.0 million** available on its revolving credit facility and **$96.8 million** available on its securitization facility[219](index=219&type=chunk) - The Company anticipates maintaining a higher level of cash than prior practice due to cash generated from operations and uncertainty surrounding the COVID-19 crisis[220](index=220&type=chunk) [Critical Accounting Estimates](index=47&type=section&id=Critical%20Accounting%20Estimates) Critical accounting estimates are discussed in the 2019 Form 10-K, with goodwill impairment detailed in its respective footnote - For a discussion of critical accounting estimates, refer to the 2019 Form 10-K. The goodwill impairment charge recognized in Q1 2020 is discussed in the Goodwill footnote[215](index=215&type=chunk) [Contractual Obligations and Commercial Commitments](index=47&type=section&id=Contractual%20Obligations%20and%20Commercial%20Commitments) No significant changes to contractual obligations from 2019 Form 10-K, except for the headquarters sale and leaseback - No significant changes to contractual obligations and commercial commitments from those disclosed in the 2019 Form 10-K, except for the sale and leaseback of the main headquarters building[216](index=216&type=chunk) [New Accounting Pronouncements](index=47&type=section&id=New%20Accounting%20Pronouncements) Refer to the dedicated footnote in the Consolidated Financial Statements for details on new accounting pronouncements - Refer to the 'New Accounting Pronouncements' footnote in the Notes to Consolidated Financial Statements for details[214](index=214&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk%2E) The Company faces foreign currency and interest rate risks, with its Persol Holdings investment exposed to market and currency fluctuations - Exposed to foreign currency risk primarily related to foreign subsidiaries, which generally provide a natural hedge[225](index=225&type=chunk) - Exposed to interest rate risks from multi-currency line of credit and other borrowings; a hypothetical **10%** fluctuation would not materially impact Q2 2020 earnings[226](index=226&type=chunk) - Investment in Persol Holdings is exposed to market and currency risks, marked to market through net earnings, with foreign currency fluctuations in other comprehensive income (loss)[227](index=227&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures%2E) Disclosure controls and procedures were effective as of the reporting period, with no material changes in internal control over financial reporting - CEO and CFO concluded that disclosure controls and procedures are effective at a reasonable assurance level[229](index=229&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[230](index=230&type=chunk) [PART II. OTHER INFORMATION](index=43&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings%2E) The Company is involved in various legal proceedings, including a disputed $10 million accounts receivable and a Hungarian competition investigation - The Company is continuously engaged in litigation, claims, audits, or investigations arising in the ordinary course of business[232](index=232&type=chunk) - Resolution of legal proceedings is not expected to have a material adverse effect on financial condition, results of operations, or cash flows[233](index=233&type=chunk) - Engaged in litigation with a customer over a disputed accounts receivable balance of approximately **$10 million**[234](index=234&type=chunk) - Cooperating with a Hungarian Competition Authority investigation initiated in January 2018 regarding alleged infringement of national competition regulations[235](index=235&type=chunk)[236](index=236&type=chunk) [Item 1A. Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors%2E) The COVID-19 pandemic has significantly impacted the Company's business, leading to substantial revenue declines and ongoing uncertainty - The COVID-19 pandemic has adversely impacted the Company's business, leading to substantial revenue declines and expected continued adverse economic conditions[238](index=238&type=chunk) - Containment and mitigation measures for COVID-19 have negatively impacted customer demand and may affect the financial viability of third parties[238](index=238&type=chunk) - The Company has implemented cost reduction actions, but there is no assurance these will be adequate, and further actions may be required[238](index=238&type=chunk) - The extent and duration of the pandemic's impact on the Company's business, financial condition, and ability to meet financial covenants cannot be predicted with certainty but could be material[238](index=238&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=45&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds%2E) No unregistered sales occurred, but the Company reacquired 2,439 Class A common shares in Q2 2020 for employee tax withholdings - No unregistered sales of equity securities[240](index=240&type=chunk) Issuer Repurchases of Equity Securities (Second Quarter 2020) | Period | Number of Shares Purchased | Average Price Paid per Share ($) | | :-------------------------------- | :------------------------- | :------------------------------- | | March 30, 2020 through May 3, 2020 | 239 | 12.96 | | May 4, 2020 through May 31, 2020 | 1,999 | 13.39 | | June 1, 2020 through June 28, 2020 | 201 | 15.22 | | Total | 2,439 | 13.50 | - Shares were reacquired to cover employee tax withholdings upon the vesting of restricted stock and performance shares[240](index=240&type=chunk) [Item 3. Defaults Upon Senior Securities](index=45&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities%2E) This item is not applicable to the Company [Item 4. Mine Safety Disclosures](index=45&type=section&id=Item%204.%20Mine%20Safety%20Disclosures%2E) This item is not applicable to the Company [Item 5. Other Information](index=45&type=section&id=Item%205.%20Other%20Information%2E) This item is not applicable to the Company [Item 6. Exhibits](index=45&type=section&id=Item%206.%20Exhibits%2E) This section lists the exhibits filed with the Form 10-Q, including certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104) - Exhibits include[246](index=246&type=chunk) * Certifications (31.1, 31.2, 32.1, 32.2) * Inline XBRL Instance Document (101.INS) * Inline XBRL Taxonomy Extension Schema Document (101.SCH) * Inline XBRL Taxonomy Extension Calculation Linkbase Document (101.CAL) * Inline XBRL Taxonomy Extension Definition Linkbase Document (101.DEF) * Inline XBRL Taxonomy Extension Label Linkbase Document (101.LAB) * Inline XBRL Taxonomy Extension Presentation Linkbase Document (101.PRE) * Cover Page Interactive Data File (104) [SIGNATURES](index=47&type=section&id=SIGNATURES) The report is duly signed on behalf of Kelly Services, Inc. by Olivier G. Thirot, Executive Vice President and Chief Financial Officer, and Laura S. Lockhart, Vice President, Corporate Controller and Chief Accounting Officer, on August 6, 2020 - Report signed by Olivier G. Thirot (EVP & CFO) and Laura S. Lockhart (VP, Corporate Controller & CAO) on August 6, 2020[250](index=250&type=chunk)

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (unaudited).](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited).) Q1 2020 financial statements report a **$153.2 million** net loss, primarily due to goodwill impairment and investment loss, alongside an **8.8%** revenue decline [Consolidated Statements of Earnings](index=4&type=section&id=Consolidated%20Statements%20of%20Earnings) This section presents the company's consolidated statements of earnings for the first quarters of 2020 and 2019, highlighting revenue, expenses, and net income | Metric | Q1 2020 (Millions $) | Q1 2019 (Millions $) | Change (YoY) | | :-------------------------------- | :------------------- | :------------------- | :------------- | | Revenue from services | 1,261.1 | 1,382.6 | -8.8% | | Cost of services | 1,037.8 | 1,131.0 | -8.3% | | Gross profit | 223.3 | 251.6 | -11.3% | | Selling, general and administrative expenses | 219.5 | 234.8 | -6.5% | | Goodwill impairment charge | 147.7 | — | NM | | Gain on sale of assets | (32.1) | — | NM | | Earnings (loss) from operations | (111.8) | 16.8 | NM | | Gain (loss) on investment in Persol Holdings | (77.8) | 13.2 | NM | | Net earnings (loss) | (153.2) | 22.1 | NM | | Basic earnings (loss) per share | (3.91) | 0.56 | NM | | Diluted earnings (loss) per share | (3.91) | 0.56 | NM | [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) This section details the consolidated statements of comprehensive income (loss), including net earnings and other comprehensive income components | Metric | Q1 2020 (Millions $) | Q1 2019 (Millions $) | | :-------------------------------- | :------------------- | :------------------- | | Net earnings (loss) | (153.2) | 22.1 | | Foreign currency translation adjustments, net of tax | (7.4) | (1.5) | | Other comprehensive income (loss) | (7.4) | (1.5) | | Comprehensive income (loss) | (160.6) | 20.6 | [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at March 29, 2020, and December 29, 2019, detailing assets, liabilities, and equity | Metric | March 29, 2020 (Millions $) | December 29, 2019 (Millions $) | Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :------- | | Total Assets | 2,261.8 | 2,480.6 | -8.8% | | Cash and equivalents | 48.3 | 25.8 | +87.2% | | Trade accounts receivable, less allowances | 1,236.1 | 1,282.2 | -3.6% | | Goodwill, net | — | 127.8 | -100% | | Investment in Persol Holdings | 96.8 | 173.2 | -44.1% | | Total current liabilities | 842.8 | 884.1 | -4.6% | | Total noncurrent liabilities | 318.9 | 332.0 | -3.9% | | Total Liabilities | 1,161.7 | 1,216.1 | -4.5% | | Total Stockholders' Equity | 1,100.1 | 1,264.5 | -13.0% | [Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) This section outlines changes in stockholders' equity, including net earnings, dividends, and other comprehensive income adjustments | Metric | March 29, 2020 (Millions $) | March 31, 2019 (Millions $) | | :-------------------------------- | :--------------------------- | :--------------------------- | | Earnings Invested in the Business (beginning balance) | 1,238.6 | 1,138.1 | | Cumulative-effect adjustment, net of tax, from adoption of ASU 2016-13 | (0.7) | — | | Net earnings (loss) | (153.2) | 22.1 | | Dividends | (3.0) | (3.0) | | Accumulated Other Comprehensive Income (Loss) (ending balance) | (23.2) | (18.6) | | Stockholders' Equity at end of period | 1,100.1 | 1,177.8 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash flow activities from operations, investing, and financing for the first quarters of 2020 and 2019 | Metric | Q1 2020 (Millions $) | Q1 2019 (Millions $) | Change | | :-------------------------------- | :------------------- | :------------------- | :------- | | Net cash from operating activities | 8.4 | 21.2 | -60.4% | | Net cash from (used in) investing activities | 15.9 | (90.3) | NM | | Net cash (used in) from financing activities | (4.6) | 66.7 | NM | | Effect of exchange rates on cash, cash equivalents and restricted cash | 2.8 | (1.9) | NM | | Net change in cash, cash equivalents and restricted cash | 22.5 | (4.3) | NM | | Cash, cash equivalents and restricted cash at end of period | 53.5 | 35.8 | +49.4% | - Investing activities in Q1 2020 included **$55.5 million** proceeds from the sale of assets, partially offset by **$36.3 million** for the acquisition of Insight. In Q1 2019, investing activities included **$50.8 million** for NextGen and **$35.6 million** for GTA acquisitions[179](index=179&type=chunk) [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the consolidated financial statements [1. Basis of Presentation](index=12&type=section&id=1.%20Basis%20of%20Presentation) This note describes the accounting principles and preparation methods used for the unaudited consolidated financial statements - The unaudited consolidated financial statements are prepared in accordance with Rule 10-01 of Regulation S-X and do not include all GAAP information[27](index=27&type=chunk) - The first fiscal quarter ended on March 29, 2020, and March 31, 2019, each containing **13 weeks**[27](index=27&type=chunk) [2. Revenue](index=13&type=section&id=2.%20Revenue) This note provides a breakdown of revenue from services by segment and geography, along with details on deferred costs | Segment/Type | Q1 2020 (Millions $) | Q1 2019 (Millions $) | Change (YoY) | | :-------------------------- | :------------------- | :------------------- | :------------- | | Total Revenue from Services | 1,261.1 | 1,382.6 | -8.8% | | Americas Staffing | 533.4 | 626.5 | -14.9% | | International Staffing | 227.6 | 258.9 | -12.1% | | Global Talent Solutions | 503.2 | 501.0 | +0.4% | | **Revenue by Geography:** | | | | | Americas | 1,016.8 | 1,107.1 | -8.2% | | EMEA | 237.6 | 270.0 | -12.0% | | APAC | 6.7 | 5.5 | +21.8% | - Deferred sales commissions were **$1.3 million** at Q1 2020 (down from **$1.5 million** at year-end 2019), with amortization expense of **$0.3 million** in Q1 2020[36](index=36&type=chunk) - Deferred fulfillment costs were **$2.8 million** at Q1 2020 (down from **$3.6 million** at year-end 2019), with amortization expense of **$4.8 million** in Q1 2020[37](index=37&type=chunk) [3. Credit Losses](index=15&type=section&id=3.%20Credit%20Losses) This note details the company's accounting for credit losses, including the adoption of ASC Topic 326 and the allowance for bad debt - The company adopted ASC Topic 326 on December 30, 2019, using the modified retrospective method for financial assets and off-balance-sheet credit exposures[39](index=39&type=chunk) | Allowance for bad debt (Millions $) | Q1 2020 | | :-------------------------------- | :------ | | Beginning balance | $9.7 | | Impact of adopting ASC 326 | $0.3 | | Current period provision | $(0.4) | | Currency exchange effects | $(0.5) | | Write-offs | $(0.2) | | Ending balance | $8.9 | - Credit risk is primarily from sales of workforce solution services, with short payment terms and ongoing credit evaluations[42](index=42&type=chunk) [4. Acquisitions](index=16&type=section&id=4.%20Acquisitions) This note outlines recent acquisition activities, including the purchase of Insight Workforce Solutions and the impact on goodwill - On January 14, 2020, Kelly Services USA, LLC acquired Insight Workforce Solutions LLC for **$38.1 million** cash, expanding its market share in the U.S. education staffing market[48](index=48&type=chunk)[49](index=49&type=chunk) - In Q1 2019, the company acquired NextGen Global Resources LLC for **$54.3 million** and Global Technology Associates, LLC for **$35.7 million**, both enhancing telecommunications staffing and consulting solutions[50](index=50&type=chunk)[53](index=53&type=chunk) - Goodwill generated from these acquisitions was included in the **$147.7 million** impairment charge taken in Q1 2020 due to negative market reaction to the COVID-19 crisis[55](index=55&type=chunk) [5. Investment in Persol Holdings](index=17&type=section&id=5.%20Investment%20in%20Persol%20Holdings) This note describes the company's noncontrolling investment in Persol Holdings and the associated gains or losses - The company holds a yen-denominated noncontrolling investment in Persol Holdings Co., Ltd., recorded at fair value[56](index=56&type=chunk) - A loss of **$77.8 million** on the investment was recorded in Q1 2020, compared to a gain of **$13.2 million** in Q1 2019[56](index=56&type=chunk) [6. Investment in PersolKelly Pte. Ltd.](index=17&type=section&id=6.%20Investment%20in%20PersolKelly%20Pte.%20Ltd.) This note details the company's equity method investment in PersolKelly Pte. Ltd. and its share of the affiliate's earnings or losses - The company has a **49%** ownership interest in PersolKelly Pte. Ltd. (JV), accounted for under the equity method[57](index=57&type=chunk) - Equity in net earnings (loss) of affiliate was a loss of **$1.5 million** in Q1 2020, compared to a loss of **$0.4 million** in Q1 2019[57](index=57&type=chunk) - Subsequent to Q1 2020, the JV sold its Australian and New Zealand subsidiaries for **$17.5 million**, with the company receiving a direct royalty payment of **$0.7 million**[63](index=63&type=chunk) [7. Fair Value Measurements](index=18&type=section&id=7.%20Fair%20Value%20Measurements) This note provides information on assets measured at fair value and the impact of a goodwill impairment charge | Asset (Level 1) | March 29, 2020 (Millions $) | December 29, 2019 (Millions $) | | :------------------------ | :--------------------------- | :--------------------------- | | Money market funds | 4.9 | 4.9 | | Investment in Persol Holdings | 96.8 | 173.2 | | Total assets at fair value | 101.7 | 178.1 | - A goodwill impairment charge of **$147.7 million** was recorded in Q1 2020 due to negative market reaction to the COVID-19 crisis, triggering an interim impairment test[74](index=74&type=chunk) [8. Restructuring](index=20&type=section&id=8.%20Restructuring) This note details the restructuring actions taken in Q1 2020, including associated lease termination and severance costs | Restructuring Costs (Millions $) | Lease Termination Costs | Severance Costs | Total | | :------------------------------- | :---------------------- | :-------------- | :---- | | Americas Staffing | $4.1 | $1.5 | $5.6 | | Global Talent Solutions | — | $0.9 | $0.9 | | International Staffing | $0.7 | $0.4 | $1.1 | | Corporate | — | $1.1 | $1.1 | | Total | $4.8 | $3.9 | $8.7 | - Restructuring actions in Q1 2020 aimed to align costs with expected revenues and position the organization for a new operating model[75](index=75&type=chunk) - The remaining balance of **$3.9 million** as of Q1 2020 primarily represents severance costs, expected to be paid by the end of 2020[78](index=78&type=chunk) [9. Goodwill](index=22&type=section&id=9.%20Goodwill) This note explains the goodwill impairment charge recorded in Q1 2020 and its impact on reporting units - A goodwill impairment charge of **$147.7 million** was recorded in Q1 2020, writing off all goodwill for the Americas Staffing and Global Talent Solutions reporting units[82](index=82&type=chunk)[84](index=84&type=chunk) - The impairment was triggered by a significant decline in the company's common stock price due to negative market reaction to the COVID-19 crisis[82](index=82&type=chunk) [10. Accumulated Other Comprehensive Income (Loss)](index=23&type=section&id=10.%20Accumulated%20Other%20Comprehensive%20Income%20%28Loss%29) This note provides a breakdown of the components of accumulated other comprehensive income (loss) | Component (Millions $) | Q1 2020 | Q1 2019 | | :-------------------------------- | :------ | :------ | | Foreign currency translation adjustments (ending balance) | $(20.6) | $(17.2) | | Pension liability adjustments (ending balance) | $(2.6) | $(1.4) | | Total accumulated other comprehensive income (loss) | $(23.2) | $(18.6) | [11. Earnings Per Share](index=23&type=section&id=11.%20Earnings%20Per%20Share) This note presents the calculation of basic and diluted earnings per share for common shareholders | Metric | Q1 2020 | Q1 2019 | | :-------------------------------- | :------ | :------ | | Net earnings (loss) available to common shareholders | $(153.2) | $21.9 | | Basic earnings (loss) per share | $(3.91) | $0.56 | | Diluted earnings (loss) per share | $(3.91) | $0.56 | | Average shares outstanding (diluted, millions) | 39.2 | 39.1 | - Dividends paid per share for Class A and Class B common stock were **$0.075** for both Q1 2020 and Q1 2019[88](index=88&type=chunk) [12. Stock-Based Compensation](index=24&type=section&id=12.%20Stock-Based%20Compensation) This note details the stock compensation expense and vesting status of performance share grants - Stock compensation expense decreased to **$1.2 million** in Q1 2020 from **$3.2 million** in Q1 2019[90](index=90&type=chunk) - The majority of the 2017 performance share grant cliff-vested in Q1 2020, but 2017 Total Shareholder Return (TSR) performance shares did not vest due to actual achievement being below the threshold level[91](index=91&type=chunk) - The grant date fair value for the 2018 financial measure performance shares was fixed at **$17.35 per share** in Q1 2020[93](index=93&type=chunk) [13. Sale of Assets](index=25&type=section&id=13.%20Sale%20of%20Assets) This note describes the sale and leaseback transaction of headquarters properties and the resulting gain - On March 20, 2020, the company sold three headquarters properties for **$58.5 million** (**$55.5 million** cash proceeds net of expenses) as part of a sale and leaseback transaction[97](index=97&type=chunk) - The sale resulted in a gain of **$32.1 million**, recorded in the consolidated statements of earnings[97](index=97&type=chunk) [14. Other Income (Expense), Net](index=25&type=section&id=14.%20Other%20Income%20%28Expense%29,%20Net) This note provides a breakdown of other income and expenses, including interest and foreign exchange gains/losses | Metric (Millions $) | Q1 2020 | Q1 2019 | | :-------------------- | :------ | :------ | | Interest income | $0.3 | $0.2 | | Interest expense | $(0.9) | $(1.1) | | Foreign exchange gain (loss) | $2.4 | $(0.6) | | Other income (expense), net | $1.7 | $(1.1) | [15. Leases](index=25&type=section&id=15.%20Leases) This note discusses the adoption of ASC 842 and the recognition of right-of-use assets and lease liabilities - The company adopted ASC 842, Leases, at the beginning of Q1 2019[100](index=100&type=chunk) - In Q1 2020, following the headquarters sale and leaseback, the company recognized **$37.6 million** of ROU assets and **$37.3 million** of current and noncurrent operating lease liabilities[101](index=101&type=chunk) [16. Contingencies](index=26&type=section&id=16.%20Contingencies) This note addresses ongoing legal proceedings and the company's assessment of potential losses - Accruals for litigation costs amounted to **$2.9 million** at Q1 2020, down from **$9.9 million** at year-end 2019[104](index=104&type=chunk) - The estimated aggregate range of reasonably possible losses, in excess of amounts accrued, is **$0.0 million to $2.4 million** as of Q1 2020[106](index=106&type=chunk) - Management believes the resolution of legal proceedings will not have a material adverse effect on financial condition, results of operations, or cash flows[107](index=107&type=chunk) [17. Income Taxes](index=26&type=section&id=17.%20Income%20Taxes) This note details the income tax benefit or expense, including the impact of goodwill impairment and investment losses - Income tax benefit was **$36.2 million** for Q1 2020, compared to an income tax expense of **$6.4 million** for Q1 2019[109](index=109&type=chunk) - The Q1 2020 benefit includes a **$23.0 million** tax benefit on goodwill impairment and a **$23.8 million** tax benefit for the loss on the investment in Persol Holdings[109](index=109&type=chunk) [18. Segment Disclosures](index=27&type=section&id=18.%20Segment%20Disclosures) This note provides financial information by operating segment, including revenue and earnings from operations | Segment | Q1 2020 (Millions $) | Q1 2019 (Millions $) | Change (YoY) | | :---------------------- | :------------------- | :------------------- | :------------- | | Americas Staffing Revenue | 533.4 | 626.5 | -14.9% | | Global Talent Solutions Revenue | 503.2 | 501.0 | +0.4% | | International Staffing Revenue | 227.6 | 258.9 | -12.1% | | Consolidated Total Revenue | 1,261.1 | 1,382.6 | -8.8% | | Segment | Q1 2020 (Millions $) | Q1 2019 (Millions $) | Change (YoY) | | :-------------------------------- | :------------------- | :------------------- | :------------- | | Americas Staffing Earnings from Operations | 0.1 | 16.0 | -99.5% | | Global Talent Solutions Earnings from Operations | 26.5 | 25.7 | +2.9% | | International Staffing Earnings from Operations | 0.6 | 3.3 | -81.7% | | Corporate | (139.0) | (28.2) | NM | | Consolidated Total Earnings (loss) from Operations | (111.8) | 16.8 | NM | - The goodwill impairment charge in Q1 2020 is included in Corporate expenses[116](index=116&type=chunk) [19. New Accounting Pronouncements](index=28&type=section&id=19.%20New%20Accounting%20Pronouncements) This note outlines recently adopted and not yet adopted accounting standards and their impact - The company adopted ASU 2018-15 (capitalizing implementation costs for hosting arrangements) and ASU 2016-13 (credit losses) in Q1 2020[121](index=121&type=chunk)[123](index=123&type=chunk) - Adoption of ASU 2016-13 resulted in a **$0.7 million** decrease to retained earnings, net of tax, in Q1 2020[123](index=123&type=chunk) - The company is currently evaluating the impact of ASU 2020-01 (equity securities) and ASU 2019-12 (income taxes), effective for annual reporting periods beginning after December 15, 2020[125](index=125&type=chunk)[126](index=126&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses COVID-19's impact, leading to cost reductions and a goodwill impairment, while maintaining commitment to specialized talent solutions despite Q1 2020 revenue declines [Executive Overview](index=31&type=section&id=Executive%20Overview) This section provides a high-level summary of the company's performance and strategic responses to the evolving economic landscape - The impact of COVID-19 has resulted in dramatic shifts in the economy and how professional and private lives are conducted[130](index=130&type=chunk) - Kelly remains committed to its 'Noble Purpose' to connect people to work and intends to emerge as a more agile and focused organization[130](index=130&type=chunk)[131](index=131&type=chunk) [The Talent Solutions Industry](index=31&type=section&id=The%20Talent%20Solutions%20Industry) This section discusses the current trends and changes within the talent solutions industry, including automation and skills gaps - Labor markets are undergoing change due to automation, secular shifts, and skills gaps, with the current economic situation expected to accelerate these changes[132](index=132&type=chunk) - The talent solutions industry is evolving to meet demand for talent through novel sourcing approaches, including gig platforms and independent contractors[133](index=133&type=chunk) [Our Business](index=31&type=section&id=Our%20Business) This section describes Kelly Services' core business, operating segments, and working capital requirements - Kelly Services is a talent and global workforce solutions company offering outsourcing, consulting, and staffing services (temporary, temporary-to-hire, and direct-hire)[135](index=135&type=chunk) - The company operates through Americas Staffing, International Staffing, and Global Talent Solutions (GTS) segments, providing specialized talent solutions[135](index=135&type=chunk)[136](index=136&type=chunk) - Working capital requirements are primarily driven by temporary employee payroll and customer accounts receivable; global Days Sales Outstanding (DSO) was **59 days** at Q1 2020[137](index=137&type=chunk)[139](index=139&type=chunk) [Our Perspective](index=33&type=section&id=Our%20Perspective) This section outlines management's view on the company's short-term challenges and future strategic direction [Short Term](index=33&type=section&id=Short%20Term) This subsection details the immediate actions taken in response to COVID-19 and anticipated near-term financial impacts - In April 2020, the company took proactive actions in response to COVID-19, including a **10%** pay cut for salaried employees, reduced senior leader compensation, temporary furloughs, suspension of retirement account match, reduction of discretionary expenses, a hiring freeze, and suspension of the quarterly dividend[140](index=140&type=chunk) - The company expects a material decline in revenues during the period of stay-at-home orders and other limitations, and anticipates a decline in Q2 and full-year earnings year-over-year[141](index=141&type=chunk) - A **$147.7 million** non-cash goodwill impairment charge was recorded in Q1 2020 due to negative market reaction to the COVID-19 crisis[142](index=142&type=chunk) [Moving Forward](index=33&type=section&id=Moving%20Forward) This subsection describes the company's ongoing strategic initiatives, including investments in technology and cost reduction - The company continues to pursue a specialized talent solutions strategy, investing in specialty growth platforms, including expanding its engineering portfolio with 2019 acquisitions (GTA and NextGen) and education staffing with the 2020 Insight acquisition[143](index=143&type=chunk) - Investments in technology are accelerating, particularly front office platforms, to streamline processes and enhance the experience for job seekers[144](index=144&type=chunk) - Cost reduction actions in Q1 2020, including branch network reduction and severance, are expected to result in approximately **$20 million** in annual expense savings[145](index=145&type=chunk) [Financial Measures](index=34&type=section&id=Financial%20Measures) This section defines key financial metrics used by management to assess performance, including non-GAAP constant currency measures - The company uses constant currency (CC) measures as non-GAAP metrics to analyze operational trends without distortion from currency fluctuations[147](index=147&type=chunk) - Key financial measures for progress include revenue growth (organic and inorganic), gross profit rate improvement, conversion rate, and EBITDA margin[146](index=146&type=chunk) - Days Sales Outstanding (DSO) is calculated by dividing average net sales per day (based on a rolling three-month period) into trade accounts receivable, net of allowances[150](index=150&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance for the first quarter, broken down by segment [Total Company - First Quarter](index=35&type=section&id=Total%20Company%20-%20First%20Quarter) This subsection summarizes the overall financial results for the company during the first quarter, including revenue and profitability | Metric | Q1 2020 (Millions $) | Q1 2019 (Millions $) | Reported Change | CC Change | | :-------------------------------- | :------------------- | :------------------- | :-------------- | :---------- | | Revenue from services | 1,261.1 | 1,382.6 | (8.8)% | (8.3)% | | Gross profit | 223.3 | 251.6 | (11.3)% | (10.9)% | | Total SG&A expenses | 219.5 | 234.8 | (6.5)% | (6.3)% | | Goodwill impairment charge | 147.7 | — | NM | | | Gain on sale of assets | 32.1 | — | NM | | | Earnings (loss) from operations | (111.8) | 16.8 | NM | | | Diluted earnings (loss) per share | (3.91) | 0.56 | NM | | | Gross profit rate | 17.7% | 18.2% | (0.5) pts. | | - The economic slow-down from COVID-19 began in March 2020, resulting in a **2.7%** decline in year-over-year revenues for the quarter[153](index=153&type=chunk) - The Insight acquisition added approximately **110 basis points** to the total revenue growth rate[153](index=153&type=chunk) [Americas Staffing - First Quarter](index=36&type=section&id=Americas%20Staffing%20-%20First%20Quarter) This subsection analyzes the financial performance of the Americas Staffing segment, highlighting revenue and gross profit changes | Metric | Q1 2020 (Millions $) | Q1 2019 (Millions $) | Reported Change | CC Change | | :-------------------------------- | :------------------- | :------------------- | :-------------- | :---------- | | Revenue from services | 533.4 | 626.5 | (14.9)% | (14.6)% | | Gross profit | 93.6 | 117.2 | (20.2)% | (20.0)% | | Total SG&A expenses | 93.5 | 101.2 | (7.6)% | (7.6)% | | Earnings from operations | 0.1 | 16.0 | (99.5)% | | | Gross profit rate | 17.5% | 18.7% | (1.2) pts. | | - Revenue decrease reflects a **15%** decrease in hours volume and a **3%** decrease in average bill rates, partially offset by the Insight acquisition[160](index=160&type=chunk) - The decline also reflects an approximately **5%** decrease in revenues due to COVID-19, primarily in education and manufacturing[160](index=160&type=chunk) [GTS - First Quarter](index=37&type=section&id=GTS%20-%20First%20Quarter) This subsection reviews the financial performance of the Global Talent Solutions (GTS) segment, including revenue drivers and profitability | Metric | Q1 2020 (Millions $) | Q1 2019 (Millions $) | Reported Change | CC Change | | :-------------------------------- | :------------------- | :------------------- | :-------------- | :---------- | | Revenue from services | 503.2 | 501.0 | 0.4% | 0.6% | | Gross profit | 100.2 | 100.4 | (0.2)% | 0.1% | | Total SG&A expenses | 73.7 | 74.7 | (1.3)% | (1.0)% | | Earnings from operations | 26.5 | 25.7 | 2.9% | | | Gross profit rate | 19.9% | 20.0% | (0.1) pts. | | - Revenue increased due to program expansions and new customer contracts in BPO and KellyConnect products, partially offset by lower demand in centrally delivered staffing and PPO[166](index=166&type=chunk) - The impact of COVID-19 on GTS revenues was not significant in Q1 2020, as many customers are in essential industries or facilitated remote work[166](index=166&type=chunk) [International Staffing - First Quarter](index=38&type=section&id=International%20Staffing%20-%20First%20Quarter) This subsection examines the financial performance of the International Staffing segment, noting revenue declines and contributing factors | Metric | Q1 2020 (Millions $) | Q1 2019 (Millions $) | Reported Change | CC Change | | :-------------------------------- | :------------------- | :------------------- | :-------------- | :---------- | | Revenue from services | 227.6 | 258.9 | (12.1)% | (10.7)% | | Gross profit | 29.9 | 34.6 | (13.4)% | (11.8)% | | Total SG&A expenses | 29.3 | 31.3 | (6.2)% | (5.0)% | | Earnings from operations | 0.6 | 3.3 | (81.7)% | | | Gross profit rate | 13.2% | 13.3% | (0.1) pts. | | - Revenue decline was primarily due to decreased hours volume in France, Switzerland, and Italy, and an approximately **2%** impact from COVID-19 disruption[170](index=170&type=chunk) - Increased revenue in Russia, driven by higher hours volume and average bill rates, partially offset these decreases[170](index=170&type=chunk) [Financial Condition](index=39&type=section&id=Financial%20Condition) This section discusses the company's working capital, cash position, and cash flow activities - Working capital position was **$523.0 million** at Q1 2020, an increase of **$1.4 million** from year-end 2019, with a current ratio of **1.6**[178](index=178&type=chunk) - Cash, cash equivalents, and restricted cash totaled **$53.5 million** at Q1 2020, up from **$31.0 million** at year-end 2019[176](index=176&type=chunk) - Net cash from operating activities was **$8.4 million** in Q1 2020, while investing activities generated **$15.9 million** (driven by asset sales) and financing activities used **$4.6 million**[177](index=177&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk) [New Accounting Pronouncements](index=40&type=section&id=New%20Accounting%20Pronouncements) This section refers to the detailed disclosures on new accounting standards in the notes to financial statements - Refers to the 'New Accounting Pronouncements' footnote in the Notes to Consolidated Financial Statements for details on recently adopted and not yet adopted standards[182](index=182&type=chunk) [Critical Accounting Estimates](index=40&type=section&id=Critical%20Accounting%20Estimates) This section highlights key accounting estimates and judgments, particularly regarding the goodwill impairment charge - Refers to the 2019 Form 10-K for a discussion of critical accounting estimates, with specific mention of the goodwill impairment charge in Q1 2020[183](index=183&type=chunk) [Contractual Obligations and Commercial Commitments](index=40&type=section&id=Contractual%20Obligations%20and%20Commercial%20Commitments) This section addresses any significant changes to the company's contractual obligations since the last annual report - No significant changes to contractual obligations and commercial commitments from those disclosed in the 2019 Form 10-K, other than the sale and leaseback of the main headquarters building[184](index=184&type=chunk) [Liquidity](index=40&type=section&id=Liquidity) This section discusses the company's ability to meet its short-term and long-term cash requirements - The company expects to meet cash requirements through cash from operations, available cash, securitization of customer receivables, and committed unused credit facilities[185](index=185&type=chunk) - As of Q1 2020, the company had **$200.0 million** available on its revolving credit facility and **$96.8 million** on its securitization facility[187](index=187&type=chunk) - Subsequent to Q1 2020, the company borrowed **$70 million** under the securitization facility to enhance financial flexibility due to COVID-19 uncertainty[188](index=188&type=chunk) [Forward-Looking Statements](index=41&type=section&id=Forward-Looking%20Statements) This section cautions readers about the inherent risks and uncertainties associated with forward-looking information - The report contains forward-looking statements that are subject to risks, uncertainties, and assumptions, including the recent COVID-19 outbreak, competitive market pressures, and changing economic conditions[192](index=192&type=chunk)[193](index=193&type=chunk) - Actual events and results may differ materially from those expressed or forecasted, and the company has no specific intention to update these statements[193](index=193&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk.](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company faces foreign currency, interest rate, and market risks from its international operations, borrowings, and investments, including its nonqualified deferred compensation plan - The company is exposed to foreign currency risk primarily related to its foreign subsidiaries and intercompany transactions[195](index=195&type=chunk) - Interest rate risks arise from the multi-currency line of credit and other borrowings; a hypothetical **10%** fluctuation would not materially impact Q1 2020 earnings[196](index=196&type=chunk) - Market and currency risks are associated with the yen-denominated investment in Persol Holdings, which is marked to market through net earnings[197](index=197&type=chunk) [Item 4. Controls and Procedures.](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures.) The CEO and CFO affirmed the effectiveness of disclosure controls and procedures, with no material changes in internal control over financial reporting during Q1 2020 - The Company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures are effective at a reasonable assurance level[199](index=199&type=chunk) - There were no material changes in the Company's internal control over financial reporting during the most recent fiscal quarter[200](index=200&type=chunk) [PART II. OTHER INFORMATION](index=37&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings.](index=37&type=section&id=Item%201.%20Legal%20Proceedings.) The company is involved in ongoing legal proceedings with **$2.9 million** in Q1 2020 accruals, which management believes will not materially impact financial results - The company is continuously engaged in litigation, threatened litigation, claims, audits, or investigations arising in the ordinary course of its business[202](index=202&type=chunk) - Accruals for litigation costs amounted to **$2.9 million** at Q1 2020, compared to **$9.9 million** at year-end 2019[104](index=104&type=chunk)[202](index=202&type=chunk) - Management believes the resolution of any such proceedings will not have a material adverse effect on the company's financial condition, results of operations, or cash flows[203](index=203&type=chunk) [Item 1A. Risk Factors.](index=44&type=section&id=Item%201A.%20Risk%20Factors.) The company anticipates adverse impacts from the COVID-19 outbreak on economic activity, employment, and customer demand, with uncertain but potentially material effects - The company expects its business to be adversely impacted by the recent novel coronavirus (COVID-19) outbreak[208](index=208&type=chunk) - The downturn, which began in March 2020, is expected to negatively impact customer demand for staffing services and could affect the financial viability of third parties[208](index=208&type=chunk) - The extent or duration of the impact on the business, financial condition, and results of operations cannot be predicted with certainty, but such impacts could be material[208](index=208&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.](index=44&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) The company reacquired **57,832 shares** of Class A common stock at an average of **$19.39 per share** in Q1 2020, mainly for employee tax withholdings upon vesting | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------------------------------- | :----------------------------- | :--------------------------- | | December 30, 2019 through February 2, 2020 | 985 | $22.23 | | February 3, 2020 through March 1, 2020 | 56,383 | $19.39 | | March 2, 2020 through March 29, 2020 | 464 | $13.35 | | Total | 57,832 | $19.39 | - Shares were reacquired to cover employee tax withholdings due upon the vesting of restricted stock and performance shares[209](index=209&type=chunk) [Item 3. Defaults Upon Senior Securities.](index=45&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) This section is not applicable to the company for the reported period - Not applicable[210](index=210&type=chunk) [Item 4. Mine Safety Disclosures.](index=45&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This section is not applicable to the company for the reported period - Not applicable[211](index=211&type=chunk) [Item 5. Other Information.](index=45&type=section&id=Item%205.%20Other%20Information.) This section is not applicable to the company for the reported period - Not applicable[212](index=212&type=chunk) [Item 6. Exhibits.](index=45&type=section&id=Item%206.%20Exhibits.) This section lists the exhibits filed with the Form 10-Q, including various certifications and Inline XBRL documents - Exhibits include certifications pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act and 18 U.S.C. Section 1350 of the Sarbanes-Oxley Act[216](index=216&type=chunk) - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents, and Cover Page Interactive Data File) are also included[216](index=216&type=chunk) [SIGNATURES](index=47&type=section&id=SIGNATURES) This section confirms the official signing of the report by the company's Executive Vice President and Chief Financial Officer, and Vice President, Corporate Controller and Chief Accounting Officer - The report was signed on May 7, 2020, by Olivier G. Thirot, Executive Vice President and Chief Financial Officer, and Laura S. Lockhart, Vice President, Corporate Controller and Chief Accounting Officer[221](index=221&type=chunk)

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 29, 2019 OR For the transition period from _________ to __________ Commission file number 0-1088 KELLY SERVICES, INC. (Exact Name of Registrant as specified in its Charter) (State or other jurisdiction of incorporatio ...

Revenue Performance - Total revenue from services for Q3 2019 was $1,267.7 million, a decline of 5.6% compared to Q3 2018, and a 4.8% decline on a constant currency basis [154]. - Revenue from Americas Staffing for Q3 2019 was $516.0 million, an 8.1% decrease from $561.8 million in Q3 2018, reflecting an 11% decrease in hours volume [159]. - Revenue from services for the first nine months of 2019 declined by 2.0% to $4,017.8 million compared to $4,099.2 million in 2018 [173]. - Revenue from services in the Americas Staffing segment decreased by 1.7% to $1,740.1 million, impacted by a 7% decrease in hours volume [179]. - International Staffing revenue from services decreased by 8.1% to $779.9 million, primarily due to declines in France and Germany [186]. Profitability Metrics - Gross profit for Q3 2019 was $227.7 million, down 4.8% from $239.1 million in Q3 2018, with a gross profit rate of 18.0%, an increase of 20 basis points year-over-year [155][156]. - The gross profit rate for Americas Staffing decreased to 18.2%, down from 18.9% in the prior year, negatively impacted by higher payroll taxes and lower permanent placement income [160][162]. - Gross profit for the first nine months of 2019 increased by 0.8% to $723.3 million, with a gross profit rate of 18.0%, up from 17.5% in the prior year [173][174]. - The gross profit rate for International Staffing decreased to 13.5%, reflecting unfavorable customer mix and lower permanent placement revenue [188]. Expenses and Cost Management - SG&A expenses decreased by 3.0% to $210.6 million in Q3 2019, primarily due to lower performance-based compensation and cost management efforts [157]. - Total SG&A expenses for the first nine months of 2019 increased by 0.5% to $666.9 million, including restructuring charges of $5.6 million [175]. - Total SG&A expenses in the International Staffing segment decreased by 4.0% due to currency exchange effects, with a 1.0% increase on a constant currency basis [188]. Earnings and Losses - Diluted loss per share for Q3 2019 was $0.27, compared to diluted earnings per share of $0.84 in Q3 2018, impacted by a loss related to the investment in Persol Holdings [158]. - Diluted earnings per share for the first nine months of 2019 were $2.41, a 102.5% increase from $1.19 in the same period of 2018 [177]. Cash Flow and Liquidity - Cash, cash equivalents, and restricted cash totaled $28.6 million at the end of Q3 2019, down from $40.1 million at year-end 2018 [192]. - Net cash generated from operating activities was $74.2 million in the first nine months of 2019, compared to $33.3 million in the same period of 2018, indicating a significant increase [193]. - Working capital decreased by $37.2 million to $465.8 million at the end of Q3 2019, driven by lower trade accounts receivable due to decreased revenue [194]. - Debt totaled $17.5 million at the end of Q3 2019, up from $2.2 million at year-end 2018, with a debt-to-total capital ratio of 1.4% [196]. - The company generated $3.6 million from financing activities in the first nine months of 2019, a turnaround from a cash usage of $17.0 million in the same period of 2018 [196]. - As of Q3 2019, the company had $150.0 million available on its revolving credit facility and $130.7 million on its securitization facility, indicating strong liquidity [204]. - The company is reviewing its real estate portfolio and other potential liquidity sources to optimize cash management [201]. Strategic Initiatives - The company expects to grow higher-margin specialty and outsourced solutions, integrating investments from recent acquisitions to enhance revenue growth [147][148]. - The NextGen and GTA acquisitions contributed approximately 260 basis points to total revenue growth in Q3 2019 [155]. - Total restructuring charges recorded during the first nine months of 2019 amounted to $5.6 million due to operational restructuring efforts [146]. - The company is making substantial investments in technology to improve efficiency in talent acquisition and enhance the experience for job seekers [145]. Forward-Looking Statements - Forward-looking statements indicate expectations for future financial performance and strategies, subject to various risks and uncertainties [208].

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-1088 KELLY SERVICES, INC. --------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 38-1510762 (Stat ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-1088 KELLY SERVICES, INC. --------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 38-1510762 ...

Part I [Business](index=3&type=section&id=ITEM%201.%20BUSINESS.) Kelly Services is a global workforce solutions provider operating in three segments, serving a diverse customer base including over 90% of Fortune 100 companies, while navigating seasonality and intense industry competition - The company operates through three primary business segments: Americas Staffing, Global Talent Solutions (GTS), and International Staffing[17](index=17&type=chunk) - In 2018, Kelly Services assigned approximately **500,000 temporary employees** to customers globally[15](index=15&type=chunk)[37](index=37&type=chunk) - The company's customer base includes over **90% of the Fortune 100™ companies**. In 2018, **100 large customers accounted for an estimated 51% of total revenue**, with the largest single customer representing about **5%**[15](index=15&type=chunk)[30](index=30&type=chunk) - The business experiences seasonality, with demand typically being lower in the first quarter and increasing throughout the rest of the year, except for the education business[28](index=28&type=chunk) - The worldwide workforce solutions industry is highly competitive. Key competitors in 2018 included Adecco S.A., Randstad Holding N.V., ManpowerGroup Inc., Allegis Group, and Recruit Holdings[32](index=32&type=chunk) [Description of Business Segments](index=3&type=section&id=Description%20of%20Business%20Segments) The company's operations are structured into three segments: Americas Staffing, International Staffing, and Global Talent Solutions (GTS), which delivers integrated talent management solutions globally, reflecting a market trend towards holistic talent supply chain management Business Segment Overview | Segment | Description | Services Offered | | :--- | :--- | :--- | | **Americas Staffing** | Branch-delivered staffing in the U.S., Puerto Rico, Canada, Mexico, and Brazil | Temporary staffing and direct-hire in Office, Education, Marketing, Electronic Assembly, Light Industrial, Science, Engineering, IT, Creative Services, Finance & Accounting | | **International Staffing** | Branch-delivered staffing in the EMEA region | Similar range to Americas Staffing, plus Catering, Hospitality, and Industrial services | | **Global Talent Solutions (GTS)** | Outsourcing, consulting, and centrally delivered staffing on a global basis | Contingent Workforce Outsourcing (CWO), Recruitment Process Outsourcing (RPO), Business Process Outsourcing (BPO), Payroll Process Outsourcing (PPO), KellyConnect (contact center), career transition, and talent advisory services | [Risk Factors](index=7&type=section&id=ITEM%201A.%20RISK%20FACTORS.) The company faces significant risks from intense competition, economic sensitivity, technological disruption, international operations, employment-related claims, cybersecurity threats, and concentrated voting control - The company operates in a highly competitive staffing market with low barriers to entry, facing price competition and the risk of customers diversifying suppliers or insourcing services[45](index=45&type=chunk)[46](index=46&type=chunk) - Demand for staffing services is significantly affected by general economic conditions, with business volumes historically showing a disproportionate impact from economic swings[47](index=47&type=chunk) - Technological advances like automation and AI pose a risk by potentially replacing human tasks, which could weaken demand for talent, especially in lower-skill categories[48](index=48&type=chunk) - A significant portion of operations are outside the U.S., exposing the company to risks from currency fluctuations, political/economic instability, and varying legal and regulatory requirements[61](index=61&type=chunk) - The company is exposed to numerous employment-related claims, including discrimination, wrongful termination, and wage and hour violations, which could lead to material losses[67](index=67&type=chunk)[68](index=68&type=chunk) - Cyber attacks and breaches of IT security are a significant risk, as the company relies on IT systems to store confidential information. A breach could result in reputational damage, fines, and financial liabilities[70](index=70&type=chunk)[71](index=71&type=chunk) - The Terence E. Adderley Revocable Trust K holds approximately **91.5% of the voting Class B common stock**, giving it voting control over the company, including the election of all directors[84](index=84&type=chunk)[85](index=85&type=chunk) [Properties](index=16&type=section&id=ITEM%202.%20PROPERTIES.) The company owns its 345,000 square foot corporate headquarters in Troy, Michigan, while branch office operations are conducted in leased premises with typical terms of three to ten years - The company owns its headquarters in Troy, Michigan, with a combined usable floor space of approximately **345,000 square feet**[95](index=95&type=chunk)[96](index=96&type=chunk) - Branch offices operate out of leased properties. Leases are generally for terms of three to five years in the U.S. and Canada, and five to ten years elsewhere[97](index=97&type=chunk) [Legal Proceedings](index=16&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS.) The company is involved in routine litigation, benefiting from a favorable Supreme Court decision on class action waivers, and does not expect a material adverse effect from Hungarian competition authority proceedings initiated in January 2018 - Following a favorable U.S. Supreme Court ruling on May 21, 2018, most lower courts have been enforcing the company's arbitration agreements and class action waivers[98](index=98&type=chunk) - In January 2018, the Hungarian Competition Authority initiated proceedings against the Company for alleged infringement of national competition regulations. The company does not believe the resolution will have a material adverse effect[102](index=102&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=17&type=section&id=ITEM%205.%20MARKET%20FOR%20THE%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES.) The company's Class A and B common stock trade on NASDAQ, paid $0.30 dividends in 2018 and 2017, reacquired shares for tax withholdings, and its five-year cumulative total return underperformed relevant indices 2018 & 2017 Stock Price and Dividend Summary | Year | Stock Class | High Price ($) | Low Price ($) | Annual Dividend ($) | | :--- | :--- | :--- | :--- | :--- | | **2018** | Class A | $32.31 | $19.21 | $0.30 | | **2018** | Class B | $34.30 | $21.50 | $0.30 | | **2017** | Class A | $30.93 | $20.27 | $0.30 | | **2017** | Class B | $28.50 | $20.18 | $0.30 | - During Q4 2018, the company reacquired **24,931 shares of Class A common stock** at an average price of **$23.25 per share**, primarily to cover employee tax withholdings on vested restricted stock[110](index=110&type=chunk) - The five-year cumulative total return for Kelly Services stock (**$87.53** on a $100 investment) underperformed the S&P SmallCap 600 Index (**$135.96**) and the S&P 1500 Human Resources and Employment Services Index (**$126.37**) for the period ending December 31, 2018[112](index=112&type=chunk)[113](index=113&type=chunk) [Selected Financial Data](index=20&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA.) This section provides a five-year financial summary, showing 2018 revenue of $5.51 billion and net earnings of $22.9 million, significantly impacted by a $96.2 million loss on the Persol Holdings investment Five-Year Selected Financial Data (In millions, except per share amounts) | Metric | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue from services | $5,513.9 | $5,374.4 | $5,276.8 | $5,518.2 | $5,562.7 | | Earnings from operations | $87.4 | $83.3 | $63.2 | $66.7 | $21.9 | | Net earnings | $22.9 | $71.6 | $120.8 | $53.8 | $23.7 | | Diluted earnings per share | $0.58 | $1.81 | $3.08 | $1.39 | $0.61 | | Dividends per share | $0.30 | $0.30 | $0.275 | $0.20 | $0.20 | | Total assets | $2,314.4 | $2,378.2 | $2,028.1 | $1,939.6 | $1,917.9 | - Net earnings in 2018 were significantly impacted by a **$96.2 million loss** on the investment in Persol Holdings[115](index=115&type=chunk) - Net earnings in 2016 included an **$87.2 million gain** on the investment in the PersolKelly Asia Pacific joint venture[115](index=115&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS.) Management discusses the company's strategy for profitable growth in the evolving talent solutions industry, highlighting 2018 revenue growth to $5.5 billion, a sharp decline in net earnings due to an investment loss, and a strong liquidity position with $61.4 million cash from operations [Executive Overview](index=21&type=section&id=Executive%20Overview) The company is strategically focusing on becoming a leading talent solutions provider by emphasizing scale, specialty, future of work, talent attraction, and innovation, evidenced by 2018 divestitures and acquisitions in 5G telecom, resulting in $87.4 million earnings from operations - The company's strategic pillars are: Leadership position via scale or specialty, embracing the future of work, being a destination for top talent, and investing in innovation and efficiency[125](index=125&type=chunk) - In 2018, the company sold its healthcare and legal specialty operations to increase focus on commercial, education, engineering, and science specialties[128](index=128&type=chunk) - On January 2, 2019, Kelly acquired Global Technology Associates and NextGen Global Resources to expand its engineering portfolio in the growing 5G telecommunications market[128](index=128&type=chunk) 2018 Performance Highlights | Metric | 2018 (in millions) | 2017 (in millions) | | :--- | :--- | :--- | | Earnings from operations | $87.4 | $83.3 | | Conversion rate (Return on gross profit) | 9.0% | 8.7% | [Results of Operations](index=24&type=section&id=Results%20of%20Operations) This section details financial performance, showing 2018 total revenue growth of 2.6% to $5.51 billion driven by Americas and International Staffing, and 2017 revenue growth of 1.9% to $5.37 billion, with overall gross profit rates declining slightly Total Company Performance: 2018 vs 2017 (in millions) | Metric | 2018 (in millions) | 2017 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Revenue from services | $5,513.9 | $5,374.4 | 2.6% | | Gross profit | $972.2 | $954.1 | 1.9% | | Earnings from operations | $87.4 | $83.3 | 5.0% | | Diluted EPS | $0.58 | $1.81 | (68.0)% | Total Company Performance: 2017 vs 2016 (in millions) | Metric | 2017 (in millions) | 2016 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Revenue from services | $5,374.4 | $5,276.8 | 1.9% | | Gross profit | $954.1 | $906.3 | 5.3% | | Earnings from operations | $83.3 | $63.2 | 31.7% | | Diluted EPS | $1.81 | $3.08 | (41.2)% | [Financial Condition](index=32&type=section&id=Financial%20Condition) The company's financial condition is solid, with $61.4 million net cash from operating activities in 2018, working capital increasing to $503.0 million, and a low debt-to-total capital ratio of 0.2%, while critical accounting estimates require significant management judgment Cash Flow Summary | Activity | 2018 (in millions) | 2017 (in millions) | 2016 (in millions) | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $61.4 | $70.8 | $40.1 | | Net cash used in investing activities | ($29.8) | ($61.0) | $10.6 | | Net cash used in financing activities | ($26.5) | ($3.4) | ($69.1) | - Working capital increased by **$44.9 million** to **$503.0 million** at year-end 2018, with the current ratio improving to **1.6** from **1.5** in 2017[183](index=183&type=chunk) - The debt-to-total capital ratio was very low at **0.2%** at year-end 2018, down from **0.9%** at year-end 2017[185](index=185&type=chunk) - Critical accounting estimates requiring significant judgment include workers' compensation accruals, income tax provisions, impairment testing for goodwill and equity investments, litigation reserves, and the allowance for uncollectible accounts[198](index=198&type=chunk)[199](index=199&type=chunk)[201](index=201&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk)[212](index=212&type=chunk)[213](index=213&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK.) The company faces foreign currency risk from international operations, partially mitigated by natural hedging, and a material market and currency risk from its yen-denominated Persol Holdings investment, while interest rate risk from borrowings is not considered material - The company faces foreign currency risk from its international operations, but this is partially mitigated as most foreign subsidiaries operate within a single currency[222](index=222&type=chunk) - A material market and currency risk exists for the company's investment in Persol Holdings. The investment is marked to market through net earnings, and currency fluctuations are reflected in other comprehensive income[224](index=224&type=chunk) - Interest rate risk from borrowings is not considered material; a hypothetical **10% fluctuation** in market rates would not have had a material impact on 2018 earnings[223](index=223&type=chunk) [Financial Statements and Supplementary Data](index=39&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA.) This section presents the company's audited consolidated financial statements for the three fiscal years ended December 30, 2018, including statements of earnings, comprehensive income, balance sheets, stockholders' equity, and cash flows, with detailed notes Consolidated Statements of Earnings Summary (in millions) | Line Item | 2018 (in millions) | 2017 (in millions) | 2016 (in millions) | | :--- | :--- | :--- | :--- | | Revenue from services | $5,513.9 | $5,374.4 | $5,276.8 | | Gross profit | $972.2 | $954.1 | $906.3 | | Earnings from operations | $87.4 | $83.3 | $63.2 | | Loss on investment in Persol Holdings | ($96.2) | — | — | | Gain on investment in PersolKelly Asia Pacific | — | — | $87.2 | | Net earnings | $22.9 | $71.6 | $120.8 | [Controls and Procedures](index=39&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES.) The CEO and CFO confirmed the effectiveness of disclosure controls and procedures as of December 30, 2018, and management's assessment also found internal controls over financial reporting effective, with no material changes in the fourth fiscal quarter - The CEO and CFO have concluded that the company's disclosure controls and procedures are effective at a reasonable assurance level as of the end of the reporting period[229](index=229&type=chunk) - Management assessed internal control over financial reporting using the COSO framework and determined it was effective as of December 30, 2018[257](index=257&type=chunk)[258](index=258&type=chunk) - No changes in internal control over financial reporting occurred during the fourth fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[232](index=232&type=chunk) Part III [Executive Officers of the Registrant](index=40&type=section&id=ITEM%2010.%20EXECUTIVE%20OFFICERS%20OF%20THE%20REGISTRANT.) This section lists Kelly Services' executive officers as of December 30, 2018, including George S. Corona (President and CEO), Teresa S. Carroll (EVP), Peter W. Quigley (EVP), Olivier G. Thirot (EVP and CFO), Hannah S. Lim-Johnson (SVP and Chief Legal Officer), and Laura S. Lockhart (VP, Corporate Controller and Chief Accounting Officer) Executive Officers as of December 30, 2018 | Name | Age | Title | | :--- | :--- | :--- | | George S. Corona | 60 | President and Chief Executive Officer | | Teresa S. Carroll | 53 | Executive Vice President, President, Global Talent Solutions | | Peter W. Quigley | 57 | Executive Vice President, President, Global Staffing | | Olivier G. Thirot | 57 | Executive Vice President and Chief Financial Officer | | Hannah S. Lim-Johnson | 47 | Senior Vice President and Chief Legal Officer | | Laura S. Lockhart | 49 | Vice President, Corporate Controller and Chief Accounting Officer | [Securities Authorized for Issuance Under Equity Compensation Plans](index=41&type=section&id=ITEM%2012.%20SECURITIES%20AUTHORIZED%20FOR%20ISSUANCE%20UNDER%20EQUITY%20COMPENSATION%20PLANS.) As of fiscal year-end 2018, the company had over 4 million securities available for future issuance under its equity compensation plans, including 3,989,910 shares under the stockholder-approved Equity Incentive Plan Equity Compensation Plan Information (as of FYE 2018) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price ($) | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by Security Holders | — | $— | 3,989,910 | | Not Approved by Security Holders | — | $— | 77,434 | | **Total** | **—** | **$—** | **4,067,344** | Part IV [Exhibits, Financial Statement Schedules](index=43&type=section&id=ITEM%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES.) This section lists all documents filed as part of the Form 10-K report, including financial statements, management's report on internal control, the independent auditor's report, and Schedule II - Valuation Reserves, with a full index of exhibits provided - This section provides an index of all financial statements, schedules, and exhibits filed with the Form 10-K[243](index=243&type=chunk)[246](index=246&type=chunk)