# KELLY SERVICES INC (KELYA) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from KELLY SERVICES INC's 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/55135/000005513522000006/kelya-20220102.htm Accession: 0000055135-22-000006 Filing date: 2022-02-17 Report date: 2022-01-02 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/KELYA/ All MD&A years: /company/KELYA/mda/ Next year: /company/KELYA/mda/a-0000055135-23-000005/ (FY 2023) ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Executive Overview Kelly’s strategy and actions are guided by our simple yet powerful Noble Purpose: “We connect people to work in ways that enrich their lives.” We are committed to being a leading talent solutions provider among the talent with whom we choose to specialize and in the global markets in which we choose to compete. As we navigate the post-pandemic landscape, we will continue to demonstrate our expected behaviors and actions: •Employ a talent-first mentality •Relentlessly deliver for customers •Grow through discipline and focus •Deliver efficiency and effectiveness in everything we do By aligning ourselves with our Noble Purpose and executing against these behaviors, we are becoming a more agile and focused organization, prepared to achieve new levels of growth and profitability as we develop and reshape our portfolio of businesses. The Talent Solutions Industry Even before the COVID-19 pandemic, labor markets were 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, and the COVID-19 pandemic changed where and how companies expect work to be performed—a shift we expect will carry over into the future. 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 specialized 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 customized workforce solutions that are flexible and responsive to the labor market. 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. 2021 saw record-breaking employee resignations in the U.S. as workers opted out of jobs that did not align with their needs. In this increasingly talent-driven market, a diverse set of workers, empowered by technology, is seeking to take even greater control over their career trajectories. Kelly is proud to be a career partner of choice for workers in search of a better way to work. Our Business Kelly is a 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 and direct-hire basis. In 2020, we adopted a new operating model and realigned our business into five specialty business units, which are also our reportable segments. •Professional & Industrial – delivers staffing, outcome-based and direct-hire services focused on office, professional, light industrial and contact center specialties in the U.S. and Canada, including our KellyConnect and Skilled Professional Solutions products •Science, Engineering & Technology – delivers staffing, outcome-based and direct-hire services focused on science and clinical research, engineering, technology and telecommunications specialties predominantly in the U.S. and Canada and includes our NextGen and Global Technology Associates subsidiaries, as well as Softworld, a technology staffing and workforce solutions company acquired in 2021 20 •Education – delivers staffing, direct-hire and executive search services across the full education spectrum from early childhood to higher education in the U.S., and includes Teachers On Call, Insight Workforce Solutions and Greenwood/Asher & Associates •Outsourcing & Consulting – delivers Master Service Provider ("MSP"), Recruitment Process Outsourcing ("RPO"), Business Process Outsourcing ("BPO") and Talent Advisory Services to customers on a global basis •International – delivers staffing, RPO and direct-hire services in 15 countries in Europe, as well as services in Mexico delivered in accordance with recent changes in labor market regulations In addition, PersolKelly Pte. Ltd., our joint venture with Persol Asia Pacific Pte. Ltd, a wholly owned subsidiary of Persol Holdings, a leading provider of HR solutions in Japan, provides staffing and direct hire services to customers in the Asia-Pacific region. 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. and was 60 days on a global basis as of the end of 2021 and 64 days as of the end of 2020. Since receipts from customers generally lag temporary employee payroll, working capital requirements increase substantially in periods of growth and decline in periods of economic contraction. Our Perspective and Outlook on Growth Our 2020 results reflected the substantial decline in demand for our services during the depth of the COVID-19 crisis and the decisive actions we took to reduce costs and protect our balance sheet. We were successful in positioning Kelly to take advantage of improving economic conditions and the beginning of a recovery in customer demand as we entered 2021. While 2021 had its share of headwinds, most notably the emergence of the Delta and Omicron variants, continued global supply chain shortages, and a talent supply shortage, Kelly persevered and ended the year better than we began it. We made our largest-ever acquisition in April 2021 with the purchase of Softworld, a leader in the fast-growing technology staffing and solutions space. We made structural improvements in our businesses, driving growth in our GP rate; and we reinstated a dividend, which had been temporarily suspended during the worst of the pandemic. Within our specialty solutions, customer demand for our services increased throughout 2021, reaching or exceeding pre-pandemic levels at various rates across specialties. Our P&I and Education segments, the hardest-hit by COVID-19 and its variants, put the worst of the pandemic behind them by year’s end. Our SET business drove double-digit growth in outcome-based business and Softworld. Our International segment continued its recovery, led by growth in key European countries. And OCG, the most resilient of our business segments, continued to deliver double-digit growth throughout 2021. We enter 2022 having shifted from recovery to growth. Our permanent placement fee growth points toward our customers’ investments in their future workforce, and increased demand in our staffing and outcome-based businesses reflects strong market demand for the specialty solutions we provide. Our business is arranged around specialties that target these areas of strong demand, promising growth opportunities, and Kelly’s proven ability to win. Our segments also reflect our intent to shift our portfolio toward high-margin, higher-value specialties that deliver a competitive edge and increased shareholder value. As we continue our strategic growth journey in the year ahead, we will also invest in key value drivers. •We are mapping our digital transformation journey, building a technology foundation to optimize our business, personalize the talent journey and improve the client experience. For example, in 2021 we launched Helix UX, an industry-leading talent management tool that is enabling our customers to better manage their global workforce across temporary, full-time and cloud-based talent pools. •We are consistently striving to better understand and support our talent and their shifting needs. We have reallocated resources to be solely focused on the temporary worker experience, and our Equity@Work initiative is designed to break down long-standing, systemic barriers that make it difficult for many people to participate in the labor market. . •We are investing in the talent experience of our full-time employees, taking action to ensure we have the people coaches and performance management systems that will help our employees thrive in their Kelly careers. We know that our success is powered by our people, and we are aiming for industry-leading results. 21 As we execute our specialty growth strategy, we are focused on both the speed and scope of change. To that end, on February 14, 2022 we announced transactions that will allow us to strategically re-deploy resources to accelerate our growth in high-margin, high-growth specialties. Specifically, we are unwinding our cross-ownership with Persol Holdings and reducing our ownership interest in our APAC joint venture, PersolKelly. Monetizing our investments in Persol Holdings and PersolKelly provides us with additional capital, when combined with our available borrowing capacity, that results in approximately $500 million of capital available to invest in our specialty growth strategy and positions us to continue to grow both organically and inorganically in 2022 and beyond. Financial Measures The constant currency (“CC”) change amounts in the following tables refer to the year-over-year percentage changes resulting from translating 2021 financial data into U.S. dollars using the same foreign currency exchange rates used to translate financial data for 2020. 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 (“SG&A”) expenses 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 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) are ratios used to measure the Company’s operating efficiency. EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDA margin (EBITDA divided by revenue from services) are measures used for understanding the Company's ability to generate cash flow and for judging overall operating performance. NM (not meaningful) in the following tables is used in place of percentage changes where: the change is in excess of 500%, the change involves a comparison between earnings and loss amounts, or the comparison amount is zero. 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. 22 Results of Operations Total Company (Dollars in millions) [[GREPCENT_TABLE]] [["","2021 vs. 2020","","2020 vs. 2019"],["","2021 (52 Weeks)","","2020 (53 Weeks)","","Change","","2020 (53 Weeks)","","2019 (52 Weeks)","","Change"],["Revenue from services","$","4,909.7","","","","$","4,516.0","","","","8.7","","%","","$","4,516.0","","","","$","5,355.6","","","","(15.7)","","%"],["Gross profit","919.2","","","","827.6","","","","11.1","","","","827.6","","","","968.4","","","","(14.5)"],["SG&A expenses excluding restructuring charges","866.6","","","","792.8","","","","9.3","","","","792.8","","","","877.6","","","","(9.7)"],["Restructuring charges","4.0","","","","12.8","","","","(69.0)","","","","12.8","","","","5.5","","","","131.5"],["Total SG&A expenses","870.6","","","","805.6","","","","8.1","","","","805.6","","","","883.1","","","","(8.8)"],["Goodwill impairment charge","\u2014","","","","147.7","","","","NM","","","147.7","","","","\u2014","","","","NM"],["Gain on sale of assets","\u2014","","","","32.1","","","","NM","","","32.1","","","","12.3","","","","161.6"],["Asset impairment charge","\u2014","","","","\u2014","","","","NM","","","\u2014","","","","15.8","","","","NM"],["Earnings (loss) from operations","48.6","","","","(93.6)","","","","NM","","","(93.6)","","","","81.8","","","","NM"],["Gain (loss) on investment in Persol Holdings","121.8","","","","(16.6)","","","","NM","","","(16.6)","","","","35.8","","","","NM"],["Gain on insurance settlement","19.0","","","","\u2014","","","","NM","","","\u2014","","","","\u2014","","","","NM"],["Other income (expense), net","(3.6)","","","","3.4","","","","(206.5)","","","","3.4","","","","(1.2)","","","","369.5"],["Earnings (loss) before taxes and equity in net earnings (loss) of affiliate","185.8","","","","(106.8)","","","","NM","","","(106.8)","","","","116.4","","","","NM"],["Income tax expense (benefit)","35.1","","","","(34.0)","","","","203.4","","","","(34.0)","","","","0.4","","","","NM"],["Equity in net earnings (loss) of affiliate","5.4","","","","0.8","","","","NM","","","0.8","","","","(3.6)","","","","NM"],["Net earnings (loss)","$","156.1","","","","$","(72.0)","","","","NM","%","","$","(72.0)","","","","$","112.4","","","","NM","%"],["Gross profit rate","18.7","","%","","18.3","","%","","0.4","","pts.","","18.3","","%","","18.1","","%","","0.2","","pts."],["Conversion rate","5.3","","","","(11.3)","","","","16.6","","","","(11.3)","","","","8.4","","","","(19.7)"]] [[/GREPCENT_TABLE]] 2021 vs. 2020 Revenue from services for 2021 increased 8.7% on a reported basis and 7.8% on a constant currency basis as demand for our services increased from COVID-crisis driven levels in 2020. Revenue increased in all operating segments, with the exception of Professional & Industrial. Our acquisition of Softworld, a technology staffing and solutions firm, in early April 2021 added approximately 220 basis points to the revenue growth rate. The 2020 fiscal year included a 53rd week. This fiscal leap year occurs every five or six years and is necessary to align the fiscal and calendar periods. The 53rd week added approximately 1% to 2020 reported revenue. Compared to 2020, revenue from staffing services increased 6.6%, revenue from outcome-based services increased 7.3%, and permanent placement income increased 89.7%. Gross profit increased 11.1% on higher revenue volume and an improving gross profit rate. The gross profit rate increased 40 basis points in comparison to 2020, primarily due to the impact of higher permanent placement income and the acquisition of Softworld, which generates higher gross profit rates, partially offset by unfavorable product mix and higher employee-related costs. Gross profit rate improved approximately 30 basis points as a result of the acquisition of Softworld. The gross profit rate for 2020 includes approximately 20 basis points from COVID-related government wage subsidies. Increases in the gross profit rate for Science, Engineering & Technology, Education and International were partially offset by decreases in the gross profit rate for Professional & Industrial and Outsourcing & Consulting. Total SG&A expenses increased 8.1% compared to 2020. SG&A expenses related to Softworld, including amortization of intangibles and other operating expenses, accounted for approximately 350 basis points to the year-over-year increase. The increase in SG&A expenses also reflects increases in performance-based incentive compensation expenses and the impact of 23 temporary expense mitigation efforts in 2020. With the exception of Professional & Industrial, SG&A expenses increased in all segments in comparison to 2020. Included in SG&A expenses for 2021 was $4.0 million of restructuring charges, primarily reflecting cost management actions taken in the fourth quarter of 2021 to increase operational efficiencies within enterprise functions that provide centralized support to operating units. Included in SG&A expenses for 2020 was $12.8 million of restructuring charges and a $9.5 million charge related to a customer dispute. During 2020, the negative reaction to the pandemic by the global equity markets also resulted in a decline in the Company's common stock price. This triggered an interim goodwill impairment test, resulting in a $147.7 million goodwill impairment charge in the first quarter of 2020. Gain on sale of assets of $32.1 million in 2020 represents the excess of the proceeds over the cost of the headquarters properties sold in the first quarter of 2020. The main headquarters building was subsequently leased back by the Company during the first quarter of 2020. Earnings from operations for 2021 totaled $48.6 million, compared to a loss from operations of $93.6 million in 2020. The increase in earnings from operations from 2020 primarily reflects the impact of the goodwill impairment charge, the customer dispute charge and higher restructuring charges in 2020, partially offset by the 2020 gain on sale of assets. Gain (loss) on investment in Persol Holdings represents the noncash gain or loss resulting from changes in the market price of our investment in the common stock of Persol Holdings. The gains or losses fluctuate each quarter based on the quoted market price of the Persol Holdings common stock at period end. The gain on insurance settlement of $19.0 million in 2021 represents a payment received in the fourth quarter of 2021 related to the settlement of claims under a representations and warranties insurance policy purchased by the Company in connection with the acquisition of Softworld. Other expense for 2021 totaled $3.6 million, compared to other income of $3.4 million for 2020. Included in the 2021 amount is a one-time, non-cash write-down of an equity investment and transaction-related expenses from the April 2021 acquisition of Softworld. Income tax expense was $35.1 million for 2021 and income tax benefit was $34.0 million for 2020. The 2021 income tax expense was impacted by higher pretax earnings and changes in the fair value of the Company's investment in Persol Holdings. Income taxes for 2021 also includes a charge for gain on insurance settlement and a benefit from a United Kingdom tax rate change. Income taxes for 2020 includes a tax benefit from the impairment of goodwill and a U.S. tax benefit from the sale of Brazil operations. Our tax expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S. work opportunity credits and the change in cash surrender value of tax exempt investments in life insurance policies. It is also affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law changes, changes in judgment regarding the realizability of deferred tax assets, the tax effects of stock compensation, and changes in the fair value of the Company’s investment in Persol Holdings, which are treated as discrete since they cannot be estimated. The United Kingdom rate change benefit in the second quarter of 2021, the first quarter of 2020 impairment of goodwill and the second quarter of 2020 Brazil outside basis differences were treated as discrete. The net earnings for 2021 were $156.1 million, compared to a net loss of $72.0 million for 2020. This change was due primarily to higher earnings from operations and increased gains of Persol Holdings common stock, net of tax. 2020 vs. 2019 Revenue from services for 2020 declined in all segments, reflecting the impact of COVID-19, and resulting in a decline in demand for both our staffing and permanent placement services across a broad range of industries and geographies. Revenue from staffing services declined 20% compared to 2019. Permanent placement revenue, which is included in revenue from services, decreased 34% year-over-year as the impact of economic uncertainty depressed full-time hiring in all operating segments. These declines were partially offset by a 9% increase in outcome-based services as demand from customers utilizing these services increased during the year. The 2020 fiscal year included a 53rd week. This fiscal leap year occurs every five or six years and is necessary to align the fiscal and calendar periods. The 53rd week added approximately 1% to 2020 reported and CC revenue. 24 Gross profit declined as a result of lower revenue volume, partially offset by an increase in the gross profit rate. The gross profit rate increased 20 basis points in comparison to 2019. With the exception of Education and International, the gross profit rate increased in all other operating segments, primarily reflecting improved product mix and lower employee-related costs. The gross profit rate for Education declined primarily as a result of increased pricing pressures. International's gross profit rate was negatively impacted by the decrease in permanent placement revenue. The total Company 2020 gross profit rate included approximately 20 basis points related to COVID-19 government subsidies. Total SG&A expenses decreased 8.8% in comparison to 2019. This decrease was due primarily to lower administrative salaries and performance-based compensation, including short-term cost reductions implemented to further align costs with revenue volume trends. Included in total SG&A expenses are restructuring charges of $12.8 million in 2020. Actions were taken in the first quarter of 2020 to position the Company to adopt the new operating model and to align the U.S. branch network facilities footprint with a more technology-enabled service delivery methodology. Actions were taken in the fourth quarter of 2020 to align costs with expected revenue levels. Restructuring charges of $5.5 million in 2019 represent severance costs primarily related to position eliminations within Professional & Industrial staffing operations. During 2020, the negative reaction to the pandemic by the global equity markets also resulted in a decline in the Company's common stock price. This triggered an interim goodwill impairment test, resulting in a $147.7 million goodwill impairment charge in the first quarter of 2020. Gain on sale of assets of $32.1 million represented the excess of the proceeds over the cost of the headquarters properties sold in the first quarter of 2020. The main headquarters building was subsequently leased back to the Company during the first quarter of 2020. Gain on sale of assets in 2019 of $12.3 million primarily represented the excess of the proceeds over the cost upon the sale of an unused parcel of land located near the Company headquarters. Asset impairment charge of $15.8 million in 2019 represented the write-off of previously capitalized costs associated with a new U.S. front and middle office technology development project which management determined would not be completed but replaced by an enhanced and expanded use of an existing technology platform. The loss from operations for 2020 of $93.6 million reflected a decline from the $81.8 million of earnings from operations in 2019. Earnings from operations declined as a result of the goodwill impairment charge and lower gross profit as a result of the impact of COVID-19 on demand, partially offset by lower expenses due to cost reduction efforts and higher gain on sale of assets. Gain (loss) on investment in Persol Holdings represented the noncash gain or loss resulting from changes in the market price of our investment in the common stock of Persol Holdings. The gains or losses fluctuate based on the quoted market price of the Persol Holdings common stock at period end. Income tax benefit was $34.0 million and expense was $0.4 million for 2020 and 2019, respectively. The 2020 income tax benefited from lower pretax earnings and included the impairment of goodwill, a decline in the fair value of the Company's investment in Persol Holdings, and a tax loss on the sale of our Brazil operations. These benefits were offset by lower work opportunity credits. The 2019 tax expense benefited from releasing a valuation allowance in the United Kingdom. The work opportunity credit has been extended through 2025 as part of the Consolidated Appropriations Act, 2021. Our tax expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S. work opportunity credits and the change in cash surrender value of tax exempt investments in life insurance policies. It is also affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law changes, changes in judgment regarding the realizability of deferred tax assets, the tax effects of stock compensation, and changes in the fair value of the Company’s investment in Persol Holdings, which are treated as discrete since they cannot be estimated. The impairment of goodwill in the first quarter of 2020 and the recording of deferred taxes on the Brazil outside basis differences in the second quarter of 2020 were treated as discrete items. The net loss for 2020 of $72.0 million, a decrease from net earnings of $112.4 million in 2019, was due primarily to lower earnings from operations due to the goodwill impairment charge taken in the first quarter of 2020, combined with losses of Persol Holdings common stock, partially offset by the impact of an income tax benefit in comparison to income tax expense in 2019. 25 Operating Results By Segment (Dollars in millions) [[GREPCENT_TABLE]] [["","2021 vs. 2020","","2020 vs. 2019"],["","2021 (52 Weeks)","","2020 (53 Weeks)","","% Change","","2020 (53 Weeks)","","2019 (52 Weeks)","","% Change"],["Revenue From Services:"],["Professional & Industrial","$","1,837.4","","","$","1,858.4","","","(1.1)","","%","","$","1,858.4","","","$","2,213.4","","","(16.0)","","%"],["Science, Engineering & Technology","1,156.8","","","1,019.1","","","13.5","","","","1,019.1","","","1,131.8","","","(9.9)"],["Education","416.5","","","286.9","","","45.2","","","","286.9","","","450.7","","","(36.3)"],["Outsourcing & Consulting","432.1","","","363.5","","","18.9","","","","363.5","","","377.7","","","(3.8)"],["International","1,067.8","","","988.6","","","8.0","","","","988.6","","","1,182.5","","","(16.4)"],["Less: Intersegment revenue","(0.9)","","","(0.5)","","","97.0","","","","(0.5)","","","(0.5)","","","(16.6)"],["Consolidated Total","$","4,909.7","","","$","4,516.0","","","8.7","","%","","$","4,516.0","","","$","5,355.6","","","(15.7)","","%"]] [[/GREPCENT_TABLE]] 2021 vs. 2020 Professional & Industrial revenue from services decreased 1.1% due primarily to lower demand from our outcome-based call center specialty. Revenue from staffing services also declined on lower hours volume due to talent supply constraints even as customer demand improved. Lower hours volume in staffing services was partially offset by higher average bills rates. These decreases were partially offset by increased outcome-based revenue in other specialties, as well as higher permanent placement income which is included in revenue from services. The 53rd week added approximately 1% to 2020 reported revenue from services in Professional & Industrial. Science, Engineering & Technology revenue from services increased 13.5% on a reported basis, which includes revenues from the acquisition of Softworld. On an organic basis, revenue growth was 3.9%, which was driven by hours increases in our staffing business across most specialties, coupled with an increase in outcome-based revenue and permanent placement income. The 53rd week added approximately 1% to 2020 reported revenue from services in Science, Engineering & Technology. Education revenue from services increased 45.2% reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to a year ago. In 2020, many districts were using virtual or hybrid instruction methods due to the impact of COVID-19. The 53rd week added less than 1% to 2020 reported revenue from services in Education. Outsourcing & Consulting revenue from services increased 18.9% due primarily to increased hours revenue volume in our PPO specialty, coupled with revenue growth in both RPO and MSP products. The 53rd week added approximately 2% to 2020 reported revenue from services in Outsourcing & Consulting. International revenue from services increased 8.0% on a reported basis and increased 4.9% on a CC basis. Year-over-year revenue comparisons were unfavorably impacted by the sale of our staffing operations in Brazil in August 2020. Excluding Brazil, revenue increased 9.9% on a reported basis and 6.8% on a constant currency basis. The increase was primarily due to higher hours volume, particularly in Switzerland, Portugal, Italy and France. The 53rd week added approximately 1% to 2020 reported revenue from services in International. 26 2020 vs. 2019 Professional & Industrial revenue from services decreased due primarily to decreases in our hours volume in our staffing product which was impacted by COVID-19. These decreases were partially offset by increased revenue in our outcome-based products due to program expansions. The 53rd week added approximately 1% to 2020 reported revenue from services in Professional & Industrial. Science, Engineering & Technology revenue from services decreased due to lower hours volume in our staffing product across most specialties due to the continued impact of COVID-19, with the exception of our government staffing business, which has seen increased demand for life sciences support. The 53rd week added approximately 1% to 2020 reported revenue from services in Science, Engineering & Technology. Education revenue from services decreased due to the impact of COVID-19. Temporary school closures and use of virtual or hybrid instructional delivery reduced the demand. These decreases were partially offset by the revenues from the first quarter 2020 acquisition of Insight. The 53rd week added less than 1% to 2020 reported revenue from services in Education. Outsourcing & Consulting revenue from services decreased due primarily to decreases in our PPO, MSP and RPO products due in part to COVID-19 demand declines, as well as lower demand from customers in the oil and gas industry. The 53rd week added approximately 2% to 2020 reported revenue from services in Outsourcing & Consulting. International revenue from services decreased 16.4% on a reported basis and 15.6% on a CC basis. The decline was primarily due to a decrease in hours volume as COVID-19 disruptions continued across operations in all countries, in particular France, Portugal and the U.K. These decreases were partially offset by increased revenue in Russia, due to higher average bill rates. The 53rd week added approximately 1% to 2020 reported and CC revenue from services in International. 27 Operating Results By Segment (continued) (Dollars in millions) [[GREPCENT_TABLE]] [["","2021 vs. 2020","","2020 vs. 2019"],["","2021 (52 Weeks)","","2020 (53 Weeks)","","Change","","2020 (53 Weeks)","","2019 (52 Weeks)","","Change"],["Gross Profit:"],["Professional & Industrial","$","310.0","","","$","330.2","","","(6.1)","","%","","$","330.2","","","$","388.4","","","(15.0)","","%"],["Science, Engineering & Technology","253.9","","","209.4","","","21.3","","","","209.4","","","226.2","","","(7.5)"],["Education","65.1","","","42.2","","","54.1","","","","42.2","","","72.0","","","(41.3)"],["Outsourcing & Consulting","141.4","","","119.8","","","18.0","","","","119.8","","","122.3","","","(2.0)"],["International","148.8","","","126.0","","","18.1","","","","126.0","","","159.5","","","(21.0)"],["Consolidated Total","$","919.2","","","$","827.6","","","11.1","","%","","$","827.6","","","$","968.4","","","(14.5)","","%"],["Gross Profit Rate:"],["Professional & Industrial","16.9","%","17.8","%","(0.9)","","pts.","","17.8","%","17.5","%","0.3","","pts."],["Science, Engineering & Technology","21.9","","20.5","","1.4","","","","20.5","","20.0","","0.5"],["Education","15.6","","14.7","","0.9","","","","14.7","","16.0","","(1.3)"],["Outsourcing & Consulting","32.7","","33.0","","(0.3)","","","","33.0","","32.4","","0.6"],["International","13.9","","12.7","","1.2","","","","12.7","","13.5","","(0.8)"],["Consolidated Total","18.7","%","18.3","%","0.4","","pts.","","18.3","%","18.1","%","0.2","","pts."]] [[/GREPCENT_TABLE]] 2021 vs. 2020 Gross profit for the Professional & Industrial segment decreased due to a decrease in the gross profit rate, combined with lower revenue volume. In comparison to the prior year, the gross profit rate decreased 90 basis points. This decrease reflects the unfavorable year-over-year impact of government wage subsidies, increased costs associated with our outcome-based call center specialties, higher employee-related costs in the staffing product and a shift in product mix compared to the prior year as demand for staffing services, which generally carry lower margins, increased. These decreases were partially offset by the impact of increased permanent placement income in 2021. The Science, Engineering & Technology gross profit increased on higher revenue volume and an increase in the gross profit rate. The gross profit rate increased 140 basis points due to increased permanent placement income and improved specialty mix, including the acquisition of Softworld in April 2021, partially offset by higher employee-related costs. Gross profit for the Education segment increased on higher revenue volume and an increase in the gross profit rate. The gross profit rate increased 90 basis points due primarily to higher permanent placement income from Greenwood/Asher, our acquisition in late 2020. This increase was partially offset by the unfavorable year-over-year impact of government wage subsidies. The Outsourcing & Consulting gross profit increased on higher revenue volume, partially offset by a decrease in the gross profit rate. The gross profit rate decreased 30 basis points primarily due to a change in product mix within this segment, as revenues increased in our PPO product, which generates lower profit margins. International gross profit increased on higher revenue volume and an increase in the gross profit rate. The gross profit rate increased 120 basis points primarily due to customer mix. 28 2020 vs. 2019 Gross profit for the Professional & Industrial segment declined as the result of lower revenue volume, partially offset by an improved gross profit rate. The gross profit rate increased 30 basis points due to lower employee-related costs coupled with improved product mix, as a greater proportion of the segment revenue came from outcome-based services with higher margins. The Science, Engineering & Technology gross profit declined as lower revenue volume was partially offset by a higher gross profit rate. The gross profit rate increased 50 basis points due to lower employee-related costs, partially offset by specialty and customer mix. Gross profit for the Education segment declined as a result of lower revenue volume, combined with a lower gross profit rate. The Education gross profit rate decreased 130 basis points due to increased pricing pressures, partially offset by lower employee-related costs. Outsourcing & Consulting gross profit declined on lower revenue volume, partially offset by an improved gross profit rate. The Outsourcing & Consulting gross profit rate increased 60 basis points due to improved customer mix in the RPO product, coupled with lower employee-related costs in the PPO product. International gross profit declined as a result of lower revenue volume and a decline in the gross profit rate. The International gross profit rate decreased primarily due to lower permanent placement revenue. 29 Operating Results By Segment (continued) (Dollars in millions) [[GREPCENT_TABLE]] [["","2021 vs. 2020","","2020 vs. 2019"],["","2021 (52 Weeks)","","2020 (53 Weeks)","","% Change","","2020 (53 Weeks)","","2019 (52 Weeks)","","% Change"],["SG&A Expenses:"],["Professional & Industrial","$","278.6","","","$","288.6","","","(3.5)","","%","","$","288.6","","","$","326.0","","","(11.5)","","%"],["Science, Engineering & Technology","180.2","","","134.4","","","34.1","","","","134.4","","","146.7","","","(8.4)"],["Education","62.1","","","51.2","","","21.1","","","","51.2","","","56.2","","","(8.8)"],["Outsourcing & Consulting","122.7","","","108.3","","","13.3","","","","108.3","","","119.3","","","(9.2)"],["International","138.9","","","134.9","","","2.9","","","","134.9","","","140.8","","","(4.2)"],["Corporate expenses","88.1","","","88.2","","","(0.1)","","","","88.2","","","94.1","","","(6.3)"],["Consolidated Total","$","870.6","","","$","805.6","","","8.1","","%","","$","805.6","","","$","883.1","","","(8.8)","","%"],["","2021 vs. 2020","","2020 vs. 2019"],["","2021 (52 Weeks)","","2020 (53 Weeks)","","% Change","","2020 (53 Weeks)","","2019 (52 Weeks)","","% Change"],["Restructuring Charges Included in SG&A Expenses:"],["Professional & Industrial","$","\u2014","","","$","6.0","","","NM","%","","$","6.0","","","$","5.1","","","16.8","","%"],["Science, Engineering & Technology","\u2014","","","0.6","","","NM","","","0.6","","","0.4","","","74.1"],["Education","\u2014","","","1.0","","","NM","","","1.0","","","\u2014","","","NM"],["Outsourcing & Consulting","\u2014","","","0.3","","","NM","","","0.3","","","\u2014","","","NM"],["International","1.2","","","1.4","","","(10.2)","","","","1.4","","","\u2014","","","NM"],["Corporate expenses","2.8","","","3.5","","","(18.4)","","","","3.5","","","\u2014","","","NM"],["Consolidated Total","$","4.0","","","$","12.8","","","(69.0)","","%","","$","12.8","","","$","5.5","","","131.5","","%"]] [[/GREPCENT_TABLE]] 2021 vs. 2020 Total SG&A expenses in Professional & Industrial decreased 3.5% and decreased 1.4% excluding restructuring charges. Expenses are lower as a result of cost reductions in response to lower revenue volumes, partially offset by higher performance-based compensation expenses. Total SG&A expenses in Science, Engineering & Technology increased 34.1%, or 34.7% excluding restructuring charges. Excluding restructuring charges and the acquisition of Softworld, SG&A expenses increased 13.9%. Year-over-year comparisons of salaries and related costs were impacted by temporary expense mitigation actions taken in response to the COVID-19 disruption in 2020. These increases were combined with higher headcount in sales and recruiting talent, and an increase in performance-based incentive compensation. Total SG&A expenses in Education increased 21.1%, or 23.6% excluding restructuring charges, primarily due to higher salary and incentives expense related to improving revenues. In addition, year-over-year comparisons of salaries and related costs were impacted by temporary expense mitigation actions taken in 2020 in response to the COVID-19 disruption. Expenses in 2021 include a charge to adjust the contingent consideration due to the former owners of Greenwood/Asher as a result of better than anticipated performance. Total SG&A expenses in Outsourcing & Consulting increased 13.3% in comparison to the prior year. Year-over-year comparisons of salaries and related costs were impacted by temporary expense actions taken in 2020 in response to the impact of the COVID-19 disruption. These increases were combined with an increase in salaries and performance-based incentive compensation reflecting improving revenue. 30 Total SG&A expenses in International increased 2.9% on a reported basis and increased 0.1% on a constant currency basis. Total SG&A expenses in 2021 and 2020 include restructuring charges, and the prior year also included a charge related to a customer dispute in Mexico and SG&A expenses related to our staffing operations in Brazil, which were sold in August 2020. Excluding these items, SG&A expenses increased 13.6% on a reported basis and 10.4% on a constant currency basis. This increase was primarily due to higher performance-based compensation and higher salary-related expenses driven by an increase in headcount, reflecting improving revenue in Europe. Corporate expenses decreased $0.1 million from 2020. Lower disability, non-restructuring severance and restructuring costs were partially offset by higher performance-based compensation expense. 2020 vs. 2019 Total SG&A expenses in Professional & Industrial decreased due primarily to lower salaries and related costs due to cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption. The decreased revenue volume also resulted in lower performance-based compensation. In addition, Professional & Industrial took restructuring actions in both 2020 and 2019, which reduced salaries and related costs and facilities expenses. Included in total SG&A expenses for 2020 and 2019 are the costs of those restructuring efforts of $6.0 million and $5.1 million, respectively, representing primarily employee severance costs. Total SG&A expenses in Science, Engineering & Technology decreased due primarily to cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption. The decreased revenue volume also resulted in lower performance-based compensation. Total SG&A expenses in Education decreased due primarily to lower salaries and related costs resulting from the cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption. The decreased revenue volume also resulted in lower performance-based compensation. These decreases were partially offset by the impact of the acquisition of Insight that took place in the first quarter of 2020. Total SG&A expenses in Outsourcing & Consulting decreased due primarily to lower salaries and related expenses resulting from cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption. Total SG&A expenses in International decreased 4.2% on a reported basis and 3.6% on a CC basis. Included in International SG&A expenses for 2020 is a $9.5 million non-cash charge related to a customer dispute in Mexico that resulted in an additional uncollectible accounts receivable charge. Excluding this charge, total SG&A expenses decreased 11.0% due primarily to lower salaries, driven by cost management to contend with the COVID-19 disruption, combined with lower incentive-based compensation. Corporate expenses decreased as a result of lower performance-based compensation expense and lower professional fees, partially offset by restructuring charges incurred during 2020. 31 Operating Results By Segment (continued) (Dollars in millions) [[GREPCENT_TABLE]] [["","2021 vs. 2020","","2020 vs. 2019"],["","2021 (52 Weeks)","","2020 (53 Weeks)","","% Change","","2020 (53 Weeks)","","2019 (52 Weeks)","","% Change"],["Earnings (Loss) from Operations:"],["Professional & Industrial","$","31.4","","","$","41.6","","","(24.4)","","%","","$","41.6","","","$","62.4","","","(33.4)","","%"],["Science, Engineering & Technology","73.7","","","75.0","","","(1.7)","","","","75.0","","","79.5","","","(5.8)"],["Education","3.0","","","(9.0)","","","NM","","","(9.0)","","","15.8","","","NM"],["Outsourcing & Consulting","18.7","","","11.5","","","62.7","","","","11.5","","","3.0","","","291.3"],["International","9.9","","","(8.9)","","","NM","","","(8.9)","","","18.7","","","NM"],["Corporate","(88.1)","","","(203.8)","","","56.7","","","","(203.8)","","","(97.6)","","","(108.6)"],["Consolidated Total","$","48.6","","","$","(93.6)","","","NM","%","","$","(93.6)","","","$","81.8","","","NM","%"]] [[/GREPCENT_TABLE]] 2021 vs. 2020 Professional & Industrial reported earnings of $31.4 million, a 24.4% decrease from 2020. The decrease in earnings was primarily due to increased costs of services reducing our gross profit rate in our outcome-based product lines and the year-over-year impact of the government wage subsidies we received in 2020. These were partially offset by an increase in our permanent placement income. Science, Engineering & Technology reported earnings of $73.7 million, a 1.7% decrease from 2020. The decrease in earnings was primarily due to higher expenses related to performance-based incentive compensation and higher salaries. The increase in higher salaries was related to an investment in additional sales and recruiting resources, which exceeded revenue and gross margin growth. This was partially offset by earnings from Softworld, which was acquired in April 2021. Education reported earnings of $3.0 million, compared to a loss of $9.0 million from 2020. The change was primarily due to an increase in revenue, reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to 2020. In 2020, many districts were using virtual or hybrid instruction methods due to the impact of COVID-19. Partially offsetting this improvement is a charge to adjust the contingent consideration due to the former owners of Greenwood/Asher. Outsourcing & Consulting reported earnings of $18.7 million, a 62.7% increase compared to 2020. The increase in earnings was primarily due to the impact of increased revenue volumes within the segment. International reported earnings of $9.9 million, compared to a loss of $8.9 million in 2020. The increase in earnings was primarily due to the favorable comparison related to the charge for a customer dispute in Mexico and restructuring charges in 2020, combined with improving revenue in Europe. Corporate loss from operations was $88.1 million in 2021, compared to a loss of $203.8 million in 2020. The 2020 loss includes the goodwill impairment charge of $147.7 million, partially offset by a gain on sale of assets of $32.1 million. 32 2020 vs. 2019 Professional & Industrial reported earnings of $41.6 million, a 33.4% decrease from 2019. The decrease in earnings was primarily due to the impact of COVID-19 on our staffing product, partially offset by increases in our outcome-based products and the cost management initiatives taken to mitigate the impact of the pandemic on our operations. Science, Engineering & Technology reported earnings of $75.0 million, a 5.8% decrease from 2019. The decrease in earnings was primarily due to the impact of COVID-19 on demand for our services, partially offset by the cost management initiatives taken to mitigate its impact. Education reported a loss of $9.0 million, compared to earnings of $15.8 million in 2019. The decrease is due to the impact of COVID-19 on our revenue, partially offset by the cost management initiatives taken to mitigate its impact. Outsourcing & Consulting reported earnings of $11.5 million, an $8.5 million increase over 2019. The increase in earnings was primarily due to the impact of the cost management initiatives taken to mitigate the impact of COVID-19, partially offset by lower revenue volume due to the impact of COVID-19 and lower customer demand in the oil and gas industry. International reported a loss of $8.9 million, compared to earnings of $18.7 million in 2019, largely driven by the impact of COVID-19 on revenue and a charge related to a customer dispute in Mexico, partially offset by cost management initiatives. Corporate loss from operations of $203.8 million for 2020 includes the goodwill impairment charge of $147.7 million and gain on sale of assets of $32.1 million. 33 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, which is generally paid weekly or monthly, and customer accounts receivable, which is generally outstanding for longer periods. Since receipts from customers lag payroll paid 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. The impact of the COVID-19 crisis on our business began in March 2020. While we have yet to return to pre-crisis revenue levels, we have experienced improving demand for our services and expect a sustained recovery throughout 2022. 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 $119.5 million at year-end 2021, compared to $228.1 million at year-end 2020. As further described below, during 2021, we generated $85.0 million of cash from operating activities, used $180.7 million of cash for investing activities and used $8.1 million of cash for financing activities. Operating Activities In 2021, we generated $85.0 million of net cash from operating activities, as compared to generating $186.0 million in 2020 and generating $102.2 million in 2019. Net cash from operating activities in 2020 benefited from a deferral of $117.0 million of U.S. federal payroll taxes. Net cash from operating activities in 2021 included $29.7 million of cash outflows related to the repayment of the payroll tax deferral. The change from 2020 to 2021 was primarily due to the impact of changes in the payroll tax deferral, partially offset by the favorable impact of improving global DSO. The change from 2019 to 2020 was primarily due to the deferral of payroll tax payments, partially offset by the impact of higher global DSO. Trade accounts receivable totaled $1.4 billion at year-end 2021 and $1.3 billion at year-end 2020. Global DSO for the fourth quarter was 60 days for 2021, compared to 64 days for 2020. DSO at year-end 2020 reflected the impact of customer-driven administrative issues among a limited number of large customers which were resolved in early 2021. Our working capital position (total current assets less total current liabilities) was $493.5 million at year-end 2021, a decrease of $130.5 million from year-end 2020. Excluding the decrease in cash, working capital decreased $20.2 million from year-end 2020. The current ratio (total current assets divided by total current liabilities) was 1.5 at year-end 2021 and 1.7 at year-end 2020. Investing Activities  In 2021, we used $180.7 million of net cash for investing activities, compared to generating $9.8 million in 2020 and using $94.3 million in 2019. Included in cash used for investing activities in 2021 is $213.0 million of cash used for the acquisition of Softworld in April 2021, net of cash received and including working capital adjustments. This was partially offset by $19.0 million of proceeds from an insurance settlement that represented a payment received in the fourth quarter of 2021 related to the settlement of claims under a representations and warranties insurance policy purchased by the Company in connection with the acquisition of Softworld. Included in cash generated from investing activities in 2020 is $55.5 million of proceeds representing the cash received, net of transaction expenses, for the sale of three headquarters properties as a part of a sale and leaseback transaction and $5.6 million received from a payment on the loans to PersolKelly Pte. Ltd. This was partially offset by cash used for the acquisitions of Insight in January 2020 and Greenwood/Asher in November 2020. Cash used for the acquisition of Insight totaled $36.4 million, net of the cash received and including working capital adjustments. Cash used for the acquisition of Greenwood/Asher totaled $2.8 million, net of the cash received and including working capital adjustments. Included in cash used for investing activities in 2019 is $50.8 million for the acquisition of NextGen in January 2019, net of cash received, $35.6 million for the acquisition of GTA in January 2019, net of cash received, and $4.4 million for loans to 34 PersolKelly Pte. Ltd. to fund working capital requirements. These uses of cash were partially offset by proceeds of $13.8 million primarily from the sale of unused land during the second quarter of 2019. Capital expenditures totaled $11.2 million in 2021, $15.5 million in 2020 and $20.0 million in 2019. Capital expenditures in 2021 primarily related to the Company's IT infrastructure, technology programs and headquarters building improvements. Capital expenditures in 2020 primarily related to the Company's headquarters leasehold improvements, IT infrastructure and technology programs. Capital expenditures in 2019 primarily related to the Company’s technology programs. Financing Activities  In both 2021 and 2020, we used $8.1 million of cash for financing activities, as compared to using $16.1 million in 2019. Changes in net cash from 2019 financing activities were primarily related to dividend payments. Dividends paid per common share were $0.10 in 2021, $0.075 in 2020 and $0.30 in 2019. 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. Changes in net cash from financing activities are also impacted by short-term borrowing activities. There was no debt at year-end 2021 and debt was $0.3 million at year-end 2020. Debt-to-total capital (total debt reported in the consolidated balance sheet divided by total debt plus stockholders’ equity) is a common ratio to measure the relative capital structure and leverage of the Company. Our ratio of debt-to-total capital was 0.0% at year-end 2021 and 2020. In 2021, 2020 and 2019 the net change in short-term borrowings was primarily due to payments on local lines of credit. Contractual Obligations and Commercial Commitments Summarized below are our obligations and commitments to make future payments as of year-end 2021: [[GREPCENT_TABLE]] [["","","","Payment due by period"],["","Total","","Less than1 year","","1-3 Years","","3-5 Years","","More than5 years"],["","(In millions of dollars)"],["Leases","$","99.6","","","$","23.4","","","$","26.7","","","$","14.6","","","$","34.9"],["Short-term borrowings","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Accrued workers\u2019 compensation","57.8","","","20.8","","","17.4","","","7.5","","","12.1"],["Accrued retirement benefits","241.3","","","21.4","","","42.9","","","43.0","","","134.0"],["Accrued payroll taxes","87.1","","","29.5","","","57.6","","","\u2014","","","\u2014"],["Other liabilities","8.6","","","1.4","","","2.5","","","2.3","","","2.4"],["Uncertain income tax positions","0.8","","","0.2","","","0.5","","","\u2014","","","0.1"],["Purchase obligations","69.7","","","28.1","","","41.5","","","0.1","","","\u2014"],["Total","$","564.9","","","$","124.8","","","$","189.1","","","$","67.5","","","$","183.5"]] [[/GREPCENT_TABLE]] Purchase obligations above represent unconditional commitments relating primarily to technology services and online tools which we expect to utilize generally within the next three 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. 35 Liquidity  We expect to meet our ongoing short-term and long-term cash requirements principally through cash generated from operations, available cash and equivalents, securitization of customer receivables and committed unused credit facilities. Additional funding sources could include asset-based lending, additional bank facilities or sale of non-core assets. To meet significant cash requirements related to our nonqualified retirement plan, we may utilize proceeds from Company-owned life insurance policies. During 2020, cash generated from operations was supplemented by the deferral of payments of the Company's U.S. social security taxes as allowed by the Coronavirus Aid, Relief, and Economic Security Act. Such remaining deferrals are required to be repaid by January 3, 2023. 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 2021 year end, these reviews have not resulted in plans to repatriate foreign subsidiary cash. We expect much of our international cash will be needed to fund working capital growth in our local operations as working capital needs, primarily trade accounts receivable, increase during periods of growth. A cash pooling arrangement (the “Cash Pool”) 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. At year-end 2021, we had $200.0 million of available capacity on our $200.0 million revolving credit facility and $97.0 million of available capacity on our $150.0 million securitization facility. The securitization facility carried no short-term borrowings and $53.0 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 subject to financial covenants and restrictions. While we believe these facilities will cover our working capital needs over the short term, if economic conditions or operating results change significantly from our current expectations, we may need to seek additional sources of funds. Throughout 2021 and as of the 2021 year end, we met the debt covenants related to our revolving credit facility and securitization facility. At year-end 2021, we also had additional unsecured, uncommitted short-term credit facilities totaling $8.1 million, under which we had no borrowings. Details of our debt facilities as of the 2021 year end are contained in the Debt footnote in the notes to our consolidated financial statements. We have historically managed 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. We expect our working capital requirements to increase over the next several quarters if demand for our services continues to increase and to pay the deferred payroll tax balances, of which $29.5 million was paid on January 3, 2022 and another $57.6 million is due on January 3, 2023. In February 2022, we entered into transactions to monetize a portion of our assets in the Asia-Pacific region which will allow us to strategically redeploy resources to accelerate our growth. Specifically, we are unwinding our cross-shareholding arrangement with Persol Holdings and reducing our ownership interest in PersolKelly, our APAC joint venture. We sold our investment in Persol Holdings common stock in an open market transaction. We repurchased the 1.6 million Kelly Class A and 1,475 Kelly Class B common shares owned by Persol Holdings at a price based on the last five trading days prior to the transaction. We will sell almost all of our ownership interest in PersolKelly to our joint venture partner. The transactions will be complete in the first quarter of 2022. 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. 36 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 $48.4 million and $54.6 million at year-end 2021 and 2020, respectively. Business Combinations We account for business combinations using the acquisition method of accounting, in which the purchase price is allocated for assets acquired and liabilities assumed and recorded at the estimated fair values at the date of acquisition. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Management is required to make significant assumptions and estimates in determining the fair value of the assets acquired, particularly intangible assets. Purchased intangible assets are primarily comprised of acquired trade names and customer relationships that are recorded at fair value at the date of acquisition. We utilize third-party valuation specialists to assist us in the determination of the fair value of the intangibles. The fair value of trade name intangibles is determined using the relief-from-royalty method, which relies on the use of estimates and assumptions about projected revenue growth rates, royalty rates and discount rates. The fair value of customer relationship intangibles is determined using the multi-period excess earnings method, which relies on the use of estimates and assumptions about projected revenue growth rates, customer attrition rates, profit margins and discount rates. Determining the useful lives of intangible assets also requires judgment and are inherently uncertain. There is a measurement period of up to one year in which to finalize the fair value determinations and preliminary fair value estimates may be revised if new information is obtained during this period. 37 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. 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 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. 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. For segments with a goodwill balance, we have determined that our reporting units are the same as our operating and reportable segments based on our organizational structure or one level below our operating segments (the component level). We may first use a qualitative assessment ("step zero test") for the annual impairment test if we have determined that it is more likely than not that the fair value for one or more reporting units is greater than their carrying value. In conducting the qualitative assessment, we assess the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit. Such events and circumstances may include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, entity-specific events and events affecting a reporting unit. If we elect to forgo the qualitative assessment for a reporting unit, goodwill is tested for impairment by comparing the estimated fair value of a reporting unit to its carrying value ("step one test"). If the estimated fair value of a reporting unit exceeds the carrying value of the net assets assigned to a reporting unit, goodwill is not considered impaired and no further testing is 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 a reporting unit, we primarily relied on an income approach. Under the income approach, estimated fair value is determined based on estimated future cash flows discounted by an estimated market participant weighted-average cost of capital, which reflects the overall level of inherent risk of the reporting unit being measured. Estimated future cash flows are based on our internal projection model and reflects management’s outlook for the reporting units. 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. Our analysis used significant assumptions by reporting unit, including: expected future revenue growth rates, profit margins and discount rate. The goodwill resulting from the acquisition of Softworld during the second quarter of 2021 was allocated to the SET reportable segment and Softworld was deemed to be a separate reporting unit. The goodwill resulting from the acquisition of Greenwood/ 38 Asher during the fourth quarter of 2020 was allocated to the Education reportable segment, which was deemed to be a reporting unit. See the Acquisitions and Disposition footnote in the notes to our consolidated financial statements for more information. We completed our annual impairment test for all reporting units with goodwill in the fourth quarter for the fiscal year ended 2021. We performed a step one quantitative test for the Softworld reporting unit. As a result of the quantitative assessment, we determined that the estimated fair value of the Softworld reporting unit was more than its carrying value. Additionally, we performed a step zero qualitative analysis for the Education reporting unit to determine whether a further quantitative analysis was necessary and concluded that a step one quantitative analysis was not necessary. As a result of the quantitative and qualitative assessments, the Company determined goodwill was not impaired as of year-end 2021. Our analysis used significant assumptions, including: expected future revenue growth rates, profit margins and discount rate. 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 our business could result in an impairment charge, which would decrease operating income and result in lower asset values on our consolidated balance sheet. The estimated fair value of the Softworld reporting unit exceeds the carrying value by more than 10%. As a measure of sensitivity of the fair value of the reporting unit, while holding all other assumptions constant, an increase in the discount rate of 100 basis points or a decrease of 100 basis points in the revenue growth rate assumptions for each forecasted period used to determine the fair value of the reporting unit would not result in an impairment of goodwill. During the first quarter of 2020, negative market reaction to the COVID-19 crisis, including declines in our common stock price, caused our market capitalization to decline significantly compared to the fourth quarter of 2019, causing a triggering event. Therefore, we performed an interim step one quantitative test for our previous reporting units with goodwill, Americas Staffing and GTS, and determined that the estimated fair values of both reporting units no longer exceeded their carrying values. Based on the result of our interim goodwill impairment test as of the first quarter of 2020, we recorded a goodwill impairment charge of $147.7 million to write off the entire goodwill balance. In the fourth quarter of 2020, the Company elected to perform a step zero qualitative analysis to determine whether a further quantitative assessment was necessary for the reporting unit with goodwill. The step zero test included making judgments and assessments to determine whether any events or circumstances have occurred that makes it more likely than not that the fair value of a reporting unit is less than its carrying amount. As a result of this qualitative assessment, a step one quantitative analysis was not deemed necessary and the goodwill was not impaired. At year-end 2021 and 2020, total goodwill amounted to $114.8 million and $3.5 million, respectively. See the Goodwill and Intangible Assets 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 both year-end 2021 and 2020, the gross accrual for litigation costs amounted to $1.4 million which is included in accounts payable and accrued liabilities and in accrued workers’ compensation and other claims in the consolidated balance sheet. 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.  39 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained herein and in our investor conference call related to these results are “forward-looking” statements within the meaning of the applicable securities laws and regulations. These forward-looking statements are based on current expectations and assumptions and are subject to a number of significant risks and uncertainties. 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, changing market and economic conditions, the impact of the novel coronavirus (COVID-19) outbreak, competitive market pressures including pricing and technology introductions and disruptions, disruption in the labor market and weakened demand for human capital resulting from technological advances, competition law risks, the impact of changes in laws and regulations (including federal, state and international tax laws), unexpected changes in claim trends on workers’ compensation, unemployment, disability and medical benefit plans, or the risk of additional tax liabilities in excess of our estimates, our ability to achieve our business strategy, our ability to successfully develop new service offerings, 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 government or government contractors, the risk of damage to our brand, our exposure to risks associated with services outside traditional staffing, including business process outsourcing, services of licensed professionals and services connecting talent to independent work, our increasing dependency on third parties for the execution of critical functions, our ability to effectively implement and manage our information technology strategy, the risks associated with past and future acquisitions, including risk of related impairment of goodwill and intangible assets, exposure to risks associated with investments in equity affiliates including PersolKelly Pte. Ltd., 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, our ability to sustain critical business applications through our key data centers, 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 cyberattacks or other breaches of network or information technology security, 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 undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations. Certain risk factors are discussed more fully under “Risk Factors” in Part I, Item 1A of this report.