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Index to Exhibits on page 11
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 March 30, 1997
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)
No Change
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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 May 2, 1997, 34,485,515 shares of Class A and 3,579,524 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 9
Signature 10
Index to Exhibits Required by
Item 601, Regulation S-K 11
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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
-------------------------------
March 30, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Sales of services $880,846 $733,931
Cost of services 724,508 596,245
--------- ---------
Gross profit 156,338 137,686
Selling, general and
administrative expenses 132,219 117,302
--------- ---------
Earnings from operations 24,119 20,384
Interest income, net 4 1,109
--------- ---------
Earnings before income taxes 24,123 21,493
--------- ---------
Income taxes:
Federal 8,135 6,785
State and other 1,760 1,805
--------- ---------
Total income taxes 9,895 8,590
--------- ---------
Net earnings $ 14,228 $ 12,903
========= =========
Earnings per share $.37 $.34
Dividends per share $.21 $.20
Average shares outstanding
(thousands) 38,061 38,016
</TABLE>
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<TABLE>
KELLY SERVICES, INC. AND SUBSIDIARIES
BALANCE SHEETS AS OF MARCH 30, 1997 AND DECEMBER 29, 1996
(UNAUDITED)
(In thousands of dollars)
<S> <C> <C>
ASSETS 1997 1996
- ------ ------------ ------------
CURRENT ASSETS:
Cash and equivalents $ 70,897 $ 33,408
Short-term investments 21,413 28,035
Accounts receivable, less
allowances of $9,900 and
$8,320, respectively 557,995 554,025
Prepaid expenses and other
current assets 43,336 43,118
--------- ---------
Total current assets 693,641 658,586
PROPERTY AND EQUIPMENT:
Land and buildings 43,746 43,748
Equipment, furniture and
leasehold improvements 122,167 118,737
Accumulated depreciation (68,516) (64,763)
--------- ---------
Total property and equipment 97,397 97,722
INTANGIBLES AND OTHER ASSETS 78,667 82,571
--------- ---------
TOTAL ASSETS $869,705 $838,879
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 42,238 $ 41,616
Accounts payable 58,091 48,111
Payroll and related taxes 166,263 151,769
Accrued insurance 56,071 53,119
Income and other taxes 28,947 27,365
--------- ---------
Total current liabilities 351,610 321,980
--------- ---------
STOCKHOLDERS' EQUITY:
Capital stock, $1 par value 40,116 40,116
Treasury stock, 2,053 shares in
1997 and 2,057 shares in 1996,
respectively, at cost (6,204) (6,197)
Paid-in capital 8,365 8,265
Earnings invested in the business 475,818 474,715
--------- ---------
Total stockholders' equity 518,095 516,899
--------- ---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $869,705 $838,879
========= =========
</TABLE>
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<TABLE>
KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands of dollars)
<CAPTION>
13 Weeks Ended
------------------------------
March 30, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Capital Stock
Class A common stock
Balance at beginning of period $ 36,527 $ 36,512
Conversions from Class B 4 --
--------- ---------
Balance at end of period 36,531 36,512
Class B common stock
Balance at beginning of period 3,589 3,604
Conversions to Class A (4) --
--------- ---------
Balance at end of period 3,585 3,604
Treasury Stock
Balance at beginning of period (6,197) (6,327)
Exercise of stock options (9) 9
Restricted stock awards 2 4
--------- ---------
Balance at end of period (6,204) (6,314)
Paid-in Capital
Balance at beginning of period 8,265 7,215
Exercise of stock options 84 72
Restricted stock awards 16 37
--------- ---------
Balance at end of period 8,365 7,324
Earnings Invested in the Business
Balance at beginning of period 474,715 435,100
Net earnings 14,228 12,903
Cash dividends (7,993) (7,603)
Equity adjustment for foreign
currency translation (cumulative
charge of $4,826 in 1997 and
credit of $824 in 1996) (5,132) (1,297)
--------- ---------
Balance at end of period 475,818 439,103
--------- ---------
Stockholders' Equity at end of period $518,095 $480,229
========= =========
</TABLE>
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<TABLE>
KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE 13 WEEKS ENDED MARCH 30, 1997 AND MARCH 31, 1996
(In thousands of dollars)
<S> <C> <C>
1997 1996
---------- ----------
Cash flows from operating activities:
Net earnings $14,228 $12,903
Noncash adjustments:
Depreciation and amortization 6,439 6,440
Changes in certain working capital
components 22,254 6,479
-------- --------
Cash from operating activities 42,921 25,822
-------- --------
Cash flows from investing activities:
Capital expenditures (6,131) (4,888)
Proceeds from sales and maturities of
short-term investments 518,006 333,018
Purchases of short-term investments (511,384) (334,572)
(Increase) decrease in intangibles and
other assets 1,355 (1,642)
-------- --------
Net cash from investing activities 1,846 (8,084)
-------- --------
Cash flows from financing activities:
Increase (decrease) in short-term borrowings 622 (727)
Dividend payments (7,993) (7,603)
Exercise of stock options and
restricted stock awards 93 122
-------- --------
Net cash from financing activities (7,278) (8,208)
-------- --------
Net change in cash and equivalents 37,489 9,530
Cash and equivalents at beginning
of period 33,408 52,811
-------- --------
Cash and equivalents at end of period $70,897 $62,341
======== ========
</TABLE>
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations:
First Quarter
Sales of services in the first quarter of 1997 were $880,846,000, an
increase of 20% from the same period in 1996. Sales growth was
generally strong in both domestic and foreign operations.
Cost of services, consisting of payroll and related tax and benefit
costs of employees assigned to customers, increased 21.5% in the first
quarter as compared to the same period in 1996. Average hourly wage
rates and related costs from U.S. operations have increased from 1996
at a rate somewhat higher than the general inflation rate, due to a
tightening labor market.
Gross profit of $156,338,000 was 13.5% higher than the first quarter of
1996, and gross profit as a percentage of sales declined from 18.8% in
1996 to 17.7% in 1997. The growth of sales with our largest customers
where contracts require special pricing and additional implementation
costs, the upward pressure on wage rates noted above and growth in the
staff leasing business with its inherently lower margins all had the
effect of reducing the consolidated gross profit rate.
Selling, general and administrative expenses were $132,219,000 in the
first quarter, an increase of 12.7% over the same period in 1996. As a
percent of sales, the spending rate averaged 15.0%, compared to 16.0%
in last year's first quarter. The rate of growth of these expenses in
relationship to the sales increases reflects the Company's emphasis on
expense control.
Earnings from operations of $24,119,000 were 18.3% greater than the
first quarter of 1996. Earnings before income taxes were $24,123,000,
an increase of 12.2%, compared to pretax earnings of $21,493,000 for
the same period in 1996. The pretax margin was 2.7%, a .2 percentage
point decrease from the first quarter of 1996. This was due to lower
interest income, net and the lower gross profit and expense ratios.
Income taxes were 41.0% of pretax income. This was 1.0 percentage
point over the applicable tax rate for the first quarter of 1996 due to
reduced tax-exempt income and higher foreign tax rates. (The income
tax rate for the year 1996 averaged 40.6%.)
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Net earnings were $14,228,000 in the first quarter of 1997, an increase
of 10.3% over the first quarter of 1996. Earnings per share were $.37
compared to $.34 in the same period last year. Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share," was
issued in February 1997. Adoption of SFAS 128, effective for periods
ending after December 15, 1997, is not expected to have a material
effect on reported earnings per share.
Financial Condition
Assets totaled $869,705,000 at March 30, 1997, an increase of 3.7% over
the $838,879,000 at December 29, 1996. Working capital increased
$5,425,000 during the three-month period. The current ratio was 2.0 at
March 30, 1997 and December 29, 1996.
During the first quarter of 1997, the Company generated cash flows from
operating activities totaling $42,921,000, an increase of 66% over the
comparable period in 1996. This increase resulted principally from
increases in net earnings and liability balances. Capital expenditures
were principally for expanding and improving the worldwide branch
network.
The quarterly dividend rate applicable to Class A and Class B shares
outstanding was $.21 per share in the first quarter of 1997. This
compares to a dividend rate of $.20 per share in the first quarter of
1996.
The Company's financial position continues to be strong. This strength
will allow it to continue to aggressively pursue growth opportunities,
while supporting current operations.
--------------------------------------------------------------
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.,
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 Staff Leasing, Inc.
(formerly Your Staff, Inc.), The Wallace Law Registry, Inc., Kelly
Services France S.A., Bourse Du Travail Temporaire 2000, Kelly
Formation S.A.R.L., Kelly Services Luxembourg S.A.R.L., Kelly Services
Italia S.R.L., Kelly Services Iberia Holding Company, S.L., Kelly
Services Empleo E.T.T., S.L., Kelly Services Seleccion y Formacion,
S.L. and Kelly Services CIS, 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 11 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: May 13, 1997
/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 June 30, 1996, filed with the
Commission in August, 1996, 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> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> MAR-30-1997
<CASH> 70,897
<SECURITIES> 21,413
<RECEIVABLES> 567,895
<ALLOWANCES> 9,900
<INVENTORY> 0
<CURRENT-ASSETS> 693,641
<PP&E> 165,913
<DEPRECIATION> 68,516
<TOTAL-ASSETS> 869,705
<CURRENT-LIABILITIES> 351,610
<BONDS> 0
0
0
<COMMON> 40,116
<OTHER-SE> 477,979
<TOTAL-LIABILITY-AND-EQUITY> 869,705
<SALES> 0
<TOTAL-REVENUES> 880,846
<CGS> 0
<TOTAL-COSTS> 724,508
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 24,123
<INCOME-TAX> 9,895
<INCOME-CONTINUING> 14,228
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,228
<EPS-PRIMARY> .37
<EPS-DILUTED> 0
</TABLE>
