What changed in this filing

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Item 1. Financial Statements

2024-05-09 compared with 2023-11-09 · 231 added, 370 removed, 422 unchanged (59% of the section changed)

4 unchanged sentences

(In millions of dollars except per share data)

13 Weeks Ended 39 Weeks Ended

2023 October 2,

2022 October 1,

2023 October 2,

13 Weeks Ended

2024 April 2,

Revenue from services $ 1,045.1 $ 1,268.3

2 unchanged sentences

Selling, general and administrative expenses 190.5 243.4

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 (loss) from operations 0.1 ( 21.4 ) 17.0 10.2

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

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

Gain on sale of EMEA staffing operations ( 11.6 ) —

Earnings from operations 26.8 10.7

Gain on forward contract 1.2 —

Other income (expense), net 1.8 2.0

Earnings (loss) before taxes and equity in net earnings of affiliate 1.7 ( 21.2 ) 20.0 ( 75.5 )

Income tax expense (benefit) ( 4.9 ) ( 5.0 ) ( 5.0 ) ( 13.1 )

Net earnings (loss) before equity in net earnings of affiliate 6.6 ( 16.2 ) 25.0 ( 62.4 )

Equity in net earnings of affiliate — — — 0.8

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

Basic earnings (loss) per share $ 0.18 $ ( 0.43 ) $ 0.68 $ ( 1.62 )

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

Earnings before taxes 29.8 12.7

Income tax expense 4.0 1.8

Net earnings $ 25.8 $ 10.9

Basic earnings per share $ 0.71 $ 0.29

Diluted earnings per share $ 0.70 $ 0.29

Average shares outstanding (millions):

6 unchanged sentences

(In millions of dollars)

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 )

13 Weeks Ended

2024 April 2,

Net earnings $ 25.8 $ 10.9

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments, net of tax benefit of $0.0, and tax expense of $0.0, respectively ( 0.5 ) 2.3

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

Reclassification adjustments included in net earnings (loss) - equity method investment and other — 1.9 — 4.6

Reclassification adjustments included in net earnings ( 0.6 ) —

Foreign currency translation adjustments ( 1.1 ) 2.3

Pension liability adjustments, net of tax benefit of $0.4 — —

Reclassification adjustments included in net earnings 0.4 —

Pension liability adjustments 0.4 —

Other comprehensive income (loss) ( 0.7 ) 2.3

5 unchanged sentences

(In millions)

2023 January 1,

2024 December 31,

Current Assets

2 unchanged sentences

Prepaid expenses and other current assets 83.2 48.9

Assets held for sale — 291.3

Total current assets 1,436.8 1,626.6

6 unchanged sentences

Deferred taxes 318.9 321.1

Retirement plan assets 243.7 230.3

Goodwill, net 151.1 151.1

Intangibles, net 132.5 137.7

Other assets 40.6 43.1

6 unchanged sentences

(In millions)

2023 January 1,

2024 December 31,

Liabilities and Stockholders’ Equity

Current Liabilities

Short-term borrowings $ — $ 0.7

Accounts payable and accrued liabilities $ 581.2 $ 646.1

3 unchanged sentences

Income and other taxes 20.0 17.2

Liabilities held for sale — 169.9

Total current liabilities 797.5 1,019.9

8 unchanged sentences

Capital stock, $1.00 par value

Class A common stock, 100.0 shares authorized;

35.2 shares issued at 2023 and 35.1 shares issued at 2022 35.2 35.1

Class B common stock, 10.0 shares authorized;

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

Class A common stock, 100.0 million shares authorized;

35.2 million shares issued at 2024 and 2023 35.2 35.2

Class B common stock, 10.0 million shares authorized;

3.3 million shares issued at 2024 and 2023 3.3 3.3

Treasury stock, at cost

Class A common stock, 3.2 shares at 2023 and 1.0 shares at 2022 ( 56.8 ) ( 19.5 )

Class A common stock, 3.0 million shares at 2024 and 3.2 million shares at 2023 ( 52.5 ) ( 56.7 )

Class B common stock ( 0.6 ) ( 0.6 )

9 unchanged sentences

(In millions of dollars)

13 Weeks Ended 39 Weeks Ended

2023 October 2,

2022 October 1,

2023 October 2,

13 Weeks Ended

2024 April 2,

Capital Stock

2 unchanged sentences

Conversions from Class B — 0.1

Share retirement — — — ( 1.6 )

Balance at end of period 35.2 35.2

19 unchanged sentences

Balance at beginning of period 1,241.7 1,216.3

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

Net earnings 25.8 10.9

Dividends ( 2.7 ) ( 2.8 )

Share retirement — — — ( 25.6 )

Balance at end of period 1,264.8 1,224.4

10 unchanged sentences

13 Weeks Ended

2023 October 2,

2024 April 2,

Cash flows from operating activities:

Net earnings (loss) $ 25.0 $ ( 61.6 )

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

Asset impairment charge 2.4 —

Goodwill impairment charge — 30.7

Deferred income taxes on goodwill impairment charge — ( 5.3 )

Loss on disposal — 18.7

Net earnings $ 25.8 $ 10.9

Adjustments to reconcile net earnings to net cash from operating activities:

Gain on sale of EMEA staffing operations ( 11.6 ) —

Depreciation and amortization 8.0 8.4

3 unchanged sentences

Gain on sale of equity securities — ( 2.0 )

Loss on investment in Persol Holdings — 67.2

Loss on currency translation from liquidation of subsidiary — 20.4

Gain on foreign currency remeasurement — ( 5.5 )

Gain on sale of assets — ( 5.3 )

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

Gain on forward contract ( 1.2 ) —

Other, net ( 0.2 ) ( 0.3 )

Changes in operating assets and liabilities, net of acquisition ( 51.8 ) ( 38.3 )

Net cash from (used in) operating activities 33.4 ( 111.7 )

Net cash used in operating activities ( 25.5 ) ( 13.5 )

Cash flows from investing activities:

Capital expenditures ( 3.7 ) ( 4.4 )

Proceeds from sale of assets — 4.5

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

Proceeds from sale of Persol Holdings investment — 196.9

Proceeds from sale of equity method investment — 119.5

Proceeds from sale of EMEA staffing operations, net of cash disposed 77.1 —

Payment for settlement of forward contract ( 2.4 ) —

Proceeds from equity securities — 2.0

Other investing activities 1.1 0.2

Net cash (used in) from investing activities ( 10.8 ) 167.7

Net cash from (used in) investing activities 72.1 ( 2.2 )

Cash flows from financing activities:

18 unchanged sentences

13 Weeks Ended

2023 October 2,

2024 April 2,

Reconciliation of cash, cash equivalents and restricted cash:

14 unchanged sentences

The results of operations for such interim periods are not necessarily indicative of results of operations for a full year.

The unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended January 1, 2023, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 16, 2023 (the 2022 consolidated financial statements).

The unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 20, 2024 (the 2023 consolidated financial statements).

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

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.

The Company’s first fiscal quarter ended on March 31, 2024 and April 2, 2023, each of which contained 13 weeks.

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

Specifically, as discussed in the Segment Disclosures footnote, the Company has made a change to its reportable segments during the first quarter of 2024.

We have also reclassified the presentation of our retirement plan assets, which represents our investment in life insurance contracts, and intangibles, net from the other assets line item to separate line items within our consolidated balance sheet.

KELLY SERVICES, INC.

2 unchanged sentences

Revenue Disaggregated by Service Type

Kelly has five operating segments:

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

In 2024, Kelly has four operating segments:

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

Prior to 2024, the Company also had an International operating segment (see Segment Disclosures footnote).

The 2023 P&I segment information has been recast to conform to the new structure.

Other than OCG, each segment delivers talent through staffing services, permanent placement or outcome-based services.

Our OCG segment delivers talent solutions including managed service provider ("MSP"), payroll process outsourcing ("PPO"), recruitment process outsourcing ("RPO"), and talent advisory services.

International also delivers RPO talent solutions within its local markets.

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

Third Quarter September Year to Date

2023 2022 2023 2022

First Quarter

Professional & Industrial

17 unchanged sentences

Permanent placement — 5.6

Talent solutions 0.4 4.4 1.0 13.4

Total International — 195.8

7 unchanged sentences

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

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

In 2023, our International segment included our staffing operations in Europe as well as Mexico, which is included in the Americas region.

After the sale of the Company's EMEA staffing operations in January 2024 (see Disposition footnote), the Mexico operations, which were previously in our International segment, are now included in our P&I segment.

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

Third Quarter September Year to Date

2023 2022 2023 2022

First Quarter

United States $ 933.6 $ 959.2

4 unchanged sentences

Switzerland 1.1 52.9

Portugal 48.6 41.9 142.3 125.8

France — 47.8

Italy 16.1 16.4 49.5 54.3

Russia — 5.0 — 63.4

Portugal — 44.4

Other 9.7 47.7

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Third Quarter September Year to Date

2023 2022 2023 2022

The below table presents revenues from our SET, OCG and former International segment, which previously included our Mexico operations, disaggregated by geographic region, (in millions of dollars):

First Quarter

Science, Engineering & Technology

8 unchanged sentences

International

Americas $ 17.6 $ 10.6 $ 52.8 $ 31.5

Europe $ — $ 195.8

1 unchanged sentence

Deferred Costs

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.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 2.3 million as of first quarter-end 2024 and $ 3.4 million as of year-end 2023.

Amortization expense for the deferred costs in the first quarter of 2024 and 2023 was $ 2.4 million.

Credit Losses

The rollforward of our allowance for credit losses related to trade accounts receivable, which is recorded in trade accounts receivable, less allowance in the consolidated balance sheet, is as follows (in millions of dollars):

September Year to Date

First Quarter

Allowance for credit losses:

2 unchanged sentences

Currency exchange effects ( 0.1 ) 0.1

Disposition of EMEA staffing operations ( 2.4 ) —

Write-offs — ( 0.8 )

Ending balance $ 5.9 $ 7.8

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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Acquisitions and Disposition

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

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

Pediatric Therapeutic Services

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

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

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

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

Total consideration 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 third quarter-end 2023.

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

Cash consideration paid $ 85.7

Additional consideration payable 1.1

Total consideration $ 86.8

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 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.

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

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

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

technology companies.

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

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

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

Cash consideration paid $ 61.8

Additional consideration payable 1.1

Contingent consideration 0.6

Total consideration $ 63.5

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 September year-to-date 2023 included $ 5.8 million from

Write-offs are presented net of recoveries, which were not material for first quarter-end 2024 or 2023.

As of first quarter-end 2024, the Company has a receivable of $ 26.9 million related to the sale of our EMEA staffing operations (see Disposition footnote).

The Company has determined that no credit loss provision is required on this receivable as it is considered collectible.

No other allowances related to other receivables were material as of first quarter-end 2024 or 2023.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

The amount of goodwill expected to be deductible for tax purposes is approximately $ 27.5 million.

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

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

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.

On January 2, 2024, the Company completed the sale of its EMEA staffing operations ("disposal group"), which was included in the Company's International operating segment, to Gi Group Holdings S.P.A.

Upon closing, the Company received cash proceeds of $ 110.6 million, or $ 77.1 million net of cash disposed, which is included in investing activities in the consolidated statements of cash flows.

The total gain on the transaction as of the first quarter-end 2024 is $ 11.6 million, which is recorded in the gain on sale of EMEA staffing operations in the consolidated statements of earnings.

The Company expects to receive additional cash proceeds to reflect the cash-free, debt-free transaction basis, as well as working capital and other adjustments.

The Company does not expect to receive any proceeds from the contingent consideration opportunity associated with the transaction.

Included in the gain as of first-quarter end 2024, the Company has recorded a euro-denominated receivable from Gi of $ 26.9 million representing the adjustments that are determinable and is expected to be received in the third quarter of 2024.

The receivable is included in prepaid expenses and other current assets in the consolidated balance sheet.

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.

Our consolidated earnings from operations for the first quarter of 2023 included a loss of $ 1.3 million from the EMEA staffing operations.

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

4 unchanged sentences

Property and equipment, net 4.2

Operating lease right-of-use assets 14.2

Deferred taxes 4.1

3 unchanged sentences

Accounts payable and accrued liabilities ( 24.5 )

Operating lease liabilities, current ( 5.7 )

Accrued payroll and related taxes ( 91.6 )

Income and other taxes ( 32.9 )

Operating lease liabilities, noncurrent ( 8.9 )

Accrued retirement benefits ( 1.7 )

Other long-term liabilities ( 4.6 )

Liabilities divested ( 169.9 )

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Investment in Persol Holdings

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The dissolution of the Kelly Services Japan, Inc.

subsidiary was completed in the fourth quarter of 2022.

Investment in PersolKelly Pte.

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.

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

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

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

The operating results of the Company’s interest in the JV were accounted for on a one-quarter lag under the equity method and were reported in equity in net earnings 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.

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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fair Value Measurements

1 unchanged sentence

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present assets and liabilities measured at fair value on a recurring basis as of third quarter-end 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 first quarter-end 2024 and year-end 2023 in the consolidated balance sheet by fair value hierarchy level, as described below.

Level 1 measurements consist of unadjusted quoted prices in active markets for identical assets or liabilities.

1 unchanged sentence

Level 3 measurements include significant unobservable inputs.

As of Third Quarter-End 2023

As of First Quarter-End 2024

Description Total Level 1 Level 2 Level 3

1 unchanged sentence

Money market funds $ 106.5 $ 106.5 $ — $ —

Foreign currency forward contract, net 0.1 — 0.1 —

Total assets at fair value $ 106.6 $ 106.5 $ 0.1 $ —

Brazil indemnification $ ( 2.9 ) $ — $ — $ ( 2.9 )

EMEA staffing indemnification ( 2.1 ) — — ( 2.1 )

Total liabilities at fair value $ ( 5.0 ) $ — $ — $ ( 5.0 )

5 unchanged sentences

Brazil indemnification $ ( 3.0 ) $ — $ — $ ( 3.0 )

Greenwood/Asher earnout ( 3.3 ) — — ( 3.3 )

Foreign currency forward contract, net ( 3.6 ) — ( 3.6 ) —

Total liabilities at fair value $ ( 6.6 ) $ — $ ( 3.6 ) $ ( 3.0 )

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.

Money market funds

Money market funds represent investments in money market funds that hold government securities, of which $ 7.6 million as of first quarter-end 2024 and $ 8.0 million as of year-end 2023 are restricted as to use and are included in other assets in the consolidated balance sheet.

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

The remaining money market funds as of third quarter-end 2023 and year-end 2022 are included in cash and equivalents in the consolidated balance sheet.

The remaining money market funds as of first quarter-end 2024 and year-end 2023 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 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.

Forward contracts

On February 8, 2024, the Company entered into a foreign currency forward contract with a notional amount of € 17.0 million to manage the foreign currency risk associated with the additional expected proceeds in the third quarter of 2024 related to the sale of our EMEA staffing operations (see Disposition footnote).

The expected proceeds are recorded as a euro-denominated receivable which is remeasured each period.

The forward contract was designated as a fair value hedge, with the mark-to-market changes of the forward contract offsetting the mark-to-market changes of the receivable in the gain on sale of EMEA staffing operations in the consolidated statements of earnings.

The contract was valued using observable inputs, such as foreign

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

currency exchange rates, and is considered a level 2 liability.

The Company recorded an unrealized gain of $ 0.1 million for the first quarter 2024 with a net receivable associated with the forward contract of $ 0.1 million recorded in prepaid expenses and other current assets on the consolidated balance sheet.

On November 2, 2023, the Company entered into a foreign currency forward contract with a notional amount of € 90.0 million to manage the foreign currency risk associated with the sale of our EMEA staffing operations, which was completed on January 2, 2024.

This contract was not designated as a hedging instrument;

therefore, it was marked-to-market and the changes in fair value were recognized in earnings.

The Company's foreign currency forward contract was valued using observable inputs, such as foreign currency exchange rates, and is considered a level 2 liability.

The Company recorded an unrealized loss of $ 3.6 million for the year ended 2023 and had a net liability associated with the forward contract of $ 3.6 million as of year-end 2023.

The Company settled the forward contract on January 5, 2024 for $ 2.4 million of cash.

Accordingly, the Company recognized a gain of $ 1.2 million in the first quarter of 2024 in gain on forward contract on the consolidated statements of earnings, which partially offsets the $ 3.6 million loss recognized in 2023, for a total loss of $ 2.4 million on the contract.

Indemnification liabilities

During the first quarter of 2024, the Company recorded an indemnification liability for $ 2.1 million relating to the sale of our EMEA staffing operations in January 2024.

The liability is included in other long-term liabilities in the consolidated balance sheet and the expense is included in the gain on sale of EMEA staffing operations in the consolidated statements of earnings.

As part of the sale, the Company agreed to indemnify the buyer for losses and costs incurred in connection with certain events or occurrences for an indefinite term.

The Company's maximum exposure under these indemnifications is not estimable at this time due to uncertainties to potential outcomes and the facts and circumstances involved in the agreement.

Management believes the risk of material exposure is remote.

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 measured on a recurring basis.

As of first quarter-end 2024, 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 $ 3.0 million at year-end 2023, with $ 0.1 million in accounts payable and accrued liabilities and $ 2.9 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.

2 unchanged sentences

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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

During the first quarter of 2024 and 2023 the Company recognized a decrease of $ 0.1 million and an increase of $ 0.1 million, respectively, to the indemnification liability related to exchange rate fluctuations in other income (expense), net in the consolidated statements of earnings.

Earnout liability

The Company had previously recorded an earnout liability relating to the 2020 acquisition of Greenwood/Asher.

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.

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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 third quarter-end 2023.

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

In the consolidated statements of cash flows, $ 0.7 million of the payment is reflected as a financing activity representing the initial fair value of the earnout, with the remainder flowing through operating activities.

During 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 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.

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

Equity Investment Without Readily Determinable Fair Value

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

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

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

Prior to February 2022, the Company had a 49 % ownership interest in the JV, a staffing services business currently operating in ten geographies in the Asia-Pacific region.

The Company holds a 2.5 % interest in the JV, which is measured using the measurement alternative for equity investments without a readily determinable fair value.

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

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

The investment totaled $ 6.4 million as of third quarter-end 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).

The investment totaled $ 6.4 million as of first quarter-end 2024, representing total cost plus observable price changes to date.

KELLY SERVICES, INC.

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Restructuring and Transformation Activities

In the first quarter of 2024, the Company incurred $ 2.3 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 transformation activities include $ 1.1 million of severance and $ 1.2 million of costs to execute the transformation through the use of an external consultant.

The severance and transformation costs are recorded in selling, general and administrative ("SG&A") expenses in the consolidated statements of earnings.

The restructuring and transformation costs included in SG&A are detailed below for the first quarter of 2024 (in millions of dollars):

Costs Transformation Costs Total

Professional & Industrial $ 0.1 $ — $ 0.1

Outsourcing & Consulting 0.6 — 0.6

Corporate 0.4 1.2 1.6

Total $ 1.1 $ 1.2 $ 2.3

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.

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 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,

Transformation

and Other Total Severance

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 and transformation costs included in SG&A are detailed below for the first quarter of 2023 (in millions of dollars):

Costs Lease Termination Costs,

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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 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):

Severance Costs Lease Termination Costs Total

Professional & Industrial $ 0.1 $ 0.2 $ 0.3

Education 0.4 — 0.4

Outsourcing & Consulting 0.2 — 0.2

Corporate 0.8 — 0.8

Total $ 1.5 $ 0.2 $ 1.7

Accrual Summary

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Reductions for cash payments ( 11.0 )

Balance as of first quarter-end 2023 5.9

Reductions for cash payments ( 3.0 )

Disposition of EMEA staffing operations ( 1.5 )

Accrual adjustments ( 0.2 )

Balance as of second quarter-end 2023 8.5

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.

Balance as of first quarter-end 2024 $ 4.7

The remaining balance of $ 4.7 million as of first quarter-end 2024 primarily represents the costs to execute the transformation initiatives and severance costs, and the majority is expected to be paid by the end of 2024.

No material adjustments are expected to be recorded.

KELLY SERVICES, INC.

AND SUBSIDIARIES

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 third quarter and September 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 first quarter 2024 and 2023 are included in the table below.

Amounts in parentheses indicate debits.

Third Quarter September Year to Date

2023 2022 2023 2022

First Quarter

(In millions of dollars)

2 unchanged sentences

Other comprehensive income (loss) before reclassifications ( 0.5 ) 2.3

Amounts reclassified from accumulated other comprehensive income (loss) - liquidation of Japan subsidiary — — — 20.4 (1)

Amounts reclassified from accumulated other comprehensive income (loss) - equity method investment and other — 1.9 — 4.6 (2)

Amounts reclassified from accumulated other comprehensive income (loss) ( 0.6 ) —

Net current-period other comprehensive income (loss) ( 1.1 ) 2.3

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Total accumulated other comprehensive income (loss) $ ( 0.5 ) $ ( 6.2 )

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

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

Ltd., (see Investment in PersolKelly Pte.

footnote for more details).

KELLY SERVICES, INC.

1 unchanged sentence

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 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

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

Earnings Per Share

The reconciliation of basic and diluted earnings per share on common stock for the first quarter 2024 and 2023 follows (in millions of dollars except per share data):

First Quarter

Net earnings $ 25.8 $ 10.9

earnings allocated to participating securities ( 0.6 ) ( 0.2 )

Net earnings (loss) available to common shareholders $ 6.5 $ ( 16.2 ) $ 24.5 $ ( 61.6 )

Net earnings available to common shareholders $ 25.2 $ 10.7

Average shares outstanding (millions):

2 unchanged sentences

Diluted 35.8 37.4

Basic earnings (loss) per share $ 0.18 $ ( 0.43 ) $ 0.68 $ ( 1.62 )

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 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.

Basic earnings per share $ 0.71 $ 0.29

Diluted earnings per share $ 0.70 $ 0.29

Potentially 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 2024 and 2023 (see Stock-Based Compensation footnote for a description of performance shares).

Dividends paid per share for Class A and Class B common stock were $ 0.075 for the first quarter of 2024 and 2023.

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.

During the first quarter of 2023, the Company repurchased 1,099,728 shares for $ 18.3 million.

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 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.

For the first quarter of 2024, the Company recognized stock compensation expense of $ 2.8 million and a related tax benefit of $ 0.7 million.

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.

Performance Shares

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No dividends are paid on these performance shares.

In December 2021, the Compensation Committee approved a 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

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

years after achievement of the respective performance goals and approval of the financial results by the Compensation Committee.

On May 7, 2024, the Compensation Committee confirmed the actual performance achievement for the final financial goal related to the 2021 retention-based grant, which was not achieved before the end of the performance period and resulted in no payout.

A summary of the status of all nonvested performance shares at target as of first quarter-end 2024 and changes during this period is presented as follows below (in thousands of shares except per share data).

The vesting adjustment in the table below

represents the 2021 financial measure performance shares that did not vest because actual achievement was below the threshold level and resulted in no payout.

Financial Measure

5 unchanged sentences

Forfeited — —

Nonvested at third quarter-end 2023 699 $ 17.48

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Vesting adjustment ( 28 ) 15.76

Nonvested at first quarter-end 2024 680 $ 18.41

Restricted Stock

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).

A summary of the status of nonvested restricted stock as of first quarter-end 2024 and changes during this period is presented as follows below (in thousands of shares except per share data).

Shares Weighted Average Grant Date Fair Value

3 unchanged sentences

Forfeited ( 32 ) 18.63

Nonvested at third quarter-end 2023 808 $ 18.50

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.

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

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

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

Nonvested at first quarter-end 2024 911 $ 19.39

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other Income (Expense), Net

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

Included in other income (expense), net for the first quarter 2024 and 2023 are the following:

First Quarter

(In millions of dollars)

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Other income (expense), net $ 1.8 $ 2.0

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).

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.

Included in Other for the first quarter of 2023 is a gain of $ 2.0 million for the receipt of earnout proceeds in connection with an investment that was sold in 2021.

Income ta x expense was $ 4.0 million for the first quarter of 2024 and $ 1.8 million for the first quarter of 2023.

The quarterly variance primarily relates to changes in pretax income.

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

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

It is also affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law changes, changes in judgment regarding the realizability of deferred tax assets, the tax effects of stock compensation and, prior to February 2022, changes in the fair value of the Company's investment in Persol Holdings, which were treated as discrete since they could not be estimated.

The Company provides valuation allowances against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Contingencies

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

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

At first quarter-end 2024 and year-end 2023, the gross accrual for litigation costs amounted to $ 4.4 million and $ 6.4 million, respectively, of which $ 1.5 million was held for sale at year-end 2023.

The Company maintains insurance coverage which may cover certain losses.

When losses exceed the applicable policy deductible and realization of recovery of the loss from existing insurance policies is deemed probable, the Company records receivables from the insurance company for the excess amount, which are included in prepaid expenses and other current assets and other assets in the consolidated balance sheet.

At third quarter-end 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.

At first quarter-end 2024 and year-end 2023, the related insurance receivables amounted to $ 0.2 million.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is $ 0.1 million to $ 7.8 million as of first quarter-end 2024.

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.

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The Company’s operating segments, which also represent its reporting segments, are based on the organizational structure for which financial results are regularly evaluated by the Company’s chief operating decision-maker ("CODM", the Company’s CEO) to determine resource allocation and assess performance.

The Company’s five reportable segments, (1) Professional & Industrial, (2) Science, Engineering & Technology, (3) Education, (4) Outsourcing & Consulting, and (5) International, reflect the specialty services the Company provides to customers and represent how the business is organized internally.

The Company’s four reportable segments in 2024, (1) Professional & Industrial, (2) Science, Engineering & Technology, (3) Education, and (4) Outsourcing & Consulting, reflect the specialty services the Company provides to customers and represent how the business is organized internally.

Prior to 2024, the Company also had an International operating segment.

Beginning in the first quarter of 2024, the Company's organizational structure no longer includes the International segment following the sale of the EMEA staffing operations in January 2024.

Our Mexico operations, which were previously in our International segment, are now included in the Professional & Industrial segment.

Professional & Industrial segment information for the prior year has been recast to conform to the new structure.

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 third quarter and September year-to-date 2023 and 2022.

In addition to the change in our segment structure in the first quarter of 2024, we reassessed the allocation of corporate expenses to the operating segments and allocated additional costs which are attributable to the business from corporate.

In the first quarter of 2024, the Company changed the primary segment profitability measure from earnings from operations to a business unit profit measure that excludes depreciation and amortization.

This change will provide management greater visibility into the financial performance of the segments and how they contribute to the Company's overall performance.

Prior periods have been recast to reflect the current period allocation method and new segment profitability measurement.

The update had no impact on the consolidated financial information.

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 before taxes, for the first quarter of 2024 and 2023.

Asset information by reportable segment is not presented, since the Company does not produce such information internally nor does it use such information to manage its business.

Third Quarter September Year to Date

2023 2022 2023 2022

First Quarter

(In millions of dollars)

10 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Third Quarter September Year to Date

2023 2022 2023 2022

First Quarter

(In millions of dollars)

Earnings (loss) from Operations:

Business Unit Profit (Loss):

Professional & Industrial gross profit $ 63.9 $ 72.2

Professional & Industrial SG&A expenses ( 57.7 ) ( 65.3 ) ( 183.8 ) ( 204.1 )

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

Professional & Industrial earnings from operations 7.8 5.0 16.3 27.1

Professional & Industrial SG&A expenses excluding depreciation and amortization ( 58.0 ) ( 73.4 )

Professional & Industrial Profit (Loss) 5.9 ( 1.2 )

Science, Engineering & Technology gross profit 64.4 71.3

Science, Engineering & Technology SG&A expenses ( 47.8 ) ( 53.4 ) ( 150.6 ) ( 161.4 )

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

Science, Engineering & Technology earnings from operations 20.2 22.9 56.7 63.9

Science, Engineering & Technology SG&A expenses excluding depreciation and amortization ( 46.2 ) ( 52.8 )

Science, Engineering & Technology Profit (Loss) 18.2 18.5

Education gross profit 42.1 39.3

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

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

Education SG&A expenses excluding depreciation and amortization ( 24.0 ) ( 23.9 )

Education Profit (Loss) 18.1 15.4

Outsourcing & Consulting gross profit 35.3 41.6

Outsourcing & Consulting SG&A expenses ( 39.0 ) ( 37.7 ) ( 117.2 ) ( 111.8 )

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

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

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

Outsourcing & Consulting SG&A expenses excluding depreciation and amortization ( 37.1 ) ( 41.7 )

Outsourcing & Consulting Profit (Loss) ( 1.8 ) ( 0.1 )

International gross profit — 29.7

International SG&A expenses ( 31.2 ) ( 31.4 ) ( 96.2 ) ( 99.2 )

International earnings from operations 2.5 1.9 3.2 9.1

International SG&A expenses excluding depreciation and amortization — ( 30.4 )

International Profit (Loss) — ( 0.7 )

Corporate ( 15.0 ) ( 11.7 )

Loss on disposal — ( 0.2 ) — ( 18.7 )

Gain on sale of assets — — — 5.3

Consolidated Total 0.1 ( 21.4 ) 17.0 10.2

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

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

Gain on sale of EMEA staffing operations 11.6 —

Depreciation and amortization ( 10.2 ) ( 9.5 )

Consolidated earnings from operations 26.8 10.7

Gain on forward contract 1.2 —

Other income (expense), net 1.8 2.0

Earnings (loss) before taxes and equity in net earnings of affiliate $ 1.7 $ ( 21.2 ) $ 20.0 $ ( 75.5 )

Earnings before taxes $ 29.8 $ 12.7

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Third Quarter September Year to Date

2023 2022 2023 2022

Depreciation and amortization expense is included in SG&A expenses in our consolidated statements of earnings.

Depreciation and amortization expense amounts below include amortization of implementation costs for hosted software, which are excluded in the presentation of depreciation and amortization in our consolidated statements of cash flows.

The depreciation and amortization amounts by segment are as follows:

First Quarter

(In millions of dollars)

5 unchanged sentences

International — 0.6

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.

New Accounting Pronouncements

Not Yet Adopted

In October 2023, the FASB issued Accounting Standards Update ("ASU") 2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative, which modifies several disclosure and presentation requirements in the FASB accounting standard codification to align them with the SEC regulations.

The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption permitted, by June 30, 2027.

For any amendments in which the SEC has not yet removed the applicable requirement from their regulations by June 30, 2027, the pending content of the related amendment in the FASB codification will not be effective.

We do not expect this update to have a material impact to our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires all public companies to provide more enhanced disclosures for significant segment expenses.

This ASU is effective for annual reporting periods beginning after December 15, 2024, including interim reporting periods within those annual periods, with early adoption permitted.

We are currently evaluating the impact of the new guidance on our consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which includes amendments to enhance income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information.

This ASU is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the impact of the new guidance on our consolidated financial statements and related disclosures.

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

Subsequent Event

On May 2, 2024, the Company, MRP Merger Sub, Inc.

(“Merger Sub”), a newly-formed, wholly owned subsidiary of the Company, MRP Topco (“Topco”), the indirect parent company of Motion Recruitment Partners, LLC (“Motion”), and Littlejohn Fund V, L.P.

(“Littlejohn”), in its capacity as the securityholders’ representative, entered into an Agreement and Plan of Merger (the “Merger Agreement”) whereby the Company would indirectly acquire 100 % of the equity interests in Motion by way of a merger of Merger Sub with and into Topco, with Topco surviving the merger (the “Merger”).

The Company will pay cash at close of $ 425.0 million, subject to adjustments for working capital and to reflect the cash-free, debt-free transaction basis.

Additional cash consideration of up to $ 60.0 million may be due under the terms of an earnout provision.

The earnout payment would be due in the second quarter of 2025 and is based on a multiple of gross profit in excess of an agreed-upon amount during the earnout period.

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

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