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Index to Exhibits on page 12
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-1088
KELLY SERVICES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 38-1510762
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
999 WEST BIG BEAVER ROAD, TROY, MICHIGAN 48084
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(810) 362-4444
----------------------------------------------------
(Registrant's telephone number, including area code)
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 X No
---- ----
At November 7, 1994, 34,358,941 shares of Class A and 3,603,124 shares of Class
B common stock of the Registrant were outstanding.
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KELLY SERVICES, INC. AND SUBSIDIARIES
Page
Number
------
PART I. FINANCIAL INFORMATION
Statements of Earnings 3
Balance Sheets 4
Statements of Stockholders' Equity 5
Statements of Cash Flows 6
Note to Financial Statements 7
Management's Discussion and
Analysis of Results of
Operations and Financial
Condition 8
PART II. OTHER INFORMATION 10
Signature 11
Index to Exhibits Required by
Item 601, Regulation S-K 12
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<TABLE>
KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands of dollars except per share items)
<CAPTION>
13 Weeks Ended 39 Weeks Ended
----------------------------- ------------------------------
Oct. 2, 1994 Oct. 3, 1993 Oct. 2, 1994 Oct. 3, 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales of services $630,196 $517,585 $1,731,200 $1,450,273
Cost of services 505,668 416,904 1,395,135 1,170,534
-------- -------- ---------- ----------
Gross profit 124,528 100,681 336,065 279,739
Selling, general and
administrative expenses 95,070 79,541 271,605 235,915
-------- -------- ---------- ----------
Earnings from operations 29,458 21,140 64,460 43,824
Interest income 1,661 1,538 4,832 5,242
-------- -------- ---------- ----------
Earnings before income taxes 31,119 22,678 69,292 49,066
-------- -------- ---------- ----------
Income taxes:
Federal 9,440 6,695 20,960 14,015
State and other 2,390 1,955 5,390 4,135
-------- -------- ---------- ----------
Total income taxes 11,830 8,650 26,350 18,150
-------- -------- ---------- ----------
Net earnings $ 19,289 $ 14,028 $ 42,942 $ 30,916
======== ======== ========== ==========
Earnings per share $.51 $.37 $1.13 $.82
Dividends per share $.18 $.16 $.52 $.472
Average shares outstanding
(thousands) 37,960 37,725 37,954 37,722
See accompanying Note to Financial Statements.
</TABLE>
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KELLY SERVICES, INC. AND SUBSIDIARIES
BALANCE SHEETS AS OF OCTOBER 2, 1994 AND JANUARY 2, 1994
(UNAUDITED)
(In thousands of dollars)
ASSETS 1994 1993
- ------ ------------ ------------
CURRENT ASSETS:
Cash and equivalents $ 34,735 $ 36,020
Short-term investments (at cost
which approximates market) 133,172 144,988
Accounts receivable, less
allowances of $6,425 and
$4,735, respectively 321,136 248,161
Prepaid expenses and other
current assets 19,543 17,881
--------- ---------
Total current assets 508,586 447,050
PROPERTY AND EQUIPMENT:
Land and buildings 32,426 29,882
Equipment, furniture and
leasehold improvements 93,275 82,227
Accumulated depreciation (56,967) (43,827)
--------- ---------
Total property and equipment 68,734 68,282
OTHER ASSETS 45,182 26,768
--------- ---------
TOTAL ASSETS $622,502 $542,100
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Accounts payable $ 36,444 $ 24,621
Payroll and related taxes 108,595 68,451
Accrued insurance 49,142 51,841
Income and other taxes 9,511 10,968
--------- ---------
Total current liabilities 203,692 155,881
--------- ---------
STOCKHOLDERS' EQUITY:
Capital stock, $1 par value 40,116 40,116
Treasury stock, 2,155 shares in
1994 and 2,361 shares in 1993,
respectively, at cost (6,183) (6,702)
Paid-in capital 5,818 679
Earnings invested in the business 379,059 352,126
--------- ---------
Total stockholders' equity 418,810 386,219
--------- ---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $622,502 $542,100
========= =========
See accompanying Note to Financial Statements.
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<TABLE>
KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands of dollars)
<CAPTION>
13 Weeks Ended 39 Weeks Ended
---------------------------- ----------------------------
Oct. 2, 1994 Oct. 3, 1993 Oct. 2, 1994 Oct. 3, 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Capital Stock
Class A common stock
Balance at beginning of period $ 36,507 $ 36,507 $ 36,507 $ 29,195
Five-for-four stock split -- -- -- 7,301
Conversions from Class B -- -- -- 11
--------- --------- --------- ---------
Balance at end of period 36,507 36,507 36,507 36,507
Class B common stock
Balance at beginning of period 3,609 3,609 3,609 2,898
Five-for-four stock split -- -- -- 722
Conversions to Class A -- -- -- (11)
--------- --------- --------- ---------
Balance at end of period 3,609 3,609 3,609 3,609
Treasury Stock
Balance at beginning of period (6,138) (6,700) (6,702) (6,736)
Exercise of stock options (45) (18) (10) 18
Treasury stock issued for acquisition -- -- 529 --
--------- --------- --------- ---------
Balance at end of period (6,183) (6,718) (6,183) (6,718)
Paid-in Capital
Balance at beginning of period 5,736 -- 679 3,629
Exercise of stock options 82 107 336 443
Treasury stock issued for acquisition -- -- 4,803 --
Five-for-four stock split -- -- -- (3,965)
--------- --------- --------- ---------
Balance at end of period 5,818 107 5,818 107
Earnings Invested in the Business
Balance at beginning of period 364,876 338,486 352,126 338,273
Net earnings 19,289 14,028 42,942 30,916
Cash dividends (6,833) (6,036) (19,737) (17,805)
Five-for-four stock split -- -- -- (4,058)
Fractional shares paid -- -- -- (18)
Equity adjustment for foreign
currency translation (cumulative
charge of $2,785 in 1994 and
$4,412 in 1993) 1,727 147 3,728 (683)
--------- --------- --------- ---------
Balance at end of period 379,059 346,625 379,059 346,625
Stockholders' Equity at end of period $418,810 $380,130 $418,810 $380,130
========= ========= ========= =========
See accompanying Note to Financial Statements.
</TABLE>
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KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE 39 WEEKS ENDED OCTOBER 2, 1994 AND OCTOBER 3, 1993
(In thousands of dollars)
1994 1993
---------- ----------
Cash flows from operating activities:
Net earnings $42,942 $30,916
Noncash adjustments:
Depreciation 13,140 10,949
Changes in certain working capital
components (24,797) (30,530)
-------- --------
Net cash from operating activities 31,285 11,335
-------- --------
Cash flows from investing activities:
Capital expenditures (13,039) (9,085)
Short-term investments 11,816 23,036
Increase in other assets (11,936) (9,077)
-------- --------
Net cash from investing activities (13,159) 4,874
-------- --------
Cash flows from financing activities:
Dividend payments (19,737) (17,805)
Exercise of stock options 326 461
Fractional shares paid -- (18)
-------- --------
Net cash from financing activities (19,411) (17,362)
-------- --------
Net change in cash and equivalents (1,285) (1,153)
Cash and equivalents at beginning
of period 36,020 29,700
-------- --------
Cash and equivalents at end of period $34,735 $28,547
======== ========
See accompanying Note to Financial Statements.
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KELLY SERVICES, INC. AND SUBSIDIARIES
NOTE TO FINANCIAL STATEMENTS
(UNAUDITED)
Acquisition
- -----------
In January, 1994, the Company acquired all outstanding stock of Your
Staff, Inc., an employee leasing company, through the issuance of Class
A common stock shares from treasury. The acquisition has been
accounted for using the purchase method of accounting and therefore the
accompanying financial statements include the accounts of Your Staff,
Inc. since the date of acquisition. Pro forma results of the
acquisition, assuming it had been made at the beginning of each period
presented, would not be materially different from the results reported.
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations:
Third Quarter
Sales of services in the third quarter of 1994 totaled $630,196,000, an
increase of 21.8% from the same period in 1993. This increase
reflected growth in both domestic and international sales and the
inclusion of recent acquisitions.
Cost of services, consisting of payroll and related costs of temporary
employees, increased 21.3% in the third quarter as compared to the same
period in 1993. Average hourly payroll costs increased 7% over 1993
due to inflation and business mix.
The gross profit rate of 19.8% in the third quarter was .3 percentage
point higher than the previous year. Continued improvement in U.S.
temporary help margins since the middle of last year has helped to
offset pricing pressures in certain European countries.
Selling, general, and administrative expenses of $95,070,000 in the
third quarter increased 19.5% from the same period in 1993. This
increase was due to the higher level of business activity, new programs
and operating expenses incurred by new acquisitions.
Earnings before taxes were $31,119,000, an increase of 37.2% compared
to the pretax earnings for the same period in 1993. The pretax margin
was 4.9% compared to 4.4% in the third quarter of 1993. Income taxes
as a percentage of pretax earnings were 38.0%, .1 percentage point
lower than the rate applicable to the third quarter of 1993.
Net earnings were $19,289,000 in the third quarter of 1994, compared to
$14,028,000 in 1993, an increase of 37.5%. Earnings per share were
$.51 compared to the $.37 earned in the same period last year.
Year-to-Date
Sales of services totaled $1,731,200,000, an increase of 19.4% from
1993 sales. This increase reflects a continued improvement in
year-over-year sales performance and acquisitions.
Cost of services of $1,395,135,000 was 19.2% higher than last year,
reflecting growth in hours volume and inflationary increases in payroll
costs during the year.
The gross profit rate was 19.4%, an increase of .1 percentage point
from last year.
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Selling, general, and administrative expenses of $271,605,000 were
15.1% higher than last year, reflecting greater business activity and
continuing investment in domestic and overseas markets.
Earnings before taxes were $69,292,000, a 41.2% increase from last
year. The pretax margin was 4.0%, an increase of .6 percentage point
from last year. Income taxes as a percentage of pretax earnings were
38.0%, 1 percentage point higher than the rate applicable to last year,
due to reduced tax exempt investment income.
Net earnings were $42,942,000 which was 38.9% over 1993. Earnings per
share were $1.13 as compared to $.82 in 1993.
Financial Condition
Assets totaled $622,502,000 at October 2, 1994, an increase of 15% over
the $542,100,000 at January 2, 1994. Working capital increased
$2,030,000 in the third quarter and $13,725,000 since the 1993
year-end.
The quarterly dividend rate applicable to Class A and Class B shares
outstanding was $.18 and $.16 per share in the third quarters of 1994
and 1993, respectively.
The Company believes it is in a sound financial position to fully meet
its current working capital needs and its longer term capital
requirements.
--------------------------------------------------------------
Companies for which this report is filed are: Kelly Services, Inc. and
its subsidiaries, Kelly Assisted Living Services, Inc., Kelly Properties,
Inc., Kelly Professional Services, Inc., Kelly Services (Canada), Ltd.,
Les Services Kelly (Quebec) Inc., Lenore Simpson Personnel, Ltd.,
Societe Services Kelly, Kelly Professional Services (France), Inc.,
Kelly Services (UK), Ltd., Kelly Services (Ireland), Ltd., Kelly
Services (Australia), Ltd., Kelly Services (New Zealand), Ltd., Kelly
Services (Nederland), B.V., Kelly Services of Denmark, Inc., O.K.
Personnel Service Holding S.A., Kelly de Mexico, S.A. de C.V., Kelly
Services Norge A.S., KSI Acquisition Corp., Mentrix Corporation and
Your Staff, Inc.
The information furnished reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results
of operations for the period in this filing.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) See Index to Exhibits required by Item 601,
Regulation S-K, set forth on page 12 of this filing.
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.
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SIGNATURE
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 11, 1994
/s/ R. F. Stoner
R. F. Stoner
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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INDEX TO EXHIBITS
REQUIRED BY ITEM 601,
REGULATION S-K
---------------------
Exhibit
No. Description Document
- ------- ----------- --------
4 Rights of security holders are defined in
Articles Fourth, Fifth, Seventh, Eighth,
Ninth, Tenth, Eleventh, Twelfth, Thirteenth,
Fourteenth, and Fifteenth of the Certificate
of Incorporation. (Reference is made to
Exhibit 3.2 to the Form 10-Q for the quarterly
period ended October 3, 1993, filed with the
Commission in November, 1993, which is incorporated
herein by reference.)
27 Financial Data Schedule 2
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AND STATEMENT OF EARNINGS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-1995
<PERIOD-END> OCT-02-1994
<CASH> 34,735
<SECURITIES> 133,172
<RECEIVABLES> 327,561
<ALLOWANCES> 6,425
<INVENTORY> 0
<CURRENT-ASSETS> 508,586
<PP&E> 125,701
<DEPRECIATION> 56,967
<TOTAL-ASSETS> 622,502
<CURRENT-LIABILITIES> 203,692
<BONDS> 0
<COMMON> 40,116
0
0
<OTHER-SE> 378,694
<TOTAL-LIABILITY-AND-EQUITY> 622,502
<SALES> 0
<TOTAL-REVENUES> 1,731,200
<CGS> 0
<TOTAL-COSTS> 1,395,135
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 69,292
<INCOME-TAX> 26,350
<INCOME-CONTINUING> 42,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,942
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
</TABLE>
