What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-11 compared with 2022-11-10 · 140 added, 346 removed, 516 unchanged (49% of the section changed)

4 unchanged sentences

(In millions of dollars except per share data)

13 Weeks Ended 39 Weeks Ended

2022 October 3,

2021 October 2,

2022 October 3,

13 Weeks Ended

2023 April 3,

Revenue from services $ 1,268.3 $ 1,296.4

2 unchanged sentences

Selling, general and administrative expenses 243.4 236.1

Goodwill impairment charge 30.7 — 30.7 —

Loss on disposal 0.2 — 18.7 —

Gain on sale of assets — ( 0.9 )

Earnings (loss) from operations 10.7 23.4

Gain (loss) on investment in Persol Holdings — 35.5 ( 67.2 ) 71.8

Loss on investment in Persol Holdings — ( 67.2 )

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

15 unchanged sentences

(In millions of dollars)

13 Weeks Ended 39 Weeks Ended

2022 October 3,

2021 October 2,

2022 October 3,

13 Weeks Ended

2023 April 3,

Net earnings (loss) $ 10.9 $ ( 47.6 )

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments, net of tax benefit of $0.1, tax expense of $0.1, $0.0 and $0.5, respectively ( 8.8 ) ( 3.5 ) ( 17.4 ) ( 15.1 )

Foreign currency translation adjustments, net of tax expense of $0.0 and $0.1, respectively 2.3 ( 9.9 )

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

13 unchanged sentences

Prepaid expenses and other current assets 82.3 69.9

Assets held for sale 4.7 —

Total current assets 1,632.5 1,715.2

7 unchanged sentences

Goodwill, net 151.1 151.1

Investment in Persol Holdings — 264.3

Investment in equity affiliate — 123.4

Other assets 409.5 403.2

18 unchanged sentences

Operating lease liabilities 53.4 55.0

Accrued payroll and related taxes — 57.6

Accrued workers’ compensation and other claims 41.0 40.7

8 unchanged sentences

Class B common stock, 10.0 shares authorized;

3.4 shares issued at 2022 and 2021 3.4 3.4

3.3 shares issued at 2023 and 3.4 shares issued at 2022 3.3 3.4

Treasury stock, at cost

11 unchanged sentences

(In millions of dollars)

13 Weeks Ended 39 Weeks Ended

2022 October 3,

2021 October 2,

2022 October 3,

13 Weeks Ended

2023 April 3,

Capital Stock

11 unchanged sentences

Balance at beginning of period ( 19.5 ) ( 14.5 )

Net issuance of stock awards 0.1 0.1 2.7 1.9

Net issuance of stock awards and other 3.1 2.1

Purchase of treasury stock ( 18.3 ) —

Balance at end of period ( 34.7 ) ( 12.4 )

24 unchanged sentences

13 Weeks Ended

2022 October 3,

2023 April 3,

Cash flows from operating activities:

1 unchanged sentence

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

Goodwill impairment charge 30.7 —

Deferred income taxes on goodwill impairment charge ( 5.3 ) —

Loss on disposal 18.7 —

Depreciation and amortization 8.4 7.5

2 unchanged sentences

Stock-based compensation 3.1 2.1

(Gain) loss on investment in Persol Holdings 67.2 ( 71.8 )

Gain on sale of equity securities ( 2.0 ) —

Loss on investment in Persol Holdings — 67.2

Loss on currency translation from liquidation of subsidiary — 20.4

2 unchanged sentences

Equity in net (earnings) loss of PersolKelly Pte.

( 0.8 ) ( 2.3 )

Other, net ( 0.3 ) 1.7

Changes in operating assets and liabilities, net of acquisitions ( 38.3 ) ( 156.0 )

Net cash (used in) from operating activities ( 111.7 ) 31.0

Net cash used in operating activities ( 13.5 ) ( 106.1 )

Cash flows from investing activities:

2 unchanged sentences

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

Cash disposed from sale of Russia, net of proceeds ( 6.0 ) —

Proceeds from company-owned life insurance 1.5 10.4

Proceeds from sale of Persol Holdings investment — 196.9

Proceeds from sale of equity method investment — 119.5

Proceeds related to loans with equity affiliate — 5.8

Proceeds from equity securities 2.0 —

Other investing activities 0.2 ( 0.2 )

Net cash from (used in) investing activities 167.7 ( 198.4 )

Net cash (used in) from investing activities ( 2.2 ) 257.1

Cash flows from financing activities:

5 unchanged sentences

Contingent consideration payments ( 1.4 ) ( 0.7 )

Other financing activities 0.1 —

Net cash used in financing activities ( 24.8 ) ( 30.7 )

10 unchanged sentences

13 Weeks Ended

2022 October 3,

2023 April 3,

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 1, 2023, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 16, 2023 (the 2022 consolidated financial statements).

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 third fiscal quarter ended on October 2, 2022 (2022) and October 3, 2021 (2021), each of which contained 13 weeks.

The corresponding September year-to-date periods for 2022 and 2021 each contained 39 weeks.

There were no changes in accounting policies as disclosed in the Form 10-K.

The Company’s first fiscal quarter ended on April 2, 2023 and April 3, 2022, each of which contained 13 weeks.

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

9 unchanged sentences

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

Third Quarter September Year to Date

2022 2021 2022 2021

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 our Mexico operations, which are included in the Americas region, and Europe.

Our International segment includes our staffing operations in Europe as well as Mexico, which is included in the Americas region.

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

Third Quarter September Year to Date

2022 2021 2022 2021

First Quarter

United States $ 959.2 $ 956.6

7 unchanged sentences

Italy 16.9 19.5

United Kingdom 14.2 17.2 45.2 51.9

Russia — 29.7

8 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

2022 2021 2022 2021

First Quarter

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 $ 2.4 million as of third quarter-end 2022 and $ 1.3 million as of year-end 2021.

Amortization expense for the deferred costs for the third quarter and September year-to-date 2022 was $ 3.2 million and $ 7.0 million, respectively.

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.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 1.9 million as of first quarter-end 2023 and $ 2.7 million as of year-end 2022.

Amortization expense for the deferred costs in the first quarter of 2023 was $ 2.4 million and in the first quarter of 2022 was $ 1.9 million .

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):

September Year to Date

First Quarter

Allowance for credit losses:

4 unchanged sentences

Ending balance $ 7.8 $ 8.5

Write-offs are presented net of recoveries, which were not material for September year-to-date 2022 and 2021.

Write-offs are presented net of recoveries, which were not material for first quarter-end 2023 or 2022.

No other allowances related to other receivables were material as of first quarter-end 2023 or year-end 2022.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

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 SG&A expenses in the consolidated statements of earnings.

The 2021 September year-to-date rollforward of our allowance for credit losses related to the long-term customer receivable, which was recorded in other assets in the consolidated balance sheet, is as follows (in millions of dollars):

September Year to Date

Allowance for credit losses:

Beginning balance $ 10.9

Current period provision 0.6

Write-offs ( 11.5 )

Ending Balance $ —

There were no allowances for long-term customer receivables during September year-to-date 2022.

No other allowances related to other receivables were material for September year-to-date 2022.

Acquisitions and Disposition

1 unchanged sentence

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.

Pediatric Therapeutic Services

3 unchanged sentences

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 and is recorded in accounts payable and accrued liabilities in the consolidated balance sheet.

In the third quarter of 2022, the Company paid $ 0.1 million of the employee retention credits.

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

Total consideration included $ 1.1 million of additional consideration that is payable to the seller related to employee retention credits and is recorded in accounts payable and accrued liabilities in the consolidated balance sheet.

In the third quarter of 2022, the Company paid $ 0.1 million of the employee retention credits and the remainder is expected to be paid by second quarter-end 2023.

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

Cash consideration paid $ 85.7

1 unchanged sentence

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):

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 and Intangible Assets footnote).

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

As of May 2023, the purchase price allocation for this acquisition is final.

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

Our consolidated revenues for the third quarter and September year-to-date 2022 included $ 8.0 million and $ 15.2 million, respectively, from PTS.

Our consolidated earnings from operations for the third quarter and September year-to-date 2022 included $ 0.7 million and $ 1.6 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.

Our consolidated revenues and earnings from operations for the first quarter of 2023 included $ 15.8 million and $ 2.7 million, respectively, from PTS.

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.

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

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 expands OCG's RPO solution and delivery offering and enhances the specialty RPO strategy and expertise within the high-tech industry.

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

technology companies.

This acquisition expands OCG's RPO solution and delivery offering.

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 initial 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 and it was reassessed in the third quarter of 2022 (see Fair Value Measurements footnote).

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

Total consideration included $ 1.1 million of additional consideration that is payable to the seller in 2023 related to employee retention credits and contingent consideration with an initial 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 the Fair Value Measurements footnote for information regarding subsequent reassessments.

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

Cash consideration paid $ 61.8

2 unchanged sentences

Total consideration $ 63.5

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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):

Trade accounts receivable 6.9

Prepaid expenses and other current assets 1.8

Net property and equipment 0.1

Goodwill 41.0

Intangibles 15.8

Accounts payable and accrued liabilities, current ( 2.9 )

Accrued payroll and related taxes, current ( 1.5 )

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 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.

As of first quarter-end 2023, the purchase price allocation for this acquisition is final.

RocketPower's results of operations are included in the OCG segment.

Our consolidated revenues for the first quarter of 2023 included $ 2.6 million from RocketPower and our consolidated earnings from operations for the first quarter of 2023 included a loss of $ 2.6 million from RocketPower.

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.

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

In the third quarter of 2022, changes in market conditions triggered interim impairment tests for both long-lived assets and goodwill, resulting in the Company recording goodwill impairment expense of $ 30.7 million (see Goodwill and Intangible Assets footnote).

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 for the third quarter and September year-to-date 2022 included $ 7.0 million and $ 18.5 million, respectively, from RocketPower.

Our consolidated earnings from operations for the third quarter and September year-to-date 2022 included a loss of $ 0.6 million and earnings of $ 0.5 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.

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 is intended to 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 the fourth quarter of 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

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 and Intangible Assets footnote).

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

On July 20, 2022, the Company completed the sale of its Russia operations ("disposal group"), which was included in the Company's International operating segment.

The Company received cash proceeds of $ 7.4 million, which is less than the cash disposed of in the sale, resulting in investing cash outflows of $ 6.0 million in the consolidated statements of cash flows.

The disposal group was previously reported as held for sale as of our second quarter-end 2022 with an $ 18.5 million impairment charge associated with the transaction.

The total loss on the sale is $ 18.7 million, resulting from an additional $ 0.2 million loss on the transaction in the third quarter of 2022, which is recorded in loss on disposal in the consolidated statements of earnings.

The loss on disposal includes the liquidation of the cumulative translation adjustment of $ 1.4 million.

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

Our consolidated revenue for the third quarter of 2022 and 2021 included $ 5.0 million and $ 33.0 million, respectively, from the Russia operations and for September year-to-date 2022 and 2021 included $ 63.4 million and $ 99.3 million, respectively, from the Russia operations.

Our consolidated earnings before taxes for the third quarter of 2022 and 2021 included $ 0.3 million and $ 1.1 million, respectively, from the Russia operations and for September year-to-date 2022 and 2021 included $ 1.4 million and $ 2.4 million, respectively, from the Russia operations.

The major classes of divested assets and liabilities were as follows (in millions of dollars):

Assets divested

Cash and equivalents $ 13.4

Trade accounts receivable, net 22.8

Prepaid expenses and other current assets 0.7

Property and equipment, net 0.7

Deferred taxes 0.4

Other assets 0.3

Assets divested 38.3

Liabilities divested

Accounts payable and accrued liabilities ( 0.6 )

Accrued payroll and related taxes ( 7.3 )

Income and other taxes ( 5.7 )

Liabilities divested ( 13.6 )

Disposal group, net $ 24.7

The amount of goodwill expected to be

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

deductible for tax purposes is approximately $ 27.5 million.

In the third and fourth quarters of 2022, changes in market conditions triggered interim impairment tests for both long-lived assets and goodwill, resulting in the Company recording a goodwill impairment charge of $ 41.0 million.

On July 20, 2022, the Company completed the sale of its Russia operations, which was included in the Company's International operating segment.

Investment in Persol Holdings

9 unchanged sentences

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

The $ 67.2 million loss in the first quarter of 2022 recorded in 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.

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.

As a result, the Company recognized a $ 20.4 million cumulative translation adjustment loss in the first quarter of 2022, which was 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.

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

The dissolution of the Kelly Services Japan, Inc.

subsidiary was completed in the fourth quarter of 2022.

Investment in PersolKelly Pte.

5 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 September year-to-date 2022, representing the results through the date of the sale, and earnings of $ 1.7 million and $ 2.3 million in the third quarter and September 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 third 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 the first quarter of 2022, representing the results through the date of the sale.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 first quarter-end 2023 and year-end 2022.

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 third 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 first quarter-end 2023 and year-end 2022 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 2022

As of First Quarter-End 2023

Description Total Level 1 Level 2 Level 3

1 unchanged sentence

Money market funds $ 54.1 $ 54.1 $ — $ —

Investment in Persol Holdings — — — —

Total assets at fair value $ 54.1 $ 54.1 $ — $ —

Brazil indemnification $ ( 3.5 ) $ — $ — $ ( 3.5 )

Greenwood/Asher earnout ( 3.2 ) — — ( 3.2 )

RocketPower earnout — — — —

Total liabilities at fair value $ ( 3.5 ) $ — $ — $ ( 3.5 )

3 unchanged sentences

Money market funds $ 108.3 $ 108.3 $ — $ —

Investment in Persol Holdings 264.3 264.3 — —

Total assets at fair value $ 108.3 $ 108.3 $ — $ —

2 unchanged sentences

Total liabilities at fair value $ ( 6.7 ) $ — $ — $ ( 6.7 )

Money market funds represent investments in money market funds that hold government securities, of which $ 7.5 million as of third 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 $ 8.8 million as of first quarter-end 2023 and $ 8.6 million as of year-end 2022 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 third 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 first quarter-end 2023 and year-end 2022 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.

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 2023, the Company had an indemnification liability totaling $ 3.5 million with $ 0.3 million in accounts payable and accrued liabilities and $ 3.2 million in other long-term liabilities, and $ 3.4 million at year-end 2022, with $ 0.3 million in accounts payable and accrued liabilities and $ 3.1 million 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.

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

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of third quarter-end 2022, the Company had an indemnification liability totaling $ 3.3 million with $ 0.3 million in accounts payable and accrued liabilities and $ 3.0 million in other long-term liabilities, and $ 2.4 million at year-end 2021, 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.

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.

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 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 $ 3.2 million at third 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 2023 and 2022, the Company recognized an increase of $ 0.1 million and $ 0.5 million, respectively, 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, with a remaining liability of $ 3.3 million at year-end 2022 in accounts payable and accrued 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 was considered a Level 3 liability.

During the first quarter of 2023, the Company paid the remaining earnout liability totaling $ 3.3 million, representing the year two portion of the earnout.

In the consolidated statements of cash flows, $ 1.4 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 earnout liability as of first quarter-end 2023.

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.

During year-to-date 2022, the Company reassessed the value of the earnout liability and determined it was necessary to record an increase to the liability of $ 0.9 million.

The Company recorded an initial earnout liability relating to the 2022 acquisition of RocketPower, totaling $ 0.6 million, 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 and Disposition footnote).

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

In the third quarter of 2022, we reassessed the value of the earnout liability and determined that the fair value was zero .

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

There have been no changes to the value as a result of first quarter 2023 assessments and there is no related liability as of first quarter-end 2023.

The maximum total cash payments which may be due related to the earnout liability is $ 12.9 million, which represents the second year earnout period.

There is no longer a maximum cash payment or liability associated with the first year earnout as the corresponding period has concluded.

Equity Investment Without Readily Determinable Fair Value

3 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 third 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.

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

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

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.

The investment totaled $ 6.4 million as of first quarter-end 2023, representing total cost plus observable price changes to date.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Assets Measured at Fair Value on a Nonrecurring Basis

During the third quarter of 2022, customers within the high-tech industry vertical in which RocketPower specializes reduced or eliminated their full-time hiring, reducing demand for RocketPower’s services, and on-going economic uncertainty has more broadly impacted the growth in demand for RPO in the near-term.

These changes in market conditions therefore caused a triggering event requiring an interim impairment test for both long-lived assets and goodwill.

As a result of the long-lived asset recoverability test for RocketPower’s intangible assets, we determined that undiscounted future cash flows exceeded the carrying amount of the asset group and were recoverable.

As a result of the quantitative assessment for goodwill, we determined that the estimated fair value of the RocketPower reporting unit no longer exceeded the carrying value, and recorded a goodwill impairment charge of $ 30.7 million in the third quarter of 2022 (see Goodwill and Intangible Assets footnote).

Restructuring

In the first quarter of 2023, the Company undertook restructuring actions to further our cost management efforts in response to the current demand levels and reflect a repositioning of our P&I staffing business to better capitalize on opportunities in local markets.

Restructuring costs incurred in the first quarter of 2023 totaled $ 5.7 million and were recorded entirely in selling, general and administrative ("SG&A") expenses in the consolidated statements of earnings, as detailed below (in millions of dollars):

Severance Costs Lease Termination and Other Costs Total

Professional & Industrial $ 2.7 $ 0.3 $ 3.0

Science, Engineering & Technology 0.4 0.1 0.5

Education 0.1 — 0.1

Outsourcing & Consulting 0.6 — 0.6

International 0.6 — 0.6

Corporate 0.2 0.7 0.9

Total $ 4.6 $ 1.1 $ 5.7

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

There were no restructuring charges incurred in the second or third quarter of 2022 or September 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)

Accrual Summary

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):

1 unchanged sentence

Additions charged to Professional & Industrial 3.0

Additions charged to Science, Engineering & Technology 0.5

Additions charged to Outsourcing & Consulting 0.6

Additions charged to Education 0.1

Additions charged to International 0.6

Additions charged to Corporate 0.9

1 unchanged sentence

Balance as of first quarter-end 2023 $ 5.0

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

Accrual adjustments ( 0.2 )

Balance as of second quarter-end 2022 1.3

Reductions for cash payments related to all restructuring activities ( 0.6 )

Balance as of third quarter-end 2022 $ 0.7

The remaining balance of $ 0.7 million as of third quarter-end 2022 primarily represents severance costs, and the majority is expected to be paid by year-end 2022.

The remaining balance of $ 5.0 million as of first quarter-end 2023 primarily represents severance costs, and the majority is expected to be paid by year-end 2023.

No material adjustments are expected to be recorded.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Goodwill and Intangible Assets

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

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

Quarter-End 2022

(In millions of dollars)

Science, Engineering & Technology $ 111.3 $ — $ — $ 111.3

Education 3.5 36.3 — 39.8

Outsourcing & Consulting — 41.0 ( 30.7 ) 10.3

Total $ 114.8 $ 77.3 $ ( 30.7 ) $ 161.4

The goodwill resulting from the acquisition of RocketPower during the first quarter of 2022 was allocated to the OCG reportable segment.

The goodwill resulting from the acquisition of PTS during the second quarter of 2022 was allocated to the Education reportable segment.

(See Additions to Goodwill column in the table above and the Acquisitions and Disposition footnote for more details regarding each acquisition.)

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.

We also perform a qualitative review on a quarterly basis of our long-lived assets, comprised of net property and equipment and definite-lived intangible assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

These changes in market conditions therefore caused a triggering event requiring an interim impairment test for both long-lived assets and goodwill.

RocketPower has definite-lived intangible assets, consisting of trades names, customer relationships and non-compete agreements, which are amortized over their estimated useful lives.

We performed a long-lived asset recoverability test for RocketPower and determined that undiscounted future cash flows exceeded the carrying amount of the asset group and were recoverable.

We performed an interim step one quantitative test for RocketPower’s goodwill and determined that the estimated fair value of the reporting unit no longer exceeded the carrying value.

Based on the result of our interim goodwill impairment test as of third quarter 2022, we recorded a goodwill impairment charge of $ 30.7 million to write off a portion of RocketPower’s goodwill, with $ 10.3 million goodwill remaining in the OCG reportable segment as of third quarter-end 2022.

(See Impairment Adjustments column in the table above.)

In performing the step one quantitative test and consistent with our prior practice, we determined the fair value of the RocketPower reporting unit using the income approach.

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

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

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

Our analysis used the following significant assumptions:

expected future revenue growth rates, profit margins and discount rate.

If current expectations of future revenue and profit margins are not met, or if market factors outside of our control change significantly, including discount rate, and other market factors, then the remaining goodwill of the RocketPower reporting unit may be impaired in the future, resulting in additional goodwill impairment charges.

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 third quarter and September year-to-date 2022 and 2021 are included in the table below.

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the first quarter 2023 and 2022 are included in the table below.

Amounts in parentheses indicate debits.

Third quarter 2022 reclassification adjustments out of accumulated other comprehensive income (loss) related to equity method investment and other, included $ 1.4 million related to the liquidation of the cumulative translation adjustment for the sale of our Russia operations, which was recorded in loss on disposal in the consolidated statements of earnings.

(See Acquisitions and Disposition footnote for more details.) The remaining third quarter 2022 reclassification adjustments out of accumulated other comprehensive income (loss) related to equity method investment and other, were recorded in the other income (expense), net line item in the consolidated statement of earnings.

September year-to-date 2022 reclassification adjustments out of accumulated other comprehensive income (loss) related to the liquidation of the Japan subsidiary, were recorded in loss on currency translation from liquidation of subsidiary in the consolidated statements of earnings.

September year-to-date 2022 reclassification adjustments out of accumulated other comprehensive income (loss) related to equity method investment and other, included $ 1.9 million related to the investment in PersolKelly Pte.

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

(See Investment in PersolKelly Pte.

footnote for more details.)

Third Quarter September Year to Date

2022 2021 2022 2021

First Quarter

(In millions of dollars)

13 unchanged sentences

Total accumulated other comprehensive income (loss) $ ( 6.2 ) $ ( 14.7 )

(1) Amount was recorded in the loss on currency translation from liquidation of subsidiary in the consolidated statements of earnings.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(2) Of the amount included in this line item, $ 1.9 million was recorded in the other income (expense), net in the consolidated statement of earnings related to the investment in PersolKelly Pte.

Ltd., (see Investment in PersolKelly Pte.

footnote for more details).

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 2022 and 2021 follows (in millions of dollars except per share data):

Third Quarter September Year to Date

2022 2021 2022 2021

The reconciliation of basic and diluted earnings (loss) per share on common stock for the first quarter 2023 and 2022 follows (in millions of dollars except per share data):

First Quarter

Net earnings (loss) $ 10.9 $ ( 47.6 )

7 unchanged sentences

Diluted earnings (loss) per share $ 0.29 $ ( 1.23 )

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

Due to our net loss in the third quarter of 2022 and September year-to-date 2022, potentially dilutive shares primarily related to deferred common stock associated with 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 the third quarter of 2022 and September year-to-date 2022.

Dividends paid per share for Class A and Class B common stock were $ 0.075 for the third quarter 2022, $ 0.20 for September year-to-date 2022 and $ 0.05 for the third quarter 2021 and September year-to-date 2021.

Dilutive share awards are related to deferred common stock related to the non-employee directors deferred compensation plan and performance shares for the first quarter of 2023 (see Stock-Based Compensation footnote for a description of performance shares).

Due to our net loss in the first quarter of 2022, potentially dilutive shares primarily related to deferred common stock associated with 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 the first quarter of 2022.

Dividends paid per share for Class A and Class B common stock were $ 0.075 for the first quarter 2023 and $ 0.050 for the first quarter 2022.

In connection with our $ 50.0 million Class A share repurchase program authorized by the Company's board of directors in November 2022, the Company repurchased 1,099,728 shares for $ 18.3 million during the first quarter of 2023.

A total of $ 23.9 million remains available under the share repurchase program.

The repurchase program expires in November 2023.

Stock-Based Compensation

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

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

For September year-to-date 2022, the Company recognized stock compensation expense of $ 5.9 million and a related tax benefit of $ 0.8 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.

Performance Shares

For the first quarter of 2023, the Company recognized stock compensation expense of $ 3.1 million and a related tax benefit of $ 0.3 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.

During the first quarter of 2023, 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.

The payment of performance share awards 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.

The maximum number of performance shares that may be earned is 200 % of the target shares originally granted.

3 unchanged sentences

No dividends are paid on these performance shares.

On February 14, 2023, the Compensation Committee approved the actual performance achievement of one of the financial goals related to the 2021 retention-based grant.

At the same meeting, the Compensation Committee approved a modification to accelerate the vesting for the goal earned, where half of these awards vested immediately upon approval of the results and the remaining half will vest in August 2023, if not forfeited by the recipient.

We accounted for this change as a Type I

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of the status of all nonvested performance shares at target as of third quarter-end 2022 and year-to-date 2022 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.

modification under ASC 718 as the expectation of vesting remained 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 greater than the fair value of the original awards immediately before the modification.

The Company will recognize the remaining stock compensation expense over the remaining portion of the modified service requisite period.

A summary of the status of all nonvested performance shares at target as of first quarter-end 2023 and changes during this period is presented as follows below (in thousands of shares except per share data).

Financial Measure

5 unchanged sentences

Forfeited — —

Vesting adjustment ( 142 ) 24.45

Nonvested at third quarter-end 2022 692 $ 19.41

Nonvested at first quarter-end 2023 830 $ 17.38

Restricted Stock

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

The changes in the table below primarily relate to activity from the first and second quarters of 2022.

A summary of the status of nonvested restricted stock as of first quarter-end 2023 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 ( 15 ) 20.97

Nonvested at third quarter-end 2022 611 $ 20.39

Nonvested at first quarter-end 2023 859 $ 18.62

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.

1 unchanged sentence

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.

as such, the resulting gain on the sale of the property was $ 0.9 million, which was 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

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 third quarter-end 2022 is $ 4.7 million, which is less than the sales price in the purchase agreement, less estimated costs to sell.

The Company has presented these assets as current assets held for sale in the consolidated balance sheet as of third quarter-end 2022.

On October 31, 2022, the sale of the property was completed and the Company received proceeds of $ 5.6 million, net of commissions and transaction expenses.

Other Income (Expense), Net

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

Third Quarter September Year to Date

2022 2021 2022 2021

Included in other income (expense), net for the first quarter 2023 and 2022 are the following:

First Quarter

(In millions of dollars)

1 unchanged sentence

Interest expense ( 0.8 ) ( 0.6 )

Dividend income — — — 1.0

Foreign exchange gains (losses) ( 0.7 ) 4.7

1 unchanged sentence

Other income (expense), net $ 2.0 $ 2.8

Included in Other for September 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 September year-to-date 2022 is a $ 5.5 million foreign exchange gain on a U.S.

Included in Other for the first quarter of 2023 is a gain of $ 2.0 million for the receipt of final proceeds in connection with our investment in Business Talent Group, LLC that was sold in 2021.

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 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 benefit was $ 5.0 million for the third quarter of 2022 and income tax expense was $ 11.1 million for the third quarter of 2021.

Income tax benefit was $ 13.1 million for September year-to-date 2022 and income tax expense was $ 19.0 million for September year-to-date 2021.

The third quarter and September year-to-date 2022 amounts were impacted by changes in earnings from operations and from non-taxable returns on life insurance policies.

The second quarter of 2021 also benefited $ 5.2 million from a change in United Kingdom tax rates.

Income tax expense was $ 1.8 million for the first quarter of 2023 and income tax benefit was $ 13.0 million for the first quarter of 2022.

The quarterly amounts are impacted by changes in earnings from operations.

The first quarter 2022 amounts were also impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in a benefit of $ 18.4 million.

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, 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.

Sustained profitability of our German business makes release of its $ 5.7 million valuation allowance possible in the near term.

KELLY SERVICES, INC.

5 unchanged sentences

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

At third quarter-end 2022 and year-end 2021, the gross accrual for litigation costs amounted to $ 5.6 million and $ 1.4 million, respectively.

At first quarter-end 2023 and year-end 2022, the gross accrual for litigation costs amounted to $ 4.7 million and $ 2.3 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 and other assets in the consolidated balance sheet.

At third quarter-end 2022, the related insurance receivables amounted to $ 2.7 million.

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

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is $ 0.5 million to $ 4.0 million as of third quarter-end 2022.

At both first quarter-end 2023 and year-end 2022, the related insurance receivables amounted to $ 0.6 million.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is $ 0.1 million to $ 2.8 million as of first quarter-end 2023.

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.

10 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 third quarter and September year-to-date 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.

Third Quarter September Year to Date

2022 2021 2022 2021

First Quarter

(In millions of dollars)

10 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Third Quarter September Year to Date

2022 2021 2022 2021

First Quarter

(In millions of dollars)

11 unchanged sentences

Outsourcing & Consulting SG&A expenses ( 40.5 ) ( 34.3 )

Goodwill impairment charge ( 30.7 ) — ( 30.7 ) —

Outsourcing & Consulting earnings (loss) from operations 1.1 3.0

3 unchanged sentences

Corporate ( 26.4 ) ( 24.5 )

Loss on disposal ( 0.2 ) — ( 18.7 ) —

Gain on sale of assets — — 5.3 —

Consolidated Total 10.7 23.4

Gain (loss) on investment in Persol Holdings — 35.5 ( 67.2 ) 71.8

Loss on investment in Persol Holdings — ( 67.2 )

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

1 unchanged sentence

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate $ 12.7 $ ( 61.4 )

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

2022 2021 2022 2021

First Quarter

(In millions of dollars)

5 unchanged sentences

International 0.4 0.5

New Accounting Pronouncements

Recently Adopted

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.

The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted.

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

In December 2019, the FASB issued ASU 2019-12 simplifying various aspects related to the accounting for income taxes.

The guidance removes exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted.

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 Event

On November 9, 2022, the Company's board of directors approved a plan for the Company to repurchase shares of its Class A common stock with a market value not to exceed $ 50.0 million through transactions executed in the open market within one year.

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