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Index to Exhibits on page 13
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 July 2, 1995
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 August 7, 1995, 34,398,359 shares of Class A and 3,598,657 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
Management's Discussion and
Analysis of Results of
Operations and Financial
Condition 7
PART II. OTHER INFORMATION 10
Signature 12
Index to Exhibits Required by
Item 601, Regulation S-K 13
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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 26 Weeks Ended
------------------------------ ------------------------------
July 2, 1995 July 3, 1994 July 2, 1995 July 3, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales of services $652,417 $570,813 $1,273,102 $1,101,004
Cost of services 519,739 461,093 1,018,406 889,467
-------- -------- ---------- ----------
Gross profit 132,678 109,720 254,696 211,537
Selling, general and
administrative expenses 107,789 88,111 212,094 176,535
-------- -------- ---------- ----------
Earnings from operations 24,889 21,609 42,602 35,002
Interest income 2,321 1,666 4,710 3,171
-------- -------- ---------- ----------
Earnings before income taxes 27,210 23,275 47,312 38,173
-------- -------- ---------- ----------
Income taxes:
Federal 8,505 7,000 14,895 11,520
State and other 2,045 1,855 3,495 3,000
-------- -------- ---------- ----------
Total income taxes 10,550 8,855 18,390 14,520
-------- -------- ---------- ----------
Net earnings $ 16,660 $ 14,420 $ 28,922 $ 23,653
======== ======== ========== ==========
Earnings per share $.44 $.38 $.76 $.62
Dividends per share $.20 $.18 $.38 $.34
Average shares outstanding
(thousands) 37,987 37,955 37,977 37,951
</TABLE>
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<TABLE>
KELLY SERVICES, INC. AND SUBSIDIARIES
BALANCE SHEETS AS OF JULY 2, 1995 AND JANUARY 1, 1995
(UNAUDITED)
(In thousands of dollars)
<S> <C> <C>
ASSETS 1995 1994
------ ------------ ------------
CURRENT ASSETS:
Cash and equivalents $ 50,963 $ 49,207
Short-term investments 114,388 142,723
Accounts receivable, less
allowances of $8,065 and
$5,660, respectively 347,114 307,478
Prepaid expenses and other
current assets 26,231 27,018
--------- ---------
Total current assets 538,696 526,426
PROPERTY AND EQUIPMENT:
Land and buildings 35,026 34,044
Equipment, furniture and
leasehold improvements 105,883 90,868
Accumulated depreciation (64,639) (54,731)
--------- ---------
Total property and equipment 76,270 70,181
INTANGIBLES AND OTHER ASSETS 61,539 45,491
--------- ---------
TOTAL ASSETS $676,505 $642,098
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
Accounts payable $ 35,291 $ 33,716
Payroll and related taxes 121,724 102,911
Accrued insurance 55,650 57,390
Income and other taxes 12,227 16,565
--------- ---------
Total current liabilities 224,892 210,582
--------- ---------
STOCKHOLDERS' EQUITY:
Capital stock, $1 par value 40,116 40,116
Treasury stock, 2,121 shares in
1995 and 2,153 shares in 1994,
respectively, at cost (6,181) (6,186)
Paid-in capital 6,638 5,868
Earnings invested in the business 411,040 391,718
--------- ---------
Total stockholders' equity 451,613 431,516
--------- ---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $676,505 $642,098
========= =========
</TABLE>
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<TABLE>
KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands of dollars)
<CAPTION>
13 Weeks Ended 26 Weeks Ended
---------------------------- -----------------------------
July 2, 1995 July 3, 1994 July 2, 1995 July 3, 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Capital Stock
Class A common stock
Balance at beginning of period $ 36,510 $ 36,507 $ 36,507 $ 36,507
Conversions from Class B 1 -- 4 --
--------- --------- --------- ---------
Balance at end of period 36,511 36,507 36,511 36,507
Class B common stock
Balance at beginning of period 3,606 3,609 3,609 3,609
Conversions to Class A (1) -- (4) --
--------- --------- --------- ---------
Balance at end of period 3,605 3,609 3,605 3,609
Treasury Stock
Balance at beginning of period (6,216) (6,153) (6,186) (6,702)
Restricted stock awards 35 -- 35 --
Exercise of stock options -- 15 (30) 35
Treasury stock issued for acquisition -- -- -- 529
--------- --------- --------- ---------
Balance at end of period (6,181) (6,138) (6,181) (6,138)
Paid-in Capital
Balance at beginning of period 6,210 5,628 5,868 679
Restricted stock awards 297 -- 297 --
Exercise of stock options 131 108 473 254
Treasury stock issued for acquisition -- -- -- 4,803
--------- --------- --------- ---------
Balance at end of period 6,638 5,736 6,638 5,736
Earnings Invested in the Business
Balance at beginning of period 402,592 355,219 391,718 352,126
Net earnings 16,660 14,420 28,922 23,653
Cash dividends (7,599) (6,832) (14,433) (12,904)
Equity adjustment for foreign
currency translation (cumulative
credit of $3,425 in 1995 and
charge of $4,512 in 1994) (613) 2,069 4,833 2,001
--------- --------- --------- ---------
Balance at end of period 411,040 364,876 411,040 364,876
Stockholders' Equity at end of period $451,613 $404,590 $451,613 $404,590
========= ========= ========= =========
</TABLE>
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<TABLE>
KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE 26 WEEKS ENDED JULY 2, 1995 AND JULY 3, 1994
(In thousands of dollars)
<S> <C> <C>
1995 1994
---------- ----------
Cash flows from operating activities:
Net earnings $28,922 $23,653
Noncash adjustments:
Depreciation 9,908 8,603
Changes in certain working capital
components (21,891) (4,018)
-------- --------
Net cash from operating activities 16,939 28,238
-------- --------
Cash flows from investing activities:
Capital expenditures (15,260) (7,759)
Short-term investments 28,335 201
Increase in intangibles and other assets (14,600) (1,294)
-------- --------
Net cash from investing activities (1,525) (8,852)
-------- --------
Cash flows from financing activities:
Dividend payments (14,433) (12,904)
Exercise of stock options and
restricted stock awards 775 289
-------- --------
Net cash from financing activities (13,658) (12,615)
-------- --------
Net change in cash and equivalents 1,756 6,771
Cash and equivalents at beginning
of period 49,207 36,020
-------- --------
Cash and equivalents at end of period $50,963 $42,791
======== ========
</TABLE>
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations:
Second Quarter
Sales of services in the second quarter of 1995 totaled $652,417,000,
an increase of 14.3% from the same period in 1994. Modest growth in
domestic sales, at less than 10% over the same period in 1994,
reflected slowed economic conditions in the United States economy and
management's continued challenging of low yielding, higher risk light
industrial business. International sales continued to grow at double
digit rates and benefited from the inclusion of OK Personnel Service
Holding SA in Switzerland, purchased in July, 1994.
Cost of services, consisting of payroll and related costs of employees
assigned to customers, increased 12.7% in the second quarter as
compared to the same period in 1994. Average hourly wages and related
costs increased over 6.0% from 1994 due to inflation and a shift in
business mix toward higher margin service lines.
Gross profit of $132,678,000 was 20.9% higher than 1994 due to both
increased volume and gross profit rates which, combined, averaged 20.3%
compared to 19.2% in 1994. This increased rate of gross profit was
related principally to a greater mix of sales in higher margin service
lines, such as office and technical. Strong growth of international
sales carrying higher gross profit rates also contributed to the
overall increase in margins.
Selling, general and administrative expenses were $107,789,000 in the
second quarter, an increase of 22.3% over the same period in 1994.
This increase resulted largely from expected growth in business
activity, inclusion of newly acquired operations, and continued
aggressive investments in new service lines and programs, which promote
and improve service quality and customer satisfaction.
Earnings before income taxes were $27,210,000, an increase of 16.9%,
compared to pretax earnings of $23,275,000 for the same period in 1994.
The pretax margin was 4.2%, a .1 percentage point gain over the second
quarter of 1994. The increased gross profit rate on sales and volume
increases were the principal reasons for the improvement in pretax
earnings when compared to the second quarter of 1994.
Income taxes were 38.8% of pretax income, which was a .8 percentage
point increase over the applicable tax rate for the second quarter of
1994, due to reduced credits available from the U.S. targeted jobs tax
credit program. The program was discontinued effective January 1,
1995.
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Net earnings were $16,660,000 in the second quarter of 1995, an
increase of 15.5% over the second quarter of 1994. Earnings per share
were $.44 compared to the $.38 in the same period last year.
The quarter included the results of operations of The Wallace Law
Registry, Inc., acquired on April 28, 1995. The transaction was
accounted for as a purchase and was not material.
Year-to-Date
Sales of services totaled $1,273,102,000 during the first six months of
1995, an increase of 15.6% over 1994. This increase reflects continued
growth in the volume of domestic and especially international sales,
particularly in Europe. Sales of OK Personnel Service Holding SA in
Switzerland (completed July, 1994) and The Wallace Law Registry, Inc.
(purchased as of April, 1995) are included with 1995 sales.
Cost of services of $1,018,406,000 was 14.5% higher than last year,
reflecting volume growth, acquisitions, modest inflationary increases
in hourly payroll costs and a shift towards higher margin service
lines.
The gross profit increased 20.4% in 1995 due to increased sales volume,
acquisitions, and a rate of gross profit that averaged 20.0% for the
first half of 1995 compared to the 19.2% rate of 1994. This change
reflects the increased mix of business in higher margin service lines
such as office and technical, plus strong first half sales growth in
international operations.
Selling, general and administrative expenses of $212,094,000 were 20.1%
higher than last year, reflecting higher business activity, the
acquisition of new businesses and investments in new programs.
Earnings before taxes were $47,312,000, an increase of 23.9% over 1994.
These earnings averaged a pretax margin of 3.7%, or .2 percentage point
improvement over 1994. Income taxes were 38.9% of pretax earnings and
were .9 percentage point higher than last year's first half income tax
rate. As explained above, the elimination of the U.S. targeted jobs
tax credit, effective January 1, 1995, is the principal reason for this
rate increase.
Net earnings were $28,922,000, or 22.3% higher than the first six
months of 1994. Earnings per share were $.76 compared to $.62 last
year.
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Financial Condition
Assets totaled $676,505,000 at July 2, 1995, an increase of 5% over the
$642,098,000 at January 1, 1995. Working capital decreased $2,040,000
during the half-year period. The current ratio was 2.4 at July 2,
1995, a decline of .1 percentage point since January 1. Increased
business activity and capital expenditures, including the acquisition
during the second quarter of 1995 described above, accounted for the
change. Enhancements to automated systems in all branches continue to
be made and were a major element of capital spending.
The quarterly dividend rate applicable to Class A and Class B common
shares outstanding was increased to $.20 per share in the second
quarter of 1995. This compares to a dividend rate of $.18 per share in
the second quarter of 1994.
Management believes the financial condition of the Company continues to
be exceptionally strong, which enables it to fund working capital
requirements and longer-term growth opportunities from internal
resources.
--------------------------------------------------------------
Companies for which this report is filed are: Kelly Services, Inc. and
its subsidiaries, Kelly Assisted Living Services, Inc., Kelly
Properties, Inc., Kelly Professional and Technical 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., OK Personnel Service Holding SA, Kelly de Mexico, S.A.
de C.V., Kelly Services Norge A.S., KSI Acquisition Corp., Kelly
Pinpoint, Inc., Your Staff, Inc. and The Wallace Law Registry, 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 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
(a) The annual meeting of stockholders of registrant was held
May 17, 1995.
(b) The nominees for director, as listed in the Company's
proxy statement dated April 13, 1995, were elected. The
directors whose terms of office continued after the
meeting are also listed in the proxy statement.
(c) A brief description and the results of the matters voted
upon at the meeting follow.
(1) Election of the following directors:
Shares Voted Shares Voted
"For" "Withheld"
------------ ------------
T. E. Adderley 3,529,373 38
H. E. Guenther 3,529,373 38
B. J. White 3,529,373 38
(2) Ratification of Non-employee Director Stock Award
Plan:
Shares voted "For" 3,479,367
Shares voted "Against" 49,327
Shares voted "Withheld" 717
(3) Approval of standards for performance based, annual
incentive awards for certain executive officers under
the Company's Short-Term Incentive Plan:
Shares voted "For" 3,475,953
Shares voted "Against" 46,434
Shares voted "Withheld" 7,024
(4) Ratification of the selection of Price Waterhouse LLP
as the Company's independent auditors:
Shares voted "For" 3,529,410
Shares voted "Against" 1
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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 13 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: August 15, 1995
/s/ P. K. Geiger
P. K. Geiger
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>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUL-02-1995
<CASH> 50,963
<SECURITIES> 114,388
<RECEIVABLES> 355,179
<ALLOWANCES> 8,065
<INVENTORY> 0
<CURRENT-ASSETS> 538,696
<PP&E> 140,909
<DEPRECIATION> 64,639
<TOTAL-ASSETS> 676,505
<CURRENT-LIABILITIES> 224,892
<BONDS> 0
<COMMON> 40,116
0
0
<OTHER-SE> 411,497
<TOTAL-LIABILITY-AND-EQUITY> 676,505
<SALES> 0
<TOTAL-REVENUES> 1,273,102
<CGS> 0
<TOTAL-COSTS> 1,018,406
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 47,312
<INCOME-TAX> 18,390
<INCOME-CONTINUING> 28,922
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,922
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0
</TABLE>
