UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October~~July 2, ~~2022~~2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-1088

KELLY SERVICES, INC.

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(Exact name of registrant as specified in its charter)


Delaware						38-1510762
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

999 West Big Beaver Road, Troy, Michigan 48084

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(Address of principal executive offices) (Zip Code)

(248) 362-4444

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(Registrant’s telephone number, including area code)

No Change

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(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbols	Name of each exchange on which registered
Class A Common	KELYA	NASDAQ Global Market
Class B Common	KELYB	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer ~~(Do not check if a smaller reporting company)~~	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

At ~~October~~July 31, ~~2022, 34,590,876~~2023, 32,063,082 shares of Class A and ~~3,357,146~~3,331,601 shares of Class B common stock of the Registrant were outstanding.

KELLY SERVICES, INC. AND SUBSIDIARIES


			Page Number

PART I. FINANCIAL INFORMATION			4

Item 1. Financial Statements (unaudited).			4

Consolidated Statements of Earnings			4

Consolidated Statements of Comprehensive Income (Loss)			5

Consolidated Balance Sheets			6

Consolidated Statements of Stockholders' Equity			8

Consolidated Statements of Cash Flows			9

Notes to Consolidated Financial Statements			11

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.			3331

Item 3. Quantitative and Qualitative Disclosures About Market Risk.			5147

Item 4. Controls and Procedures.			5147

PART II. OTHER INFORMATION			5248

Item 1. Legal Proceedings.			5248

Item 1A. Risk Factors.			5248

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			5349

Item 3. Defaults Upon Senior Securities.			5349

Item 4. Mine Safety Disclosures.			5349

Item 5. Other Information.			5349

Item 6. Exhibits.			5349

SIGNATURES			5551

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)

(In millions of dollars except per share data)


		13 Weeks Ended				39 Weeks Ended					13 Weeks Ended				26 Weeks Ended
		October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021			July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Revenue from services	Revenue from services	$	1,167.9	$	1,195.4	$	3,731.6	$	3,659.4	Revenue from services	$	1,217.2	$	1,267.3	$	2,485.5	$	2,563.7

Cost of services	Cost of services	927.3		966.5		2,970.0		2,986.2		Cost of services	976.6		1,004.9		1,990.8		2,042.7

Gross profit	Gross profit	240.6		228.9		761.6		673.2		Gross profit	240.6		262.4		494.7		521.0

Selling, general and administrative expenses	Selling, general and administrative expenses	231.1		219.9		707.3		639.9		Selling, general and administrative expenses	232.0		240.1		475.4		476.2

Goodwill impairment charge		30.7		—		30.7		—
Asset impairment charge										Asset impairment charge	2.4		18.5		2.4		18.5

Loss on disposal		0.2		—		18.7		—

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

Earnings (loss) from operations		(21.4)		9.0		10.2		33.3
Earnings from operations										Earnings from operations	6.2		8.2		16.9		31.6

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

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

Other income (expense), net	Other income (expense), net	0.2		(0.3)		1.9		(4.0)		Other income (expense), net	(0.6)		(1.1)		1.4		1.7

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate		(21.2)		44.2		(75.5)		101.1
Earnings (loss) before taxes and equity in net earnings of affiliate										Earnings (loss) before taxes and equity in net earnings of affiliate	5.6		7.1		18.3		(54.3)

Income tax expense (benefit)	Income tax expense (benefit)	(5.0)		11.1		(13.1)		19.0		Income tax expense (benefit)	(1.9)		4.9		(0.1)		(8.1)

Net earnings (loss) before equity in net earnings (loss) of affiliate		(16.2)		33.1		(62.4)		82.1
Net earnings (loss) before equity in net earnings of affiliate										Net earnings (loss) before equity in net earnings of affiliate	7.5		2.2		18.4		(46.2)

Equity in net earnings (loss) of affiliate		—		1.7		0.8		2.3
Equity in net earnings of affiliate										Equity in net earnings of affiliate	—		—		—		0.8

Net earnings (loss)	Net earnings (loss)	$	(16.2)	$	34.8	$	(61.6)	$	84.4	Net earnings (loss)	$	7.5	$	2.2	$	18.4	$	(45.4)

Basic earnings (loss) per share	Basic earnings (loss) per share	$	(0.43)	$	0.87	$	(1.62)	$	2.12	Basic earnings (loss) per share	$	0.20	$	0.06	$	0.49	$	(1.19)
Diluted earnings (loss) per share	Diluted earnings (loss) per share	$	(0.43)	$	0.87	$	(1.62)	$	2.12	Diluted earnings (loss) per share	$	0.20	$	0.06	$	0.49	$	(1.19)

Average shares outstanding (millions):	Average shares outstanding (millions):									Average shares outstanding (millions):
Basic	Basic	37.9		39.4		38.2		39.4		Basic	36.0		37.9		36.5		38.3
Diluted	Diluted	37.9		39.5		38.2		39.5		Diluted	36.4		38.2		36.9		38.3

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In millions of dollars)


		13 Weeks Ended				39 Weeks Ended					13 Weeks Ended				26 Weeks Ended
		October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021			July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Net earnings (loss)	Net earnings (loss)	$	(16.2)	$	34.8	$	(61.6)	$	84.4	Net earnings (loss)	$	7.5	$	2.2	$	18.4	$	(45.4)

Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:									Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax benefit of $0.1, tax expense of $0.1, $0.0 and $0.5, respectively		(8.8)		(3.5)		(17.4)		(15.1)
Foreign currency translation adjustments, net of tax benefit of $0.1, tax expense of $0.0, tax benefit of $0.1 and tax expense of $0.1, respectively										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)
Less: Reclassification adjustments included in net earnings (loss) - liquidation of Japan subsidiary	Less: Reclassification adjustments included in net earnings (loss) - liquidation of Japan subsidiary	—		—		20.4		—		Less: Reclassification adjustments included in net earnings (loss) - liquidation of Japan subsidiary	—		—		—		20.4
Less: Reclassification adjustments included in net earnings (loss) - equity method investment and other	Less: Reclassification adjustments included in net earnings (loss) - equity method investment and other	1.9		—		4.6		—		Less: Reclassification adjustments included in net earnings (loss) - equity method investment and other	—		0.2		—		2.7
Foreign currency translation adjustments	Foreign currency translation adjustments	(6.9)		(3.5)		7.6		(15.1)		Foreign currency translation adjustments	2.8		1.5		5.1		14.5

Other comprehensive income (loss)	Other comprehensive income (loss)	(6.9)		(3.5)		7.6		(15.1)		Other comprehensive income (loss)	2.8		1.5		5.1		14.5

Comprehensive income (loss)	Comprehensive income (loss)	$	(23.1)	$	31.3	$	(54.0)	$	69.3	Comprehensive income (loss)	$	10.3	$	3.7	$	23.5	$	(30.9)

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In millions)


		October 2, 2022		January 2, 2022			July 2, 2023		January 1, 2023
Assets	Assets					Assets
Current Assets	Current Assets					Current Assets
Cash and equivalents	Cash and equivalents	$	122.4	$	112.7	Cash and equivalents	$	124.8	$	153.7
Trade accounts receivable, less allowances of $12.1 and $12.6, respectively		1,519.9		1,423.2
Trade accounts receivable, less allowances of $10.7 and $11.2, respectively						Trade accounts receivable, less allowances of $10.7 and $11.2, respectively	1,423.6		1,491.6
Prepaid expenses and other current assets	Prepaid expenses and other current assets	83.1		52.8		Prepaid expenses and other current assets	79.8		69.9
Assets held for sale		4.7		—

Total current assets	Total current assets	1,730.1		1,588.7		Total current assets	1,628.2		1,715.2

Noncurrent Assets	Noncurrent Assets					Noncurrent Assets
Property and equipment:	Property and equipment:					Property and equipment:
Property and equipment	Property and equipment	168.7		205.1		Property and equipment	166.1		166.8
Accumulated depreciation	Accumulated depreciation	(143.8)		(169.8)		Accumulated depreciation	(137.3)		(139.0)
Net property and equipment	Net property and equipment	24.9		35.3		Net property and equipment	28.8		27.8
Operating lease right-of-use assets	Operating lease right-of-use assets	67.3		75.8		Operating lease right-of-use assets	61.6		66.8
Deferred taxes	Deferred taxes	300.7		302.8		Deferred taxes	308.4		299.7
Goodwill, net	Goodwill, net	161.4		114.8		Goodwill, net	151.1		151.1
Investment in Persol Holdings		—		264.3
Investment in equity affiliate		—		123.4

Other assets	Other assets	397.5		389.1		Other assets	416.9		403.2
Total noncurrent assets	Total noncurrent assets	951.8		1,305.5		Total noncurrent assets	966.8		948.6

Total Assets	Total Assets	$	2,681.9	$	2,894.2	Total Assets	$	2,595.0	$	2,663.8

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In millions)


		October 2, 2022		January 2, 2022			July 2, 2023		January 1, 2023
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current Liabilities	Current Liabilities					Current Liabilities
Short-term borrowings	Short-term borrowings	$	0.1	$	—	Short-term borrowings	$	—	$	0.7
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	735.2		687.2		Accounts payable and accrued liabilities	692.7		723.3
Operating lease liabilities	Operating lease liabilities	14.4		17.5		Operating lease liabilities	13.9		14.7
Accrued payroll and related taxes	Accrued payroll and related taxes	321.4		318.4		Accrued payroll and related taxes	270.6		315.8
Accrued workers’ compensation and other claims	Accrued workers’ compensation and other claims	24.4		20.8		Accrued workers’ compensation and other claims	23.3		22.9
Income and other taxes	Income and other taxes	47.5		51.3		Income and other taxes	54.4		51.4

Total current liabilities	Total current liabilities	1,143.0		1,095.2		Total current liabilities	1,054.9		1,128.8

Noncurrent Liabilities	Noncurrent Liabilities					Noncurrent Liabilities
Operating lease liabilities	Operating lease liabilities	55.6		61.4		Operating lease liabilities	52.6		55.0
Accrued payroll and related taxes		—		57.6

Accrued workers’ compensation and other claims	Accrued workers’ compensation and other claims	43.4		37.0		Accrued workers’ compensation and other claims	41.4		40.7
Accrued retirement benefits	Accrued retirement benefits	172.7		220.0		Accrued retirement benefits	193.0		174.1
Other long-term liabilities	Other long-term liabilities	14.5		86.8		Other long-term liabilities	11.2		11.0
Total noncurrent liabilities	Total noncurrent liabilities	286.2		462.8		Total noncurrent liabilities	298.2		280.8

Commitments and contingencies (see Contingencies footnote)	Commitments and contingencies (see Contingencies footnote)					Commitments and contingencies (see Contingencies footnote)

Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Capital stock, $1.00 par value	Capital stock, $1.00 par value					Capital stock, $1.00 par value
Class A common stock, 100.0 shares authorized; 35.1 shares issued at 2022 and 36.7 shares issued at 2021		35.1		36.7
Class B common stock, 10.0 shares authorized; 3.4 shares issued at 2022 and 2021		3.4		3.4
Class A common stock, 100.0 shares authorized; 35.2 shares issued at 2023 and 35.1 shares issued at 2022						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						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
Treasury stock, at cost	Treasury stock, at cost					Treasury stock, at cost
Class A common stock, 0.6 shares at 2022 and 0.7 shares at 2021		(11.8)		(14.5)
Class A common stock, 2.9 shares at 2023 and 1.0 shares at 2022						Class A common stock, 2.9 shares at 2023 and 1.0 shares at 2022	(50.7)		(19.5)
Class B common stock	Class B common stock	(0.6)		(0.6)		Class B common stock	(0.6)		(0.6)
Paid-in capital	Paid-in capital	26.6		23.9		Paid-in capital	29.0		28.0
Earnings invested in the business	Earnings invested in the business	1,220.1		1,315.0		Earnings invested in the business	1,229.1		1,216.3
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(20.1)		(27.7)		Accumulated other comprehensive income (loss)	(3.4)		(8.5)
Total stockholders’ equity	Total stockholders’ equity	1,252.7		1,336.2		Total stockholders’ equity	1,241.9		1,254.2

Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	2,681.9	$	2,894.2	Total Liabilities and Stockholders’ Equity	$	2,595.0	$	2,663.8

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In millions of dollars)


		13 Weeks Ended				39 Weeks Ended					13 Weeks Ended				26 Weeks Ended
		October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021			July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Capital Stock	Capital Stock									Capital Stock
Class A common stock	Class A common stock									Class A common stock
Balance at beginning of period	Balance at beginning of period	$	35.1	$	36.7	$	36.7	$	36.7	Balance at beginning of period	$	35.2	$	35.1	$	35.1	$	36.7
Conversions from Class B	Conversions from Class B	—		—		—		—		Conversions from Class B	—		—		0.1		—
Share retirement	Share retirement	—		—		(1.6)		—		Share retirement	—		—		—		(1.6)
Balance at end of period	Balance at end of period	35.1		36.7		35.1		36.7		Balance at end of period	35.2		35.1		35.2		35.1

Class B common stock	Class B common stock									Class B common stock
Balance at beginning of period	Balance at beginning of period	3.4		3.4		3.4		3.4		Balance at beginning of period	3.3		3.4		3.4		3.4
Conversions to Class A	Conversions to Class A	—		—		—		—		Conversions to Class A	—		—		(0.1)		—

Balance at end of period	Balance at end of period	3.4		3.4		3.4		3.4		Balance at end of period	3.3		3.4		3.3		3.4

Treasury Stock	Treasury Stock									Treasury Stock
Class A common stock	Class A common stock									Class A common stock
Balance at beginning of period	Balance at beginning of period	(11.9)		(14.7)		(14.5)		(16.5)		Balance at beginning of period	(34.7)		(12.4)		(19.5)		(14.5)
Net issuance of stock awards		0.1		0.1		2.7		1.9
Net issuance of stock awards and other										Net issuance of stock awards and other	0.5		0.5		3.6		2.6
Purchase of treasury stock										Purchase of treasury stock	(16.5)		—		(34.8)		—
Balance at end of period	Balance at end of period	(11.8)		(14.6)		(11.8)		(14.6)		Balance at end of period	(50.7)		(11.9)		(50.7)		(11.9)

Class B common stock	Class B common stock									Class B common stock
Balance at beginning of period	Balance at beginning of period	(0.6)		(0.6)		(0.6)		(0.6)		Balance at beginning of period	(0.6)		(0.6)		(0.6)		(0.6)
Net issuance of stock awards	Net issuance of stock awards	—		—		—		—		Net issuance of stock awards	—		—		—		—
Balance at end of period	Balance at end of period	(0.6)		(0.6)		(0.6)		(0.6)		Balance at end of period	(0.6)		(0.6)		(0.6)		(0.6)

Paid-in Capital	Paid-in Capital									Paid-in Capital
Balance at beginning of period	Balance at beginning of period	24.9		22.3		23.9		21.3		Balance at beginning of period	26.4		22.8		28.0		23.9
Net issuance of stock awards	Net issuance of stock awards	1.7		0.9		2.7		1.9		Net issuance of stock awards	2.6		2.1		1.0		1.0
Balance at end of period	Balance at end of period	26.6		23.2		26.6		23.2		Balance at end of period	29.0		24.9		29.0		24.9

Earnings Invested in the Business	Earnings Invested in the Business									Earnings Invested in the Business
Balance at beginning of period	Balance at beginning of period	1,239.2		1,212.5		1,315.0		1,162.9		Balance at beginning of period	1,224.4		1,239.9		1,216.3		1,315.0

Net earnings (loss)	Net earnings (loss)	(16.2)		34.8		(61.6)		84.4		Net earnings (loss)	7.5		2.2		18.4		(45.4)
Dividends	Dividends	(2.9)		(2.0)		(7.7)		(2.0)		Dividends	(2.8)		(2.9)		(5.6)		(4.8)
Share retirement	Share retirement	—		—		(25.6)		—		Share retirement	—		—		—		(25.6)
Balance at end of period	Balance at end of period	1,220.1		1,245.3		1,220.1		1,245.3		Balance at end of period	1,229.1		1,239.2		1,229.1		1,239.2

Accumulated Other Comprehensive Income (Loss)	Accumulated Other Comprehensive Income (Loss)									Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	Balance at beginning of period	(13.2)		(15.8)		(27.7)		(4.2)		Balance at beginning of period	(6.2)		(14.7)		(8.5)		(27.7)

Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	(6.9)		(3.5)		7.6		(15.1)		Other comprehensive income (loss), net of tax	2.8		1.5		5.1		14.5
Balance at end of period	Balance at end of period	(20.1)		(19.3)		(20.1)		(19.3)		Balance at end of period	(3.4)		(13.2)		(3.4)		(13.2)

Stockholders’ Equity at end of period	Stockholders’ Equity at end of period	$	1,252.7	$	1,274.1	$	1,252.7	$	1,274.1	Stockholders’ Equity at end of period	$	1,241.9	$	1,276.9	$	1,241.9	$	1,276.9

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In millions of dollars)


		39 Weeks Ended					26 Weeks Ended
		October 2, 2022		October 3, 2021			July 2, 2023		July 3, 2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net earnings (loss)	Net earnings (loss)	$	(61.6)	$	84.4	Net earnings (loss)	$	18.4	$	(45.4)
Adjustments to reconcile net earnings (loss) to net cash from operating activities:	Adjustments to reconcile net earnings (loss) to net cash from operating activities:					Adjustments to reconcile net earnings (loss) to net cash from operating activities:
Goodwill impairment charge		30.7		—
Deferred income taxes on goodwill impairment charge		(5.3)		—
Loss on disposal		18.7		—
Asset impairment charge						Asset impairment charge	2.4		18.5

Depreciation and amortization	Depreciation and amortization	24.7		22.0		Depreciation and amortization	17.2		16.1
Operating lease asset amortization	Operating lease asset amortization	14.2		16.0		Operating lease asset amortization	8.4		9.8
Provision for credit losses and sales allowances	Provision for credit losses and sales allowances	1.7		0.8		Provision for credit losses and sales allowances	0.4		1.3
Stock-based compensation	Stock-based compensation	5.9		4.0		Stock-based compensation	5.6		3.8
(Gain) loss on investment in Persol Holdings		67.2		(71.8)
Gain on sale of equity securities						Gain on sale of equity securities	(2.0)		—
Loss on investment in Persol Holdings						Loss on investment in Persol Holdings	—		67.2
Loss on currency translation from liquidation of subsidiary	Loss on currency translation from liquidation of subsidiary	20.4		—		Loss on currency translation from liquidation of subsidiary	—		20.4
Gain on foreign currency remeasurement	Gain on foreign currency remeasurement	(5.5)		—		Gain on foreign currency remeasurement	—		(5.5)
Gain on sale of assets	Gain on sale of assets	(5.3)		—		Gain on sale of assets	—		(5.3)
Equity in net (earnings) loss of PersolKelly Pte. Ltd.		(0.8)		(2.3)
Equity in net earnings of PersolKelly Asia Pacific						Equity in net earnings of PersolKelly Asia Pacific	—		(0.8)
Other, net	Other, net	3.5		4.6		Other, net	0.5		2.9
Changes in operating assets and liabilities, net of acquisitions		(220.2)		(26.7)
Net cash (used in) from operating activities		(111.7)		31.0
Changes in operating assets and liabilities, net of acquisition						Changes in operating assets and liabilities, net of acquisition	(27.5)		(190.3)
Net cash from (used in) operating activities						Net cash from (used in) operating activities	23.4		(107.3)

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(5.6)		(7.5)		Capital expenditures	(9.3)		(3.5)
Proceeds from sale of assets	Proceeds from sale of assets	4.5		—		Proceeds from sale of assets	—		4.5
Acquisition of companies, net of cash received		(143.1)		(213.0)
Cash disposed from sale of Russia, net of proceeds		(6.0)		—
Acquisition of company, net of cash received						Acquisition of company, net of cash received	—		(143.1)

Proceeds from company-owned life insurance	Proceeds from company-owned life insurance	1.5		10.4		Proceeds from company-owned life insurance	—		1.5
Proceeds from sale of Persol Holdings investment	Proceeds from sale of Persol Holdings investment	196.9		—		Proceeds from sale of Persol Holdings investment	—		196.9
Proceeds from sale of equity method investment	Proceeds from sale of equity method investment	119.5		—		Proceeds from sale of equity method investment	—		119.5
Proceeds related to loans with equity affiliate		—		5.8

Proceeds from equity securities	Proceeds from equity securities	—		5.0		Proceeds from equity securities	2.0		—
Other investing activities	Other investing activities	—		0.9		Other investing activities	(0.4)		(0.2)
Net cash from (used in) investing activities		167.7		(198.4)
Net cash (used in) from investing activities						Net cash (used in) from investing activities	(7.7)		175.6

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net change in short-term borrowings	Net change in short-term borrowings	0.2		(0.2)		Net change in short-term borrowings	(0.7)		—
Financing lease payments	Financing lease payments	(1.2)		(1.3)		Financing lease payments	(0.5)		(0.4)
Dividend payments	Dividend payments	(7.7)		(2.0)		Dividend payments	(5.6)		(4.8)
Payments of tax withholding for stock awards	Payments of tax withholding for stock awards	(0.9)		(0.6)		Payments of tax withholding for stock awards	(1.3)		(0.8)
Buyback of common shares	Buyback of common shares	(27.2)		—		Buyback of common shares	(34.8)		(27.2)
Contingent consideration payments	Contingent consideration payments	(0.7)		(1.6)		Contingent consideration payments	(2.5)		(0.7)
Other financing activities		0.1		—

Net cash used in financing activities	Net cash used in financing activities	(37.4)		(5.7)		Net cash used in financing activities	(45.4)		(33.9)

Effect of exchange rates on cash, cash equivalents and restricted cash	Effect of exchange rates on cash, cash equivalents and restricted cash	(7.4)		(3.9)		Effect of exchange rates on cash, cash equivalents and restricted cash	1.8		0.1

Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	11.2		(177.0)		Net change in cash, cash equivalents and restricted cash	(27.9)		34.5

Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	119.5		228.1		Cash, cash equivalents and restricted cash at beginning of period	162.4		119.5

Cash, cash equivalents and restricted cash at end of period (1)	Cash, cash equivalents and restricted cash at end of period (1)	$	130.7	$	51.1	Cash, cash equivalents and restricted cash at end of period (1)	$	134.5	$	154.0

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(UNAUDITED)

(In millions of dollars)

(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported in our consolidated balance sheets:


		39 Weeks Ended					26 Weeks Ended
		October 2, 2022		October 3, 2021			July 2, 2023		July 3, 2022
Reconciliation of cash, cash equivalents and restricted cash:	Reconciliation of cash, cash equivalents and restricted cash:					Reconciliation of cash, cash equivalents and restricted cash:
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	122.4	$	43.5	Cash and cash equivalents	$	124.8	$	133.9

Cash included in assets held for sale						Cash included in assets held for sale	—		12.2
Restricted cash included in prepaid expenses and other current assets	Restricted cash included in prepaid expenses and other current assets	0.8		1.0		Restricted cash included in prepaid expenses and other current assets	0.7		0.6
Noncurrent assets:	Noncurrent assets:					Noncurrent assets:
Restricted cash included in other assets	Restricted cash included in other assets	7.5		6.6		Restricted cash included in other assets	9.0		7.3
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	130.7	$	51.1	Cash, cash equivalents and restricted cash at end of period	$	134.5	$	154.0

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Kelly Services, Inc. (the “Company,” “Kelly,” “we” or “us”) have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and notes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, necessary for a fair statement of the results of the interim periods, have been made. 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 ~~2, 2022,~~1, 2023, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February ~~17,~~16, 2023 (the 2022 ~~(the 2021~~ consolidated financial statements). There were no changes in accounting policies as disclosed in the Form ~~10-K, with the exception of those described in the New Accounting Pronouncements footnote.~~10-K. The Company’s ~~third~~second fiscal quarter ended on ~~October~~July 2, ~~2022 (2022)~~2023 and ~~October~~July 3, ~~2021 (2021),~~2022, each of which contained 13 weeks. The corresponding ~~September~~June year-to-date periods for ~~2022~~2023 and ~~2021~~2022 each contained 3926 weeks.

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

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

2. Revenue

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. 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					Second Quarter				June Year to Date
		2022		2021		2022		2021			2023		2022		2023		2022
Professional & Industrial	Professional & Industrial									Professional & Industrial
Staffing services	Staffing services	$	297.9	$	344.7	$	942.3	$	1,057.0	Staffing services	$	260.3	$	309.5	$	531.8	$	644.4
Permanent placement	Permanent placement	6.1		6.9		24.0		17.1		Permanent placement	3.5		7.7		7.8		17.9
Outcome-based services	Outcome-based services	104.6		101.0		302.4		312.6		Outcome-based services	113.2		98.6		227.2		197.8
Total Professional & Industrial	Total Professional & Industrial	408.6		452.6		1,268.7		1,386.7		Total Professional & Industrial	377.0		415.8		766.8		860.1

Science, Engineering & Technology	Science, Engineering & Technology									Science, Engineering & Technology
Staffing services	Staffing services	220.6		214.0		664.3		613.1		Staffing services	201.2		223.1		403.5		443.7
Permanent placement	Permanent placement	7.1		6.5		23.6		17.4		Permanent placement	4.3		8.5		9.8		16.5
Outcome-based services	Outcome-based services	93.6		85.7		274.8		228.6		Outcome-based services	95.9		92.7		194.5		181.2
Total Science, Engineering & Technology	Total Science, Engineering & Technology	321.3		306.2		962.7		859.1		Total Science, Engineering & Technology	301.4		324.3		607.8		641.4

Education	Education									Education
Staffing services	Staffing services	103.0		65.7		427.4		280.6		Staffing services	204.1		152.5		451.7		324.4
Permanent placement	Permanent placement	1.3		0.9		5.8		3.5		Permanent placement	2.3		3.0		4.1		4.5
Total Education	Total Education	104.3		66.6		433.2		284.1		Total Education	206.4		155.5		455.8		328.9

Outsourcing & Consulting	Outsourcing & Consulting									Outsourcing & Consulting
Talent solutions	Talent solutions	118.5		113.4		352.0		320.0		Talent solutions	113.7		124.4		228.3		233.5
Total Outsourcing & Consulting	Total Outsourcing & Consulting	118.5		113.4		352.0		320.0		Total Outsourcing & Consulting	113.7		124.4		228.3		233.5

International	International									International
Staffing services	Staffing services	205.8		247.1		684.7		784.7		Staffing services	219.2		237.2		424.8		478.9
Permanent placement	Permanent placement	5.3		5.4		17.8		16.3		Permanent placement	5.6		5.6		11.5		12.5
Talent solutions	Talent solutions	4.4		4.3		13.4		9.1		Talent solutions	0.3		4.8		0.6		9.0
Total International	Total International	215.5		256.8		715.9		810.1		Total International	225.1		247.6		436.9		500.4

Total Intersegment	Total Intersegment	(0.3)		(0.2)		(0.9)		(0.6)		Total Intersegment	(6.4)		(0.3)		(10.1)		(0.6)

Total Revenue from Services	Total Revenue from Services	$	1,167.9	$	1,195.4	$	3,731.6	$	3,659.4	Total Revenue from Services	$	1,217.2	$	1,267.3	$	2,485.5	$	2,563.7

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

Revenue Disaggregated by Geography

Our operations are subject to different economic and regulatory environments depending on geographic location. Our P&I and Education segments operate in the Americas region, our SET segment operates in the Americas and Europe regions, and OCG operates in the Americas, Europe and Asia-Pacific regions. ~~The~~Our International segment includes our staffing operations in Europe as well as Mexico, ~~operations,~~ which ~~are~~is included in the Americas ~~region, and Europe.~~region.

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


		Third Quarter				September Year to Date				Second Quarter						June Year to Date
		2022		2021		2022		2021				2023		2022			2023		2022
Americas	Americas										Americas
United States	United States	$	861.0	$	851.7	$	2,746.5	$	2,604.8		United States	$	892.4	$	928.9		$	1,851.6	$	1,885.5
Canada	Canada	43.3		43.3		122.7		116.9			Canada	46.4		40.3			91.3		79.4
Puerto Rico	Puerto Rico	28.3		25.5		84.8		76.6			Puerto Rico	27.7		28.9			54.6		56.5
Mexico	Mexico	10.9		14.4		32.4		82.1			Mexico	20.0		11.2			36.7		21.5

Total Americas Region	Total Americas Region	943.5		934.9		2,986.4		2,880.4			Total Americas Region	986.5		1,009.3			2,034.2		2,042.9

Europe	Europe										Europe
Switzerland	Switzerland	55.2		54.5		165.5		161.2			Switzerland	56.0		55.3			108.9		110.3
France	France	45.8		56.3		150.8		168.1			France	50.2		50.4			98.0		105.0
Portugal	Portugal	41.9		36.6		125.8		120.9			Portugal	49.3		42.0			93.7		83.9
Italy	Italy	16.4		18.5		54.3		56.0			Italy	16.5		18.4			33.4		37.9
United Kingdom		14.2		17.2		45.2		51.9

Russia	Russia	5.0		33.0		63.4		99.3			Russia	—		28.7			—		58.4

Other	Other	35.6		33.7		107.6		93.3			Other	47.6		51.7			95.3		103.0
Total Europe Region	Total Europe Region	214.1		249.8		712.6		750.7			Total Europe Region	219.6		246.5			429.3		498.5

Total Asia-Pacific Region	Total Asia-Pacific Region	10.3		10.7		32.6		28.3			Total Asia-Pacific Region	11.1		11.5			22.0		22.3

Total Kelly Services, Inc.	Total Kelly Services, Inc.	$	1,167.9	$	1,195.4	$	3,731.6	$	3,659.4		Total Kelly Services, Inc.	$	1,217.2	$	1,267.3		$	2,485.5	$	2,563.7

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

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				Second Quarter						June Year to Date
		2022		2021		2022		2021				2023		2022			2023		2022
Science, Engineering & Technology	Science, Engineering & Technology										Science, Engineering & Technology
Americas	Americas	$	317.2	$	304.3	$	951.4	$	854.1		Americas	$	297.3	$	320.4		$	599.4	$	634.2
Europe	Europe	4.1		1.9		11.3		5.0			Europe	4.1		3.9			8.4		7.2
Total Science, Engineering & Technology	Total Science, Engineering & Technology	$	321.3	$	306.2	$	962.7	$	859.1		Total Science, Engineering & Technology	$	301.4	$	324.3		$	607.8	$	641.4

Outsourcing & Consulting	Outsourcing & Consulting										Outsourcing & Consulting
Americas	Americas	$	103.1	$	97.5	$	302.5	$	274.9		Americas	$	93.0	$	107.1		$	187.1	$	199.4
Europe	Europe	5.1		5.2		16.9		16.8			Europe	9.6		5.8			19.2		11.8
Asia-Pacific	Asia-Pacific	10.3		10.7		32.6		28.3			Asia-Pacific	11.1		11.5			22.0		22.3
Total Outsourcing & Consulting	Total Outsourcing & Consulting	$	118.5	$	113.4	$	352.0	$	320.0		Total Outsourcing & Consulting	$	113.7	$	124.4		$	228.3	$	233.5

International	International										International
Americas	Americas	$	10.6	$	14.1	$	31.5	$	81.2		Americas	$	19.2	$	10.8		$	35.2	$	20.9
Europe	Europe	204.9		242.7		684.4		728.9			Europe	205.9		236.8			401.7		479.5
Total International	Total International	$	215.5	$	256.8	$	715.9	$	810.1		Total International	$	225.1	$	247.6		$	436.9	$	500.4

Deferred Costs

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were ~~$2.4~~$2.2 million as of ~~third~~second quarter-end ~~2022~~2023 and ~~$1.3~~$2.7 million as of year-end ~~2021.~~2022. Amortization expense for the deferred costs ~~for~~in the ~~third~~second quarter and ~~September~~June year-to-date ~~2022~~2023 was ~~$3.2~~$1.4 million and ~~$7.0~~$3.8 million, respectively. Amortization expense for the deferred costs ~~for~~in the ~~third~~second quarter and ~~September~~June year-to-date ~~2021~~2022 was $~~4.3~~1.9 million and ~~$16.4~~ $3.8 million, respectively.

3. 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					June Year to Date
		2022		2021			2023		2022
Allowance for credit losses:	Allowance for credit losses:					Allowance for credit losses:
Beginning balance	Beginning balance	$	9.4	$	9.8	Beginning balance	$	7.7	$	9.4
Current period provision	Current period provision	1.3		0.8		Current period provision	0.9		0.9
Currency exchange effects	Currency exchange effects	(0.4)		(0.4)		Currency exchange effects	0.2		(0.3)
Write-offs	Write-offs	(1.8)		(0.7)		Write-offs	(1.1)		(1.6)
Ending balance	Ending balance	$	8.5	$	9.5	Ending balance	$	7.7	$	8.4

Write-offs are presented net of recoveries, which were not material for ~~September year-to-date 2022 and 2021.~~second quarter-end 2023 or 2022. No other allowances related to other receivables were material as of second quarter-end 2023 or year-end 2022.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

We were engaged in litigation with a customer over a disputed accounts receivable balance for certain services rendered more than five years ago, which had been recorded as a long-term receivable in other assets in the consolidated balance sheet. The related allowance for credit losses on this long-term customer receivable was $10.9 million and represented the likelihood of collection. In September 2021, a final ruling in the case was entered in favor of the customer. As a result, in the third quarter of 2021, we wrote off the entire receivable balance with this customer, including $0.6 million not previously reserved. The unreserved portion was recorded in SG&A expenses in the consolidated statements of earnings. The 2021 September year-to-date rollforward of our allowance for credit losses related to the long-term customer receivable, which was recorded in other assets in the consolidated balance sheet, is as follows (in millions of dollars):


	~~September Year to Date~~
	~~2021~~
~~Allowance for credit losses:~~
~~Beginning balance~~	$	~~10.9~~

~~Current period provision~~	~~0.6~~

~~Write-offs~~	~~(11.5)~~
~~Ending Balance~~	$	—

~~There were no allowances for long-term customer receivables during September year-to-date 2022. No other allowances related to other receivables were material for September year-to-date 2022.~~

4. Acquisitions and Disposition

Acquisitions

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. In the second quarter of 2021, the Company acquired Softworld, Inc. ("Softworld"~~), as detailed below.

Pediatric Therapeutic Services

On May 2, 2022, KSU acquired 100% of the membership interests of PTS for a purchase price of $82.1 million. PTS is a specialty firm that provides and manages various state and federally mandated in-school therapy services. This acquisition 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 ~~includes~~included $1.1 million of additional consideration that iswas payable to the seller ~~by the end of 2022~~ related to employee retention credits and iswas 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.~~credits and the remaining $1.0 million was paid in the second quarter of 2023. There is no remaining liability related to the additional consideration as of second quarter-end 2023. The total consideration isat 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

~~Due to the limited amount~~As of ~~time that has passed since acquiring PTS,~~May 2023, the purchase price allocation for this acquisition ~~is preliminary and could change. The following table summarizes the estimated fair values~~was final. PTS's results of ~~the assets acquired and liabilities assumed as of the date of the acquisition (in millions of dollars):~~

~~KELLY SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(UNAUDITED)~~


~~Cash~~	$	~~0.9~~
~~Trade accounts receivable~~	~~10.0~~
~~Prepaid expenses and other current assets~~	~~1.6~~
~~Net property and equipment~~	~~0.4~~


~~Goodwill~~	~~36.3~~
~~Intangibles~~	~~40.3~~

~~Accounts payable and accrued liabilities, current~~	~~(2.6)~~

~~Accrued payroll and related taxes, current~~	~~(0.1)~~



~~Total consideration, including working capital adjustments~~	$	~~86.8~~

~~The fair value of the acquired receivables represents the contractual value. Included~~operations are included in the ~~assets purchased in~~Education segment. Our consolidated revenues for the ~~PTS acquisition was $40.3~~second quarter and June year-to-date 2023 included $12.7 million ~~of intangibles, made up of $29.8~~and $28.5 million, ~~in customer relationships, $9.3~~respectively, from PTS. Our consolidated earnings from operations for the second quarter and June year-to-date 2023 included $1.8 million ~~associated with PTS's trade names~~ and ~~$1.2~~$4.5 million, for non-compete agreements. Customer relationships will be amortized over 15 years with no residual value, trade names will be amortized over 15 years with no residual value, and the non-compete agreements will be amortized over five years with no residual value.respectively, from PTS. Goodwill generated from the acquisition was primarily attributable to expected synergies from combining operations and expanding market potential and was assigned to the Education operating ~~segment (see Goodwill and Intangible Assets footnote).~~segment. All of the goodwill is expected to be deductible for tax purposes.

PTS's results of operations are included in the Education segment. Our consolidated revenues for the third quarter and September year-to-date 2022 included $8.0 million and $15.2 million, respectively, from PTS. Our consolidated earnings from operations for the third quarter and September year-to-date 2022 included $0.7 million and $1.6 million, respectively, from PTS. Pro forma results of operations for this acquisition have not been presented as the acquisition does not have a material impact to the consolidated statements of earnings.

RocketPower

On March 7, 2022, the Company acquired 100% of the issued and outstanding membership interests of RocketPower for a purchase price of $59.3 million. RocketPower is a ~~leading~~ provider of RPO and other outsourced talent solutions to customers including U.S. ~~high-tech~~technology companies. This acquisition expands OCG's RPO solution and delivery ~~offering and enhances the specialty RPO strategy and expertise within the high-tech industry.~~offering. Under terms of the purchase agreement, the purchase price was adjusted for cash held by RocketPower at the closing date and estimated working capital adjustments resulting in the Company paying cash of $61.8 million. Total consideration ~~includes~~included $1.1 million of additional consideration that iswas 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, ~~and it was reassessed in~~see the ~~third quarter of 2022 (see~~ Fair Value Measurements ~~footnote).~~footnote for information regarding subsequent reassessments. The total consideration isat 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 is 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

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

~~Due to the limited amount~~and our consolidated earnings from operations for June year-to-date 2023 included a loss of time that has passed since acquiring RocketPower, the purchase price allocation for this acquisition is preliminary and could change. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition (in millions of dollars):


~~Cash~~	$	~~3.5~~
~~Trade accounts receivable~~	~~6.9~~
~~Prepaid expenses and other current assets~~	~~1.8~~
~~Net property and equipment~~	~~0.1~~


~~Goodwill~~	~~41.0~~
~~Intangibles~~	~~15.8~~

~~Accounts payable and accrued liabilities, current~~	~~(2.9)~~

~~Accrued payroll and related taxes, current~~	~~(1.5)~~

~~Other long-term liabilities~~	~~(1.2)~~

~~Total consideration, including working capital adjustments~~	$	~~63.5~~

~~The fair value of the acquired receivables represents the contractual value. Included in the assets purchased in the RocketPower acquisition was $15.8~~$3.9 million of intangible assets, made up of $7.5 million in customer relationships, $6.6 million associated with RocketPower's trade names and $1.7 million for non-compete agreements. Customer relationships will be amortized over three years with no residual value, trade names will be amortized over 10 years with no residual value, and the non-compete agreements will be amortized over six years with no residual value.from RocketPower. Goodwill generated from the acquisition was primarily attributable to expected synergies from combining operations and expanding market potential and was assigned to the OCG operating segment. The amount of goodwill expected to be deductible for tax purposes is approximately ~~$28.0~~$27.0 million. In the third ~~quarter~~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 ~~expense~~charge of ~~$30.7 million (see Goodwill and Intangible Assets footnote).~~

RocketPower's results of operations are included in the OCG segment in 2022 on a one-month lag, accordingly our first quarter 2022 consolidated revenues and earnings from operations did not include any results from RocketPower. Our consolidated revenues for the third quarter and September year-to-date 2022 included $7.0 million and $18.5 million, respectively, from RocketPower. Our consolidated earnings from operations for the third quarter and September year-to-date 2022 included a loss of $0.6 million and earnings of $0.5 million, respectively, from RocketPower. Pro forma results of operations for this acquisition have not been presented as the acquisition does not have a material impact to the consolidated statements of earnings.

~~Softworld~~

~~On April 5, 2021, the Company acquired 100% of the shares of Softworld for a purchase price of $215.0~~$41.0 million. Softworld is a leading technology staffing and workforce solutions firm that serves clients across several end-markets, including financial services, life sciences, aerospace, defense, insurance, retail and IT consulting. This acquisition is intended to expand our capabilities, scale and solution set in our technology specialty. Under terms of the purchase agreement, the purchase price was adjusted for cash held by Softworld at the closing date and estimated working capital adjustments resulting in the Company paying cash of $220.4 million. Total consideration includes $2.6 million of additional consideration that is payable to the seller in the fourth quarter of 2022. In the third quarter of 2021, the Company received cash for a post-close working capital adjustment of $6.0 million. The total consideration is as follows (in millions of dollars):


~~Cash consideration paid~~	$	~~220.4~~
~~Additional consideration payable~~	~~2.6~~
~~Net working capital adjustment~~	~~(6.0)~~
~~Total consideration~~	$	~~217.0~~

~~KELLY SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(UNAUDITED)~~

As of first quarter-end 2022, the purchase price allocation for this acquisition was final. Goodwill generated from the acquisition was primarily attributable to expanding market potential and the expected revenue synergies and was assigned to the SET operating segment (see Goodwill and Intangible Assets footnote). All of the goodwill is expected to be deductible for tax purposes.

Disposition

On July 20, 2022, the Company completed the sale of its Russia operations, ~~("disposal group"),~~ which was included in the Company's International operating segment. The Company received cash proceeds of $7.4 million, which is less than the cash disposed of in the sale, resulting in investing cash outflows of $6.0 million in the consolidated statements of cash flows. The disposal group was previously reported as held for sale as of our second quarter-end 2022 with an $18.5 million impairment charge associated with the transaction. The total loss on the sale is $18.7 million, resulting from an additional $0.2 million loss on the transaction in the third quarter of 2022, which is recorded in loss on disposal in the consolidated statements of earnings. The loss on disposal includes the liquidation of the cumulative translation adjustment of $1.4 million.

The disposal group does not meet the requirements to be classified as discontinued operations as the sale does not have a material effect on the Company's operations and does not represent a strategic shift in the Company's strategy. Our consolidated revenue for the third quarter of 2022 and 2021 included $5.0 million and $33.0 million, respectively, from the Russia operations and for September year-to-date 2022 and 2021 included $63.4 million and $99.3 million, respectively, from the Russia operations. Our consolidated earnings before taxes for the third quarter of 2022 and 2021 included $0.3 million and $1.1 million, respectively, from the Russia operations and for September year-to-date 2022 and 2021 included $1.4 million and $2.4 million, respectively, from the Russia operations.

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


~~Assets divested~~
~~Cash and equivalents~~	$	~~13.4~~
~~Trade accounts receivable, net~~	~~22.8~~
~~Prepaid expenses and other current assets~~	~~0.7~~
~~Property and equipment, net~~	~~0.7~~

~~Deferred taxes~~	~~0.4~~
~~Other assets~~	~~0.3~~
~~Assets divested~~	~~38.3~~

~~Liabilities divested~~
~~Accounts payable and accrued liabilities~~	~~(0.6)~~

~~Accrued payroll and related taxes~~	~~(7.3)~~
~~Income and other taxes~~	~~(5.7)~~
~~Liabilities divested~~	~~(13.6)~~

~~Disposal group, net~~	$	~~24.7~~

~~KELLY SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(UNAUDITED)~~

5. 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. Ltd. (the "JV"). 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 (see Fair Value Measurements footnote).~~transaction. The $67.2 million loss in the first quarter of 2022 recorded in ~~gain (loss)~~loss on investment in Persol Holdings in the consolidated statements of earnings included $52.4 million for losses related to changes in fair value up to the date of the transaction and $14.8 million for the discount from the market price on the date of the sale and transaction costs. The gain on the investment of $35.5 million and $71.8 million in the third quarter and September year-to-date 2021, respectively, was recorded in gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.

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 iswas 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 iswas 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.

6. Investment in PersolKelly Pte. Ltd.

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. Ltd. 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 ~~(loss)~~ of affiliate in the consolidated statements of earnings through the date of the sale. Such amounts were earnings of $0.8 million in ~~September year-to-date~~the first quarter of 2022, representing the results through the date of the ~~sale, and earnings of $1.7 million and $2.3 million in the third quarter and September year-to-date 2021, respectively.~~sale.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

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~~second quarter-end ~~2022~~2023 and ~~the investment in equity affiliate on the Company's consolidated balance sheet totaled $123.4 million as of~~ year-end ~~2021.~~2022.

~~KELLY SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(UNAUDITED)~~

7. Fair Value Measurements

Trade accounts receivable, short-term borrowings, accounts payable, accrued liabilities and accrued payroll and related taxes approximate their fair values due to the short-term maturities of these assets and liabilities.

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~~second quarter-end ~~2022~~2023 and year-end ~~2021~~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. Level 2 measurements include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3 measurements include significant unobservable inputs.


		As of Third Quarter-End 2022									As of Second Quarter-End 2023
Description	Description	Total		Level 1		Level 2		Level 3		Description	Total		Level 1		Level 2		Level 3
		(In millions of dollars)									(In millions of dollars)
Money market funds	Money market funds	$	33.8	$	33.8	$	—	$	—	Money market funds	$	55.6	$	55.6	$	—	$	—
Investment in Persol Holdings		—		—		—		—

Total assets at fair value	Total assets at fair value	$	33.8	$	33.8	$	—	$	—	Total assets at fair value	$	55.6	$	55.6	$	—	$	—

Brazil indemnification	Brazil indemnification	$	(3.3)	$	—	$	—	$	(3.3)	Brazil indemnification	$	(3.1)	$	—	$	—	$	(3.1)
Greenwood/Asher earnout		(3.2)		—		—		(3.2)
RocketPower earnout		—		—		—		—

Total liabilities at fair value	Total liabilities at fair value	$	(6.5)	$	—	$	—	$	(6.5)	Total liabilities at fair value	$	(3.1)	$	—	$	—	$	(3.1)


		As of Year-End 2021									As of Year-End 2022
Description	Description	Total		Level 1		Level 2		Level 3		Description	Total		Level 1		Level 2		Level 3
		(In millions of dollars)									(In millions of dollars)
Money market funds	Money market funds	$	96.3	$	96.3	$	—	$	—	Money market funds	$	108.3	$	108.3	$	—	$	—
Investment in Persol Holdings		264.3		264.3		—		—

Total assets at fair value	Total assets at fair value	$	360.6	$	360.6	$	—	$	—	Total assets at fair value	$	108.3	$	108.3	$	—	$	—

Brazil indemnification	Brazil indemnification	$	(2.4)	$	—	$	—	$	(2.4)	Brazil indemnification	$	(3.4)	$	—	$	—	$	(3.4)
Greenwood/Asher earnout	Greenwood/Asher earnout	(4.6)		—		—		(4.6)		Greenwood/Asher earnout	(3.3)		—		—		(3.3)

Total liabilities at fair value	Total liabilities at fair value	$	(7.0)	$	—	$	—	$	(7.0)	Total liabilities at fair value	$	(6.7)	$	—	$	—	$	(6.7)

Money market funds represent investments in money market funds that hold government securities, of which ~~$7.5~~$8.9 million as of ~~third~~second quarter-end ~~2022~~2023 and ~~$6.5~~$8.6 million as of year-end ~~2021~~2022 are restricted as to use and are included in other assets in the consolidated balance sheet. The money market funds that are restricted as to use account for the majority of our restricted cash balance and represents cash balances that are required to be maintained to fund disability claims in California. The remaining money market funds as of ~~third~~second quarter-end ~~2022~~2023 and year-end ~~2021~~2022 are included in cash and equivalents in the consolidated balance sheet. The valuations of money market funds are based on quoted market prices of those accounts as of the respective period end.

On February 15, 2022, Kelly Services Japan, Inc. sold the investment in the common stock of Persol Holdings in an open-market transaction. The valuation of the investment was based on the quoted market price of Persol Holdings stock on the Tokyo Stock Exchange as of year-end 2021, and the related changes in fair value were recorded in the consolidated statements of earnings (see Investment in Persol Holdings footnote). The cost of this yen-denominated investment, which fluctuated based on foreign exchange rates, was $18.0 million at year-end 2021.

~~KELLY SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(UNAUDITED)~~

As of ~~third~~second quarter-end ~~2022,~~2023, the Company had an indemnification liability totaling ~~$3.3~~$3.1 million with ~~$0.3~~$0.1 million in accounts payable and accrued liabilities and $3.0 million in other long-term liabilities, and ~~$2.4~~$3.4 million at year-end ~~2021,~~2022, with $0.3 million in accounts payable and accrued liabilities and $3.1 million in other long-term liabilities in the consolidated balance sheet related to the 2020 sale of the Brazil operations. As part of the sale, the Company agreed to indemnify the buyer for losses and costs incurred in connection with certain events or occurrences initiated within a six-year period after closing. The aggregate losses for which the Company will provide indemnification shall not exceed $8.8 million. The valuation of the indemnification liability was established using a discounted cash flow methodology based on probability weighted-average cash

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

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 ~~2022, the Company reassessed the value of the indemnification liability~~2023 and ~~determined that it was necessary to record an increase to the liability of $0.8 million. Additionally, during year-to-date~~ 2022, the Company recognized an increase of $0.3 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, ~~totaling $3.2~~with a remaining liability of $3.3 million at ~~third quarter-end~~year-end 2022 in accounts payable and accrued ~~liabilities and $4.6 million at year-end 2021 with $2.3 million in accounts payable and accrued liabilities and $2.3 million in other long-term~~ liabilities in the consolidated balance sheet. The initial valuation of the earnout liability was established using a Black Scholes model and represented the fair value and iswas considered a Level 3 liability. During the first quarter of 2023, the Company paid the remaining earnout liability totaling $3.3 million, representing the year two portion of the earnout. In the consolidated statements of cash flows, $1.4 million of the payment is reflected as a financing activity representing the initial fair value of the earnout, with the remainder flowing through operating activities. There is no remaining earnout liability as of second quarter-end 2023. During the first quarter of 2022, the Company paid the year one portion of the earnout totaling $2.3 million. In the consolidated statements of cash flows, $0.7 million of the payment is reflected as a financing activity representing the initial fair value of the earnout, with the remainder flowing through operating activities. During ~~year-to-date~~the second quarter of 2022, the Company reassessed the value of the ~~earnout~~indemnification liability and determined it was necessary to record an increase to the liability of ~~$0.9~~$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 second quarter 2023 assessments and there is no related liability as of second quarter-end 2023. The maximum total cash payments which may be due related to the earnout liability is ~~$31.8 million.~~$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. Ltd. footnote), with the remaining 2.5% interest now being 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~~second quarter-end ~~2022,~~2023, representing total cost plus observable price changes to date.

Prior to April 2021, the Company had a minority investment in Business Talent Group, LLC, which was included in other assets in the consolidated balance sheet. The investment was also measured using the measurement alternative for equity investments without a readily determinable fair value as described above.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

8. Restructuring and Transformation Activities

2023 Actions

In the second quarter of ~~2021, BTG entered into~~2023, the Company announced a ~~merger agreement which resulted in all of~~comprehensive transformation initiative that includes actions that will further streamline the Company's ~~shares of BTG being automatically canceled upon approval of the merger~~operating model to enhance organizational efficiency and ~~resulted~~effectiveness. The total costs incurred related to these transformation activities in the ~~receipt~~second quarter of ~~$5.0~~2023 totaled $8.0 million. The transformation activities included $4.5 million ~~in cash, which was equal~~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 ~~carrying value~~right-of-use assets is recorded in the asset impairment charge in the consolidated statements of earnings. The costs to execute and ~~purchase price~~severance are included in the $5.6 million of restructuring costs incurred in the ~~BTG investment.~~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.

Prior to March 2021, the Company had a minority investment in Kenzie Academy Inc., which was included in other assets in the consolidated balance sheet. The investment was also measured using the measurement alternative for equity investments without a readily determinable fair value as described above. On March 8, 2021, Kenzie entered into a transaction to sell its assets. As of the date of the sale, the investment had a carrying value of $1.4 million, representing total cost plus observable price changes to date. In the first quarter of ~~2021,~~2023, the ~~asset was written down as~~Company undertook restructuring actions to further our cost management efforts in response to the current demand levels and reflect a ~~result~~repositioning of our P&I staffing business to better capitalize on opportunities in local markets. Restructuring costs incurred in the ~~sale~~first quarter of 2023 totaled $6.6 million and ~~the loss of $1.4 million was~~were recorded entirely in ~~other income (expense), net~~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
	Severance Costs		Lease Termination Costs, Transformation and Other		Total		Severance Costs		Lease Termination Costs, Transformation and Other		Total

Professional & Industrial	$	0.3	$	—	$	0.3	$	3.0	$	0.3	$	3.3
Science, Engineering & Technology	—		—		—		0.4		0.1		0.5
Education	0.3		—		0.3		0.4		—		0.4
Outsourcing & Consulting	(0.1)		—		(0.1)		0.5		—		0.5
International	—		—		—		0.6		—		0.6
Corporate	0.6		4.5		5.1		0.8		6.1		6.9
Total	$	1.1	$	4.5	$	5.6	$	5.7	$	6.5	$	12.2

Subsequent to the second quarter of 2023, the Company announced strategic restructuring actions as part of the comprehensive transformation initiative. The actions will build on strategic progress to monetize non-core assets, reinvest capital in organic and inorganic growth initiatives, and shift to higher-margin, higher-growth business mix. The expected range for the restructuring charges to be incurred in the third quarter of 2023 as a result of these actions is $7.5 million to $8.5 million.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

~~Assets Measured at Fair Value on a Nonrecurring Basis~~2022 Actions

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).

~~8. Restructuring~~

In the first quarter of 2022, the Company took restructuring actions designed to increase efficiency. There were no restructuring charges ~~incurred~~ in the second ~~or third~~ quarter of ~~2022 or September year-to-date 2021.~~

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

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


Balance as of year-end ~~2021~~2022	$	~~2.9~~
~~Additions charged to Professional & Industrial~~	0.3

~~Additions charged to Outsourcing & Consulting~~Accruals	~~0.2~~
~~Additions charged to Education~~	~~0.4~~6.6

~~Additions charged to Corporate~~	~~0.8~~




Reductions for cash payments ~~related to all restructuring activities~~	~~(2.0)~~(1.0)
Balance as of first quarter-end ~~2022~~2023	~~2.6~~5.9
Accruals	5.9
Reductions for cash payments ~~related to all restructuring activities~~	~~(1.1)~~(3.0)
Accrual adjustments	~~(0.2)~~(0.3)
Balance as of second quarter-end ~~2022~~2023	~~1.3~~
~~Reductions for cash payments related to all restructuring activities~~$	~~(0.6)~~8.5

~~Balance as of third quarter-end 2022~~	$
~~0.7~~

The remaining balance of ~~$0.7~~$8.5 million as of ~~third~~second quarter-end ~~2022~~2023 primarily represents the costs to execute the transformation initiatives and severance costs, and the majority is expected to be paid by year-end ~~2022.~~2023. No material adjustments are expected to be recorded.

2220

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

9. ~~Goodwill and Intangible Assets~~

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

As of
Year-End 2021 Additions to Goodwill Impairment Adjustments As of Third
Quarter-End 2022
(In millions of dollars)
Science, Engineering & Technology $ 111.3 $ — $ — $ 111.3
Education 3.5 36.3 — 39.8
Outsourcing & Consulting — 41.0 (30.7) 10.3
Total $ 114.8 $ 77.3 $ (30.7) $ 161.4

The goodwill resulting from the acquisition of RocketPower during the first quarter of 2022 was allocated to the OCG reportable segment. The goodwill resulting from the acquisition of PTS during the second quarter of 2022 was allocated to the Education reportable segment. (See Additions to Goodwill column in the table above and the Acquisitions and Disposition footnote for more details regarding each acquisition.)

The Company performs its annual goodwill impairment testing in the fourth quarter each year and regularly assesses whenever events or circumstances make it more likely than not that an impairment may have occurred. We also perform a qualitative review on a quarterly basis of our long-lived assets, comprised of net property and equipment and definite-lived intangible assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

RocketPower has definite-lived intangible assets, consisting of trades names, customer relationships and non-compete agreements, which are amortized over their estimated useful lives. We performed a long-lived asset recoverability test for RocketPower and determined that undiscounted future cash flows exceeded the carrying amount of the asset group and were recoverable.

We performed an interim step one quantitative test for RocketPower’s goodwill and determined that the estimated fair value of the reporting unit no longer exceeded the carrying value. Based on the result of our interim goodwill impairment test as of third quarter 2022, we recorded a goodwill impairment charge of $30.7 million to write off a portion of RocketPower’s goodwill, with $10.3 million goodwill remaining in the OCG reportable segment as of third quarter-end 2022. (See Impairment Adjustments column in the table above.)

In performing the step one quantitative test and consistent with our prior practice, we determined the fair value of the RocketPower reporting unit using the income approach. Under the income approach, estimated fair value is determined based on estimated future cash flows discounted by an estimated market participant weighted-average cost of capital, which reflects the overall level of inherent risk of the reporting unit being measured. Estimated future cash flows are based on our internal projection model and reflects management’s outlook for the reporting unit. Assumptions and estimates about future cash flows and discount rates are complex and often subjective. Our analysis used the following significant assumptions: expected future revenue growth rates, profit margins and discount rate.

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

~~KELLY SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(UNAUDITED)~~

~~10.~~ Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the ~~third~~second quarter and ~~September~~June year-to-date ~~2022~~2023 and ~~2021~~2022 are included in the table below. Amounts in parentheses indicate debits.

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


	Second Quarter				June Year to Date
	2023		2022		2023		2022
	(In millions of dollars)
Foreign currency translation adjustments:
Beginning balance	$	(5.1)	$	(12.0)	$	(7.4)	$	(25.0)
Other comprehensive income (loss) before reclassifications	2.8		1.3		5.1		(8.6)
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	—		0.2		—		2.7		(2)
Net current-period other comprehensive income (loss)	2.8		1.5		5.1		14.5
Ending balance	(2.3)		(10.5)		(2.3)		(10.5)









Pension liability adjustments:
Beginning balance	(1.1)		(2.7)		(1.1)		(2.7)
Other comprehensive income (loss) before reclassifications	—		—		—		—
Amounts reclassified from accumulated other comprehensive income (loss)	—		—		—		—
Net current-period other comprehensive income (loss)	—		—		—		—
Ending balance	(1.1)		(2.7)		(1.1)		(2.7)

Total accumulated other comprehensive income (loss)	$	(3.4)	$	(13.2)	$	(3.4)	$	(13.2)

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

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

(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 ~~accumulated other comprehensive income (loss) related to equity method investment and other, included $1.9 million~~earnings related to the investment in PersolKelly Pte. Ltd., ~~were recorded in other income (expense), net in the consolidated statements of earnings. (See~~(see Investment in PersolKelly Pte. Ltd. footnote for more ~~details.)~~

details).

Third Quarter September Year to Date
2022 2021 2022 2021
(In millions of dollars)
Foreign currency translation adjustments:
Beginning balance $ (10.5) $ (12.4) $ (25.0) $ (0.8)
Other comprehensive income (loss) before reclassifications (8.8) (3.5) (17.4) (15.1)
Amounts reclassified from accumulated other comprehensive income (loss) - liquidation of Japan subsidiary — — 20.4 —
Amounts reclassified from accumulated other comprehensive income (loss) - equity method investment and other 1.9 — 4.6 —
Net current-period other comprehensive income (loss) (6.9) (3.5) 7.6 (15.1)
Ending balance (17.4) (15.9) (17.4) (15.9)
Pension liability adjustments:
Beginning balance (2.7) (3.4) (2.7) (3.4)
Other comprehensive income (loss) before reclassifications — — — —
Amounts reclassified from accumulated other comprehensive income (loss) — — — —
Net current-period other comprehensive income (loss) — — — —
Ending balance (2.7) (3.4) (2.7) (3.4)
Total accumulated other comprehensive income (loss) $ (20.1) $ (19.3) $ (20.1) $ (19.3)

2421

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

~~11.~~10. Earnings (Loss) Per Share

The reconciliation of basic and diluted earnings (loss) per share on common stock for the ~~third~~second quarter and ~~September~~June year-to-date ~~2022~~2023 and ~~2021~~2022 follows (in millions of dollars except per share data):


		Third Quarter				September Year to Date					Second Quarter				June Year to Date
		2022		2021		2022		2021			2023		2022		2023		2022
Net earnings (loss)	Net earnings (loss)	$	(16.2)	$	34.8	$	(61.6)	$	84.4	Net earnings (loss)	$	7.5	$	2.2	$	18.4	$	(45.4)
Less: earnings allocated to participating securities	Less: earnings allocated to participating securities	—		(0.4)		—		(0.8)		Less: earnings allocated to participating securities	(0.2)		—		(0.4)		—
Net earnings (loss) available to common shareholders	Net earnings (loss) available to common shareholders	$	(16.2)	$	34.4	$	(61.6)	$	83.6	Net earnings (loss) available to common shareholders	$	7.3	$	2.2	$	18.0	$	(45.4)

Average shares outstanding (millions):	Average shares outstanding (millions):									Average shares outstanding (millions):
Basic	Basic	37.9		39.4		38.2		39.4		Basic	36.0		37.9		36.5		38.3
Dilutive share awards	Dilutive share awards	—		0.1		—		0.1		Dilutive share awards	0.4		0.3		0.4		—
Diluted	Diluted	37.9		39.5		38.2		39.5		Diluted	36.4		38.2		36.9		38.3

Basic earnings (loss) per share	Basic earnings (loss) per share	$	(0.43)	$	0.87	$	(1.62)	$	2.12	Basic earnings (loss) per share	$	0.20	$	0.06	$	0.49	$	(1.19)
Diluted earnings (loss) per share	Diluted earnings (loss) per share	$	(0.43)	$	0.87	$	(1.62)	$	2.12	Diluted earnings (loss) per share	$	0.20	$	0.06	$	0.49	$	(1.19)

~~Potentially dilutive shares outstanding~~

Dilutive share awards are ~~primarily~~ related to deferred common stock related to the non-employee directors deferred compensation plan and performance shares for the ~~third~~second quarter of ~~2021~~2023 and ~~September~~2022 and June year-to-date ~~2021.~~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~~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 ~~the third quarter of~~June year-to-date 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~~second quarter of 2023 and 2022, ~~$0.20~~$0.15 for ~~September~~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 ~~$0.05~~2,082,293 shares for $34.8 million through June year-to-date 2023. A total of $7.4 million remains available under the ~~third quarter 2021 and September year-to-date 2021.~~share repurchase program. The repurchase program expires in November 2023.

~~12.~~11. Stock-Based Compensation

For the ~~third~~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 ~~$2.1 million and a related tax benefit of $0.3 million. For the third quarter of 2021, the Company recognized stock compensation expense of $1.2~~$1.7 million and a related tax benefit of $0.2 million. For ~~September~~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 ~~$5.9~~$3.8 million and a related tax benefit of ~~$0.8 million. For September year-to-date 2021, the Company recognized stock compensation expense of $4.0 million and a related tax benefit of $0.6~~$0.5 million.

Performance Shares

During the first quarter of ~~2022,~~2023, the Company granted performance share awards associated with the Company’s Class A common stock to certain senior officers. The payment of performance share awards ~~which will be satisfied with the issuance of shares out of treasury stock,~~ is contingent upon the achievement of specific revenue growth and earnings before interest, taxes, depreciation and amortization ("EBITDA") margin performance goals ("financial measure performance share awards") over a stated period of time. The maximum number of performance shares that may be earned is 200% of the target shares originally granted. These awards have three one-year performance periods: ~~2022,~~ 2023, 2024 and ~~2024,~~2025, with the payout for each performance period based on separate financial measure goals that are set in February of each of the three performance periods. Earned shares during each performance period will cliff vest in February ~~2025~~2026 after approval of the financial results by the Compensation Committee, if not forfeited by the recipient. 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. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

accelerate the vesting for the goal earned, where half of these awards vested immediately upon approval of the results and the remaining half will vest in August 2023, if not forfeited by the recipient. We accounted for this change as a Type I modification under ASC 718 as the expectation of vesting remained probable-to-probable post modification. The Company did not record any incremental stock compensation expense since the fair value of the modified awards immediately after the modification was not greater than the fair value of the original awards immediately before the modification. The Company will recognize the remaining stock compensation expense over the remaining portion of the modified service requisite period.

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. 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~~second quarter-end ~~2022~~2023 and year-to-date ~~2022~~ changes is presented as follows below (in thousands of shares except per share data). The vesting adjustment in the table below represents the 2019 and a portion of the 2021 financial measure performance shares that did not vest because actual achievement was below the threshold level and resulted in no payout.


	Financial Measure Performance Shares
	Shares	Weighted Average Grant Date Fair Value
Nonvested at year-end 2022	692	$	19.41
Granted	246	15.18
Vested	(108)	19.76
Forfeited	(35)	16.62

Nonvested at second quarter-end 2023	795	$	17.41

Financial Measure
Performance Shares
Shares Weighted Average Grant Date Fair Value
Nonvested at year-end 2021 708 $ 20.03
Granted 186 21.19
Vested (48) 22.55
Forfeited (12) 16.81
Vesting adjustment (142) 24.45
Nonvested at third quarter-end 2022 692 $ 19.41

Restricted Stock

A summary of the status of nonvested restricted stock as of ~~third~~second quarter-end ~~2022~~2023 and year-to-date ~~2022~~ changes is presented as follows below (in thousands of shares except per share data). ~~The changes in the table below primarily relate to activity from the first and second quarters of 2022.~~


		Shares	Weighted Average Grant Date Fair Value			Shares	Weighted Average Grant Date Fair Value
Nonvested at year-end 2021		403	$	21.24
Nonvested at year-end 2022					Nonvested at year-end 2022	607	$	20.27
Granted	Granted	403	20.34		Granted	411	17.26
Vested	Vested	(104)	22.44		Vested	(167)	21.07
Forfeited	Forfeited	(91)	21.56		Forfeited	(71)	19.13
Nonvested at third quarter-end 2022		611	$	20.39
Nonvested at second quarter-end 2023					Nonvested at second quarter-end 2023	780	$	18.62

~~13.~~

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

12. 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 iswas 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 iswas recorded in gain on sale of assets in the consolidated statements of earnings.

13. 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)

(UNAUDITED)

~~14. Held~~The major classes of assets and liabilities of the disposal group that met the classification of held for ~~Sale~~sale as of July 3, 2022 were as follows (in millions of dollars):


	July 3, 2022
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 ~~includes~~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 ~~third~~the second quarter-end 2022 iswas $4.7 million, which iswas less than the sales price in the purchase agreement, less estimated costs to sell. The Company ~~has~~ presented these assets as current assets held for sale in the consolidated balance sheet as of ~~third~~the second quarter-end 2022. ~~On October 31, 2022, the~~The sale ~~of the property~~ was completed in the fourth quarter of 2022 and the Company received proceeds of $5.6 million, net of commissions and transaction ~~expenses.~~expense.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

~~15.~~14. Other Income (Expense), Net

Included in other income (expense), net for the ~~third~~second quarter and ~~September~~June year-to-date ~~2022~~2023 and ~~2021~~2022 are the following:


		Third Quarter				September Year to Date					Second Quarter				June Year to Date
		2022		2021		2022		2021			2023		2022		2023		2022
		(In millions of dollars)									(In millions of dollars)
Interest income	Interest income	$	0.7	$	0.1	$	1.2	$	0.2	Interest income	$	1.3	$	0.4	$	2.7	$	0.5
Interest expense	Interest expense	(0.5)		(0.7)		(1.6)		(1.9)		Interest expense	(0.6)		(0.5)		(1.4)		(1.1)
Dividend income		—		—		—		1.0

Foreign exchange gains (losses)	Foreign exchange gains (losses)	0.1		0.3		5.7		(0.6)		Foreign exchange gains (losses)	(1.3)		0.9		(2.0)		5.6
Other	Other	(0.1)		—		(3.4)		(2.7)		Other	—		(1.9)		2.1		(3.3)
Other income (expense), net	Other income (expense), net	$	0.2	$	(0.3)	$	1.9	$	(4.0)	Other income (expense), net	$	(0.6)	$	(1.1)	$	1.4	$	1.7

Included in Other for ~~September~~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 ~~September~~June year-to-date 2022 is a $5.5 million foreign exchange gain on a U.S. dollar-denominated cash balance held by the Company's Japan entity (see Investment in Persol Holdings footnote). Included in Other for September year-to-date 2021 is a loss from the sale of the assets related to our minority investment in Kenzie Academy (see Fair Value Measurements footnote) and transaction-related expenses from the April 2021 acquisition of Softworld (see Acquisitions and Disposition footnote).

~~16.~~15. Income Taxes

Income ~~tax~~tax benefit was ~~$5.0~~$1.9 million for the ~~third~~second quarter of ~~2022~~2023 and income tax expense was ~~$11.1~~$4.9 million for the ~~third~~second quarter of ~~2021.~~2022. Income tax benefit was ~~$13.1~~$0.1 million for ~~September~~June year-to-date ~~2022~~2023 and ~~income tax expense was $19.0~~$8.1 million for ~~September~~June year-to-date ~~2021.~~ 2022. The ~~third~~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 ~~and September~~of 2022. The year-to-date ~~2022~~ amounts ~~were~~are impacted by the same items, along with changes in earnings from operations and ~~from non-taxable returns on life insurance policies. The second quarter~~changes in the fair value of ~~2021 also benefited $5.2 million from a change~~the Company's investment in ~~United Kingdom tax rates.~~Persol Holdings during 2022.

Our tax expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S. work opportunity credits and the change in cash surrender value of ~~tax exempt~~tax-exempt investments in life insurance policies. It is also affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law changes, changes in judgment regarding the realizability of deferred tax assets, the tax effects of stock compensation and, prior to February 2022, changes in the fair value of the Company's investment in Persol Holdings, which were treated as discrete since they ~~cannot~~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.

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

2726

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

~~17.~~16. Contingencies

The Company is continuously engaged in litigation, threatened litigation, claims, audits or investigations arising in the ordinary course of its business, such as matters alleging employment discrimination, wage and hour violations, claims for indemnification or liability, violations of privacy rights, anti-competition regulations, commercial and contractual disputes, and tax-related matters which could result in a material adverse outcome.

We record accruals for loss contingencies when we believe it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. 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~~second quarter-end ~~2022~~2023 and year-end ~~2021,~~2022, the gross accrual for litigation costs amounted to ~~$5.6~~$5.2 million and ~~$1.4~~$2.3 million, respectively.

The Company maintains insurance coverage which may cover certain losses. When losses exceed the applicable policy deductible and realization of recovery of the loss from existing insurance policies is deemed probable, the Company records receivables from the insurance company for the excess amount, which are included in prepaid expenses and other current assets and other assets in the consolidated balance sheet. At ~~third~~second quarter-end 2023 and year-end 2022, the related insurance receivables amounted to ~~$2.7 million. At year-end 2021, there were no related insurance receivables.~~$0.2 million and $0.6 million, respectively.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is ~~$0.5 million~~zero to ~~$4.0~~$6.8 million as of ~~third~~second quarter-end ~~2022.~~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. The aggregate range only represents matters in which we are currently able to estimate a range of loss and does not represent our maximum loss exposure. The estimated range is subject to significant judgment and a variety of assumptions and only based upon currently available information. For other matters, we are currently not able to estimate the reasonably possible loss or range of loss.

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

2827

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

~~18.~~17. Segment Disclosures

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

The following tables present information about the reported revenue from services and gross profit of the Company by reportable segment, along with a reconciliation to earnings (loss) before taxes and equity in net earnings ~~(loss)~~ of affiliate, for the ~~third~~second quarter and ~~September~~June year-to-date ~~2022~~2023 and ~~2021.~~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.


		Third Quarter				September Year to Date					Second Quarter				June Year to Date
		2022		2021		2022		2021			2023		2022		2023		2022
		(In millions of dollars)									(In millions of dollars)
Revenue from Services:	Revenue from Services:									Revenue from Services:

Professional & Industrial	Professional & Industrial	$	408.6	$	452.6	$	1,268.7	$	1,386.7	Professional & Industrial	$	377.0	$	415.8	$	766.8	$	860.1
Science, Engineering & Technology	Science, Engineering & Technology	321.3		306.2		962.7		859.1		Science, Engineering & Technology	301.4		324.3		607.8		641.4
Education	Education	104.3		66.6		433.2		284.1		Education	206.4		155.5		455.8		328.9
Outsourcing & Consulting	Outsourcing & Consulting	118.5		113.4		352.0		320.0		Outsourcing & Consulting	113.7		124.4		228.3		233.5
International	International	215.5		256.8		715.9		810.1		International	225.1		247.6		436.9		500.4

Less: Intersegment revenue	Less: Intersegment revenue	(0.3)		(0.2)		(0.9)		(0.6)		Less: Intersegment revenue	(6.4)		(0.3)		(10.1)		(0.6)

Consolidated Total	Consolidated Total	$	1,167.9	$	1,195.4	$	3,731.6	$	3,659.4	Consolidated Total	$	1,217.2	$	1,267.3	$	2,485.5	$	2,563.7

2928

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)


		Third Quarter				September Year to Date					Second Quarter				June Year to Date
		2022		2021		2022		2021			2023		2022		2023		2022
		(In millions of dollars)									(In millions of dollars)
Earnings (loss) from Operations:
Earnings from Operations:										Earnings from Operations:

Professional & Industrial gross profit	Professional & Industrial gross profit	$	70.3	$	76.6	$	231.2	$	227.7	Professional & Industrial gross profit	$	65.1	$	77.8	$	134.9	$	160.9
Professional & Industrial SG&A expenses	Professional & Industrial SG&A expenses	(65.3)		(69.4)		(204.1)		(207.8)		Professional & Industrial SG&A expenses	(58.6)		(67.4)		(126.1)		(138.8)
Professional & Industrial earnings (loss) from operations		5.0		7.2		27.1		19.9
Professional & Industrial asset impairment charge										Professional & Industrial asset impairment charge	(0.3)		—		(0.3)		—
Professional & Industrial earnings from operations										Professional & Industrial earnings from operations	6.2		10.4		8.5		22.1

Science, Engineering & Technology gross profit	Science, Engineering & Technology gross profit	76.3		68.1		225.3		187.8		Science, Engineering & Technology gross profit	68.1		75.2		139.4		149.0
Science, Engineering & Technology SG&A expenses	Science, Engineering & Technology SG&A expenses	(53.4)		(48.4)		(161.4)		(131.0)		Science, Engineering & Technology SG&A expenses	(50.0)		(54.8)		(102.8)		(108.0)
Science, Engineering & Technology earnings (loss) from operations		22.9		19.7		63.9		56.8
Science, Engineering & Technology asset impairment charge										Science, Engineering & Technology asset impairment charge	(0.1)		—		(0.1)		—
Science, Engineering & Technology earnings from operations										Science, Engineering & Technology earnings from operations	18.0		20.4		36.5		41.0

Education gross profit	Education gross profit	16.6		10.0		69.2		44.0		Education gross profit	32.5		26.0		71.8		52.6
Education SG&A expenses	Education SG&A expenses	(21.4)		(17.0)		(60.4)		(46.5)		Education SG&A expenses	(23.1)		(20.4)		(46.9)		(39.0)
Education earnings (loss) from operations		(4.8)		(7.0)		8.8		(2.5)
Education earnings from operations										Education earnings from operations	9.4		5.6		24.9		13.6

Outsourcing & Consulting gross profit	Outsourcing & Consulting gross profit	44.1		37.3		127.6		103.4		Outsourcing & Consulting gross profit	41.3		46.2		82.9		83.5
Outsourcing & Consulting SG&A expenses	Outsourcing & Consulting SG&A expenses	(37.7)		(30.7)		(111.8)		(89.2)		Outsourcing & Consulting SG&A expenses	(37.7)		(39.8)		(78.2)		(74.1)
Goodwill impairment charge		(30.7)		—		(30.7)		—
Outsourcing & Consulting earnings (loss) from operations		(24.3)		6.6		(14.9)		14.2
Outsourcing & Consulting asset impairment charge										Outsourcing & Consulting asset impairment charge	(2.0)		—		(2.0)		—
Outsourcing & Consulting earnings from operations										Outsourcing & Consulting earnings from operations	1.6		6.4		2.7		9.4

International gross profit	International gross profit	33.3		36.9		108.3		110.3		International gross profit	33.6		37.2		65.7		75.0
International SG&A expenses	International SG&A expenses	(31.4)		(34.5)		(99.2)		(102.2)		International SG&A expenses	(32.6)		(34.6)		(65.0)		(67.8)
International earnings (loss) from operations		1.9		2.4		9.1		8.1
International earnings from operations										International earnings from operations	1.0		2.6		0.7		7.2

Corporate	Corporate	(21.9)		(19.9)		(70.4)		(63.2)		Corporate	(30.0)		(23.1)		(56.4)		(48.5)
Loss on disposal		(0.2)		—		(18.7)		—
Impairment of assets held for sale										Impairment of assets held for sale	—		(18.5)		—		(18.5)
Gain on sale of assets	Gain on sale of assets	—		—		5.3		—		Gain on sale of assets	—		4.4		—		5.3
Consolidated Total	Consolidated Total	(21.4)		9.0		10.2		33.3		Consolidated Total	6.2		8.2		16.9		31.6
Gain (loss) on investment in Persol Holdings		—		35.5		(67.2)		71.8
Loss on investment in Persol Holdings										Loss on investment in Persol Holdings	—		—		—		(67.2)
Loss on currency translation from liquidation of subsidiary	Loss on currency translation from liquidation of subsidiary	—		—		(20.4)		—		Loss on currency translation from liquidation of subsidiary	—		—		—		(20.4)
Other income (expense), net	Other income (expense), net	0.2		(0.3)		1.9		(4.0)		Other income (expense), net	(0.6)		(1.1)		1.4		1.7

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate		$	(21.2)	$	44.2	$	(75.5)	$	101.1
Earnings (loss) before taxes and equity in net earnings of affiliate										Earnings (loss) before taxes and equity in net earnings of affiliate	$	5.6	$	7.1	$	18.3	$	(54.3)

3029

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

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

Third Quarter September Year to Date
2022 2021 2022 2021
(In millions of dollars)
Depreciation and amortization:
Professional & Industrial $ 0.8 $ 1.3 $ 2.9 $ 4.1
Science, Engineering & Technology 3.2 3.2 9.5 7.5
Education 1.6 0.9 3.7 2.8
Outsourcing & Consulting 1.0 0.1 2.2 0.5
International 0.3 0.5 1.3 1.5

~~19.~~ ~~New Accounting Pronouncements~~

~~Recently Adopted~~

In October 2021, the FASB issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations that occur after the effective date. We early adopted this standard in the first quarter of 2022 and the adoption did not have a material impact to our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 was effective for the Company in the first quarter of fiscal 2021. The adoption of this standard did not have a material impact to our consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01 which clarifies the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. The guidance clarifies how to account for the transition into and out of the equity method of accounting when considering observable transactions under the measurement alternative. The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted. The adoption of this standard did not have a material impact to our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12 simplifying various aspects related to the accounting for income taxes. The guidance removes exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted. The adoption of this standard did not have a material impact to our consolidated financial statements.

~~Not Yet Adopted~~

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


	Second Quarter				June Year to Date
	2023		2022		2023		2022
	(In millions of dollars)
Depreciation and amortization:

Professional & Industrial	$	0.9	$	1.0	$	1.7	$	2.1
Science, Engineering & Technology	3.1		3.2		6.3		6.3
Education	1.6		1.3		3.1		2.1
Outsourcing & Consulting	1.0		1.0		2.0		1.2
International	0.4		0.5		0.8		1.0

~~KELLY SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(UNAUDITED)~~

~~20. Subsequent Event~~

3230

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Executive Overview

~~Kelly’s strategy~~The second quarter marked a continuation of the macroeconomic and ~~actions~~labor market dynamics we’ve observed for several quarters. Employers in most sectors maintained a guarded approach to hiring and focused on retaining their current workforce amid ongoing economic uncertainty. In more resilient pockets of the economy where employers are ~~guided by~~in need of talent, the supply of candidates to fill open roles remains constrained. These dynamics continued to put pressure on our ~~simple yet powerful Noble Purpose: “We connect people to work~~business during the quarter, and while we captured growth where it exists, their effects became more noticeable in ways that enrich their lives.” We are committed to being a leading talent solutions provider among the talent with whom we choose to specialize and in the global markets in which we choose to compete. As we navigate the post-pandemic landscape, we will continue to demonstratecertain parts of our ~~expected behaviors and actions:~~portfolio.

•~~Employ~~Our Education segment continued to report significant year-over-year growth driven by net new customer wins and improved fill rates.

•Our higher margin outcome-based solutions in P&I delivered solid revenue growth as demand for these value-added solutions remains strong.

•We continued to experience a ~~talent-first mentality~~deceleration in demand for temporary and permanent placement services, which impacted results in our P&I and SET segments.

•We maintained a disciplined approach to managing expenses while ensuring Kelly is well positioned to capture demand on the other side of the current economic cycle.

Amid ongoing economic uncertainty, we remained focused on the future and took aggressive action on our transformation journey to improve Kelly’s profitability and accelerate growth over the long term. Since announcing the transformation in May, our business unit and enterprise function teams, together with the Transformation Management Office, have made substantial progress on multiple initiatives to drive organizational efficiency and effectiveness. The actions we have taken to date culminated in a strategic restructuring, which we disclosed in July. They include:

•~~Relentlessly deliver for customers~~Further optimizing our operating model to reduce complexity and increase agility

•Renegotiating supplier agreements and real estate contracts

•Revamping our enterprise-wide performance management process

•Implementing a workforce reduction plan to align our resources with our streamlined organizational structure

•~~Grow through discipline~~These changes represent structural shifts to Kelly’s operations and ~~focus~~

•~~Deliver efficiency~~are expected to deliver an immediate and ~~effectiveness in everything we do~~

By aligning ourselves with our Noble Purpose and executing against these behaviors, we are becoming a more agile and focused organization, prepared to achieve new levels of growth and profitability as we develop and reshape our portfolio of businesses.

~~The Talent Solutions Industry~~

Labor markets have been in the midst of change due to automation, secular shifts in labor supply and demand and skills gaps. Global demographic trends are reshaping and redefining the way in which companies find and use talent, and the COVID-19 pandemic changed where and how companies expect work to be performed—a shift we expect will carry over into the future. In response, the talent solutions industry is adjusting how it sources, recruits, trains and places talent.

Our industry is evolving to meet businesses’ growing demand for specialized talent, whether delivered as a single individual or as part of a total workforce solution. Companies in our industry are using novel sourcing approaches—including gig platforms, independent contractors and other talent pools—to create customized workforce solutions that are flexible and responsivemeaningful improvement to the ~~labor market.~~

In addition, today’s companies are elevating their commitment to talent, with the growing realization that meeting the changing needs and requirements of talent is essential to remain competitive. The ways in which people view, find and conduct work are undergoing fundamental shifts. And as the demand for skilled talent continues to climb, workers’ changing ideas about the integration of work into life are becoming more important. 2021 saw record-breaking employee resignations in the U.S. as workers opted out of jobs that did not align with their needs. In this increasingly talent-driven market, a diverse set of workers, empowered by technology, is seeking to take even greater control over their career trajectories. Kelly is proud to be a career partner of choice for workers in search of a better way to work.

~~Our Business~~

Kelly is a talent and global workforce solutions company serving customers of all sizes in a variety of industries. We offer innovative outsourcing and consulting services, as well as staffing on a temporary and direct-hire basis. In 2020, we adopted a new operating model and realigned our business into five specialty business units, which are also our reportable segments.

•Professional & Industrial – delivers staffing, outcome-based and direct-hire services focused in office, professional, light industrial and contact center specialties in the U.S. and Canada, including our KellyConnect and our Business and Professional Services products

•Science, Engineering & Technology – delivers staffing, outcome-based and direct-hire services focused on science and clinical research, engineering, technology and telecommunications specialties predominantly in the U.S. and Canada and includes our NextGen and Global Technology Associates subsidiaries, as well as Softworld, a technology staffing and workforce solutions company acquired in 2021

•Education – delivers staffing, direct-hire and executive search services across the full education spectrum from early childhood to higher education in the U.S., and includes Teachers On Call, Greenwood/Asher & Associates and Pediatric Therapeutic Services ("PTS"), a specialty firm providing in-school therapy services, acquired in May 2022

•Outsourcing & Consulting – delivers Master Service Provider ("MSP"), Recruitment Process Outsourcing ("RPO"), which includes our March 2022 acquisition of RocketPower, Payroll Process Outsourcing ("PPO") and Talent Advisory Services to customers on a global basis

•International – delivers staffing, RPO and direct-hire services in 14 countries in Europe, as well as services in Mexico delivered in accordance with recent changes in labor market regulations. Effective July 20, 2022, we completed a transaction to sell our business in Russia to an in-country provider and no longer operate in Russia

~~In addition, we hold a minority interest in PersolKelly Pte. Ltd. ("PersolKelly"), which provides staffing and direct hire services to customers in the Asia-Pacific region.~~

We earn revenues from customers that procure the services of our temporary employees on a time and materials basis, that use us to recruit permanent employees, and that rely on our talent advisory and outsourcing services. Our working capital requirements are primarily generated from temporary employee payroll and customer accounts receivable. The nature of our business is such that trade accounts receivable are our most significant asset. Average days sales outstanding varies within and outside the U.S. and was 64 days on a global basis as ofCompany’s EBITDA margin through the end of ~~the third quarter of 2022~~2023 and 63 days as of the end of the third quarter of 2021. Since receipts from customers generally lag temporary employee payroll, working capital requirements increase substantially in periods of growth and decline in periods of economic contraction.

~~Our Perspective and Outlook on Growth~~

We entered 2022 having shifted from recovery from the COVID-19 pandemic to growth. Demand for our services remains strong, although continued economic uncertainty, including inflation and rising interest rates, has created more variability in demand across industry verticals and customer size. Our permanent placement fee growth points toward our customers’ investments in their future workforce, and demand in our staffing and outcome-based businesses reflects strong market demand for the specialty solutions we provide. Our business is arranged around specialties that target these areas of strong demand, promising growth opportunities, and Kelly’s proven ability to win. Our segments also reflect our intent to shift our portfolio toward high-margin, higher-value specialties that deliver a competitive edge and increased shareholder value. We believe that an inorganic growth strategy will accelerate the achievement of these goals.

~~As we continue our strategic growth journey in the year ahead, we will also invest in key value drivers.~~

•We are mapping our digital transformation journey, building a technology foundation to optimize our business, personalize the talent journey and improve the client experience. For example, in 2021 we launched Helix UX, an industry-leading talent management tool that is enabling our customers to better manage their global workforce across temporary, full-time and cloud-based talent pools.

•We are consistently striving to better understand and support our talent and their shifting needs. We have reallocated resources to be solely focused on the temporary worker experience, and our Equity@Work initiative is designed to break down long-standing, systemic barriers that make it difficult for many people to participate in the labor market.

•We are investing in the talent experience of our full-time employees, taking action to ensure we have the people coaches and performance management systems that will help our employees thrive in their Kelly careers. We know that our success is powered by our people, and we are aiming for industry-leading results.

As we execute our specialty growth strategy, we are focused on both the speed and scope of change. To that end, in February 2022, we completed transactions that have allowed us to strategically re-deploy resources to accelerate our growth in high-margin, high-growth specialties. Specifically, we unwound our cross-ownership with Persol Holdings and reduced our ownership interest in our APAC joint venture, PersolKelly. Monetizing our investments in Persol Holdings and PersolKelly provided us with additional capital, which we have already begun to use to accelerate our specialty growth strategy. In March 2022, we completed the acquisition of RocketPower, a business that diversifies and strengthens Kelly’s RPO business by accessing the high-tech market. And in May 2022, we completed the acquisition of PTS, a specialty firm that expands our K-12 leadership position and provides in-school services for occupational, physical, speech and behavioral health therapies. Both acquisitions expand Kelly’s presence in high-growth, high margin specialties. As we move forward, we will continue to look for opportunities to grow both organically and inorganically in 2022 and beyond.

Financial Measures

The constant currency (“CC”) change amounts refer to the year-over-year percentage changes resulting from translating ~~2022~~2023 financial data into U.S. dollars using the same foreign currency exchange rates used to translate financial data for ~~2021.~~2022. We believe that CC measurements are a useful measure, indicating the actual trends of our operations without distortion due to currency fluctuations. We use CC results when analyzing the performance of our segments and measuring our results against those of our competitors. Additionally, substantially all of our foreign subsidiaries derive revenues and incur cost of services and selling, general and administrative (“SG&A”) expenses within a single country and currency which, as a result, provides a natural hedge against currency risks in connection with their normal business operations.

CC measures are non-GAAP (Generally Accepted Accounting Principles) measures and are used to supplement measures in accordance with GAAP. Our non-GAAP measures may be calculated differently from those provided by other companies, limiting their usefulness for comparison purposes. Non-GAAP measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

Reported and CC percentage changes were computed based on actual amounts in thousands of dollars.

Return on sales (earnings from operations divided by revenue from services) and conversion rate (earnings from operations divided by gross profit) are ratios used to measure the Company’s operating efficiency.

EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDA margin (EBITDA divided by revenue from services) are measures used for understanding the Company's ability to generate cash flow and for judging overall operating performance.

NM (not meaningful) in the following tables is used in place of percentage changes where: the change is in excess of 500%, the change involves a comparison between earnings and loss amounts, or the comparison amount is zero.

Days sales outstanding (“DSO”) represents the number of days that sales remain unpaid for the period being reported. DSO is calculated by dividing average net sales per day (based on a rolling three-month period) into trade accounts receivable, net of allowances at the period end. Although secondary supplier revenues are recorded on a net basis (net of secondary supplier expense), secondary supplier revenue is included in the daily sales calculation in order to properly reflect the gross revenue amounts billed to the customer.

3532

Results of Operations

Total Company

(Dollars in millions)


		Third Quarter								September Year to Date									Second Quarter								June Year to Date
		2022			2021			% Change		2022			2021			% Change			2023			2022			% Change		2023			2022			% Change
Revenue from services	Revenue from services	$	1,167.9		$	1,195.4		(2.3)	%	$	3,731.6		$	3,659.4		2.0	%	Revenue from services	$	1,217.2		$	1,267.3		(3.9)	%	$	2,485.5		$	2,563.7		(3.0)	%
Gross profit	Gross profit	240.6			228.9			5.1		761.6			673.2			13.1		Gross profit	240.6			262.4			(8.3)		494.7			521.0			(5.0)
SG&A expenses excluding restructuring charges	SG&A expenses excluding restructuring charges	231.1			220.0			5.0		707.3			640.0			10.3		SG&A expenses excluding restructuring charges	226.4			240.3			(5.8)		463.2			474.7			(2.4)
Restructuring charges	Restructuring charges	—			(0.1)			NM		—			(0.1)			NM		Restructuring charges	5.6			(0.2)			NM		12.2			1.5			NM
Total SG&A expenses	Total SG&A expenses	231.1			219.9			5.1		707.3			639.9			10.5		Total SG&A expenses	232.0			240.1			(3.4)		475.4			476.2			(0.2)
Goodwill impairment charge		30.7			—			NM		30.7			—			NM
Loss on disposal		0.2			—			NM		18.7			—			NM
Asset impairment charge																		Asset impairment charge	2.4			18.5			(86.8)		2.4			18.5			(86.8)
Gain on sale of assets	Gain on sale of assets	—			—			NM		(5.3)			—			NM		Gain on sale of assets	—			(4.4)			NM		—			(5.3)			NM
Earnings (loss) from operations		(21.4)			9.0			NM		10.2			33.3			(69.4)
Gain (loss) on investment in Persol Holdings		—			35.5			NM		(67.2)			71.8			NM
Earnings from operations																		Earnings from operations	6.2			8.2			(23.1)		16.9			31.6			(46.4)
Loss on investment in Persol Holdings																		Loss on investment in Persol Holdings	—			—			—		—			(67.2)			NM
Loss on currency translation from liquidation of subsidiary	Loss on currency translation from liquidation of subsidiary	—			—			NM		(20.4)			—			NM		Loss on currency translation from liquidation of subsidiary	—			—			—		—			(20.4)			NM
Other income (expense), net	Other income (expense), net	0.2			(0.3)			156.6		1.9			(4.0)			148.0		Other income (expense), net	(0.6)			(1.1)			40.2		1.4			1.7			(19.7)
Earnings (loss) before taxes and equity in net earnings (loss) of affiliate		(21.2)			44.2			NM		(75.5)			101.1			NM
Earnings (loss) before taxes and equity in net earnings of affiliate																		Earnings (loss) before taxes and equity in net earnings of affiliate	5.6			7.1			(20.6)		18.3			(54.3)			NM
Income tax expense (benefit)	Income tax expense (benefit)	(5.0)			11.1			(144.6)		(13.1)			19.0			(169.1)		Income tax expense (benefit)	(1.9)			4.9			(137.4)		(0.1)			(8.1)			99.3
Equity in net earnings (loss) of affiliate		—			1.7			NM		0.8			2.3			(66.8)
Equity in net earnings of affiliate																		Equity in net earnings of affiliate	—			—			—		—			0.8			NM
Net earnings (loss)	Net earnings (loss)	$	(16.2)		$	34.8		NM	%	$	(61.6)		$	84.4		NM	%	Net earnings (loss)	$	7.5		$	2.2		237.2	%	$	18.4		$	(45.4)		NM	%

Gross profit rate	Gross profit rate	20.6		%	19.2		%	1.4	pts.	20.4		%	18.4		%	2.0	pts.	Gross profit rate	19.8		%	20.7		%	(0.9)	pts.	19.9		%	20.3		%	(0.4)	pts.

~~Third~~Second Quarter Results

Revenue from services in the ~~third~~second quarter decreased ~~2.3%~~3.9% on a reported basis and ~~increased 0.3%~~4.5% on a constant currency basis, and reflects revenue ~~increases in Education, Science, Engineering & Technology, and Outsourcing & Consulting operating segments, partially offset by~~ declines in Professional & Industrial, Science, Engineering & Technology, International, and ~~International segments. Our 2022 acquisitions of RocketPower, an RPO solutions provider, and PTS, a specialty firm that provides in-school therapy services, added approximately 130 basis points to~~Outsourcing & Consulting segments, partially offset by increases in the ~~revenue growth rate, while the~~Education segment. The sale of our Russian operations in July 2022 resulted in a ~~250~~230 basis points year-over-year decline in constant currency. Compared to the ~~third~~second quarter of ~~2021,~~2022, revenue from staffing services decreased ~~5.0%~~4.1% and revenue from outcome-based services increased ~~6.1%~~9.4%. ~~Permanent~~In addition, revenue from talent solutions decreased 11.7% and permanent placement revenue ~~which is included in revenue from services, increased 0.7%~~decreased 36.8% from the prior year.

Gross profit ~~increased 5.1%~~decreased 8.3% on a reported basis and ~~7.6%~~8.5% on a constant currency ~~basis due to an increase in the gross profit rate.~~basis. The gross profit rate ~~increased 140~~decreased 90 basis points due primarily to ~~favorable product mix, and lower employee-related costs, coupled with the impact of the acquisitions of RocketPower and PTS which generate higher margins, as well as higher~~a decrease in permanent placement ~~income. The gross profit rate increased in all operating segments.~~revenue and higher employee related costs, partially offset by favorable business mix. Permanent placement revenue ~~which is included in revenue from services and~~ has very low direct costs of services and has a disproportionate impact on gross profit rates. The gross profit rate decreased in all segments.

Total SG&A expenses ~~increased 5.1%~~decreased 3.4% on a reported basis and ~~7.1%~~3.9% on a constant currency basis. SG&A expenses related to RocketPower and PTS, including intangible asset amortization expense and other operating expenses, accounted for approximately 230 basis points of the year-over-year increase. The increaseIncluded in SG&A expenses ~~also reflects higher salary~~in the second quarter of 2023 was $5.6 million of transformation and restructuring charges. Actions were taken that will further streamline the Company's operating model to enhance organizational efficiency and effectiveness as part of a comprehensive transformation initiative. Excluding transformation and restructuring charges, SG&A expenses decreased 5.8% on a reported basis and 6.3% on a constant currency basis. The decrease in SG&A expenses primarily related ~~costs, as well as increases in~~to lower performance-based incentive compensation ~~expenses.~~expenses in response to lower revenue volume in addition to reduced expenses from the sale of our Russian operations in 2022.

Impairment of assets in the second quarter of 2023 represents the impairment of right-of-use assets related to an unoccupied office space lease exited in the quarter.

3633

The goodwill impairment charge relates to our RocketPower business, which delivers recruitment process outsourcing services primarily to customers in the high-tech industry and is included in the OCG segment. Changes in market conditions related to demand in hiring in the high-tech industry and slowing growth in RPO more broadly triggered an interim goodwill impairment test which resulted in an impairment charge of $30.7 million.

Loss on disposal relates to the completion of the sale of our Russia operations in July 2022. We have completed the sale of our business in Russia to a local firm within the country and are no longer operating in Russia.

~~Loss~~Earnings from operations for the ~~third~~second quarter of ~~2022~~2023 totaled ~~$21.4~~$6.2 million, compared to earnings of ~~$9.0~~$8.2 million in the ~~third~~second quarter of ~~2021.~~2022. The decline is primarily related to the ~~goodwill~~impact of our 2023 transformation and restructuring charges, the 2023 impairment ~~charge.~~charge, and the impact of lower revenue compared to the prior year partially offset by the net prior year impact of the impairment of assets held for sale and gain on sale of assets.

Income tax benefit was ~~$5.0~~$1.9 million for the ~~third~~second quarter of ~~2022~~2023 and income tax expense was ~~$11.1~~$4.9 million for the ~~third~~second quarter of ~~2021. These amounts were impacted by~~2022. The variance primarily relates to changes in ~~earnings from operations.~~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.

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~~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 and the tax effects of stock compensation, which are treated as discrete since they cannot be estimated.

The net ~~loss~~earnings for the period ~~was $16.2~~were $7.5 million, compared to ~~net~~ earnings of ~~$34.8~~$2.2 million for the ~~third~~second quarter of ~~2021. The 2022 net loss includes the goodwill impairment charge, net of tax, and the 2021 period includes a gain on the sale of Persol Holdings common shares, net of tax.~~2022.

~~September Year to Date~~June Year-to-Date Results

Revenue from services in the first ~~nine~~six months of ~~2022 increased 2.0%~~2023 decreased 3.0% on a reported basis and ~~4.0%~~2.9% on a constant currency basis, and reflects revenue ~~increases~~declines in ~~Education,~~Professional & Industrial, International, Science, Engineering & Technology, and Outsourcing & Consulting ~~operating~~ segments, partially offset by ~~declines in Professional & Industrial and International segments. Our acquisition of Softworld, a technology staffing and solutions firm~~increases in the ~~second~~Education segment. The first quarter impact of ~~2021 and~~ our ~~2022~~ acquisitions of RocketPower, ana RPO solutions provider, and PTS, a specialty firm that provides in-school therapy services, added approximately ~~200~~70 basis points to the year-to-date revenue growth rate. This was offset by a 230 basis points impact from the July 2022 sale of our Russian operations. Compared to the first ~~nine~~six months of ~~2021,~~2022, revenue from staffing services decreased ~~0.6%~~4.2% and revenue from outcome-based services increased ~~6.6%~~11.3%. ~~Permanent~~In addition, revenue from talent solutions decreased 5.6% and permanent placement revenue, which is included in revenue from services, ~~increased 31.2%~~decreased 35.5% from the prior year.

Gross profit ~~increased 13.1%~~decreased 5.0% on a reported basis and ~~15.1%~~4.7% on a constant currency basis on ~~higher~~lower revenue volume, combined with ~~an increase~~a decrease in the gross profit rate. The gross profit rate ~~increased 200~~decreased 40 basis points due primarily to ~~favorable product~~unfavorable business mix and lower ~~employee-related costs, higher~~ permanent placement income, ~~and the impact of the acquisitions of Softworld, RocketPower and PTS which generate higher gross profit rates. The gross profit rate increased in all operating segments.~~partially offset by lower employee-related costs. Included in gross profit for the first ~~nine~~six months of 2022 is a one-time permanent placement fee from a large customer, as well as an adjustment to prior periods workers' compensation expenses, resulting in 2030 basis points of favorable impact. Permanent placement revenue, which is included in revenue from services and has very low direct costs of services, has a disproportionate impact on gross profit rates.

Total SG&A expenses ~~increased 10.5%~~decreased 0.2% on a reported basis and ~~12.2%~~0.1% on a constant currency basis. ~~Approximately 320 basis points~~Included in SG&A expenses in the first six months of ~~the year-over-year increase is attributable to~~2023 was $12.2 million of transformation and restructuring charges. In the first quarter of 2023, actions were taken to further our cost management efforts in response to current demand levels and to reposition our P&I staffing business to better capitalize on opportunities in local markets. In the second quarter of 2023, additional actions were taken that will further streamline the Company's operating model to enhance organizational efficiency and effectiveness as part of a comprehensive transformation initiative. Excluding transformation and restructuring charges, SG&A expenses ~~for Softworld~~decreased 2.4% on a reported basis and ~~the second and third quarter SG&A expenses for RocketPower and PTS, including amortization of intangibles and other operating expenses.~~2.3% on a constant currency basis. The ~~increase~~decrease in SG&A expenses ~~also reflects increases in salary and~~primarily related ~~costs and increases in~~to lower performance-based incentive compensation ~~expenses.~~expenses in response to lower revenue volume in addition to reduced expenses from the sale of our Russian operations in 2022.

~~The goodwill impairment charge relates to our RocketPower business which delivers recruitment process outsourcing services primarily to customers~~Impairment of assets in the ~~high-tech industry and is included~~second quarter of 2023 represents the impairment of right-of-use assets related to an unoccupied office space lease exited in the ~~OCG segment. Changes in market conditions related to demand in hiring~~quarter. Impairment of assets held for sale in the ~~high-tech industry and slowing growth in RPO more broadly triggered an interim goodwill impairment test which resulted in an impairment charge~~second quarter of ~~$30.7 million.~~

~~Loss on disposal relates~~2022 related to our decision to ~~sell~~transition our business in Russia in May 2022. As a result, our Russian operations were classified as a held for sale disposal group and an impairment loss ~~of $18.5 million~~ representing the excess carrying value over the fair value of the net assets, less costs to sell, was recognized in the second quarter of ~~2022 with an additional loss of $0.2~~

~~million recognized in the third quarter upon completion of the transaction.~~2022. Gain on sale of assets ~~relates~~in the second quarter of 2022 related to the disposition of under-utilized real property located in the United States.

Earnings from operations for the first ~~nine~~six months of ~~2022~~2023 totaled ~~$10.2~~$16.9 million, compared to earnings of ~~$33.3~~$31.6 million in the first ~~nine~~six months of ~~2021.~~2022. The decline is ~~due~~ primarily related to the ~~goodwill~~impact of our 2023 transformation and restructuring charges, impairment charge, and the ~~loss on disposal,~~impact of lower revenue compared to the prior year, partially offset by ~~higher gross profit,~~the net prior year impact of ~~increased SG&A expenses~~the impairment of assets held for sale and gain on sale of assets. Included in total earnings from operations in the first nine months of 2022 is approximately $12.5 million related to Softworld, RocketPower and PTS earnings from operations, inclusive of amortization of intangibles, and $4.1 million in the first nine months of 2021 related to Softworld, inclusive of amortization of intangibles.

The loss on investment in Persol Holdings in the first ~~nine~~six months of 2022 represented the $52.4 million loss resulting from changes in the market price of our investment in the common stock of Persol Holdings up until the date of the transaction and the $14.8 million loss on sale, including transaction costs from the sale of the investment in an open-market transaction. ~~The gain on the investment in Persol Holdings in the first nine months of 2021 resulted from changes in the quoted market price of the Persol Holdings common stock.~~

Loss on currency translation from liquidation of subsidiary ~~represents~~represented the impact of the substantial liquidation of our Kelly Japan subsidiary following the sale of the company’s investment in Persol Holdings and the return of capital through a dividend payment to its U.S. parent.

The change in Other income (expense), net is primarily the result of $5.5 million of foreign exchange gains related to U.S.-denominated cash equivalents held by our Kelly Japan subsidiary following the sale of the Persol Holdings shares and prior to its dividend payment to the U.S. parent in the first quarter of 2022.

Income tax benefit was ~~$13.1~~$0.1 million for the first ~~nine~~six months of ~~2022~~2023 and ~~income tax expense was $19.0~~$8.1 million for the first ~~nine~~six months of 2021. These amounts were impacted by changes in earnings from operations and from non-taxable returns on life insurance policies. The second quarter of 2021 also benefited $5.2 million from a change in United Kingdom tax rates.2022.

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

The net ~~loss~~earnings for the ~~period was $61.6~~first six months of 2023 were $18.4 million, compared to a net ~~earnings~~loss of ~~$84.4~~$45.4 million ~~for~~from the first ~~nine~~six months of ~~2021.~~2022. This change was due to the Persol Holdings investment, including the first quarter 2022 sale and related impacts, ~~the goodwill impairment charge, the loss on disposal related to the sale of our Russian operations,~~ partially offset by ~~improved gross profit~~higher operating earnings in the first ~~nine~~six months of ~~2022 and the gain on sale of under-utilized real property in the United States.~~2022.

3835

Operating Results By Segment

(Dollars in millions)


		Third Quarter						September Year to Date							Second Quarter						June Year to Date
		2022		2021		% Change		2022		2021		% Change			2023		2022		% Change		2023		2022		% Change
Revenue from Services:	Revenue from Services:													Revenue from Services:
Professional & Industrial	Professional & Industrial	$	408.6	$	452.6	(9.7)	%	$	1,268.7	$	1,386.7	(8.5)	%	Professional & Industrial	$	377.0	$	415.8	(9.3)	%	$	766.8	$	860.1	(10.9)	%
Science, Engineering & Technology	Science, Engineering & Technology	321.3		306.2		5.0		962.7		859.1		12.1		Science, Engineering & Technology	301.4		324.3		(7.0)		607.8		641.4		(5.2)
Education	Education	104.3		66.6		56.6		433.2		284.1		52.5		Education	206.4		155.5		32.6		455.8		328.9		38.6
Outsourcing & Consulting	Outsourcing & Consulting	118.5		113.4		4.5		352.0		320.0		10.0		Outsourcing & Consulting	113.7		124.4		(8.6)		228.3		233.5		(2.2)
International	International	215.5		256.8		(16.1)		715.9		810.1		(11.6)		International	225.1		247.6		(9.1)		436.9		500.4		(12.7)
Less: Intersegment revenue	Less: Intersegment revenue	(0.3)		(0.2)		21.5		(0.9)		(0.6)		58.1		Less: Intersegment revenue	(6.4)		(0.3)		NM		(10.1)		(0.6)		NM
Consolidated Total	Consolidated Total	$	1,167.9	$	1,195.4	(2.3)	%	$	3,731.6	$	3,659.4	2.0	%	Consolidated Total	$	1,217.2	$	1,267.3	(3.9)	%	$	2,485.5	$	2,563.7	(3.0)	%

~~Third~~Second Quarter Results

Professional & Industrial revenue from services decreased ~~9.7%~~9.3%. The decrease was due primarily to a ~~13.6%~~15.9% decline in revenue from staffing services resulting from lower hours volume, partially offset by higher bill rates. ~~Included in the decline in hours was the impact of a shift of a large staffing customer to a direct hire model which resulted in lower staffing volume.~~ Revenue from outcome-based services increased by ~~3.4%~~14.8%, ~~as the decline in~~primarily driven by continued demand ~~for our call center specialty was more than offset by an increase in demand for other outcome-based specialties.~~increases. Revenue from permanent placement fees declined 55.2%.

Science, Engineering & Technology revenue from services ~~increased 5.0%~~decreased 7.0%. The revenue ~~growth~~decline was driven by ~~increases~~declines in ~~our outcome-based product, bill rates and permanent placement income, partially offset by lower~~ hours volume in our staffing ~~specialties.~~specialties, partially offset by higher bill rates. Permanent placement fees declined 48.9% and revenue in our outcome-based services increased 3.6%.

Education revenue from services increased ~~56.6%~~32.6%, reflecting an increased demand for our services as compared to a year ago, reflecting the impact of new customer wins and higher fill rates.

Outsourcing & Consulting revenue from services decreased 8.6% on a reported basis and 8.2% in constant currency, as revenue declined in RPO as well as in PPO.

International revenue from services decreased 9.1% on a reported basis and decreased 12.8% in constant currency. The decrease was primarily the result of the sale of our Russian operations in July 2022. Excluding this impact, revenue increased 2.8% on a reported basis and decreased 1.3% in constant currency. This decline reflects that certain customer programs are serviced by OCG in 2023 that were previously in International, as well as the impact of higher hours volume primarily in Portugal and Mexico, partially offset by lower hours volume in Ireland, UK, and France.

June Year-to-Date Results

Professional & Industrial revenue from services decreased 10.9%. The decrease was due primarily to a 17.5% decline in staffing services resulting from lower hours volume, partially offset by higher bill rates. Revenue from outcome-based services increased 14.9% due to continued demand.

Science, Engineering & Technology revenue from services decreased 5.2% on a reported basis. The decrease was driven by a decline in staffing services resulting from declines in hours volume in our staffing specialties, partially offset by higher bill rates. Permanent placement fees were down 40.6% and revenues from outcome-based services increased 7.4%.

Education revenue from services increased 38.6%, reflecting an increased demand for our services as compared to a year ago, as well as the impact of the acquisition of PTS in May ~~2022. On an organic~~2022 which added 480 basis points to the year-over-year revenue ~~increased 44.5% reflecting~~growth. Increased demand for our services reflects new customer wins and an increased fill rate related to demand ~~from~~of existing ~~customers and the impact of higher fill rates.~~customers.

Outsourcing & Consulting revenue from services ~~increased 4.5%~~decreased 2.2% on a reported basis, which includes the revenue from the acquisition of RocketPower in March 2022. On an organic basis, revenue declined ~~1.7% in nominal currency and 0.3% in constant currency, as declines in~~3.3%, due primarily to lower PPO ~~revenue partially offset revenue growth in higher margin MSP and RPO products.~~revenue.

International revenue from services decreased ~~16.1%~~12.7% on a reported basis and decreased ~~5.4%~~13.3% in constant currency. The decrease was primarily the result of the sale of our Russian operations in July 2022 ~~partially offset~~and the servicing of certain customer programs by ~~the favorable impact of~~OCG in 2023 that were previously in International. Revenues were also impacted by higher hours volume in Portugal ~~Switzerland~~ and ~~Germany.~~

~~September Year to Date Results~~

~~Professional & Industrial revenue from services decreased 8.5%. The decrease was due primarily to a 10.8% decline in staffing services resulting from lower hours volume, partially~~Mexico offset by ~~higher bill rates. Included~~lower volumes in the decline in hours was the impact of a shift of a large staffing customer to a direct hire model which resulted in lower staffing volume. Revenue from outcome-based services declined 3.3% due to lower demand for our call center specialty, partially offset by growth in other specialties.

Science, Engineering & Technology revenue from services increased 12.1% on a reported basis, which includes revenue from the acquisition of Softworld in the second quarter of 2021. Excluding the impact of the addition of Softworld revenue in the first quarter of 2022, the revenue growth was 7.7%, which was driven by increases in our outcome-based services as well as increases in bill ratesFrance, Ireland and ~~permanent placement income in our staffing business.~~

Education revenue from services increased 52.5%, reflecting an increased demand for our services as compared to a year ago, as well as the impact of the acquisition of PTS in May 2022. On an organic basis, revenue increased 47.1% reflecting new customer wins, increased demand from existing customers and the impact of higher fill rates.

Switzerland.

Outsourcing & Consulting revenue from services increased 10.0% on a reported basis, which includes the revenue from the acquisition of RocketPower in March 2022. On an organic basis, revenue growth was 4.2% due primarily to strong demand for RPO services, coupled with revenue growth in MSP, partially offset by declines in PPO revenue.

International revenue from services decreased 11.6% on a reported basis and decreased 3.5% in constant currency. The decrease was primarily the result of revenue declines in Mexico due to the impact of legislation enacted in the third quarter of 2021, which placed restrictions on the staffing industry, combined with the impact of the sale of our Russian operations in July 2022. Revenue in Europe decreased 6.1% on a reported basis and increased 2.9% in constant currency with growth in most geographies.

4037

Operating Results By Segment (continued)

(Dollars in millions)


		Third Quarter								September Year to Date									Second Quarter								June Year to Date
		2022			2021			Change		2022			2021			Change			2023			2022			Change		2023			2022			Change
Gross Profit:	Gross Profit:																	Gross Profit:
Professional & Industrial	Professional & Industrial	$	70.3		$	76.6		(8.3)	%	$	231.2		$	227.7		1.5	%	Professional & Industrial	$	65.1		$	77.8		(16.4)	%	$	134.9		$	160.9		(16.2)	%
Science, Engineering & Technology	Science, Engineering & Technology	76.3			68.1			11.9		225.3			187.8			19.9		Science, Engineering & Technology	68.1			75.2			(9.3)		139.4			149.0			(6.5)
Education	Education	16.6			10.0			65.4		69.2			44.0			57.3		Education	32.5			26.0			25.0		71.8			52.6			36.6
Outsourcing & Consulting	Outsourcing & Consulting	44.1			37.3			18.6		127.6			103.4			23.5		Outsourcing & Consulting	41.3			46.2			(10.5)		82.9			83.5			(0.7)
International	International	33.3			36.9			(9.6)		108.3			110.3			(1.8)		International	33.6			37.2			(9.5)		65.7			75.0			(12.2)

Consolidated Total	Consolidated Total	$	240.6		$	228.9		5.1	%	$	761.6		$	673.2		13.1	%	Consolidated Total	$	240.6		$	262.4		(8.3)	%	$	494.7		$	521.0		(5.0)	%

Gross Profit Rate:	Gross Profit Rate:																	Gross Profit Rate:
Professional & Industrial	Professional & Industrial	17.2		%	16.9		%	0.3	pts.	18.2		%	16.4		%	1.8	pts.	Professional & Industrial	17.3		%	18.7		%	(1.4)	pts.	17.6		%	18.7		%	(1.1)	pts.
Science, Engineering & Technology	Science, Engineering & Technology	23.7			22.3			1.4		23.4			21.9			1.5		Science, Engineering & Technology	22.6			23.2			(0.6)		22.9			23.2			(0.3)
Education	Education	15.9			15.1			0.8		16.0			15.5			0.5		Education	15.8			16.7			(0.9)		15.8			16.0			(0.2)
Outsourcing & Consulting	Outsourcing & Consulting	37.2			32.8			4.4		36.3			32.3			4.0		Outsourcing & Consulting	36.4			37.2			(0.8)		36.3			35.8			0.5
International	International	15.5			14.4			1.1		15.1			13.6			1.5		International	14.9			15.0			(0.1)		15.1			15.0			0.1
Consolidated Total	Consolidated Total	20.6		%	19.2		%	1.4	pts.	20.4		%	18.4		%	2.0	pts.	Consolidated Total	19.8		%	20.7		%	(0.9)	pts.	19.9		%	20.3		%	(0.4)	pts.

~~Third~~Second Quarter Results

Gross profit for the Professional & Industrial segment decreased on lower revenue volume ~~partially offset by an increase~~and a decrease in the gross profit rate. In comparison to the prior year, the gross profit rate ~~increased 30~~decreased 140 basis points. This ~~increase~~decrease reflects lower permanent placement revenues and higher employee-related ~~costs.~~costs, partially offset by improved business mix.

The Science, Engineering & Technology gross profit ~~increased~~decreased on ~~higher~~lower revenue ~~volume, combined with an increase in the gross profit rate.~~volume. The gross profit rate ~~increased 140~~decreased 60 basis points due to ~~improved specialty mix,~~lower permanent placement revenues partially offset by ~~higher~~improved business mix and lower employee-related costs.

Gross profit for the Education segment increased on higher revenue volume. The gross profit rate decreased 90 basis points due primarily to lower permanent placement fees and unfavorable customer mix.

The Outsourcing & Consulting gross profit decreased on lower revenue volume, combined with ~~an increase~~a decrease in the gross profit rate. The gross profit rate ~~increased~~decreased 80 basis points primarily due to a change in business mix within this segment. The decrease was primarily ~~to the acquisition of PTS~~driven by declines in revenue in RPO, which generates higher ~~margins,~~margins.

International gross profit decreased 9.5% on a reported basis and 13.1% in constant currency. The decrease was primarily the result of the sale of our Russian operations in July 2022 and the servicing of certain customer programs by OCG in 2023. Partially offsetting these impacts was improving gross profit primarily driven by higher revenue volume in Portugal and Mexico.

June Year-to-Date Results

Gross profit for the Professional & Industrial segment decreased due to a decrease in the gross profit rate combined with lower ~~employee-related costs and higher~~revenue volume. In comparison to the prior year, the gross profit rate decreased 110 basis points. This decrease reflects lower permanent placement income ~~at Greenwood/Asher.~~and higher employee-related costs, partially offset by favorable business mix.

~~The Outsourcing~~Science, Engineering & ~~Consulting~~Technology gross profit ~~increased~~decreased on ~~higher~~lower revenue volume ~~combined with an increase~~and a decrease in the gross profit rate. The gross profit rate decreased 30 basis points due to lower permanent placement revenues partially offset by favorable business mix.

Gross profit for the Education segment increased ~~440~~on higher revenue volume. The gross profit rate decreased 20 basis points due primarily to lower permanent placement fees partially offset by lower employee-related costs.

Outsourcing & Consulting gross profit decreased on lower revenue volume. The gross profit rate increased 50 basis points primarily due to a change in ~~product~~business mix within this segment. Growth in RPO, including the acquisition of RocketPower, and MSP with higher margins was coupled with decreased revenues in our PPO product, which generates lower profit margins.

International gross profit decreased ~~9.6%~~12.2% on a reported basis and ~~increased 2.0%~~12.6% in constant currency. The decrease ~~on a reported basis resulted from lower revenue volume, partially offset~~was primarily the result of the sale of our Russian operations in July 2022 and the servicing of certain customer programs by ~~an improved~~OCG in 2023. Partially offsetting these impacts was improving gross profit ~~rate. On a constant currency basis, the improved gross profit rate more than offset the lower revenue volume. The gross profit rate increased 110 basis points~~ primarily ~~due to improved customer mix and higher permanent placement income.~~

~~September Year to Date Results~~

~~Gross profit for the Professional & Industrial segment increased due to an increase in the gross profit rate, partially offset~~driven by lower revenue volume. In comparison to the prior year, the gross profit rate increased 180 basis points. This increase reflects higher permanent placement income, including conversion fees related to a large customer, lower employee-related costs and improved business mix.

~~Science, Engineering & Technology gross profit increased on~~ higher revenue volume ~~combined with an increase~~ in ~~the gross profit rate. The gross profit rate increased 150 basis points due to improved specialty mix, including the acquisition of Softworld which generates higher gross profit margins,~~Mexico, Portugal and ~~increased permanent placement income, partially offset by higher employee-related costs.~~

Gross profit for the Education segment increased on higher revenue volume and an increase in the gross profit rate. The gross profit rate increased 50 basis points due primarily to the acquisition of PTS which generates higher margins, and higher permanent placement income at Greenwood/Asher.

Outsourcing & Consulting gross profit increased on higher revenue volume, combined with an increase in the gross profit rate. The gross profit rate increased 400 basis points primarily due to a change in product mix within this segment. Growth in RPO, including the acquisition of RocketPower, and MSP with higher margins, was coupled with decreased revenues in our PPO product, which generates lower profit margins.

International gross profit decreased 1.8% on a reported basis and improved 7.4% on a constant currency basis. On a reported basis, lower revenue volume was partially offset by an improved gross profit rate. On a constant currency basis, the improved gross profit rate more than offset the impact of lower revenue volume. In comparison to the prior year, the gross profit rate increased 150 basis points primarily due to improved customer mix and higher permanent placement income.

Germany.

4239

Operating Results By Segment (continued)

(Dollars in millions)


		Third Quarter						September Year to Date							Second Quarter						June Year to Date
		2022		2021		% Change		2022		2021		% Change			2023		2022		% Change		2023		2022		% Change
SG&A Expenses:	SG&A Expenses:													SG&A Expenses:
Professional & Industrial	Professional & Industrial	$	65.3	$	69.4	(6.0)	%	$	204.1	$	207.8	(1.8)	%	Professional & Industrial	$	58.6	$	67.4	(13.1)	%	$	126.1	$	138.8	(9.2)	%
Science, Engineering & Technology	Science, Engineering & Technology	53.4		48.4		10.2		161.4		131.0		23.2		Science, Engineering & Technology	50.0		54.8		(8.6)		102.8		108.0		(4.8)
Education	Education	21.4		17.0		25.6		60.4		46.5		29.9		Education	23.1		20.4		12.9		46.9		39.0		20.2
Outsourcing & Consulting	Outsourcing & Consulting	37.7		30.7		23.4		111.8		89.2		25.6		Outsourcing & Consulting	37.7		39.8		(5.4)		78.2		74.1		5.4
International	International	31.4		34.5		(9.1)		99.2		102.2		(3.0)		International	32.6		34.6		(5.7)		65.0		67.8		(4.0)

Corporate expenses	Corporate expenses	21.9		19.9		9.9		70.4		63.2		11.3		Corporate expenses	30.0		23.1		30.0		56.4		48.5		16.5
Consolidated Total	Consolidated Total	$	231.1	$	219.9	5.1	%	$	707.3	$	639.9	10.5	%	Consolidated Total	$	232.0	$	240.1	(3.4)	%	$	475.4	$	476.2	(0.2)	%

~~Third~~Second Quarter Results

Total SG&A expenses in Professional & Industrial decreased ~~6.0%~~13.1% from the prior ~~year,~~year. The decrease is primarily due to lower salary-related costs as a result of cost management in response to lower revenue volume compared to the prior ~~year.~~year as well as lower performance-based incentive compensation expenses.

Total SG&A expenses in Science, Engineering & Technology ~~increased 10.2%~~decreased 8.6% from the prior year, primarily due to ~~higher~~lower performance-based incentive compensation ~~expense and higher salary-related costs from higher headcount and salary increases.~~expenses.

Total SG&A expenses in Education increased 25.6% from the prior year, and includes the impact of the acquisition of PTS in May 2022. Excluding the impact of the PTS acquisition, SG&A expenses increased 15.5% from the prior year, due primarily to higher salary-related expenses as headcount has increased as revenues have grown, partially offset by the prior year impact of a charge to adjust the earnout liability due to the former owners of Greenwood/Asher & Associates.

Total SG&A expenses in Outsourcing & Consulting increased 23.4% from the prior year, and includes the impact of the acquisition of RocketPower in March 2022. Excluding the impact of the RocketPower acquisition, SG&A expenses increased 12.6% from the prior year, primarily due to higher salary-related expenses as a result of headcount related to higher MSP and RPO revenue and salary increases.

Total SG&A expenses in International decreased 9.1% on a reported basis and increased 1.5% on a constant currency basis. The constant currency increase was due to higher salary-related expenses driven by an increase in headcount, reflecting improving revenue in Europe, partially offset by the impact of the sale of our Russian operations in July 2022.

~~Corporate expenses increased 9.9% primarily due to higher performance-based incentive compensation expense.~~

~~September Year to Date Results~~

Total SG&A expenses in Professional & Industrial decreased 1.8% from the prior year, primarily due to lower expenses to support lower volumes in our staffing and outcome-based call center specialties, partially offset by higher performance-based incentive compensation expense.

Total SG&A expenses in Science, Engineering & Technology increased 23.2% from the prior year, and includes the impact of the acquisition of Softworld in the second quarter of 2021. Excluding the impact of the addition of Softworld expenses in the first quarter of 2022, SG&A expenses increased 15.4% from the prior year. The increase in organic SG&A expenses are due primarily to higher performance-based incentive compensation expense and higher salary-related costs from increasing headcount.

Total SG&A expenses in Education increased 29.9% from the prior year, and includes the impact of the acquisition of PTS in May 2022. Excluding the impact of the PTS acquisition, SG&A expenses increased 23.4% from the prior year, due primarily to higher salary-related expenses as headcount has increased as revenues have grown.

Total SG&A expenses in Outsourcing & Consulting increased 25.6% from the prior year, and includes the impact of the acquisition of RocketPower in March 2022. Excluding the impact of the RocketPower acquisition, SG&A expenses increased 17.4%12.9% from the prior year, due primarily to higher salary-related expenses as headcount has increased as revenues have grown.

Total SG&A expenses in Outsourcing & Consulting decreased 5.4% from the prior year, primarily due to lower performance-based incentive compensation expenses.

Total SG&A expenses in International decreased ~~3.0%~~5.7% on a reported basis and ~~increased 5.4%~~9.3% on a constant currency basis. The ~~increase in~~ constant currency decrease was ~~primarily~~mainly due to ~~higher salary-related expenses driven by an increase in headcount, reflecting improving revenue in Europe, partially offset by~~ the impact of the sale of our Russian operations in July 2022.

Corporate expenses increased ~~11.3%~~30.0% compared to the prior year, or 7.0% excluding restructuring and transformation charges of $5.1 million. The increase excluding restructuring charges is primarily due to higher stock-based compensation and other employee benefit expenses.

June Year-to-Date Results

Total SG&A expenses in Professional & Industrial decreased 9.2% from the prior year, or 11.3% excluding restructuring charges of $3.3 million. The decrease excluding restructuring charges is primarily due to lower salary-related and performance-based incentive compensation ~~expense.~~expenses in response to lower revenue volume.

Total SG&A expenses in Science, Engineering & Technology decreased 4.8% from the prior year, primarily due to lower performance-based incentive compensation expenses.

Total SG&A expenses in Education increased 20.2% from the prior year and includes the first quarter impact of the acquisition of PTS in May 2022. Excluding the impact of the PTS acquisition, SG&A expenses increased 14.8% from the prior year, due primarily to higher salary-related and performance-based incentive compensation expenses as headcount has increased as revenues have grown.

Total SG&A expenses in Outsourcing & Consulting increased 5.4% from the prior year and includes the first quarter impact of the acquisition of RocketPower in March 2022. Excluding the impact of the RocketPower acquisition, SG&A expenses increased 1.3% from the prior year, due primarily to higher salary-related costs, partially offset by lower performance-based incentive compensation expenses.

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Total SG&A expenses in International decreased 4.0% on a reported basis and 4.5% on a constant currency basis. This decrease was primarily due to the impact of the sale of our Russian operations in July 2022, partially offset by higher salary-related expenses in most countries and restructuring expenses in the first quarter of 2023.

Corporate expenses increased 16.5% compared to the prior year, or 3.7% excluding restructuring charges of $6.9 million. The increase excluding restructuring charges is primarily due to litigation-related costs.

Operating Results By Segment (continued)

(Dollars in millions)


		Third Quarter						September Year to Date							Second Quarter						June Year to Date
		2022		2021		% Change		2022		2021		% Change			2023		2022		% Change		2023		2022		% Change
Earnings (Loss) from Operations:
Earnings from Operations:														Earnings from Operations:
Professional & Industrial	Professional & Industrial	$	5.0	$	7.2	(30.7)	%	$	27.1	$	19.9	36.1	%	Professional & Industrial	$	6.2	$	10.4	(41.5)	%	$	8.5	$	22.1	(61.9)	%
Science, Engineering & Technology	Science, Engineering & Technology	22.9		19.7		16.2		63.9		56.8		12.5		Science, Engineering & Technology	18.0		20.4		(11.5)		36.5		41.0		(10.9)
Education	Education	(4.8)		(7.0)		31.8		8.8		(2.5)		NM		Education	9.4		5.6		69.5		24.9		13.6		83.7
Outsourcing & Consulting	Outsourcing & Consulting	(24.3)		6.6		NM		(14.9)		14.2		NM		Outsourcing & Consulting	1.6		6.4		(73.9)		2.7		9.4		(70.7)
International	International	1.9		2.4		(16.9)		9.1		8.1		13.4		International	1.0		2.6		(60.5)		0.7		7.2		(89.7)
Corporate	Corporate	(21.9)		(19.9)		(9.9)		(70.4)		(63.2)		(11.3)		Corporate	(30.0)		(23.1)		(30.0)		(56.4)		(48.5)		(16.5)
Loss on disposal		(0.2)		—		NM		(18.7)		—		NM
Impairment of assets held for sale														Impairment of assets held for sale	—		(18.5)		NM		—		(18.5)		NM
Gain on sale of assets	Gain on sale of assets	—		—		NM		5.3		—		NM		Gain on sale of assets	—		4.4		NM		—		5.3		NM
Consolidated Total	Consolidated Total	$	(21.4)	$	9.0	NM	%	$	10.2	$	33.3	(69.4)	%	Consolidated Total	$	6.2	$	8.2	(23.1)	%	$	16.9	$	31.6	(46.4)	%

~~Third~~Second Quarter Results

Professional & Industrial reported earnings of ~~$5.0~~$6.2 million for the quarter, a ~~30.7%~~41.5% decrease from a year ago. The decrease in earnings was primarily due to lower revenue and gross profit, partially offset by lower SG&A ~~expense.~~expenses.

Science, Engineering & Technology reported earnings of ~~$22.9~~$18.0 million for the quarter, ~~a 16.2% increase~~an 11.5% decrease from a year ago. The ~~increase~~decrease in earnings was primarily due to ~~increases~~declines in ~~revenues~~revenue and gross profit in most of our specialties within the SET business unit that were partially offset by ~~increases in certain expenses, including those related to additional headcount and increased performance-based incentive compensation.~~lower expenses.

Education reported ~~a loss~~earnings of ~~$4.8~~$9.4 million for the quarter, compared to ~~a loss~~earnings of ~~$7.0~~$5.6 million a year ago. The change was primarily due to the increase in revenue resulting from improved demand for our services as compared to a year ago, coupled with good operating leverage.

Outsourcing & Consulting reported earnings of $1.6 million for the quarter, compared to earnings of $6.4 million a year ago, due primarily to declines in revenue and gross profit and a $2.0 million right-of use-asset impairment charge, partially offset by lower expenses.

International reported earnings of $1.0 million for the quarter, compared to earnings of $2.6 million a year ago. The decrease in earnings was primarily due to lower gross profit, partially offset by lower SG&A expenses.

Impairment of assets held for sale in the second quarter of 2022 related to our decision to transition our business in Russia in May 2022. As a result, our Russian operations were classified as a held for sale disposal group, and an impairment loss representing the excess carrying value over the fair value of the net assets, less costs to sell, was recognized in the second quarter of 2022. Gain on sale of assets in 2022 related to the disposition of under-utilized real property located in the United States.

Corporate expenses increased $6.9 million year-over-year primarily due to $5.1 million of restructuring charges related to ongoing transformation activities.

June Year-to-Date Results

Professional & Industrial reported earnings of $8.5 million for the first six months of 2023, a 61.9% decrease from a year ago. The decrease in earnings was primarily due to lower revenue and gross profit, partially offset by lower SG&A expenses.

Science, Engineering & Technology reported earnings of $36.5 million for the first six months of 2023, a 10.9% decrease from a year ago. The decrease in earnings was primarily due to lower gross profit, partially offset by lower SG&A expenses.

Education reported earnings of $24.9 million for the first six months of 2023, compared to earnings of $13.6 million a year ago. The change was primarily due to the increase in revenue, coupled with good cost management. 2023 results also include the impact of first quarter earnings of ~~$0.7~~$2.7 million from PTS acquired in May 2022.

Outsourcing & Consulting reported ~~a loss~~earnings of ~~$24.3~~$2.7 million for the ~~quarter, compared to earnings~~first six months of ~~$6.6 million~~2023, a ~~year ago, due primarily to a $30.7 million charge related to the impairment of goodwill of RocketPower. Excluding the goodwill impairment charge, earnings decreased~~70.7% decrease from a year ~~ago as~~ago. The decrease in earnings was primarily due to the impact of the first quarter loss of $2.6 million from RocketPower, acquired in March 2022, the impact of a ~~result~~$2.0 million right-of-use asset impairment charge and the impact of ~~increasing costs, partially offset by higher~~lower revenue and gross profit.

International reported earnings of ~~$1.9~~$0.7 million for the ~~quarter,~~first six months of 2023, compared to earnings of ~~$2.4~~$7.2 million a year ago. The decrease in earnings was primarily due to lower gross profit, partially offset by lower SG&A expenses.

Impairment of assets held for sale in the ~~sale~~second quarter of 2022 related to our decision to transition our business in Russia in May 2022. As a result, our Russian operations were classified as a held for sale disposal group, and an impairment loss representing the excess carrying value over the fair value of the net assets, less costs to sell, was recognized in ~~July~~the second quarter of 2022. Gain on sale of assets in 2022 related to the disposition of under-utilized real property located in the United States.

~~September Year to Date Results~~

~~Professional & Industrial reported earnings of $27.1~~Corporate expenses increased $7.9 million ~~for the first nine months of 2022, a 36.1% increase from a year ago. The increase was due to improved gross profit, including conversion fees related to a large customer and good cost management.~~

~~Science, Engineering & Technology reported earnings of $63.9 million for the first nine months of 2022, a 12.5% increase from a year ago. The increase in earnings was~~year-over-year primarily due to ~~the impact~~$6.9 million of ~~the Softworld acquisition. Increases in revenues in most of our specialties within the SET business unit were partially offset by increases in certain expenses, including those~~restructuring charges related to ~~additional headcount and increased performance-based incentive compensation.~~

Education reported earnings of $8.8 million for the first nine months of 2022, compared to a loss of $2.5 million a year ago. The change was primarily due to the increase in revenue resulting from improved demand for our services as compared to a year ago, coupled with good operating leverage. 2022 results also include earnings of $1.6 million from PTS acquired in May 2022.

ongoing transformation activities.

Outsourcing & Consulting reported a loss of $14.9 million for the first nine months of 2022, compared to earnings of $14.2 million from a year ago, due primarily to a $30.7 million charge related to the impairment of goodwill of RocketPower.

International reported earnings of $9.1 million for the first nine months of 2022, compared to earnings of $8.1 million a year ago. The increase in earnings was primarily due to gross profit growth in most geographies, partially offset by the impact of the sale of our Russian operations in July 2022.

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Financial Condition

Historically, we have financed our operations through cash generated by operating activities and access to credit markets. Our working capital requirements are primarily generated from temporary employee payroll, which is generally paid weekly or monthly, and customer accounts receivable, which is generally outstanding for longer periods. Since receipts from customers lag payroll to temporary employees, working capital requirements increase substantially in periods of growth. Conversely, when economic activity slows, working capital requirements may substantially decrease. This may result in an increase in our operating cash flows; however, any such increase would not be sustainable in the event that an economic downturn continued for an extended period. The impact of the COVID-19 crisis on our business began in March 2020. While we have yet to return to pre-crisis revenue levels, we have experienced improving demand for our services and expect a sustained recovery throughout 2022.

As highlighted in the consolidated statements of cash flows, our liquidity and available capital resources are impacted by four key components: cash, cash equivalents and restricted cash, operating activities, investing activities and financing activities.

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash totaled ~~$130.7~~$134.5 million at the end of the ~~third~~second quarter of ~~2022~~2023 and ~~$119.5~~ $162.4 million at year-end ~~2021.~~2022. As further described below, we generated $23.4 million of cash from operating activities, used ~~$111.7~~$7.7 million of cash for ~~operating activities, generated $167.7 million of cash from~~ investing activities and used ~~$37.4~~$45.4 million of cash for financing activities.

Operating Activities

In the first ~~nine~~six months of ~~2022,~~2023, we ~~used $111.7~~generated $23.4 million of net cash ~~for~~from operating activities, as compared to ~~generating $31.0~~using $107.3 million in the first ~~nine~~six months of ~~2021,~~ 2022, primarily due to ~~increased~~decreased working capital requirements. ~~As revenue levels continue to recover or surpass pre-COVID levels~~Accounts receivable have decreased in ~~certain segments, days sales outstanding increased. As~~the first six months of ~~the end of the third quarter of 2022, global DSO has increased primarily~~2023 as a result of an increase in the mix of MSP and other customers with extended terms and, to a lesser extent, the timing of customer payments. Accounts payable and accrued liabilities was $735.2 million and increased from year-end 2021 as a result of increased MSP supplier payables. This increase partially mitigated the impact of higher global DSO on net cash from operating activities. lower revenue. In addition, we paid $50.1 million of income taxes related to the sale of Persol Holdings common stock in the first six months of 2022 and $29.5 million related to deferred U.S. payroll taxes in the first quarter of 2022.

Trade accounts receivable totaled ~~$1.5~~$1.4 billion at the end of the ~~third~~second quarter of ~~2022.~~2023. Global DSO was 6461 days at the end of the ~~third~~second quarter of ~~2022, 60 days~~2023 and at year-end ~~2021~~2022 and 63 days at the end of the ~~third~~second quarter of ~~2021.~~2022.

Our working capital position (total current assets less total current liabilities) was ~~$587.1~~$573.3 million at the end of the ~~third~~second quarter of ~~2022, an increase~~2023, a decrease of ~~$93.6~~$13.1 million from year-end ~~2021.~~2022. Excluding the ~~increase~~decrease in cash, working capital increased ~~$83.9~~$15.8 million from year-end ~~2021.~~2022. The current ratio (total current assets divided by total current liabilities) was 1.5 at the end of the ~~third~~second quarter of ~~2022~~2023 and at year-end ~~2021.~~2022.

Investing Activities

In the first ~~nine~~six months of ~~2022,~~2023, we ~~generated $167.7~~used $7.7 million of cash ~~from~~for investing activities, as compared to ~~using $198.4~~generating $175.6 million in the first ~~nine~~six months of 2022. Included in cash used for investing activities in the first six months of 2023 is $9.3 million of cash used for capital expenditures primarily related to technology programs and IT infrastructure, partially offset by $2.0 million for the receipt of the final payment in connection with an investment that was sold in 2021. Included in cash generated from investing activities in the first ~~nine~~six months of 2022 is $196.9 million of proceeds from the sale of the investment in Persol Holdings and $119.5 million of proceeds from the sale of almost all of the Company's shares in our equity investment in ~~PersolKelly.~~PersolKelly Pte. Ltd. This was partially offset by $58.3 million of cash used for the acquisition of RocketPower in March 2022, net of cash received, and $84.8 million of cash used for the acquisition of PTS in May 2022, net of cash received, and $6.0 million of cash disposed from the sale of Russia in July 2022, net of proceeds. Included in cash used for investing activities in the first nine months of 2021 is $213.0 million of cash used for the acquisition of Softworld in April 2021, net of cash received and including working capital adjustments.received.

Financing Activities

We used ~~$37.4~~$45.4 million of cash for financing activities in the first ~~nine~~six months of ~~2022,~~2023, as compared to using ~~$5.7~~$33.9 million in the first ~~nine~~six months of ~~2021.~~2022. The change in cash used for financing activities was primarily related to the year-over-year change in the buyback of the Company's common shares and the year-over-year change in dividend payments. In the first six months of 2023, the buyback of $34.8 million represents repurchases of the Company's Class A common stock as part of the share repurchase program. In the first six months of 2022, the $27.2 million represents the buyback of the Company's common shares held by Persol ~~Holdings for $27.2 million in the first nine months of 2022 and the year-over-year change in dividend payments.~~Holdings. Dividends paid per common share ~~were $0.20~~were $0.075 in the first ~~nine months~~two quarters of 2023, $0.075 in Q2 2022 and ~~$0.05~~$0.050 in ~~first nine months of 2021.~~Q1 2022.

Changes in net cash used for financing activities are also impacted by short-term borrowing activities. There was no debt at the end of the second quarter of 2023 and debt totaled $0.7 million at year-end 2022, which represented local borrowings. The ~~change~~changes in short-term borrowings in the first ~~nine~~six months of ~~2022 was primarily due to borrowings on local lines of credit. The change in short-~~

~~term borrowings in the first nine months of 2021 was~~2023 were primarily due to payments on local lines of credit. ~~Debt totaled $0.1 million at~~There was no change in short-term borrowings in the ~~end~~first six months of ~~the third quarter of~~ 2022 ~~which represented local borrowings, compared to no debt at year-end 2021.~~ .Debt-to-total capital (total debt reported in the consolidated balance sheet divided by total debt plus stockholders’ equity) is a common ratio to measure the relative capital

structure and leverage of the Company. Our ratio of debt-to-total capital was 0.0% at the end of the ~~third~~second quarter of ~~2022~~2023 and 0.1% at year-end ~~2021.~~2022.

New Accounting Pronouncements

~~See New Accounting Pronouncements footnote in the Notes to Consolidated Financial Statements~~Management has evaluated recently issued accounting pronouncements and does not believe that any of ~~this Quarterly Report~~these pronouncements will have a significant impact on ~~Form 10-Q for a description of new accounting pronouncements.~~our consolidated financial statements and related disclosures.

Critical Accounting Estimates

For a discussion of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2021~~2022 Form 10-K.

Contractual Obligations and Commercial Commitments

There were no significant changes to our contractual obligations and commercial commitments from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2021~~2022 Form 10-K. We have no material unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated entities.

Liquidity

We expect to meet our ongoing short-term and long-term cash requirements principally through cash generated from operations, available cash and equivalents, securitization of customer receivables and committed unused credit facilities. Additional funding sources could include ~~asset-based lending,~~ additional bank facilities or sale of non-core assets. To meet significant cash requirements related to our nonqualified retirement plan, we may utilize proceeds from Company-owned life insurance policies. During 2020, cash generated from operations was supplemented by the deferral of payments of the Company's U.S. social security taxes as allowed by the Coronavirus Aid, Relief, and Economic Security Act. We have repaid $59.4 million, including $29.5 million in the first quarter of 2022 and the remaining deferrals of $57.6 million are required to be repaid by January 3, 2023.

We utilize intercompany loans, dividends, capital contributions and redemptions to effectively manage our cash on a global basis. We periodically review our foreign subsidiaries’ cash balances and projected cash needs. As part of those reviews, we may identify cash that we feel should be repatriated to optimize the Company’s overall capital structure. As of the end of the ~~third~~second quarter of ~~2022,~~2023, these reviews have not resulted in specific plans to repatriate a majority of our international cash balances. We expect much of our international cash will be needed to fund working capital growth in our local operations as working capital needs, primarily trade accounts receivable, increase during periods of growth. A cash pooling arrangement (the “Cash Pool”) is available to fund general corporate needs internationally. The Cash Pool is a set of cash accounts maintained with a single bank that must, as a whole, maintain at least a zero balance; individual accounts may be positive or negative. This allows countries with excess cash to invest and countries with cash needs to utilize the excess cash.

As of the ~~third~~second quarter of ~~2022,~~2023, we had $200.0 million of available capacity on our $200.0 million revolving credit facility and ~~$97.0~~$100.6 million of available capacity on our $150.0 million securitization facility. The securitization facility carried no short-term borrowings and ~~$53.0~~$49.4 million of standby letters of credit related to workers’ compensation. Together, the revolving credit and securitization facilities provide the Company with committed funding capacity that may be used for general corporate purposes subject to financial covenants and restrictions. While we believe these facilities will cover our working capital needs over the short term, if economic conditions or operating results change significantly from our current expectations, we may need to seek additional sources of funds. As of the end of the ~~third~~second quarter of ~~2022,~~2023, we met the debt covenants related to our revolving credit facility and securitization facility.

We have historically managed our cash and debt closely to optimize our capital structure. As our cash balances build, we tend to pay down debt as appropriate. Conversely, when working capital needs grow, we tend to use corporate cash and cash available in the Cash Pool first, and then access our borrowing facilities. We expect our working capital requirements to increase ~~over the next several quarters~~ if demand for our services ~~increases,~~increases. We also expect to ~~pay~~use $7.4 million of cash for repurchases of the ~~remaining deferred payroll tax balances noted above by January 3, 2023, and to fund future share repurchases.~~

In February 2022, we completed transactions to monetize a substantial portion of our assets in the Asia-Pacific region which will allow us to strategically redeploy resources to accelerate our growth. Specifically, we concluded our cross-shareholding

~~arrangement with Persol Holdings and reduced our ownership interest in PersolKelly, our APAC joint venture. We sold our investment in Persol Holdings~~Company's Class A common stock ~~in an open-market transaction. We repurchased~~for the ~~1.6 million Kelly Class A and 1,475 Kelly Class B common shares owned by Persol Holdings at a price based on the last five trading days prior~~remainder of 2023 pursuant to the ~~transaction. We sold almost all~~$50.0 million plan approved by the Company's board of ~~our ownership interest in PersolKelly to our joint venture partner. In the second quarter of 2022, the Company paid $50.1 million in taxes resulting from the sale of the Persol Holdings shares.~~directors on November 9, 2022.

We monitor the credit ratings of our ~~major~~ banking partners on a regular basis and have regular discussions with them. Based on our reviews and communications, we believe the risk of one or more of our banks not being able to honor commitments is insignificant. We also review the ratings and holdings of our money market funds and other investment vehicles regularly to ensure high credit quality and access to our invested cash.

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Forward-Looking Statements

Certain statements contained in this report and in our investor conference call related to these results are “forward-looking” statements within the meaning of the applicable securities laws and regulations. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or variations or negatives thereof or by similar or comparable words or phrases. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future actions by us that may be provided by management, including oral statements or other written materials released to the public, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and assumptions about our Company and economic and market factors in the countries in which we do business, among other things. These statements are not guarantees of future performance, and we have no specific intention to update these statements.

Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, (i) changing market and economic conditions, ~~the impact of the novel coronavirus (COVID-19) outbreak, competitive market pressures including pricing and technology introductions and disruptions,~~(ii) disruption in the labor market and weakened demand for human capital resulting from technological advances, ~~competition law risks,~~loss of large corporate customers and government contractor requirements, (iii) the impact of ~~changes in~~ laws and regulations (including federal, state and international tax laws), (iv) unexpected changes in claim trends on workers’ compensation, unemployment, disability and medical benefit plans, ~~or the risk of additional~~(v) litigation and other legal liabilities (including tax ~~liabilities~~liabilities) in excess of our estimates, (vi) our ability to achieve our business's anticipated growth strategies, (vii) our future business ~~strategy, our ability to successfully develop new service offerings, material changes in demand from or loss~~development, results of ~~large corporate customers as well as changes in their buying practices, risks particular to doing business with government or government contractors, the risk of~~operations and financial condition, (viii) damage to our brand, our exposure to risks associated with services outside traditional staffing, including business process outsourcing, services of licensed professionals and services connecting talent to independent work, our increasingbrands, (ix) dependency on third parties for the execution of critical functions, our ability to effectively implement and manage our information technology strategy, the risks associated with past and future acquisitions, including risk of related impairment of goodwill and intangible assets, risks associated with(x) conducting business in foreign countries, including foreign currency fluctuations, ~~risks associated with violations of anticorruption, trade protection and other laws and regulations, availability of qualified full-time employees,~~(xi) availability of temporary workers with appropriate skills required by customers, liabilities for employment-related claims and losses, including class action lawsuits and collective actions, our ability to sustain critical business applications through our key data centers, risks arising from failure to preserve the privacy of information entrusted to us or to meet our obligations under global privacy laws, the risk of(xii) cyberattacks or other breaches of network or information technology security, ~~our ability to realize value from our tax credit~~ and ~~net operating loss carryforwards, our ability to maintain specified financial covenants in our bank facilities to continue to access credit markets, and~~(xiii) other risks, uncertainties and factors discussed in this report and in our other filings with the Securities and Exchange Commission. Actual results may differ materially from any forward-looking statements contained herein, and we undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations. Certain risk factors are discussed more fully under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K.

5046

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to foreign currency risk primarily related to our foreign subsidiaries. Exchange rates impact the U.S. dollar value of our reported earnings, our investments in and held by subsidiaries, local currency denominated borrowings and intercompany transactions with and between subsidiaries. Our foreign subsidiaries primarily derive revenues and incur expenses within a single country and currency which, as a result, provide a natural hedge against currency risks in connection with normal business operations. Accordingly, changes in foreign currency rates vs. the U.S. dollar, euro or Swiss franc generally do not impact local cash flows. Intercompany transactions which create foreign currency risk include services, royalties, loans, contributions and distributions.

In addition, we are exposed to interest rate risks through our use of the multi-currency line of credit and other borrowings. A hypothetical fluctuation of 10% of market interest rates would not have had a material impact on ~~2022 third~~2023 second quarter earnings.

We are exposed to market risk as a result of our obligation to pay benefits under our nonqualified deferred compensation plan and our related investments in company-owned variable universal life insurance policies. The obligation to employees increases and decreases based on movements in the equity and debt markets. The investments in mutual funds, as part of the Company-owned variable universal life insurance policies, are designed to mitigate, but not eliminate, this risk with offsetting gains and losses.

Item 4. Controls and Procedures.

Based on their evaluation as of the end of the period covered by this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective at a reasonable assurance level.

On March 7, 2022, the Company completed the acquisition of RocketPower and on May 2, 2022 our KSU subsidiary completed the acquisition of PTS (see Acquisitions and Disposition footnote). Under guidelines established by the SEC, companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition while integrating the acquired company. Accordingly, we intend to exclude the acquired RocketPower and PTS businesses from our assessment and report on internal control over financial reporting for the year ending January 1, 2023. We are in the process of integrating RocketPower and PTS into our system of internal control over financial reporting.

~~Except as noted above, there~~There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is continuously engaged in litigation, threatened ligation, claims, audits or investigations arising in the ordinary course of its business, such as matters alleging employment discrimination, wage and hour violations, claims for indemnification or liability, violations of privacy rights, anti-competition regulations, commercial and contractual disputes, and tax-related matters which could result in a material adverse outcome. We record accruals for loss contingencies when we believe it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Such accruals are recorded in accounts payable and accrued liabilities and in accrued workers’ compensation and other claims in the consolidated balance sheet. The Company maintains insurance coverage which may cover certain claims. When claims exceed the applicable policy deductible and realization of recovery of the claim 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.

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

In January 2018, the Hungarian Competition Authority initiated proceedings against ~~the Company, along with~~ a local industry trade association and its members, due to alleged infringement of national competition regulations. The Authority announced its decision on December 18, 2020, levying a fine against the trade association with joint and several secondary liability placed on the 20 member companies. Our apportioned secondary liability as a member company is approximately $300,000. The matter is still pending. Certain member companies exercised their right to challenge the ~~decision. Publication of the judgement by the court will~~decision, which could impact the ~~apportionment of secondary liability initially announced by the Competition Authority. However, the~~apportionment. The Company does not believe that resolution of this matter will have a material adverse effect upon the Company’s competitive position, results of operations, cash flows or financial position.

Item 1A. Risk Factors.

There have been no material changes in the Company's risk factors previously disclosed in Part I, Item 1A of the Company's Annual Report filed on Form 10-K for the year ended January ~~2, 2022.~~1, 2023.

5248

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) Sales of Equity Securities Not Registered Under the Securities Exchange Act of 1933

None.

During the ~~third~~second quarter of ~~2022,~~2023, we reacquired shares of our common stock as follows:
Period Total Number
of Shares
(or Units)
Purchased
Average
Price Paid
per Share
(or Unit)
Total Number
of Shares (or
Units) Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
That May Yet Be
Purchased Under the
Plans or Programs
(in millions of dollars)
July 4, 2022 through August 7, 2022 489 $ 19.82 — $ —
August 8, 2022 through September 4, 2022 67 19.01 $ —
September 5, 2022 through October 2, 2022 61 14.60 — $ —
Total 617 $ 19.22


Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs (in millions of dollars)
April 3, 2023 through May 7, 2023	556,878	$	16.37	556,196	$	14.8

May 8, 2023 through June 4, 2023	231,415	17.03		224,467	$	11.0

June 5, 2023 through July 2, 2023	202,113	17.78		201,902	$	7.4

Total	990,406	$	16.81	982,565

On November 9, 2022, the Company's board of directors approved a plan for the Company to repurchase shares of its Class A common stock with a market value not to exceed $50.0 million through transactions executed in the open market within one year. We may also reacquire shares outside the program in connection with shares sold to cover employee tax withholdings due upon the vesting of restricted stock ~~and performance shares~~ held by employees. Accordingly, ~~617~~7,841 shares were reacquired in transactions outside the repurchase program during the ~~quarter.~~Company’s second quarter of 2023.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

~~Not applicable.~~Securities Trading Plans of Directors and Executive Officers

During the second quarter ended July 2, 2023, none of the Company's directors or executive officers adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement."

Item 6. Exhibits.

See Index to Exhibits required by Item 601, Regulation S-K, set forth on page 5450 of this filing.

5349

INDEX TO EXHIBITS

REQUIRED BY ITEM 601,

REGULATION S-K


Exhibit No.						Description
~~10.16~~						~~First Amended and Restated Receivables Purchase Agreement Amendment No. 3, dated September 21, 2022.~~

14						~~Code of Business Conduct and Ethics, revised August 2022.~~

31.1						Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended.

31.2						Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended.

32.1						Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document.

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104						Cover Page Interactive Data File (embedded within the Inline XBRL document).

5450

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			KELLY SERVICES, INC.

Date: ~~November~~August 10, ~~2022~~2023

			/s/ Olivier G. Thirot
			Olivier G. Thirot

			Executive Vice President and
			Chief Financial Officer
			(Principal Financial Officer)


Date: ~~November~~August 10, ~~2022~~2023

			/s/ Laura S. Lockhart
			Laura S. Lockhart

			Vice President, Corporate Controller
			and Chief Accounting Officer
			(Principal Accounting Officer)

5551


	As of Year-End 2021		Additions to Goodwill		Impairment Adjustments		As of Third Quarter-End 2022
	(In millions of dollars)
Science, Engineering & Technology	$	111.3	$	—	$	—	$	111.3
Education	3.5		36.3		—		39.8
Outsourcing & Consulting	—		41.0		(30.7)		10.3
Total	$	114.8	$	77.3	$	(30.7)	$	161.4