UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 29, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-1088

KELLY SERVICES, INC.

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(Exact name of registrant as specified in its charter)

Delaware	38-1510762
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

999 West Big Beaver Road, Troy, Michigan 48084

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(Address of principal executive offices)  (Zip Code)

(248) 362-4444

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(Registrant’s telephone number, including area code)

No Change

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(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbols	Name of each exchange on which registered
Class A Common	KELYA	NASDAQ Global Market
Class B Common	KELYB	NASDAQ Global Market

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 ☒ 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 ☒ No ☐

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	☒	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 Exchange Act).

Yes ☐ No ☒

At May 3, 2020, 35,830,916 shares of Class A and 3,427,538 shares of Class B common stock of the Registrant were outstanding.

2

KELLY SERVICES, INC. AND SUBSIDIARIES 

	Page Number
PART I. FINANCIAL INFORMATION	4
Item 1. Financial Statements (unaudited).	4
Consolidated Statements of Earnings	4
Consolidated Statements of Comprehensive Income (Loss)	5
Consolidated Balance Sheets	6
Consolidated Statements of Stockholders' Equity	8
Consolidated Statements of Cash Flows	9
Notes to Consolidated Financial Statements	11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.	27
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	37
Item 4. Controls and Procedures.	37
PART II. OTHER INFORMATION	37
Item 1. Legal Proceedings.	37
Item 1A. Risk Factors.	38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	38
Item 3. Defaults Upon Senior Securities.	39
Item 4. Mine Safety Disclosures.	39
Item 5. Other Information.	39
Item 6. Exhibits.	39
SIGNATURES	41

3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)

(In millions of dollars except per share data)

	13 Weeks Ended
	March 29, 2020		March 31, 2019
Revenue from services	$	1,261.1	$	1,382.6
Cost of services	1,037.8		1,131.0
Gross profit	223.3		251.6
Selling, general and administrative expenses	219.5		234.8
Goodwill impairment charge	147.7		—
Gain on sale of assets	(32.1)		—
Earnings (loss) from operations	(111.8)		16.8
Gain (loss) on investment in Persol Holdings	(77.8)		13.2
Other income (expense), net	1.7		(1.1)
Earnings (loss) before taxes and equity in net earnings (loss) of affiliate	(187.9)		28.9
Income tax expense (benefit)	(36.2)		6.4
Net earnings (loss) before equity in net earnings (loss) of affiliate	(151.7)		22.5
Equity in net earnings (loss) of affiliate	(1.5)		(0.4)
Net earnings (loss)	$	(153.2)	$	22.1
Basic earnings (loss) per share	$	(3.91)	$	0.56
Diluted earnings (loss) per share	$	(3.91)	$	0.56
Average shares outstanding (millions):
Basic	39.2		39.0
Diluted	39.2		39.1

See accompanying unaudited Notes to Consolidated Financial Statements.

4

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In millions of dollars)

	13 Weeks Ended
	March 29, 2020		March 31, 2019
Net earnings (loss)	$	(153.2)	$	22.1
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax expense of $0.1 and $0.1, respectively	(7.4)		(1.5)
Less: Reclassification adjustments included in net earnings	—		—
Foreign currency translation adjustments	(7.4)		(1.5)
Other comprehensive income (loss)	(7.4)		(1.5)
Comprehensive income (loss)	$	(160.6)	$	20.6

See accompanying unaudited Notes to Consolidated Financial Statements.

5

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 

(UNAUDITED)

(In millions) 

	March 29, 2020		December 29, 2019
Assets
Current Assets
Cash and equivalents	$	48.3	$	25.8
Trade accounts receivable, less allowances of $11.1 and $12.9, respectively	1,236.1		1,282.2
Prepaid expenses and other current assets	81.4		76.5
Properties held for sale	—		21.2
Total current assets	1,365.8		1,405.7
Noncurrent Assets
Property and equipment:
Property and equipment	215.4		225.8
Accumulated depreciation	(177.3)		(182.7)
Net property and equipment	38.1		43.1
Operating lease right-of-use assets	89.2		60.4
Deferred taxes	249.5		229.1
Goodwill, net	—		127.8
Investment in Persol Holdings	96.8		173.2
Investment in equity affiliate	116.3		117.2
Other assets	306.1		324.1
Total noncurrent assets	896.0		1,074.9
Total Assets	$	2,261.8	$	2,480.6

See accompanying unaudited Notes to Consolidated Financial Statements.

6

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 

(UNAUDITED)

(In millions) 

	March 29, 2020		December 29, 2019
Liabilities and Stockholders’ Equity
Current Liabilities
Short-term borrowings	$	1.7	$	1.9
Accounts payable and accrued liabilities	475.5		503.6
Operating lease liabilities	19.2		20.1
Accrued payroll and related taxes	259.7		267.6
Accrued workers’ compensation and other claims	26.1		25.7
Income and other taxes	60.6		65.2
Total current liabilities	842.8		884.1
Noncurrent Liabilities
Operating lease liabilities	72.7		43.3
Accrued workers’ compensation and other claims	46.4		45.8
Accrued retirement benefits	164.5		187.4
Other long-term liabilities	35.3		55.5
Total noncurrent liabilities	318.9		332.0
Commitments and contingencies (see Contingencies footnote)
Stockholders’ Equity
Capital stock, $1.00 par value
Class A common stock, 100.0 shares authorized; 36.6 shares issued at 2020 and 2019	36.6		36.6
Class B common stock, 10.0 shares authorized; 3.5 shares issued at 2020 and 2019	3.5		3.5
Treasury stock, at cost
Class A common stock, 0.8 shares at 2020 and 1.0 shares at 2019	(17.4)		(20.3)
Class B common stock	(0.6)		(0.6)
Paid-in capital	19.5		22.5
Earnings invested in the business	1,081.7		1,238.6
Accumulated other comprehensive income (loss)	(23.2)		(15.8)
Total stockholders’ equity	1,100.1		1,264.5
Total Liabilities and Stockholders’ Equity	$	2,261.8	$	2,480.6

See accompanying unaudited Notes to Consolidated Financial Statements.

7

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In millions of dollars)

	13 Weeks Ended
	March 29, 2020		March 31, 2019
Capital Stock
Class A common stock
Balance at beginning of period	$	36.6	$	36.6
Conversions from Class B	—		—
Balance at end of period	36.6		36.6
Class B common stock
Balance at beginning of period	3.5		3.5
Conversions to Class A	—		—
Balance at end of period	3.5		3.5
Treasury Stock
Class A common stock
Balance at beginning of period	(20.3)		(25.4)
Net issuance of stock awards	2.9		4.1
Balance at end of period	(17.4)		(21.3)
Class B common stock
Balance at beginning of period	(0.6)		(0.6)
Net issuance of stock awards	—		—
Balance at end of period	(0.6)		(0.6)
Paid-in Capital
Balance at beginning of period	22.5		24.4
Net issuance of stock awards	(3.0)		(3.4)
Balance at end of period	19.5		21.0
Earnings Invested in the Business
Balance at beginning of period	1,238.6		1,138.1
Cumulative-effect adjustment, net of tax, from adoption of ASU 2016-13, Credit Losses	(0.7)		—
Net earnings (loss)	(153.2)		22.1
Dividends	(3.0)		(3.0)
Balance at end of period	1,081.7		1,157.2
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	(15.8)		(17.1)
Other comprehensive income (loss), net of tax	(7.4)		(1.5)
Balance at end of period	(23.2)		(18.6)
Stockholders’ Equity at end of period	$	1,100.1	$	1,177.8

See accompanying unaudited Notes to Consolidated Financial Statements.

8

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In millions of dollars)

	13 Weeks Ended
	March 29, 2020		March 31, 2019
Cash flows from operating activities:
Net earnings (loss)	$	(153.2)	$	22.1
Adjustments to reconcile net earnings (loss) to net cash from operating activities:
Goodwill impairment charge	147.7		—
Deferred income taxes on goodwill impairment charge	(23.0)		—
Depreciation and amortization	6.0		7.6
Operating lease asset amortization	5.3		5.8
Provision for bad debts	(0.4)		0.3
Stock-based compensation	1.2		3.2
(Gain) loss on investment in Persol Holdings	77.8		(13.2)
(Gain) loss on sale of assets	(32.1)		—
Equity in net (earnings) loss of PersolKelly Pte. Ltd.	1.5		0.4
Other, net	0.7		(0.4)
Changes in operating assets and liabilities, net of acquisitions	(23.1)		(4.6)
Net cash from operating activities	8.4		21.2
Cash flows from investing activities:
Capital expenditures	(3.0)		(4.2)
Acquisition of companies, net of cash received	(36.3)		(86.4)
Investment in equity securities	(0.3)		—
Proceeds from sale of assets	55.5		—
Other investing activities	—		0.3
Net cash from (used in) investing activities	15.9		(90.3)
Cash flows from financing activities:
Net change in short-term borrowings	(0.1)		72.0
Financing lease payments	(0.3)		—
Dividend payments	(3.0)		(3.0)
Payments of tax withholding for stock awards	(1.1)		(2.3)
Other financing activities	(0.1)		—
Net cash (used in) from financing activities	(4.6)		66.7
Effect of exchange rates on cash, cash equivalents and restricted cash	2.8		(1.9)
Net change in cash, cash equivalents and restricted cash	22.5		(4.3)
Cash, cash equivalents and restricted cash at beginning of period	31.0		40.1
Cash, cash equivalents and restricted cash at end of period (1)	$	53.5	$	35.8

9

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(UNAUDITED)

(In millions of dollars)

⁽¹⁾ The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported in our consolidated balance sheets:

	13 Weeks Ended
	March 29, 2020		March 31, 2019
Reconciliation of cash, cash equivalents and restricted cash:
Current assets:
Cash and cash equivalents	$	48.3	$	30.9
Restricted cash included in prepaid expenses and other current assets	0.2		0.2
Noncurrent assets:
Restricted cash included in other assets	5.0		4.7
Cash, cash equivalents and restricted cash at end of period	$	53.5	$	35.8

See accompanying unaudited Notes to Consolidated Financial Statements.

10

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.  Basis of Presentation

The accompanying unaudited consolidated financial statements of Kelly Services, Inc. (the “Company,” “Kelly,” “we” or “us”) have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and notes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, necessary for a fair statement of the results of the interim periods, have been made. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year. The unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended December 29, 2019, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 13, 2020 (the 2019 consolidated financial statements). The Company’s first fiscal quarter ended on March 29, 2020 (2020) and March 31, 2019 (2019), each of which contained 13 weeks.

Certain reclassifications have been made to the prior year's consolidated financial statements to conform to the current year's presentation.

11

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

2.  Revenue

Revenue Disaggregated by Service Type

Staffing solutions can be branch-delivered (Americas and EMEA regions) or centrally delivered (within Global Talent Solutions ("GTS")). Our Americas Staffing segment is organized to deliver services in a number of specialty staffing solutions, which are summarized as: commercial, specialized professional/technical ("PT") and educational staffing. Permanent placement solutions can be branch-delivered (Americas and EMEA regions) or centrally delivered (within GTS). In addition to centrally delivered staffing services, our GTS segment also includes talent solutions (contingent workforce outsourcing "CWO," payroll process outsourcing "PPO," and recruitment process outsourcing "RPO,") and outcome-based services (business process outsourcing "BPO," KellyConnect, career transition/outplacement services and talent advisory services).

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

	First Quarter
	2020		2019
Branch-Delivered Staffing
Americas Staffing
Staffing Solutions
Commercial	$	308.5	$	392.5
Education	143.1		139.6
Professional/Technical	75.4		85.5
Permanent Placement	6.4		8.9
Total Americas Staffing	533.4		626.5
International Staffing
Staffing Solutions	221.9		252.2
Permanent Placement	5.7		6.7
Total International Staffing	227.6		258.9
Global Talent Solutions
Talent Fulfillment
Staffing Solutions	244.5		255.6
Permanent Placement	0.3		0.3
Talent Solutions	86.2		89.7
Total Talent Fulfillment	331.0		345.6
Outcome-Based Services	172.2		155.4
Total Global Talent Solutions	503.2		501.0
Total Intersegment	(3.1)		(3.8)
Total Revenue from Services	$	1,261.1	$	1,382.6

12

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

Revenue Disaggregated by Geography

Our operations are subject to different economic and regulatory environments depending on geographic location. Our GTS segment operates in the Americas, EMEA and APAC regions. In the first quarter of 2020 and 2019, GTS made up $486.5 million and $484.4 million in total Americas, respectively, $10.0 million and $11.1 million in total EMEA, respectively, and the entire balance in APAC.

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

	First Quarter
	2020		2019
Americas
United States	$	928.5	$	1,018.9
Canada	32.8		33.0
Mexico	28.7		27.5
Puerto Rico	17.7		19.2
Brazil	9.1		8.5
Total Americas	1,016.8		1,107.1
EMEA
France	52.5		64.3
Switzerland	44.2		49.5
Portugal	43.6		44.8
Russia	32.1		25.4
United Kingdom	22.3		26.2
Italy	14.7		20.6
Germany	8.0		11.1
Ireland	5.0		10.1
Other	15.2		18.0
Total EMEA	237.6		270.0
Total APAC	6.7		5.5
Total Kelly Services, Inc.	$	1,261.1	$	1,382.6

Deferred Costs

Deferred sales commissions, which are included in other assets in the consolidated balance sheet, were $1.3 million as of first quarter-end 2020 and $1.5 million as of year-end 2019. Amortization expense for the deferred costs for the first quarter 2020 was $0.3 million and in the first quarter 2019 was $0.5 million.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $2.8 million as of first quarter-end 2020 and $3.6 million as of year-end 2019. Amortization expense for the deferred costs for the first quarter 2020 was $4.8 million and in the first quarter 2019 was $3.4 million.

13

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

3. Credit Losses

On December 30, 2019, we adopted Accounting Standards Codification ("ASC") Topic 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures, as applicable. Results for reporting periods beginning after December 30, 2019 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. As a result of adopting this guidance, we have updated our accounting policies as follows.

Allowance for Uncollectible Accounts Receivable The Company records an allowance for uncollectible accounts receivable, billed and unbilled, based on historical loss experience, customer payment patterns, current economic trends, and reasonable and supportable forecasts, as applicable. The reserve for sales allowances is also included in the allowance for uncollectible accounts receivable. The Company estimates the current expected credit losses by applying internally developed loss rates to all outstanding receivable balances by aging category. Accounts receivable are written-off against the allowance when they are deemed uncollectible. The Company reviews the adequacy of the allowance for uncollectible accounts receivable on a quarterly basis and, if necessary, increases or decreases the balance by recording a charge or credit to selling, general and administrative ("SG&A") expenses for the portion of the adjustment relating to uncollectible accounts receivable, and a charge or credit to revenue from services for the portion of the adjustment relating to sales allowances.

Allowance for Credit Losses - Other Financial Assets The Company measures expected credit losses on qualified financial assets that do not result from revenue transactions using a probability of default method by type of financing receivable. The estimate of expected credit losses considers credit ratings, financial data, historical write-off experience, current conditions, and reasonable and supportable forecasts, as applicable, to estimate the risk of loss.

We are exposed to credit losses primarily through our sales of workforce solution services to customers. We establish an allowance for estimated credit losses in the current period resulting from the failure of our customers to make required payments on their trade accounts receivable in future periods. We pool such assets by geography and other similar risk characteristics, such as accounts in collection, and apply an aging method to estimate future credit losses utilizing inputs such as historical write-off experience, customer payment patterns, current collection data, and reasonable and supportable forecasts, as applicable. Credit risk with respect to accounts receivable is limited due to short payment terms. The Company also performs ongoing credit evaluations of its customers to help analyze credit risk. We monitor ongoing credit exposure through frequent review of past due accounts (based on the payment terms of the contract) and follow-up with customers, as appropriate. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.

We are also exposed to credit losses from our loan to PersolKelly Pte. Ltd. and other receivables measured at amortized cost. The allowances were not material for the first-quarter end 2020. See Investment in PersolKelly Pte. Ltd. footnote for more information on the loan to PersolKelly Pte. Ltd.

The rollforward of our allowance for credit losses is as follows (in millions):

	First Quarter
	2020
Allowance for bad debt:
Beginning balance	$	9.7
Impact of adopting ASC 326	0.3
Current period provision	(0.4)
Currency exchange effects	(0.5)
Write-offs	(0.2)
Ending balance	$	8.9

Write-offs are presented net of recoveries, which were not material for first quarter-end 2020.

Allowances for credit losses are recorded in trade accounts receivable, less allowances and other assets in the consolidated balance sheet.

14

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

4.  Acquisitions

In the first quarter of 2020, Kelly Services USA, LLC, a wholly owned subsidiary of the Company, acquired Insight Workforce Solutions LLC and its affiliate, Insight EDU LLC (collectively, "Insight"), as detailed below. In the first quarter of 2019, the Company acquired NextGen Global Resources LLC (“NextGen”) and Global Technology Associates, LLC (“GTA”), as detailed below. We have accounted for these acquisitions under ASC 805, Business Combinations.

Insight

On January 14, 2020, Kelly Services USA, LLC acquired 100% of the membership interests of Insight, an educational staffing company in the U.S, for a purchase price of $34.5 million. Under terms of the purchase agreement, the purchase price was adjusted for cash held by Insight at the closing date and estimated working capital adjustments resulting in the Company paying cash of $38.1 million. The purchase price of the acquisition also includes contingent consideration with an estimated fair value of $1.6 million related to an earnout payment in the event certain conditions are met per the terms of the agreement. The fair value of the earnout was established using a Monte Carlo simulation and the liability is recorded in other long-term liabilities in the consolidated balance sheet.

This acquisition will increase our market share in the education staffing market in the U.S. Insight's results of operations are included in the Americas Staffing segment. Pro forma results of operations for this acquisition have not been presented as it is not material to the consolidated statements of earnings.

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

Cash	$	1.8
Trade accounts receivable	9.6
Other current assets	0.2
Property and equipment	0.2
Goodwill	19.9
Intangibles	10.6
Other noncurrent assets	0.1
Current liabilities	(2.6)
Noncurrent liabilities	(0.1)
Assets acquired net of liabilities assumed	$	39.7

The fair value of the acquired receivables represents the contractual value. Included in the assets purchased in the Insight acquisition was approximately $10.6 million of intangible assets, made up entirely of customer relationships. The fair value of the customer relationships was determined using the multi-period excess earnings method. The customer relationships will be amortized over 10 years with no residual value. Goodwill generated from the acquisition is primarily attributable to the expected synergies from combining operations and expanding market potential, and is assigned to the Americas Staffing reporting unit (see Goodwill footnote). The amount of goodwill expected to be deductible for tax purposes is approximately $18.5 million.

NextGen Global Resources

On January 2, 2019, the Company acquired 100% of the membership interests of NextGen, a leading provider of telecommunications staffing solutions, for a purchase price of $51.0 million. Under terms of the purchase agreement, the purchase price was adjusted for cash held by NextGen at the closing date and estimated working capital adjustments resulting in the Company paying cash of $54.3 million. Due to the date of the acquisition, the first quarter 2019 actual results represent the first quarter 2019 pro forma results.

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

15

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

Global Technology Associates

On January 2, 2019, in a separate transaction, the Company acquired 100% of the membership interests of GTA, a leading provider of engineering, technology and business consulting solutions in the telecommunications industry, for a purchase price of $34.0 million. Under terms of the purchase agreement, the purchase price was adjusted for cash held by GTA at the closing date and estimated working capital adjustments resulting in the Company paying cash of $35.7 million. Due to the date of the acquisition, the first quarter 2019 actual results represent the first quarter 2019 pro forma results.

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

As noted above, goodwill related to these acquisitions was assigned to the Americas Staffing and GTS reporting units and was included in the goodwill impairment charge taken in the first quarter of 2020. The goodwill impairment charge resulted from an interim goodwill impairment test triggered by declines in our common stock price as a result of negative market reaction to the COVID-19 crisis (see Goodwill footnote).

5. Investment in Persol Holdings

The Company has a yen-denominated investment through the Company's subsidiary, Kelly Services Japan, Inc., in the common stock of Persol Holdings Co., Ltd. ("Persol Holdings"), the Company’s joint venture partner in PersolKelly Pte. Ltd. (the "JV"). As our investment is a noncontrolling interest in Persol Holdings, this investment is recorded at fair value based on the quoted market price of Persol Holdings stock on the Tokyo Stock Exchange as of the period end (see Fair Value Measurements footnote). A loss on the investment of $77.8 million in the first quarter of 2020 and a gain on the investment of $13.2 million in the first quarter of 2019 was recorded in gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.

6.  Investment in PersolKelly Pte. Ltd.

The Company has a 49% ownership interest in the JV (see Investment in Persol Holdings footnote above), a staffing solutions business operating in more than 10 countries in the Asia-Pacific region. The operating results of the Company’s interest in the JV are accounted for on a one-quarter lag under the equity method and are reported in equity in net earnings (loss) of affiliate in the consolidated statements of earnings, which amounted to a loss of $1.5 million in the first quarter of 2020 and a loss of $0.4 million in the first quarter of 2019. This investment is evaluated for indicators of impairment on a periodic basis or whenever events or circumstances indicate the carrying amount may be other-than-temporarily impaired. If we conclude that there is an other-than-temporary impairment of this equity investment, we will adjust the carrying amount of the investment to the current fair value.

The investment in equity affiliate on the Company’s consolidated balance sheet totaled $116.3 million as of first quarter-end 2020 and $117.2 million as of year-end 2019. The net amount due from the JV, a related party, was $10.0 million as of the first quarter-end 2020 and $10.9 million as of year-end 2019. The Company made loans, proportionate to its 49% ownership, to the JV for $7.0 million in 2018 and an additional $4.4 million in 2019 to fund working capital requirements as a result of their sustained revenue growth. The loans, which are outstanding as of first quarter-end 2020, are included in other assets in the consolidated balance sheet and included in the net amounts due from the JV. The carrying value of the loans approximates the fair value based on market interest rates. Accrued interest receivable totaled $0.1 million at first-quarter end 2020 and $0.2 million at year-end 2019 and is included in prepaid expenses and other current assets in the consolidated balance sheet. The amount included in trade accounts payable for staffing services provided by the JV as a supplier to the Company’s CWO programs was $0.1 million as of first quarter-end 2020 and $0.2 million as of year-end 2019.

Expected credit losses are estimated over the contractual term of the loans. The required allowance is based on current and projected financial information from the JV, market-specific information and other relevant data available to the Company, as applicable. The allowance was not material for the first quarter-end 2020.

The Company has accrued interest receivable from our loan to the JV. If applicable, we write off the uncollectible accrued interest receivable balance related to our loan to the JV within the same quarter the interest is determined to be uncollectible,

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(UNAUDITED)

which is considered timely. As such, an allowance for credit losses is not deemed necessary. Any write offs, if necessary, are recorded by reversing interest income.

Subsequent to first quarter-end 2020, 100% of the shares of Kelly Services Australia Pty Ltd and Kelly Services (New Zealand) Limited, both subsidiaries of the JV, were sold on April 1, 2020 to an affiliate of Persol Holdings. The JV received proceeds of $17.5 million upon the sale and the Company received a direct royalty payment of $0.7 million.

7.  Fair Value Measurements

Trade accounts receivable, short-term borrowings, accounts payable, accrued liabilities and accrued payroll and related taxes approximate their fair values due to the short-term maturities of these assets and liabilities.

Assets Measured at Fair Value on a Recurring Basis

The following tables present assets measured at fair value on a recurring basis as of first quarter-end 2020 and year-end 2019 in the consolidated balance sheet by fair value hierarchy level, as described below.

Level 1 measurements consist of unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 measurements include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3 measurements include significant unobservable inputs.

	As of First Quarter-End 2020
Description	Total		Level 1		Level 2		Level 3
	(In millions of dollars)
Money market funds	$	4.9	$	4.9	$	—	$	—
Investment in Persol Holdings	96.8		96.8		—		—
Total assets at fair value	$	101.7	$	101.7	$	—	$	—

	As of Year-End 2019
Description	Total		Level 1		Level 2		Level 3
	(In millions of dollars)
Money market funds	$	4.9	$	4.9	$	—	$	—
Investment in Persol Holdings	173.2		173.2		—		—
Total assets at fair value	$	178.1	$	178.1	$	—	$	—

Money market funds as of first quarter-end 2020 and year-end 2019 represent investments in money market accounts, all of which are restricted as to use and included in other assets in the consolidated balance sheet. The money market funds that are restricted as to use account for the majority of our restricted cash balance and represents cash balances that are required to be maintained to fund disability claims in California. The valuations of money market funds were based on quoted market prices of those accounts as of the respective period end. 

The valuation of the investment in Persol Holdings is based on the quoted market price of Persol Holdings stock on the Tokyo Stock Exchange as of the period end, and the related changes in fair value are recorded in the consolidated statements of earnings (see Investment in Persol Holdings footnote). The cost of this yen-denominated investment, which fluctuates based on foreign exchange rates, was $19.2 million as of the first quarter-end 2020 and $18.9 million at year-end 2019.

Equity Investment Without Readily Determinable Fair Value

The Company has a minority investment in Business Talent Group, LLC, which is included in other assets in the consolidated balance sheet. This investment is measured using the measurement alternative for equity investments without a readily determinable fair value. The measurement alternative represents cost, less impairment, plus or minus observable price changes.

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(UNAUDITED)

The carrying amount of $5.0 million as of the first quarter-end 2020 and year-end 2019 represents the purchase price. There have been no observable price changes to the carrying amount or impairments.

The Company also has a minority investment in Kenzie Academy Inc., which is included in other assets in the consolidated balance sheet. This investment is also measured using the measurement alternative for equity investments without a readily determinable fair value as described above. The investment totaled $1.4 million as of the first quarter-end 2020 and $1.3 million at year-end 2019, representing total cost plus observable price changes to date.

Assets Measured at Fair Value on a Nonrecurring Basis

Due to the negative market reaction to the COVID-19 crisis, including declines in our common stock price, management determined that a triggering event occurred during the first quarter of 2020. We therefore performed an interim step one quantitative impairment test for both of our reporting units with goodwill, Americas Staffing and GTS. As a result of this quantitative assessment, we determined that the estimated fair value of the reporting units no longer exceeded the carrying value, and recorded a goodwill impairment charge of $147.7 million in the first quarter of 2020 (see Goodwill footnote).

8. Restructuring

In the first quarter of 2020, the Company took restructuring actions to align costs with expected revenues, position the organization to adopt a new operating model later in 2020 and to align the U.S. branch network facilities footprint with a more technology-enabled service delivery methodology.

Restructuring costs incurred in the first quarter of 2020 totaled $8.7 million and are recorded entirely in SG&A expenses in the consolidated statements of earnings, as detailed below (in millions of dollars).

	Lease Termination Costs		Severance Costs		Total
Americas Staffing	$	4.1	$	1.5	$	5.6
Global Talent Solutions	—		0.9		0.9
International Staffing	0.7		0.4		1.1
Corporate	—		1.1		1.1
Total	$	4.8	$	3.9	$	8.7

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

Balance as of year-end 2019	$	0.3
Additions charged to Americas Staffing	5.6
Additions charged to Global Talent Solutions	0.9
Additions charged to International Staffing	1.1
Additions charged to Corporate	1.1
Reductions for lease termination costs related to fixed assets	(0.6)
Reductions for cash payments related to all restructuring activities	(4.5)
Balance as of first quarter-end 2020	$	3.9

The remaining balance of $3.9 million as of first quarter-end 2020 primarily represents severance costs, and the majority is expected to be paid by the end of 2020. No material adjustments are expected to be recorded.

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(UNAUDITED)

9. Goodwill

The changes in the carrying amount of goodwill as of first quarter-end 2020 are included in the table below. See Acquisitions footnote for a description of the addition to goodwill in the first quarter of 2020.

The Company performs its annual goodwill impairment testing in the fourth quarter each year and regularly assesses whenever events or circumstances make it more likely than not that an impairment may have occurred. During the first quarter of 2020, negative market reaction to the COVID-19 crisis, including declines in our common stock price, caused our market capitalization to decline significantly compared to the fourth quarter of 2019, causing a triggering event. Therefore, we performed an interim step one quantitative test for reporting units with goodwill, Americas Staffing and GTS, and determined that the estimated fair values of both reporting units no longer exceeded their carrying values. Based on the result of our interim goodwill impairment test as of first quarter of 2020, we recorded a goodwill impairment charge of $147.7 million to write off goodwill for both reporting units. (See impairment adjustments in the table below.)

In performing the step one quantitative test and consistent with our prior practice, we determined the fair value of each reporting unit using the income approach, which is validated through reconciliation to observable market capitalization data. Under the income approach, estimated fair value is determined based on estimated future cash flows discounted by an estimated market participant weighted-average cost of capital, which reflects the overall level of inherent risk of the reporting unit being measured. Estimated future cash flows are based on our internal projection model and reflects management’s outlook for the reporting units. Assumptions and estimates about future cash flows and discount rates are complex and often subjective.

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 and working capital.

	As of Year-End 2019		Additions to Goodwill		Impairment Adjustments		As of First Quarter-End 2020
	(In millions of dollars)
Americas Staffing	$	58.5	$	19.9	$	(78.4)	$	—
Global Talent Solutions	69.3		—		(69.3)		—
Total	$	127.8	$	19.9	$	(147.7)	$	—

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(UNAUDITED)

10.  Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the first quarter 2020 and 2019 are included in the table below. Amounts in parentheses indicate debits.

	First Quarter
	2020		2019
	(In millions of dollars)
Foreign currency translation adjustments:
Beginning balance	$	(13.2)	$	(15.7)
Other comprehensive income (loss) before reclassifications	(7.4)		(1.5)
Amounts reclassified from accumulated other comprehensive income (loss)	—		—
Net current-period other comprehensive income (loss)	(7.4)		(1.5)
Ending balance	(20.6)		(17.2)
Pension liability adjustments:
Beginning balance	(2.6)		(1.4)
Other comprehensive income (loss) before reclassifications	—		—
Amounts reclassified from accumulated other comprehensive income (loss)	—		—
Net current-period other comprehensive income (loss)	—		—
Ending balance	(2.6)		(1.4)
Total accumulated other comprehensive income (loss)	$	(23.2)	$	(18.6)

11.  Earnings Per Share

The reconciliation of basic and diluted earnings (loss) per share on common stock for the first quarter 2020 and 2019 follows (in millions of dollars except per share data):