What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-10 compared with 2023-05-11 · 205 added, 105 removed, 551 unchanged (36% of the section changed)

4 unchanged sentences

(In millions of dollars except per share data)

13 Weeks Ended

2023 April 3,

13 Weeks Ended 26 Weeks Ended

Revenue from services $ 1,217.2 $ 1,267.3 $ 2,485.5 $ 2,563.7

2 unchanged sentences

Selling, general and administrative expenses 232.0 240.1 475.4 476.2

Asset impairment charge 2.4 18.5 2.4 18.5

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

Earnings (loss) from operations 10.7 23.4

Earnings from operations 6.2 8.2 16.9 31.6

Loss on investment in Persol Holdings — — — ( 67.2 )

1 unchanged sentence

Other income (expense), net ( 0.6 ) ( 1.1 ) 1.4 1.7

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

Earnings (loss) before taxes and equity in net earnings of affiliate 5.6 7.1 18.3 ( 54.3 )

Income tax expense (benefit) ( 1.9 ) 4.9 ( 0.1 ) ( 8.1 )

Net earnings (loss) before equity in net earnings (loss) of affiliate 10.9 ( 48.4 )

Equity in net earnings (loss) of affiliate — 0.8

Net earnings (loss) before equity in net earnings of affiliate 7.5 2.2 18.4 ( 46.2 )

Equity in net earnings of affiliate — — — 0.8

Net earnings (loss) $ 7.5 $ 2.2 $ 18.4 $ ( 45.4 )

9 unchanged sentences

(In millions of dollars)

13 Weeks Ended

2023 April 3,

13 Weeks Ended 26 Weeks Ended

Net earnings (loss) $ 7.5 $ 2.2 $ 18.4 $ ( 45.4 )

Other comprehensive income (loss), net of tax:

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

Foreign currency translation adjustments, net of tax benefit of $0.1, tax expense of $0.0, tax benefit of $0.1 and tax expense of $0.1, respectively 2.8 1.3 5.1 ( 8.6 )

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

66 unchanged sentences

(In millions of dollars)

13 Weeks Ended

2023 April 3,

13 Weeks Ended 26 Weeks Ended

Capital Stock

39 unchanged sentences

26 Weeks Ended

2023 April 3,

Cash flows from operating activities:

1 unchanged sentence

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

Asset impairment charge 2.4 18.5

Depreciation and amortization 17.2 16.1

7 unchanged sentences

Gain on sale of assets — ( 5.3 )

Equity in net (earnings) loss of PersolKelly Pte.

Equity in net earnings of PersolKelly Asia Pacific — ( 0.8 )

Other, net 0.5 2.9

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

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

Changes in operating assets and liabilities, net of acquisition ( 27.5 ) ( 190.3 )

Net cash from (used in) operating activities 23.4 ( 107.3 )

Cash flows from investing activities:

1 unchanged sentence

Proceeds from sale of assets — 4.5

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

Acquisition of company, net of cash received — ( 143.1 )

Proceeds from company-owned life insurance — 1.5

Proceeds from sale of Persol Holdings investment — 196.9

22 unchanged sentences

26 Weeks Ended

2023 April 3,

Reconciliation of cash, cash equivalents and restricted cash:

1 unchanged sentence

Cash and cash equivalents $ 124.8 $ 133.9

Cash included in assets held for sale — 12.2

Restricted cash included in prepaid expenses and other current assets 0.7 0.6

13 unchanged sentences

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.

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

The corresponding June year-to-date periods for 2023 and 2022 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.

9 unchanged sentences

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

First Quarter

Second Quarter June Year to Date

2023 2022 2023 2022

Professional & Industrial

29 unchanged sentences

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

First Quarter

Second Quarter June Year to Date

2023 2022 2023 2022

United States $ 892.4 $ 928.9 $ 1,851.6 $ 1,885.5

17 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

2023 2022 2023 2022

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 $ 1.9 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 .

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 2.2 million as of second quarter-end 2023 and $ 2.7 million as of year-end 2022.

Amortization expense for the deferred costs in the second quarter and June year-to-date 2023 was $ 1.4 million and $ 3.8 million, respectively.

Amortization expense for the deferred costs in the second quarter and June year-to-date 2022 was $ 1.9 million and $ 3.8 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 $ 7.7 $ 8.4

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.

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

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

KELLY SERVICES, INC.

9 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 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):

Total consideration included $ 1.1 million of additional consideration that was payable to the seller related to employee retention credits and was 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 remaining $ 1.0 million was paid in the second quarter of 2023.

There is no remaining liability related to the additional consideration as of second quarter-end 2023.

The total consideration at the time of purchase was as follows (in millions of dollars):

Cash consideration paid $ 85.7

1 unchanged sentence

Total consideration $ 86.8

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

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

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

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

Our consolidated revenues for the second quarter and June year-to-date 2023 included $ 12.7 million and $ 28.5 million, respectively, from PTS.

Our consolidated earnings from operations for the second quarter and June year-to-date 2023 included $ 1.8 million and $ 4.5 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.

5 unchanged sentences

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 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.

Total consideration included $ 1.1 million of additional consideration that was payable to the seller in 2023 related to employee retention credits and was settled in the second quarter of 2023 and there is no remaining liability.

The total consideration also included 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):

The total consideration at the time of purchase was as follows (in millions of dollars):

Cash consideration paid $ 61.8

4 unchanged sentences

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

Our consolidated revenues for June year-to-date 2023 included $ 4.6 million from RocketPower

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

deductible for tax purposes is approximately $ 27.5 million.

and our consolidated earnings from operations for June year-to-date 2023 included a loss of $ 3.9 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 $ 27.0 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.

22 unchanged sentences

Investment in PersolKelly Pte.

Prior to February 2022, the Company had a 49 % ownership interest in the JV (see Investment in Persol Holdings footnote above), a staffing services business operating in ten geographies in the Asia-Pacific region.

Prior to February 2022, the Company had a 49 % ownership interest in the JV (see Investment in Persol Holdings footnote above), a staffing services business currently operating in ten geographies in the Asia-Pacific region.

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

2 unchanged sentences

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

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

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 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, representing the results through the date of the sale.

4 unchanged sentences

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.

The equity investment, included in other assets on the Company’s consolidated balance sheet, totaled $ 6.4 million as of second 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 first quarter-end 2023 and year-end 2022 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 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 First Quarter-End 2023

As of Second Quarter-End 2023

Description Total Level 1 Level 2 Level 3

12 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 $ 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.

Money market funds represent investments in money market funds that hold government securities, of which $ 8.9 million as of second 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 first quarter-end 2023 and year-end 2022 are included in cash and equivalents in the consolidated balance sheet.

The remaining money market funds as of second 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.

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 of second quarter-end 2023, the Company had an indemnification liability totaling $ 3.1 million with $ 0.1 million in accounts payable and accrued liabilities and $ 3.0 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.

6 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 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 made a $ 0.4 million payment to settle various indemnification claims in the second quarter of 2023.

During June year-to-date 2023 and 2022, the Company recognized an increase of $ 0.3 million and $ 0.1 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.

2 unchanged sentences

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.

There is no remaining earnout liability as of second 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.

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 as of first quarter-end 2022 (see Acquisitions and Disposition 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 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 as of second quarter-end 2022 (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 .

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.

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

5 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 2023, representing total cost plus observable price changes to date.

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

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Restructuring

Restructuring and Transformation Activities

In the second quarter of 2023, the Company announced a comprehensive transformation initiative that includes actions that will further streamline the Company's operating model to enhance organizational efficiency and effectiveness.

The total costs incurred related to these transformation activities in the second quarter of 2023 totaled $ 8.0 million.

The transformation activities included $ 4.5 million of costs to execute the transformation initiatives through the use of an external consultant, a $ 2.4 million impairment charge for right-of-use assets related to an unoccupied office space lease and additional severance of $ 1.1 million, net of adjustments.

The impairment charge related to the right-of-use assets is recorded in the asset impairment charge in the consolidated statements of earnings.

The costs to execute and severance are included in the $ 5.6 million of restructuring costs incurred in the second quarter of 2023, net of prior period adjustments, and are recorded in selling, general and administrative ("SG&A") expenses in the consolidated statements of earnings, as detailed further below.

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

Restructuring costs incurred in the first quarter of 2023 totaled $ 6.6 million and were recorded entirely in SG&A expenses in the consolidated statements of earnings.

The restructuring costs included in SG&A are detailed below for the second quarter and June year-to-date 2023 (in millions of dollars):

Second Quarter June Year to Date

Costs Lease Termination Costs,

Transformation

and Other Total Severance

Costs Lease Termination Costs,

Transformation

and Other Total

Professional & Industrial $ 0.3 $ — $ 0.3 $ 3.0 $ 0.3 $ 3.3

5 unchanged sentences

Total $ 1.1 $ 4.5 $ 5.6 $ 5.7 $ 6.5 $ 12.2

Subsequent to the second quarter of 2023, the Company announced strategic restructuring actions as part of the comprehensive transformation initiative.

The actions will build on strategic progress to monetize non-core assets, reinvest capital in organic and inorganic growth initiatives, and shift to higher-margin, higher-growth business mix.

The expected range for the restructuring charges to be incurred in the third quarter of 2023 as a result of these actions is $ 7.5 million to $ 8.5 million.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

There were no restructuring charges in the second quarter of 2022.

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

1 unchanged sentence

Balance as of year-end 2022 $ 0.3

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

Reductions for cash payments related to all restructuring activities ( 1.0 )

Reductions for cash payments ( 1.0 )

Balance as of first quarter-end 2023 5.9

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.

Reductions for cash payments ( 3.0 )

Accrual adjustments ( 0.3 )

Balance as of second quarter-end 2023 $ 8.5

The remaining balance of $ 8.5 million as of second quarter-end 2023 primarily represents the costs to execute the transformation initiatives and 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)

Accumulated Other Comprehensive Income (Loss)

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.

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the second quarter and June year-to-date 2023 and 2022 are included in the table below.

Amounts in parentheses indicate debits.

First Quarter

Second Quarter June Year to Date

2023 2022 2023 2022

(In millions of dollars)

14 unchanged sentences

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

KELLY SERVICES, INC.

AND SUBSIDIARIES

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.

1 unchanged sentence

footnote for more details).

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Earnings (Loss) Per Share

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

The reconciliation of basic and diluted earnings (loss) per share on common stock for the second quarter and June year-to-date 2023 and 2022 follows (in millions of dollars except per share data):

Second Quarter June Year to Date

2023 2022 2023 2022

Net earnings (loss) $ 7.5 $ 2.2 $ 18.4 $ ( 45.4 )

7 unchanged sentences

Diluted earnings (loss) per share $ 0.20 $ 0.06 $ 0.49 $ ( 1.19 )

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.

Dilutive share awards are related to deferred common stock related to the non-employee directors deferred compensation plan and performance shares for the second quarter of 2023 and 2022 and June year-to-date 2023 (see Stock-Based Compensation footnote for a description of performance shares).

Due to our net loss in June 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 June year-to-date 2022 .

Dividends paid per share for Class A and Class B common stock were $ 0.075 for the second quarter of 2023 and 2022, $ 0.15 for June year-to-date 2023 and $ 0.125 for June year-to-date 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 982,565 shares for $ 16.5 million during the second quarter of 2023 and 2,082,293 shares for $ 34.8 million through June year-to-date 2023.

A total of $ 7.4 million remains available under the share repurchase program.

1 unchanged sentence

Stock-Based Compensation

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.

For the second quarter of 2023, the Company recognized stock compensation expense of $ 2.5 million and a related tax benefit of $ 0.4 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 June year-to-date 2023, the Company recognized stock compensation expense of $ 5.6 million and a related tax benefit of $ 0.7 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.

Performance Shares

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.

6 unchanged sentences

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

At the same meeting, the Compensation Committee approved a modification to

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

modification under ASC 718 as the expectation of vesting remained probable-to-probable post modification.

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 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).

On August 9, 2023, the Compensation Committee approved the actual performance achievement of one of the financial goals related to the 2021 retention-based grant.

We will account for this change as a Type I modification under ASC 718 as the expectation of vesting remained probable-to-probable post modification.

The Company will 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 second quarter-end 2023 and year-to-date changes is presented as follows below (in thousands of shares except per share data).

Financial Measure

5 unchanged sentences

Forfeited ( 35 ) 16.62

Nonvested at first quarter-end 2023 830 $ 17.38

Nonvested at second quarter-end 2023 795 $ 17.41

Restricted Stock

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).

A summary of the status of nonvested restricted stock as of second quarter-end 2023 and year-to-date changes is presented as follows below (in thousands of shares except per share data).

Shares Weighted Average Grant Date Fair Value

3 unchanged sentences

Forfeited ( 71 ) 19.13

Nonvested at first quarter-end 2023 859 $ 18.62

Nonvested at second quarter-end 2023 780 $ 18.62

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Sale of Assets

In June 2022, the Company sold an under-utilized real property for a purchase price of $ 4.5 million, which was 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 was 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.

2 unchanged sentences

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.

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 was included in the Company's International operating segment.

As of the date of the agreement and until closing of the sale, the disposal group was 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 met the classification as held for sale were $ 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 was $ 7.3 million.

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

The impairment charge included $ 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 did 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 included $ 0.7 million from the Russia operations and for June year-to-date 2022 included $ 1.1 million from the Russia operations.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The major classes of assets and liabilities of the disposal group that met the classification of held for sale as of July 3, 2022 were 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 included $ 12.2 million of cash that was included in the disposal group.

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

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

The assets and liabilities were 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 included 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 was $ 4.7 million, which was less than the sales price in the purchase agreement, less estimated costs to sell.

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

The sale was completed in the fourth quarter of 2022 and the Company received proceeds of $ 5.6 million, net of commissions and transaction expense.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other Income (Expense), Net

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

First Quarter

Included in other income (expense), net for the second quarter and June year-to-date 2023 and 2022 are the following:

Second Quarter June Year to Date

2023 2022 2023 2022

(In millions of dollars)

4 unchanged sentences

Other income (expense), net $ ( 0.6 ) $ ( 1.1 ) $ 1.4 $ 1.7

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.

Included in Other for June year-to-date 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 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).

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.

Income ta x benefit was $ 1.9 million for the second quarter of 2023 and income tax expense was $ 4.9 million for the second quarter of 2022.

Income tax benefit was $ 0.1 million for June year-to-date 2023 and $ 8.1 million for June year-to-date 2022.

The quarterly variance primarily relates to changes in the cash surrender value of tax-exempt investments in life insurance policies, and non-deductible impairment charges on our Russian investment in the second quarter of 2022.

The year-to-date amounts are impacted by the same items, along with changes in earnings from operations and changes in the fair value of the Company's investment in Persol Holdings during 2022.

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

10 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 2023 and year-end 2022, the gross accrual for litigation costs amounted to $ 4.7 million and $ 2.3 million, respectively.

At second quarter-end 2023 and year-end 2022, the gross accrual for litigation costs amounted to $ 5.2 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 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.

At second quarter-end 2023 and year-end 2022, the related insurance receivables amounted to $ 0.2 million and $ 0.6 million, respectively.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is zero to $ 6.8 million as of second 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 first quarter 2023 and 2022.

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 of affiliate, for the second quarter and June year-to-date 2023 and 2022.

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

2023 2022 2023 2022

(In millions of dollars)

10 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

First Quarter

Second Quarter June Year to Date

2023 2022 2023 2022

(In millions of dollars)

Earnings (loss) from Operations:

Earnings from Operations:

Professional & Industrial gross profit $ 65.1 $ 77.8 $ 134.9 $ 160.9

Professional & Industrial SG&A expenses ( 58.6 ) ( 67.4 ) ( 126.1 ) ( 138.8 )

Professional & Industrial earnings (loss) from operations 2.3 11.7

Professional & Industrial asset impairment charge ( 0.3 ) — ( 0.3 ) —

Professional & Industrial earnings from operations 6.2 10.4 8.5 22.1

Science, Engineering & Technology gross profit 68.1 75.2 139.4 149.0

Science, Engineering & Technology SG&A expenses ( 50.0 ) ( 54.8 ) ( 102.8 ) ( 108.0 )

Science, Engineering & Technology earnings (loss) from operations 18.5 20.6

Science, Engineering & Technology asset impairment charge ( 0.1 ) — ( 0.1 ) —

Science, Engineering & Technology earnings from operations 18.0 20.4 36.5 41.0

Education gross profit 32.5 26.0 71.8 52.6

Education SG&A expenses ( 23.1 ) ( 20.4 ) ( 46.9 ) ( 39.0 )

Education earnings (loss) from operations 15.5 8.0

Education earnings from operations 9.4 5.6 24.9 13.6

Outsourcing & Consulting gross profit 41.3 46.2 82.9 83.5

Outsourcing & Consulting SG&A expenses ( 37.7 ) ( 39.8 ) ( 78.2 ) ( 74.1 )

Outsourcing & Consulting earnings (loss) from operations 1.1 3.0

Outsourcing & Consulting asset impairment charge ( 2.0 ) — ( 2.0 ) —

Outsourcing & Consulting earnings from operations 1.6 6.4 2.7 9.4

International gross profit 33.6 37.2 65.7 75.0

International SG&A expenses ( 32.6 ) ( 34.6 ) ( 65.0 ) ( 67.8 )

International earnings (loss) from operations ( 0.3 ) 4.6

International earnings from operations 1.0 2.6 0.7 7.2

Corporate ( 30.0 ) ( 23.1 ) ( 56.4 ) ( 48.5 )

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

Gain on sale of assets — 4.4 — 5.3

Consolidated Total 6.2 8.2 16.9 31.6

2 unchanged sentences

Other income (expense), net ( 0.6 ) ( 1.1 ) 1.4 1.7

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

Earnings (loss) before taxes and equity in net earnings of affiliate $ 5.6 $ 7.1 $ 18.3 $ ( 54.3 )

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

2023 2022 2023 2022

(In millions of dollars)

6 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements