Company Quick10K Filing
Quick10K
Kelly Services
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$25.32 39 $984
10-K 2018-12-30 Annual: 2018-12-30
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-07-01 Quarter: 2018-07-01
10-Q 2018-04-01 Quarter: 2018-04-01
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-10-01 Quarter: 2017-10-01
10-Q 2017-07-02 Quarter: 2017-07-02
10-Q 2017-04-02 Quarter: 2017-04-02
10-K 2017-01-01 Annual: 2017-01-01
10-Q 2016-10-02 Quarter: 2016-10-02
10-Q 2016-07-03 Quarter: 2016-07-03
10-Q 2016-04-03 Quarter: 2016-04-03
10-K 2016-01-03 Annual: 2016-01-03
8-K 2019-02-13 Earnings, Exhibits
8-K 2018-11-07 Earnings, Exhibits
8-K 2018-11-06 Amend Bylaw, Exhibits
8-K 2018-10-09 Control
8-K 2018-09-17 Officers, Exhibits
8-K 2018-08-21 Officers
8-K 2018-08-08 Earnings, Exhibits
8-K 2018-05-09 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-03-07 Officers, Amend Bylaw, Exhibits
8-K 2018-02-01 Earnings, Exhibits
ASGN ASGN
EXPO Exponent
HURN Huron Consulting
KFRC Kforce
HCKT Hackett Group
III Information Services Group
VISI Volt Information Sciences
RCMT RCM Technologies
WHLM Wilhelmina
LTBR Lightbridge
KELYA 2018-12-30
Part I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Mine Safety Disclosures.
Part II
Item 5. Market for The Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Part III
Item 10. Executive Officers of The Registrant.
Item 12. Securities Authorized for Issuance Under Equity Compensation Plans.
Part IV
Item 15. Exhibits, Financial Statement Schedules.
Item 16. Form 10-K Summary.
EX-21 kelya-20181230x10xkexhibit21.htm
EX-23 kelya-20181230x10xkexhibit23.htm
EX-24 kelya-20181230x10xkexhibit24.htm
EX-31.1 kelya-20181230xexh311.htm
EX-31.2 kelya-20181230xexh312.htm
EX-32.1 kelya-20181230xexh321.htm
EX-32.2 kelya-20181230xexh322.htm

Kelly Services Earnings 2018-12-30

KELYA 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 kelya-20181230x10k.htm 10-K Document
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  
 
48084
(Address of Principal Executive Office) 
 
(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
 
Name of each exchange on which registered
 
 
Class A Common
 
NASDAQ Global Market 
 
 
Class B Common
 
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]

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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

Documents Incorporated by Reference
 
The proxy statement of the registrant with respect to its 2019 Annual Meeting of Stockholders is incorporated by reference in Part III.

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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

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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.

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Business Operations
Service Marks
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

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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.


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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.


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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.


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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.


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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.

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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. 
 
Per share amounts (in dollars)
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
Year
2018
 
 
 
 
 
 
 
 
 
Class A common
 
 
 
 
 
 
 
 
 
High
$
30.99

 
$
32.31

 
$
26.57

 
$
25.00

 
$
32.31

Low
26.65

 
21.44

 
22.23

 
19.21

 
19.21

 
 
 
 
 
 
 
 
 
 
Class B common
 
 
 
 
 
 
 
 
 
High
29.07

 
34.30

 
34.30

 
23.40

 
34.30

Low
27.00

 
22.00

 
21.50

 
22.01

 
21.50

 
 
 
 
 
 
 
 
 
 
Dividends
0.075

 
0.075

 
0.075

 
0.075

 
0.30

 
 
 
 
 
 
 
 
 
 
2017
 
 
 
 
 
 
 
 
 
Class A common
 
 
 
 
 
 
 
 
 
High
$
23.48

 
$
24.70

 
$
25.48

 
$
30.93

 
$
30.93

Low
20.87

 
20.27

 
21.01

 
24.69

 
20.27

 
 
 
 
 
 
 
 
 
 
Class B common
 
 
 
 
 
 
 
 
 
High
23.00

 
23.75

 
23.00

 
28.50

 
28.50

Low
20.30

 
20.18

 
20.95

 
27.20

 
20.18

 
 
 
 
 
 
 
 
 
 
Dividends
0.075

 
0.075

 
0.075

 
0.075

 
0.30

 

Holders 
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
 
174

 
22.91

 

 

 
 
 
 
 
 
 
 
 
December 3, 2018 through December 30, 2018
 

 

 

 

 
 
 
 
 
 
 
 
 
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
performancegraph2018.jpg
 
2013
2014
2015
2016
2017
2018
Kelly Services, Inc.
$
100.00

$
69.01

$
66.28

$
95.51

$
115.16

$
87.53

S&P SmallCap 600 Index
$
100.00

$
105.76

$
103.67

$
131.20

$
148.56

$
135.96

S&P 1500 Human Resources and Employment Services Index
$
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
 
87.4

 
83.3

 
63.2

 
66.7

 
21.9

Loss on investment in Persol Holdings (2)
 
(96.2
)
 

 

 

 

Gain on investment in PersolKelly Asia Pacific (3)
 

 

 
87.2

 

 

Net earnings
 
22.9

 
71.6

 
120.8

 
53.8

 
23.7

 
 
 
 
 
 
 
 
 
 
 
Basic earnings per share
 
0.59

 
1.84

 
3.10

 
1.39

 
0.61

Diluted earnings per share
 
0.58

 
1.81

 
3.08

 
1.39

 
0.61

 
 
 
 
 
 
 
 
 
 
 
Dividends per share
 
 
 
 
 
 
 
 
 
 
Classes A and B common
 
0.30

 
0.30

 
0.275

 
0.20

 
0.20

 
 
 
 
 
 
 
 
 
 
 
Working capital (4)
 
503.0

 
458.1

 
443.5

 
411.3

 
428.1

Total assets
 
2,314.4

 
2,378.2

 
2,028.1

 
1,939.6

 
1,917.9

Total noncurrent liabilities
 
257.4

 
300.5

 
245.0

 
228.4

 
224.1

(1)
Fiscal year included 53 weeks.
(2)
Represents the change in fair value of the investment in the common stock of Persol Holdings.
(3)
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.
Executive Overview
The Talent Solutions Industry

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
 
CC
Change
Revenue from services
$
5,513.9

 
$
5,374.4

 
2.6
 %
 
 
2.2
%
Gross profit
972.2

 
954.1

 
1.9

 
 
1.6

SG&A expenses excluding restructuring charges
884.8

 
868.4

 
1.9

 
 
1.6

Restructuring charges

 
2.4

 
(100.0
)
 
 
(100.0
)
Total SG&A expenses
884.8

 
870.8

 
1.6

 
 
1.4

Earnings from operations
87.4

 
83.3

 
5.0

 
 
 

Earnings from operations excluding restructuring charges
87.4

 
85.7

 
2.1

 
 
 

Diluted earnings per share
$
0.58

 
$
1.81

 
(68.0
)
 
 
 
 
 
 
 
 
 
 
 
 
Staffing fee-based income (included in revenue from services)
68.6

 
57.3

 
19.6

 
 
19.0

Gross profit rate
17.6
%
 
17.8
%
 
(0.2
)
pts.
 
 
Conversion rate
9.0

 
8.7

 
0.3

 
 
 

Conversion rate excluding restructuring charges
9.0

 
9.0

 

 
 
 

Return on sales
1.6

 
1.5

 
0.1

 
 
 

Return on sales excluding restructuring charges
1.6

 
1.6

 

 
 
 
 
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


Americas Staffing
(Dollars in millions)
 
2018
 
2017
 
Change
 
CC
Change
Revenue from services
$
2,417.7

 
$
2,345.9

 
3.1
%
 
 
3.4
%
Gross profit
441.3

 
429.1

 
2.9

 
 
3.1

SG&A expenses excluding restructuring charges
364.2

 
346.0

 
5.2

 
 
5.5

Restructuring charges

 
0.4

 
(100.0
)
 
 
(100.0
)
Total SG&A expenses
364.2

 
346.4

 
5.1

 
 
5.4

Earnings from operations
77.1

 
82.7

 
(6.7
)
 
 
 
Earnings from operations excluding restructuring charges
77.1

 
83.1

 
(7.1
)
 
 
 

 
 
 
 
 
 
 
 
 
Gross profit rate
18.3
%
 
18.3
%
 

pts.
 
 
Conversion rate
17.5

 
19.3

 
(1.8
)
 
 
 
Conversion rate excluding restructuring charges
17.5

 
19.3

 
(1.8
)
 
 
 

Return on sales
3.2

 
3.5

 
(0.3
)
 
 
 

Return on sales excluding restructuring charges
3.2

 
3.5

 
(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


GTS
(Dollars in millions)
 
2018
 
2017
 
Change
 
CC
Change
Revenue from services
$
1,997.4

 
$
1,998.9

 
(0.1
)%
 
 
(0.1
)%
Gross profit
381.1

 
373.7

 
2.0

 
 
1.8

SG&A expenses excluding restructuring charges
296.5

 
294.7

 
0.6

 
 
0.4

Restructuring charges

 
2.0

 
(100.0
)
 
 
(100.0
)
Total SG&A expenses
296.5

 
296.7

 

 
 
(0.2
)
Earnings from operations
84.6

 
77.0

 
9.8

 
 
 
Earnings from operations excluding restructuring charges
84.6

 
79.0

 
7.1

 
 
 
 
 
 
 
 
 
 
 
 
Gross profit rate
19.1
%
 
18.7
%
 
0.4

pts.
 
 

Conversion rate
22.2

 
20.6

 
1.6

 
 
 

Conversion rate excluding restructuring charges
22.2

 
21.1

 
1.1

 
 
 

Return on sales
4.2

 
3.9

 
0.3

 
 
 
Return on sales excluding restructuring charges
4.2

 
4.0

 
0.2

 
 
 
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


International Staffing
(Dollars in millions)
 
2018
 
2017
 
Change
 
CC
Change
Revenue from services
$
1,116.6

 
$
1,048.2

 
6.5
 %
 
 
4.0
%
Gross profit
152.3

 
153.7

 
(0.9
)
 
 
(3.2
)
Total SG&A expenses
132.3

 
131.6

 
0.5

 
 
(1.4
)
Earnings from operations
20.0

 
22.1

 
(9.5
)
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit rate
13.6
%
 
14.7
%
 
(1.1
)
pts.
 
 

Conversion rate
13.2

 
14.4

 
(1.2
)
 
 
 
Return on sales
1.8

 
2.1

 
(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
 
CC
Change
Revenue from services
$
5,374.4

 
$
5,276.8

 
1.9
%
 
 
1.3
%
Gross profit
954.1

 
906.3

 
5.3

 
 
4.7

SG&A expenses excluding restructuring charges
868.4

 
839.7

 
3.4

 
 
3.0

Restructuring charges
2.4

 
3.4

 
(31.6
)
 
 
(31.2
)
Total SG&A expenses
870.8

 
843.1

 
3.3

 
 
2.9

Earnings from operations
83.3

 
63.2

 
31.7

 
 
 

Earnings from operations excluding restructuring charges
85.7

 
66.6

 
28.5

 
 
 

Diluted earnings per share
$
1.81

 
$
3.08

 
(41.2
)
 
 
 
 
 
 
 
 
 
 
 
 
Staffing fee-based income (included in revenue from services)
57.3

 
58.5

 
(2.2
)
 
 
(3.7
)
Gross profit rate
17.8
%
 
17.2
%
 
0.6

pts.
 
 
Conversion rate
8.7

 
7.0

 
1.7

 
 
 

Conversion rate excluding restructuring charges
9.0

 
7.4

 
1.6

 
 
 

Return on sales
1.5

 
1.2

 
0.3

 
 
 

Return on sales excluding restructuring charges
1.6

 
1.3

 
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


Americas Staffing
(Dollars in millions)
 
2017
 
2016
 
Change
 
CC
Change
Revenue from services
$
2,345.9

 
$
2,191.6

 
7.0
%
 
 
6.8
%
Gross profit
429.1

 
398.2

 
7.8

 
 
7.6

SG&A expenses excluding restructuring charges
346.0

 
327.6

 
5.7

 
 
5.5

Restructuring charges
0.4

 
1.8

 
(80.0
)
 
 
(79.8
)
Total SG&A expenses
346.4

 
329.4

 
5.2

 
 
5.0

Earnings from operations
82.7

 
68.8

 
20.0

 
 
 
Earnings from operations excluding restructuring charges
83.1

 
70.6

 
17.5

 
 
 
 
 
 
 
 
 
 
 
 
Gross profit rate
18.3
%
 
18.2
%
 
0.1

pts.
 
 

Conversion rate
19.3

 
17.3

 
2.0

 
 
 

Conversion rate excluding restructuring charges
19.3

 
17.7

 
1.6

 
 
 
Return on sales
3.5

 
3.1

 
0.4

 
 
 
Return on sales excluding restructuring charges
3.5

 
3.2

 
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


GTS
(Dollars in millions)
 
2017
 
2016
 
Change
 
CC
Change
Revenue from services
$
1,998.9

 
$
1,977.1

 
1.1
%
 
 
1.0
%
Gross profit
373.7

 
345.9

 
8.1

 
 
7.9

SG&A expenses excluding restructuring charges
294.7

 
287.3

 
2.6

 
 
2.5

Restructuring charges
2.0

 
0.4

 
415.5

 
 
417.6

Total SG&A expenses
296.7

 
287.7

 
3.1

 
 
3.0

Earnings from operations
77.0

 
58.2

 
32.4

 
 
 

Earnings from operations excluding restructuring charges
79.0

 
58.6

 
35.0

 
 
 

 
 
 
 
 
 
 
 
 
Gross profit rate
18.7
%
 
17.5
%
 
1.2

pts.
 
 
Conversion rate
20.6

 
16.8

 
3.8

 
 
 
Conversion rate excluding restructuring charges
21.1

 
16.9

 
4.2

 
 
 

Return on sales
3.9

 
2.9

 
1.0

 
 
 

Return on sales excluding restructuring charges
4.0

 
3.0

 
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)
 
2017
 
2016
 
Change
 
CC
Change
Revenue from services
$
1,048.2

 
$
1,127.1

 
(7.0
)%
 
 
(9.0
)%
Gross profit
153.7

 
166.4

 
(7.7
)
 
 
(9.8
)
SG&A expenses excluding restructuring charges
131.6

 
145.7

 
(9.8
)
 
 
(11.6
)
Restructuring charges

 
1.2

 
(100.0
)
 
 
(100.0
)
Total SG&A expenses
131.6

 
146.9

 
(10.4
)
 
 
(12.2
)
Earnings from operations
22.1

 
19.5

 
13.3

 
 
 
Earnings from operations excluding restructuring charges
22.1

 
20.7

 
7.2

 
 
 

 
 
 
 
 
 
 
 
 
Gross profit rate
14.7
%
 
14.8
%
 
(0.1
)
pts.
 
 

Conversion rate
14.4

 
11.7

 
2.7

 
 
 
Conversion rate excluding restructuring charges
14.4

 
12.4

 
2.0

 
 
 

Return on sales
2.1

 
1.7

 
0.4

 
 
 

Return on sales excluding restructuring charges
2.1

 
1.8

 
0.3

 
 
 

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:
 
 
 
Payment due by period
 
Total
 
Less than
1 year
 
1-3 Years
 
3-5 Years
 
More than
5 years
 
(In millions of dollars)
Operating leases
$
81.7

 
$
26.7

 
$
35.6

 
$
14.5

 
$
4.9

Short-term borrowings
2.2

 
2.2

 

 

 

Accrued workers’ compensation
76.5

 
26.0

 
24.5

 
9.9

 
16.1

Accrued retirement benefits
178.6

 
16.5

 
31.7

 
31.7

 
98.7

Other liabilities
8.8

 
2.0

 
3.5

 
1.8

 
1.5

Uncertain income tax positions
1.4

 
0.3

 
0.6

 
0.1

 
0.4

Purchase obligations
33.1

 
19.3

 
13.3

 
0.5

 

 
 
 
 
 
 
 
 
 
 
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
 
Age
 
Served as an
Officer Since
 
Business Experience
During Last 5 Years
George S. Corona
President and
  Chief Executive Officer
 
60
 
2000
 
Served as officer of the Company.
 
 
 
 
 
 
 
Teresa S. Carroll
Executive Vice President,
  President, Global Talent Solutions
  and General Manager - Sales,
  Marketing and HR
 
53
 
2000
 
Served as officer of the Company.
 
 
 
 
 
 
 
Peter W. Quigley
Executive Vice President,
  President, Global Staffing and
  General Manager - IT, Global
  Service and Global Business
  Service
 
57
 
2004
 
Served as officer of the Company.
 
 
 
 
 
 
 
Olivier G. Thirot
Executive Vice President
  and Chief Financial Officer
 
57
 
2008
 
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)
Equity compensation plans approved by security holders - Evergreen provision (1), (2)
 

 
$

 

 
 
 
 
 
 
 
Equity compensation plans approved by security holders - Fixed Share provision (1), (3)
 

 

 
3,989,910

 
 
 
 
 
 
 
Equity compensation plans not approved by security holders (4)
 

 

 
77,434

 
 
 
 
 
 
 
Total
 

 
$

 
4,067,344

(1)
The equity compensation plan approved by our stockholders is our Equity Incentive Plan.
(2)
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


SIGNATURES 
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.
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
*
/s/ G. S. Corona
 
 
G. S. Corona
 
 
President, Chief Executive Officer and Director 
 
 
(Principal Executive Officer) 
 
 
 
Date: February 14, 2019
/s/ D. R. Parfet 
 
 
D. R. Parfet 
 
 
Chairman of the Board and Director
 
 
 
Date: February 14, 2019
/s/ C. M. Adderley 
 
 
C. M. Adderley 
 
 
Director 
 
 
 
Date: February 14, 2019
/s/ G. S. Adolph
 
 
G. S. Adolph 
 
 
Director 
 
 
 
Date: February 14, 2019
/s/ R. S. Cubbin
 
 
R. S. Cubbin
 
 
Director 
 
 
 
Date: February 14, 2019
/s/ J. E. Dutton 
 
 
J. E. Dutton 
 
 
Director 
 
 
 
Date: February 14, 2019
/s/ T. B. Larkin 
 
 
T. B. Larkin 
 
 
Director 
 
 
 
Date: February 14, 2019
/s/ L. A. Murphy 
 
 
L. A. Murphy 
 
 
Director 
 
 
 
Date: February 14, 2019
*
/s/ H. Takahashi
 
 
H. Takahashi
 
 
Director

44


SIGNATURES (continued)
Date: February 14, 2019
 
/s/ O. G. Thirot
 
 
O. G. Thirot
 
 
Executive Vice President and Chief Financial Officer
 
 
(Principal Financial Officer) 
 
 
 
Date: February 14, 2019
 
/s/ L. S. Lockhart
 
 
L. S. Lockhart
 
 
Vice President, Corporate Controller and Chief Accounting Officer 
 
 
(Principal Accounting Officer) 
 
 
 
Date: February 14, 2019
*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
 
 
 
 
 
 
 
 
 
 
Consolidated Balance Sheets at December 30, 2018 and December 31, 2017
 
 
 
 
 
 
 
 

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

 
 
2018
 
2017
 
2016
 
(In millions of dollars except per share items)
Revenue from services
$
5,513.9

 
$
5,374.4

 
$
5,276.8

 
 
 
 
 
 
Cost of services
4,541.7

 
4,420.3

 
4,370.5

 
 
 
 
 
 
Gross profit
972.2

 
954.1

 
906.3

 
 
 
 
 
 
Selling, general and administrative expenses
884.8

 
870.8

 
843.1

 
 
 
 
 
 
Earnings from operations
87.4

 
83.3

 
63.2

 
 
 
 
 
 
Loss on investment in Persol Holdings
(96.2
)
 

 

 
 
 
 
 
 
Gain on investment in PersolKelly Asia Pacific

 

 
87.2

 
 
 
 
 
 
Other expense, net
(0.6
)
 
(1.6
)
 
(0.7
)
 
 
 
 
 
 
Earnings (loss) before taxes and equity in net earnings (loss) of affiliate
(9.4
)
 
81.7

 
149.7

 
 
 
 
 
 
Income tax (benefit) expense
(27.1
)
 
12.8

 
30.0

 
 
 
 
 
 
Net earnings before equity in net earnings (loss) of affiliate
17.7

 
68.9

 
119.7

 
 
 
 
 
 
Equity in net earnings (loss) of affiliate
5.2

 
2.7

 
1.1

 
 
 
 
 
 
Net earnings
$
22.9

 
$
71.6

 
$
120.8

 
 
 
 
 
 
Basic earnings per share
$
0.59

 
$
1.84

 
$
3.10

Diluted earnings per share
$
0.58

 
$
1.81

 
$
3.08

 
 
 
 
 
 
Dividends per share
$
0.30

 
$
0.30

 
$
0.275

 
 
 
 
 
 
Average shares outstanding (millions):
 
 
 
 
 
Basic
38.8

 
38.3

 
38.1

Diluted
39.1

 
39.0

 
38.4


See accompanying Notes to Consolidated Financial Statements.

50


KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
2018
 
2017
 
2016
 
(In millions of dollars)
Net earnings
$
22.9

 
$
71.6

 
$
120.8

 
 
 
 
 
 
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
(8.4
)
 
16.4

 
(0.6
)
Less: Reclassification adjustments included in net earnings
(0.4
)
 

 
(0.1
)
Foreign currency translation adjustments
(8.8
)
 
16.4

 
(0.7
)
 
 
 
 
 
 
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

 
56.2

 
(1.1
)
 
 
 
 
 
 
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
0.8

 
(0.6
)
 
(0.3
)
Less: Reclassification adjustments included in net earnings
0.1

 
0.1

 
0.1

Pension liability adjustments
0.9

 
(0.5
)
 
(0.2
)
 
 
 
 
 
 
Other comprehensive income (loss)
(7.9
)