What changed in this filing

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Item 1. Financial Statements

2022-05-12 compared with 2021-11-10 · 226 added, 300 removed, 472 unchanged (53% of the section changed)

4 unchanged sentences

(In millions of dollars except per share data)

13 Weeks Ended 39 Weeks Ended

2021 September 27,

2020 October 3,

2021 September 27,

13 Weeks Ended

2022 April 4,

Revenue from services $ 1,296.4 $ 1,205.9

2 unchanged sentences

Selling, general and administrative expenses 235.2 202.7

Goodwill impairment charge — — — 147.7

Gain on sale of assets — — — ( 32.1 )

Earnings (loss) from operations 23.4 10.6

Gain (loss) on investment in Persol Holdings ( 67.2 ) 30.0

Loss on currency translation from liquidation of subsidiary ( 20.4 ) —

Other income (expense), net 2.8 ( 3.4 )

14 unchanged sentences

(In millions of dollars)

13 Weeks Ended 39 Weeks Ended

2021 September 27,

2020 October 3,

2021 September 27,

13 Weeks Ended

2022 April 4,

Net earnings (loss) $ ( 47.6 ) $ 25.6

1 unchanged sentence

Foreign currency translation adjustments, net of tax expense of $0.1 and $0.5, respectively ( 9.9 ) ( 13.6 )

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

Reclassification adjustments included in net earnings (loss) - liquidation of Japan subsidiary 20.4 —

Reclassification adjustments included in net earnings (loss) - equity method investment and other 2.5 —

Foreign currency translation adjustments 13.0 ( 13.6 )

51 unchanged sentences

Class A common stock, 100.0 shares authorized;

36.7 shares issued at 2021 and 2020 36.7 36.7

35.1 shares issued at 2022 and 36.7 shares issued at 2021 35.1 36.7

Class B common stock, 10.0 shares authorized;

13 unchanged sentences

(In millions of dollars)

13 Weeks Ended 39 Weeks Ended

2021 September 27,

2020 October 3,

2021 September 27,

13 Weeks Ended

2022 April 4,

Capital Stock

2 unchanged sentences

Conversions from Class B — —

Share retirement ( 1.6 ) —

Balance at end of period 35.1 36.7

18 unchanged sentences

Balance at beginning of period 1,315.0 1,162.9

Cumulative-effect adjustment, net of tax, from adoption of ASU 2016-13, Credit Losses — — — ( 0.7 )

Net earnings (loss) ( 47.6 ) 25.6

Dividends ( 1.9 ) —

Share retirement ( 25.6 ) —

Balance at end of period 1,239.9 1,188.5

10 unchanged sentences

13 Weeks Ended

2021 September 27,

2022 April 4,

Cash flows from operating activities:

1 unchanged sentence

Adjustments to reconcile net earnings (loss) to net cash from operating activities:

Goodwill impairment charge — 147.7

Deferred income taxes on goodwill impairment charge — ( 23.0 )

Depreciation and amortization 7.5 5.9

3 unchanged sentences

(Gain) loss on investment in Persol Holdings 67.2 ( 30.0 )

Gain on sale of assets — ( 32.1 )

Loss on currency translation from liquidation of subsidiary 20.4 —

Gain on foreign currency remeasurement ( 5.5 ) —

Equity in net (earnings) loss of PersolKelly Pte.

1 unchanged sentence

Changes in operating assets and liabilities, net of acquisitions ( 156.0 ) 0.1

Net cash from operating activities 31.0 216.5

Net cash (used in) from operating activities ( 106.1 ) 10.5

Cash flows from investing activities:

Capital expenditures ( 1.7 ) ( 2.7 )

Proceeds from sale of assets — 55.5

Acquisition of companies, net of cash received ( 58.3 ) —

Proceeds from company-owned life insurance — 10.4

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 )

Proceeds from sale of Persol Holdings investment 196.9 —

Proceeds from sale of equity method investment 119.5 —

Other investing activities 0.7 0.2

Net cash (used in) from investing activities ( 198.4 ) 10.3

Net cash from investing activities 257.1 7.9

Cash flows from financing activities:

3 unchanged sentences

Payments of tax withholding for stock awards ( 0.8 ) ( 0.5 )

Buyback of common shares ( 27.2 ) —

Contingent consideration payments ( 0.7 ) —

Other financing activities — ( 0.1 )

Net cash used in financing activities ( 5.7 ) ( 6.8 )

Net cash (used in) from financing activities ( 30.7 ) 0.1

Effect of exchange rates on cash, cash equivalents and restricted cash ( 1.7 ) ( 1.4 )

9 unchanged sentences

13 Weeks Ended

2021 September 27,

2022 April 4,

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 2, 2022, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 17, 2022 (the 2021 consolidated financial statements).

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.

There were no changes in accounting policies as disclosed in the Form 10-K, with the exception of those described in the New Accounting Pronouncements footnote.

The Company’s first fiscal quarter ended on April 3, 2022 (2022) and April 4, 2021 (2021), each of which contained 13 weeks.

KELLY SERVICES, INC.

2 unchanged sentences

Revenue Disaggregated by Service Type

Kelly has five specialty segments:

Kelly has five operating segments:

Professional & Industrial (“P&I”), Science, Engineering & Technology (“SET”), Education, Outsourcing & Consulting Group ("Outsourcing & Consulting," "OCG") and International.

3 unchanged sentences

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

Third Quarter September Year to Date

2021 2020 2021 2020

First Quarter

Professional & Industrial

27 unchanged sentences

Our P&I and Education segments operate in the Americas region, our SET segment operates in the Americas and Europe regions, and OCG operates in the Americas, Europe and Asia-Pacific regions.

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

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

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

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

Third Quarter September Year to Date

2021 2020 2021 2020

First Quarter

United States $ 956.6 $ 858.5

2 unchanged sentences

Mexico 10.3 34.6

Brazil — 1.8 — 17.0

Total Americas Region 1,033.6 951.4

France 56.3 48.8 168.1 141.2

Switzerland 55.0 52.7

France 54.6 54.3

Portugal 41.9 43.7

2 unchanged sentences

United Kingdom 15.0 17.0

Germany 9.0 7.0 24.6 22.1

Ireland 7.4 4.9 18.8 14.0

Other 36.3 27.8

7 unchanged sentences

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

Third Quarter September Year to Date

2021 2020 2021 2020

First Quarter

Science, Engineering & Technology

12 unchanged sentences

Deferred Costs

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.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 1.7 million as of first quarter-end 2022 and $ 1.3 million as of year-end 2021.

Amortization expense for the deferred costs for the first quarter of 2022 was $ 1.9 million and in the first quarter of 2021 was $ 6.8 million.

Credit Losses

On December 30, 2019, we adopted Accounting Standards Codification ("ASC") Topic 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures, as applicable.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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):

September Year to Date

Allowance for credit losses:

Beginning balance $ 9.8 $ 9.7

Impact of adopting ASC 326 — 0.3

Current period provision 0.8 1.2

Currency exchange effects ( 0.4 ) ( 0.2 )

Write-offs ( 0.7 ) ( 1.6 )

Ending balance $ 9.5 $ 9.4

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

First Quarter

Allowance for credit losses:

Beginning balance $ 9.4 $ 9.8

Impact of adopting ASC 326 — 0.7

Current period provision 0.4 ( 0.2 )

2 unchanged sentences

Ending balance $ 8.5 $ 9.1

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

In the second quarter of 2021, the Company acquired Softworld, Inc.

("Softworld"), as detailed below.

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.

Write-offs are presented net of recoveries, which were not material for first quarter-end 2022 and 2021.

We were 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 as of first quarter-end 2021.

The related allowance for credit losses on this long-term customer receivable was $ 10.9 million and represented the likelihood of collection as of first quarter-end 2021.

Based on a final ruling in the case in favor of the customer, we wrote off the entire receivable balance in the third quarter of 2021.

No other allowances related to other receivables were material for first quarter-end 2022.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 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.

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

In the first quarter of 2022, the Company acquired Rocket Power Holdings LLC and Rocket Power Ops LLC (collectively, "RocketPower"), as detailed below.

In the second quarter of 2021, the Company acquired Softworld, Inc.

("Softworld"), as detailed below.

On March 7, 2022, the Company acquired 100 % of the issued and outstanding membership interests of RocketPower for a purchase price of $ 59.3 million.

RocketPower is a leading provider of RPO and other outsourced talent solutions to U.S.

high-tech companies.

This acquisition will expand OCG's RPO solution and delivery offering and enhance the specialty RPO strategy and expertise within the high-tech industry.

Under terms of the purchase agreement, the purchase price was adjusted for cash held by RocketPower at the closing date and estimated working capital adjustments resulting in the Company paying cash of $ 61.8 million.

Total consideration includes $ 1.1 million of additional consideration that is payable to the seller in 2023 related to employee retention credits and contingent consideration with an estimated fair value of $ 0.6 million related to an earnout payment with a maximum potential cash payment of $ 31.8 million in the event certain financial metrics are met per the terms of the agreement.

The initial fair value of the earnout was established using a Black Scholes model (see Fair Value Measurements footnote).

The earnout is expected to be paid in 2023 and 2024 after each earn-out year pursuant to the terms of the purchase agreement.

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

1 unchanged sentence

Additional consideration payable 1.1

Net working capital adjustment ( 6.0 )

Contingent consideration 0.6

Total consideration $ 63.5

Due to the limited amount of time that has passed since acquiring Softworld, the purchase price allocation for this acquisition is preliminary and could change.

Due to the limited amount of time that has passed since acquiring RocketPower, the purchase price allocation for this acquisition is preliminary and could change.

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

2 unchanged sentences

Net property and equipment 0.1

Operating lease right-of-use assets 7.6

Non-current deferred tax 5.9

Goodwill 41.0

Intangibles 15.8

Other assets, noncurrent 1.2

Accounts payable and accrued liabilities, current ( 2.9 )

Operating lease liabilities, current ( 1.3 )

Accrued payroll and related taxes, current ( 1.5 )

Income and other taxes, current ( 1.2 )

Operating lease liabilities, noncurrent ( 6.3 )

Other long-term liabilities ( 1.2 )

Total consideration, including working capital adjustments $ 63.5

The fair value of the acquired receivables represents the contractual value.

Included in the assets purchased in the Softworld acquisition was $ 79.4 million of intangible assets, made up of $ 54.9 million in customer relationships, $ 23.1 million associated with Softworld's trade names and trademarks, and $ 1.4 million for non-compete agreements.

The customer relationships and trade names and trademarks will be amortized over 10 years with no residual value and the non-compete agreements will be amortized over five years with no residual value.

Goodwill generated from the acquisition was primarily attributable to expanding market potential and the expected revenue synergies and was assigned to the SET operating segment (see Goodwill footnote).

All of the goodwill is expected to be deductible for tax purposes.

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

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.

AND SUBSIDIARIES

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):

Third Quarter September Year to Date

2021 2020 2021 2020

Pro forma revenues $ 1,195.4 $ 1,065.6 $ 3,690.6 $ 3,356.2

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

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.

Greenwood/Asher

On November 18, 2020, KSU acquired 100 % of the membership interests of Greenwood/Asher, a premier specialty education executive search firm in the U.S., for a purchase price of $ 3.5 million.

Under terms of the purchase agreement, the purchase price was adjusted for cash held by Greenwood/Asher at the closing date and estimated working capital adjustments resulting in the Company paying cash of $ 5.2 million.

The purchase price of the acquisition also included contingent consideration with an estimated fair value of $ 2.1 million related to an earnout payment in the event certain conditions are met per the terms of the agreement.

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).

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.

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).

Included in the assets purchased in the RocketPower acquisition was $ 15.8 million of intangible assets, made up of $ 7.5 million in customer relationships, $ 6.6 million associated with RocketPower's trade names and $ 1.7 million for non-compete agreements.

Customer relationships will be amortized over three years with no residual value, trade names will be amortized over 10 years with no residual value, and the non-compete agreements will be amortized over six years with no residual value.

Goodwill generated from the acquisition was primarily attributable to expected synergies from combining operations and expanding market potential and was assigned to the OCG operating segment (see Goodwill footnote).

The amount of goodwill expected to be deductible for tax purposes is approximately $ 28.0 million.

On January 14, 2020, KSU acquired 100 % of the membership interests of Insight, an educational staffing company in the U.S., for a purchase price of $ 34.5 million.

Under terms of the purchase agreement, the purchase price was adjusted for cash held by Insight at the closing date and estimated working capital adjustments resulting in the Company paying cash of $ 38.1 million.

The purchase price of the acquisition also included contingent consideration with an estimated fair value of $ 1.6 million related to an earnout payment in the event certain conditions are met per the terms of the agreement.

The 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.

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 was final.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The goodwill related to this acquisition was included in the goodwill impairment charge taken in the first quarter of 2020.

The goodwill impairment charge resulted from an interim goodwill impairment test triggered by declines in our common stock price as a result of negative market reaction to the COVID-19 crisis (see Goodwill footnote).

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

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

The Company received cash proceeds of $ 1.2 million, net of cash disposed.

As a part of the transaction, the Company has agreed to indemnify the buyer for losses and costs incurred in connection with certain events or occurrences initiated within a six-year period after closing.

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 and completely offset the gain on the sale.

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

RocketPower's results of operations will be included in the OCG segment in 2022 on a one-month lag.

Accordingly, for the first quarter-end 2022, our consolidated revenues and net earnings did not include any results from RocketPower.

Pro forma results of operations for this acquisition have not been presented as it is not material to the consolidated statements of earnings.

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

This acquisition is intended to expand our capabilities, scale and solution set in our technology specialty.

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

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):

Cash consideration paid $ 220.4

Additional consideration payable 2.6

Net working capital adjustment ( 6.0 )

Total consideration $ 217.0

As of first quarter-end 2022, the purchase price allocation for this acquisition is final.

Our consolidated revenue from services and earnings from operations for the first quarter of 2022 included $ 37.9 million and $ 3.5 million, respectively, from Softworld.

All of the goodwill is expected to be deductible for tax purposes.

Investment in Persol Holdings

The Company has a yen-denominated investment through the Company's subsidiary, Kelly Services Japan, Inc., in the common stock of Persol Holdings Co., Ltd.

Prior to February 2022, the Company had a yen-denominated investment through the Company's subsidiary, Kelly Services Japan, Inc., in the common stock of Persol Holdings Co., Ltd.

("Persol Holdings"), the 100% owner of Persol Asia Pacific Pte.

Ltd., the Company’s joint venture partner in PersolKelly Pte.

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 $ 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 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 $ 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 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.

The JV is a supplier to certain MSP programs in the region and the amounts for services provided to the Company, which are included in accounts payable and accrued liabilities in the consolidated balance sheet, are not material.

On April 1, 2020, 100 % of the shares of Kelly Services Australia Pty Ltd and Kelly Services (New Zealand) Limited, both subsidiaries of the JV, were sold to an affiliate of Persol Holdings.

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

In February 2022, the Company's board approved a series of transactions that ended the cross-shareholding agreement with Persol Holdings.

On February 14, 2022, the Company repurchased 1,576,169 Class A and 1,475 Class B common shares held by Persol Holdings for $ 27.2 million.

The purchase price was based on the average closing price of the last five business days prior to the transaction.

The shares were subsequently retired and returned to an authorized, unissued status.

In accordance with the Company's policy, the amount paid to repurchase the shares in excess of par value of $ 25.6 million was recorded to earnings invested in the business on the consolidated balance sheet at the time of the share retirement.

On February 15, 2022, Kelly Services Japan, Inc.

sold the investment in the common stock of Persol Holdings in an open-market transaction for proceeds of $ 196.9 million, net of transaction fees.

As our investment was a noncontrolling interest in Persol Holdings, the investment was recorded at fair value based on the quoted market price of Persol Holdings stock on the Tokyo Stock Exchange through the date of the transaction (see Fair Value Measurements footnote).

The $ 67.2 million loss in the first quarter of 2022 recorded in gain (loss) on investment in Persol Holdings in the consolidated statements of earnings included $ 52.4 million for losses related to changes in fair value up to the date of the transaction and $ 14.8 million for the discount from the market price on the date of the sale and transaction costs.

The gain on the investment of $ 30.0 million in the first quarter 2021 was recorded in gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.

Subsequent to the transaction discussed above, the Company commenced the dissolution process of its Kelly Services Japan, Inc.

subsidiary, which was considered substantially liquidated as of first quarter-end 2022.

As a result, the Company recognized a $ 20.4 million cumulative translation adjustment loss in the first quarter of 2022, which is recorded in loss on currency translation from liquidation of subsidiary in the consolidated statements of earnings.

The Company also recognized a $ 5.5 million foreign exchange gain related to U.S.-denominated cash equivalents held by Kelly Services Japan, Inc.

following the sale of the Persol Holdings shares and prior to a dividend payment to the Company in the first quarter of 2022.

The foreign exchange gain is recorded in other income (expense), net in the consolidated statements of earnings.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Investment in PersolKelly Pte.

Prior to February 2022, the Company had 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.

On February 14, 2022, the Company entered into an agreement to sell 95 % of the Company's shares in the JV to Persol Asia Pacific Pte.

On March 1, 2022, the Company received cash proceeds of $ 119.5 million.

The carrying value of the shares sold was $ 117.6 million.

In addition, the Company had $ 1.9 million of accumulated other comprehensive income representing the Company's share of the JV's other comprehensive income over time related to the shares sold that was realized upon the sale, offsetting the $ 1.9 million gain that resulted from the proceeds in excess of the carrying value.

The operating results of the Company’s interest in the JV were accounted for on a one-quarter lag under the equity method and were reported in equity in net earnings (loss) of affiliate in the consolidated statements of earnings through the date of the sale.

Such amounts were earnings of $ 0.8 million in the first quarter of 2022 and a loss of $ 1.1 million in the first quarter of 2021.

After the sale, the Company has a 2.5 % ownership interest in the JV and has discontinued its use of equity method accounting.

The remaining investment will be accounted for as an equity investment without a readily determinable fair value (see Fair Value Measurements footnote).

The equity investment, included in other assets on the Company’s consolidated balance sheet, totaled $ 6.4 million as of first quarter-end 2022 and the investment in equity affiliate on the Company's consolidated balance sheet totaled $ 123.4 million as of year-end 2021.

Fair Value Measurements

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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.

The following tables present assets and liabilities measured at fair value on a recurring basis as of first quarter-end 2022 and year-end 2021 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 Third Quarter-End 2021

As of First Quarter-End 2022

Description Total Level 1 Level 2 Level 3

5 unchanged sentences

Greenwood/Asher earnout ( 2.3 ) — — ( 2.3 )

Insight earnout — — — —

RocketPower earnout ( 0.6 ) — — ( 0.6 )

Total liabilities at fair value $ ( 5.8 ) $ — $ — $ ( 5.8 )

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of Year-End 2021

6 unchanged sentences

Greenwood/Asher earnout ( 4.6 ) — — ( 4.6 )

Insight earnout ( 1.7 ) — — ( 1.7 )

Total liabilities at fair value $ ( 7.0 ) $ — $ — $ ( 7.0 )

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.

Money market funds represent investments in money market funds that hold government securities, of which $ 7.3 million as of first quarter-end 2022 and $ 6.5 million as of year-end 2021, are restricted as to use and are included in other assets in the consolidated balance sheet.

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

The remaining money market funds as of year-end 2020 are included in cash and equivalents in the consolidated balance sheet.

The remaining money market funds as of first quarter-end 2022 and year-end 2021 are included in cash and equivalents in the consolidated balance sheet.

The valuations of money market funds are based on quoted market prices of those accounts as of the respective period end.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 $ 18.6 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).

On February 15, 2022, Kelly Services Japan, Inc.

sold the investment in the common stock of Persol Holdings in an open-market transaction.

The valuation of the investment was based on the quoted market price of Persol Holdings stock on the Tokyo Stock Exchange as of year-end 2021, and the related changes in fair value were recorded in the consolidated statements of earnings (see Investment in Persol Holdings footnote).

The cost of this yen-denominated investment, which fluctuated based on foreign exchange rates, was $ 18.0 million at year-end 2021.

As of first quarter-end 2022 and year-end 2021, the Company had an indemnification liability of $ 2.9 million and $ 2.4 million, respectively, in other long-term liabilities on the consolidated balance sheet related to the 2020 sale of the Brazil operations.

As part of the sale, the Company agreed to indemnify the buyer for losses and costs incurred in connection with certain events or occurrences initiated within a six-year period after closing.

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

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 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).

During the first quarter of 2022, the Company recognized an increase of $ 0.5 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 Greenwood/Asher, totaling $ 2.3 million at first quarter-end 2022 in accounts payable and accrued liabilities and $ 4.6 million at year-end 2021 with $ 2.3 million in accounts payable and accrued liabilities and $ 2.3 million in other long-term liabilities in the consolidated balance sheet.

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

During the first quarter of 2022, the Company paid the year one portion of the earnout totaling $ 2.3 million.

In the consolidated statements of cash flows, $ 0.7 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.

The Company recorded an earnout liability relating to the 2022 acquisition of RocketPower, totaling $ 0.6 million at first quarter-end 2022 with $ 0.5 million in accounts payable and accrued liabilities and $ 0.1 million in other long-term liabilities in the consolidated balance sheet (see Acquisitions footnote).

The maximum total cash payments which may be due related to the earnout liability is $ 31.8 million.

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 an increase of $ 2.0 million to the earnout liability in SG&A expenses in the consolidated statements of earnings.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Equity Investment Without Readily Determinable Fair Value

Prior to April 2021, the Company had a minority investment in Business Talent Group, LLC, which was included in other assets in the consolidated balance sheet.

This investment was measured using the measurement alternative for equity investments without a readily determinable fair value.

On March 1, 2022, the Company sold the majority of its investment in the JV (see Investment in PersolKelly Pte.

footnote), with the remaining 2.5 % interest now being measured using the measurement alternative for equity investments without a readily determinable fair value.

The measurement alternative represents cost, less impairment, plus or minus observable price changes.

In the second quarter of 2021, BTG entered into a merger agreement which resulted in all of the Company's shares of BTG being automatically canceled upon approval of the merger and resulted in the receipt of $ 5.0 million in cash, which is equal to the carrying value and purchase price of the BTG investment.

The sale of the shares of the JV represented an observable transaction requiring the Company to calculate the current fair value based on the purchase price of the shares, in which the resulting adjustment was not material.

The investment totaled $ 6.4 million as of first quarter-end 2022, representing total cost plus observable price changes to date.

Prior to April 2021, the Company had a minority investment in Business Talent Group, LLC, which was included in other assets in the consolidated balance sheet.

The investment was also measured using the measurement alternative for equity investments without a readily determinable fair value as described above.

In the second quarter of 2021, BTG entered into a merger agreement which resulted in all of the Company's shares of BTG being automatically canceled upon approval of the merger and resulted in the receipt of $ 5.0 million in cash, which was equal to the carrying value and purchase price of the BTG investment.

Prior to March 2021, the Company had a minority investment in Kenzie Academy Inc., which was included in other assets in the consolidated balance sheet.

1 unchanged sentence

On March 8, 2021, Kenzie entered into a transaction to sell its assets.

As of the date of the sale and year-end 2020, the investment had a carrying value of $ 1.4 million, representing total cost plus observable price changes to date.

The asset was written down as a result of the sale and the loss of $ 1.4 million was recorded in other income (expense), net in the year to date consolidated statements of earnings.

Assets Measured at Fair Value on a Nonrecurring Basis

Due to the negative market reaction to the COVID-19 crisis, including declines in our common stock price, management determined that a triggering event occurred during the first quarter of 2020.

We therefore performed an interim step one quantitative impairment test for both of our previous reporting units with goodwill.

As a result of this quantitative assessment, we determined that the estimated fair value of the reporting units no longer exceeded the carrying value, and recorded a goodwill impairment charge of $ 147.7 million in the first quarter of 2020 (see Goodwill footnote).

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of the date of the sale, the investment had a carrying value of $ 1.4 million, representing total cost plus observable price changes to date.

In the first quarter of 2021, the asset was written down as a result of the sale and the loss of $ 1.4 million was recorded in other income (expense), net in the consolidated statements of earnings.

Restructuring

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 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

In the first quarter of 2022, the Company took restructuring actions designed to increase efficiency.

There were no restructuring charges incurred in the first quarter of 2021.

Restructuring costs incurred in the first quarter of 2022 totaled $ 1.7 million and were recorded entirely in SG&A expenses in the consolidated statements of earnings, as detailed below (in millions of dollars):

Severance Costs Lease Termination Costs Total

Professional & Industrial $ 0.1 $ 0.2 $ 0.3

Science, Engineering & Technology 0.5 — 0.5

Education 0.4 — 0.4

International 0.7 0.4 1.1

Outsourcing & Consulting 0.2 — 0.2

Corporate 0.8 — 0.8

2 unchanged sentences

Balance as of year-end 2021 $ 2.9

Additions charged to Professional & Industrial 0.3

Additions charged to Outsourcing & Consulting 0.2

Additions charged to Education 0.4

Additions charged to Corporate 0.8

Reductions for cash payments related to all restructuring activities ( 2.0 )

Balance as of first quarter-end 2022 $ 2.6

Reductions for cash payments related to all restructuring activities ( 0.9 )

Balance as of second quarter-end 2021 0.6

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.

The remaining balance of $ 2.6 million as of first quarter-end 2022 primarily represents severance costs, and the majority is expected to be paid by second quarter-end 2022.

No material adjustments are expected to be recorded.

The Company performs its annual goodwill impairment testing in the fourth quarter each year and regularly assesses whenever events or circumstances make it more likely than not that an impairment may have occurred.

During the first quarter of 2020, negative market reaction to the COVID-19 crisis, including declines in our common stock price, caused our market capitalization to decline significantly compared to the fourth quarter of 2019, causing a triggering event.

Therefore, we performed an interim step one quantitative test for 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 goodwill for both reporting units.

A portion of the goodwill balance was deductible for tax purposes.

In performing the step one quantitative test and consistent with our prior practice, we determined the fair value of each reporting unit using the income approach, which is validated through reconciliation to observable market capitalization data.

Under the income approach, estimated fair value is determined based on estimated future cash flows discounted by an estimated market participant weighted-average cost of capital, which reflects the overall level of inherent risk of the reporting unit being measured.

Estimated future cash flows are based on our internal projection model and reflects management’s outlook for the reporting units.

Assumptions and estimates about future cash flows and discount rates are complex and often subjective.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 Third

The changes in the carrying amount of goodwill as of first quarter-end 2022 are included in the table below.

The goodwill resulting from the acquisition of RocketPower during the first quarter of 2022 (see Acquisitions footnote) was allocated to the OCG reportable segment.

Year-End 2021 Additions to Goodwill Impairment Adjustments As of First

Quarter-End 2022

2 unchanged sentences

Education 3.5 — — 3.5

Outsourcing & Consulting — 41.0 — 41.0

Total $ 114.8 $ 41.0 $ — $ 155.8

Accumulated Other Comprehensive Income (Loss)

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.

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the first quarter 2022 and 2021 are included in the table below.

Amounts in parentheses indicate debits.

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

Reclassification adjustments out of accumulated other comprehensive income (loss) related to the liquidation of the Japan subsidiary, as shown in the table below, were recorded in the loss on currency translation from liquidation of subsidiary line item in the consolidated statements of earnings.

Reclassification adjustments out of accumulated other comprehensive income (loss) related to the equity method investment and other, as shown in the table below, which includes $ 1.9 million related to the investment in PersolKelly Pte.

Ltd., were recorded in the other income (expense), net line item in the consolidated statement of earnings.

See Investment in PersolKelly Pte.

footnote for more details.

First Quarter

(In millions of dollars)

2 unchanged sentences

Other comprehensive income (loss) before reclassifications ( 9.9 ) ( 13.6 )

Amounts reclassified from accumulated other comprehensive income (loss) — ( 1.5 ) — ( 1.5 )

Amounts reclassified from accumulated other comprehensive income (loss) - liquidation of Japan subsidiary 20.4 —

Amounts reclassified from accumulated other comprehensive income (loss) - equity method investment and other 2.5 —

Net current-period other comprehensive income (loss) 13.0 ( 13.6 )

11 unchanged sentences

Earnings (Loss) Per Share

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

The reconciliation of basic and diluted earnings (loss) per share on common stock for the first quarter 2022 and 2021 follows (in millions of dollars except per share data):

First Quarter

Net earnings (loss) $ ( 47.6 ) $ 25.6

7 unchanged sentences

Diluted earnings (loss) per share $ ( 1.23 ) $ 0.64

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.

Potentially dilutive shares outstanding are primarily related to deferred common stock related to the non-employee directors deferred compensation plan for the first quarter of 2021.

Dividends paid per share for Class A and Class B common stock were $ 0.05 for the first quarter 2022 and $ 0.00 for the first quarter 2021.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Stock-Based Compensation

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.

For the first quarter of 2022, the Company recognized stock compensation expense of $ 2.1 million, and a related tax benefit of $ 0.3 million.

For the first quarter of 2021, the Company recognized stock compensation expense of $ 1.4 million, and a related tax benefit of $ 0.1 million.

Performance Shares

During 2021, the Company granted performance share awards associated with the Company’s Class A common stock to certain senior officers.

During the first quarter of 2022, the Company granted performance share awards associated with the Company’s Class A common stock to certain senior officers.

The payment of performance share awards, which will be satisfied with the issuance of shares out of treasury stock, is contingent upon the achievement of specific revenue growth and earnings before interest, taxes, depreciation and amortization ("EBITDA") margin performance goals ("financial measure performance share awards") over a stated period of time.

2 unchanged sentences

2022, 2023 and 2024, with the payout for each performance period based on separate financial measure goals that are set in February of each of the three performance periods.

For the 2021 and 2022 performance periods, half of the shares earned in each respective performance period will vest after achievement of the respective performance goals for the year and approval of the financial results by the Compensation Committee, in early 2022 and 2023, respectively, if not forfeited by the recipient.

The remaining half of the shares earned for the 2021 and 2022 performance periods will vest in early 2024, based on continuous employment.

For the 2023 performance period, any shares earned will vest after achievement of the 2023 performance goals for the year and approval of the financial results by the Compensation Committee in early 2024, if not forfeited by the recipient.

Earned shares during each performance period will cliff vest in February 2025 after approval of the financial results by the Compensation Committee, if not forfeited by the recipient.

No dividends are paid on these performance shares.

On May 18, 2021, the Compensation Committee approved a modification to the performance goals of our 2021 and 2020 financial measure performance awards to increase the goals to reflect the results of the acquisition of Softworld.

We accounted for this change as a Type I modification under ASC 718 as the expectation of the achievement of certain performance conditions related to these awards remained a probable-to-probable post-modification.

The Company did not record any incremental stock compensation expense since the fair value of the modified awards immediately after the modification was not

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

greater than the fair value of the original awards immediately before the modification.

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

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.

A summary of the status of all nonvested performance shares at target as of first quarter-end 2022 and changes during this period is presented as follows below (in thousands of shares except per share data).

The vesting adjustment in the table below represents the 2019 and a portion of the 2021 financial measure performance shares that did not vest because actual achievement was below the threshold level and resulted in no payout.

Financial Measure

Performance Shares TSR

Performance Shares

Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value

Shares Weighted Average Grant Date Fair Value

Nonvested at year-end 2021 708 $ 20.03

3 unchanged sentences

Vesting adjustment ( 142 ) 24.45

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

Nonvested at first quarter-end 2022 698 $ 19.39

Restricted Stock

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).

A summary of the status of nonvested restricted stock as of first quarter-end 2022 and changes during this period is presented as follows below (in thousands of shares except per share data).

Shares Weighted Average Grant Date Fair Value

3 unchanged sentences

Forfeited ( 22 ) 22.43

Nonvested at third quarter-end 2021 386 $ 21.74

Sale of Assets

In the second quarter of 2020, the Company monetized wage subsidy receivables outside the U.S.

for $ 16.9 million, net of fees and 5 % retainer.

The sale of these receivables was accounted for as a sale of financial assets with certain recourse provisions in which we derecognized the receivables.

Although the sale of receivables is with recourse, the Company did not record a recourse obligation as the Company concluded the receivables were collectible.

The net cash proceeds related to the sale were included in operating activities in the consolidated statements of cash flows and the fees related to the sale were included in SG&A expenses in the consolidated statements of earnings.

On March 20, 2020, the Company sold three of our four headquarters properties for a purchase price of $ 58.5 million as a part of a sale and leaseback transaction.

The properties included the parcels of land, together with all rights and easements, in addition to all improvements located on the land, including buildings.

The Company received cash proceeds of $ 55.5 million, which was net of transaction expenses.

As of the date of the sale, the properties had a combined net carrying amount of $ 23.4 million.

The resulting gain on the sale of the assets was $ 32.1 million which was recorded in gain on sale of assets in the consolidated statements of earnings.

The Company leased back the headquarters buildings on the same date.

Nonvested at first quarter-end 2022 544 $ 21.24

KELLY SERVICES, INC.

2 unchanged sentences

Other Income (Expense), Net

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

Included in other income (expense), net for the first quarter 2022 and 2021 are the following:

First Quarter

(In millions of dollars)

1 unchanged sentence

Interest expense ( 0.6 ) ( 0.6 )

Dividend income — — 1.0 1.3

Foreign exchange gains (losses) 4.7 ( 0.2 )

1 unchanged sentence

Other income (expense), net $ 2.8 $ ( 3.4 )

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.

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.

Included in foreign exchange gains (losses) for the first quarter of 2022 is a $ 5.5 million foreign exchange gain on a U.S.

dollar-denominated cash balance held by the Company's Japan entity (see Investment in Persol Holdings footnote).

Included in Other for the first quarter of 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 footnote).

Income tax benefit was $ 13.0 million for the first quarter of 2022 and income tax expense was $ 10.5 million for the first quarter of 2021.

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in a benefit of $ 18.4 million and a charge of $ 9.2 million for the first quarter of 2022 and 2021, respectively.

The quarterly 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.

1 unchanged sentence

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, impairment of goodwill in the first quarter of 2020 and the Brazil outside basis differences in the second quarter of 2020 were treated as discrete.

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 $ 3.9 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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Contingencies

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

At first quarter-end 2022 and year-end 2021, the gross accrual for litigation costs amounted to $ 1.8 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.

At first quarter-end 2022, the related insurance receivables amounted to $ 0.6 million.

At year-end 2021, there were no related insurance receivables.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is $ 0.5 million to $ 9.1 million as of first quarter-end 2022.

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.

7 unchanged sentences

Intersegment revenue represents revenue earned between the reportable segments and is eliminated from total segment revenue from services.

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 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.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Third Quarter September Year to Date

2021 2020 2021 2020

First Quarter

(In millions of dollars)

7 unchanged sentences

Consolidated Total $ 1,296.4 $ 1,205.9

Third Quarter September Year to Date

2021 2020 2021 2020

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

First Quarter

(In millions of dollars)

18 unchanged sentences

Gain (loss) on investment in Persol Holdings ( 67.2 ) 30.0

Loss on currency translation from liquidation of subsidiary ( 20.4 ) —

Other income (expense), net 2.8 ( 3.4 )

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate $ ( 61.4 ) $ 37.2

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Third Quarter September Year to Date

2021 2020 2021 2020

First Quarter

(In millions of dollars)

5 unchanged sentences

International 0.5 0.5

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

New Accounting Pronouncements

Recently Adopted

In January 2020, the FASB issued Accounting Standards Update ("ASU") 2020-01 which clarifies the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities.

In October 2021, the FASB issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers.

At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts.

The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations that occur after the effective date.

We early adopted this standard in the first quarter of 2022 and the adoption did not have a material impact to our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

ASU 2020-04 was effective for the Company in the first quarter of fiscal 2021.

The adoption of this standard did not have a material impact to our consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01 which clarifies the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities.

The guidance clarifies how to account for the transition into and out of the equity method of accounting when considering observable transactions under the measurement alternative.

5 unchanged sentences

The adoption of this standard did not have a material impact to our consolidated financial statements.

Not Yet Adopted

Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Subsequent Events

On May 2, 2022, the Company acquired 100 % of the membership interests of Pediatric Therapeutic Services for $ 82.1 million of cash, subject to working capital adjustments.

Pediatric Therapeutic Services is a specialty firm that provides and manages various state and federally mandated in-school therapy services and will be included in our Education segment.

The related acquisition costs incurred through the end of the first quarter, which are included in other income (expense), net in the consolidated statements of earnings, were $ 0.3 million.

The initial accounting for the business combination is incomplete at the time of this filing due to the limited amount of time since the acquisition date and the ongoing status of the valuation.

Therefore, it is impracticable for the Company to provide the major classes of assets acquired and liabilities assumed or pro forma revenue and earnings.

Subsequent to the end of the first quarter, Management initiated plans to actively explore an orderly transition of our operations in Russia in full compliance with International and Russian law.

Such a transition may result in a loss up to the carrying value of our net assets in Russia.

As of the end of the first quarter of 2022, assets in Russia totaled $ 28.4 million, liabilities totaled $ 13.0 million and accumulated other comprehensive loss totaled $ 10.1 million.

For the year ended January 2, 2022, revenue in Russia was $ 132.2 million and earnings from operations were $ 5.3 million.

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