WHAT’S
2018 ANNUAL REPORT NEXT.
999 West Big Beaver Road
Troy, Michigan 48084-4716
248.362.4444
kellyservices.com
I
N
M
E
M
O
R
Y
O
F
TERENCE E. ADDERLEY
1 9 3 3 – 2 0 1 8
In 2018, Kelly said farewell to Terence (Terry) E. Adderley, the company’s longest-serving
CEO and former chairman of the board.
Following in the footsteps of his father, William (Russ) Kelly, who founded the temporary
staffing industry, Terry guided Kelly Services through decades of significant achievement
and exponential growth. Under Terry’s visionary leadership, wise counsel and love —
for his company, clients, employees, and community — Kelly became a global leader in
the workforce solutions industry he helped to create.
Terry ensured the Company never waivered from its heritage of strong ethical standards
and a commitment to excellence. He will be most remembered for the lessons he
instilled in Kelly employees to act with integrity, treat every person with respect,
and always do the right thing.
CORPORATE
PROFILE
basis. GTS provides Master Service Provider (MSP);
Recruitment Process Outsourcing; Business Process
Outsourcing; and Advisory and Talent Fulfillment
solutions that help customers plan for, manage, and
execute their acquisition of contingent labor, full-time
labor, and free agents. This assists our customers
in gaining access to service providers and qualified
talent quickly, at competitive rates, with minimized
risk. We also offer both commercial and professional/
technical staffing on a temporary, temporary-to-hire,
and direct-hire basis across a variety of industries and
specializations.
In 2018, Kelly directly employed more than 500,000
people around the world, in addition to having a role
in connecting hundreds of thousands more with work
through our global network of talent suppliers and
partners. Revenue in 2018 totaled $5.5 billion.
Given the worldwide span of Kelly’s workers, clients,
suppliers and partners, we recognize the global impact
of our business practices and are deeply committed to
corporate sustainability. Our commitments are centered
on six pillars of development: Employees & People;
Ethics; Engagement; Occupational Health, Safety, and
Environment; Supply Chain and Customer Relations;
and Communication, Evaluation, and Reporting. More
information can be found at kellyservices.com, or
connect with us on Facebook, LinkedIn or Twitter.
As founder of the staffing industry, Kelly has been
connecting great people and great companies
for the past seven decades. Small and large
businesses alike trust our expertise in providing
solutions that span the entire spectrum of staffing,
outsourcing, and consulting. We’re always thinking
about what’s next in the evolving world of work, and we
help people adopt new ways of thinking and embrace
the value of all work styles in the workplace.
Our values are built upon a tradition of integrity,
quality, and service excellence — keys to long-
standing relationships we create with customers,
employees, suppliers, and the communities in which
we live and work. Kelly has three operating segments:
Americas Staffing, International Staffing, and Global
Talent Solutions (GTS). We provide commercial and
professional/technical staffing through our branch
networks in our Americas and International segments
and, in APAC, we provide staffing solutions to
customers through PersolKelly Asia Pacific, our joint
venture with Persol Holdings, a leading provider of HR
solutions in Japan. For the U.S. education market, Kelly
Educational Staffing is the leading provider of substitute
teachers to more than 7,000 schools nationwide.
Kelly provides a suite of integrated talent fulfillment
and outcome-based solutions through its GTS
segment, which delivers these solutions on a global
BY THE NUMBERS
REVENUE
$5.5 billion
EARNINGS FROM OPS
$87.4 million
AMERICAS
STAFFING REVENUE
$2.4 billion
GROSS PROFIT
17.6 percent
EPS
$0.58
GLOBAL TALENT
SOLUTIONS REVENUE
$2.0 billion
EXPENSES
$884.8 million
ROS (from operations)
1.6 percent
INTERNATIONAL
STAFFING REVENUE
$1.1 billion
CORPORATE
PROFILE
TO OUR
SHAREHOLDERS
2018 was a year of strategic and operational
progress that demonstrated Kelly’s
commitment to profitable growth. We delivered solid
full-year results in a tight labor market, effectively
managed our costs, and invested in our future. A
growing U.S. economy and historic low unemployment
rates made recruiting more challenging in 2018, and
we experienced increased time and expense to fill
positions. Nevertheless, we made steady progress
against our strategic priorities, created opportunities
to improve margins through organic growth, and
sought out new paths to grow through inorganic
investments. The value drivers we created in 2018
through strategic focus, initiatives, and investments
will help power Kelly’s future success.
We paused to say farewell to our long-time chairman
and CEO Terence E. “Terry” Adderley late in the year,
first upon his retirement from Kelly after more than
six decades of leadership, and then again upon his
passing, just three weeks later. We are fortunate
to have had such a capable leader in Terry, and in
his father before him, William Russell Kelly, both
of whom were founders and titans of the staffing
and workforce solutions industries. As I said at his
retirement, Terry served Kelly with distinction during
his tenure, and his presence — both on the board and
as its chairman — will be greatly missed. I am proud
to work for a company whose values are built upon a
tradition of integrity, quality, and service excellence.
All of us at Kelly will strive to fulfill their legacy and
our Noble Purpose of connecting people to work in
ways that enrich their lives.
Upon Terry’s retirement, we were pleased to
announce the election of Donald R. Parfet as our
next chairman of the board. Don has served as
Kelly’s lead director since 2012 and has extensive
financial and operating experiences as an executive
with responsibility for numerous global businesses.
BECOMING A MORE
FOCUSED COMPANY
In 2018 we became a more focused company. We
sold our healthcare and legal specialty operations,
which allows us to place a greater focus on our
commercial, education, engineering, science, and
workforce solutions specialties. In education, we
successfully integrated our 2017 acquisition of
Teachers On Call. We also started to invest in our
commercial staffing operations, particularly in
the U.S. branch network, placing additional focus
on improving operational efficiency and creating
growth through additional specialization.
MAKING KEY STRATEGIC INVESTMENTS
In engineering, we identified two companies
that would immediately expand our engineering
portfolio: on January 2, 2019, we acquired Global
Technology Associates and NextGen Global
Resources, both leaders in the growing 5G
telecommunication market. These acquisitions
position Kelly as one of the leading engineering
workforce solutions companies in this fast-growing
technology space. Both companies provide services
to the largest carriers and Original Equipment
Manufacturers in the telecommunication industry.
INVESTING IN THE FUTURE OF WORK
Other investments in 2018 included our ongoing
commitment to embracing the future of work,
as the Kelly Innovation Fund participated in the
seed fundraising round for Kenzie Academy, a
U.S. tech apprenticeship program that develops
modern tech workers. To strengthen our position
in the portion of the workforce that participates
as independent contractors, we made a minority
equity investment in Business Talent Group (BTG), a
U.S.-based marketplace that connects highly skilled
independent talent to some of the world’s
largest businesses.
INVESTING IN TECHNOLOGY
We continued to make investments in technology
during 2018, particularly in solutions that support
greater efficiency in finding talent to meet our
customers’ needs. We are making substantial
investments in our front and middle office platforms,
which will streamline the processes and workflows
associated with recruiting, onboarding, and
reassigning workers. These investments will create
the platform from which we can deploy operational
improvements that will enhance the experience
of the hundreds of thousands of job seekers who
interact and work with Kelly each year. Our focus on
improving the “Talent Experience” is a significant
one and involves extensive quantitative and
qualitative research that is informing the operational
improvements we are making. Our objective is to
create an exceptional Kelly experience that results in
highly satisfied talent who are likely to work with Kelly
in the future.
REVITALIZING OUR BRAND
Late in 2018, Kelly introduced our revitalized brand
identity with the tagline: What’s Next. This identity
signals that we will boldly approach the future
of work while championing independent
workers and workstyles, and
their value in the modern
workplace. We are
reintroducing
Kelly to
the world and embracing and activating our refreshed
Kelly brand, both internally and externally. Visit our
U.S. website to view our “Temporary is Beautiful” film
or follow Kelly’s social media channels to see our
unique point of view that challenges the outdated
portrayals of temporary work.
LOOKING AHEAD
Kelly continues to focus on accelerating the execution
of our strategic plan and making the necessary
investments and adjustments to advance that strategy.
Our objective is to become an even more competitive
and profitable company, and we are reshaping our
business to make that goal a reality. We will measure
our progress against both revenue and gross profit
growth, as well as earnings and conversion rate (the
rate at which gross profit dollars are converted to
earnings from operations). We expect:
To grow higher-margin specialty and outsourced
solutions, creating a more balanced portfolio that
yields benefits from improved mix;
To integrate our investments in specialty solutions
with significant growth opportunities, such as our
acquisitions of Global Technology Associates and
NextGen Global Resources;
To deliver structural improvements in costs through
investments in technology, delivery models, and
process automation; and
To sustain our momentum in delivering year-over-
year improvements in our conversion rate.
Our ability to deliver good results in a challenging
business environment is a testament to the flexibility
and resourcefulness of Kelly’s teams.
Looking ahead, we remain focused on our strategy
to invest in the people, services, and technology that
will help us capitalize on the expanding specialty
talent solutions markets, where there are abundant
opportunities for growth and increased profitability.
We hope you will accompany us on this journey.
George S. Corona
President and Chief Executive Officer
March 2019
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2018
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 0-1088
KELLY SERVICES, INC.
(Exact Name of Registrant as specified in its Charter)
Delaware
38-1510762
(State or other jurisdiction of
(IRS Employer Identification Number)
incorporation or organization)
999 West Big Beaver Road, Troy, Michigan
(Address of Principal Executive Office)
48084
(Zip Code)
(248) 362-4444
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Class A Common
Class B Common
Name of each exchange on which
registered
NASDAQ Global Market
NASDAQ Global Market
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No
[X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X]
Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [ ]
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter, was approximately $709.7 million.
Registrant had 35,440,000 shares of Class A and 3,432,072 of Class B common stock, par value $1.00, outstanding as of February 3,
2019.
The proxy statement of the registrant with respect to its 2019 Annual Meeting of Stockholders is incorporated by reference in Part III.
Documents Incorporated by Reference
2
PART I
Unless the context otherwise requires, throughout this Annual Report on Form 10-K the words “Kelly,” “Kelly Services,” “the
Company,” “we,” “us” and “our” refer to Kelly Services, Inc. and its consolidated subsidiaries.
ITEM 1. BUSINESS.
History and Development of Business
Founded by William R. Kelly in 1946, Kelly Services® pioneered an industry that connects people with work in ways that
enrich their lives. At our inception we helped usher in and embolden a workforce of women, opening doors and creating
opportunities where none had existed. As work evolved we equipped people with the skills to master the technologies of the
day: launching the first-of-its-kind online learning center for scientists; creating testing and training packages for new office
programs; and launching skill builders to align with new light industrial protocols. With each advance we have empowered
people to meet the needs of a changing marketplace, and enabled companies to access skilled talent that can move their
businesses forward.
As work has evolved so has our range of solutions, growing over the years to reflect the changing needs of our customers and
the changing nature of work itself. We have progressed from a United States-based company concentrating primarily on
traditional office staffing into a workforce solutions leader delivering expertise in a number of specialty services. While
ranking as one of the world’s largest scientific staffing providers, we also place professional and technical employees at all
levels in engineering, IT and finance. These services complement our expertise in office services, contact center, light
industrial and electronic assembly staffing, as well as our leading position in the K-12 educational staffing market in the U.S.
As work has evolved and workforce management has become more complex, we have also developed a talent supply chain
management approach to help many of the world’s largest companies plan for and manage their workforce. Innovative
solutions supporting this approach span outsourcing, consulting, recruitment, talent advisory, career transition and vendor
management services.
Geographic Breadth of Services
Headquartered in Troy, Michigan, Kelly provides workforce solutions to a diversified group of customers in three regions: the
Americas; Europe, the Middle East, and Africa (“EMEA”); and Asia Pacific (“APAC”). Our customer base spans a
variety of industries and includes more than 90 percent of the Fortune 100™ companies.
In 2018, we assigned approximately 500,000 temporary employees to a variety of customers around the globe.
Description of Business Segments
Our operations are divided into three business segments: Americas Staffing, Global Talent Solutions (“GTS”) and
International Staffing. In July 2016, we expanded our joint venture with Persol Holdings (formerly Temp Holdings) to form
PersolKelly Asia Pacific (the “JV”) and moved our APAC staffing operations into the JV. We provide staffing solutions
through our branch networks in our Americas and International operations. In addition to staffing solutions, we also provide a
suite of innovative talent fulfillment and outcome-based solutions through our GTS segment, which delivers integrated talent
management solutions to meet customer needs across the entire spectrum of talent categories. Using talent supply chain
strategies, GTS helps customers design, execute, and manage workforce programs that enable them to connect with talent
across all work styles (full-time, contract, temporary, etc.), gain access to a vast network of service providers, and achieve their
business goals on time and on budget.
Americas Staffing
Our Americas Staffing segment represents the Company’s branch-delivered staffing business in the U.S., Puerto Rico, Canada,
Mexico and Brazil. This segment delivers temporary staffing, as well as direct-hire placement services, in a number of
specialty staffing services, including: Office, providing trained employees for data entry, clerical and administrative support
roles across numerous industries; Education, supplying schools nationwide with instructional and non-instructional employees;
Marketing, providing support staff for seminars, sales and trade shows; Electronic Assembly, providing assemblers, quality
control inspectors and technicians; Light Industrial, placing maintenance workers, material handlers and assemblers; Science,
providing all levels of scientists and scientific and clinical research workforce solutions; Engineering, supplying engineering
professionals across all disciplines, including aeronautical, chemical, civil/structural, electrical/instrumentation, environmental,
industrial, mechanical, petroleum, pharmaceutical, quality and telecommunications; Information Technology, placing IT
specialists across all disciplines; Creative Services, placing creative talent in the spectrum of creative services positions; and
3
Finance and Accounting, serving the needs of corporate finance departments, accounting firms and financial institutions with
all levels of financial professionals. We also offer direct-hire placement services across all of these specialties.
International Staffing
Our International Staffing segment represents the Company’s branch-delivered staffing business in the EMEA region, as well
as the Company’s APAC region staffing business prior to the transaction to form the JV in July 2016. International Staffing
provides a similar range of staffing services as described for our Americas Staffing segment above, including: Office,
Engineering, Finance and Accounting, IT and Science. Additional service areas include: Catering and Hospitality, providing
chefs, porters and hospitality representatives; and Industrial, supplying manual workers to semi-skilled professionals in a
variety of trade, non-trade and operational positions.
GTS
Our GTS segment combines the delivery structure of the Company’s outsourcing and consulting group and centrally delivered
staffing business. It reflects the trend of customers towards the adoption of holistic talent supply chain solutions which
combine contingent labor, full-time hiring and outsourced services. Services in this segment include: Centrally delivered
staffing for large accounts; Contingent Workforce Outsourcing (“CWO”), delivering contingent labor to customers using a
managed service provider model; Recruitment Process Outsourcing (“RPO”), offering end-to-end talent acquisition solutions,
including customized recruitment projects; Business Process Outsourcing (“BPO”), offering full staffing and operational
management of non-core functions or departments; Payroll Process Outsourcing (“PPO”), providing centralized payroll
processing solutions for our customers, and KellyConnect, offering contact center staffing solutions which focus on delivering
talent to a customer’s call center operations. This segment also provides career transition/outplacement services and talent
advisory services.
Financial information regarding our industry segments is included in the Segment Disclosures footnote in the notes to our
consolidated financial statements presented in Part II, Item 8 of this report.
Business Objectives
Kelly’s philosophy is rooted in our conviction that our business can and does make a difference on a daily basis—for our
customers, in the lives of our employees and talent networks, in the local communities we serve and in the broader economy.
We aspire to be a destination for top talent and a strategic business partner for our customers. Our solutions are designed to
connect with talent across targeted specialties and a variety of flexible work styles, and to offer customers access to workforce
solutions that can be customized as they seek to operate more efficient and competitive organizations. To achieve these goals,
we continue to adopt forward-looking technologies and innovative business practices that can drive success in a dynamic
market.
With more than one-third of the world’s workforce now participating as independent workers, more companies are adopting
strategies that recognize contingent labor, consultants and project-based work as keys to their ongoing success. We continue to
refine our core competencies to help them connect with talent and realize their business objectives. Kelly offers world-class
staffing on a temporary and direct placement basis, as well as a comprehensive array of outsourcing, consulting and talent
advisory services. Kelly continues to target our areas of investment and expertise to solve our customers’ workforce challenges
and create opportunity for talent in the changing marketplace.
4
Service Marks
Business Operations
We own numerous service marks that are registered with the United States Patent and Trademark Office, the European Union
Community Trademark Office and numerous individual country trademark offices.
Seasonality
Our quarterly operating results are affected by the seasonality of our customers’ businesses. With the exception of our
education business, demand for staffing services historically has been lower during the first quarter, and typically increases
during the remainder of the year.
Working Capital
Our working capital requirements are primarily generated from employee payroll and customer accounts receivable. Since
receipts from customers generally lag payroll to temporary employees, working capital requirements increase substantially in
periods of growth. Conversely, when economic activity slows, working capital requirements may substantially decrease.
Customers
Kelly’s client portfolio spans companies of all sizes, ranging from local and mid-sized businesses to the Fortune 500. In 2018,
an estimated 51% of total Company revenue was attributed to 100 large customers. Our largest single customer accounted for
approximately five percent of total revenue in 2018.
Government Contracts
Although we conduct business under various federal, state, and local government contracts, no single one accounts for more
than three percent of total Company revenue in 2018.
Competition
The worldwide workforce solutions industry is competitive and highly fragmented. In the United States, we compete with
other firms that operate nationally, and with thousands of smaller companies that compete in varying degrees at local levels.
Additionally, several similar staffing companies compete globally. In 2018, our largest competitors were Adecco S.A.,
Randstad Holding N.V., ManpowerGroup Inc., Allegis Group and Recruit Holdings.
Key factors that influence our success are quality of service, price and breadth of service.
Quality of service is highly dependent on the availability of qualified, competent talent, and our ability to recruit, screen, train,
retain and manage a pool of employees who match the skills required by particular customers. During an economic downturn,
we must balance competitive pricing pressures with the need to retain a qualified workforce. Price competition in the staffing
industry is intense, particularly for office clerical and light industrial personnel, and pricing pressure from customers and
competitors continues to be significant.
Breadth of service, or ability to manage staffing suppliers, has become more critical as customers seek a single supplier to
manage all their staffing needs. Kelly’s talent supply chain management approach seeks to address this requirement for our
larger customers, enabling us to deliver talent wherever and whenever they need it around the world.
Environmental Concerns
Because we are involved in a service business, federal, state or local laws that regulate the discharge of materials into the
environment do not materially impact us.
Employees
We employ approximately 1,100 people at our corporate headquarters in Troy, Michigan, and approximately 6,800 staff
members in our U.S. and international network of branch offices. In 2018, we recruited approximately 500,000 temporary
employees on behalf of customers around the globe.
While services may be provided inside the facilities of customers, we remain the employer of record for our temporary
employees. We retain responsibility for employee assignments, including workers’ compensation insurance, the employer’s
5
share of all applicable payroll taxes and the administration of the employee’s share of these taxes. We offer access to various
health and other benefit programs to our employees.
Foreign Operations
For information regarding sales, earnings from operations and long-lived assets by domestic and foreign operations, please
refer to the information presented in the Segment Disclosures footnote in the notes to our consolidated financial statements,
presented in Part II, Item 8 of this report.
Access to Company Information
We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all
amendments to those reports with the Securities and Exchange Commission (“SEC”). The public may read and copy any of the
reports that are filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet website at www.sec.gov that contains reports, proxy and information statements and other
information regarding issuers that file electronically.
We make available, free of charge, through our website, and by responding to requests addressed to our senior vice president of
investor relations, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all
amendments to those reports. These reports are available as soon as reasonably practicable after such material is electronically
filed with or furnished to the SEC. Our website address is: www.kellyservices.com. The information contained on our website,
or on other websites linked to our website, is not part of this report.
6
ITEM 1A. RISK FACTORS.
We operate in a highly competitive industry with low barriers to entry and may be unable to compete successfully
against existing or new competitors.
The worldwide staffing services market is highly competitive with limited barriers to entry. We compete in global, national,
regional and local markets with full-service and specialized temporary staffing and consulting companies. While the majority
of our competitors are significantly smaller than us, several competitors, including Adecco S.A., Randstad Holding N.V.,
ManpowerGroup Inc., Allegis Group and Recruit Holdings, are considerably larger than we are and have more substantial
marketing and financial resources. Additionally, the emergence of online staffing platforms or other forms of disintermediation
may pose a competitive threat to our services, which operate under a more traditional staffing business model. Price
competition in the staffing industry is intense, particularly for the provision of office clerical and light industrial personnel. We
expect that the level of competition will remain high, which could limit our ability to maintain or increase our market share or
profitability.
The number of customers distributing their staffing service purchases among a broader group of competitors continues to
increase which, in some cases, may make it more difficult for us to obtain new customers, or to retain or maintain our current
share of business, with existing customers. We also face the risk that our current or prospective customers may decide to
provide similar services internally. As a result, there can be no assurance that we will not encounter increased competition in
the future.
Our business is significantly affected by fluctuations in general economic conditions.
Demand for staffing services is significantly affected by the general level of economic activity and employment in the United
States and the other countries in which we operate. When economic activity increases, temporary employees are often added
before full-time employees are hired. As economic activity slows, however, many companies reduce their use of temporary
employees before laying off full-time employees. Significant swings in economic activity historically have had a
disproportionate impact on staffing industry volumes. We may not fully benefit from times of increased economic activity
should we experience shortages in the supply of temporary employees. We may also experience more competitive pricing
pressure and slower customer payments during periods of economic downturn. A substantial portion of our revenues and
earnings are generated by our business operations in the United States. Any significant economic downturn in the United
States or certain other countries in which we operate could have a material adverse effect on our business, financial condition
and results of operations.
Technological advances may significantly disrupt the labor market and weaken demand for human capital at a rapid
rate.
Our success is directly dependent on our customers’ demands for talent. As technology continues to evolve, more tasks
currently performed by people may be replaced by automation, robotics, machine learning, artificial intelligence and other
technological advances outside of our control. This trend poses a risk to the staffing industry as a whole, particularly in lower-
skill job categories that may be more susceptible to such replacement.
Our business strategy may be insufficient or not achieve its intended effects.
Our business strategy focuses on driving growth in higher margin specialties. We have made targeted investments, adjusted our
operating models and increased the resources necessary for driving sustainable growth within our targeted higher-margin
solutions. If we are unsuccessful in executing our strategy, we may not achieve either our stated goal of strong revenue growth
or the intended productivity improvements, which could negatively impact profitability. Even if effectively executed, our
strategy may prove insufficient in light of changes in market conditions, technology, competitive pressures or other external
factors.
We are at risk of damage to our brand, which is important to our success.
Our success depends, in part, on the goodwill associated with our brand. Because we assign employees to work under the
direction and supervision of our customer at work locations not under Kelly’s control, we are at risk of our employees engaging
in unauthorized conduct that could harm our reputation. Our Kelly Educational Staffing product is particularly susceptible to
this exposure. An occurrence that damages Kelly’s reputation could cause the loss of current and future customers, additional
regulatory scrutiny and liability to third parties.
7
Our intellectual property assets could be infringed upon or compromised, and there are limitations to our ability to
protect against such events.
Our success is dependent in part on our proprietary business processes, our intellectual property and our thought leadership. To
protect those rights, we depend upon protections afforded by the laws of the various countries in which we operate, as well as
contractual language and our own enforcement initiatives. These defenses may not be sufficient to fully protect us or to deter
infringement or other misappropriation of our trade secrets and other intellectual property. In addition, third parties may
challenge the validity or enforceability of our intellectual property rights. We also face the risk that third parties may allege
that the operation of our business infringes or otherwise misappropriates intellectual property rights that they own or license.
Losses or claims of this nature could cause us to incur significant expense, harm our reputation, reduce our competitive
advantages or prevent us from offering certain services or solutions. The remedies available to us may be limited or leave us
without full compensation.
If we fail to successfully develop new service offerings, we may be unable to retain our current customers and gain new
customers and our revenues would decline.
The process of developing new service offerings requires accurate anticipation of customers’ changing needs and emerging
technological trends. This may require that we make long-term investments and commit significant resources before knowing
whether these investments will eventually result in service offerings that achieve customer acceptance and generate the
revenues required to provide desired returns. If we fail to accurately anticipate and meet our customers’ needs through the
development of new service offerings or do not successfully deliver new service offerings, our competitive position could be
weakened and that could materially adversely affect our results of operations and financial condition.
As we increasingly offer services outside the realm of traditional staffing, including business process outsourcing, we are
exposed to additional risks which could have a material adverse effect on our business.
Our business strategy focuses on growing our outsourcing and consulting business, including business process outsourcing,
where we provide operational management of our customers’ non-core functions or departments. This could expose us to
certain risks unique to that business, including product liability or product recalls. Although we have internal vetting processes
intended to control such risks, there is no assurance that these processes will be effective. Additionally, while we maintain
insurance in types and amounts we believe are appropriate in light of the aforementioned exposures, there can also be no
assurance that such insurance policies will remain available on reasonable terms or be sufficient in amount or scope of
coverage.
We are increasingly dependent on third parties for the execution of critical functions.
We do not maintain our own vendor management technology, and we have outsourced several other critical applications or
business processes to external providers, including cloud-based services. We have elected to enter into supplier partnerships
rather than establishing or maintaining our own operations in some of the territories where our customers require our services.
We do not maintain a controlling interest in our expanded staffing joint venture in Asia Pacific (PersolKelly Asia Pacific) and
have elected to rely on the joint venture to provide certain back office and administrative services to our GTS operations in the
region. The failure or inability to perform on the part of one or more of these critical suppliers or partners could cause
significant disruptions and increased costs.
Past and future acquisitions may not be successful.
From time to time, we acquire and invest in companies throughout the world. Acquisitions involve a number of risks, including
the diversion of management’s attention from its existing operations, the failure to retain key personnel or customers of an
acquired business, the failure to realize anticipated benefits such as cost savings and revenue enhancements, the potentially
substantial transaction costs associated with acquisitions, the assumption of unknown liabilities of the acquired business and the
inability to successfully integrate the business into our operations. Potential impairment losses could result if we overpay for
an acquisition. There can be no assurance that any past or future acquired businesses will generate anticipated revenues or
earnings.
8
Investments in equity affiliates expose us to additional risks and uncertainties.
We participate, or may participate in the future, in certain investments in equity affiliates, such as joint ventures or other equity
investments with strategic partners, including PersolKelly Asia Pacific. These arrangements expose us to a number of risks,
including the risk that the management of the combined venture may not be able to fulfill their performance obligations under
the management agreements or that the joint venture parties may be incapable of providing the required financial support.
Additionally, improper, illegal or unethical actions by the venture management could have a negative impact on the reputation
of the venture and our company.
A loss of major customers or a change in such customers’ buying behavior could have a material adverse effect on our
business.
Our business strategy includes serving large corporate customers through high volume global service agreements. While our
strategy is intended to enable us to increase our revenues and earnings from our major corporate customers, the strategy also
exposes us to increased risks arising from the possible loss of major customer accounts. The deterioration of the financial
condition or business prospects of these customers could reduce their need for our services and result in a significant decrease
in the revenues and earnings we derive from these customers. Continuing merger and acquisition activity involving our large
corporate customers could put existing business at risk or impose additional pricing pressures. Since receipts from customers
generally lag payroll to temporary employees, the bankruptcy of a major customer could have a material adverse impact on our
ability to meet our working capital requirements. Additionally, most of our customer contracts can be terminated by the
customer on short notice without penalty. This creates uncertainty with respect to the revenues and earnings we may recognize
with respect to our customer contracts.
Our business with large customer accounts reflects a market-driven shift in buying behaviors in which reliance on a small
number of staffing partners has shifted to reliance upon outsourced workforce solutions. The movement from single-sourced to
competitively sourced staffing contracts may also substantially reduce our future revenues from such customers. While Kelly
has sought to address this trend with the adoption of talent supply chain strategies, including providing CWO services within
our GTS segment, we may not be selected or retained as the CWO service provider by our large customers. This may result in
a material decrease in the revenue we derive from providing staffing services to such customers. In addition, revenues may be
materially impacted from our decision to exit customers due to pricing pressure or other business factors.
Our business with the federal government and government contractors presents additional risk considerations. We must comply
with laws and regulations relating to the formation, administration and performance of federal government contracts. Failure to
meet these obligations could result in civil penalties, fines, suspension of payments, reputational damage, disqualification from
doing business with government agencies and other sanctions or adverse consequences. Government procurement practices
may change in ways that impose additional costs or risks upon us or pose a competitive disadvantage. Our employees may be
unable to obtain or retain the security clearances necessary to conduct business under certain contracts, or we could lose or be
unable to secure or retain a necessary facility clearance. Government agencies may temporarily or permanently lose funding
for awarded contracts, or there could be delays in the start-up of projects already awarded and funded.
We conduct a significant portion of our operations outside of the United States and we are subject to risks relating to
our international business activities, including fluctuations in currency exchange rates and numerous legal and
regulatory requirements.
We conduct our business in most major staffing markets throughout the world. Our operations outside the United States are
subject to risks inherent in international business activities, including:
•
•
•
•
•
•
•
•
•
•
•
fluctuations in currency exchange rates;
restrictions or limitations on the transfer of funds;
government intrusions including asset seizures, expropriations or de facto control;
varying economic and political conditions;
differences in cultures and business practices;
differences in employment and tax laws and regulations;
differences in accounting and reporting requirements;
differences in labor and market conditions;
compliance with trade sanctions;
changing and, in some cases, complex or ambiguous laws and regulations; and
litigation, investigations and claims.
9
Our operations outside the United States are reported in the applicable local currencies and then translated into U.S. dollars at
the applicable currency exchange rates for inclusion in our consolidated financial statements. Exchange rates for currencies of
these countries may fluctuate in relation to the U.S. dollar and these fluctuations may have an adverse or favorable effect on our
operating results when translating foreign currencies into U.S. dollars.
Our investment in Persol Holdings exposes us to potential market and currency exchange risks.
We are exposed to market and currency risks on our investment in Persol Holdings. The investment is stated at fair value and is
marked to market through net earnings. Changes in the market price are based on the Persol Holdings stock price as listed in
the Tokyo stock exchange, and such changes may be material. Foreign currency fluctuations on this yen-denominated
investment are reflected as a component of other comprehensive income and, accordingly, the exchange rate fluctuations may
have a material adverse or favorable effect on our financial statements.
Our international operations subject us to potential liability under anti-corruption, trade protection, and other laws and
regulations.
The Foreign Corrupt Practices Act and other anti-corruption laws and regulations (“Anti-Corruption Laws”) prohibit corrupt
payments by our employees, vendors, or agents. While we devote substantial resources to our global compliance programs and
have implemented policies, training, and internal controls designed to reduce the risk of corrupt payments, our employees,
vendors, or agents may violate our policies. Our failure to comply with Anti-Corruption Laws could result in significant fines
and penalties, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business, and
damage to our reputation. Operations outside the U.S. may be affected by changes in trade protection laws, policies and
measures, and other regulatory requirements affecting trade and investment. As a result, we may be subject to legal liability
and reputational damage.
We depend on our ability to attract, develop and retain qualified permanent full-time employees.
As we aim to expand the number of clients adopting talent supply chain management and other specialty solutions in order to
support our growth strategy, we are highly reliant on individuals who possess specialized knowledge and skills to lead related
specialty solutions and operations. There can be no assurance that qualified personnel will continue to be available. Our
success is increasingly dependent on our ability to attract, develop and retain these experts.
We depend on our ability to attract and retain qualified temporary personnel (employed directly by us or through third-
party suppliers).
We depend on our ability to attract qualified temporary personnel who possess the skills and experience necessary to meet the
staffing requirements of our customers. We must continually evaluate our base of available qualified personnel to keep pace
with changing customer needs. Competition for individuals with proven professional skills is intense, and demand for these
individuals is expected to remain strong for the foreseeable future. There can be no assurance that qualified personnel will
continue to be available in sufficient numbers and on terms of employment acceptable to us and our customers. Our success is
substantially dependent on our ability to recruit and retain qualified temporary personnel.
We may be exposed to employment-related claims and losses, including class action lawsuits and collective actions,
which could have a material adverse effect on our business.
We employ and assign personnel in the workplaces of other businesses. The risks of these activities include possible claims
relating to:
•
discrimination and harassment;
• wrongful termination or retaliation;
•
•
•
•
•
•
•
•
violations of employment rights related to employment screening or privacy issues;
apportionment between us and our customer of legal obligations as an employer of temporary employees;
classification of workers as employees or independent contractors;
employment of unauthorized workers;
violations of wage and hour requirements;
retroactive entitlement to employee benefits, including health insurance;
failure to comply with leave policy requirements; and
errors and omissions by our temporary employees, particularly for the actions of professionals such as attorneys,
accountants, teachers and scientists.
10
We are also subject to potential risks relating to misuse of customer proprietary information, misappropriation of funds, death
or injury to our employees, damage to customer facilities due to negligence of temporary employees, criminal activity and
other similar occurrences. We may incur fines and other losses or negative publicity with respect to these risks. In addition,
these occurrences may give rise to litigation, which could be time-consuming and expensive. In the U.S. and certain other
countries in which we operate, new employment and labor laws and regulations have been proposed or adopted that may
increase the potential exposure of employers to employment-related claims and litigation. In addition, such laws and
regulations are arising with increasing frequency at the state and local level in the U.S. and the resulting inconsistency in such
laws and regulations results in additional complexity. There can be no assurance that the corporate policies and practices we
have in place to help reduce our exposure to these risks will be effective or that we will not experience losses as a result of
these risks. Although we maintain insurance in types and amounts we believe are appropriate in light of the aforementioned
exposures, there can also be no assurance that such insurance policies will remain available on reasonable terms or be sufficient
in amount or scope of coverage. Additionally, should we have a material inability to produce records as a consequence of
litigation or a government investigation, the cost or consequences of such matters could become much greater.
A failure to maintain the privacy of information entrusted to us could have significant adverse consequences.
In the normal course of business we control, we process or have access to personal information regarding our own employees
or employment candidates, as well as that of many of our customers or managed suppliers. Information concerning our
employees and candidates may also reside in systems controlled by third parties for purposes such as employee benefits and
payroll administration. The legal and regulatory environment concerning data privacy is becoming more complex and
challenging, and the potential consequences of non-compliance have become more severe. Any failure to protect such personal
information from inappropriate access or disclosure, whether through social engineering or by accident or other cause, could
have severe consequences including fines, litigation, regulatory sanctions including loss of our status as a subscriber to the EU-
U.S. Privacy Shield Framework, reputational damage and loss of customers or employees. Although we have a program
designed to preserve the privacy of the personal data that we control or process, as well as personal data that we entrust to third
parties, there can be no assurance that our program will meet all current and future regulatory requirements, anticipate all
potential methods of unauthorized access, or prevent all inappropriate disclosures. Our insurance coverage may not be
sufficient to cover all such costs or consequences, and there can be no assurance that any insurance that we now maintain will
remain available under acceptable terms.
Cyber attacks or other breaches of network or information technology security could have an adverse effect on our
systems, services, reputation and financial results.
We rely upon multiple information technology systems and networks, some of which are web-based or managed by third
parties, to process, transmit and store electronic information and to manage or support a variety of critical business processes
and activities. Our networks and applications are increasingly accessed from locations and by devices not within our physical
control, and the specifics of our technology systems and networks may vary by geographic region. In the course of ordinary
business, we may store or process proprietary or confidential information concerning our business and financial performance
and current, past or prospective employees, customers, vendors and managed suppliers. The secure and consistent operation of
these systems, networks and processes is critical to our business operations. Moreover, our temporary employees may be
exposed to, or have access to, similar information in the course of their customer assignments. We routinely experience cyber
attacks, which may include the use of malware, computer viruses, social engineering schemes and other means of attempted
disruption or unauthorized access.
The actions we take to reduce the risk of impairments to our operations or systems and breaches of confidential or proprietary
data may not be sufficient to prevent or repel future cyber events or other impairments of our networks or information
technologies. An event involving the destruction, modification, accidental or unauthorized release, or theft of sensitive
information from systems related to our business, or an attack that results in damage to or unavailability of our key technology
systems or those of critical vendors, could result in damage to our reputation, fines, regulatory sanctions or interventions,
contractual or financial liabilities, additional compliance and remediation costs, loss of employees or customers, loss of
payment card network privileges, operational disruptions and other forms of costs, losses or reimbursements, any of which
could materially adversely affect our operations or financial condition. Our cyber security and business continuity plans may
not be effective in anticipating, preventing and effectively responding to all potential cyber risk exposures. Our insurance
coverage may not be sufficient to cover all such costs or consequences, and there can be no assurance that any insurance that
we now maintain will remain available under acceptable terms.
11
Damage to our key data centers could affect our ability to sustain critical business applications.
Many business processes critical to our continued operation are hosted in outsourced facilities in America and Europe. Certain
other processes are hosted at our corporate headquarters complex or occur in cloud-based computer environments. These
critical processes include, but are not limited to, payroll, customer reporting and order management. Although we have taken
steps to protect all such instances by establishing robust data backup and disaster recovery capabilities, the loss of these data
centers or access to the cloud-based environments could create a substantial risk of business interruption which could have a
material adverse effect on our business, financial condition and results of operations.
Our information technology projects may not yield their intended results.
We have a number of information technology projects in process or in the planning stages, including improvements to applicant
onboarding and tracking systems, order management, and improvements to financial processes such as billing and accounts
payable through system consolidation and upgrades. Although the technology is intended to increase productivity and
operating efficiencies, these projects may not yield their intended results. Any delays in completing, or an inability to
successfully complete, these technology initiatives or an inability to achieve the anticipated efficiencies could adversely affect
our operations, liquidity and financial condition. In addition, our information technology investments and strategy may not
provide the ability to keep up with evolving industry trends and customer expectations which could weaken our competitive
position. We also do not currently utilize a single enterprise resource planning system, which limits our ability and increases
the amount of investment and effort necessary to provide global service integration to our customers.
Failure to maintain adequate financial and management processes and controls could lead to errors in our financial
reporting.
Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting. If
our management is unable to certify the effectiveness of our internal controls or if our independent registered public accounting
firm cannot render an opinion on the effectiveness of our internal controls over financial reporting, or if material weaknesses in
our internal controls are identified, we could be subject to regulatory scrutiny and a loss of public confidence. In addition, if
we do not maintain adequate financial and management personnel, processes and controls, we may not be able to accurately
report our financial performance on a timely basis, which could have a negative effect on our stock price.
Impairment charges relating to our goodwill, intangibles and long-lived assets, including equity method investments,
could adversely affect our results of operations.
We regularly monitor our goodwill, long-lived assets and equity method investments for impairment indicators. In conducting
our goodwill impairment testing, we compare the fair value of each of our reporting units with goodwill to the related net book
value. In conducting our impairment analysis of long-lived assets and intangibles, we compare the undiscounted cash flows
expected to be generated from the long-lived assets and intangibles to the related net book values. We review our equity
method investment for indicators of impairment on a periodic basis or whenever events or circumstances indicate the carrying
amount may be other-than-temporarily impaired. Changes in economic or operating conditions impacting our estimates and
assumptions could result in the impairment of our goodwill, intangibles, long-lived assets and equity method investments. In
the event that we determine that there is an impairment, we may be required to record a significant non-cash charge to earnings
that could adversely affect our results of operations.
Unexpected changes in claim trends on our workers’ compensation, unemployment, disability and medical benefit plans
may negatively impact our financial condition.
We self-insure, or otherwise bear financial responsibility for, a significant portion of expected losses under our workers’
compensation program, disability and medical benefits claims. Unexpected changes in claim trends, including the severity and
frequency of claims, actuarial estimates and medical cost inflation, could result in costs that are significantly different than
initially reported. If future claims-related liabilities increase due to unforeseen circumstances, or if we must make unfavorable
adjustments to accruals for prior accident years, our costs could increase significantly. In addition, unemployment insurance
costs are dependent on benefit claims experience from employees which may vary from current levels and result in increased
costs. There can be no assurance that we will be able to increase the fees charged to our customers in a timely manner and in a
sufficient amount to cover increased costs as a result of any changes in claims-related liabilities.
12
Our business is subject to extensive government regulation, which may restrict the types of employment services we are
permitted to offer or result in additional or increased taxes, including payroll taxes or other costs that reduce our
revenues and earnings.
The temporary employment industry is heavily regulated in many of the countries in which we operate. Changes in laws or
government regulations may result in prohibition or restriction of certain types of employment services we are permitted to
offer or the imposition of new or additional benefit, licensing or tax requirements that could reduce our revenues and earnings.
In particular, we are subject to state unemployment taxes in the U.S., which typically increase during periods of increased
levels of unemployment. We also receive benefits, such as the work opportunity income tax credit in the U.S., that regularly
expire and may not be reinstated. There can be no assurance that we will be able to increase the fees charged to our customers
in a timely manner and in a sufficient amount to fully cover increased costs as a result of any changes in laws or government
regulations. Any future changes in laws or government regulations, or interpretations thereof, including additional laws and
regulations enacted at a local level may make it more difficult or expensive for us to provide staffing services and could have a
material adverse effect on our business, financial condition and results of operations.
Government litigation and regulatory activity relating to competition rules may limit how we structure and market our
services.
As a leading staffing and recruiting company, we are closely scrutinized by government agencies under U.S. and foreign
competition laws. An increasing number of governments are regulating competition law activities, leading to increased
scrutiny. Some jurisdictions also allow competitors or consumers to assert claims of anti-competitive conduct.
The European Commission and its various competition authorities have targeted industry trade associations in which we
participate. Any government regulatory actions may hamper our ability to provide the cost-effective benefits to consumers and
businesses, reducing the attractiveness of our services and the revenue that come from them. New competition law actions
could be initiated. The outcome of such actions, or steps taken to avoid them, could adversely affect us in a variety of ways,
including:
• We may have to choose between withdrawing certain services from certain geographies to avoid fines or designing
and developing alternative versions of those services to comply with government rulings, which may entail a delay in
a service delivery.
• Adverse rulings may act as precedent in other competition law proceedings.
We may have additional tax or unclaimed property liabilities that exceed our estimates.
We are subject to a multitude of federal, state and local taxes in the jurisdictions we operate in, including the tax provisions of
the U.S. Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. We are
also subject to unclaimed or abandoned property (escheat) laws. Our tax expense could be materially impacted by changes in
tax laws in these jurisdictions, changes in the valuation of deferred tax assets and liabilities or changes in the mix of income by
country. The demographics of our workforce and the visibility of our industry may make it more likely we become a target of
government investigations, and we are regularly subject to audit by tax authorities. Although we believe our tax and unclaimed
property estimates are reasonable, the final determination of audits and any related litigation could be materially different from
our historical tax provisions and accruals. The results of an audit or litigation could materially harm our business.
We may not be able to realize value from, or otherwise preserve and utilize, our tax credit and net operating loss
carryforwards.
Provisions in U.S. and foreign tax law could limit the use of tax credit and net operating loss carryforwards in the event of an
ownership change. In general, an ownership change occurs under U.S. tax law if there is a change in the corporation’s equity
ownership that exceeds 50% over a rolling three-year period. If we experience an ownership change, inclusive of our Class A
and Class B common stock, our tax credit and net operating loss carryforwards generated prior to the ownership change may be
subject to annual limitations that could reduce, eliminate or defer the utilization. Such limitation could materially impact our
financial condition and results of operations.
13
Failure to maintain specified financial covenants in our bank credit facilities, or credit market events beyond our
control, could adversely restrict our financial and operating flexibility and subject us to other risks, including risk of
loss of access to capital markets.
Our bank credit facilities contain covenants that require us to maintain specified financial ratios and satisfy other financial
conditions. During 2018, we met all of the covenant requirements. Our ability to continue to meet these financial covenants,
particularly with respect to interest coverage (see Debt footnote in the notes to our consolidated financial statements), may not
be assured. If we default under this or any other of these requirements, the lenders could declare all outstanding borrowings,
accrued interest and fees to be due and payable or significantly increase the cost of the facility. In these circumstances, there
can be no assurance that we would have sufficient liquidity to repay or refinance this indebtedness at favorable rates or at all.
Events beyond our control could result in the failure of one or more of our banks, reducing our access to liquidity and
potentially resulting in reduced financial and operating flexibility. If broader credit markets were to experience dislocation, our
potential access to other funding sources would be limited.
Our controlling stockholder exercises voting control over our company and has the ability to elect or remove from office
all of our directors.
Terence E. Adderley, the controlling stockholder and former Chairman of the Company, died on October 9, 2018. Upon
Mr. Adderley’s death, the Terence E. Adderley Revocable Trust K (“Trust K”) became irrevocable. In accordance with the
provisions of Trust K, William U. Parfet, David M. Hempstead and Andrew H. Curoe were appointed as successor trustees of
the trust. Mr. Parfet is the brother of Donald R. Parfet, the Chairman of the board of directors of the Company. The trustees,
acting by majority vote, have sole investment and voting power over the shares of Class B common stock held by Trust K,
which represent approximately 91.5% of the outstanding Class B shares.
Our class B common stock is the only class of our common stock entitled to voting rights. The trustees of Trust K are therefore
able to exercise voting control with respect to all matters requiring stockholder approval, including the election or removal
from office of all members of the Company’s board of directors.
We are not subject to certain of the listing standards that normally apply to companies whose shares are quoted on the
NASDAQ Global Market.
Our Class A and Class B common stock are quoted on the NASDAQ Global Market. Under the listing standards of the
NASDAQ Global Market, we are deemed to be a “controlled company” by virtue of the fact that Trust K has voting power with
respect to more than fifty percent of our outstanding voting stock. A controlled company is not required to have a majority of
its board of directors comprised of independent directors. Director nominees are not required to be selected or recommended
for the board’s selection by a majority of independent directors or a nominations committee comprised solely of independent
directors, nor do the NASDAQ Global Market listing standards require a controlled company to certify the adoption of a formal
written charter or board resolution, as applicable, addressing the nominations process. A controlled company is also exempt
from NASDAQ Global Market’s requirements regarding the determination of officer compensation by a majority of
independent directors or a compensation committee comprised solely of independent directors. A controlled company is
required to have an audit committee composed of at least three directors who are independent as defined under the rules of both
the Securities and Exchange Commission and the NASDAQ Global Market. The NASDAQ Global Market further requires
that all members of the audit committee have the ability to read and understand fundamental financial statements and that at
least one member of the audit committee possess financial sophistication. The independent directors must also meet at least
twice a year in meetings at which only they are present.
We currently comply with certain of the listing standards of the NASDAQ Global Market that do not apply to controlled
companies. Our compliance is voluntary, however, and there can be no assurance that we will continue to comply with these
standards in the future.
Provisions in our certificate of incorporation and bylaws and Delaware law may delay or prevent an acquisition of our
company.
Our restated certificate of incorporation and bylaws contain provisions that could make it harder for a third party to acquire us
without the consent of our board of directors. For example, if a potential acquirer were to make a hostile bid for us, the
acquirer would not be able to call a special meeting of stockholders to remove our board of directors or act by written consent
without a meeting. The acquirer would also be required to provide advance notice of its proposal to replace directors at any
annual meeting, and would not be able to cumulate votes at a meeting, which would require the acquirer to hold more shares to
gain representation on the board of directors than if cumulative voting were permitted.
14
Our board of directors also has the ability to issue additional shares of common stock which could significantly dilute the
ownership of a hostile acquirer. In addition, Section 203 of the Delaware General Corporation Law limits mergers and other
business combination transactions involving 15 percent or greater stockholders of Delaware corporations unless certain board
or stockholder approval requirements are satisfied. These provisions and other similar provisions make it more difficult for a
third party to acquire us without negotiation.
Our board of directors could choose not to negotiate with an acquirer that it did not believe was in our strategic interests. If an
acquirer is discouraged from offering to acquire us or prevented from successfully completing a hostile acquisition by these or
other measures, our shareholders could lose the opportunity to sell their shares at a favorable price.
The holders of shares of our Class A common stock are not entitled to voting rights.
Under our certificate of incorporation, the holders of shares of our Class A common stock are not entitled to voting rights,
except as otherwise required by Delaware law. As a result, Class A common stock holders do not have the right to vote for the
election of directors or in connection with most other matters submitted for the vote of our stockholders.
Our stock price may be subject to significant volatility and could suffer a decline in value.
The market price of our common stock may be subject to significant volatility. We believe that many factors, including several
which are beyond our control, have a significant effect on the market price of our common stock. These include:
•
•
•
•
•
•
•
•
•
•
actual or anticipated variations in our quarterly operating results;
announcements of new services by us or our competitors;
announcements relating to strategic relationships or acquisitions;
changes in financial estimates by securities analysts;
changes in general economic conditions;
actual or anticipated changes in laws and government regulations;
commencement of, or involvement in, litigation;
any major change in our board or management;
changes in industry trends or conditions; and
sales of significant amounts of our common stock or other securities in the market.
In addition, the stock market in general, and the NASDAQ Global Market in particular, have experienced significant price and
volume fluctuations that have often been unrelated or disproportionate to the operating performance of listed companies. These
broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating
performance. In the past, securities class action litigation has often been instituted following periods of volatility in the market
price of a company’s securities. A securities class action suit against us could result in substantial costs, potential liabilities and
the diversion of our management’s attention and resources. Further, our operating results may be below the expectations of
securities analysts or investors. In such event, the price of our common stock may decline.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
15
ITEM 2. PROPERTIES.
We own our headquarters in Troy, Michigan, where corporate, subsidiary and divisional offices are currently located. The
original headquarters building was purchased in 1977. Headquarters operations were expanded into additional buildings
purchased in 1991, 1997 and 2001.
The combined usable floor space in the headquarters complex is approximately 345,000 square feet. Our buildings are in good
condition and are currently adequate for their intended purpose and use. We also own undeveloped land in Troy and northern
Oakland County, Michigan.
Branch office business is conducted in leased premises with the majority of leases being fixed for terms of generally three to
five years in the U.S. and Canada and five to ten years outside the U.S. and Canada. We own virtually all of the office furniture
and the equipment used in our corporate headquarters and branch offices.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, the Company is continuously engaged in litigation, threatened litigation, or investigations
arising in the ordinary course of its business, such as matters alleging employment discrimination, wage and hour violations,
claims for indemnification or liability or violations of privacy rights or anti-competition regulations, which could result in a
material adverse outcome. There are matters that were stayed pending a decision from the United States Supreme Court in the
matter of Epic Systems Corp. v. Lewis, regarding the enforceability of class action waivers in favor of arbitration. On May 21,
2018, the Court determined that class action waivers in employment contracts are enforceable. As a result of the ruling, most
lower courts have been enforcing our arbitration agreements and class action waivers, and staying class action matters pending
the results of the individual arbitration proceedings.
We record accruals for loss contingencies when we believe it is probable that liability has been incurred and the amount of loss
can be reasonably estimated. Such accruals are recorded in accounts payable and accrued liabilities and in accrued workers’
compensation and other claims in the consolidated balance sheet.
The Company maintains insurance coverage which may cover certain claims. When claims exceed the applicable loss limit
and realization of recovery of the claim from existing insurance policies is deemed probable, the Company records receivables
from the insurance company for the excess amount, which are included in prepaid expenses and other current assets in the
consolidated balance sheet.
While the ultimate outcome of these matters cannot be predicted with certainty, we believe that the resolution of any such
proceedings will not have a material adverse effect on our financial condition, results of operations or cash flows.
In January 2018, the Hungarian Competition Authority initiated proceedings against the Company, along with a local industry
trade association and its members due to alleged infringement of national competition regulations. We are fully cooperating
with the investigation, and are supplying materials and information to comply with the Authority’s undertakings. The
Company does not believe that resolution of this matter will have a material adverse effect upon the Company’s competitive
position, results of operations, cash flows or financial position.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
16
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information and Dividends
Our Class A and Class B common stock is traded on the NASDAQ Global Market under the symbols “KELYA” and “KELYB,”
respectively. The high and low selling prices for our Class A common stock and Class B common stock as quoted by the
NASDAQ Global Market and the dividends paid on the common stock for each quarterly period in the last two fiscal years are
reported in the table below. Our ability to pay dividends is subject to compliance with certain financial covenants contained in
our debt facilities, as described in the Debt footnote in the notes to our consolidated financial statements.
First
Quarter
Per share amounts (in dollars)
Third
Quarter
Fourth
Quarter
Second
Quarter
Year
2018
Class A common
High
Low
Class B common
High
Low
Dividends
2017
Class A common
High
Low
Class B common
High
Low
Dividends
Holders
$
$
30.99
26.65
$
32.31
21.44
$
26.57
22.23
$
25.00
19.21
32.31
19.21
29.07
27.00
0.075
34.30
22.00
0.075
34.30
21.50
0.075
23.40
22.01
0.075
34.30
21.50
0.30
$
$
23.48
20.87
$
24.70
20.27
$
25.48
21.01
$
30.93
24.69
30.93
20.27
23.00
20.30
0.075
23.75
20.18
0.075
23.00
20.95
0.075
28.50
27.20
0.075
28.50
20.18
0.30
The number of holders of record of our Class A and Class B common stock were approximately 9,000 and 300, respectively, as
of February 1, 2019.
Recent Sales of Unregistered Securities
None.
17
Issuer Purchases of Equity Securities
During the fourth quarter of 2018, we reacquired shares of our Class A common stock as follows:
Period
Total Number
of Shares
(or Units)
Purchased
Average
Price Paid
per Share
(or Unit)
Total Number
of Shares (or
Units)
Purchased
as Part of
Publicly
Announced
Plans
or Programs
Maximum
Number
(or
Approximate
Dollar Value) of
Shares (or
Units)
That May Yet
Be
Purchased
Under the
Plans or
Programs
(in millions of
dollars)
October 1, 2018 through November 4, 2018
24,757
$
23.26
— $
November 5, 2018 through December 2, 2018
December 3, 2018 through December 30, 2018
174
—
22.91
—
Total
24,931
$
23.25
—
—
—
—
—
—
We may reacquire shares sold to cover employee tax witholdings due upon the vesting of restricted stock held by employees.
Accordingly, 24,931 shares were reacquired during the Company’s fourth quarter.
18
Performance Graph
The following graph compares the cumulative total return of our Class A common stock with that of the S&P SmallCap 600
Index and the S&P 1500 Human Resources and Employment Services Index for the five years ended December 31, 2018. The
graph assumes an investment of $100 on December 31, 2013 and that all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Assumes Initial Investment of $100
December 31, 2013 – December 31, 2018
Kelly Services, Inc.
S&P SmallCap 600 Index
S&P 1500 Human Resources and
Employment Services Index
$
$
$
2013
2014
2015
2016
2017
2018
100.00 $
100.00 $
69.01 $
66.28 $
95.51 $
105.76 $
103.67 $
131.20 $
115.16 $
148.56 $
87.53
135.96
100.00 $
100.36 $
108.35 $
118.58 $
150.93 $
126.37
19
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes selected financial information of Kelly Services, Inc. and its subsidiaries for each of the most
recent five fiscal years. This table should be read in conjunction with the other financial information, including “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements included
elsewhere in this report. The statement of earnings data for the 2015 and 2014 fiscal years as well as the balance sheet data as
of 2016, 2015 and 2014 are derived from consolidated financial statements previously on file with the SEC.
(In millions except per share amounts)
2018
2017
2016
2015 (1)
2014
Revenue from services
$
5,513.9
$
5,374.4
$
5,276.8
$
5,518.2
$
5,562.7
Earnings from operations
Loss on investment in Persol Holdings (2)
Gain on investment in PersolKelly Asia Pacific (3)
Net earnings
Basic earnings per share
Diluted earnings per share
Dividends per share
Classes A and B common
Working capital (4)
Total assets
Total noncurrent liabilities
87.4
(96.2)
—
22.9
0.59
0.58
83.3
—
—
71.6
1.84
1.81
63.2
—
87.2
120.8
3.10
3.08
66.7
—
—
53.8
1.39
1.39
21.9
—
—
23.7
0.61
0.61
0.30
0.30
0.275
0.20
0.20
503.0
2,314.4
257.4
458.1
2,378.2
300.5
443.5
2,028.1
245.0
411.3
1,939.6
228.4
428.1
1,917.9
224.1
(1)
(2)
(3)
Fiscal year included 53 weeks.
Represents the change in fair value of the investment in the common stock of Persol Holdings.
Represents the fair value of the Company’s investment in PersolKelly Asia Pacific in addition to the cash received less
the carrying value of assets transferred to the joint venture.
(4)
Working capital is calculated as current assets minus current liabilities.
20
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The Talent Solutions Industry
Executive Overview
The labor markets are in the midst of change due to automation, secular shifts in labor supply and demand and skills gaps.
Global demographic trends are reshaping and redefining the way in which companies find and use talent. In response, the talent
solutions industry is adjusting how it sources, recruits, trains and places talent.
Our industry is evolving to meet businesses’ growing demand for talent, whether delivered as a single individual or as part of a
total workforce solution. Companies in our industry are using novel sourcing approaches—including gig platforms,
independent contractors and other talent pools—to create workforce solutions that are flexible, responsive to the labor market,
and tailored to meet clients’ needs. Increasingly, clients are looking for talent advisors and partners to help them with program
design, employer branding and differentiated sourcing strategies.
In addition, today’s companies are elevating their commitment to talent, with the growing realization that meeting the changing
needs and requirements of talent is essential to remain competitive. The ways in which people view, find, and conduct work
are undergoing fundamental shifts. And as the demand for skilled talent continues to climb, workers’ changing ideas about the
integration of work into life are becoming more important. In this increasingly talent-driven market, a diverse set of workers,
empowered by technology, is seeking to take greater control over their career trajectories.
Our Business
Kelly Services is a recruiting, talent and global workforce solutions company serving customers of all sizes in a variety of
industries. We offer innovative outsourcing and consulting services, as well as staffing on a temporary, temporary-to-hire and
direct-hire basis. We provide commercial and professional/technical staffing through our branch networks in our Americas and
International segments and, in APAC, we provide staffing solutions to customers through PersolKelly Asia Pacific, our joint
venture with Persol Holdings, a leading provider of HR solutions in Japan. For the U.S. education market, Kelly Educational
Staffing (“KES”) is the leading provider of substitute teachers to more than 7,000 schools nationwide.
We also provide a suite of talent fulfillment and outcome-based solutions through our Global Talent Solutions (“GTS”)
segment, which delivers integrated talent management solutions on a global basis. GTS provides CWO, RPO, BPO, Advisory
and Talent Fulfillment solutions to help customers plan for, manage and execute their acquisition of contingent labor, full-time
labor and free agents, and gain access to service providers and qualified talent quickly, at competitive rates, with minimized
risk.
We earn revenues from customers that procure the services of our temporary employees on a time and materials basis, that use
us to recruit permanent employees, and that rely on our talent advisory and outsourcing services. Our working capital
requirements are primarily generated from temporary employee payroll and customer accounts receivable. The nature of our
business is such that trade accounts receivable are our most significant asset. Average days sales outstanding varies within and
outside the U.S. but is 55 days on a global basis as of the 2018 and 2017 year end. Since receipts from customers generally lag
temporary employee payroll, working capital requirements increase substantially in periods of growth.
Our Strategic Intent and Outlook
Kelly is committed to being a leading talent solutions provider in the markets in which we choose to compete, which is the
foundation of our strategy in 2019 and beyond. This strategic intent is underpinned by our Noble Purpose, “We connect people
to work in ways that enrich their lives,” and by our strategic pillars:
• Leadership position via scale or specialty
• Embracing the future of work
• Being the destination for top talent
•
Investing in innovation and efficiency
21
By aligning ourselves with our Noble Purpose and executing against these strategic pillars, we expect to achieve new levels of
growth and efficiency as we develop further specializations across our product portfolio.
2018 was a year of strategic and operational progress that demonstrated our commitment to profitable growth:
• Earnings from operations for the full year 2018 totaled $87.4 million compared to $83.3 million in 2017
• Conversion rate, or return on gross profit, continues to be a key metric to measure our drive for profitable growth. Our
2018 conversion rate was 9.0% compared to 8.7% in 2017
We delivered solid full-year performance in a tight labor market, effectively managing costs while also investing in our future.
A growing U.S. economy and historic low unemployment rates made recruiting more challenging this year and we experienced
increased time and expense to fill positions. Nevertheless, we made steady progress against our strategic intent, creating
opportunities to improve margins through organic growth, while seeking new paths to growth through inorganic investments.
We also initiated a comprehensive review of our commercial staffing operations, particularly the U.S. branch network, which
will enable us to place additional focus on improving operational efficiency and creating growth through specialization.
In 2018 we also became a more focused company. We sold our healthcare and legal specialty operations, which allows us to
place a greater focus on our commercial, education, engineering and science specialties. In education, we successfully
integrated our 2017 acquisition of Teachers On Call (“TOC”). In engineering, we identified two companies that will
immediately expand our engineering portfolio: on January 2, 2019, we acquired Global Technology Associates and NextGen
Global Resources, leaders in the growing 5G telecoms market. These position Kelly as one of the leading engineering
workforce solutions companies in this fast-growing technology space. Both companies provide services to the largest carriers
and OEMs in the telecommunication industry.
Other investments this year included our ongoing commitment to embracing the future of work, as the Kelly Innovation Fund
participated in the seed fundraising round for Kenzie Academy, a U.S. tech apprenticeship program that develops modern tech
workers. To strengthen our position in the portion of the workforce that participate as independent contractors, we made a
minority equity investment in Business Talent Group (“BTG”), a U.S.-based marketplace that connects highly skilled
independent talent to some of the world’s largest businesses.
We also continued to make investments in technology during 2018, particularly that which supports greater efficiency in
finding talent to answer customer needs. We are making substantial investments in our front and middle office platforms,
which, when deployed, will streamline the processes and workflows associated with recruiting, onboarding and reassigning
workers. These investments will create the platform from which we can deploy operational improvements that will enhance the
experience of the hundreds of thousands of job seekers who interact and work with Kelly each year.
Kelly continues to focus on accelerating the execution of our strategic plan and making the necessary investments and
adjustments to advance that strategy. Our objective is to become an even more competitive, consultative and profitable
company, and we are reshaping our business to make that goal a reality. We will measure our progress against both revenue
and gross profit growth, as well as earnings and conversion rate. We expect:
• To grow higher-margin specialty and outsourced solutions, creating a more balanced portfolio that yields benefits from
improved mix;
• To integrate our investments in specialty solutions with significant growth opportunities, such as our acquisitions of
Global Technology Associates and NextGen Global Resources;
• To deliver structural improvements in costs through investments in technology and process automation; and
• Our conversion rate to continue to improve.
22
Financial Measures
The constant currency (“CC”) change amounts in the following tables refer to the year-over-year percentage changes resulting
from translating 2018 financial data into U.S. dollars using the same foreign currency exchange rates used to translate financial
data for 2017. We believe that CC measurements are a useful measure, indicating the actual trends of our operations without
distortion due to currency fluctuations. We use CC results when analyzing the performance of our segments and measuring our
results against those of our competitors. Additionally, substantially all of our foreign subsidiaries derive revenues and incur
cost of services and selling, general and administrative expenses (“SG&A”) within a single country and currency which, as a
result, provides a natural hedge against currency risks in connection with their normal business operations.
CC measures are non-GAAP (Generally Accepted Accounting Principles) measures and are used to supplement measures in
accordance with GAAP. Our non-GAAP measures may be calculated differently from those provided by other companies,
limiting their usefulness for comparison purposes. Non-GAAP measures should not be considered a substitute for, or superior
to, measures of financial performance prepared in accordance with GAAP.
Reported and CC percentage changes in the following tables were computed based on actual amounts in thousands of dollars.
Return on sales (earnings from operations divided by revenue from services) and conversion rate (earnings from operations
divided by gross profit) in the following tables are ratios used to measure the Company’s operating efficiency.
Days sales outstanding (“DSO”) represents the number of days that sales remain unpaid for the period being reported. DSO is
calculated by dividing average net sales per day (based on a rolling three-month period) into trade accounts receivable, net of
allowances at the period end. Although secondary supplier revenues are recorded on a net basis (net of secondary supplier
expense), secondary supplier revenue is included in the daily sales calculation in order to properly reflect the gross revenue
amounts billed to the customer.
23
Results of Operations
2018 versus 2017
Total Company
(Dollars in millions except per share data)
2018
2017
Change
$
5,513.9
$
5,374.4
Revenue from services
Gross profit
SG&A expenses excluding restructuring charges
Restructuring charges
Total SG&A expenses
Earnings from operations
972.2
884.8
—
884.8
87.4
Earnings from operations excluding restructuring
charges
Diluted earnings per share
87.4
0.58
$
$
Staffing fee-based income (included in revenue from
services)
Gross profit rate
Conversion rate
Conversion rate excluding restructuring charges
Return on sales
Return on sales excluding restructuring charges
68.6
17.6%
9.0
9.0
1.6
1.6
954.1
868.4
2.4
870.8
83.3
85.7
1.81
57.3
17.8%
8.7
9.0
1.5
1.6
2.6%
1.9
1.9
(100.0)
1.6
5.0
2.1
(68.0)
19.6
(0.2) pts.
0.3
—
0.1
—
CC
Change
2.2%
1.6
1.6
(100.0)
1.4
19.0
Total Company revenue from services for 2018 was up 2.6% in comparison to the prior year on a reported basis, and up 2.2%
on a CC basis, reflecting the weakening of the U.S. dollar against several currencies, primarily the Euro in the first half of
2018. As more fully described in the following discussions, revenue increased in Americas Staffing and International Staffing,
while GTS revenue was relatively flat.
The gross profit rate decreased 20 basis points year over year. As more fully described in the following discussions, a decline
in the gross profit rate in International Staffing was partially offset by an increase in the GTS gross profit rate. The Americas
Staffing gross profit rate was unchanged.
Total SG&A expenses increased 1.6% on a reported basis (1.4% on a CC basis), due primarily to increases in Americas Staffing
SG&A expenses, as described in the following discussion. Included in total SG&A expenses for 2017 are restructuring charges
of $2.4 million, relating primarily to an initiative to optimize our GTS service delivery models.
Diluted earnings per share for 2018 were $0.58, as compared to $1.81 for 2017. Included in diluted earnings per share for 2018
is approximately $1.69 per share related to the loss on investment in Persol Holdings, net of tax. Included in diluted earnings
per share for 2017 is approximately $0.35 per share related to the impact of revaluing net deferred tax assets as a result of the
U.S. Tax Cuts and Jobs Act and approximately $0.04 per share related to restructuring charges.
24
Revenue from services
Gross profit
SG&A expenses excluding restructuring charges
Restructuring charges
Total SG&A expenses
Earnings from operations
Earnings from operations excluding restructuring
charges
Gross profit rate
Conversion rate
Conversion rate excluding restructuring charges
Return on sales
Return on sales excluding restructuring charges
CC
Change
3.4%
3.1
5.5
(100.0)
5.4
Americas Staffing
(Dollars in millions)
$
2018
2017
$
2,417.7
441.3
364.2
—
364.2
77.1
2,345.9
429.1
346.0
0.4
346.4
82.7
Change
3.1%
2.9
5.2
(100.0)
5.1
(6.7)
77.1
83.1
(7.1)
18.3%
17.5
17.5
3.2
3.2
18.3%
19.3
19.3
3.5
3.5
— pts.
(1.8)
(1.8)
(0.3)
(0.3)
The change in Americas Staffing revenue from services reflects the impact of a 2% increase in average bill rates (a 3% increase
on a CC basis), combined with the impact of the September 2017 acquisition of TOC, and partially offset by a 1% decrease in
hours volume. The increase in average bill rates was the result of wage increases and stronger revenue growth in our service
lines with higher pay rates. Americas Staffing represented 44% of total Company revenue in both 2018 and 2017.
From a product perspective, the increase in revenue reflects an increase in commercial, including light industrial and
educational staffing (due primarily to the TOC acquisition) and professional/technical, including engineering, science and IT
products. These increases were partially offset by a decrease in our commercial office services volume.
The Americas Staffing gross profit rate was unchanged from the prior year. Increases related to higher staffing fee-based
income and lower payroll taxes were offset by unfavorable customer mix.
The increase in total SG&A expenses was due primarily to higher costs for recruiting and sales resources and additional effort
to attract and place candidates in the current talent environment, combined with SG&A expenses related to TOC.
25
Revenue from services
Gross profit
SG&A expenses excluding restructuring charges
Restructuring charges
Total SG&A expenses
Earnings from operations
Earnings from operations excluding restructuring
charges
Gross profit rate
Conversion rate
Conversion rate excluding restructuring charges
Return on sales
Return on sales excluding restructuring charges
CC
Change
(0.1)%
1.8
0.4
(100.0)
(0.2)
GTS
(Dollars in millions)
2018
2017
$
1,997.4
$
1,998.9
381.1
296.5
—
296.5
84.6
84.6
373.7
294.7
2.0
296.7
77.0
79.0
19.1%
18.7%
22.2
22.2
4.2
4.2
20.6
21.1
3.9
4.0
Change
(0.1)%
2.0
0.6
(100.0)
—
9.8
7.1
0.4
1.6
1.1
0.3
0.2
pts.
Revenue from services was flat in comparison to last year. Lower demand in specific customers in centrally delivered staffing
and PPO was offset by increased revenue in BPO, KellyConnect and CWO from program expansions and new customer wins
in each product. GTS revenue represented 36% of total Company revenue in 2018 and 37% in 2017.
The increase in the GTS gross profit rate was due to improving product mix, partially offset by increases in employee-related
healthcare costs.
Total SG&A expenses were flat in comparison to the prior year. Increased headcount and costs related to new programs and
expansion of programs in the CWO, BPO and KellyConnect practices were partially offset by lower salary costs in centrally
delivered staffing and PPO. Additionally, the year-over-year change in total SG&A expenses was impacted by restructuring
charges of $2.0 million in 2017, representing severance relating to an initiative to optimize our GTS service delivery models.
26
Revenue from services
Gross profit
Total SG&A expenses
Earnings from operations
Gross profit rate
Conversion rate
Return on sales
International Staffing
(Dollars in millions)
$
2018
1,116.6
152.3
132.3
20.0
$
2017
1,048.2
153.7
131.6
22.1
Change
6.5%
(0.9)
0.5
(9.5)
CC
Change
4.0%
(3.2)
(1.4)
13.6%
13.2
1.8
14.7%
14.4
2.1
(1.1) pts.
(1.2)
(0.3)
The change in International Staffing revenue from services reflects primarily a 6% increase in average bill rates (a 3% increase
on a CC basis), due to customer and country mix. Hours volume was flat in comparison to the prior year. International
Staffing represented 20% of total Company revenue in both 2018 and 2017.
The International Staffing gross profit rate decreased primarily due to unfavorable customer mix and the effect of French
payroll tax adjustments. These decreases were partially offset by an increase in staffing fee-based income.
The increase in total SG&A expenses was due to the effect of currency exchange rates. On a constant currency basis, SG&A
expenses decreased due to effective cost control in expenses across the region.
27
Results of Operations
2017 versus 2016
Total Company
(Dollars in millions except per share data)
2017
2016
Change
$
5,374.4
$
5,276.8
Revenue from services
Gross profit
SG&A expenses excluding restructuring charges
Restructuring charges
Total SG&A expenses
Earnings from operations
Earnings from operations excluding restructuring
charges
Diluted earnings per share
$
Staffing fee-based income (included in revenue from
services)
Gross profit rate
Conversion rate
Conversion rate excluding restructuring charges
Return on sales
Return on sales excluding restructuring charges
954.1
868.4
2.4
870.8
83.3
85.7
1.81
$
57.3
17.8%
8.7
9.0
1.5
1.6
906.3
839.7
3.4
843.1
63.2
66.6
3.08
58.5
17.2%
7.0
7.4
1.2
1.3
CC
Change
1.3%
4.7
3.0
(31.2)
2.9
1.9%
5.3
3.4
(31.6)
3.3
31.7
28.5
(41.2)
(2.2)
0.6
pts.
(3.7)
1.7
1.6
0.3
0.3
Total Company revenue from services for 2017 was up 1.9% in comparison to 2016 on a reported basis, and up 1.3% on a CC
basis. As more fully described in the following discussions, revenue increases in the Americas Staffing and GTS segments
were partially offset by a decline in the International Staffing segment. During 2016, we transferred our APAC staffing
businesses for a 49% interest in the PersolKelly Asia Pacific joint venture, which is accounted for as an equity method
investment, resulting in the decrease in International Staffing segment revenue.
The gross profit rate increased 60 basis points year over year. As more fully described in the following discussions, increases
in the GTS and Americas Staffing gross profit rates were partially offset by a decline in the gross profit rate in International
Staffing.
Total SG&A expenses increased 3.3% on a reported basis and 2.9% on a CC basis. Year-over-year increases in SG&A
expenses in Americas Staffing and GTS reflect higher incentive-based compensation in those segments, and were partially
offset by a decrease in International Staffing SG&A expenses, as a result of the APAC transaction. Included in total SG&A
expenses for 2017 are restructuring charges of $2.4 million, relating primarily to an initiative to optimize our GTS service
delivery models. Included in total SG&A expenses for 2016 are restructuring charges of $3.4 million, which relate to actions
taken in the Americas Staffing and International Staffing segments to increase operational efficiency and prepare the businesses
for future growth.
Diluted earnings per share for 2017 were $1.81, as compared to $3.08 for 2016. Included in diluted earnings per share for
2017 is approximately $0.35 per share related to the unfavorable impact of revaluing net deferred tax assets as a result of the
U.S. Tax Cuts and Jobs Act and approximately $0.04 per share related to restructuring charges. Included in diluted earnings per
share for 2016 is the impact of approximately $1.62 per share for the gain on the investment in PersolKelly Asia Pacific, net of
taxes and the impact of approximately $0.06 per share for restructuring charges.
28
Revenue from services
Gross profit
SG&A expenses excluding restructuring charges
Restructuring charges
Total SG&A expenses
Earnings from operations
Earnings from operations excluding restructuring
charges
Gross profit rate
Conversion rate
Conversion rate excluding restructuring charges
Return on sales
Return on sales excluding restructuring charges
Americas Staffing
(Dollars in millions)
2017
2016
Change
$
2,345.9
$
2,191.6
429.1
346.0
0.4
346.4
82.7
83.1
398.2
327.6
1.8
329.4
68.8
70.6
7.0%
7.8
5.7
(80.0)
5.2
20.0
17.5
CC
Change
6.8%
7.6
5.5
(79.8)
5.0
18.3%
18.2%
19.3
19.3
3.5
3.5
17.3
17.7
3.1
3.2
pts.
0.1
2.0
1.6
0.4
0.3
The change in Americas Staffing revenue from services reflects a 7% increase in average bill rates, while hours volume was flat
year over year. The increase in average bill rates was the result of wage increases and stronger revenue growth in our service
lines with higher pay rates. Hours volume increases in the U.S. and Canada were offset by decreases in Mexico, Brazil and
Puerto Rico. Americas Staffing represented 44% of total Company revenue in 2017 and 42% in 2016.
Revenue increased in educational staffing, which includes the impact of the September 2017 acquisition of TOC, light
industrial, engineering, IT and science products.
The increase in the Americas Staffing gross profit rate was due to lower taxes and lower workers’ compensation expense,
partially offset by unfavorable customer mix. We regularly update our estimates of open workers’ compensation claims. As a
result, we reduced our estimated costs of prior year workers’ compensation claims in Americas Staffing by $2.4 million for
2017. This compares to an adjustment reducing prior year workers’ compensation claims by $0.5 million for 2016.
Total SG&A expenses increased 5.2% year over year, due to higher performance-based compensation costs and additional sales
and recruiting resources to capture growing demand in the last half of the year. Included in total SG&A expenses for 2016 are
restructuring charges of $1.8 million, which represent severance costs related to headcount reductions as well as lease buyout
costs due to branch consolidations.
29
Revenue from services
Gross profit
SG&A expenses excluding restructuring charges
Restructuring charges
Total SG&A expenses
Earnings from operations
Earnings from operations excluding restructuring
charges
Gross profit rate
Conversion rate
Conversion rate excluding restructuring charges
Return on sales
Return on sales excluding restructuring charges
GTS
(Dollars in millions)
2017
2016
Change
$
1,998.9
$
1,977.1
373.7
294.7
2.0
296.7
77.0
79.0
345.9
287.3
0.4
287.7
58.2
58.6
1.1%
8.1
2.6
415.5
3.1
32.4
35.0
CC
Change
1.0%
7.9
2.5
417.6
3.0
18.7%
17.5%
20.6
21.1
3.9
4.0
16.8
16.9
2.9
3.0
pts.
1.2
3.8
4.2
1.0
1.0
Revenue from services increased 1.1% in comparison to 2016. Revenue increases in KellyConnect, BPO and CWO practices
were partially offset by declines in our centrally delivered staffing and PPO practice. GTS revenue represented 37% of total
Company revenue in 2017 and 38% in 2016.
The increase in the GTS gross profit rate was due to favorable product and customer mix, lower taxes and benefit costs, along
with a decrease in workers’ compensation costs.
Total SG&A expenses increased 3.1% from 2016. Included in total SG&A expenses for 2017 are restructuring charges of $2.0
million, representing severance relating to an initiative to optimize our service delivery models in this segment. The remaining
cost increase is due to headcount and salary costs related to additional and expanding programs, coupled with additional
performance-based incentive costs. These increases were partially offset by lower bad debt expense compared to higher write-
offs for certain accounts in 2016.
30
International Staffing
(Dollars in millions)
Revenue from services
Gross profit
SG&A expenses excluding restructuring charges
Restructuring charges
Total SG&A expenses
Earnings from operations
Earnings from operations excluding restructuring
charges
Gross profit rate
Conversion rate
Conversion rate excluding restructuring charges
Return on sales
Return on sales excluding restructuring charges
2017
2016
$
1,048.2
$
1,127.1
Change
(7.0)%
153.7
131.6
—
131.6
22.1
22.1
166.4
145.7
1.2
146.9
19.5
20.7
(7.7)
(9.8)
(100.0)
(10.4)
13.3
7.2
14.7%
14.8%
(0.1)
pts.
14.4
14.4
2.1
2.1
11.7
12.4
1.7
1.8
2.7
2.0
0.4
0.3
CC
Change
(9.0)%
(9.8)
(11.6)
(100.0)
(12.2)
International Staffing includes the Company’s APAC region staffing business prior to the transaction to form the PersolKelly
Asia Pacific joint venture in the third quarter of 2016, resulting in a 19% decrease in International Staffing revenue from
services. This decrease, partially offset by a 9% increase in hours volume and 3% increase in average bill rates (flat on a CC
basis) from our European operations, accounted for the change in revenue from services. The increase in hours volume was
primarily due to increases in Portugal, France and Russia. International Staffing represented 20% of total Company revenue in
2017 and 21% in 2016.
The decline in the gross profit rate from 2016 is due to change in customer mix, partially offset by a one-time benefit related to
French payroll tax adjustments.
Total SG&A expenses decreased 10.4% on a reported basis, due primarily to the transfer of the APAC staffing business, which
resulted in a 16% decrease. This decrease was partially offset by a 5% increase in SG&A expenses related to continued
investments in recruiters in the European branch network, and the effect of higher bad debt expense. Included in total SG&A
expenses for 2016 are restructuring charges of $1.2 million. These charges reflect a repositioning of the operating model to
pursue growth in staffing fee-based income and specialized temporary staffing business in Italy.
31
Results of Operations
Financial Condition
Historically, we have financed our operations through cash generated by operating activities and access to credit markets. Our
working capital requirements are primarily generated from temporary employee payroll and customer accounts receivable.
Since receipts from customers generally lag payroll to temporary employees, working capital requirements increase
substantially in periods of growth. Conversely, when economic activity slows, working capital requirements may substantially
decrease. This may result in an increase in our operating cash flows; however, any such increase would not be sustainable in
the event that an economic downturn continued for an extended period. As highlighted in the consolidated statements of cash
flows, our liquidity and available capital resources are impacted by four key components: cash, cash equivalents and restricted
cash, operating activities, investing activities and financing activities.
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash totaled $40.1 million at year-end 2018, compared to $36.9 million at year-end 2017.
As further described below, during 2018, we generated $61.4 million of cash from operating activities, used $29.8 million of
cash for investing activities and used $26.5 million of cash for financing activities.
Operating Activities
In 2018, we generated $61.4 million of net cash from operating activities, as compared to generating $70.8 million in 2017 and
generating $40.1 million in 2016. Other than recurring working capital changes, the change from 2017 to 2018 was primarily
driven by an increase in performance based compensation payments. The change from 2016 to 2017 was primarily driven by a
decrease in performance based compensation payments, partially offset by the impact of higher DSO.
Trade accounts receivable totaled $1.3 billion at year-end 2018 and 2017. Global DSO for the fourth quarter was 55 days for
2018 and 2017.
Our working capital position (total current assets less total current liabilities) was $503.0 million at year-end 2018, an increase
of $44.9 million from year-end 2017. The current ratio (total current assets divided by total current liabilities) was 1.6 at year-
end 2018 and 1.5 at year-end 2017.
Investing Activities
In 2018, we used $29.8 million of net cash for investing activities, compared to using $61.0 million in 2017 and generating
$10.6 million in 2016. Included in cash used for investing activities in 2018 is $7.0 million for loans to PersolKelly Asia
Pacific to fund working capital requirements as a result of their sustained revenue growth and $5.0 million for an investment in
equity securities relating to the Company’s investment in BTG, partially offset by $7.9 million for proceeds from company-
owned life insurance. Included in cash used for investing activities in 2017 is $37.2 million for the acquisition of TOC, net of
the cash received. Included in cash generated from investing activities in 2016 is $23.3 million of net cash representing the
cash received less the cash deconsolidated relating to the PersolKelly Asia Pacific joint venture transaction. Capital
expenditures, which totaled $25.6 million in 2018, $24.6 million in 2017 and $12.7 million in 2016, were primarily related to
the Company’s technology programs, IT infrastructure and headquarters building improvements in 2018 and 2017. Capital
expenditures increased from 2016 to 2017 due to technology initiatives which were started in 2017.
Financing Activities
In 2018, we used $26.5 million of cash for financing activities, as compared to using $3.4 million in 2017 and using $69.1
million in 2016. Changes in net cash from financing activities are primarily related to short-term borrowing activities. Debt
totaled $2.2 million at year-end 2018 and was $10.2 million at year-end 2017. Debt-to-total capital (total debt reported on the
balance sheet divided by total debt plus stockholders’ equity) is a common ratio to measure the relative capital structure and
leverage of the Company. Our ratio of debt-to-total capital was 0.2% at year-end 2018 and 0.9% at year-end 2017.
In 2018, the net change in short-term borrowings was primarily due to payments on our revolving credit facility. In 2017, the
net change in short-term borrowings was primarily due to borrowings on our revolving credit facility. In 2016, the net change
in short-term borrowings was primarily due to payments on our U.S. securitization facility.
Dividends paid per common share were $0.30 in 2018 and 2017 and $0.275 in 2016. Payments of dividends are restricted by
the financial covenants contained in our debt facilities. Details of this restriction are contained in the Debt footnote in the notes
to our consolidated financial statements.
32
Contractual Obligations and Commercial Commitments
Summarized below are our obligations and commitments to make future payments as of year-end 2018:
Operating leases
Short-term borrowings
Accrued workers’ compensation
Accrued retirement benefits
Other liabilities
Uncertain income tax positions
Purchase obligations
Total
Less than
1 year
1-3 Years
3-5 Years
More than
5 years
Payment due by period
$
81.7
$
26.7
$
35.6
$
14.5
$
(In millions of dollars)
2.2
76.5
178.6
8.8
1.4
33.1
2.2
26.0
16.5
2.0
0.3
19.3
—
24.5
31.7
3.5
0.6
13.3
—
9.9
31.7
1.8
0.1
0.5
4.9
—
16.1
98.7
1.5
0.4
—
Total
$
382.3
$
93.0
$
109.2
$
58.5
$
121.6
Purchase obligations above represent unconditional commitments relating primarily to online tools and voice and data
communications services which we expect to utilize generally within the next two fiscal years, in the ordinary course of
business. We have no material, unrecorded commitments, losses, contingencies or guarantees associated with any related
parties or unconsolidated entities.
Liquidity
We expect to meet our ongoing short-term and long-term cash requirements principally through cash generated from
operations, available cash and equivalents, available capacity under our securitization facility and committed unused credit
facilities. Additional funding sources could include public or private bonds, asset-based lending, additional bank facilities,
issuance of equity or other sources.
We utilize intercompany loans, dividends, capital contributions and redemptions to effectively manage our cash on a global
basis. We periodically review our foreign subsidiaries’ cash balances and projected cash needs. As part of those reviews, we
may identify cash that we feel should be repatriated to optimize the Company’s overall capital structure. As of the 2018 year
end, these reviews have not resulted in any specific plans to repatriate a majority of our international cash balances. We expect
much of our international cash will be needed to fund working capital growth in our local operations. The majority of our
international cash is concentrated in a cash pooling arrangement (the “Cash Pool”) and is available to fund general corporate
needs internationally. The Cash Pool is a set of cash accounts maintained with a single bank that must, as a whole, maintain at
least a zero balance; individual accounts may be positive or negative. This allows countries with excess cash to invest and
countries with cash needs to utilize the excess cash.
We manage our cash and debt very closely to optimize our capital structure. As our cash balances build, we tend to pay down
debt as appropriate. Conversely, when working capital needs grow, we tend to use corporate cash and cash available in the
Cash Pool first, and then access our borrowing facilities.
At year-end 2018, we had $150.0 million of available capacity on our $150.0 million revolving credit facility and $145.0
million of available capacity on our $200.0 million securitization facility. The securitization facility had no short-term
borrowings and $55.0 million of standby letters of credit related to workers’ compensation. Together, the revolving credit and
securitization facilities provide the Company with committed funding capacity that may be used for general corporate purposes.
While we believe these facilities will cover our working capital needs over the short term, if economic conditions or operating
results change significantly, we may need to seek additional sources of funds. Throughout 2018 and as of the 2018 year end,
we met the debt covenants related to our revolving credit facility and securitization facility.
At year-end 2018, we also had additional unsecured, uncommitted short-term credit facilities totaling $11.1 million, under
which we had $2.2 million of borrowings. Details of our debt facilities as of the 2018 year end are contained in the Debt
footnote in the notes to our consolidated financial statements.
33
On January 2, 2019, we acquired the stock of two companies for $85.0 million, using funds primarily from our securitization
facility. See the Subsequent Events footnote in the notes to our consolidated financial statements for more information.
We monitor the credit ratings of our major banking partners on a regular basis and have regular discussions with them. Based
on our reviews and communications, we believe the risk of one or more of our banks not being able to honor commitments is
insignificant. We also review the ratings and holdings of our money market funds and other investment vehicles regularly to
ensure high credit quality and access to our invested cash.
Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United
States. In this process, it is necessary for us to make certain assumptions and related estimates affecting the amounts reported
in the consolidated financial statements and the attached notes. Actual results can differ from assumed and estimated amounts.
Critical accounting estimates are those that we believe require the most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on
historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from
other sources. Judgments and uncertainties affecting the application of those estimates may result in materially different
amounts being reported under different conditions or using different assumptions. We consider the following estimates to be
most critical in understanding the judgments involved in preparing our consolidated financial statements.
Workers’ Compensation
In the U.S., we have a combination of insurance and self-insurance contracts under which we effectively bear the first $1.0
million of risk per single accident. There is no aggregate limitation on our per-accident exposure under these insurance and
self-insurance programs. We establish accruals for workers’ compensation utilizing actuarial methods to estimate the
undiscounted future cash payments that will be made to satisfy the claims, including an allowance for incurred-but-not-reported
claims. We retain an independent consulting actuary to establish ultimate loss forecasts for the current and prior accident years
of our insurance and self-insurance programs. The consulting actuary establishes loss development factors, based on our
historical claims experience as well as industry experience, and applies those factors to current claims information to derive an
estimate of our ultimate claims liability. In preparing the estimates, the consulting actuary may consider factors such as the
nature, frequency and severity of the claims; reserving practices of our third party claims administrators; performance of our
medical cost management and return to work programs; changes in our territory and business line mix; and current legal,
economic and regulatory factors such as industry estimates of medical cost trends. Where appropriate, multiple generally
accepted actuarial techniques are applied and tested in the course of preparing the loss forecast. We use the ultimate loss
forecasts, as developed by the consulting actuary, to establish total expected program costs for each accident year by adding our
estimates of non-loss costs such as claims handling fees and excess insurance premiums. When claims exceed the applicable
loss limit or self-insured retention and realization of recovery of the claim from existing insurance policies is deemed probable,
we record a receivable from the insurance company for the excess amount.
We evaluate the accrual quarterly and make adjustments as needed. The ultimate cost of these claims may be greater than or
less than the established accrual. While we believe that the recorded amounts are reasonable, there can be no assurance that
changes to our estimates will not occur due to limitations inherent in the estimation process. In the event we determine that a
smaller or larger accrual is appropriate, we would record a credit or a charge to cost of services in the period in which we made
such a determination. The accrual for workers’ compensation, net of related receivables which are included in prepaid
expenses and other current assets and other assets in the consolidated balance sheet, was $61.4 million and $59.4 million at
year-end 2018 and 2017, respectively.
Income Taxes
Income tax expense is based on expected income and statutory tax rates in the various jurisdictions in which we operate.
Judgment is required in determining our income tax expense. We establish accruals for uncertain tax positions under generally
accepted accounting principles, which require that a position taken or expected to be taken in a tax return be recognized in the
consolidated financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) the position
would be sustained upon examination by tax authorities who have full knowledge of all relevant information. A recognized tax
position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate
settlement.
Our effective tax rate includes the impact of accruals and changes to accruals that we consider appropriate, as well as related
interest and penalties. A number of years may lapse before a particular matter, for which we have or have not established an
34
accrual, is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any
particular tax matter, we believe that our accruals are appropriate under generally accepted accounting principles. Favorable or
unfavorable adjustments of the accrual for any particular issue would be recognized as an increase or decrease to our income
tax expense in the period of a change in facts and circumstances. Our current tax accruals are presented in income and other
taxes in the consolidated balance sheet and long-term tax accruals are presented in other long-term liabilities in the
consolidated balance sheet.
Tax laws require items to be included in the tax return at different times than the items are reflected in the consolidated
financial statements. As a result, the income tax expense reflected in our consolidated financial statements is different than the
liability reported in our tax return. Some of these differences are permanent, which are not deductible or taxable on our tax
return, and some are temporary differences, which give rise to deferred tax assets and liabilities. We establish valuation
allowances for our deferred tax assets when the amount of expected future taxable income is not likely to support the use of the
deduction or credit. Our net deferred tax asset is recorded using currently enacted tax laws, and may need to be adjusted in the
event tax laws change.
The U.S. work opportunity credit is allowed for wages earned by employees in certain targeted groups. The actual amount of
creditable wages in a particular period is estimated, since the credit is only available once an employee reaches a minimum
employment period and the employee’s inclusion in a targeted group is certified by the applicable state. As these events often
occur after the period the wages are earned, judgment is required in determining the amount of work opportunity credits
accrued for in each period. We evaluate the accrual regularly throughout the year and make adjustments as needed.
Equity Method Investment
We account for our investment in PersolKelly Asia Pacific under the equity method of accounting. We review our equity
method investment for indicators of impairment on a quarterly basis or whenever events or circumstances indicate the carrying
amount may be other-than-temporarily impaired. An impairment assessment requires the exercise of judgment related to
financial trends, forecasts, relevant events, as well as any operating, economic, legal or regulatory changes that may have an
impact on the investment. There were no indicators of an other-than-temporary impairment in 2018 or 2017. As of year-end
2018 and 2017, the equity method investment was $121.3 million and $117.4 million, respectively. See the Investment in
PersolKelly Asia Pacific footnote in the notes to our consolidated financial statements.
Goodwill
We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an
impairment may have occurred. Generally accepted accounting principles require that goodwill be tested for impairment at a
reporting unit level. We have determined that our reporting units are the same as our operating and reportable segments based
on our organizational structure. Goodwill is tested for impairment by comparing the estimated fair value of a reporting unit to
its carrying value. If the estimated fair value of a reporting unit exceeds the carrying value of the net assets assigned to a
reporting unit, goodwill is not considered impaired and no further testing is required. If the carrying value of the net assets
assigned to a reporting unit exceeds the estimated fair value of a reporting unit, goodwill is deemed impaired and is written
down to the extent of the difference.
To derive the estimated fair value of reporting units, we primarily relied on an income approach. Under the income approach,
estimated fair value is determined based on estimated future cash flows discounted by an estimated weighted-average cost of
capital, which reflects the overall level of inherent risk of the reporting unit being measured. Estimated future cash flows are
based on our internal projection model and reflects management’s outlook for the reporting units. Assumptions and estimates
about future cash flows and discount rates are complex and often subjective. They can be affected by a variety of factors,
including external factors such as industry and economic trends, and internal factors such as changes in our business strategy
and our internal forecasts.
We completed our annual impairment test for all reporting units with goodwill in the fourth quarter for the fiscal year ended
2018 and 2017 and determined that goodwill was not impaired. In 2018 and 2017, we performed a step one quantitative
assessment for the Americas Staffing and GTS reporting units.
Our analysis used significant assumptions by segment, including: expected future revenue and expense growth rates, profit
margins, cost of capital, discount rate and forecasted capital expenditures. Although we believe the assumptions and estimates
we have made are reasonable and appropriate, different assumptions and estimates could materially impact our reported
financial results. Different assumptions of the anticipated future results and growth from these businesses could result in an
impairment charge, which would decrease operating income and result in lower asset values on our consolidated balance sheet.
As a measure of sensitivity, both reporting units have an estimated fair value that is at least double the carrying value in 2018.
35
In addition, reducing our revenue growth rate assumptions to zero would not result in the estimated fair value falling below
carrying value for both reporting units.
At year-end 2018 and 2017, total goodwill amounted to $107.3 million and $107.1 million, respectively. See the Goodwill
footnote in the notes to our consolidated financial statements for more information.
Litigation
Kelly is subject to legal proceedings, investigations and claims arising out of the normal course of business. Kelly routinely
assesses the likelihood of any adverse judgments or outcomes to these matters, as well as ranges of probable losses. A
determination of the amount of the accruals required, if any, for these contingencies is made after analysis of each known issue.
Development of the analysis includes consideration of many factors including: potential exposure, the status of proceedings,
negotiations, discussions with our outside counsel and results of similar litigation. The required accruals may change in the
future due to new developments in each matter. For further discussion, see the Contingencies footnote in the notes to our
consolidated financial statements. At year-end 2018 and 2017, the gross accrual for litigation costs amounted to $12.8 million
and $5.3 million, respectively, which are included in accounts payable and accrued liabilities and in accrued workers’
compensation and other claims in the consolidated balance sheet.
Allowance for Uncollectible Accounts Receivable
We make ongoing estimates relating to the collectibility of our trade accounts receivable and maintain an allowance for
estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the
allowance, we consider our historical level of credit losses and apply percentages to certain aged receivable categories. We also
make judgments about the creditworthiness of significant customers based on ongoing credit evaluations, and we monitor
historical trends that might impact the level of credit losses in the future. Historically, losses from uncollectible accounts have
not exceeded our allowance. Since we cannot predict with certainty future changes in the financial stability of our customers,
actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were
to deteriorate, resulting in their inability to make payments, a larger allowance may be required.
In the event we determined that a smaller or larger allowance was appropriate, we would record a credit or a charge to SG&A
expenses in the period in which we made such a determination. In addition, for billing adjustments related to errors, service
issues and compromises on billing disputes, we also include a provision for sales allowances, based on our historical
experience, in our allowance for uncollectible accounts receivable. If sales allowances vary from our historical experience, an
adjustment to the allowance may be required, and we would record a credit or charge to revenue from services in the period in
which we made such a determination. As of year-end 2018 and 2017, the allowance for uncollectible accounts receivable was
$13.2 million and $12.9 million, respectively.
36
NEW ACCOUNTING PRONOUNCEMENTS
See New Accounting Pronouncements footnote in the notes to our consolidated financial statements presented in Part II, Item 8
of this report for a description of new accounting pronouncements.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are “forward-looking” statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include statements which are predictive in nature, which depend
upon or refer to future events or conditions, or which include words such as “expects,” “anticipates,” “intends,” “plans,”
“believes,” “estimates,” or variations or negatives thereof or by similar or comparable words or phrases. In addition, any
statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business
strategies or prospects, and possible future actions by us that may be provided by management, including oral statements or
other written materials released to the public, are also forward-looking statements. Forward-looking statements are based on
current expectations and projections about future events and are subject to risks, uncertainties and assumptions about our
Company and economic and market factors in the countries in which we do business, among other things. These statements are
not guarantees of future performance, and we have no specific intention to update these statements.
Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a
number of factors. The principal important risk factors that could cause our actual performance and future events and actions
to differ materially from such forward-looking statements include, but are not limited to, competitive market pressures
including pricing and technology introductions and disruptions, changing market and economic conditions, our ability to
achieve our business strategy, the risk of damage to our brand, the risk our intellectual property assets could be infringed upon
or compromised, our ability to successfully develop new service offerings, our exposure to risks associated with services
outside traditional staffing, including business process outsourcing, our increasing dependency on third parties for the
execution of critical functions, the risks associated with past and future acquisitions, exposure to risks associated with
investments in equity affiliates including PersolKelly Asia Pacific, material changes in demand from or loss of large corporate
customers as well as changes in their buying practices, risks particular to doing business with the government or government
contractors, risks associated with conducting business in foreign countries, including foreign currency fluctuations, the
exposure to potential market and currency exchange risks relating to our investment in Persol Holdings, risks associated with
violations of anti-corruption, trade protection and other laws and regulations, availability of qualified full-time employees,
availability of temporary workers with appropriate skills required by customers, liabilities for employment-related claims and
losses, including class action lawsuits and collective actions, risks arising from failure to preserve the privacy of information
entrusted to us or to meet our obligations under global privacy laws, the risk of cyber attacks or other breaches of network or
information technology security, our ability to sustain critical business applications through our key data centers, our ability to
effectively implement and manage our information technology projects, our ability to maintain adequate financial and
management processes and controls, risk of potential impairment charges triggered by adverse industry developments or
operational circumstances, unexpected changes in claim trends on workers’ compensation, unemployment, disability and
medical benefit plans, the impact of changes in laws and regulations (including federal, state and international tax laws),
competition law risks, the risk of additional tax or unclaimed property liabilities in excess of our estimates, our ability to realize
value from our tax credit and net operating loss carryforwards, our ability to maintain specified financial covenants in our bank
facilities to continue to access credit markets, and other risks, uncertainties and factors discussed in this report and in our other
filings with the Securities and Exchange Commission. Actual results may differ materially from any forward-looking
statements contained herein, and we have no intention to update these statements. Certain risk factors are discussed more fully
under “Risk Factors” in Part I, Item 1A of this report.
37
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to foreign currency risk primarily related to our foreign subsidiaries. Exchange rates impact the U.S. dollar
value of our reported earnings, our investments in and held by subsidiaries, local currency denominated borrowings and
intercompany transactions with and between subsidiaries. Our foreign subsidiaries primarily derive revenues and incur
expenses within a single country and currency which, as a result, provide a natural hedge against currency risks in connection
with normal business operations. Accordingly, changes in foreign currency rates vs. the U.S. dollar generally do not impact
local cash flows. Intercompany transactions which create foreign currency risk include services, royalties, loans, contributions
and distributions.
In addition, we are exposed to interest rate risks through our use of the multi-currency line of credit and other borrowings. A
hypothetical fluctuation of 10% of market interest rates would not have had a material impact on 2018 earnings.
We are exposed to market and currency risks on our investment in Persol Holdings, which may be material. The investment is
stated at fair value and is marked to market through net earnings. Foreign currency fluctuations on this yen-denominated
investment are reflected as a component of other comprehensive income. See Fair Value Measurements footnote in the notes to
our consolidated financial statements of this Annual Report on Form 10-K for further discussion.
We are exposed to market risk as a result of our obligation to pay benefits under our nonqualified deferred compensation plan
and our related investments in company-owned variable universal life insurance policies. The obligation to employees
increases and decreases based on movements in the equity and debt markets. The investments in mutual funds, as part of the
company-owned variable universal life insurance policies, are designed to mitigate, but not eliminate, this risk with offsetting
gains and losses.
38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this Item are set forth in the accompanying index on page 46 of
this filing and are presented in pages 47-85.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) are effective at a reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Management’s report on internal control over financial reporting is presented preceding the consolidated financial statements
on page 47 of this report.
Attestation Report of Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, independent registered public accounting firm, has audited the effectiveness of our internal
control over financial reporting as of December 30, 2018, as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our fourth fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
39
PART III
Information required by Part III with respect to Directors, Executive Officers and Corporate Governance (Item 10), Executive
Compensation (Item 11), Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(Item 12), Certain Relationships and Related Transactions, and Director Independence (Item 13) and Principal Accounting Fees
and Services (Item 14), except as set forth under the titles “Executive Officers of the Registrant,” which is included on page 40,
and “Code of Business Conduct and Ethics,” which is included on page 41, (Item 10), and except as set forth under the title
“Equity Compensation Plan Information,” which is included on pages 41-42, (Item 12), is to be included in a definitive proxy
statement filed not later than 120 days after the close of our fiscal year and the proxy statement, when filed, is incorporated in
this report by reference.
ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following individuals serve as executive officers of the Company as of December 30, 2018:
Name/Office
George S. Corona
President and
Chief Executive Officer
Teresa S. Carroll
Executive Vice President,
President, Global Talent Solutions
and General Manager - Sales,
Marketing and HR
Peter W. Quigley
Executive Vice President,
President, Global Staffing and
General Manager - IT, Global
Service and Global Business
Service
Age
60
53
57
Served as an
Officer Since
2000
Business Experience
During Last 5 Years
Served as officer of the Company.
2000
Served as officer of the Company.
2004
Served as officer of the Company.
Olivier G. Thirot
Executive Vice President
and Chief Financial Officer
2008
57
Served as officer of the Company.
Hannah S. Lim-Johnson
Senior Vice President and
Chief Legal Officer
47
2017
September 2017 - Present
Served as officer of the Company.
October 2016 - April 2017
Deputy General Counsel, Chief Litigation
Counsel & Assistant Corporate Secretary -
PSEG, Newark, NJ
June 2012 - September 2016
VP, Chief Litigation & Chief Compliance
Counsel - ADT Corp, Boca Raton, FL
Laura S. Lockhart
Vice President, Corporate Controller
and Chief Accounting Officer
49
2008
Served as officer of the Company.
40
CODE OF BUSINESS CONDUCT AND ETHICS.
We have adopted a Code of Business Conduct and Ethics that applies to our directors, officers and employees, including our
principal executive officer, principal financial officer and principal accounting officer or controller or persons performing
similar functions. The Code of Business Conduct and Ethics is included as Exhibit 14 in the Index to Exhibits on page 86. We
have posted our Code of Business Conduct and Ethics on our website at www.kellyservices.com. We intend to post any
changes in or waivers from our Code of Business Conduct and Ethics applicable to any of these officers on our website.
ITEM 12. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
Equity Compensation Plan Information
The following table shows the number of shares of our Class A common stock that may be issued upon the exercise of
outstanding options, warrants and rights, the weighted-average exercise price of outstanding options, warrants and rights, and
the number of securities remaining available for future issuance under our equity compensation plans as of the fiscal year end
for 2018.
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
Weighted-average
exercise price of
outstanding
options, warrants
and rights
— $
—
—
— $
—
—
—
—
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in the
first column)
—
3,989,910
77,434
4,067,344
Equity compensation plans approved by security holders -
Evergreen provision (1), (2)
Equity compensation plans approved by security holders -
Fixed Share provision (1), (3)
Equity compensation plans not approved by security
holders (4)
Total
(1)
(2)
The equity compensation plan approved by our stockholders is our Equity Incentive Plan.
The Evergreen provision applied to shares granted prior to May 10, 2017, and the Equity Incentive Plan provided that
the maximum number of shares available for grants, including stock options and restricted stock, was 15 percent of the
outstanding Class A common stock, adjusted for plan activity over the preceding five years. The Company has no
plans to issue additional shares under the Evergreen provision that was in effect prior to May 10, 2017.
The number of shares to be issued upon exercise of outstanding options, warrants and rights under the Evergreen
provision excludes: 187,253 shares of restricted stock; performance shares that have been earned but not yet vested
totaling 116,833 shares of financial measure performance awards, 57,493 shares of total shareholder return
performance awards, and 23,701 shares of single financial measure performance awards; and performance shares
granted to employees and not yet earned or vested totaling 179,124 shares of financial measure performance awards
and 89,562 shares of total shareholder return performance awards, each calculated using an assumed maximum award
performance level of 200%, at December 30, 2018.
(3)
The Fixed Share provision applies to shares granted on and after May 10, 2017, and the amended Equity Incentive
Plan provides that the maximum number of shares available for grants is 4,700,000.
The number of shares to be issued upon exercise of outstanding options, warrants and rights under the Fixed Share
provision excludes: 168,312 shares of restricted stock; performance shares that have been earned but not yet vested
totaling 54,409 of single financial measure performance awards; and performance shares granted to employees and not
41
yet earned or vested totaling 293,452 shares of financial measure performance awards and 146,722 shares of total
shareholder return performance awards, each calculated using an assumed maximum award performance level of
200%, at December 30, 2018.
(4)
The Non-Employee Directors Deferred Compensation Plan is an equity compensation plan that has not been approved
by our stockholders. This plan provides non-employee directors with the opportunity to defer all or a portion of the
fees they receive. Participants may elect to have director fees that are paid in either cash or common stock, deferred
into the plan. Participants choose from a list of investment funds as determined by the Company for their deferrals of
cash. Deferrals of common stock must remain in common stock. Amounts deferred under the plan are subject to
applicable tax withholding. The plan is intended to be a non-qualified deferred compensation arrangement in
compliance with Section 409A of the Code. 100,000 shares were registered for use with issuing shares for this plan.
42
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as part of this report:
(1) Financial statements:
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Earnings for the three fiscal years ended December 30, 2018
Consolidated Statements of Comprehensive Income for the three fiscal years ended December 30, 2018
Consolidated Balance Sheets at December 30, 2018 and December 31, 2017
Consolidated Statements of Stockholders’ Equity for the three fiscal years ended December 30, 2018
Consolidated Statements of Cash Flows for the three fiscal years ended December 30, 2018
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule -
For the three fiscal years ended December 30, 2018:
Schedule II - Valuation Reserves
All other schedules are omitted because they are not applicable or the required information is shown in the financial
statements or notes thereto.
(3) The Exhibits are listed in the Index to Exhibits included beginning at page 86, which is incorporated herein by
reference.
(b) The Index to Exhibits and required Exhibits are included following the Financial Statement Schedule beginning at page 86
of this filing.
(c) None.
ITEM 16. FORM 10-K SUMMARY.
None.
43
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 14, 2019
KELLY SERVICES, INC.
Registrant
By
/s/ Olivier G. Thirot
Olivier G. Thirot
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
* /s/ G. S. Corona
G. S. Corona
President, Chief Executive Officer and Director
(Principal Executive Officer)
* /s/ D. R. Parfet
D. R. Parfet
Chairman of the Board and Director
* /s/ C. M. Adderley
C. M. Adderley
Director
* /s/ G. S. Adolph
G. S. Adolph
Director
* /s/ R. S. Cubbin
R. S. Cubbin
Director
* /s/ J. E. Dutton
J. E. Dutton
Director
* /s/ T. B. Larkin
T. B. Larkin
Director
* /s/ L. A. Murphy
L. A. Murphy
Director
* /s/ H. Takahashi
H. Takahashi
Director
44
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
SIGNATURES (continued)
/s/ O. G. Thirot
O. G. Thirot
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ L. S. Lockhart
L. S. Lockhart
Vice President, Corporate Controller and
Chief Accounting Officer
(Principal Accounting Officer)
*By /s/ O.G. Thirot
O.G. Thirot
Attorney-in-Fact
45
KELLY SERVICES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULE
Page Reference
in Report on
Form 10-K
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Earnings for the three fiscal years ended December 30, 2018
Consolidated Statements of Comprehensive Income for the three fiscal years ended December 30, 2018
Consolidated Balance Sheets at December 30, 2018 and December 31, 2017
Consolidated Statements of Stockholders' Equity for the three fiscal years ended December 30, 2018
Consolidated Statements of Cash Flows for the three fiscal years ended December 30, 2018
Notes to Consolidated Financial Statements
Financial Statement Schedule - Schedule II - Valuation Reserves at December 30, 2018, December 31,
2017 and January 1, 2017
47
48
50
51
52
54
55
57
85
46
Management’s Report on Internal Control Over Financial Reporting
The management of Kelly Services, Inc. (the “Company”), is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f)
promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s
principal executive and principal financial officers and effected by the Company’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles and includes those policies and
procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of the Company;
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may change.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 30, 2018. In making this assessment, the Company’s management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on our assessment, management determined that, as of December 30, 2018, the Company’s internal control over
financial reporting was effective based on those criteria.
The effectiveness of the Company’s internal control over financial reporting as of December 30, 2018 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on
pages 48-49.
47
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Kelly Services, Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Kelly Services, Inc. and its subsidiaries (the “Company”) as
of December 30, 2018 and December 31, 2017, and the related consolidated statements of earnings, comprehensive income,
stockholders’ equity and cash flows for each of the three years ended December 30, 2018, December 31, 2017, and January 1,
2017, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as
the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of
December 30, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 30, 2018 and December 31, 2017, and the results of its operations and its cash flows
for each of the three years ended December 30, 2018, December 31, 2017, and January 1, 2017 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 30, 2018, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principles
As discussed in Note 20 to the consolidated financial statements, the Company changed the manner in which it accounts for
revenues from contracts with customers and the manner in which it accounts for investments in equity securities in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
48
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 14, 2019
We have served as the Company’s auditor since 1960.
49
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Revenue from services
$
5,513.9
$
5,374.4
$
5,276.8
2018
2017
2016
(In millions of dollars except per share items)
Cost of services
Gross profit
Selling, general and administrative expenses
Earnings from operations
Loss on investment in Persol Holdings
Gain on investment in PersolKelly Asia Pacific
Other expense, net
Earnings (loss) before taxes and equity in net earnings (loss) of
affiliate
Income tax (benefit) expense
Net earnings before equity in net earnings (loss) of affiliate
Equity in net earnings (loss) of affiliate
Net earnings
Basic earnings per share
Diluted earnings per share
Dividends per share
Average shares outstanding (millions):
Basic
Diluted
$
$
$
$
See accompanying Notes to Consolidated Financial Statements.
4,541.7
4,420.3
4,370.5
972.2
884.8
87.4
(96.2)
—
(0.6)
(9.4)
(27.1)
17.7
5.2
22.9
0.59
0.58
0.30
38.8
39.1
$
$
$
$
954.1
870.8
83.3
—
—
906.3
843.1
63.2
—
87.2
(1.6)
(0.7)
81.7
12.8
68.9
2.7
71.6
1.84
1.81
0.30
38.3
39.0
$
$
$
$
149.7
30.0
119.7
1.1
120.8
3.10
3.08
0.275
38.1
38.4
50
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net earnings
$
22.9
$
71.6
$
120.8
2018
2017
2016
(In millions of dollars)
Other comprehensive income, net of tax:
Foreign currency translation adjustments, net of tax benefit of
$0.4 million, tax expense of $0.2 million and tax expense of $0.0
million, respectively
Less: Reclassification adjustments included in net earnings
Foreign currency translation adjustments
Unrealized gains (losses) on investment, net of tax expense of
$0.0 million, tax expense of $30.2 million and tax benefit of $0.7
million, respectively
Pension liability adjustments, net of tax expense of $0.2 million,
tax benefit of $0.1 million and tax benefit of $0.0 million,
respectively
Less: Reclassification adjustments included in net earnings
Pension liability adjustments
Other comprehensive income (loss)
(8.4)
(0.4)
(8.8)
—
0.8
0.1
0.9
(7.9)
16.4
—
16.4
(0.6)
(0.1)
(0.7)
56.2
(1.1)
(0.6)
0.1
(0.5)
72.1
(0.3)
0.1
(0.2)
(2.0)
Comprehensive income
$
15.0
$
143.7
$
118.8
See accompanying Notes to Consolidated Financial Statements.
51
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
2018
2017
(In millions of dollars)
Assets
Current Assets
Cash and equivalents
Trade accounts receivable, less allowances of $13.2 million and $12.9 million,
respectively
Prepaid expenses and other current assets
Total current assets
$
35.3
$
32.5
1,293.3
71.9
1,400.5
1,286.7
65.1
1,384.3
Noncurrent Assets
Property and equipment:
Property and equipment
Accumulated depreciation
Net property and equipment
Deferred taxes
Goodwill, net
Investment in Persol Holdings
Investment in equity affiliate
Other assets
Total noncurrent assets
Total Assets
See accompanying Notes to Consolidated Financial Statements.
294.7
(208.4)
86.3
198.7
107.3
135.1
121.3
265.2
913.9
291.8
(205.7)
86.1
183.4
107.1
228.1
117.4
271.8
993.9
$
2,314.4
$
2,378.2
52
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders' Equity
Current Liabilities
Short-term borrowings
Accounts payable and accrued liabilities
Accrued payroll and related taxes
Accrued workers' compensation and other claims
Income and other taxes
Total current liabilities
Noncurrent Liabilities
Accrued workers' compensation and other claims
Accrued retirement benefits
Other long-term liabilities
Total noncurrent liabilities
Commitments and contingencies (See Commitments and Contingencies footnotes)
Stockholders' Equity
Capital stock, $1.00 par value
Class A common stock, shares issued 36.6 million at 2018 and 2017
Class B common stock, shares issued 3.5 million at 2018 and 2017
Treasury stock, at cost
Class A common stock, 1.2 million shares at 2018 and 1.7 million at 2017
Class B common stock
Paid-in capital
Earnings invested in the business
Accumulated other comprehensive income (loss)
Total stockholders' equity
$
2018
2017
(In millions of dollars)
$
2.2
540.6
266.0
26.0
62.7
897.5
50.5
162.9
44.0
257.4
36.6
3.5
(25.4)
(0.6)
24.4
1,138.1
(17.1)
1,159.5
10.2
537.7
287.4
25.7
65.2
926.2
49.9
178.1
72.5
300.5
36.6
3.5
(34.6)
(0.6)
32.2
983.6
130.8
1,151.5
Total Liabilities and Stockholders' Equity
$
2,314.4
$
2,378.2
See accompanying Notes to Consolidated Financial Statements.
53
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
2018
2017
2016
(In millions of dollars)
$
36.6
$
36.6
$
Capital Stock
Class A common stock
Balance at beginning of year
Conversions from Class B
Balance at end of year
Class B common stock
Balance at beginning of year
Conversions to Class A
Balance at end of year
Treasury Stock
Class A common stock
Balance at beginning of year
Issuance of restricted stock and other
Balance at end of year
Class B common stock
Balance at beginning of year
Issuance of restricted stock and other
Balance at end of year
Paid-in Capital
Balance at beginning of year
Issuance of restricted stock and other
Balance at end of year
Earnings Invested in the Business
Balance at beginning of year
Cumulative-effect adjustment from adoption of ASU 2016-01,
Financial Instruments
Cumulative-effect adjustment from adoption of ASU 2014-09,
Revenue
Net earnings
Dividends
Balance at end of year
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of year
Cumulative-effect adjustment from adoption of ASU 2016-01,
Financial Instruments
Other comprehensive income (loss), net of tax
Balance at end of year
Stockholders’ Equity at end of year
$
See accompanying Notes to Consolidated Financial Statements.
54
—
36.6
3.5
—
3.5
(38.4)
3.8
(34.6)
(0.6)
—
(0.6)
28.6
3.6
32.2
36.6
—
36.6
3.5
—
3.5
(43.7)
5.3
(38.4)
(0.6)
—
(0.6)
25.4
3.2
28.6
923.6
813.5
—
—
71.6
(11.6)
983.6
58.7
—
72.1
130.8
—
—
120.8
(10.7)
923.6
60.7
—
(2.0)
58.7
$
1,151.5
$
1,012.0
—
36.6
3.5
—
3.5
(34.6)
9.2
(25.4)
(0.6)
—
(0.6)
32.2
(7.8)
24.4
983.6
140.0
3.4
22.9
(11.8)
1,138.1
130.8
(140.0)
(7.9)
(17.1)
1,159.5
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2018
2017
(In millions of dollars)
2016
$
22.9
$
71.6
$
120.8
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash from operating
activities:
Depreciation and amortization
Provision for bad debts
Stock-based compensation
Deferred income taxes
Loss on investment in Persol Holdings
Gain on investment in PersolKelly Asia Pacific
Equity in net earnings of PersolKelly Asia Pacific
Other, net
Changes in operating assets and liabilities, net of acquisition
Net cash from operating activities
Cash flows from investing activities:
Capital expenditures
Acquisition of company, net of cash received
Investment in equity securities
Net cash proceeds from investment in PersolKelly Asia Pacific
equity affiliate
(Loan to) proceeds from repayment of loan to equity affiliate
Proceeds from company-owned life insurance
Other investing activities
26.2
3.0
8.1
(47.5)
96.2
—
(5.2)
(0.8)
(41.5)
61.4
(25.6)
—
(5.0)
—
(7.0)
7.9
(0.1)
22.7
5.6
9.1
(5.9)
—
—
(2.7)
0.2
(29.8)
70.8
(24.6)
(37.2)
—
—
0.6
—
0.2
Net cash (used in) from investing activities
(29.8)
(61.0)
Cash flows from financing activities:
Net change in short-term borrowings
Dividend payments
Payments of tax withholding for restricted shares
Other financing activities
Net cash used in financing activities
Effect of exchange rates on cash, cash equivalents and
restricted cash
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
(7.8)
(11.8)
(6.9)
—
(26.5)
(1.9)
3.2
36.9
10.1
(11.6)
(1.8)
(0.1)
(3.4)
(3.8)
2.6
34.3
Cash, cash equivalents and restricted cash at end of year (1)
$
40.1
$
36.9
$
34.3
55
21.3
11.0
10.2
7.4
—
(87.2)
(1.1)
(2.8)
(39.5)
40.1
(12.7)
—
—
23.3
—
—
—
10.6
(55.9)
(10.7)
(2.2)
(0.3)
(69.1)
6.3
(12.1)
46.4
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported in our
consolidated balance sheet:
Reconciliation of cash, cash equivalents and restricted cash:
Current assets:
Cash and cash equivalents
Restricted cash included in prepaid expenses and other
current assets
Noncurrent assets:
Restricted cash included in other assets
Cash, cash equivalents and restricted cash at end of year
See accompanying Notes to Consolidated Financial Statements.
2018
2017
2016
(In millions of dollars)
$
$
35.3
$
32.5
$
0.1
4.7
—
4.4
40.1
$
36.9
$
29.6
0.4
4.3
34.3
56
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations Kelly Services, Inc. is a global workforce solutions provider operating throughout the world.
Fiscal Year The Company’s fiscal year ends on the Sunday nearest to December 31. The three most recent years ended on
December 30, 2018 (2018), December 31, 2017 (2017) and January 1, 2017 (2016), all of which contained 52 weeks. Period
costs included in selling, general and administrative (“SG&A”) expenses are recorded on a calendar-year basis. The
Company’s operations in Brazil are accounted for on a one-month lag. The Company’s equity investment in PersolKelly Asia
Pacific are accounted for on a one-quarter lag (see Investment in PersolKelly Asia Pacific footnote). Any material transactions
in the intervening period are disclosed or accounted for in the current reporting period.
Principles of Consolidation The consolidated financial statements include the accounts and operations of the Company and its
wholly owned subsidiaries. In connection with the Company’s investment in PersolKelly Asia Pacific in the third quarter of
2016, the Commercial and PT staffing operations and certain OCG businesses in the APAC region were deconsolidated at that
time. Certain prior period amounts have been reclassified to conform to the current presentation. All intercompany accounts
and transactions have been eliminated.
Investment in Persol Holdings The Company’s investment in Persol Holdings, as further described in the Investment in Persol
Holdings footnote, is carried at fair value with the changes in fair value recognized in net earnings. The fair value of the
investment is based on the quoted market price.
Investment in PersolKelly Asia Pacific The Company has a 49% ownership interest in their equity affiliate, PersolKelly Asia
Pacific, which is accounted for under the equity method. The operating results of the equity affiliate are recorded on a one-
quarter lag and included in equity in net earnings (loss) of affiliate in the consolidated statements of earnings.
Foreign Currency Translation All of the Company’s international subsidiaries use their local currency as their functional
currency, which is the currency in which they transact the majority of their activities. Revenue and expense accounts of foreign
subsidiaries are translated to U.S. dollars at average exchange rates, while assets and liabilities are translated to U.S. dollars at
year-end exchange rates. Resulting translation adjustments, net of tax, where applicable, are reported as accumulated foreign
currency translation adjustments in stockholders’ equity and are recorded as a component of accumulated other comprehensive
income (loss).
Revenue Recognition See Revenue footnote for a description of the accounting policy related to revenue recognition.
Cost of Services Cost of services are those costs directly associated with the earning of revenue. The primary examples of
these types of costs are temporary employee wages, along with other employee related costs, including associated payroll taxes,
temporary employee benefits, such as service bonus and holiday pay, and workers’ compensation costs. These costs differ
fundamentally from SG&A expenses in that they arise specifically from the action of providing our services to customers
whereas SG&A costs are incurred regardless of whether or not we place temporary employees with our customers.
Advertising Expenses Advertising expenses, which are expensed as incurred and are included in SG&A expenses, were $8.7
million in 2018, $7.9 million in 2017 and $7.6 million in 2016.
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and
accompanying notes. Estimates are used for, but not limited to, the accounting for the allowance for uncollectible accounts
receivable, workers’ compensation, goodwill and long-lived asset impairment, impairment of equity affiliates, litigation costs
and income taxes. Actual results could differ materially from those estimates.
Cash and Equivalents Cash and equivalents are stated at fair value. The Company considers securities with original
maturities of three months or less to be cash and equivalents.
Property and Equipment Property and equipment are stated at cost and are depreciated on a straight-line basis over their
estimated useful lives. Cost and estimated useful lives of property and equipment by function are as follows:
57
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Category
Land
Work in process
Buildings and improvements
Computer hardware and software
Equipment, furniture and fixtures
Leasehold improvements
Total property and equipment
$
$
2018
2017
(In millions of dollars)
3.8
$
12.2
65.3
153.3
34.6
25.5
Life
—
—
15 to 45 years
3 to 12 years
3.8
5.3
64.9
154.2
years
5
37.9
25.7 The lesser of the life
of the lease or 5
years.
294.7
$
291.8
The Company capitalizes external costs and internal payroll costs directly incurred in the development of software for internal
use as required by the Internal-Use Software Subtopic of the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”). Work in process represents capitalized costs for internal use software not yet in service.
Depreciation expense was $24.0 million for 2018, $21.8 million for 2017 and $20.7 million for 2016.
Operating Leases The Company recognizes rent expense on a straight-line basis over the lease term. This includes the impact
of both scheduled rent increases and free or reduced rents (commonly referred to as “rent holidays”). The Company records
allowances provided by landlords for leasehold improvements as deferred rent in the consolidated balance sheet and as
operating cash flows in the consolidated statements of cash flows.
Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the fair value of net assets
acquired. Purchased intangible assets with definite lives are recorded at estimated fair value at the date of acquisition and are
amortized over their respective useful lives (from 3 to 15 years) on a straight-line basis or, if appropriate, on an accelerated
basis commensurate with the related cash flows.
Impairment of Long-Lived Assets, Intangible Assets, Goodwill, Equity Method Investments and Equity Securities The
Company evaluates long-lived assets and intangible assets with definite lives for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. When estimated undiscounted future cash
flows will not be sufficient to recover the asset group’s carrying amount, in which the long-lived asset being tested for
impairment resides, the asset is written down to its estimated fair value. Assets to be disposed of by sale, if any, are reported at
the lower of the carrying amount or estimated fair value less cost to sell.
We test goodwill for impairment at the reporting unit level annually in the fourth quarter and whenever events or circumstances
make it more likely than not that an impairment may have occurred. We have determined that our reporting units are the same
as our operating and reportable segments based on our organizational structure. Goodwill is tested for impairment by
comparing the estimated fair value of a reporting unit to its carrying value. To derive the estimated fair value of reporting units,
we primarily relied on an income approach. Under the income approach, estimated fair value is determined based on estimated
future cash flows discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk
of the reporting unit being measured. Estimated future cash flows are based on our internal projection model and reflects
management’s outlook for the reporting units.
If the estimated fair value of a reporting unit exceeds the carrying value of the net assets assigned to a reporting unit, goodwill
is not considered impaired and no further testing is required. If the carrying value of the net assets assigned to a reporting unit
exceeds the estimated fair value of a reporting unit, goodwill is deemed impaired and is written down to the extent of the
difference.
We evaluate our equity method investment as well as any equity securities measured under the measurement alternative for
indicators of impairment on a periodic basis or whenever events or circumstances indicate the carrying amount may be other-
than-temporarily impaired. If we conclude that there is an other-than-temporary impairment of our equity method investment
or equity securities, we will adjust our carrying amount of our investment to the adjusted fair value.
Accounts Payable Included in accounts payable are book overdrafts, which are outstanding checks in excess of funds on
deposit. Such amounts totaled $7.3 million at year-end 2018 and 2017.
Accrued Payroll and Related Taxes Included in accrued payroll and related taxes are book overdrafts, which are outstanding
checks in excess of funds on deposit. Such amounts totaled $22.9 million and $18.6 million at year-end 2018 and 2017,
58
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
respectively. Payroll taxes for temporary employees are recognized proportionately to direct wages for interim periods based
on expected full-year amounts.
Income Taxes The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and
liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts. Valuation allowances are provided against deferred tax assets when it is more likely than
not that some portion or all of the deferred tax asset will not be realized.
The U.S. work opportunity credit is allowed for wages earned by employees in certain targeted groups. The actual amount of
creditable wages in a particular period is estimated, since the credit is only available once an employee reaches a minimum
employment period and the employee’s inclusion in a targeted group is certified by the applicable state. As these events often
occur after the period the wages are earned, judgment is required in determining the amount of work opportunity credits
accrued for in each period. We evaluate the accrual regularly throughout the year and make adjustments as needed.
Uncertain tax positions that are taken or expected to be taken in a tax return are recognized in the financial statements when it
is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by
tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest
amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.
Interest and penalties related to income taxes are classified as income tax expense. U.S. taxes on global intangible low-taxed
income (“GILTI”) are accounted for as incurred.
Stock-Based Compensation The Company may grant restricted stock awards and units (collectively, “restricted stock”), stock
options (both incentive and nonqualified), stock appreciation rights and performance awards to key employees associated with
the Company’s Class A stock. The Company utilizes the market price on the date of grant as the fair value for restricted stock
and the market price on the date of grant less the present value of the expected dividends not received during the vesting period
for performance awards. The Company also estimates a fair value of performance awards related to relative total shareholder
return using a Monte Carlo simulation model. The Company estimates the fair value of stock option awards, if any, on the date
of grant using an option-pricing model. The value of awards is recognized as expense, net of forfeitures as they occur, over the
requisite service periods in SG&A expense in the Company’s consolidated statements of earnings.
Earnings Per Share Restricted stock that entitle their holders to receive nonforfeitable dividends before vesting are considered
participating securities and, therefore, are included in the calculation of earnings per share using the two-class method. The
two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and
participating security according to dividends declared and participation rights in undistributed earnings. Under this method,
earnings from continuing operations (or net earnings) is reduced by the amount of dividends declared, and the remaining
undistributed earnings is allocated to common stock and participating securities based on the proportion of each class’s
weighted average shares outstanding to the total weighted average shares outstanding. The calculation of diluted earnings per
share includes the effect of potential common shares outstanding in the average weighted shares outstanding.
Workers’ Compensation In the U.S., the Company has a combination of insurance and self-insurance contracts under which
we effectively bear the first $1.0 million of risk per single accident. The Company establishes accruals for workers’
compensation claims utilizing actuarial methods to estimate the undiscounted future cash payments that will be made to satisfy
the claims, including an allowance for incurred-but-not-reported claims. The Company retains an independent consulting
actuary to establish loss development factors, based on historical claims experience as well as industry experience, and applies
those factors to current claims information to derive an estimate of the ultimate claims liability.
In preparing the estimates, the consulting actuary considers a number of assumptions and multiple generally accepted actuarial
methods in the course of preparing the loss forecast for claims. When claims exceed the applicable loss limit or self-insured
retention and realization of recovery of the claim from existing insurance policies is deemed probable, the Company records a
receivable from the insurance company for the excess amount. The receivable is included in prepaid expenses and other
current assets and other assets in the consolidated balance sheet at year end. The Company evaluates the accrual quarterly
throughout the year and makes adjustments as needed, and the ultimate cost of these claims may be greater than or less than the
established accrual.
59
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Revenue
Adoption of ASC Topic 606, Revenue from Contracts with Customers
On January 1, 2018, we adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with
Customers (“ASC 606”), using the modified retrospective method applied to those contracts which were not completed as of
January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior
period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605.
We recorded a net increase to opening earnings invested in the business of $3.4 million as of January 1, 2018 due to the
cumulative impact of adopting ASC 606. The impact is primarily driven by the deferral of contract costs related to our
customer contracts of $5.2 million, partially offset by deferring revenue billed at a point in time for services performed over
time of $0.6 million and a deferred tax liability of $1.2 million. As of and for year to date 2018, the consolidated financial
statements were not materially impacted as a result of the application of Topic 606 compared to Topic 605.
Revenue Recognition
Revenues are recognized when control of the promised services is transferred to our customers, in an amount that reflects the
consideration we expect to be entitled to in exchange for those services. Our revenues are recorded net of any sales, value
added, or similar taxes collected from our customers.
We generate revenue from: the hourly sales of services by our temporary employees to customers (“staffing solutions”
revenue), the recruiting of permanent employees for our customers (“permanent placement” revenue), and through our talent
fulfillment and outcome-based activities (“talent solutions” and “outcome-based services” revenue).
We record revenues from sales of services and the related direct costs in accordance with the accounting guidance on reporting
revenue gross as a principal versus net as an agent. When Kelly is the principal, we demonstrate control over the service by
being the employer of record for the individuals performing the service, by being primarily responsible to our customers and by
having a level of discretion in establishing pricing in which the gross amount is recorded as revenues. When Kelly arranges for
other contingent labor suppliers and/or service providers to perform services for the customer, we do not control those services
before they are transferred, and therefore, the amounts billed to our customers are net of the amounts paid to the secondary
suppliers/service providers and the net amount is recorded as revenues.
Staffing Solutions Revenue
Staffing solutions can be branch-delivered (Americas and EMEA regions) or centrally delivered (within Global Talent
Solutions (“GTS”)). Our Americas Staffing segment is organized to deliver services in a number of specialty staffing solutions,
which are summarized as: commercial, specialized professional/technical (“PT”) and educational staffing. Staffing solutions
contracts are short-term in nature. Billings are generally negotiated and invoiced on a per-hour or per-unit basis as the
temporary staffing services are transferred to the customer. Revenue from the majority of our staffing solutions services
continues to be recognized over time as the customer simultaneously receives and consumes the services we provide. We have
applied the practical expedient to recognize revenue for these services over the term of the agreement in proportion to the
amount we have the right to invoice the customer.
Permanent Placement Revenue
Permanent placement solutions can be branch-delivered (Americas and EMEA regions) or centrally delivered (within GTS).
Our permanent placement revenue is recorded at the point in time the permanent placement candidate begins full-time
employment. On the candidate start date, the customer accepts the candidate and can direct the use of the candidate as well as
obtains the significant risk and rewards of the candidate. As such, we consider this the point the control transfers to the
customer.
60
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Talent Solutions and Outcome-Based Services Revenue
In addition to centrally delivered staffing services, our GTS segment also includes talent solutions (contingent workforce
outsourcing “CWO”, payroll process outsourcing “PPO” and recruitment process outsourcing “RPO”) and outcome-based
services (business process outsourcing “BPO”, KellyConnect, career transition/outplacement services and talent advisory
services). Billings are generally negotiated and invoiced on a measure of time (hours, weeks, months) or per-unit basis for our
services performed. We continue to recognize revenue from the majority of our talent solutions services and our outcome-
based services over time as the customer simultaneously receives and consumes the services we provide. We have applied the
practical expedient to recognize revenue for these services over the term of the agreement in proportion to the amount we have
the right to invoice the customer.
The following table presents our segment revenues disaggregated by service type (in millions):
2018
$
1,679.6
428.0
272.2
37.9
2,417.7
1,087.7
28.9
1,116.6
1,117.6
1.9
362.8
1,482.3
515.1
1,997.4
(17.8)
$
5,513.9
Branch-Delivered Staffing
Americas Staffing
Staffing Solutions
Commercial
Educational Staffing
Professional/Technical
Permanent Placement
Total Americas Staffing
International Staffing
Staffing Solutions
Permanent Placement
Total International Staffing
Global Talent Solutions
Talent Fulfillment
Staffing Solutions
Permanent Placement
Talent Solutions
Total Talent Fulfillment
Outcome-Based Services
Total Global Talent Solutions
Total Intersegment
Total Revenue from Services
61
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Our operations are subject to different economic and regulatory environments depending on geographic location. Our GTS
segment operates in Americas, EMEA and APAC regions. For 2018 and 2017, GTS made up $1,929.3 million and $1,943.3
million in total Americas, respectively, $45.9 million and $37.4 million in total EMEA, respectively, and the entire balance in
APAC. The below table presents our revenues disaggregated by geography (in millions):
Americas
United States
Canada
Mexico
Puerto Rico
Brazil
Total Americas
EMEA
France
Switzerland
Portugal
United Kingdom
Russia
Italy
Germany
Ireland
Norway
Other
Total EMEA
Total APAC
Total Kelly Services, Inc.
Variable Consideration
December Year to Date
2018
2017
$
3,930.0
$
3,894.6
142.4
125.0
96.6
35.2
140.3
118.8
68.3
48.6
4,329.2
4,270.6
278.9
212.7
196.9
108.8
100.4
77.5
57.1
44.6
34.4
51.2
277.1
216.9
176.0
88.7
93.2
61.9
59.9
32.0
33.3
46.5
1,162.5
1,085.5
22.2
18.3
$
5,513.9
$
5,374.4
Certain customers may receive cash-based incentives or credits, which are accounted for as a form of variable consideration.
We estimate these amounts based on the expected or likely amount to be provided to customers and reduce revenues recognized
to the extent that it is probable that a significant reversal of such adjustment will not occur. Provisions for sales allowances
(billing adjustments related to errors, service issues and compromises on billing disputes), based on historical experience, are
recognized at the time the related sale is recognized as a reduction in revenue from services.
Payment Terms
Customer payments are typically due within 60 days of invoicing, but may be shorter or longer depending on contract terms.
Management does not assess whether a contract has a significant financing component if the expectation at contract inception is
that the period between payment by the customer and the transfer of the services to the customer will be less than one year. We
do not have any significant financing components or extended payment terms.
62
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Deferred Revenue
Items which are billed to the customer at a point in time, rather than billed over time as the services are delivered to the
customer, are assessed for potential revenue deferral. At this time, the balance of the contract liability as well as the amount of
revenue recognized in the reporting period that was included in the deferred revenue balance at the beginning of the period is
not material.
Deferred Costs
Sales commissions paid at initial contract inception and upon contract renewal by our sales team are considered incremental
and recoverable costs of obtaining a contract with a customer. The sales commissions (and related fringe benefits such as taxes
and benefits) are deferred and then amortized on a straight-line basis over an appropriate period of benefit that we have
determined to be contract duration. We determined the period of benefit by taking into consideration our customer contracts
and other relevant factors. Anticipated renewal periods are not included in the amortization period of the initial commission.
Amortization expense is included in SG&A expenses in the consolidated statements of earnings. As a practical expedient, sales
commissions with amortization periods of 12 months or less are expensed as incurred. These costs are recorded in SG&A
expenses in the consolidated statements of earnings.
Deferred sales commissions, which are included in other assets in the consolidated balance sheet, were $2.3 million as of year-
end 2018 and $3.2 million as of January 1, 2018. Amortization expense for the deferred costs was $1.7 million for 2018. As of
year-end 2018, there was no impairment loss in relation to the costs capitalized.
Occasionally, fulfillment costs are incurred after obtaining a contract in order to generate a resource that will be used to provide
our services. These costs are considered incremental and recoverable costs to fulfill our contract with the customer. These
costs to fulfill a contract are deferred and then amortized on a straight-line basis over a period of benefit that we have
determined to be the average length of assignment of the employees. We determined the period of benefit by taking into
consideration our customer contracts, attrition rates and other relevant factors. Amortization expense is included in SG&A
expenses in the consolidated statements of earnings.
Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet,
were $3.0 million as of year-end 2018 and $2.0 million as of January 1, 2018. Amortization expense for the deferred costs was
$13.0 million for 2018. As of year-end 2018, there was no impairment loss in relation to the costs capitalized.
Unsatisfied Performance Obligations
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected
length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice
for services performed.
3. Acquisition
On September 5, 2017, Kelly Services USA, LLC, a wholly owned subsidiary of the Company, acquired 100% of the issued
and outstanding shares of Teachers On Call, Inc. (“TOC”), an educational staffing firm in the U.S. for a purchase price of $41.0
million. Under terms of the purchase agreement, the purchase price was adjusted for cash held by TOC at the closing date less
an estimated working capital adjustment resulting in the Company paying cash of $39.0 million at closing. In the first quarter
of 2018, the Company paid a working capital adjustment of $0.2 million, resulting in an increase of goodwill (see Goodwill
footnote).
63
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pro forma results of operations for this acquisition have not been presented as it is not material to the consolidated statements
of earnings. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the
date of the acquisition (in millions of dollars):
Cash
Other current assets
Goodwill
Intangibles
Other noncurrent assets
Current liabilities
Purchase price paid at closing
$
$
1.8
3.6
18.7
18.3
0.5
(3.9)
39.0
Goodwill generated from this acquisition is primarily attributable to expected synergies from combining operations and
expanding market potential, and is assigned to the Americas Staffing reporting unit. The amount of goodwill expected to be
deductible for tax purposes is approximately $18.8 million as of year-end 2018. An indemnification asset of $2.8 million was
recognized as of the acquisition date related to pre-acquisition tax liabilities. As of year-end 2018, the indemnification asset
is $0.1 million with the change driven by cash received from the seller to pay pre-acquisition tax liabilities.
4. Investment in Persol Holdings
The Company has a yen-denominated investment in the common stock of Persol Holdings, the Company’s joint venture partner
in PersolKelly Asia Pacific. As our investment is a noncontrolling interest in Persol Holdings, this investment is recorded at
fair value based on the quoted market price of Persol Holdings stock on the Tokyo Stock Exchange as of the period end (see
Fair Value Measurements footnote). The Company adopted Accounting Standards Update (“ASU”) 2016-01 and as a result,
effective January 1, 2018, all changes in fair value on the investment are recognized in net earnings which previously were
recorded in other comprehensive income.
Accordingly, for the year ended 2018, a loss on the investment of $96.2 million was recorded entirely in the loss on investment
in Persol Holdings in the consolidated statements of earnings. During 2017, an unrealized gain, net of tax, of $56.2 million was
recorded in other comprehensive income, and in accumulated other comprehensive income (loss), a component of stockholders’
equity. A cumulative catch-up adjustment of the prior net unrealized gains previously recorded in other comprehensive income,
and in accumulated other comprehensive income (loss), a component of stockholders’ equity, was recorded in earnings invested
in the business as of January 1, 2018 for $140.0 million, net of $69.9 million of taxes.
5. Investment in PersolKelly Asia Pacific
In 2016, the Company and Persol Holdings, a leading integrated human resources company in Japan, completed a transaction to
form a new joint venture, PersolKelly Asia Pacific. The Company transferred its APAC staffing operations in exchange for
a 49% ownership interest in PersolKelly Asia Pacific and $36.5 million in cash received at closing. The Company
subsequently deconsolidated the contributed APAC staffing operations and recorded a $104.2 million investment in equity
affiliate in the consolidated balance sheet, which represented the fair value of the Company’s ownership interest in PersolKelly
Asia Pacific as of the date of the transaction. As part of this transaction, in the third quarter of 2016, the Company
deconsolidated the goodwill related to the contributed entities in our previous APAC PT and OCG segments amounting to $1.9
million. In the fourth quarter of 2016, the Company received a $4.5 million post-close cash true-up adjustment from Persol
Holdings.
The operating results of the Company’s interest in PersolKelly Asia Pacific are accounted for on a one-quarter lag under the
equity method and are included in equity in net earnings (loss) of affiliate in the consolidated statements of earnings, which
amounted to $5.2 million in 2018, $2.7 million in 2017 and $1.1 million in 2016. PersolKelly Asia Pacific will perform its
annual impairment test of goodwill in its fourth quarter. Any impairment, if required, would then be recorded by the Company
based on the one-quarter lag. We would consider any impairment recorded by PersolKelly Asia Pacific to be a triggering event
to perform our own impairment analysis regarding our investment in PersolKelly Asia Pacific. The Company also evaluates
the investment in PersolKelly Asia Pacific for potential impairment quarterly or whenever events or changes in circumstances
indicate that there is an other than temporary decline in the value of the investment.
In the third quarter of 2016, the Company recorded a pretax gain of $87.2 million on the investment in PersolKelly Asia Pacific
in the consolidated statements of earnings, which represented the fair value of the Company’s retained investment in
64
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
PersolKelly Asia Pacific in addition to the cash received less the carrying value of net assets transferred to the joint venture.
Income taxes of $23.5 million on this gain resulted primarily from recording deferred income taxes on outside basis
differences. The fair value of the Company’s contributed operations was determined using both an income-based and market-
based approach. The income approach utilized a discounted cash flow analysis which included significant assumptions about
the timing of future cash flows, growth rates and discount rates commensurate with the underlying risks of the investment. The
market approach entailed deriving market multiples from publicly traded companies with similar financial and operating
characteristics to PersolKelly Asia Pacific and corroborated the results of the discounted cash flow method.
The investment in equity affiliate on the Company’s consolidated balance sheet totaled $121.3 million as of year-end 2018 and
$117.4 million as of year-end 2017. The net amount due from PersolKelly Asia Pacific, a related party, was $10.2 million as of
year-end 2018, including loans made to PersolKelly Asia Pacific for a total of $7.0 million in 2018 to fund working capital
requirements as a result of their sustained revenue growth. The net amount due to PersolKelly Asia Pacific was $2.3 million as
of year-end 2017. The amount included in trade accounts payable for staffing services provided by PersolKelly Asia Pacific as
a supplier to secondary supplier programs was $0.2 million as of year-end 2018 and $2.5 million as of year-end 2017. In 2017,
TS Kelly Workforce Solutions, a previous joint venture which was transferred to PersolKelly Asia Pacific in the first quarter of
2017, made a loan repayment of $0.6 million to the Company.
6. Fair Value Measurements
Trade accounts receivable, accounts payable, accrued liabilities, accrued payroll and related taxes and short-term borrowings
approximate their fair values due to the short-term maturities of these assets and liabilities.
Assets Measured at Fair Value on a Recurring Basis
The following tables present assets measured at fair value on a recurring basis as of year-end 2018 and 2017 in the consolidated
balance sheet by fair value hierarchy level, as described below.
Level 1 measurements consist of unadjusted quoted prices in active markets for identical assets or liabilities. Level 2
measurements include quoted prices in markets that are not active or model inputs that are observable either directly or
indirectly for substantially the full term of the asset or liability. Level 3 measurements include significant unobservable inputs.
Description
Total
Level 2
Level 1
(In millions of dollars)
Level 3
Fair Value Measurements on a Recurring Basis
As of Year-End 2018
Money market funds
Investment in Persol Holdings
Total assets at fair value
Description
Money market funds
Investment in Persol Holdings
Total assets at fair value
$
$
$
$
$
4.6
135.1
$
4.6
135.1
— $
—
139.7
$
139.7
$
— $
Fair Value Measurements on a Recurring Basis
As of Year-End 2017
Total
Level 1
Level 2
(In millions of dollars)
Level 3
$
4.3
228.1
$
4.3
228.1
— $
—
232.4
$
232.4
$
— $
—
—
—
—
—
—
Money market funds as of year-end 2018 and 2017 represent investments in money market accounts, all of which are restricted
as to use and are included in other assets in the consolidated balance sheet. The money market funds that are restricted as to
use account for the majority of our restricted cash balance and represents cash balances that are required to be maintained to
fund disability claims in California. The valuations of money market funds were based on quoted market prices of those
accounts as of the respective period end.
The valuation of the investment in Persol Holdings is based on the quoted market price of Persol Holdings stock on the Tokyo
Stock Exchange as of the period end. Effective January 1, 2018, the changes in fair value of this investment are recorded in the
65
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
consolidated statements of earnings (see Investment in Persol Holdings footnote). In 2017, changes in fair value were recorded
in other comprehensive income, and in accumulated other comprehensive income (loss), a component of stockholders’ equity.
The cost of this yen-denominated investment, which fluctuates based on foreign exchange rates, was $18.8 million at year-end
2018 and $18.4 million at year-end 2017.
Equity Investment Without Readily Determinable Fair Value
The Company made a minority investment in Business Talent Group, LLC (“BTG”) in the third quarter of 2018, which is
included in other assets in the consolidated balance sheet. This investment is measured using the measurement alternative for
equity investments without a readily determinable fair value. The measurement alternative represents cost, less impairment,
plus or minus observable price changes. The carrying amount of $5.0 million represents the purchase price. There have been
no adjustments to the carrying amount or impairments on the investment as of year-end 2018.
Assets Measured at Fair Value on a Nonrecurring Basis
We completed our annual impairment test of goodwill for all reporting units in the fourth quarter for the fiscal years ended
2018 and 2017 and determined that goodwill was not impaired.
In 2018 and 2017, we performed a step one quantitative test for all of our reporting units with goodwill. For both years, the
estimated fair value of each reporting unit tested exceeded its related carrying value. As a result of these quantitative
assessments, we determined it was more likely than not that the fair value of each of the reporting units was more than its
carrying value.
7. Goodwill
The changes in the carrying amount of goodwill for the fiscal year 2018 are included in the table below. See Acquisition
footnote for a description of the additions to goodwill in 2018.
Americas Staffing
Global Talent Solutions
International Staffing
As of Year-End
2017
Additions to
Goodwill
As of Year-End
2018
(In millions of dollars)
44.6
62.5
—
$
0.2
$
—
—
107.1
$
0.2
$
$
$
44.8
62.5
—
107.3
66
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Other Assets
Included in other assets are the following:
Life insurance cash surrender value (see Retirement Benefits footnote)
French CICE (1)
Intangibles, net of accumulated amortization of $19.6 million in 2018 and $18.6 million
in 2017 (2)
Long-term customer receivable
Workers' compensation and other claims receivable (3)
Other (4)
2018
2017
(In millions of dollars)
$
172.5
$
26.4
16.5
12.4
8.6
28.8
188.7
28.1
18.2
12.4
10.5
13.9
Other assets
$
265.2
$
271.8
(1) French CICE is a wage subsidy receivable related to a law to enhance the competitiveness of businesses in France.
(2) In 2017, $18.3 million of intangibles were acquired through the acquisition of TOC, made up of $12.0 million in customer
relationships, $4.8 million associated with TOC’s trademark and $1.5 million for a candidate database. The customer
relationships are being amortized on a straight-line basis over 10 years with no residual value and the database is being
amortized on a straight-line basis over four years with no residual value. The trademark has an indefinite life. Intangible
amortization expense, which is included in SG&A expenses, was $1.8 million, $0.9 million and $0.6 million in 2018, 2017 and
2016, respectively. The amortization expense for the intangibles acquired in 2017 will be $1.6 million in 2019 and 2020, $1.5
million in 2021 and $1.2 million in 2022 and 2023.
(3) Workers’ compensation and other claims receivable represents receivables from the insurance company for U.S. workers’
compensation and automobile liability claims in excess of the applicable loss limits.
(4) The increase in Other as of year-end 2018 is primarily due to $7.0 million related to loans to our equity affiliate (see
Investment in PersolKelly Asia Pacific footnote); $5.0 million related to the minority investment in BTG and $2.3 million for
deferred sales commissions.
9. Debt
Short-Term Debt
The Company has a $150.0 million revolving credit facility (the “Facility”) with a termination date of December 6, 2021. The
Facility allows for borrowings in various currencies and is available to be used to fund working capital, acquisitions and
general corporate needs. The Facility is secured by assets of the Company, excluding trade accounts receivable.
At year-end 2018, there were no borrowings under the Facility and a remaining borrowing capacity of $150.0 million. At year-
end 2017, borrowings under the Facility were $9.5 million with an interest rate of 4.70%, and the remaining borrowing capacity
was $140.5 million. To maintain availability of the funds, we pay a facility fee on the full amount of the Facility, regardless of
usage. The facility fee varies based on the Company’s leverage ratio as defined in the agreement. The Facility, which contains
a cross-default clause that could result in termination if defaults occur under our other loan agreements, had a facility fee of
17.5 basis points at year-end 2018 and 2017. The Facility’s financial covenants and restrictions are described below, all of
which were met at year-end 2018:
• We must maintain a certain minimum ratio of earnings before interest, taxes, depreciation, amortization and certain
cash and non-cash charges that are non-recurring in nature (“EBITDA”) to interest expense (“Interest Coverage
Ratio”) as of the end of any fiscal quarter.
• We must maintain a certain maximum ratio of total indebtedness to the sum of net worth and total indebtedness at all
times.
• Dividends, stock buybacks and similar transactions are limited to certain maximum amounts.
• We must adhere to other operating restrictions relating to the conduct of business, such as certain limitations on asset
sales and the type and scope of investments.
67
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has a Receivables Purchase Agreement with Kelly Receivables Funding, LLC, a wholly owned bankruptcy
remote special purpose subsidiary of the Company (the “Receivables Entity”), related to its $200.0 million, three-year,
securitization facility (the “Securitization Facility”). The Receivables Purchase Agreement will terminate December 5, 2019,
unless terminated earlier pursuant to its terms.
Under the Securitization Facility, the Company will sell certain trade receivables and related rights (“Receivables”), on a
revolving basis, to the Receivables Entity. The Receivables Entity may from time to time sell an undivided variable percentage
ownership interest in the Receivables. The Securitization Facility, which contains a cross-default clause that could result in
termination if defaults occur under our other loan agreements, also allows for the issuance of standby letters of credit (“SBLC”)
and contains certain restrictions based on the performance of the Receivables.
As of year-end 2018, the Securitization Facility had no short-term borrowings, SBLCs of $55.0 million related to workers’
compensation at a rate of 0.90% and a remaining capacity of $145.0 million. As of year-end 2017, the Securitization Facility
had no short-term borrowings, SBLCs of $55.0 million related to workers’ compensation at a rate of 0.90% and a remaining
capacity of $145.0 million. The rate for short-term borrowings includes the LIBOR interest rate and a utilization rate on the
amount of our borrowings. The rates for the SBLCs represent a utilization rate on the outstanding amount of the SBLCs. In
addition, we pay a commitment fee of 40 basis points on the unused capacity.
The Receivables Entity’s sole business consists of the purchase or acceptance through capital contributions of trade accounts
receivable and related rights from the Company. As described above, the Receivables Entity may retransfer these receivables
or grant a security interest in those receivables under the terms and conditions of the Receivables Purchase Agreement. The
Receivables Entity is a separate legal entity with its own creditors who would be entitled, if it were ever liquidated, to be
satisfied out of its assets prior to any assets or value in the Receivables Entity becoming available to its equity holders, the
Company. The assets of the Receivables Entity are not available to pay creditors of the Company or any of its other
subsidiaries, until the creditors of the Receivables Entity have been satisfied. The assets and liabilities of the Receivables
Entity are included in the consolidated financial statements of the Company.
The Company had total unsecured, uncommitted short-term local credit facilities of $11.1 million as of year-end 2018. There
were $2.2 million borrowings under these lines at year-end 2018 compared to $0.7 million at year-end 2017. The weighted
average interest rate for these borrowings, which were primarily related to India, was 8.42% at year-end 2018 and 8.23% at
year-end 2017.
10. Retirement Benefits
U.S. Defined Contribution Plans
The Company provides a qualified defined contribution plan covering substantially all U.S.-based full-time employees, except
officers and certain other employees. The plan offers a savings feature with Company matching contributions. Assets of this
plan are held by an independent trustee for the sole benefit of participating employees.
A nonqualified plan is provided for officers and certain other employees. This plan includes provisions for salary deferrals and
Company matching contributions.
In addition to the plans above, the Company also provides a qualified plan and a nonqualified plan to certain U.S.-based
temporary employees.
The liability for the nonqualified plans was $174.8 million and $188.3 million as of year-end 2018 and 2017, respectively, and
is included in current accrued payroll and related taxes and noncurrent accrued retirement benefits in the consolidated balance
sheet. The cost of participants’ earnings or loss on this liability, which were included in SG&A expenses in the consolidated
statements of earnings, were a loss of $8.6 million in 2018, earnings of $22.3 million in 2017 and earnings of $10.5 million in
2016.
In connection with the administration of these plans, the Company has purchased company-owned variable universal life
insurance policies insuring the lives of certain current and former officers and key employees. The cash surrender value of
these policies, which is based primarily on investments in mutual funds and can only be used for payment of the Company’s
obligations related to the nonqualified deferred compensation plan noted above, was $172.5 million and $188.7 million at year-
end 2018 and 2017, respectively. The cash surrender value of these insurance policies is included in other assets in the
consolidated balance sheet. During 2018, proceeds of $7.9 million were received in connection with a partial surrender of
these policies. Tax-free earnings or loss on these assets, which were included in SG&A expenses in the consolidated statements
of earnings and which offset the related earnings or loss on the liability, were a loss of $8.8 million in 2018, earnings of $22.3
million in 2017 and earnings of $9.7 million in 2016.
68
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The net expense for retirement benefits for the qualified and nonqualified plans, including Company matching contributions for
full-time employees, totaled $9.5 million in 2018, $8.6 million in 2017 and $9.0 million in 2016. This expense is included in
total SG&A expenses in the consolidated statements of earnings. The expense related to retirement plan contributions for
temporary employees, which is included in cost of services, is reimbursed by our customers.
International Defined Benefit Plans
The Company has several defined benefit pension plans in locations outside of the United States. The total projected benefit
obligation, assets and unfunded liability for these plans as of year-end 2018 were $11.7 million, $7.9 million and $3.8 million,
respectively. The total projected benefit obligation, assets and unfunded liability for these plans as of year-end 2017 were
$13.3 million, $8.4 million and $4.9 million, respectively. Total pension expense for these plans was $0.5 million in 2018 and
$0.4 million in 2017 and 2016. Pension contributions and the amount of accumulated other comprehensive income expected to
be recognized in 2019 are not significant.
11. Stockholders’ Equity
Common Stock
The authorized capital stock of the Company is 100,000,000 shares of Class A common stock and 10,000,000 shares of Class B
common stock. Class A shares have no voting rights and are not convertible. Class B shares have voting rights and are
convertible by the holder into Class A shares on a share-for-share basis at any time. Both classes of stock have identical rights
in the event of liquidation.
Class A shares and Class B shares are both entitled to receive dividends, subject to the limitation that no cash dividend on the
Class B shares may be declared unless the board of directors declares an equal or larger cash dividend on the Class A shares.
As a result, a cash dividend may be declared on the Class A shares without declaring a cash dividend on the Class B shares.
69
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component, net of tax, during 2018, 2017 and 2016 are
included in the table below. Amounts in parentheses indicate debits. See Investment in Persol Holdings footnote for a
description of the cumulative-effect adjustment from the adoption of ASU 2016-01.
2018
2017
2016
(In millions of dollars)
Foreign currency translation adjustments:
Beginning balance
Other comprehensive income (loss) before classifications
Amounts reclassified from accumulated other comprehensive income
Net current-period other comprehensive income (loss)
Ending balance
$
$
(6.9)
(8.4)
(0.4) (1)
(8.8)
(15.7)
Unrealized gains and losses on investment:
Beginning balance
Cumulative-effect adjustment from adoption of ASU 2016-01, Financial
Instruments
Other comprehensive income (loss) before classifications
Amounts reclassified from accumulated other comprehensive income
Net current-period other comprehensive income (loss)
Ending balance
Pension liability adjustments:
Beginning balance
Other comprehensive income (loss) before classifications
Amounts reclassified from accumulated other comprehensive income
Net current-period other comprehensive income (loss)
Ending balance
140.0
(140.0)
—
—
(140.0)
—
(2.3)
0.8
0.1 (2)
0.9
(1.4)
(1.8)
(0.6)
0.1 (2)
(0.5)
(2.3)
(23.3)
16.4
—
16.4
(6.9)
83.8
—
56.2
—
56.2
140.0
$
(22.6)
(0.6)
(0.1) (1)
(0.7)
(23.3)
84.9
—
(1.1)
—
(1.1)
83.8
(1.6)
(0.3)
0.1 (2)
(0.2)
(1.8)
Total accumulated other comprehensive income (loss)
$
(17.1)
$
130.8
$
58.7
(1) Amount was recorded in the other expense, net line item in the consolidated statements of earnings.
(2) Amount was recorded in the SG&A expenses line item in the consolidated statements of earnings.
70
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Earnings Per Share
The reconciliation of basic earnings per share on common stock for the year-end 2018, 2017 and 2016 follows (in millions of
dollars except per share data).
Net earnings
Less: Earnings allocated to participating securities
Net earnings available to common shareholders
Average common shares outstanding (millions):
Basic
Dilutive share awards
Diluted
Basic earnings per share
Diluted earnings per share
2018
2017
2016
$
$
$
$
22.9
(0.2)
22.7
$
$
38.8
0.3
39.1
0.59
0.58
$
$
71.6
(1.1)
70.5
$
$
38.3
0.7
39.0
1.84
1.81
$
$
120.8
(2.6)
118.2
38.1
0.3
38.4
3.10
3.08
Potentially dilutive shares outstanding are primarily related to performance shares for 2018, 2017, and 2016. Stock options
excluded from the computation of diluted earnings per share due to their anti-dilutive effect for 2016 were not significant, and
all remaining stock options expired in the second quarter of 2016.
We have presented earnings per share for our two classes of common stock on a combined basis. This presentation is
consistent with the earnings per share computations that result for each class of common stock utilizing the two-class method as
described in ASC Topic 260, “Earnings Per Share”. The two-class method is an earnings allocation formula which determines
earnings per share for each class of common stock according to the dividends declared (or accumulated) and participation
rights in the undistributed earnings.
In applying the two class method, we have determined that the undistributed earnings should be allocated to each class on a pro
rata basis after consideration of all of the participation rights of the Class B shares (including voting and conversion rights) and
our history of paying dividends equally to each class of common stock on a per share basis.
The Company’s Restated Certificate of Incorporation allows the board of directors to declare a cash dividend to Class A shares
without declaring equal dividends to the Class B shares. Class B shares’ voting and conversion rights, however, effectively
allow the Class B shares to participate in dividends equally with Class A shares on a per share basis.
The Class B shares are the only shares with voting rights. The Class B shareholders are therefore able to exercise voting
control with respect to all matters requiring stockholder approval, including the election of or removal of directors. The board
of directors has historically declared and the Company historically has paid equal per share dividends on both the Class A and
Class B shares. Each class has participated equally in all dividends declared since 1987.
In addition, Class B shares are convertible, at the option of the holder, into Class A shares on a one-for-one basis. As a result,
Class B shares can participate equally in any dividends declared on the Class A shares by exercising their conversion rights.
13. Stock-Based Compensation
Under the Equity Incentive Plan, amended and restated February 15, 2017 and approved by the stockholders of the Company
on May 10, 2017 (the “EIP”), the Company may grant stock options (both incentive and nonqualified), stock appreciation
rights, restricted stock and performance awards to key employees associated with the Company’s Class A stock. For shares
granted prior to May 10, 2017, the EIP provides that the maximum number of shares available for grants is 15% of the
outstanding Class A Stock, adjusted for EIP activity over the preceding five years. For shares granted after May 10, 2017, the
amended EIP provides that the maximum number of shares available for grants is 4.7 million. The Company has no plans to
issue additional shares under the provision that was in effect prior to May 10, 2017. Under the provision that was in effect for
shares granted after May 10, 2017, shares available for future grants at year-end 2018 were 4.0 million. The Company issues
shares out of treasury stock to satisfy stock-based awards. The Company presently has no intent to repurchase additional shares
for the purpose of satisfying stock-based awards.
The Company recognized stock-based compensation cost of $8.1 million in 2018, $9.1 million in 2017 and $10.2 million in
2016, as well as related tax benefits of $4.4 million in 2018, $4.2 million in 2017 and $3.9 million in 2016.
71
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Restricted Stock
Restricted stock, which typically vests over four years, is issued to certain key employees and is subject to forfeiture until the
end of an established restriction period. The Company utilizes the market price of its Class A stock on the date of grant as the
fair value of restricted stock and expenses the fair value on a straight-line basis over the vesting period.
A summary of the status of nonvested restricted stock under the EIP as of year-end 2018 and changes during this period is
presented as follows below (in thousands of shares except per share data):
Nonvested at year-end 2017
Granted
Vested
Forfeited
Nonvested at year-end 2018
Restricted
Stock
Weighted
Average
Grant Date
Fair Value
440
$
157
(187)
(54)
356
$
18.76
28.79
17.67
20.78
23.44
As of year-end 2018, unrecognized compensation cost related to unvested restricted stock totaled $6.1 million. The weighted
average period over which this cost is expected to be recognized is approximately 1.8 years. The weighted average grant date
fair value per share of restricted stock granted during 2018, 2017 and 2016 was $28.79, $21.97 and $17.08, respectively. The
total fair value of restricted stock, which vested during 2018, 2017 and 2016, was $4.9 million, $5.8 million and $6.4 million,
respectively.
Performance Shares
During 2018, 2017, and 2016, the Company granted performance awards associated with the Company’s Class A stock to
certain senior officers. The payment of performance shares, which will be satisfied with the issuance of shares out of treasury
stock, is contingent upon the achievement of specific gross profit and operating earnings performance goals over a stated period
of time.
2018 Grant
For the 2018 performance share grant (“2018 grant”), the total target number of performance shares granted is 222,000, of
which 177,000 shares are eligible to earn up to the maximum number of performance shares of 355,000, which assumes 200%
of the target shares originally granted. Target shares of 118,000 may be earned upon achievement of two financial goals
(“financial measure performance shares”) and target shares of 59,000 may be earned based on the Company’s total shareholder
return (“TSR”) relative to the S&P SmallCap 600 Index (“TSR performance shares”). These financial measure performance
and TSR performance shares have a three-year performance period through December 31, 2020 and if earned, will cliff-vest
after the approval by the Compensation Committee, which will be no later than March 15, 2021, if not forfeited by the
recipient. No dividends are paid on financial measure and TSR performance shares. The 2018 grant also included 45,000
single financial measure performance shares, which have one performance measure with a one-year performance period. These
single financial measure performance shares vest over four years and earn dividends, which are not paid until the awards vest.
The financial measure performance shares have a weighted average grant date fair value of $28.40. For each of the two
financial measures, there are annual goals set in February of each year, with the total award payout based on a cumulative
average of the 2018, 2019, and 2020 goals. Accordingly, the Company remeasures the fair value of the 2018 financial measure
performance shares each reporting period until the 2020 goals are set, after which the fair value will be fixed for the remaining
performance period. As of year-end 2018, the current fair value for financial measure performance shares is $19.41. The total
nonvested shares at maximum level (200%) related to financial measure performance awards at year-end 2018 is 219,000.
The TSR performance shares have an estimated fair value of $31.38, which was computed using a Monte Carlo simulation
model incorporating assumptions for inputs of expected stock price volatility, dividend yield and risk-free rate. The total
nonvested shares at maximum level (200%) related to TSR performance awards at year-end 2018 is 109,000.
72
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2017 Grant
For the 2017 performance share grant (“2017 grant”), the total target number of performance shares granted is 387,000, of
which 304,000 shares are eligible to earn up to the maximum number of performance shares of 609,000, which assumes 200%
of the target shares originally granted. Target shares of 203,000 may be earned upon the achievement of two financial goals
(“financial measure performance shares”) and target shares of 101,000 may be earned based on the Company’s total
shareholder return relative to the S&P SmallCap 600 Index (“TSR performance shares”). These financial measure performance
and TSR performance shares have a three-year performance period through December 31, 2019, and if earned, will cliff-vest
after the approval by the Compensation Committee, which will be no later than March 15, 2020, if not forfeited by the
recipient. No dividends are paid on financial measure and TSR performance shares. The 2017 grant also included 83,000
single financial measure performance shares, which have one performance measure with a one-year performance period. These
single financial measure performance shares vest over four years and earn dividends, which are not paid until the awards vest.
The financial measure performance shares have a weighted average grant date fair value of $21.07. For each of the two
financial measures, there are annual goals set in February of each year, with the total award payout based on a cumulative
average of the 2017, 2018 and 2019 goals. Accordingly, the Company remeasures the fair value of the 2017 financial measure
performance shares each reporting period until the 2019 goals are set, after which the fair value will be fixed for the remaining
performance period. As of year-end 2018, the current fair value for financial measure performance shares is $19.41. The total
nonvested shares at maximum level (200%) related to financial measure performance awards at year-end 2018 is 254,000.
The TSR performance shares have an estimated fair value of $20.16, which was computed using a Monte Carlo simulation
model incorporating assumptions for inputs of expected stock price volatility, dividend yield and risk-free interest rate. The
total nonvested shares at maximum level (200%) related to TSR performance awards at year-end 2018 is 127,000.
2016 Grant
For the 2016 performance share grant (“2016 grant”), the total target number of performance shares granted is 332,000, and the
maximum number of performance shares that may be earned is 663,000, which assumes 200% of the target shares originally
granted. Target shares of 249,000 may be earned upon the achievement of three financial goals (“financial measure
performance shares”) and target shares of 83,000 may be earned based on the Company’s total shareholder return relative to the
S&P SmallCap 600 Index (“TSR performance shares”). These financial measure performance and TSR performance shares
had a three-year performance period through December 31, 2018. No dividends were paid on financial measure or TSR
performance shares.
The financial measure performance shares, which have a weighted average grant date fair value of $15.85. For each of the
three financial measures, there are annual goals set in February of each year, with the total award payout based on a cumulative
average of the 2016, 2017 and 2018 goals. During the first quarter of 2018, the final year of goals was set and the grant date
fair value for the 2016 financial measure performance shares was set at $28.40, and remained fixed for the remaining
performance period. Based upon the level of achievement of specific financial performance goals for the 2016 grant,
participants had the ability to receive up to 200% of the target number of shares originally granted. On February 13, 2019, the
Compensation Committee approved the actual performance achievement of the financial measure performance shares for the
2016 grant. Actual performance resulted in participants achieving approximately 70% of target. These shares will cliff-vest
after the approval by the Compensation Committee, which will be no later than March 15, 2019, if not forfeited by the
recipient. The total nonvested shares related to the financial measure performance awards at year-end 2018 is 117,000.
The TSR performance shares have an estimated fair value of $19.73, which was computed using a Monte Carlo simulation
model incorporating assumptions for inputs of expected stock price volatility, dividend yield and risk-free interest rate. Based
upon the level of achievement of the Company’s TSR relative to the S&P SmallCap 600 Index for the 2016 grant, participants
had the ability to receive up to 200% of the target number of shares originally granted. On February 13, 2019, the
Compensation Committee approved the actual achievement of the TSR performance shares for the 2016 grant. Actual
performance resulted in participants achieving approximately 104% of target. These shares will cliff-vest after the approval by
the Compensation Committee, which will be no later than March 15, 2019, if not forfeited by the recipient. The total nonvested
shares related to the TSR performance awards at year-end 2018 is 57,000.
73
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summary of the status of all nonvested performance shares at target for 2018 is presented as follows below (in thousands of
shares except per share data). The majority of the vested shares below is related to the 2015 performance share grant, which
cliff-vested after approval from the Compensation Committee during the first quarter of 2018.
Nonvested at year-end 2017
Granted
Vested
Forfeited
Nonvested at year-end 2018
Financial Measure
Performance Shares
TSR
Performance Shares
Weighted
Average Grant
Date Fair
Value
Shares
Weighted
Average Grant
Date Fair
Value
Shares
592
$
163
(229)
(45)
481
$
22.32
28.64
16.62
26.18
23.58
240
$
59
(109)
(17)
173
$
18.17
31.38
16.01
22.94
23.56
As of year-end 2018, unrecognized compensation cost related to all unvested financial measure performance shares and TSR
performance shares totaled $2.1 million and $1.6 million, respectively. The weighted average period over which the costs are
expected to be recognized is approximately 1.7 years for both financial measure performance shares and TSR performance
shares. The total fair value of financial measure performance shares and TSR performance shares, which vested during 2018,
was $7.7 million and $6.3 million, respectively.
14. Other Expense, Net
Included in other expense, net are the following:
Interest income
Interest expense
Dividend income
Foreign exchange gains (losses)
Other
Other expense, net
2018
2017
2016
(In millions of dollars)
$
0.8
(3.1)
1.6
0.3
(0.2)
$
0.7
(2.7)
1.5
(1.1)
—
(0.6) $
(1.6) $
0.4
(3.8)
1.2
1.6
(0.1)
(0.7)
$
$
Dividend income includes dividends earned on the Company’s investment in Persol Holdings (see Investment in Persol
Holdings footnote).
15. Income Taxes
Earnings (loss) before taxes and equity in net earnings (loss) of affiliate for the years 2018, 2017 and 2016 were taxed under the
following jurisdictions:
Domestic
Foreign
Total
2018
$
$
74
2017
(In millions of dollars)
$
55.2
26.5
81.7
$
$
53.1
(62.5)
(9.4) $
2016
112.4
37.3
149.7
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The provision for income taxes was as follows:
2018
2017
(In millions of dollars)
2016
$
$
$
6.1
3.1
11.2
20.4
(15.6)
1.0
(32.9)
(47.5)
(27.1) $
6.6
2.4
9.7
18.7
0.4
0.1
(6.4)
(5.9)
12.8
$
$
10.2
2.4
10.0
22.6
11.8
2.0
(6.4)
7.4
30.0
(13.4)
57.3
14.5
(60.1)
(15.5)
38.8
132.7
3.1
(34.6)
122.8
2018
2017
(In millions of dollars)
(15.6) $
52.0
15.0
(30.9)
(15.8)
30.8
155.6
3.9
(27.8)
167.2
$
2018
2017
(In millions of dollars)
198.7
(31.5)
167.2
$
$
183.4
(60.6)
122.8
$
$
$
$
Current tax expense:
U.S. federal
U.S. state and local
Foreign
Total current
Deferred tax (benefit) expense:
U.S. federal
U.S. state and local
Foreign
Total deferred
Total provision
Deferred taxes are comprised of the following:
Depreciation and amortization
Employee compensation and benefit plans
Workers’ compensation
Unrealized gain on securities
Investment in equity affiliate
Loss carryforwards
Credit carryforwards
Other, net
Valuation allowance
Net deferred tax assets
The deferred tax balance is classified in the consolidated balance sheet as:
Deferred tax asset
Other long-term liabilities
75
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The differences between income taxes from continuing operations for financial reporting purposes and the U.S. statutory rate of
21% in 2018 and 35% in 2017 and 2016 are as follows:
2017
(In millions of dollars)
$
Income tax based on statutory rate
State income taxes, net of federal benefit
Foreign tax rate differential
General business credits
Life insurance cash surrender value
Foreign items
GILTI, net of foreign tax credit
Foreign-derived intangible income
Foreign business taxes
Non-deductible expenses
Tax law change
PersolKelly Asia Pacific transaction gain
Change in deferred tax realizability
Stock compensation
Other, net
Total
2018
$
$
(2.0) $
3.2
(8.3)
(22.6)
2.1
1.9
0.5
(0.9)
4.2
2.6
(0.5)
—
(4.3)
(3.0)
—
(27.1) $
2016
52.4
2.9
(4.5)
(17.0)
(3.0)
4.9
—
—
3.6
1.6
—
(4.8)
(5.9)
—
(0.2)
30.0
28.6
1.6
(1.5)
(18.1)
(7.4)
(1.3)
—
—
4.0
1.3
13.9
—
(7.8)
(0.7)
0.2
12.8
$
Our tax benefit or expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S.
work opportunity credits and the change in cash surrender value of non-taxable investments in life insurance policies. It is also
affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law
changes, changes in judgment regarding the realizability of deferred tax assets, or the tax effects of stock compensation. With
the Company’s adoption of ASU 2016-01 in the first quarter of 2018, changes in the fair value of the Company’s investment in
Persol Holdings are now recognized in the consolidated statements of earnings. These investment gains or losses are treated as
discrete since they cannot be estimated.
Several items have contributed to the variance in our income tax benefit or expense over the last three years. Income tax
benefit for 2018 included a $29.4 million benefit from the loss on our investment in Persol Holdings, a lower U.S. income tax
rate, and a benefit on the release of valuation allowances in Australia, offset by non-deductible losses on life insurance policies.
Income tax expense in 2017 included a $13.9 million charge to revalue net deferred tax assets due to the U.S. Tax Cuts and
Jobs Act (“the Act”), which reduced the U.S. federal corporate income tax rate from 35% to 21%. This charge was offset by a
benefit from tax-exempt income on life insurance policies, and a benefit from the release of valuation allowances in Norway,
Germany and France. Income tax expense in 2016 included a $23.5 million charge from the gain on the investment in
PersolKelly Asia Pacific, offset by a benefit from the release of valuation allowances in Italy.
General business credits primarily represent U.S. work opportunity credits. Foreign items include foreign tax credits, foreign
non-deductible expenses and non-taxable income. Foreign business taxes include the French business tax and other taxes based
on revenue less certain expenses and are classified as income taxes under ASC Topic 740 (“ASC 740”), Income Taxes. Non-
deductible expenses include executive compensation and business meals and entertainment. For 2017, tax law change
represents the revaluing of net deferred tax assets as a result of the Act. Among other things, the Act reduced the U.S. federal
corporate tax rate from 35% to 21%, effective January 1, 2018, and imposed a one-time transition tax on the Company's
accumulated foreign earnings. For year-end 2017, the Company anticipated that the one-time transition tax under the Act
would be zero. In accordance with SEC Staff Accounting Bulletin 118, a provisional amount of zero was recorded due to the
need for additional analysis of historical data. During the third quarter of 2018, we completed our analysis of foreign
subsidiary earnings and profits and finalized our transition tax calculation. Consistent with our estimate at year-end 2017, the
transition tax was zero.
The Company has U.S. general business credit carryforwards of $149.6 million which will expire from 2033 to 2038, foreign
tax credit carryforwards of $5.9 million that expire from 2022 to 2028 and $0.1 million of state credit carryforwards that expire
from 2026 to 2038, or have no expiration. The net tax effect of state and foreign loss carryforwards at year-end 2018 totaled
$30.8 million, which expire as follows (in millions of dollars):
76
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Year
Amount
0.7
0.6
29.5
30.8
$
$
2019-2020
2021-2035
No expiration
Total
The work opportunity credit program generates a significant tax benefit. It is a temporary provision in the U.S. tax law and
expires for employees hired after 2019. While the work opportunity credit has routinely been extended, it is uncertain whether
it will again be extended. In the event the program is not renewed, we will continue to receive credits for qualified employees
hired prior to 2020.
The Company has established a valuation allowance for loss carryforwards and future deductible items in certain foreign
jurisdictions, and for U.S. foreign tax credit carryforwards. The valuation allowance is determined in accordance with the
provisions of ASC 740, which requires an assessment of both negative and positive evidence when measuring the need for a
valuation allowance. The Company’s recent losses in these foreign jurisdictions, and its recent lack of adequate U.S. foreign
source income to fully utilize foreign tax credit carryforwards, represented sufficient negative evidence to require a valuation
allowance under ASC 740. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to
support realization of the foreign deferred tax assets. Sustained profitability by our United Kingdom subsidiaries makes release
of their $14.2 million valuation allowance possible in the near term.
Provision has not been made for additional income taxes on an estimated $141.8 million of undistributed earnings which are
indefinitely reinvested. If these earnings were to be repatriated, the Company could be subject to foreign withholding tax and
federal and state income tax, net of federal benefit, of $8.9 million. There would also be income taxes on foreign exchange
gains or losses.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at beginning of the year
Additions for prior years’ tax positions
Reductions for prior years’ tax positions
Additions for settlements
Reductions for settlements
Reductions for expiration of statutes
Balance at end of the year
2018
$
$
2017
(In millions of dollars)
$
1.4
$
1.2
—
—
—
—
(0.1)
—
—
—
—
(0.2)
1.1
$
1.2
$
2016
1.7
0.1
—
—
—
(0.4)
1.4
If the $1.1 million in 2018, $1.2 million in 2017 and $1.4 million in 2016 of unrecognized tax benefits were recognized, they
would have a favorable effect of $0.9 million in 2018, $1.0 million in 2017 and $1.0 million in 2016 on income tax expense.
The Company recognizes both interest and penalties as part of the income tax provision. Interest and penalties expense in
2018, 2017 and 2016 were not significant. Accrued interest and penalties were $0.2 million at year-end 2018 and 2017.
The Company files income tax returns in the U.S. and in various states and foreign countries. The tax periods open to
examination by the major taxing jurisdictions to which the Company is subject include the U.S. for fiscal years 2015 through
2018, Canada for fiscal years 2011 through 2018, France for fiscal years 2013 through 2018, Mexico for fiscal years 2013
through 2018, Portugal for fiscal years 2015 through 2018, Russia for fiscal years 2016 through 2018, Switzerland for fiscal
years 2009 through 2018, and the United Kingdom for fiscal years 2002 through 2018.
The Company and its subsidiaries have various income tax returns in the process of examination. The unrecognized tax benefit
and related interest and penalty balances include approximately $0.3 million for 2018, related to tax positions which are
reasonably possible to change within the next twelve months due to income tax audits, settlements and statute expirations.
77
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Supplemental Cash Flow Information
Changes in operating assets and liabilities, net of acquisition, as disclosed in the statements of cash flows, for the fiscal years
2018, 2017 and 2016, respectively, were as follows:
Increase in trade accounts receivable
Increase in prepaid expenses and other assets
Increase in accounts payable and accrued liabilities
(Decrease) increase in accrued payroll and related taxes
Increase in accrued workers’ compensation and other claims
Increase in income and other taxes
2018
$
2017
(In millions of dollars)
(126.2) $
(14.2)
63.9
32.9
6.7
7.1
(32.0) $
(9.5)
17.0
(21.0)
1.9
2.1
Total changes in operating assets and liabilities, net of acquisition
$
(41.5) $
(29.8) $
2016
(93.9)
(10.5)
58.4
1.9
2.4
2.2
(39.5)
The Company paid interest of $1.6 million in 2018, $1.9 million in 2017 and $2.7 million in 2016. The Company paid income
taxes of $18.3 million in 2018, $20.1 million in 2017 and $24.0 million in 2016.
Non-cash capital expenditures totaled $1.8 million, $3.0 million and $1.7 million at year-end 2018, 2017 and 2016,
respectively.
17. Commitments
The Company conducts its branch-based operations primarily from leased facilities. The following is a schedule by fiscal year
of future minimum commitments under operating leases as of year-end 2018 (in millions of dollars):
Fiscal year:
2019
2020
2021
2022
2023
Later years
Total
$
$
26.7
20.4
15.2
9.8
4.7
4.9
81.7
Lease expense for fiscal 2018, 2017 and 2016 amounted to $31.4 million, $31.3 million and $33.1 million, respectively.
In addition to operating lease agreements, the Company has entered into noncancelable purchase obligations totaling $33.1
million. These obligations relate primarily to online tools and voice and data communications services which the Company
expects to utilize generally within the next two fiscal years, in the ordinary course of business. The Company has no material
unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated entities.
See the Debt and Retirement Benefits footnotes for commitments related to debt and pension obligations.
18. Contingencies
In the ordinary course of business, the Company is continuously engaged in litigation, threatened litigation, or investigations
arising in the ordinary course of its business, such as matters alleging auto liability, employment discrimination, wage and hour
violations, claims for indemnification or liability, or violations of privacy rights or anti-competition regulations, which could
result in a material adverse outcome. There are matters that were stayed pending a decision from the United States Supreme
Court in the matter of Epic Systems Corp. v. Lewis, regarding the enforceability of class action waivers in favor of arbitration.
On May 21, 2018, the Court determined that class action waivers in employment contracts are enforceable. As a result of the
ruling, the majority of courts have been enforcing our arbitration agreements and class action waivers, and staying class action
matters pending the results of the individual arbitration proceedings.
78
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We record accruals for loss contingencies when we believe it is probable that liability has been incurred and the amount of loss
can be reasonably estimated. Such accruals are recorded in accounts payable and accrued liabilities and in accrued workers’
compensation and other claims in the consolidated balance sheet. At year-end 2018 and 2017, the gross accrual for litigation
costs amounted to $12.8 million and $5.3 million, respectively.
The Company maintains insurance coverage which may cover certain claims. When claims exceed the applicable loss limit
and realization of recovery of the claim from existing insurance policies is deemed probable, the Company records receivables
from the insurance company for the excess amount, which are included in prepaid expenses and other current assets in the
consolidated balance sheet. At year-end 2018, the related insurance recoveries amounted to $6.1 million. As of year-end 2017,
there were no insurance recoveries.
The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is zero to $2.1 million
as of year-end 2018. This range includes matters where a liability has been accrued but it is reasonably possible that the
ultimate loss may exceed the amount accrued and for matters where a loss is believed to be reasonably possible, but a liability
has not been accrued. The aggregate range only represents matters in which we are currently able to estimate a range of loss
and does not represent our maximum loss exposure. The estimated range is subject to significant judgment and a variety of
assumptions and only based upon currently available information. For other matters, we are currently not able to estimate the
reasonably possible loss or range of loss.
While the ultimate outcome of these matters cannot be predicted with certainty, we believe that the resolution of any such
proceedings will not have a material adverse effect on our financial condition, results of operations or cash flows.
19. Segment Disclosures
The Company’s segments are based on the organizational structure for which financial results are regularly evaluated by the
CODM (the Company’s CEO) to determine resource allocation and assess performance. The Company’s three reportable
segments, (1) Americas Staffing, (2) GTS and (3) International Staffing, reflect how the Company delivers services to
customers and how its business is organized internally. Intersegment revenue represents revenue earned between the reportable
segments and is eliminated from total segment revenue from services.
Americas Staffing represents the Company’s branch-delivered staffing business in the U.S., Canada, Puerto Rico, Mexico and
Brazil. International Staffing represents the EMEA region branch-delivered staffing business. Americas Staffing and
International Staffing both deliver temporary staffing, as well as direct-hire placement services, in office-clerical, light
industrial and professional and technical specialties within their geographic regions. Americas Staffing also includes
educational staffing in the U.S.
GTS combines the delivery structure of the Company’s outsourcing and consulting group and centrally delivered staffing
business. It reflects the trend of customers towards the adoption of holistic talent supply chain solutions which combine
contingent labor, full-time hiring and outsourced services. GTS includes centrally delivered staffing, RPO, CWO, BPO, PPO,
KellyConnect, career transition/outplacement services and talent advisory services.
Corporate expenses that directly support the operating units have been allocated to Americas Staffing, GTS and International
Staffing based on work effort, volume or, in the absence of a readily available measurement process, proportionately based on
gross profit realized. Unallocated corporate expenses include those related to incentive compensation, law and risk
management, certain finance and accounting functions, executive management, corporate campus facilities, IT production
support, certain legal costs and expenses related to corporate initiatives that do not benefit a specific operating segment.
The following tables present information about the reported revenue from services and gross profit of the Company by
segment, along with a reconciliation to consolidated earnings (loss) before taxes and equity in net earnings (loss) of affiliate,
for 2018, 2017 and 2016. Asset information by reportable segment is not presented, since the Company does not produce such
information internally nor does it use such data to manage its business.
79
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
$
$
$
Revenue from Services:
Americas Staffing
Global Talent Solutions
International Staffing
Less: Intersegment revenue
Consolidated Total
Earnings from Operations:
Americas Staffing gross profit
Americas Staffing SG&A expenses
Americas Staffing Earnings from Operations
Global Talent Solutions gross profit
Global Talent Solutions SG&A expenses
Global Talent Solutions Earnings from Operations
International Staffing gross profit
International Staffing SG&A expenses
International Staffing Earnings from Operations
Less: Intersegment gross profit
Less: Intersegment SG&A expenses
Net Intersegment Activity
Corporate
Consolidated Total
Loss on investment in Persol Holdings
Gain on investment in PersolKelly Asia Pacific
Other expense, net
2018
2017
2016
(In millions of dollars)
2,417.7
$
2,345.9
$
1,997.4
1,116.6
1,998.9
1,048.2
2,191.6
1,977.1
1,127.1
(17.8)
(18.6)
(19.0)
5,513.9
$
5,374.4
$
5,276.8
2018
2017
2016
(In millions of dollars)
$
441.3
(364.2)
77.1
$
429.1
(346.4)
82.7
381.1
(296.5)
84.6
152.3
(132.3)
20.0
(2.5)
2.5
—
(94.3)
87.4
(96.2)
—
(0.6)
373.7
(296.7)
77.0
153.7
(131.6)
22.1
(2.4)
2.4
—
(98.5)
83.3
—
—
(1.6)
398.2
(329.4)
68.8
345.9
(287.7)
58.2
166.4
(146.9)
19.5
(4.2)
4.2
—
(83.3)
63.2
—
87.2
(0.7)
Earnings (loss) before taxes and equity in net earnings
(loss) of affiliate
$
(9.4) $
81.7
$
149.7
80
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summary of revenue from services by geographic area for 2018, 2017 and 2016 follows:
Revenue From Services:
United States
International
Total
2018
2017
(In millions of dollars)
2016
$
$
$
3,930.0
1,583.9
$
3,894.6
1,479.8
3,722.5
1,554.3
5,513.9
$
5,374.4
$
5,276.8
Foreign revenue is based on the country in which the legal subsidiary is domiciled. No single foreign country’s revenue
represented more than 10% of the consolidated revenues of the Company. No single customer represented more than 10% of
the consolidated revenues of the Company.
A summary of long-lived assets information by geographic area as of year-end 2018 and 2017 follows:
Long-Lived Assets:
United States
International
Total
2018
2017
(In millions of dollars)
$
$
$
76.8
9.5
86.3
$
74.3
11.8
86.1
Long-lived assets represent property and equipment. No single foreign country’s long-lived assets represented more than 10%
of the consolidated long-lived assets of the Company.
20. New Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, which aligns the requirements for
capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for
capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an
internal-use software license). The ASU is effective for annual reporting periods beginning after December 15, 2019, including
interim reporting periods within those annual periods, with early adoption permitted. Entities have the option to apply the
guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively. We are currently
evaluating the impact of the new guidance on our consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13 which eliminates, adds and modifies certain fair value measurement
disclosures. The ASU is effective for annual reporting periods beginning after December 15, 2019, including interim reporting
periods within those annual periods, with early adoption permitted. We do not expect the adoption of this standard to have a
material impact to our consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07 simplifying the accounting for nonemployee share-based payment awards by
expanding the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for
acquiring goods and services from nonemployees. Under the new standard, most of the guidance on stock compensation
payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The ASU
is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those
annual reporting periods, with early adoption permitted. We are currently evaluating the impact of the new guidance on our
consolidated financial statements and related disclosures.
In February 2018, the FASB issued ASU 2018-02 allowing reclassification from accumulated other comprehensive income
(loss) to retained earnings for the income tax effects resulting from the Act enacted by the U.S. federal government in
December 2017. The new guidance eliminates the stranded tax effects resulting from the Act and will improve the usefulness
of information reported to financial statement users. It also requires certain disclosures about stranded tax effects. ASU
2018-02 relates only to the reclassification of the income tax effects of the Act and does not change the underlying guidance
requiring that the effect of a change in tax laws or rates be included in income from continuing operations. The ASU is
effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. It should be
81
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the
U.S. federal corporate income tax rate in the Act is recognized. Early adoption is permitted. We adopted this guidance during
the second quarter of 2018. We elected not to reclassify the income tax effects of the Act from accumulated other
comprehensive income (loss) to retained earnings.
In May 2017, the FASB issued ASU 2017-09 clarifying when changes to the terms or conditions of a share-based payment
award must be accounted for as modifications. The new guidance will reduce diversity in practice and result in fewer changes
to the terms of an award being accounted for as modifications. It does not change the accounting for modifications. The ASU
was effective prospectively for reporting periods beginning after December 15, 2017, with early adoption permitted, including
adoption in any interim period for which financial statements have not yet been issued. The adoption of this ASU did not have
an impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04 simplifying the accounting for goodwill impairment for all entities. The new
guidance eliminates the requirement to calculate the implied fair value of goodwill (Step 2 of the current two-step goodwill
impairment test under ASC 350). Instead, entities will record an impairment charge based on the excess of a reporting unit’s
carrying amount over its fair value (Step 1 of the current two-step goodwill impairment test). The ASU is effective
prospectively for reporting periods beginning after December 15, 2019, with early adoption permitted for annual and interim
goodwill impairment testing dates after January 1, 2017. We elected to early adopt ASU 2017-04 as of year-end 2018 and the
adoption of this ASU did not have an impact on our goodwill impairment testing process or our consolidated financial
statements.
In November 2016, the FASB issued ASU 2016-18 amending the presentation of restricted cash within the statement of cash
flows. The new guidance requires that restricted cash be included within cash and cash equivalents on the statement of cash
flows. The ASU was effective retrospectively for reporting periods beginning after December 15, 2017, with early adoption
permitted. We adopted this guidance effective January 1, 2018. See the consolidated statement of cash flows for the impact of
this standard.
In August 2016, the FASB issued ASU 2016-15 clarifying how entities should classify certain cash receipts and payments on
the statement of cash flows. The new guidance addresses classification of cash flows related to the following transactions: 1)
debt prepayment or debt extinguishment costs; 2) settlement of zero-coupon debt instruments or other debt instruments with
coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; 3) contingent consideration
payments made after a business combination; 4) proceeds from the settlement of insurance claims; 5) proceeds from the
settlement of corporate-owned life insurance policies; 6) distributions received from equity method investees; and 7) beneficial
interests in securitization transactions. ASU 2016-15 also clarifies how the predominance principle should be applied when
cash receipts and cash payments have aspects of more than one class of cash flows. This ASU was effective for annual periods,
and interim periods within those annual periods, beginning after December 15, 2017 and required retrospective application.
Early adoption was permitted. We adopted this guidance effective January 1, 2018 and the impact related to this
implementation was immaterial.
In June 2016, the FASB issued ASU 2016-13 amending how entities will measure credit losses for most financial assets and
certain other instruments that are not measured at fair value through net income. The guidance requires the application of a
current expected credit loss model, which is a new impairment model based on expected losses. Under this model, an entity
recognizes an allowance for expected credit losses based on historical experience, current conditions and forecasted information
rather than the current methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This
ASU is effective for interim and annual reporting periods beginning after December 15, 2019 with early adoption permitted for
annual reporting periods beginning after December 15, 2018. We are currently evaluating the impact of the new guidance on
our consolidated financial statements and related disclosures. This ASU applies to trade accounts receivable and may have an
impact on our calculation of the allowance for uncollectible accounts receivable.
In February 2016, the FASB issued ASU 2016-02 amending the existing accounting standards for lease accounting and
requiring lessees to recognize lease assets and lease liabilities for all leases with lease terms of more than 12 months, including
those classified as operating leases. Both the asset and liability will initially be measured at the present value of the future
minimum lease payments, with the asset being subject to adjustments such as initial direct costs. Consistent with current U.S.
GAAP, the presentation of expenses and cash flows will depend primarily on the classification of the lease as either a finance or
an operating lease. The new standard also requires additional quantitative and qualitative disclosures regarding the amount,
timing and uncertainty of cash flows arising from leases in order to provide additional information about the nature of an
organization’s leasing activities. This ASU is effective for annual periods, and interim periods within those annual periods,
beginning after December 15, 2018 and requires modified retrospective application. In July 2018, the FASB issued ASU
2018-11, which provided entities with an additional optional transition method to adopt the new lease standard at the adoption
date, as compared to the beginning of the earliest period presented, and recognize a cumulative-effect adjustment to the
beginning balance of retained earnings in the period of adoption. We will elect this transition method at the adoption date.
82
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In addition, we will elect the package of practical expedients permitted under the transition guidance, which allows us to carry
forward our historical lease classification, our assessment on whether a contract is or contains a lease, and our initial direct
costs for any leases that exist prior to adoption of the new standard. We will also elect to combine lease and non-lease
components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease
payments in the consolidated statements of earnings on a straight-line basis over the lease term. We estimate
approximately $75 million would be recognized as total right-of-use assets and total lease liabilities on our consolidated balance
sheet as of December 31, 2018. Other than disclosed, we do not expect the new standard to have a material impact on our
remaining consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01 amending the current guidance for how entities measure certain equity
investments, the accounting for financial liabilities under the fair value option, and the presentation and disclosure requirements
relating to financial instruments. The new guidance requires entities to use fair value measurement for equity investments in
unconsolidated entities, excluding equity method investments, and to recognize the changes in fair value in net income at the
end of each reporting period. Under the new standard, for any financial liabilities in which the fair value option has been
elected, the changes in fair value due to instrument-specific credit risk must be recognized separately in other comprehensive
income. Presentation and disclosure requirements under the new guidance require public business entities to use the exit price
when measuring the fair value of financial instruments measured at amortized cost. In addition, financial assets and liabilities
must now be presented separately in the notes to the financial statements and grouped by measurement category and form of
financial asset. This ASU was effective for annual periods, and interim periods within those annual periods, beginning after
December 15, 2017. Early adoption was only permitted for the financial liability provision. We adopted this guidance effective
January 1, 2018. See Investment in Persol Holdings footnote for the impact on the financial statements.
In May 2014, the FASB issued new revenue recognition guidance under ASU 2014-09 that superseded the existing revenue
recognition guidance under U.S. GAAP. The new standard focused on creating a single source of revenue guidance for revenue
arising from contracts with customers for all industries. The objective of the new standard was for companies to recognize
revenue when it transfers the promised goods or services to its customers at an amount that represents what the company
expects to be entitled to in exchange for those goods or services. In July 2015, the FASB deferred the effective date by one year
(ASU 2015-14). This ASU was effective for annual periods, and interim periods within those annual periods, beginning on or
after December 15, 2017. Since the issuance of the original standard, the FASB issued several other subsequent updates
including the following: 1) clarification of the implementation guidance on principal versus agent considerations (ASU
2016-08); 2) further guidance on identifying performance obligations in a contract as well as clarifications on the licensing
implementation guidance (ASU 2016-10); 3) rescission of several SEC Staff Announcements that are codified in Topic 605
(ASU 2016-11); 4) additional guidance and practical expedients in response to identified implementation issues (ASU
2016-12); and 5) technical corrections and improvements (ASU 2016-20). We adopted this guidance with the modified
retrospective approach effective January 1, 2018. See Revenue footnote for the impact on the financial statements.
Management has evaluated other recently issued accounting pronouncements and does not believe that any of these
pronouncements will have a significant impact on our consolidated financial statements and related disclosures.
21. Related Party Transactions
Prior to October 9, 2018, Terence E. Adderley, the former Executive Chairman and Chairman of the Board of our board of
directors, and certain trusts with respect to which he acts as trustee or co-trustee, controlled approximately 91.5% of the
outstanding shares of Kelly Class B common stock, which is the only class of our common stock entitled to voting rights. Mr.
Adderley received compensation relative to his services as executive chairmen of the Company prior to his retirement. There
were no material transactions between the Company and Terence E. Adderley in 2018 or 2017.
Upon his death on October 9, 2018, the Terence E. Adderley Revocable Trust K (“Trust K”), now controls approximately
91.5% of the outstanding shares of Kelly Class B common stock. There were no material transactions between the Company
and Trust K or its trustees in 2018 or 2017.
See Investment in PersolKelly Asia Pacific footnote for a description of related party activity with PersolKelly Asia Pacific.
83
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
22. Subsequent Events
On January 2, 2019, the Company acquired 100% of the stock of Global Technology Associates, LLC (“GTA”) for $34.0
million of cash, subject to working capital adjustments, per an agreement dated December 24, 2018. GTA is a leading provider
of engineering, technology and business consulting solutions in the telecommunications industry. The Company incurred $0.4
million of related acquisition costs in 2018, which are included in other expense, net in the consolidated statements of earnings.
On January 2, 2019, the Company acquired 100% of the stock of NextGen Global Resources LLC (“NextGen”) for $51.0
million of cash, subject to working capital adjustments per an agreement dated January 2, 2019. NextGen is a leading provider
of telecommunications, wireless and connected technology staffing solutions. The Company incurred $0.2 million of related
acquisition costs in 2018, which are included in other expense, net in the consolidated statements of earnings.
The Company acquired GTA and NextGen to expand our engineering solutions portfolio and positions the Company as one of
the leading engineering workforce solutions companies to the 5G telecommunications market. The initial accounting for both
of these business combinations is incomplete at the time of this filing due to the limited amount of time since the acquisition
date and the ongoing status of the valuations. Therefore, it is impracticable for the Company to provide the major classes of
assets acquired and liabilities and contingent liabilities assumed or pro forma revenue and earnings.
23. Selected Quarterly Financial Data (unaudited)
First
Quarter
$
Revenue from services
Gross profit
SG&A expenses
Gain (loss) on investment in Persol Holdings
Net earnings (loss)
Basic earnings (loss) per share (1)
Diluted earnings (loss) per share (1)
Dividends per share
1,369.9
238.2
226.2
23.7
29.1
0.74
0.74
0.075
$
Second
Quarter
Fourth
Quarter
Fiscal Year 2018
Third
Quarter
(In millions of dollars except per share data)
1,414.7
$
254.4
221.3
(83.2)
(23.9)
(0.62)
(0.62)
0.075
1,386.9
240.5
220.1
(52.5)
(15.4)
(0.40)
(0.40)
0.075
1,342.4
239.1
217.2
15.8
33.1
0.84
0.84
0.075
$
Revenue from services
Gross profit
SG&A expenses (2)
Restructuring charges included in SG&A
expenses
Net earnings
Basic earnings per share (1)
Diluted earnings per share (1)
Dividends per share
First
Quarter
$
1,289.7
231.6
215.2
Second
Quarter
Fiscal Year 2017
Third
Quarter
(In millions of dollars except per share data)
1,422.3
$
263.0
234.6
1,333.6
228.8
208.5
1,328.8
230.7
212.5
Fourth
Quarter
$
$
2.4
12.2
0.31
0.31
0.075
—
18.7
0.48
0.47
0.075
—
23.0
0.59
0.58
0.075
—
17.7
0.46
0.45
0.075
2.4
71.6
1.84
1.81
0.30
(1) Earnings per share amounts for each quarter are required to be computed independently and may not equal the amounts
computed for the total year.
(2) SG&A expenses in the third quarter and full year of 2017 includes a $2.8 million and $1.4 million, respectively, benefit
resulting from an out-of-period correction of expenses that were overstated in prior periods.
84
$
Year
5,513.9
972.2
884.8
(96.2)
22.9
0.59
0.58
0.30
Year
$
5,374.4
954.1
870.8
KELLY SERVICES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION RESERVES
(In millions of dollars)
Additions
Balance at
beginning
of year
Charged to
costs and
expenses
Charged to
other
accounts
Currency
exchange
effects
Deductions
from
reserves
Balance at
end of
year
Description
Fiscal year ended December 30,
2018
Reserve deducted in the balance
sheet from the assets to which it
applies -
Allowance for doubtful accounts $
12.9
Deferred tax assets valuation
allowance
$
34.6
Fiscal year ended December 31,
2017
Reserve deducted in the balance
sheet from the assets to which it
applies -
Allowance for doubtful accounts $
12.5
Deferred tax assets valuation
allowance
$
42.1
3.5
2.6
5.3
1.7
Fiscal year ended January 1, 2017
Reserve deducted in the balance
sheet from the assets to which it
applies -
(0.5) (1)
(0.4)
(2.3) $
13.2
—
(1.8)
(7.6) $
27.8
0.3 (1)
—
0.6
3.3
(5.8) $
12.9
(12.5) $
34.6
Allowance for doubtful accounts $
10.5
10.2
0.8 (1)
(0.8)
(8.2) $
12.5
Deferred tax assets valuation
allowance
$
50.9
2.4
—
(2.9)
(8.3) $
42.1
(1) Adjustment to provision for sales allowances charged to revenue from services.
85
INDEX TO EXHIBITS
REQUIRED BY ITEM 601
REGULATIONS S-K
Exhibit No.
Description
3.1
3.2
10.1*
10.2*
10.3*
10.4*
10.6
10.12*
10.13*
10.14
10.15
Amended and Restated Certificate of Incorporation, effective May 9, 2018 (Reference is made to Exhibit 3.1 to
the Form 8-K filed with the Commission on May 11, 2018, which is incorporated herein by reference).
By-laws, effective November 6, 2018 (Reference is made to Exhibit 3.1 to the Form 8-K filed with the
Commission on November 7, 2018, which is incorporated herein by reference).
Kelly Services, Inc. Short-Term Incentive Plan, as amended and restated February 12, 2015 (Reference is made
to Exhibit 10.1 to the Form 10-Q filed with the Commission on August 5, 2015, which is incorporated herein
by reference).
Kelly Services, Inc. Equity Incentive Plan (Reference is made to Exhibit 10.1 to the Form 8-K filed with the
Commission on May 12, 2017, which is incorporated herein by reference).
Kelly Services, Inc. Senior Executive Severance Plan (Reference is made to Exhibit 10.3 to the Form 10-Q
filed with the Commission on May 11, 2017, which is incorporated herein by reference).
Kelly Services, Inc. Non-Employee Directors Deferred Compensation Plan (Reference is made to Exhibit 10.4
to the Form 10-K filed with the Commission on February 20, 2018, which is incorporated herein by reference).
Second Amended and Restated Credit Agreement, dated December 5, 2016 (Reference is made to Exhibit 10.6
to the Form 8-K filed with the Commission on December 9, 2016, which is incorporated herein by reference).
Kelly Services, Inc. 2008 Management Retirement Plan – Post 2004 (Reference is made to Exhibit 10.12 to the
Form 10-Q filed with the Commission on November 7, 2012, which is incorporated herein by reference).
First Amendment to the Kelly Services, Inc. 2008 Management Retirement Plan (Reference is made to Exhibit
10.13 to the Form 10-Q filed with the Commission on November 7, 2012, which is incorporated herein by
reference).
Pledge and Security Agreement, dated September 28, 2009 (Reference is made to Exhibit 10.14 to the Form 8-
K filed with the Commission on September 29, 2009, which is incorporated herein by reference).
First Amended and Restated Purchase Agreement, dated December 5, 2016 (Reference is made to Exhibit
10.15 to the Form 8-K filed with the Commission on December 9, 2016, which is incorporated herein by
reference).
10.21*
Amendment to Kelly Services, Inc. 2008 Management Retirement Plan. (Reference is made to Exhibit 10.21 to
the Form 8-K filed with the commission on August 11, 2014, which is incorporated herein by reference.)
14
21
Code of Business Conduct and Ethics, adopted August 6, 2018. (Reference is made to Exhibit 14 to the Form
10-Q filed with the commission on November 7, 2018, which is incorporated herein by reference.)
Subsidiaries of Registrant.
86
INDEX TO EXHIBITS
REQUIRED BY ITEM 601
REGULATION S-K (continued)
Exhibit No.
Description
23
24
31.1
31.2
32.1
32.2
Consent of Independent Registered Public Accounting Firm.
Power of Attorney.
Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended.
Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
* Indicates a management contract or compensatory plan or arrangement.
87
SUBSIDIARIES OF REGISTRANT
Exhibit 21
Kelly Services, Inc.
Kelly Services (Canada), Ltd.
Subsidiary
State/Jurisdiction
of Incorporation
Canada
Business Name
Kelly Services
Kelly Global Business Services, LLC
Michigan
Kelly Services
Kelly Services Global, LLC
Michigan
Kelly Services
Kelly Services USA, LLC
Michigan
Kelly Services
Teachers On Call, Inc.
(a subsidiary of Kelly Services USA, LLC)
Minnesota
Teachers On Call
Kelly Properties, LLC
Delaware
Kelly Properties
Kelly Innovation Fund, LLC.
(a subsidiary of Kelly Properties, LLC)
Michigan
Kelly Innovation Fund
Kelly Receivables Funding, LLC
Delaware
Kelly Receivables Funding
Kelly Outsourcing and Consulting Group Australia, Ltd.
Delaware
Kelly Services
Kelly Services of Denmark, Inc.
Delaware
Kelly Services
Kelly Services (Ireland), Ltd.
(a subsidiary of Kelly Properties, LLC)
Delaware
Kelly Services
Kelly Services Management S.a.r.l.
Switzerland
Kelly Services
(a subsidiary of Kelly Services, Inc. and Kelly
Properties, LLC)
Kelly Services (Suisse), SA
Switzerland
Kelly Services
(a subsidiary of Kelly Services Management S.a.r.l.)
Kelly Services Outsourcing and Consulting Group Sarl
(a subsidiary of Kelly Services (Suisse), SA)
Switzerland
Kelly Services
Kelly Services (UK) Ltd.
United Kingdom
Kelly Services, Ltd.
(a subsidiary of Kelly Services Management S.a.r.l.)
Kelly Payroll Services Limited
(a subsidiary of Kelly Services (UK) Ltd.)
Toner Graham Limited
(a subsidiary of Kelly Services (UK) Ltd.)
United Kingdom
Kelly Services, Ltd.
United Kingdom
Toner Graham
Kelly Services (Nederland), B.V.
Netherlands
Kelly Services
1
SUBSIDIARIES OF REGISTRANT (continued)
Exhibit 21
Kelly Services, Inc.
Subsidiary
Kelly Administratiekantoor, B.V.
(a subsidiary of Kelly Services (Nederland) B.V.)
State/Jurisdiction
of Incorporation
Netherlands
Business Name
Kelly Services
Kelly Managed Services (Nederland) B.V.
Netherlands
Kelly Services
(a subsidiary of Kelly Services (Nederland) B.V.)
Kelly Services Norge AS
Norway
Kelly Services
(a subsidiary of Kelly Services Management S.a.r.l.)
Kelly Services Management AS
Norway
Kelly Services
(a subsidiary of Kelly Services Norge AS)
Kelly Services Mexico, S.A. de C. V.
Mexico
Kelly Services
(a subsidiary of Kelly Services, Inc. and Kelly
Properties, LLC)
Opciones De Servicio En Mexico, S.A. de C.V.
Mexico
Kelly Services
(a subsidiary of Kelly Services Mexico, S.A. de C.V.
and Kelly Properties, LLC)
QSM, S.A. de C.V.
Mexico
Kelly Services
(a subsidiary of Kelly Services Mexico, S.A. de C.V.
and Kelly Properties, LLC)
Kelly Services France, S.A.S.
France
Kelly Services
(a subsidiary of Kelly Services Management S.a.r.l and
Kelly Services (Suisse) SA)
Kelly Services, S.A.S.
France
Kelly Services
(a subsidiary of Kelly Services France, S.A.S.)
Kelly OCG
France
Kelly Services
(a subsidiary of Kelly Services France, S.A.S.)
Kelly Services Luxembourg, S.a.r.l.
Luxembourg
Kelly Services
Kelly Outsourcing & Consulting Group, S.a.r.l.
Luxembourg
Kelly Services
(a subsidiary of Kelly Services Luxembourg, S.a.r.l.)
Kelly Services S.p.A.
Italy
Kelly Services
(a subsidiary of Kelly Services, Inc. and Kelly
Properties, LLC)
Kelly Management Services, S.r.l.
Italy
Kelly Management Services
(a subsidiary of Kelly Services S.p.A.)
2
SUBSIDIARIES OF REGISTRANT (continued)
Exhibit 21
Kelly Services, Inc.
LLC Kelly Services CIS
Subsidiary
(a subsidiary of Kelly Services Management S.a.r.l)
State/Jurisdiction
of Incorporation
Russia
Business Name
Kelly Services
LLC Kelly Services IT solutions
Russia
Kelly Services
(a subsidiary of LLC Kelly Services CIS and Kelly
Services Management S.a.r.l)
access KellyOCG GmbH
Germany
access
(a subsidiary of Kelly Services Management S.a.r.l)
Kelly Services GmbH
(a subsidiary of access KellyOCG GmbH)
Germany
Kelly Services
Kelly Outsourcing and Consulting Group (Austria) GmbH Austria
access
(a subsidiary of access KellyOCG GmbH)
Kelly Services Interim (Belgium) SPRL
Belgium
Kelly Services
(a subsidiary of Kelly Services, Inc. and Kelly
Properties, LLC)
Kelly Services Outsourcing and Consulting Group SA/
NV
(a subsidiary of Kelly Services Interim (Belgium) SPRL
and Kelly Properties, LLC)
Belgium
Kelly Services
Kelly Services – Empresa De Trabalho Temporario,
Unipessoal, Lda.
(a subsidiary of Kelly Services Management S.a.r.l.)
Portugal
Kelly Services
Kelly Services – Gestao De Processos, Lda.
Portugal
Kelly Services
(a subsidiary of Kelly Services – Empresa De Trabalho
Temporario, Unipessoal, Lda. and Kelly Services
Management S.a.r.l.)
Kelly Services Healthcare Unipessoal, Lda.
Portugal
Kelly Services
(a subsidiary of Kelly Services – Gestao De Processos,
Lda.)
3
SUBSIDIARIES OF REGISTRANT (continued)
Exhibit 21
Kelly Services, Inc.
Subsidiary
Kelly Services Hungary Staffing, LLC
(a subsidiary of Kelly Services Management S.a.r.l.)
State/Jurisdiction
of Incorporation
Hungary
Business Name
Kelly Services
Kelly Services Poland Sp.zo.o.
Poland
Talents
Kelly OCG Singapore PTE. LTD
Singapore
Kelly OCG Singapore
Kelly OCG Malaysia Sdn. Bhd.
Malaysia
Kelly Services
(a subsidiary of Kelly OCG Singapore Pte Ltd)
Agensi Pekerjaan Kelly OCG Sdn. Bhd.
Malaysia
Kelly Services
(a subsidiary of Kelly OCG Malaysia Sdn. Bhd.)
Kelly Outsourcing and Consulting Group India Pte. Ltd.
India
Kelly Services
(a subsidiary of Kelly Services, Inc. and Kelly
Properties, LLC)
Kelly Services Japan, Inc.
Japan
Kelly Services
Kelly Investment and Consulting (Shanghai) Co., Ltd.
China
Kelly Investment and Consulting
Kelly Services Brasil Investimentos E Participacoes Ltda. Brazil
Kelly Services
(a subsidiary of Kelly Services, Inc. and Kelly
Properties, LLC)
Kelly Services Brasil Investimentos E Participacoes II
Ltda.
(a subsidiary of Kelly Services, Inc. and Kelly
Properties, LLC)
Brazil
Kelly Services
Kelly Services Do Brasil Recursos Humanos Ltda
Brazil
Kelly Services
(a subsidiary of Kelly Services Brazil Investimentos E
Participacoes II Ltda. and Kelly Services Brasil
Investimentos E Participacoes Ltda.)
Kelly Services Recursos Humanos Ltda.
Brazil
Kelly Services
(a subsidiary of Kelly Services Do Brasil Recursos
Humanos Ltda and Kelly Services Brasil Investimentos
E Participacoes II Ltda.)
4
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3/A (No.
333-216428) and Form S 8 (Nos. 333-218039, 333-114837, 333-125091, 333-166798 and 333-201165) of
Kelly Services, Inc. of our report dated February 14, 2019 relating to the financial statements, financial
statement schedule and the effectiveness of internal control over financial reporting, which appears in this
Form 10 K.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 14, 2019
POWER OF ATTORNEY
Exhibit 24
Each of the undersigned directors of Kelly Services, Inc. does hereby appoint Olivier G. Thirot
and Hannah S. Lim-Johnson, signing singly, his or her true and lawful attorneys, to execute for and on
behalf of the undersigned Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ending December 30, 2018, to be filed with the Securities and
Exchange Commission in Washington, D.C. under the provisions of the Securities Exchange Act of 1934,
as amended, and any and all amendments to said Form 10-K whether said amendments add to, delete from,
or otherwise alter the Form 10-K, or add to or withdraw any exhibit or exhibits, schedule or schedules to be
filed therewith, and any and all instruments necessary or incidental in connection therewith, hereby
granting unto said attorneys and each of them full power and authority to do and perform in the name and
on behalf of each of the undersigned, and in any and all capacities, every act and thing whatsoever required
or necessary to be done in the exercise of any of the rights and powers herein granted, as fully and to all
intents and purposes as each of the undersigned might or could do in person, hereby ratifying and
approving the acts of said attorneys and each of them.
IN WITNESS WHEREOF the undersigned have caused this Power of Attorney to be executed as
of this 14th day of February, 2019.
/s/ Donald R. Parfet
Donald R. Parfet
/s/ George S. Corona
George S. Corona
/s/ Carol M. Adderley
Carol M. Adderley
/s/ Gerald S. Adolph
Gerald S. Adolph
/s/ Robert S. Cubbin
Robert S. Cubbin
/s/ Jane E. Dutton
Jane E. Dutton
/s/ Terrence B. Larkin
Terrence B. Larkin
/s/ Leslie A. Murphy
Leslie A. Murphy
/s/ Hirotoshi Takahashi
Hirotoshi Takahashi
CERTIFICATIONS
I, George S. Corona, certify that:
1.
I have reviewed this annual report on Form 10-K of Kelly Services, Inc.;
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: February 14, 2019
/s/ George S. Corona
George S. Corona
President and
Chief Executive Officer
CERTIFICATIONS
I, Olivier G. Thirot, certify that:
1.
I have reviewed this annual report on Form 10-K of Kelly Services, Inc.;
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: February 14, 2019
/s/ Olivier G. Thirot
Olivier G. Thirot
Executive Vice President and
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Kelly Services, Inc. (the “Company”) on Form 10-K for the period ended
December 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, George S.
Corona, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 14, 2019
/s/ George S. Corona
George S. Corona
President and
Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to Kelly Services, Inc. and will be
retained by Kelly Services, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Kelly Services, Inc. (the “Company”) on Form 10-K for the period ended
December 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Olivier G.
Thirot, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 14, 2019
/s/ Olivier G. Thirot
Olivier G. Thirot
Executive Vice President and
Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Kelly Services, Inc. and will be
retained by Kelly Services, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
CORPORATE
INFORMATION
BOARD OF DIRECTORS
Donald R. Parfet
Chairman of the Board
Managing Director
Apjohn Group, LLC
George S. Corona
President and
Chief Executive Officer
Carol M. Adderley
Writer and Researcher
in the Humanities
Gerald S. Adolph
Retired Senior Partner
Strategy & M&A
Booz & Co.
Robert S. Cubbin
Retired President and Chief
Executive Officer
Meadowbrook Insurance Group, Inc.
EXECUTIVE OFFICERS
George S. Corona
President and
Chief Executive Officer
Teresa S. Carroll
Executive Vice President
and President, Global Talent
Solutions, and General Manager,
Sales, Marketing & Human
Resources
Jane E. Dutton
Robert L. Kahn Distinguished
University Professor Emeritus
of Business Administration and
Psychology
The University of Michigan
Business School
Terrence B. Larkin
Executive Vice President,
Business Development,
General Counsel and
Corporate Secretary
Lear Corporation
Leslie A. Murphy, CPA
President and
Chief Executive Officer
Murphy Consulting, Inc.
Hirotoshi Takahashi
Director, Deputy Vice President
and Chief Operating Officer
PERSOL HOLDINGS CO., LTD.
Peter W. Quigley
Executive Vice President
and President, Global Staffing,
and General Manager, IT,
Global Business Services &
Global Service
Olivier G. Thirot
Executive Vice President
and Chief Financial Officer
Hannah S. Lim-Johnson
Senior Vice President
and Chief Legal Officer
CORPORATE SUSTAINABILITY
Since our founding in 1946, Kelly has embodied the true spirit of corporate
sustainability. We are proud to uphold that commitment as a cornerstone of
who we are as an organization. Kelly’s corporate sustainability commitments are
centered on six pillars of development:
Employees and People – We take seriously our responsibilities to protect, support,
and prepare workers for successful careers, and to advocate on their behalf.
Ethics – We are committed to doing the right thing, conducting ourselves in a
legal, ethical, and trustworthy manner.
Engagement – We partner with organizations in the communities where we live
and work to improve lives and society as a whole.
Occupational Health, Safety, and Environment – We recognize a shared
responsibility to protect our planet and generate environments with safe working
conditions.
Supply Chain and Customer Relations – We value our customer and supplier
relationships, and work toward building strong relationships and advocates
for life.
Communication, Evaluation, and Reporting – We recognize that
communicating and reporting a company’s strategy and performance helps
demonstrate openness and transparency.
We believe Kelly has a responsibility to do the right thing and we welcome
the opportunity to make a difference. For more information, visit our website,
kellyservices.com, to read our corporate sustainability report and policy.
CORPORATE
HEADQUARTERS
999 West Big Beaver Road
Troy, Michigan 48084-4716
248.362.4444
kellyservices.com
TRANSFER AGENT AND REGISTRAR
Computershare
P.O. Box 505000
Louisville, KY 40233
Overnight correspondence should be sent to:
Computershare
462 South 4th Street
Louisville, KY 40202
Toll Free (U.S. and Canada) 866.249.2607
TDD for Hearing Impaired 800.231.5469
Foreign TDD for Hearing Impaired 201.680.6610
Foreign Stockholders 201.680.6578
Website: computershare.com/investor
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
500 Woodward Avenue
Detroit, Michigan 48226
ANNUAL MEETING
The Annual Meeting of Stockholders will be
held on May 8, 2019, at 11:00 a.m., Eastern
Daylight Time, at the Corporate Headquarters
of the Company.
DIRECT STOCK PURCHASE AND
DIVIDEND REINVESTMENT PLAN
Registered stockholders of Kelly’s Class
A common stock can purchase additional
shares through the Direct Stock Purchase
and Dividend Reinvestment Plan. For more
information about the plan or to enroll, visit
kellyservices.com.
ADDITIONAL INFORMATION
For more information, including financial
documents such as annual reports, Form 10-Ks,
and copies of the Company’s Code of Business
Conduct and Ethics, contact:
James M. Polehna
Senior Vice President and Corporate Secretary
Kelly Services, Inc.
999 West Big Beaver Road
Troy, Michigan 48084-4716
248.244.4586
STOCK LISTINGS
Kelly Services Class A and Class B
common stock trade on the NASDAQ
Global Select MarketSM under the
symbols: KELYA and KELYB.
Recyclable© 2019 Kelly Services, Inc. 999 West Big Beaver Road
Troy, Michigan 48084-4716
248.362.4444
kellyservices.com