What changed in this filing

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Item 1. Financial Statements

2021-11-10 compared with 2021-08-12 · 138 added, 119 removed, 634 unchanged (29% of the section changed)

5 unchanged sentences

13 Weeks Ended 39 Weeks Ended

2021 June 28,

2021 September 27,

2020 October 3,

2021 September 27,

Revenue from services $ 1,195.4 $ 1,038.2 $ 3,659.4 $ 3,274.6

23 unchanged sentences

13 Weeks Ended 39 Weeks Ended

2021 June 28,

2021 September 27,

2020 October 3,

2021 September 27,

Net earnings (loss) $ 34.8 $ 16.7 $ 84.4 $ ( 95.4 )

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments, net of tax benefit of $0.1 and $0.5, tax expense of $0.4 and tax benefit of $0.4, respectively 2.0 2.7 ( 11.6 ) ( 4.7 )

Foreign currency translation adjustments, net of tax expense of $0.1, $0.4, $0.5 and $0.0, respectively ( 3.5 ) 5.1 ( 15.1 ) 0.4

Reclassification adjustments included in net earnings (loss) — ( 1.5 ) — ( 1.5 )

69 unchanged sentences

13 Weeks Ended 39 Weeks Ended

2021 June 28,

2021 September 27,

2020 October 3,

2021 September 27,

Capital Stock

37 unchanged sentences

39 Weeks Ended

2021 June 28,

2021 September 27,

Cash flows from operating activities:

17 unchanged sentences

Acquisition of companies, net of cash received ( 213.0 ) ( 36.4 )

Proceeds (payments) related to loans with equity affiliate 5.8 —

Proceeds from company-owned life insurance 10.4 2.3

Proceeds from sale of Brazil, net of cash disposed — 1.2

Proceeds from loans with equity affiliate 5.8 —

Proceeds from (investment in) equity securities 5.0 ( 0.2 )

4 unchanged sentences

Financing lease payments ( 1.3 ) ( 1.0 )

Payments of tax withholding for stock awards ( 0.6 ) ( 1.1 )

Dividend payments ( 2.0 ) ( 3.0 )

Payments of tax withholding for stock awards ( 0.6 ) ( 1.2 )

Contingent consideration payments ( 1.6 ) —

Other financing activities — ( 0.1 )

11 unchanged sentences

39 Weeks Ended

2021 June 28,

2021 September 27,

Reconciliation of cash, cash equivalents and restricted cash:

15 unchanged sentences

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 January 3, 2021, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 18, 2021 (the 2020 consolidated financial statements).

The Company’s second fiscal quarter ended on July 4, 2021 (2021) and June 28, 2020 (2020), each of which contained 13 weeks.

The corresponding June year to date periods for 2021 and 2020 each contained 26 weeks.

As discussed in the Segment Disclosures footnote, the Company changed its reportable segments during the third quarter of 2020.

As a result, certain reclassifications have been made to the financial statements for the second quarter of 2020 and June year to date 2020 to conform to our updated reportable segment presentation.

The Company’s third fiscal quarter ended on October 3, 2021 (2021) and September 27, 2020 (2020), each of which contained 13 weeks.

The corresponding September year to date periods for 2021 and 2020 each contained 39 weeks.

KELLY SERVICES, INC.

8 unchanged sentences

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

Second Quarter June Year to Date

Third Quarter September Year to Date

2021 2020 2021 2020

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The International segment includes Europe and our Brazil and Mexico operations, which are included in the Americas region.

Our Brazil operations were sold in August 2020 (see Acquisitions and Disposition footnote).

Our Brazil staffing operations were sold in August 2020 (see Acquisitions and Disposition footnote).

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

Second Quarter June Year to Date

Third Quarter September Year to Date

2021 2020 2021 2020

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Canada 43.3 30.3 116.9 88.7

Mexico 33.1 22.5 67.7 51.2

Puerto Rico 25.5 18.4 76.6 56.1

Mexico 14.4 27.4 82.1 78.6

Brazil — 1.8 — 17.0

17 unchanged sentences

The below table presents our SET, OCG and International segment revenues disaggregated by geographic region (in millions of dollars):

Second Quarter June Year to Date

Third Quarter September Year to Date

2021 2020 2021 2020

13 unchanged sentences

Deferred Costs

Deferred sales commissions, which are included in other assets in the consolidated balance sheet, were $ 0.9 million as of second quarter-end 2021 and $ 1.0 million as of year-end 2020.

Amortization expense for the deferred costs for the second quarter and June year to date 2021 was $ 0.2 million and $ 0.4 million, respectively.

Amortization expense for the deferred costs for the second quarter and June year to date 2020 was $ 0.3 million and $ 0.6 million, respectively.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 2.0 million as of second quarter-end 2021 and $ 4.1 million as of year-end 2020.

Amortization expense for the deferred costs for the second quarter and June year to date 2021 was $ 5.2 million and $ 12.1 million, respectively.

Amortization expense for the deferred costs for the second quarter and June year to date 2020 was $ 4.8 million and $ 9.6 million, respectively.

Deferred sales commissions, which are included in other assets in the consolidated balance sheet, were $ 0.9 million as of third quarter-end 2021 and $ 1.0 million as of year-end 2020.

Amortization expense for the deferred costs for the third quarter and September year to date 2021 was $ 0.2 million and $ 0.6 million, respectively.

Amortization expense for the deferred costs for the third quarter and September year to date 2020 was $ 0.2 million and $ 0.8 million, respectively.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 2.6 million as of third quarter-end 2021 and $ 4.1 million as of year-end 2020.

Amortization expense for the deferred costs for the third quarter and September year to date 2021 was $ 4.3 million and $ 16.4 million, respectively.

Amortization expense for the deferred costs for the third quarter and September year to date 2020 was $ 5.3 million and $ 14.9 million, respectively.

Credit Losses

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The rollforward of our allowance for credit losses related to trade accounts receivable, which is recorded in trade accounts receivable, less allowance in the consolidated balance sheet, is as follows (in millions of dollars):

June Year to Date

September Year to Date

Allowance for credit losses:

5 unchanged sentences

Ending balance $ 9.5 $ 9.4

Write-offs are presented net of recoveries, which were not material for June year to date 2021 and 2020.

We are engaged in litigation with a customer over a disputed accounts receivable balance of approximately $ 10 million for certain services rendered more than five years ago, which is recorded as a long-term receivable in other assets in the consolidated balance sheet.

In September 2020, a ruling was issued in favor of the customer, which we have appealed.

Upon receiving the ruling, we increased our allowance for credit losses by $ 9.2 million to reflect the likelihood of collection, which is recorded in other assets in the consolidated balance sheet.

The rollforward of our allowance for credit losses related to the long-term customer receivable, which is recorded in other assets in the consolidated balance sheet, is as follows (in millions of dollars):

June Year to Date

Write-offs are presented net of recoveries, which were not material for September year to date 2021 and 2020.

We have been engaged in litigation with a customer over a disputed accounts receivable balance for certain services rendered more than five years ago, which was recorded as a long-term receivable in other assets in the consolidated balance sheet.

In September 2020, a ruling was issued in favor of the customer, which we appealed.

Upon receiving the ruling, we increased our allowance for credit losses by $ 9.2 million in the third quarter of 2020 to reflect the likelihood of collection, which was recorded in other assets in the consolidated balance sheet.

In September 2021, a final ruling in the case was entered in favor of the customer.

As a result, in the third quarter of 2021, we wrote off the entire receivable balance with this customer, including $ 0.6 million not previously reserved.

The unreserved portion was recorded in selling, general and administrative ("SG&A") expenses in the consolidated statements of earnings.

The rollforward of our allowance for credit losses related to the long-term customer receivable, which was recorded in other assets in the consolidated balance sheet, is as follows (in millions of dollars):

September Year to Date

Allowance for credit losses:

3 unchanged sentences

Currency exchange effects — ( 0.3 )

Write-offs ( 11.5 ) —

Ending Balance $ — $ 10.9

We are also exposed to credit losses for other receivables measured at amortized cost, including the working capital adjustment receivable for Softworld (see Acquisitions and Disposition footnote).

No other allowance s related to the working capital adjustment receivable or other receivables were material for second quarter-end 2021 .

We are also exposed to credit losses for other receivables measured at amortized cost.

No other allowances related to other receivables were material for third quarter-end 2021.

Acquisitions and Disposition

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("Softworld"), as detailed below.

In the first quarter of 2020, Kelly Services USA, LLC ("KSU"), 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 fourth quarter of 2020, KSU acquired Greenwood/Asher & Associates, LLC ("Greenwood/Asher"), as detailed below.

On April 5, 2021, the Company acquired 100 % of the shares of Softworld for a purchase price of $ 215.0 million.

Softworld is a leading technology staffing and workforce solutions firm that serves clients across several end-markets, including financial services, life sciences, aerospace, defense, insurance, retail and IT consulting.

This acquisition will expand our capabilities, scale and solution set in our technology specialty.

Under terms of the purchase agreement, the purchase price was adjusted for

In the fourth quarter of 2020, Kelly Services USA, LLC ("KSU"), a wholly owned subsidiary of the Company, acquired Greenwood/Asher & Associates, LLC ("Greenwood/Asher"), as detailed below.

In the first quarter of 2020, KSU acquired Insight Workforce Solutions LLC and its affiliate, Insight EDU LLC (collectively, "Insight"), as detailed below.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

cash held by Softworld at the closing date and estimated working capital adjustments resulting in the Company paying cash of $ 220.4 million.

On April 5, 2021, the Company acquired 100 % of the shares of Softworld for a purchase price of $ 215.0 million.

This acquisition will expand our capabilities, scale and solution set in our technology specialty.

Under terms of the purchase agreement, the purchase price was adjusted for cash held by Softworld at the closing date and estimated working capital adjustments resulting in the Company paying cash of $ 220.4 million.

Total consideration includes $ 2.6 million of additional consideration that is payable to the seller in 2022.

The Company recorded a post-close receivable for a working capital adjustment of $ 6.0 million, which is included in prepaid expenses and other current assets in the consolidated balance sheet.

There are no expected credit losses associated with the receivable as of second quarter-end 2021.

In the third quarter of 2021, the Company received cash for a post-close working capital adjustment of $ 6.0 million.

The total consideration is as follows (in millions of dollars):

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Softworld's results of operations are included in the SET segment in 2021.

Our consolidated revenues and net earnings for the second quarter and June year to date 2021 included $ 30.4 million and $ 1.7 million, respectively, from Softworld.

The date of the acquisition was the first day of our second quarter, therefore, our first quarter results do not include any revenue or earnings from Softworld.

For the third quarter-end 2021, our consolidated revenues and net earnings included $ 33.7 million and $ 1.3 million from Softworld, respectively.

For September year to date 2021, our consolidated revenues and net earnings included $ 64.1 million and $ 3.0 million, respectively, from Softworld.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

date of the acquisition was the first day of our second quarter, therefore, our first quarter results do not include any revenue or earnings from Softworld.

Pro Forma Information

The following unaudited pro forma information presents a summary of the operating results as if the Softworld acquisition had been completed as of December 30, 2019 (in millions of dollars):

Second Quarter June Year to Date

Third Quarter September Year to Date

2021 2020 2021 2020

1 unchanged sentence

Pro forma net earnings (loss) $ 34.8 $ 17.5 $ 86.0 $ ( 95.3 )

Due to the date of the acquisition, the second quarter 2021 pro forma results reflect actual results for the period.

The pro forma results for June year to date 2021 and 2020 reflect amortization of the intangible assets of $ 2.0 million per quarter, a non-recurring adjustment to reclassify $ 1.3 million of transaction expenses from June year to date 2021 to June year to date 2020 and applicable taxes.

Due to the date of the acquisition, the third quarter 2021 pro forma results reflect actual results for the period.

The pro forma results for September year to date 2021 and 2020 reflect amortization of the intangible assets of $ 2.0 million per quarter, a non-recurring adjustment to reclassify $ 1.3 million of transaction expenses from September year to date 2021 to September year to date 2020 and applicable taxes.

The unaudited pro forma information presented has been prepared for comparative purposes only and is not necessarily indicative of the results of operations as they would have been had the acquisitions occurred on the assumed date, nor is it necessarily an indication of future operating results.

4 unchanged sentences

The initial fair value of the earnout was established using a Black Scholes model and the liability is recorded in accounts payable and accrued liabilities and other noncurrent liabilities in the consolidated balance sheet (see Fair Value Measurements footnote).

Subsequently, the earnout was revalued, resulting in a decrease to the liability of $ 0.4 million in the first quarter of 2021.

The earnout is revalued quarterly, resulting in a decrease to the liability of $ 0.4 million in the first quarter of 2021 and an increase to the liability of $ 2.4 million in the third quarter of 2021.

The earnout is expected to be paid in 2022 and 2023 after each earnout year pursuant to the terms of the purchase agreement.

The purchase price allocation for this acquisition is preliminary and could change.

As of third quarter-end 2021, the purchase price allocation for this acquisition is final.

Goodwill generated from the acquisition was primarily attributable to the expected synergies from combining operations and expanding market potential, and was assigned to the Education reporting unit (see Goodwill footnote).

4 unchanged sentences

The initial fair value of the earnout was established using a Monte Carlo simulation and the liability is recorded in accounts payable and accrued liabilities in the consolidated balance sheet (see Fair Value Measurements footnote).

Subsequently, the earnout was revalued, resulting in a net increase to the liability of $ 0.1 million in 2020 and a further increase of $ 0.1 million in the second quarter of 2021, and is expected to be paid in the third quarter of 2021.

Subsequently, the earnout was revalued, resulting in a net increase to the liability of $ 0.1 million in 2020 and a further increase of $ 0.1 million in the second quarter of 2021.

In the third quarter of 2021, the Company paid the final earnout amount of $ 1.8 million in cash.

In our consolidated statements of cash flows, $ 1.6 million of the payment is reflected as a financing activity representing the initial fair value of the earnout, with the remainder flowing through operating activities.

There is no remaining liability for the earnout as of third quarter-end 2021.

In the second quarter of 2020, the Company paid a working capital adjustment of $ 0.1 million.

As of year-end 2020, the purchase price allocation for this acquisition is final.

As of year-end 2020, the purchase price allocation for this acquisition was final.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2 unchanged sentences

The amount of goodwill expected to be deductible for tax purposes is approximately $ 20.4 million.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

On August 18, 2020, the Company sold its Brazil operations for a purchase price of $ 1.4 million.

2 unchanged sentences

The aggregate losses for which the Company will provide indemnification shall not exceed $ 8.8 million.

Accordingly, the Company recorded an indemnification liability of $ 2.5 million in other long-term liabilities in the consolidated balance sheet, which represented the fair value of the liability at the time of disposition (see Fair Value Measurements footnote) and completely offset the gain on the sale.

The indemnification liability is revalued on a quarterly basis (see Fair Value Measurements footnote).

Investment in Persol Holdings

3 unchanged sentences

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 gain on the investment of $ 6.3 million and $ 36.3 million in the second quarter and June year to date 2021, respectively, a gain on the investment of $ 29.6 million and a loss on the investment of $ 48.2 million in the second quarter and June year to date 2020, respectively, was recorded in gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.

A gain on the investment of $ 35.5 million and $ 71.8 million in the third quarter and September year to date 2021, respectively, a gain on the investment of $ 16.8 million and a loss on the investment of $ 31.4 million in the third quarter and September year to date 2020, respectively, was recorded in gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.

Investment in PersolKelly Pte.

The Company has a 49 % ownership interest in the JV (see Investment in Persol Holdings footnote above), a staffing services business operating in ten geographies 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 gain of $ 1.7 million and $ 0.6 million in the second quarter and June year to date 2021, respectively, and a loss of $ 1.3 million and $ 2.8 million in the second quarter and June year to date 2020, respectively.

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 earnings of $ 1.7 million and $ 2.3 million in the third quarter and September year to date 2021, respectively, and earnings of $ 1.8 million and a loss of $ 1.0 million in the third quarter and September year to date 2020, respectively.

This investment is evaluated for indicators of impairment on a quarterly 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 $ 120.0 million as of second quarter-end 2021 and $ 118.5 million as of year-end 2020.

The net amount due to the JV, a related party, was not material as of the second quarter-end 2021 and the net amount due from the JV was $ 5.6 million as of year-end 2020.

The investment in equity affiliate on the Company’s consolidated balance sheet totaled $ 122.0 million as of third quarter-end 2021 and $ 118.5 million as of year-end 2020.

The net amount due to the JV, a related party, was not material as of the third quarter-end 2021 and the net amount due from the JV was $ 5.6 million as of year-end 2020.

The Company made loans in prior years, proportionate to its 49 % ownership, to the JV to fund working capital requirements as a result of its sustained revenue growth.

In April 2021, the Company received $ 5.8 million from the JV for the outstanding balance of the loan.

As of second quarter-end 2021, there is no outstanding loan balance or accrued interest receivable relating to the loan.

As of third quarter-end 2021, there is no outstanding loan balance or accrued interest receivable relating to the loan.

Accrued interest receivable, which is included in prepaid expenses and other current assets in the consolidated balance sheet, was not material at year-end 2020.

2 unchanged sentences

The JV received proceeds of $ 17.5 million upon the sale and the Company received a direct royalty payment of $ 0.7 million.

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 and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present assets and liabilities measured at fair value on a recurring basis as of second quarter-end 2021 and year-end 2020 in the consolidated balance sheet by fair value hierarchy level, as described below.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present assets and liabilities measured at fair value on a recurring basis as of third quarter-end 2021 and year-end 2020 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.

1 unchanged sentence

Level 3 measurements include significant unobservable inputs.

As of Second Quarter-End 2021

As of Third Quarter-End 2021

Description Total Level 1 Level 2 Level 3

17 unchanged sentences

Total liabilities at fair value $ ( 6.4 ) $ — $ — $ ( 6.4 )

Money market funds represent investments in money market funds that hold government securities, of which $ 6.1 million as of second quarter-end 2021 and $ 5.1 million as of year-end 2020, are restricted as to use and are included in other assets in the consolidated balance sheet.

Money market funds represent investments in money market funds that hold government securities, of which $ 6.5 million as of third quarter-end 2021 and $ 5.1 million as of year-end 2020, are restricted as to use and are included in other assets in the consolidated balance sheet.

The money market funds that are restricted as to use account for the majority of our restricted cash balance and represents cash balances that are required to be maintained to fund disability claims in California.

1 unchanged sentence

The valuations of money market funds are 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 $ 18.7 million as of the second quarter-end 2021 and $ 20.1 million at year-end 2020.

As of second quarter-end 2021 and year-end 2020, the Company had an indemnification liability of $ 2.7 million and $ 2.6 million, respectively, in other long-term liabilities on the consolidated balance sheet related to the sale of the Brazil operations (see Acquisitions and Disposition footnote).

The valuation of the indemnification liability was established using a discounted cash flow methodology based on probability weighted-average cash flows discounted by weighted-average cost of capital.

The valuation, which represents the fair value, is considered a Level 3 liability, and is being measured on a recurring basis.

During year to date 2021, the Company recognized an increase of $ 0.1 million to the indemnification liability related to exchange rate fluctuations in other income (expense), net in the consolidated statements of earnings.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company recorded an earnout liability relating to the 2020 acquisition of Insight, totaling $ 1.8 million at second quarter-end 2021 and $ 1.7 million at year-end 2020 in accounts payable and accrued liabilities in the consolidated balance sheet (see Acquisitions and Disposition footnote).

The valuation of the earnout liability was initially established using a Monte Carlo simulation and represents the fair value and is considered a Level 3 liability.

The Company recorded an earnout liability relating to the 2020 acquisition of Greenwood/Asher, totaling $ 1.7 million at second quarter-end 2021 in accounts payable and accrued liabilities and other long-term liabilities in the consolidated balance sheet and $ 2.1 million as of year-end 2020 in other long-term liabilities in the consolidated balance sheet (see Acquisitions and Disposition footnote).

The cost of this yen-denominated investment, which fluctuates based on foreign exchange rates, was $ 18.6 million as of the third quarter-end 2021 and $ 20.1 million at year-end 2020.

As of third quarter-end 2021 and year-end 2020, the Company had an indemnification liability of $ 2.5 million and $ 2.6 million, respectively, in other long-term liabilities on the consolidated balance sheet related to the sale of the Brazil operations (see Acquisitions and Disposition footnote).

The valuation, which represents the fair value, is considered a Level 3 liability, and is being measured on a recurring basis.

During year to date 2021, the Company recognized a decrease of $ 0.1 million to the indemnification liability related to exchange rate fluctuations in other income (expense), net in the consolidated statements of earnings.

The Company recorded an earnout liability relating to the 2020 acquisition of Insight, totaling $ 1.7 million at year-end 2020 in accounts payable and accrued liabilities in the consolidated balance sheet (see Acquisitions and Disposition footnote).

During the third quarter of 2021, the Company paid the earnout totaling $ 1.8 million.

The valuation of the earnout liability was initially established using a Monte Carlo simulation and represented the fair value and was considered a Level 3 liability.

The Company recorded an earnout liability relating to the 2020 acquisition of Greenwood/Asher, totaling $ 4.1 million at third quarter-end 2021 with $ 1.9 million in accounts payable and accrued liabilities and $ 2.2 million in other long-term liabilities in the consolidated balance sheet and $ 2.1 million at year-end 2020 in other long-term liabilities in the consolidated balance sheet (see Acquisitions and Disposition footnote).

The initial valuation of the earnout liability was established using a Black Scholes model and represents the fair value and is considered a Level 3 liability.

During year to date 2021, the Company recorded a reduction of $ 0.4 million to the earnout liability in selling, general & administrative ("SG&A") expenses in the consolidated statements of earnings.

During year to date 2021, the Company recorded an increase of $ 2.0 million to the earnout liability in SG&A expenses in the consolidated statements of earnings.

Equity Investment Without Readily Determinable Fair Value

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Restructuring

There were no restructuring charges incurred for June year-to-date 2021.

There were no restructuring charges incurred for September year to date 2021.

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 in the third quarter of 2020 and to align the U.S.

branch network facilities footprint with a more technology-enabled service delivery methodology.

Restructuring costs incurred in June year-to-date 2020 totaled $ 8.5 million and were recorded entirely in SG&A expenses in the consolidated statements of earnings, as detailed below (in millions of dollars):

Restructuring costs incurred in September year to date 2020 totaled $ 8.4 million and were recorded entirely in SG&A expenses in the consolidated statements of earnings, as detailed below (in millions of dollars):

Termination Costs Severance Costs Total

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Balance as of second quarter-end 2021 0.6

The remaining balance of $ 0.6 million as of second quarter-end 2021 primarily represents severance costs, and the majority is expected to be paid by the end of 2021.

Reductions for cash payments related to all restructuring activities ( 0.4 )

Balance as of third quarter-end 2021 $ 0.2

The remaining balance of $ 0.2 million as of third quarter-end 2021 primarily represents severance costs, and the majority is expected to be paid by the second quarter-end 2022.

No material adjustments are expected to be recorded.

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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.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The changes in the carrying amount of goodwill as of June year to date 2021 are included in the table below.

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.

The changes in the carrying amount of goodwill as of September year to date 2021 are included in the table below.

The goodwill resulting from the acquisition of Softworld during the second quarter of 2021 (see Acquisitions and Disposition footnote) was allocated to the SET reportable segment.

Year-End 2020 Additions to Goodwill Impairment Adjustments As of Second Quarter-End 2021

Year-End 2020 Additions to Goodwill Impairment Adjustments As of Third

Quarter-End 2021

(In millions of dollars)

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Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the second quarter and June year to date 2021 and 2020 are included in the table below.

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the third quarter and September year to date 2021 and 2020 are included in the table below.

Amounts in parentheses indicate debits.

Second Quarter June Year to Date

Reclassification adjustments out of accumulated other comprehensive income (loss), as shown in the table below, were recorded in the other income (expense), net line item in the consolidated statements of earnings.

Third Quarter September Year to Date

2021 2020 2021 2020

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Earnings (Loss) Per Share

The reconciliation of basic and diluted earnings (loss) per share on common stock for the second quarter and June year to date 2021 and 2020 follows (in millions of dollars except per share data):

Second Quarter June Year to Date

The reconciliation of basic and diluted earnings (loss) per share on common stock for the third quarter and September year to date 2021 and 2020 follows (in millions of dollars except per share data):

Third Quarter September Year to Date

2021 2020 2021 2020

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Diluted earnings (loss) per share $ 0.87 $ 0.42 $ 2.12 $ ( 2.43 )

Potentially dilutive shares outstanding are primarily related to performance shares (see Stock-Based Compensation footnote for a description of performance shares) for the second quarter and June year to date 2021 and 2020.

There were no dividends paid for Class A and Class B common stock for second quarter 2021 and 2020, and June year to date 2021.

Dividends paid per share for Class A and Class B common stock were $ 0.075 for June year to date 2020.

Potentially dilutive shares outstanding are primarily related to performance shares (see Stock-Based Compensation footnote for a description of performance shares) for the third quarter and September year to date 2021 and 2020.

Dividends paid for Class A and Class B common stock were $ 0.05 for third quarter 2021 and September year to date 2021.

Dividends paid per share for Class A and Class B common stock were $ 0.00 for third quarter 2020 and $ 0.075 for September year to date 2020.

Stock-Based Compensation

For the second quarter of 2021, the Company recognized stock compensation expense of $ 1.4 million, and a related tax benefit of $ 0.3 million.

For the second quarter of 2020, the Company recognized stock compensation expense of $ 1.2 million, and a related tax benefit of $ 0.2 million.

For June year to date 2021, the Company recognized stock compensation expense of $ 2.8 million, and a related tax benefit of $ 0.4 million.

For June year to date 2020, the Company recognized stock compensation expense of $ 2.4 million, and a related tax benefit of $ 0.0 million.

For the third quarter of 2021, the Company recognized stock compensation expense of $ 1.2 million, and a related tax benefit of $ 0.2 million.

For the third quarter of 2020, the Company recognized stock compensation expense of $ 0.5 million, and a related tax benefit of $ 0.2 million.

For September year to date 2021, the Company recognized stock compensation expense of $ 4.0 million, and a related tax benefit of $ 0.6 million.

For September year to date 2020, the Company recognized stock compensation expense of $ 2.9 million, and a related tax benefit of $ 0.2 million.

Performance Shares

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All service-based vesting conditions were unaffected by the modification.

A summary of the status of all nonvested performance shares at target as of second quarter-end 2021 and year-to-date changes is presented as follows below (in thousands of shares except per share data).

A summary of the status of all nonvested performance shares at target as of third quarter-end 2021 and year-to-date changes is presented as follows below (in thousands of shares except per share data).

The vesting adjustment in the table below represents the 2018 financial measure performance shares and the 2018 Total Shareholder Return ("TSR") performance shares that did not vest because actual achievement was below the threshold level and resulted in no payout.

8 unchanged sentences

Vesting adjustment ( 94 ) 16.99 ( 47 ) 31.38

Nonvested at second quarter-end 2021 423 $ 22.50 — $ —

Nonvested at third quarter-end 2021 423 $ 22.50 — $ —

Restricted Stock

A summary of the status of nonvested restricted stock as of second quarter-end 2021 and year-to-date changes is presented as follows below (in thousands of shares except per share data).

A summary of the status of nonvested restricted stock as of third quarter-end 2021 and year-to-date changes is presented as follows below (in thousands of shares except per share data).

Shares Weighted Average Grant Date Fair Value

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Forfeited ( 21 ) 23.97

Nonvested at second quarter-end 2021 390 $ 21.78

Nonvested at third quarter-end 2021 386 $ 21.74

Sale of Assets

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Other Income (Expense), Net

Included in other income (expense), net for the second quarter and June year to date 2021 and 2020 are the following:

Second Quarter June Year to Date

Included in other income (expense), net for the third quarter and September year to date 2021 and 2020 are the following:

Third Quarter September Year to Date

2021 2020 2021 2020

6 unchanged sentences

Other Income (Expense), Net $ ( 0.3 ) $ ( 0.7 ) $ ( 4.0 ) $ 3.6

Included in Other for June year to date 2021 is a loss from the sale of the assets related to our minority investment in Kenzie Academy (see Fair Value Measurements footnote) and transaction-related expenses from the April 2021 acquisition of Softworld (see Acquisitions and Disposition footnote).

Income tax benefit was $ 2.6 million and expense was $ 0.9 million for the second quarter of 2021 and 2020, respectively.

Income tax expense was $ 7.9 million and income tax benefit was $ 35.3 million for June year to date 2021 and 2020, respectively.

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in a charge of $ 1.9 million for the second quarter of 2021 and $ 11.1 million for June year to date 2021, compared to a charge of $ 9.0 million for the second quarter of 2020 and a benefit of $ 14.8 million for June year to date 2020.

Included in Other for September year to date 2021 is a loss from the sale of the assets related to our minority investment in Kenzie Academy (see Fair Value Measurements footnote) and transaction-related expenses from the April 2021 acquisition of Softworld (see Acquisitions and Disposition footnote).

Income tax expense was $ 11.1 million and benefit was $ 1.2 million for the third quarter of 2021 and 2020, respectively.

Income tax expense was $ 19.0 million and income tax benefit was $ 36.5 million for September year to date 2021 and 2020, respectively.

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in a charge of $ 10.9 million for the third quarter of 2021 and $ 22.0 million for September year to date 2021, compared to a charge of $ 5.2 million for the third quarter of 2020 and a benefit of $ 9.6 million for September year to date 2020.

The second quarter of 2021 benefited $ 5.2 million from a change in United Kingdom tax rates, while the second quarter of 2020 benefited $ 7.7 million from Brazil outside basis differences.

June year to date 2020 includes a tax benefit of $ 23.0 million on the impairment of goodwill.

September year to date 2020 includes a tax benefit of $ 23.0 million on the impairment of goodwill.

The quarterly and year-to-date amounts are also impacted by changes in earnings from operations.

Our tax expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S.

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The Company provides valuation allowances against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

At this time, we have no valuation allowance against our Mexican deferred tax asset of $ 4.4 million, though it is possible this may change as we assess the impacts of the new labor laws enacted in the second quarter of 2021 on our Mexican business operations.

At this time, we have no valuation allowance against our Mexican deferred tax asset of $ 4.3 million, though it is possible this may change as we continue to assess the impacts of the new labor laws effective as of the third quarter of 2021 on our Mexican business operations throughout the remainder of the year.

KELLY SERVICES, INC.

5 unchanged sentences

Such accruals are recorded in accounts payable and accrued liabilities and in accrued workers’ compensation and other claims in the consolidated balance sheet.

At second quarter-end 2021 and year-end 2020, the gross accrual for litigation costs amounted to $ 1.3 million and $ 1.4 million, respectively.

The Company maintains insurance coverage which may cover certain claims.

When claims exceed the applicable policy deductible and realization of recovery of the claim from existing insurance policies is deemed probable, the Company records receivables from the insurance company for the excess amount, which are included in prepaid expenses and other current assets in the consolidated balance sheet.

At second quarter-end 2021 and year-end 2020, there were no related insurance receivables.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is $ 0.4 million to $ 4.3 million as of second quarter-end 2021.

At third quarter-end 2021 and year-end 2020, the gross accrual for litigation costs amounted to $ 1.1 million and $ 1.4 million, respectively.

The Company maintains insurance coverage which may cover certain losses.

When losses exceed the applicable policy deductible and realization of recovery of the loss from existing insurance policies is deemed probable, the Company records receivables from the insurance company for the excess amount, which are included in prepaid expenses and other current assets in the consolidated balance sheet.

At third quarter-end 2021 and year-end 2020, there were no related insurance receivables.

During the third quarter of 2021, the Company filed a claim, in excess of policy limits, under a representations and warranties insurance policy purchased by the Company in connection with the acquisition of Softworld.

The claim asserts damages arising out of alleged breaches by the sellers of Softworld of certain representations and warranties contained in the purchase agreement relating to periods prior to the closing of the acquisition.

The insurance policy’s coverage limit is $ 21.5 million.

The Company reached a preliminary agreement with the insurer and continues to negotiate a final resolution of the claim.

No insurance receivable has been recorded.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is $ 0.5 million to $ 4.3 million as of third quarter-end 2021.

This range includes matters where a liability has been accrued but it is reasonably possible that the ultimate loss may exceed the amount accrued and for matters where a loss is believed to be reasonably possible, but a liability has not been accrued.

8 unchanged sentences

Consistent with the information provided to and evaluated by the CODM, the goodwill impairment charge in the first quarter of 2020 was included in Corporate expenses.

The following tables present information about the reported revenue from services and gross profit of the Company by reportable segment, along with a reconciliation to earnings (loss) before taxes and equity in net earnings (loss) of affiliate, for the second quarter and June year to date 2021 and 2020.

The Company changed its reportable segments during the third quarter of 2020.

As a result, certain reclassifications have been made to the reportable segment results for the second quarter of 2020 and June year to date 2020 to conform to the updated reportable segment presentation.

The following tables present information about the reported revenue from services and gross profit of the Company by reportable segment, along with a reconciliation to earnings (loss) before taxes and equity in net earnings (loss) of affiliate, for the third quarter and September year to date 2021 and 2020.

Asset information by reportable segment is not presented, since the Company does not produce such information internally nor does it use such information to manage its business.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Second Quarter June Year to Date

Third Quarter September Year to Date

2021 2020 2021 2020

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Consolidated Total $ 1,195.4 $ 1,038.2 $ 3,659.4 $ 3,274.6

Second Quarter June Year to Date

Third Quarter September Year to Date

2021 2020 2021 2020

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Depreciation and amortization expense included in SG&A expenses by segment above are as follows:

Second Quarter June Year to Date

Third Quarter September Year to Date

2021 2020 2021 2020

18 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements