What changed in this filing

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Item 1. Financial Statements

2022-08-11 compared with 2022-05-12 · 216 added, 107 removed, 591 unchanged (35% of the section changed)

4 unchanged sentences

(In millions of dollars except per share data)

13 Weeks Ended

2022 April 4,

13 Weeks Ended 26 Weeks Ended

Revenue from services $ 1,267.3 $ 1,258.1 $ 2,563.7 $ 2,464.0

2 unchanged sentences

Selling, general and administrative expenses 240.1 217.3 476.2 420.0

Earnings (loss) from operations 23.4 10.6

Impairment of assets held for sale 18.5 — 18.5 —

Gain on sale of assets ( 4.4 ) — ( 5.3 ) —

Earnings from operations 8.2 13.7 31.6 24.3

Gain (loss) on investment in Persol Holdings — 6.3 ( 67.2 ) 36.3

16 unchanged sentences

(In millions of dollars)

13 Weeks Ended

2022 April 4,

13 Weeks Ended 26 Weeks Ended

Net earnings (loss) $ 2.2 $ 24.0 $ ( 45.4 ) $ 49.6

Other comprehensive income (loss), net of tax:

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

Foreign currency translation adjustments, net of tax expense of $0.0, tax benefit of $0.1, tax expense of $0.1 and $0.4, respectively 1.3 2.0 ( 8.6 ) ( 11.6 )

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

13 unchanged sentences

Prepaid expenses and other current assets 80.6 52.8

Assets held for sale 24.6 —

Total current assets 1,737.0 1,588.7

26 unchanged sentences

Income and other taxes 50.5 51.3

Liabilities held for sale 13.7 —

Total current liabilities 1,161.0 1,095.2

12 unchanged sentences

Class B common stock, 10.0 shares authorized;

3.4 shares issued at 2022 and 2021 3.4 3.4

3.4 shares issued at 2022 and 3.4 shares issued at 2021 3.4 3.4

Treasury stock, at cost

11 unchanged sentences

(In millions of dollars)

13 Weeks Ended

2022 April 4,

13 Weeks Ended 26 Weeks Ended

Capital Stock

38 unchanged sentences

26 Weeks Ended

2022 April 4,

Cash flows from operating activities:

1 unchanged sentence

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

Impairment of assets held for sale 18.5 —

Depreciation and amortization 16.1 14.1

5 unchanged sentences

Gain on foreign currency remeasurement ( 5.5 ) —

Gain on sale of assets ( 5.3 ) —

Equity in net (earnings) loss of PersolKelly Pte.

( 0.8 ) ( 0.6 )

Other, net 2.9 2.2

3 unchanged sentences

Capital expenditures ( 3.5 ) ( 4.9 )

Proceeds from sale of assets 4.5 —

Acquisition of companies, net of cash received ( 143.1 ) ( 219.0 )

2 unchanged sentences

Proceeds from sale of equity method investment 119.5 —

Proceeds related to loans with equity affiliate — 5.8

Proceeds from equity securities — 5.0

Other investing activities ( 0.2 ) 1.0

Net cash from investing activities 257.1 7.9

Net cash from (used in) investing activities 175.6 ( 201.7 )

Cash flows from financing activities:

5 unchanged sentences

Contingent consideration payments ( 0.7 ) —

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

Net cash used in financing activities ( 33.9 ) ( 1.0 )

Effect of exchange rates on cash, cash equivalents and restricted cash 0.1 ( 2.3 )

9 unchanged sentences

26 Weeks Ended

2022 April 4,

Reconciliation of cash, cash equivalents and restricted cash:

1 unchanged sentence

Cash and cash equivalents $ 133.9 $ 64.4

Cash included in assets held for sale 12.2 —

Restricted cash included in prepaid expenses and other current assets 0.6 0.1

13 unchanged sentences

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.

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

The corresponding June year-to-date periods for 2022 and 2021 each contained 26 weeks.

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

KELLY SERVICES, INC.

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

First Quarter

Second Quarter June Year to Date

2022 2021 2022 2021

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 Mexico operations, which are included in the Americas region.

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

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

First Quarter

Second Quarter June Year to Date

2022 2021 2022 2021

United States $ 928.9 $ 894.6 $ 1,885.5 $ 1,753.1

18 unchanged sentences

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

First Quarter

Second Quarter June Year to Date

2022 2021 2022 2021

Science, Engineering & Technology

12 unchanged sentences

Deferred Costs

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.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 3.1 million as of second quarter-end 2022 and $ 1.3 million as of year-end 2021.

Amortization expense for the deferred costs for the second quarter and June year-to-date 2022 was $ 1.9 million and $ 3.8 million, respectively.

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.

Credit Losses

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):

First Quarter

June Year to Date

Allowance for credit losses:

4 unchanged sentences

Ending balance $ 8.4 $ 8.9

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.

Write-offs are presented net of recoveries, which were not material for June year-to-date 2022 and 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 second 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.

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

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

In the second quarter of 2022, Kelly Services USA, LLC ("KSU"), a wholly owned subsidiary of the Company, acquired Pediatric Therapeutic Services ("PTS"), as detailed below.

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

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("Softworld"), as detailed below.

Pediatric Therapeutic Services

On May 2, 2022, KSU acquired 100 % of the membership interests of PTS for a purchase price of $ 82.1 million.

PTS is a specialty firm that provides and manages various state and federally mandated in-school therapy services.

This acquisition will expand Kelly Education's K-12 solution offering in the education staffing market and serve as an entry point into the therapeutic services market.

Under terms of the purchase agreement, the purchase price was adjusted for cash held by PTS at the closing date and estimated working capital adjustments resulting in the Company paying cash of $ 85.7 million.

Total consideration includes $ 1.1 million of additional consideration that is payable to the seller by the end of 2022 related to employee retention credits.

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

Cash consideration paid $ 85.7

Additional consideration payable 1.1

Total consideration $ 86.8

Due to the limited amount of time that has passed since acquiring PTS, 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):

Trade accounts receivable 10.0

Prepaid expenses and other current assets 1.6

Net property and equipment 0.4

Goodwill 36.3

Intangibles 40.3

Accounts payable and accrued liabilities, current ( 2.6 )

Accrued payroll and related taxes, current ( 0.1 )

Total consideration, including working capital adjustments $ 86.8

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

Included in the assets purchased in the PTS acquisition was $ 40.3 million of intangibles, made up of $ 29.8 million in customer relationships, $ 9.3 million associated with PTS's trade names and $ 1.2 million for non-compete agreements.

Customer relationships will be amortized over 15 years with no residual value, trade names will be amortized over 15 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 expected synergies from combining operations and expanding market potential and was assigned to the Education operating segment (see Goodwill footnote).

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

PTS's results of operations are included in the Education segment.

Our consolidated revenues and earnings from operations for the second quarter and June year-to-date 2022 included $ 7.2 million and $ 0.9 million, respectively, from PTS.

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

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.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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

RocketPower's results of operations are included in the OCG segment in 2022 on a one-month lag, accordingly our first quarter 2022 consolidated revenues and earnings from operations did not include any results from RocketPower.

Our consolidated revenues and earnings from operations for the second quarter and June year-to-date 2022 included $ 11.5 million and $ 1.0 million, respectively, from RocketPower.

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

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

9 unchanged sentences

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.

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

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).

8 unchanged sentences

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.

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 in the consolidated balance sheet at the time of the share retirement.

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

2 unchanged sentences

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.

The gain on the investment of $ 6.3 million and $ 36.3 million in the second quarter and June year-to-date 2021, respectively, 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.

14 unchanged sentences

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.

Such amounts were earnings of $ 0.8 million in June year-to-date 2022, representing the results through the date of the sale, and earnings of $ 1.7 million and $ 0.6 million in the second quarter and June year-to-date 2021, respectively.

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

The remaining investment is 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 second 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

1 unchanged sentence

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 first quarter-end 2022 and year-end 2021 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 second 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 First Quarter-End 2022

As of Second Quarter-End 2022

Description Total Level 1 Level 2 Level 3

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

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.

Money market funds represent investments in money market funds that hold government securities, of which $ 7.3 million as of second 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 first quarter-end 2022 and year-end 2021 are included in cash and equivalents in the consolidated balance sheet.

The remaining money market funds as of second 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.

3 unchanged sentences

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 of second quarter-end 2022 and year-end 2021, the Company had an indemnification liability of $ 3.3 million and $ 2.4 million, respectively, in other long-term liabilities in 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.

2 unchanged sentences

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

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.

During the second quarter of 2022, the Company reassessed the value of the indemnification liability and determined that it was necessary to record an increase to the liability of $ 0.8 million.

Additionally, during year-to-date 2022, 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.

The Company recorded an earnout liability relating to the 2020 acquisition of Greenwood/Asher, totaling $ 3.0 million at second 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.

1 unchanged sentence

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).

During the second quarter of 2022, the Company reassessed the value of the indemnification liability and determined it was necessary to record an increase to the liability of $ 0.7 million.

The Company recorded an earnout liability relating to the 2022 acquisition of RocketPower, totaling $ 0.6 million at second 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.

8 unchanged sentences

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.

The investment totaled $ 6.4 million as of second 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.

8 unchanged sentences

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.

There were no restructuring charges incurred in the second quarter of 2022 or June year-to-date 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):

5 unchanged sentences

Total $ 1.5 $ 0.2 $ 1.7

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

6 unchanged sentences

Balance as of first quarter-end 2022 2.6

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.

Reductions for cash payments related to all restructuring activities ( 1.1 )

Accrual adjustments ( 0.2 )

Balance as of second quarter-end 2022 $ 1.3

The remaining balance of $ 1.3 million as of second quarter-end 2022 primarily represents severance costs, and the majority is expected to be paid by year-end 2022.

No material adjustments are expected to be recorded.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The changes in the carrying amount of goodwill as of June year-to-date 2022 are included in the table below.

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

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

Quarter-End 2022

4 unchanged sentences

Total $ 114.8 $ 77.3 $ — $ 192.1

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accumulated Other Comprehensive Income (Loss)

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.

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the second quarter and June year-to-date 2022 and 2021 are included in the table below.

Amounts in parentheses indicate debits.

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.

June year-to-date 2022 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.

June year-to-date 2022 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 statements of earnings.

See Investment in PersolKelly Pte.

footnote for more details.

First Quarter

Second Quarter June Year to Date

2022 2021 2022 2021

(In millions of dollars)

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Earnings (Loss) Per Share

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

The reconciliation of basic and diluted earnings (loss) per share on common stock for the second quarter and June year-to-date 2022 and 2021 follows (in millions of dollars except per share data):

Second Quarter June Year to Date

2022 2021 2022 2021

Net earnings (loss) $ 2.2 $ 24.0 $ ( 45.4 ) $ 49.6

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Diluted earnings (loss) per share $ 0.06 $ 0.60 $ ( 1.19 ) $ 1.25

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)

Potentially dilutive shares outstanding are primarily related to deferred common stock related to the non-employee directors deferred compensation plan for the second quarter of 2022 and 2021 and June year-to-date 2021.

Due to our net loss in June year-to-date 2022, potentially dilutive shares primarily related to deferred common stock related to the non-employee directors deferred compensation plan of 0.2 million shares had an anti-dilutive effect on diluted earnings per share and were excluded from the computation for June year-to-date 2022.

Dividends paid per share for Class A and Class B common stock were $ 0.075 for the second quarter 2022, $ 0.125 for June year-to-date 2022 and $ 0.00 for the second quarter 2021 and June year-to-date 2021.

Stock-Based Compensation

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.

For the second quarter of 2022, the Company recognized stock compensation expense of $ 1.7 million, and a related tax benefit of $ 0.2 million.

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 June year-to-date 2022, the Company recognized stock compensation expense of $ 3.8 million, and a related tax benefit of $ 0.5 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.

Performance Shares

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No dividends are paid on these performance shares.

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).

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of the status of all nonvested performance shares at target as of second quarter-end 2022 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 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.

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Vesting adjustment ( 142 ) 24.45

Nonvested at first quarter-end 2022 698 $ 19.39

Nonvested at second quarter-end 2022 698 $ 19.39

Restricted Stock

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).

A summary of the status of nonvested restricted stock as of second quarter-end 2022 and year-to-date changes is presented as follows below (in thousands of shares except per share data).

During the second quarter of 2022, the Company granted 128,000 shares with a weighted average grant date fair value of $ 17.92 as a special retention stock award to certain key employees and is reflected in the granted line item below.

Shares Weighted Average Grant Date Fair Value

3 unchanged sentences

Forfeited ( 72 ) 21.62

Nonvested at first quarter-end 2022 544 $ 21.24

Nonvested at second quarter-end 2022 618 $ 20.52

Sale of Assets

In June 2022, the Company sold an under-utilized real property for a purchase price of $ 4.5 million, subject to final closing adjustments.

The Company received cash proceeds of $ 3.6 million in the second quarter of 2022 and previously received cash proceeds of $ 0.8 million as a deposit in 2021 when the contract was first executed.

As of the date of the sale, the land had insignificant carrying value;

as such, the resulting gain on the sale was $ 4.4 million, which is recorded in gain on sale of assets in the consolidated statements of earnings.

In January 2022, the Company sold a property for a purchase price of $ 0.9 million, subject to final closing adjustments.

The Company received cash proceeds of $ 0.9 million in the first quarter of 2022.

As of the date of the sale, the property had an immaterial carrying value;

as such, the resulting gain on the sale of the property was $ 0.9 million, which is recorded in gain on sale of assets in the consolidated statements of earnings.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Held for Sale

Russia Operations

In the second quarter of 2022, the Company announced its intention to transition its business in Russia.

On June 30, 2022, the Company entered into a definitive agreement to sell its Russia operations ("disposal group"), which is included in the Company's International operating segment.

As of the date of the agreement and until closing of the sale, the disposal group is classified as held for sale and measured at the lower of its carrying amount or fair value less estimated costs to sell.

As of July 3, 2022, the assets and liabilities that have met the classification as held for sale are $ 38.4 million and $ 13.7 million, respectively.

The fair value as of July 3, 2022 less costs to sell was estimated based on the terms of the definitive agreement and is $ 7.3 million.

As a result, the Company has recorded a held for sale impairment charge of $ 18.5 million in the second quarter of 2022, which is recorded as a reduction to the assets in the assets held for sale in the consolidated balance sheet and in impairment of assets held for sale in the consolidated statements of earnings.

The impairment charge includes $ 1.1 million for the anticipated liquidation of the cumulative translation adjustment.

On July 20, 2022, subsequent to the end of the second quarter, the sale was completed and the Company no longer operates in Russia.

The disposal group did not meet the requirements to be classified as discontinued operations as the sale will not have a material effect on the Company's operations and does not represent a strategic shift in the Company's strategy.

Our consolidated earnings before taxes for the second quarter of 2022 and 2021 included $ 0.7 million and $ 0.8 million, respectively, from the Russia operations and for June year-to-date 2022 and 2021 included $ 1.1 million and $ 1.3 million, respectively, from the Russia operations.

The major classes of assets and liabilities of the disposal group that have met the classification of held for sale as of July 3, 2022 are as follows (in millions of dollars):

Assets held for sale

Cash and equivalents $ 12.2

Trade accounts receivable, net 23.9

Prepaid expenses and other current assets 0.8

Property and equipment, net 0.6

Operating lease right-of-use assets 0.2

Deferred taxes 0.4

Other assets 0.3

Assets held for sale 38.4

Liabilities held for sale

Accounts payable and accrued liabilities ( 0.5 )

Operating lease liabilities ( 0.2 )

Accrued payroll and related taxes ( 8.3 )

Income and other taxes ( 4.7 )

Liabilities held for sale ( 13.7 )

Disposal group, net $ 24.7

Cash and equivalents in the consolidated statements of cash flows as of the second quarter-end 2022 includes $ 12.2 million of cash that is included in the disposal group.

The disposal group's cash is not reflected as cash and equivalents in the consolidated balance sheet as of second quarter-end 2022, as the assets of the disposal group are recognized net of the impairment charge as assets held for sale.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Subsequent to the second quarter-end, the sale was completed and the Company received proceeds of $ 7.4 million, including purchase price adjustments, in July 2022.

The assets and liabilities will be derecognized in the third quarter of 2022 as well as any adjustments to the loss on the sale.

Real Property

Kelly Properties, LLC, a wholly owned subsidiary of the Company, entered into an agreement on May 11, 2022 to sell real property located in Troy, Michigan.

Accordingly, during the second quarter of 2022, the transaction met the criteria to classify the property as held for sale.

The property held for sale includes the property and all improvements to the property, together with all rights and easements.

Assets held for sale are recorded at the lower of their carrying value or fair value less estimated costs to sell, and depreciation is suspended on assets upon classification to held for sale.

The carrying amount of the property held for sale as of the second quarter-end 2022 is $ 4.7 million, which is less than the sales price in the purchase agreement, less estimated costs to sell.

The proceeds of the sale are expected to be approximately $ 5.6 million, net of commissions and transaction expenses.

The Company has presented these assets as current assets held for sale in the consolidated balance sheet as of the second quarter-end 2022, as the property is expected to be sold in the fourth quarter of 2022 per terms of the purchase agreement.

Other Income (Expense), Net

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

First Quarter

Included in other income (expense), net for the second quarter and June year-to-date 2022 and 2021 are the following:

Second Quarter June Year to Date

2022 2021 2022 2021

(In millions of dollars)

1 unchanged sentence

Interest expense ( 0.5 ) ( 0.6 ) ( 1.1 ) ( 1.2 )

Dividend income — 1.0 — 1.0

Foreign exchange gains (losses) 0.9 ( 0.7 ) 5.6 ( 0.9 )

1 unchanged sentence

Other income (expense), net $ ( 1.1 ) $ ( 0.3 ) $ 1.7 $ ( 3.7 )

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

Included in Other for the second quarter and June year-to-date 2022 is $ 0.8 million of expense related to the remeasurement of the Brazil indemnification liability (see Fair Value Measurements footnote).

Included in foreign exchange gains (losses) for June year-to-date 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.

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 footnote).

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Income tax expense was $ 4.9 million for the second quarter of 2022 and income tax benefit was $ 2.6 million for the second quarter of 2021.

Income tax benefit was $ 8.1 million for June year-to-date 2022 and income tax expense was $ 7.9 million for June year-to-date 2021.

The second quarter and June year-to-date 2021 amounts benefited $ 5.2 million from a change in United Kingdom tax rates, and from tax exempt gains on life insurance policies.

The second quarter and June year-to-date 2022 taxes had no tax benefit from losses on life insurance policies.

The second quarter and June year-to-date 2022 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.

work opportunity credits and the change in cash surrender value of tax exempt investments in life insurance policies.

It is also affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law changes, changes in judgment regarding the realizability of deferred tax assets, the tax effects of stock compensation, and changes in the fair value of the Company's investment in Persol Holdings, which are treated as discrete since they cannot be estimated.

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, prior to February 2022, changes in the fair value of the Company's investment in Persol Holdings, which were treated as discrete since they cannot be estimated.

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.

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 first quarter-end 2022 and year-end 2021, the gross accrual for litigation costs amounted to $ 1.8 million and $ 1.4 million, respectively.

At second quarter-end 2022 and year-end 2021, the gross accrual for litigation costs amounted to $ 1.7 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 first quarter-end 2022, the related insurance receivables amounted to $ 0.6 million.

At second 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.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is $ 0.7 million to $ 8.6 million as of second 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.

3 unchanged sentences

While the ultimate outcome of these matters cannot be predicted with certainty, we believe that the resolution of any such proceedings will not have a material adverse effect on our financial condition, results of operations or cash flows.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Segment Disclosures

2 unchanged sentences

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

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 first quarter 2022 and 2021.

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.

First Quarter

Second Quarter June Year to Date

2022 2021 2022 2021

(In millions of dollars)

10 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

First Quarter

Second Quarter June Year to Date

2022 2021 2022 2021

(In millions of dollars)

16 unchanged sentences

Corporate ( 23.1 ) ( 21.4 ) ( 48.5 ) ( 43.3 )

Impairment of assets held for sale ( 18.5 ) — ( 18.5 ) —

Gain on sale of assets 4.4 — 5.3 —

Consolidated Total 8.2 13.7 31.6 24.3

3 unchanged sentences

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate $ 7.1 $ 19.7 $ ( 54.3 ) $ 56.9

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:

First Quarter

Second Quarter June Year to Date

2022 2021 2022 2021

(In millions of dollars)

5 unchanged sentences

International 0.5 0.5 1.0 1.0

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

New Accounting Pronouncements

20 unchanged sentences

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