What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-10 · 181 added, 145 removed, 611 unchanged (35% of the section changed)

5 unchanged sentences

13 Weeks Ended 39 Weeks Ended

2023 October 2,

2022 October 1,

2023 October 2,

Revenue from services $ 1,118.0 $ 1,167.9 $ 3,603.5 $ 3,731.6

3 unchanged sentences

Asset impairment charge — — 2.4 —

Goodwill impairment charge — 30.7 — 30.7

Loss on disposal — 0.2 — 18.7

Gain on sale of assets — — — ( 5.3 )

Earnings from operations 6.2 8.2 16.9 31.6

Earnings (loss) from operations 0.1 ( 21.4 ) 17.0 10.2

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

17 unchanged sentences

13 Weeks Ended 39 Weeks Ended

2023 October 2,

2022 October 1,

2023 October 2,

Net earnings (loss) $ 6.6 $ ( 16.2 ) $ 25.0 $ ( 61.6 )

Other comprehensive income (loss), net of tax:

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 )

Foreign currency translation adjustments, net of tax benefit of $0.0, $0.1, $0.1, and tax expense of $0.0, respectively ( 4.3 ) ( 8.8 ) 0.8 ( 17.4 )

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

67 unchanged sentences

13 Weeks Ended 39 Weeks Ended

2023 October 2,

2022 October 1,

2023 October 2,

Capital Stock

39 unchanged sentences

39 Weeks Ended

2023 October 2,

Cash flows from operating activities:

2 unchanged sentences

Asset impairment charge 2.4 —

Goodwill impairment charge — 30.7

Deferred income taxes on goodwill impairment charge — ( 5.3 )

Loss on disposal — 18.7

Depreciation and amortization 25.6 24.7

15 unchanged sentences

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

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

Proceeds from company-owned life insurance — 1.5

11 unchanged sentences

Contingent consideration payments ( 2.5 ) ( 0.7 )

Other financing activities ( 0.2 ) 0.1

Net cash used in financing activities ( 56.6 ) ( 37.4 )

10 unchanged sentences

39 Weeks Ended

2023 October 2,

Reconciliation of cash, cash equivalents and restricted cash:

1 unchanged sentence

Cash and cash equivalents $ 117.2 $ 122.4

Cash included in assets held for sale — 12.2

Restricted cash included in prepaid expenses and other current assets 0.9 0.8

13 unchanged sentences

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

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.

The Company’s third fiscal quarter ended on October 1, 2023 and October 2, 2022, each of which contained 13 weeks.

The corresponding September year-to-date periods for 2023 and 2022 each contained 39 weeks.

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

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

Second Quarter June Year to Date

Third Quarter September Year to Date

2023 2022 2023 2022

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

Second Quarter June Year to Date

Third Quarter September Year to Date

2023 2022 2023 2022

5 unchanged sentences

Switzerland 57.0 55.2 165.9 165.5

France 50.2 50.4 98.0 105.0

Portugal 48.6 41.9 142.3 125.8

France 47.0 45.8 145.0 150.8

Italy 16.1 16.4 49.5 54.3

9 unchanged sentences

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

Second Quarter June Year to Date

Third Quarter September Year to Date

2023 2022 2023 2022

13 unchanged sentences

Deferred Costs

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.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 3.3 million as of third quarter-end 2023 and $ 2.7 million as of year-end 2022.

Amortization expense for the deferred costs in the third quarter and September year-to-date 2023 was $ 1.7 million and $ 5.5 million, respectively.

Amortization expense for the deferred costs in the third quarter and September year-to-date 2022 was $ 3.2 million and $ 7.0 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):

June Year to Date

September Year to Date

Allowance for credit losses:

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Ending balance $ 7.7 $ 8.5

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.

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

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

KELLY SERVICES, INC.

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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.

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

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

4 unchanged sentences

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

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.

Our consolidated revenues for September year-to-date 2023 included $ 37.4 million from PTS.

Our consolidated earnings from operations for September year-to-date 2023 included $ 5.2 million 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.

13 unchanged sentences

Total consideration $ 63.5

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

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

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

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

Our consolidated revenues for September year-to-date 2023 included $ 5.8 million from

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

RocketPower and our consolidated earnings from operations for September year-to-date 2023 included a loss of $ 4.5 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.

2 unchanged sentences

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

The Company received cash proceeds of $ 7.4 million, which was 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 was $ 18.7 million, resulting from an additional $ 0.2 million loss on the transaction in the third quarter of 2022, which was 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 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 did not represent a strategic shift in the Company's strategy.

Our consolidated earnings before taxes for the third quarter and September year-to-date 2022 included $ 0.3 million and $ 1.4 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

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Investment in Persol Holdings

27 unchanged sentences

Such amounts were earnings of $ 0.8 million in the first quarter of 2022, representing the results through the date of the sale.

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 2023 and year-end 2022.

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 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 second 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 third 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 Second Quarter-End 2023

As of Third 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 $ 8.9 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.

Money market funds represent investments in money market funds that hold government securities, of which $ 8.3 million as of third 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 second 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 third 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 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 of third quarter-end 2023, the Company had an indemnification liability totaling $ 2.9 million with $ 0.1 million in accounts payable and accrued liabilities and $ 2.8 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

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

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

The Company made a $ 0.6 million payment to settle various indemnification claims in the second quarter of 2023.

During September year-to-date 2023 and 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.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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 second quarter-end 2023.

There is no remaining earnout liability as of third quarter-end 2023.

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

4 unchanged sentences

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 second quarter 2023 assessments and there is no related liability as of second quarter-end 2023.

There have been no changes to the value as a result of third quarter 2023 assessments and there is no related liability as of third 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 second quarter-end 2023, representing total cost plus observable price changes to date.

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

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).

KELLY SERVICES, INC.

2 unchanged sentences

Restructuring and Transformation Activities

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 $ 6.6 million and were recorded entirely in selling, general and administrative ("SG&A") expenses in the consolidated statements of earnings.

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.

2 unchanged sentences

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.

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

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 SG&A expenses in the consolidated statements of earnings, as detailed further below.

In the third quarter of 2023, the Company incurred $ 15.4 million of restructuring charges and transformation fees as a continuation of the actions that were announced in the second quarter of 2023 as part of the comprehensive transformation initiative.

The third quarter transformation activities include $ 10.4 million of additional severance, $ 4.5 million of costs to execute the transformation through the use of an external consultant, and $ 0.5 million of lease termination costs.

The severance, costs to execute, and lease termination costs are recorded in SG&A expenses in the consolidated statements of earnings.

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

Third Quarter September Year to Date

Costs Lease Termination Costs,

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Total $ 10.4 $ 5.0 $ 15.4 $ 16.1 $ 11.5 $ 27.6

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.

2 unchanged sentences

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.

There were no restructuring charges in the second or third quarters 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):

13 unchanged sentences

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.

Accruals 15.4

Reductions for cash payments ( 13.0 )

Accrual adjustments and write-offs ( 0.3 )

Balance as of third quarter-end 2023 $ 10.6

The remaining balance of $ 10.6 million as of third quarter-end 2023 primarily represents the costs to execute the transformation initiatives and severance costs, and the majority is expected to be paid by first quarter-end 2024.

No material adjustments are expected to be recorded.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Goodwill and Intangible Assets

As of third quarter-end 2023, there were no changes in the carrying amount of goodwill from year-end 2022.

2022 Goodwill Impairment

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.

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

(See Acquisitions and Disposition footnote for more details.)

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, and subsequently wrote-off the remaining goodwill balance of $ 10.3 million in the fourth quarter of 2022.

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.

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 second quarter and June year-to-date 2023 and 2022 are included in the table below.

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

Amounts in parentheses indicate debits.

Second Quarter June Year to Date

Third Quarter September Year to Date

2023 2022 2023 2022

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Earnings (Loss) Per Share

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

Second Quarter June Year to Date

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

Third Quarter September Year to Date

2023 2022 2023 2022

8 unchanged sentences

Diluted earnings (loss) per share $ 0.18 $ ( 0.43 ) $ 0.67 $ ( 1.62 )

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.

The repurchase program expires in November 2023.

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

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.

Accordingly, the impact of these shares 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 of 2023 and 2022, $ 0.225 for September year-to-date 2023 and $ 0.20 for September year-to-date 2022.

In November 2022, the Company's board of directors authorized a $ 50.0 million Class A share repurchase program, which was completed in August 2023.

During the third quarter of 2023 and through September year-to-date 2023, the Company repurchased 414,534 shares for $ 7.4 million and 2,496,827 shares for $ 42.2 million, respectively.

A total of 2,971,471 shares were repurchased under the share repurchase program at an average price of $ 16.83 per share.

Stock-Based Compensation

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.

For the third quarter of 2023, the Company recognized stock compensation expense of $ 2.3 million and a related tax benefit of $ 0.4 million.

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 September year-to-date 2023, the Company recognized stock compensation expense of $ 7.9 million and a related tax benefit of $ 1.1 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.

Performance Shares

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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

KELLY SERVICES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

In December 2021, the Compensation Committee approved an additional retention-based grant of 308,000 financial measure performance awards to certain senior officers which may be earned upon achievement of three financial goals over a performance period beginning in fiscal 2022 through the third quarter of 2024, with each goal having a unique projected achievement date.

Each goal can be earned independent of the other two goals.

Any shares earned during the performance period will cliff-vest three years after achievement of the respective performance goals and approval of the financial results by the Compensation Committee.

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 vested 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.

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

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.

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 February 2024, if not forfeited by the recipient.

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.

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 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).

A summary of the status of all nonvested performance shares at target as of third 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 ( 39 ) 16.88

Nonvested at second quarter-end 2023 795 $ 17.41

Nonvested at third quarter-end 2023 699 $ 17.48

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Restricted Stock

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).

A summary of the status of nonvested restricted stock as of third 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 ( 104 ) 19.21

Nonvested at second quarter-end 2023 780 $ 18.62

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Nonvested at third quarter-end 2023 808 $ 18.50

Sale of Assets

7 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.

AND SUBSIDIARIES

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 second quarter and June year-to-date 2023 and 2022 are the following:

Second Quarter June Year to Date

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

Third Quarter September Year to Date

2023 2022 2023 2022

5 unchanged sentences

Other income (expense), net $ 1.6 $ 0.2 $ 3.0 $ 1.9

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.

Included in Other for September 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 foreign exchange gains (losses) for September 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 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.

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).

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Income ta x benefit was $ 4.9 million for the third quarter of 2023 and $ 5.0 million for the third quarter of 2022.

Income tax benefit was $ 5.0 million for September year-to-date 2023 and $ 13.1 million for September year-to-date 2022.

The quarterly variance primarily relates to changes in pretax income, in the cash surrender value of tax-exempt investments in life insurance policies, and from the release of $ 5.1 million valuation allowance relating to our German business in the third quarter of 2023.

The year-to-date amounts are impacted by the same items, along with non-deductible impairment charges on our Russian operations in the second quarter of 2022 and changes in the fair value of the Company's investment in Persol Holdings in the first quarter of 2022.

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

2 unchanged sentences

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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Contingencies

2 unchanged sentences

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

At second quarter-end 2023 and year-end 2022, the gross accrual for litigation costs amounted to $ 5.2 million and $ 2.3 million, respectively.

At third 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 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.

At third 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 third 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 of affiliate, for the second quarter and June year-to-date 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 third quarter and September 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.

Second Quarter June Year to Date

Third Quarter September Year to Date

2023 2022 2023 2022

11 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Second Quarter June Year to Date

Third Quarter September Year to Date

2023 2022 2023 2022

(In millions of dollars)

Earnings from Operations:

Earnings (loss) from Operations:

Professional & Industrial gross profit $ 65.5 $ 70.3 $ 200.4 $ 231.2

8 unchanged sentences

Education SG&A expenses ( 22.4 ) ( 21.4 ) ( 69.3 ) ( 60.4 )

Education earnings from operations 9.4 5.6 24.9 13.6

Education earnings (loss) from operations ( 2.6 ) ( 4.8 ) 22.3 8.8

Outsourcing & Consulting gross profit 41.5 44.1 124.4 127.6

1 unchanged sentence

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

Outsourcing & Consulting earnings from operations 1.6 6.4 2.7 9.4

Outsourcing & Consulting goodwill impairment charge — ( 30.7 ) — ( 30.7 )

Outsourcing & Consulting earnings (loss) from operations 2.5 ( 24.3 ) 5.2 ( 14.9 )

International gross profit 33.7 33.3 99.4 108.3

2 unchanged sentences

Corporate ( 30.3 ) ( 21.9 ) ( 86.7 ) ( 70.4 )

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

Loss on disposal — ( 0.2 ) — ( 18.7 )

Gain on sale of assets — — — 5.3

8 unchanged sentences

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

Second Quarter June Year to Date

Third Quarter September Year to Date

2023 2022 2023 2022

6 unchanged sentences

International 0.4 0.3 1.2 1.3

Subsequent Events

On November 2, 2023, the Company entered into a definitive agreement for the sale and purchase of all outstanding share capital of Kelly Services Management SARL, which will result in the sale of Kelly’s European staffing business to Gi Group Holdings S.P.A.

(“Gi”), one of the largest staffing companies in Europe.

The transaction is expected to close in the first quarter of 2024, subject to receipt of required regulatory approvals and other customary closing conditions.

Kelly will receive cash proceeds at close equal to € 100 million plus adjustments for net working capital and to reflect the cash-free, debt-free transaction basis.

There is an additional earnout opportunity of up to € 30 million payable in the second quarter of 2024 based on a multiple of an adjusted 2023 EBITDA measure.

As of third quarter-end 2023, the disposal group did not meet the criteria to be classified as held for sale and continues to be accounted for as held for use.

Deferred taxes and valuation allowance impacts will be recorded when the disposal group meets the criteria to be accounted for as held for sale which we currently expect to occur in the fourth quarter of 2023.

Concurrently, on November 2, 2023, the Company entered into a foreign currency forward contract with a notional amount of € 90 million which matures at the end of January 2024 to manage the foreign currency risk associated with the transaction.

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