<PAGE>
Index to Exhibits on page 28
-1-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
__X__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 28, 1997
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________________ to _____________________
Commission file number 0-1088
_________________KELLY SERVICES, INC._________________
(Exact Name of Registrant as specified in its Charter)
________Delaware________ __________38-1510762________
(State of Incorporation) (IRS Employer Identification
Number)
___999 West Big Beaver Road, Troy, Michigan___ ____48084___
(Address of Principal Executive Office) (Zip Code)
___________________(248) 362-4444___________________
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Class A Common NASDAQ/NMS
Class B Common NASDAQ/NMS
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 _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. __X__
The aggregate market value of the Class B common stock, par value $1.00, the
only class of the registrant's securities with voting rights, held by
non-affiliates of the registrant on March 18, 1998, was $14,921,478 based upon
the closing price of $35 1/16 per share.
Registrant had 34,615,041 shares of Class A and 3,570,195 of Class B
common stock, par value $1.00, outstanding as of March 16, 1998.
Documents Incorporated by Reference
The proxy statement of the registrant with respect to the 1998 Annual Meeting
of Stockholders is incorporated by reference in Part III.
Dated: March 25, 1998
<PAGE>
<PAGE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) General Development of Business. Registrant, a successor to the
business established by William R. Kelly in 1946, was incorporated under the
laws of Delaware on August 27, 1952. Throughout its existence, registrant has
been engaged in the business of providing staffing services to customers.
During the last fiscal year, registrant continued to provide staffing services
to a diversified group of customers.
(b) Financial Information about Industry Segments. Registrant operates
in a single industry segment of providing staffing services. The financial
information concerning registrant is included in Item 8 in Part II of this
filing.
(c) Narrative Description of Business.
(i) Principal Services Rendered. Registrant, and its subsidiaries,
which are service organizations, provide staffing services to a diversified
group of customers through offices located in major cities of the United
States, Australia, Canada, Denmark, France, Ireland, Italy, Luxembourg, Mexico,
the Netherlands, New Zealand, Norway, Puerto Rico, Russia, Spain, Switzerland
and the United Kingdom. These services are generally furnished under the name
of Kelly Services, with the following specific services provided: office
clerical, marketing, professional, technical, semi-skilled light industrial and
management services. Staff leasing services are provided under the name of
Kelly Staff Leasing, Inc., a wholly owned subsidiary of registrant. Home care
services to those who need help with their daily living needs and personal care
are furnished under the name of Kelly Assisted Living Services, Inc., which is
a wholly owned subsidiary of registrant. Legal staffing services are provided
under the name of The Wallace Law Registry, a wholly owned subsidiary of
registrant. Registrant performs these staffing services through its employees
by assigning them to work on the premises of registrant's customers.
The staffing services furnished by registrant afford economies and
flexibility in meeting uneven or peak work loads caused by such predictable
factors as vacations, inventories, month-end activities, special projects or
new promotions and such non-predictable factors as illnesses or emergencies.
When work peaks occur which cannot be handled by the customer's normal staff,
the customer can temporarily supplement regular personnel by the use of
registrant's services. The cost and inconvenience to the customer of hiring
additional employees, including advertising, interviewing, screening, testing
and training are eliminated. Also, recordkeeping is simplified because the
customer pays an hourly rate, based on hours of service furnished by
registrant.
Registrant serves a wide cross-section of customers from industry,
commerce, the professions, government, and individuals. During recent years
approximately 215,000 customers, including the largest corporations in the
world, use registrant's services. There have been no significant
<PAGE>
<PAGE>
-3-
changes in the services rendered or in the markets or methods of distribution
since the beginning of registrant's fiscal year.
Registrant operates through approximately 1,500 domestic and foreign
offices located in all 50 states and the District of Columbia; and Australia,
Canada, Denmark, France, Ireland, Italy, Luxembourg, Mexico, the Netherlands,
New Zealand, Norway, Puerto Rico, Russia, Spain, Switzerland and the United
Kingdom. Each office provides the services of one or more of the divisions or
subsidiaries and are operated directly by the registrant.
(ii) New Services. There are no new industry segments that the
registrant is planning to enter or new service areas that will require a
material investment of assets.
(iii) Raw Materials. Registrant is involved in a service business and
raw materials are nonexistent in the business.
(iv) Service Marks. Registrant is the owner of numerous service marks,
which are registered with the United States Patent and Trade Mark Office and in
foreign countries.
(v) Seasonal Business Implications. Registrant's business is not
seasonal.
(vi) Working Capital. Registrant believes there are no unusual or
special working capital requirements in the staffing services industry.
(vii) Customers. The business of registrant and its subsidiaries is not
dependent upon either a single customer or a limited number of customers.
(viii) Backlog. Backlog of orders is not material to the business of
registrant.
(ix) Government Contracts. Although registrant conducts business under
various government contracts, that portion of registrant's business is not
significant.
(x) Competition. Registrant is one of the largest global suppliers of
staffing services. In the United States, there are less than 100 national
competitors, and approximately 20,000 organizations locally compete in varying
degrees in different localities where registrant operates local offices. In
foreign markets there are several similar levels of global, national and local
competitors. The most significant competitive factors worldwide are geographic
coverage, breadth of service, service quality and price.
(xi) Research Activities. Registrant's expenditure for research and the
number of people involved are not material.
(xii) Environmental Matters. Registrant is involved in a service
business and is not affected by federal, state and local provisions regulating
the discharge of materials into the environment.
<PAGE>
<PAGE>
-4-
(xiii) Employees. Registrant and subsidiaries employ on a full time basis
approximately 1,000 persons at its headquarters in Troy, Michigan, and
approximately 5,300 persons in branch offices operated directly by registrant.
Registrant employed in the last fiscal year approximately 750,000 men and women
for temporary periods. As the employer, registrant is responsible for and pays
Social Security and Medicare taxes, workers' compensation, federal and state
unemployment compensation taxes, liability insurance and other similar costs,
and is responsible for payroll deductions of Social Security, Medicare and
income taxes. Although the work may be done in the office of the registrant's
customer, registrant remains the employer of its temporary employees with
responsibility for their assignment and reassignment.
(d) Foreign Operations. For information regarding sales, earnings from
operations and identifiable assets by domestic and foreign operations,
reference is made to the information presented in the Summary of Significant
Accounting Policies note to the consolidated financial statements presented in
Item 8 in Part II of this report.
ITEM 2. PROPERTIES.
Registrant owns the premises in Troy, Michigan, from which its
headquarters, subsidiaries and divisional offices are presently operated.
Registrant purchased the original headquarters building in Troy, Michigan, in
1977 and has expanded operations into adjacent buildings that were purchased in
1991 and 1997. The combined floor space for the headquarters complex
approximates 258,000 square feet, plus leased space nearby of 70,000 square
feet. The buildings are in good condition, are considered to be adequate for
the uses to which they are being put and are in regular use. In addition,
registrant owns vacant land in Troy and northern Oakland County, Michigan, for
future expansion. Registrant's branch offices are conducted from premises
which are leased. A majority of the leases are for fixed terms, from one to
five years. Registrant owns virtually all office furniture and equipment used
in its headquarters building and branch offices.
ITEM 3. LEGAL PROCEEDINGS.
Claims against the registrant are not considered by management and counsel
to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders in the
fourth quarter of 1997.
<PAGE>
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
Kelly Services' stock is traded over-the-counter in the NASDAQ National
Market System (NMS). The high and low selling prices for the Class A common
stock and Class B common stock as quoted by the National Association of
Securities Dealers, Inc. and the dividends paid on the common stock for each
quarterly period in the last two fiscal years are reported below:
Per share amounts (in dollars)
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -------
1997
- ----
Stock Prices
Class A common
High . . . . . . . . $28 7/8 $32 1/2 $38 3/4 $38 3/8 $38 3/4
Low . . . . . . . . 26 1/2 23 1/4 29 3/4 28 1/8 23 1/4
Class B common
High . . . . . . . . 29 32 1/2 35 3/4 34 3/4 35 3/4
Low . . . . . . . . 27 23 30 3/4 30 23
Dividends. . . . . . . . .21 .22 .22 .22 .87
1996
- ----
Stock Prices
Class A common
High . . . . . . . . $32 1/2 $32 1/2 $31 3/4 $30 1/4 $32 1/2
Low . . . . . . . . 26 28 3/4 26 25 1/4 25 1/4
Class B common
High . . . . . . . . 32 32 34 31 34
Low . . . . . . . . 30 30 31 29 29
Dividends. . . . . . . . .20 .21 .21 .21 .83
The number of holders of record of the Class A and Class B common stock, par
value $1.00, of registrant were 1,070 and 243, respectively, as of
March 16, 1998.
<PAGE>
<PAGE>
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<TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes selected financial information of Kelly
Services, Inc. and its subsidiaries for each of the most recent six fiscal
years. This table should be read in conjunction with other financial
information of the registrant including "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and financial statements
included elsewhere herein.
<CAPTION>
(In millions except (1)
per share amounts) 1997 1996 1995 1994 1993 1992
- ------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales of services . . . . . $3,852.9 $3,302.3 $2,689.8 $2,362.6 $1,954.5 $1,712.7
Earnings before taxes . . . 137.0 122.9 113.3 98.5 70.9 61.0
Net earnings. . . . . . . . 80.8 73.0 69.5 61.1 44.6 39.2
Per share data:
Basic earnings . . . . .
per share . . . . . . . $ 2.12 $ 1.92 $ 1.83 $ 1.61 $ 1.18 $ 1.04
Diluted earnings
per share . . . . . . . $ 2.12 $ 1.91 $ 1.83 $ 1.61 $ 1.18 $ 1.04
Dividends per share
Classes A and B common. .87 .83 .78 .70 .63 .58
Working capital . . . . . . $ 363.6 $ 336.6 $ 316.0 $ 315.8 $ 291.2 $ 279.8
Total assets. . . . . . . . 967.2 838.9 718.7 642.4 542.1 496.1
<FN>
(1) Fiscal year included 53 weeks.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
1997 versus 1996
Sales reached a record level of $3.85 billion in 1997, an increase of 17%
over 1996. Domestic sales grew 16% and international sales 20%.
International sales were 22% of total company sales, the same as 1996.
Cost of services, representing payroll and related taxes and benefits for
temporary employees, increased 18%. Increases in pay rates and related taxes
and benefits accounted for the change. Gross profit rates held steady through
all four quarters of 1997 and averaged 17.7%. Gross profit rates in 1996
averaged 18.6%. While generally higher than 1997, the 1996 rates were
declining through much of that year. As in 1996, reduced margins on large
contracts and other competitive conditions worldwide were factors in the
reduced level of gross profit.
<PAGE>
<PAGE>
-7-
Selling, general and administrative expenses increased 11% over 1996.
The increase reflects continued worldwide expansion including the cost of
opening new offices in international locations. As a percentage of sales,
expenses decreased for the second consecutive year and reached 14.2%, down
from 14.9% in 1996.
Earnings from operations in 1997 were $136 million, a new record for the
Company, and an increase of 12% over 1996. These earnings were 3.5% of sales,
compared to 3.7% in 1996.
Interest income was $4.4 million in 1997, an increase of 4% over 1996.
An improved cash and investments position during the year which resulted from
improved collections of accounts receivable was a reason for the increase.
Interest expense increased to $3.2 million from $2.2 million in 1996.
Short-term borrowings were used to finance continued business expansion in
Europe.
Earnings before income taxes were a record $137 million, an increase of
11% over 1996. As a percentage of sales, earnings before taxes were 3.6% in
1997 and 3.7% in 1996. Income taxes increased 13% over 1996. The effective
income tax rate was 41.0% in 1997 and 40.6% in 1996.
Net earnings were a record $80.8 million in 1997, 11% higher than the $73
million reported in 1996. The rate of return on sales was 2.1% in 1997 and
2.2% in 1996. Basic earnings per share were $2.12 compared to $1.92 per share
in 1996. Diluted earnings per share were $2.12 in 1997 compared to $1.91 per
share in 1996.
Results of Operations
1996 versus 1995
Sales reached a record level of $3.3 billion in 1996, an increase of 23%
over 1995. Domestic sales grew 24% and foreign sales 19%. Foreign sales
accounted for 22% of total company sales.
Cost of services, representing payroll and related taxes and benefits for
temporary employees, increased 25%. Increases in pay rates, payroll taxes and
other direct costs accounted for these changes. Overall, the percentage of
gross profit to sales decreased to 18.6% in 1996 from 20.1% in 1995. A major
factor influencing the decrease was competitive conditions worldwide,
including reduced margins on large national contracts and staff leasing.
Selling, general and administrative expenses increased 13% over 1995.
The increase reflects normal growth, including opening and equipping new
offices. As a percentage of sales, expenses decreased to 14.9%, from 16.2% in
1995.
Earnings from operations in 1996 were $121 million, a new record for the
Company, and an increase of 14% over 1995. These earnings were 3.7% of sales,
compared to 4.0% in 1995.
Interest income declined to $4.2 million in 1996 from $8.2 million in
1995. This decline was the result of the need for cash to be used for
operating activities, including capital expenditures.
<PAGE>
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-8-
Interest expense, which grew from $1.2 million in 1995 to $2.2 million in
1996, was related to short-term borrowings in Europe to finance business
expansion and operations.
Earnings before income taxes were a record $122.9 million, an increase of
8% over 1995. Pre-tax margins as a percentage of sales were 3.7% in 1996 and
4.2% in 1995. Income taxes increased 14% over 1995 with an effective tax rate
of 40.6% of pre-tax income. The current tax rate rose primarily as a result
of reduced tax exempt income, the expiration of the targeted jobs tax credit
and higher foreign taxes.
Net earnings were a record $73.0 million in 1996, 5% higher than the 1995
results of $69.5 million. The rate of return on sales was 2.2% in 1996 and
2.6% in 1995. Basic earnings per share were $1.92, a 5% increase over the
$1.83 per share earned in 1995. Diluted earnings per share were $1.91 in 1996
and $1.83 in 1995.
Liquidity and Capital Resources
Cash generated from operations continues to be the principal source of
funds for financing the growth of the business, capital acquisitions including
improvements to the Company's computer systems and the payment of dividends to
stockholders. Lines of credit with banks are also used for short term needs
at our foreign locations.
Cash and short-term investments totaled $144 million at the end of 1997
as compared with $61 million at the end of 1996. Amounts due under lines of
credit totaled $55 million at the end of 1997, $42 million at the end of 1996
and $16 million at the end of 1995.
The Company's working capital was $364 million at the end of 1997, an
increase of $27 million over 1996 and $48 million over 1995. The current
ratio in 1997 was 1.9, compared to 2.0 and 2.3 in 1996 and 1995, respectively.
Stockholders' equity grew 8% in 1997, 9% in 1996 and 10% in 1995. The
return on average stockholders' equity was 15.0% in 1997, 14.7% in 1996 and
15.3% in 1995. Dividends paid per common share were $.87 in 1997, an increase
of 5% over the $.83 per share paid in 1996.
In 1998 the Company will begin implementation of a major information
technology program which will extend over the next five years. The program
includes completing work on Millennium 2000, deploying a new, worldwide
telecommunications network, installing new hardware and software computer
systems, and replacing the current branch automation system. The cost of the
program will exceed $100 million, of which $15-20 million will be Millennium
2000 expense. In the long term, greater efficiency will enhance productivity
and growth. In the short-term, earnings growth could moderate to 4-6% for
each of the next two years in the absence of an economic slowdown.
The Company's financial position continues to be strong and the absence
of long-term debt allows it to support its growth and capital requirements
from internal resources.
<PAGE>
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-9-
Forward Looking Statements
Except for the historical statements and discussions contained herein,
statements contained in this report relate to future events that are subject
to risks and uncertainties, such as: competition, changing market and
economic conditions, currency fluctuations, changes in laws and regulations,
the Company's ability to effectively implement and manage its information
technology programs and other factors discussed in the report and in the
Company's filings with the Securities and Exchange Commission. Actual results
may differ materially from any projections contained herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this Item are
set in the accompanying index on page 13 of this filing and are presented in
pages 14-27.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
PART III
Information required by Part III with respect to Directors and Executive
Officers of the registrant, except as set forth under the title "Executive
Officers of the Registrant" which is included on page 10, (Item 10), Executive
Compensation (Item 11), Security Ownership of Certain Beneficial Owners and
Management (Item 12), and Certain Relationships and Related Transactions (Item
13) is to be included in a definitive proxy statement filed by the registrant
not later than 120 days after the close of its fiscal year and such proxy
statement, when filed, is incorporated herein by reference.
<PAGE>
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-10-
<TABLE>
ITEM 10
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
<CAPTION>
Served as an Business Experience
Name/Office Age Officer Since (2) During Last 5 Years
- ------------------------ ---------------- ----------------- --------------------------------
<S> <C> <C> <C>
Terence E. Adderley 64 1961 Served as officer of registrant.
Chairman, President and Chief
Executive Officer
Carl T. Camden 43 1995 Served as officer of registrant
Executive Vice President since April, 1995. From 1993
served as Senior Vice President
at Key Corp., the parent of Key
Bank and Society Bank Groups.
Prior thereto, served as
Co-President of Wyse
Advertising.
Paul K. Geiger 64 1993 Served as officer of registrant
Senior Vice President and since April, 1993. Prior
Chief Financial Officer thereto, served as
Vice President and Chief
Financial Officer of the
University of Detroit Mercy.
Eugene L. Hartwig 64 1990 Served as officer of registrant.
Senior Vice President,
General Counsel and
Secretary
Robert E. Thompson 55 1982 Served as officer of registrant.
Executive Vice President
Tommi A. White 47 1993 Served as officer of registrant
Executive Vice President since November, 1993. From
1992, served as Vice President
of Automated Data Processing.
<FN>
Each officer serves continuously until termination of employment or removal by the Board of
Directors.
</TABLE>
<PAGE>
<PAGE>
-11-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial statements -
Report of Independent Accountants
Balance Sheets at December 28, 1997, December 29, 1996 and
December 31, 1995
Statements of Earnings for the three fiscal years ended
December 28, 1997
Statements of Cash Flows for the three fiscal years ended
December 28, 1997
Statements of Stockholders' Equity for the three fiscal years
ended December 28, 1997
Notes to Financial Statements
(2) Financial Statement Schedule -
For the three fiscal years ended December 28, 1997:
Schedule II - Valuation Reserves
(3) The Exhibits are listed in the Index to Exhibits Required by Item 601
of Regulation S-K at Item (c) below and included at page 28 which
is incorporated herein by reference.
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
No additional financial information has been provided for the registrant as an
individual company since the total amount of net assets of subsidiaries which
are restricted as to transfer to the registrant through intercompany loans,
advances or cash dividends does not exceed 25 percent of total consolidated net
assets at December 28, 1997.
(b) A report on Form 8-K dated January 3, 1998 was filed by the Company in
January, 1998. The report was filed under Item 1 of Form 8-K, changes
in control of registrant.
(c) The Index to Exhibits and required Exhibits are included following
the Financial Statement Schedule beginning at page 28 of this
filing.
(d) The Index to Financial Statements and Supplemental Schedule is
included following the signatures beginning at page 13 of this
filing.
<PAGE>
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-12-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 25, 1998 KELLY SERVICES, INC.
Registrant
By /s/ P. K. Geiger
---------------------------------------
P. K. Geiger
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 25, 1998 * T. E. Adderley
--------------------------------------
T. E. Adderley
Chairman, President, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: March 25, 1998 * C. V. Fricke
--------------------------------------
C. V. Fricke
Director
Date: March 25, 1998 * M. A. Fay, O.P.
--------------------------------------
M. A. Fay, O.P.
Director
Date: March 25, 1998 * V. G. Istock
--------------------------------------
V. G. Istock
Director
Date: March 25, 1998 * B. J. White
--------------------------------------
B. J. White
Director
Date: March 25, 1998 /s/ P. K. Geiger
--------------------------------------
P. K. Geiger
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: March 25, 1998 *By /s/ P. K. Geiger
--------------------------------------
P. K. Geiger
Attorney-in-Fact
<PAGE>
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INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULE
Kelly Services, Inc. and Subsidiaries
Page Reference
in Report on
Form 10-K
--------------
Report of Independent Accountants 14
Balance Sheets at December 28, 1997, December 29, 1996
and December 31, 1995 15
Statements of Earnings for the three fiscal years ended
December 28, 1997 16
Statements of Cash Flows for the three fiscal years ended
December 28, 1997 17
Statements of Stockholders' Equity for the three fiscal
years ended December 28, 1997 18
Notes to Financial Statements 19 - 26
Financial Statement Schedule -
Schedule II - Valuation Reserves 27
<PAGE>
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-14-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors,
Kelly Services, Inc.
In our opinion, the accompanying consolidated financial statements as listed in
Item 14(a) 1 and 2 of this Form 10-K present fairly, in all material respects,
the financial position of Kelly Services, Inc. and its subsidiaries at December
28, 1997, December 29, 1996 and December 31, 1995, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Detroit, Michigan
February 3, 1998
<PAGE>
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<TABLE>
BALANCE SHEETS
Kelly Services, Inc. and Subsidiaries
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(In thousands of dollars)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents . . . . . . . . . . . . $ 76,690 $ 33,408 $ 52,811
Short-term investments . . . . . . . . . . . 67,301 28,035 74,737
Accounts receivable, less allowances of
$12,375, $8,320 and $6,950, respectively . 572,134 554,025 397,534
Prepaid expenses and other current assets. . 54,847 43,118 33,520
---------- ---------- ----------
Total current assets. . . . . . . . . . 770,972 658,586 558,602
Property and Equipment
Land and buildings . . . . . . . . . . . . . 44,405 43,748 35,153
Equipment, furniture and leasehold
improvements . . . . . . . . . . . . . . . 130,472 118,737 113,521
Accumulated depreciation . . . . . . . . . . (62,144) (64,763) (64,286)
---------- ---------- ----------
Total property and equipment. . . . . . 112,733 97,722 84,388
Intangibles and Other Assets . . . . . . . . . 83,524 82,571 75,697
---------- ---------- ----------
Total Assets . . . . . . . . . . . . . . . . . $ 967,229 $ 838,879 $ 718,687
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings. . . . . . . . . . . . $ 54,958 $ 41,616 $ 16,462
Accounts payable . . . . . . . . . . . . . . 60,408 48,111 36,551
Payroll and related taxes . . . . . . . . . 197,092 151,769 118,996
Accrued insurance. . . . . . . . . . . . . . 61,077 53,119 51,309
Income and other taxes . . . . . . . . . . . 33,865 27,365 19,265
---------- ---------- ----------
Total current liabilities . . . . . . . 407,400 321,980 242,583
Stockholders' Equity
Capital stock, $1.00 par value
Class A common stock, shares issued 36,538,000
in 1997, 36,527,000 in 1996 and 36,512,000
in 1995 . . . . . . . . . . . . . . . 36,538 36,527 36,512
Class B common stock, shares issued 3,578,000
in 1997, 3,589,000 in 1996 and 3,604,000
in 1995. . . . . . . . . . . . . . . . . 3,578 3,589 3,604
Treasury stock, at cost
Class A common stock, 1,953,000 shares in
1997, 2,057,000 in 1996 and 2,101,000 in 1995 (6,214) (6,197) (6,327)
Paid-in capital. . . . . . . . . . . . . . . 10,980 8,265 7,215
Earnings invested in the business. . . . . . 514,947 474,715 435,100
---------- ---------- ----------
Total stockholders' equity. . . . . . . 559,829 516,899 476,104
---------- ---------- ----------
Total Liabilities and Stockholders' Equity . . $ 967,229 $ 838,879 $ 718,687
========== ========== ==========
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
-16-
<TABLE>
STATEMENTS OF EARNINGS
Kelly Services, Inc. and Subsidiaries
<CAPTION>
1997 1996 1995
------------ ------------ ------------
(In thousands of dollars except per share items)
<S> <C> <C> <C>
Sales of services. . . . . . . . . . . . . . . . $ 3,852,935 $ 3,302,303 $ 2,689,799
Cost of services . . . . . . . . . . . . . . . . 3,171,589 2,689,523 2,148,406
------------ ------------ ------------
Gross profit . . . . . . . . . . . . . . . . . . 681,346 612,780 541,393
Selling, general and administrative expenses . . 545,582 491,828 435,126
------------ ------------ ------------
Earnings from operations . . . . . . . . . . . . 135,764 120,952 106,267
Interest income, net . . . . . . . . . . . . . . 1,216 1,957 7,024
------------ ------------ ------------
Earnings before income taxes . . . . . . . . . . 136,980 122,909 113,291
Income taxes:
Federal . . . . . . . . . . . . . . . . . . . 45,485 40,560 34,645
State and other . . . . . . . . . . . . . . . 10,715 9,340 9,155
------------ ------------ ------------
Total income taxes . . . . . . . . . . . . . . . 56,200 49,900 43,800
------------ ------------ ------------
Net earnings . . . . . . . . . . . . . . . . . . $ 80,780 $ 73,009 $ 69,491
============ ============ ============
Basic earnings per share . . . . . . . . . . . . $2.12 $1.92 $1.83
Diluted earnings per share . . . . . . . . . . . $2.12 $1.91 $1.83
Dividends per share . . . . . . . . . . . . . . $ .87 $ .83 $ .78
Average shares outstanding (thousands) . . . . . 38,099 38,043 37,993
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
-17-
<TABLE>
STATEMENTS OF CASH FLOWS
Kelly Services, Inc. and Subsidiaries
<CAPTION>
1997 1996 1995
--------- --------- ---------
(In thousands of dollars)
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings . . . . . . . . . . . . . . . . . . $ 80,780 $ 73,009 $ 69,491
Noncash adjustments:
Depreciation and amortization. . . . . . . . . 28,341 26,136 22,685
Changes in certain working capital components. 38,714 (112,763) (70,180)
--------- --------- ---------
Net cash from operating activities . . . . . 147,835 (13,618) 21,996
Cash flows from investing activities
Capital expenditures . . . . . . . . . . . . . . (39,731) (36,548) (33,982)
Short-term investments . . . . . . . . . . . . . (39,266) 46,702 67,986
Increase in intangibles and other assets . . . . (8,446) (10,694) (31,192)
--------- --------- ---------
Net cash from investing activities . . . . . (87,443) (540) 2,812
Cash flows from financing activities
Increase in short-term borrowings. . . . . . . . 13,342 25,154 7,228
Dividend payments. . . . . . . . . . . . . . . . (33,150) (31,579) (29,638)
Exercise of stock options and restricted stock
awards . . . . . . . . . . . . . . . . . . . . 2,698 1,180 1,206
--------- --------- ---------
Net cash from financing activities . . . . . (17,110) (5,245) (21,204)
Net change in cash and equivalents . . . . . . . . 43,282 (19,403) 3,604
Cash and equivalents at beginning of year. . . . . 33,408 52,811 49,207
--------- --------- ---------
Cash and equivalents at end of year. . . . . . . . $ 76,690 $ 33,408 $ 52,811
========= ========= =========
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
-18-
<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY
Kelly Services, Inc. and Subsidiaries
<CAPTION>
1997 1996 1995
--------- --------- ----------
(In thousands of dollars)
<S> <C> <C> <C>
Capital Stock
Class A common stock
Balance at beginning of year . . . . . . . . $ 36,527 $ 36,512 $ 36,507
Conversions from Class B . . . . . . . . . . 11 15 5
--------- --------- ---------
Balance at end of year . . . . . . . . . . . 36,538 36,527 36,512
Class B common stock
Balance at beginning of year . . . . . . . . 3,589 3,604 3,609
Conversions to Class A . . . . . . . . . . (11) (15) (5)
--------- --------- ---------
Balance at end of year . . . . . . . . . . . 3,578 3,589 3,604
Treasury Stock
Balance at beginning of year . . . . . . . . (6,197) (6,327) (6,186)
Exercise of stock options. . . . . . . . . . (88) 61 (184)
Restricted stock awards. . . . . . . . . . . 71 69 43
--------- --------- ---------
Balance at end of year . . . . . . . . . . . (6,214) (6,197) (6,327)
Paid-in Capital
Balance at beginning of year . . . . . . . . 8,265 7,215 5,868
Exercise of stock options. . . . . . . . . . 2,225 476 977
Restricted stock awards . . . . . . . . . . 490 574 370
--------- --------- ---------
Balance at end of year . . . . . . . . . . . 10,980 8,265 7,215
Earnings Invested in the Business
Balance at beginning of year . . . . . . . . 474,715 435,100 391,718
Net earnings . . . . . . . . . . . . . . . . 80,780 73,009 69,491
Cash dividends . . . . . . . . . . . . . . . (33,150) (31,579) (29,638)
Equity adjustment for foreign currency
translation; cumulative charge of $7,092
in 1997, cumulative credit of $306 in 1996
and $2,121 in 1995 . . . . . . . . . . . . (7,398) (1,815) 3,529
--------- --------- ---------
Balance at end of year . . . . . . . . . . . 514,947 474,715 435,100
--------- --------- ---------
Stockholders' Equity at end of year. . . . . . . $559,829 $516,899 $476,104
========= ========= =========
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
-19-
NOTES TO FINANCIAL STATEMENTS
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's fiscal year ends on the Sunday nearest to December 31.
The three most recent years ended on December 28, 1997 (1997), December 29,
1996 (1996) and December 31, 1995 (1995).
The Company operates in the single industry segment of providing
staffing services to a diversified group of customers.
The financial statements consolidate the accounts and operations of the
Company and its subsidiaries, all of which are wholly owned, after
elimination of all intercompany accounts and transactions.
The accounts of the Company's foreign operations are translated at
appropriate rates of exchange. Foreign operations are conducted in Australia,
Canada, Denmark, France, Ireland, Italy, Luxembourg, Mexico, the Netherlands,
New Zealand, Norway, Puerto Rico, Russia, Spain, Switzerland and the United
Kingdom. Domestic and foreign sales, earnings from operations and
identifiable assets were as follows:
1997 1996 1995
------------- ------------- -------------
Sales:
Domestic Operations... $ 2,998,400 $ 2,590,700 $ 2,089,300
Foreign Operations.... 854,500 711,600 600,500
------------- ------------- -------------
Total................. $ 3,852,900 $ 3,302,300 $ 2,689,800
============= ============= =============
Earnings from operations:
Domestic Operations... $ 126,400 $ 109,500 $ 97,800
Foreign Operations.... 9,400 11,500 8,500
------------- ------------- -------------
Total................. $ 135,800 $ 121,000 $ 106,300
============= ============= =============
Identifiable assets:
Domestic Operations... $ 686,500 $ 611,500 $ 533,200
Foreign Operations.... 280,700 227,400 185,500
------------- ------------- -------------
Total................. $ 967,200 $ 838,900 $ 718,700
============= ============= =============
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform with the
current presentation.
<PAGE>
<PAGE>
-20-
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
CURRENT ASSETS
Cash and equivalents are stated at cost, which approximates market.
Included are highly liquid debt instruments with original maturities of three
months or less.
Short-term investments are debt instruments having original maturities
of more than three months. Of these investments, federal, state and local
government obligations comprised approximately 70% in 1997 and 90% in 1996
and 1995. Short-term investments due within one year totaled $64,000 in 1997
and $67,000 in 1995, with the balance due within two years and available for
sale. The entire short-term investments balance in 1996 was due within one
year. The difference between carrying amounts and market was not material at
December 28, 1997, December 29, 1996 and December 31, 1995.
Interest income was $4,390, $4,204 and $8,206, respectively, for the
years 1997, 1996 and 1995.
Cash flows from short-term investments for 1997, 1996 and 1995 were as
follows:
1997 1996 1995
------------ ------------ ------------
Sales/Maturities. . $ 1,749,954 $ 1,229,408 $ 951,817
Purchases . . . . . (1,789,220) (1,182,706) (883,831)
------------ ------------ ------------
Total . . . . . . . $ (39,266) $ 46,702 $ 67,986
============ ============ ============
CHANGES IN CERTAIN WORKING CAPITAL COMPONENTS
Changes in certain working capital components, as disclosed in the
statements of cash flows, for the years 1997, 1996, and 1995 were as follows:
1997 1996 1995
------------ ------------ -----------
Increase in accounts
receivable . . . . . . . $ (27,494) $ (158,596) $ (86,512)
Increase in prepaid
expenses and other
current assets . . . . . (13,234) (9,928) (5,522)
Increase in accounts
payable. . . . . . . . . 16,069 12,325 11,076
Increase in payroll and
related taxes. . . . . . 47,345 33,188 15,030
Increase (decrease) in
accrued insurance. . . . 7,981 1,819 (6,101)
Increase in income and
other taxes . . . . . . 8,047 8,429 1,849
------------ ------------ -----------
Total. . . . . . . . . . . $ 38,714 $ (112,763) $ (70,180)
============ ============ ===========
<PAGE>
<PAGE>
-21-
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
PROPERTY AND EQUIPMENT
Properties are stated at cost and include expenditures for additions and
major improvements. Fully depreciated assets are eliminated from the
accounts. For financial reporting purposes, assets are depreciated over
their estimated useful lives, principally by the straight-line method.
Depreciation expense was $22,900 for 1997 and 1996, and $20,400 for 1995.
The Company conducts its field operations primarily from leased
facilities. The following is a schedule by fiscal year of future minimum
lease commitments as of December 28, 1997:
Fiscal year:
1998 $ 34,100
1999 26,100
2000 19,800
2001 13,200
2002 8,300
Later years 19,500
-----------
Total $ 121,000
===========
Lease expense for 1997, 1996 and 1995 amounted to $35,900, $32,900 and
$29,800, respectively.
INTANGIBLES AND OTHER ASSETS
Intangibles and other assets include goodwill of $56,000, $58,000 and
$55,400 at year-ends 1997, 1996 and 1995, respectively. Goodwill, which
represents the excess of cost over net assets of businesses acquired, is
amortized on a straight-line basis over periods not exceeding 40 years.
Accumulated amortization at 1997, 1996 and 1995 was $5,300, $4,200 and
$3,100, respectively.
The Company periodically reviews the specific carrying amounts of
goodwill and has determined that no impairments have occurred. Such reviews
are based on various analyses including profitability projections and
management's judgment of the related business' ability to achieve sufficient
profitability.
Other assets include deposits and cash values of life insurance on the
lives of officers and key employees.
CAPITALIZATION
The authorized capital stock of the Company is 100,000,000 shares of
Class A common stock and 10,000,000 shares of Class B common stock. Class A
shares have no voting rights and are not convertible. Class B shares have
voting rights and are convertible into Class A shares on a share-for-share
basis at any time. Both classes of stock have identical rights in the event
of liquidation.
<PAGE>
<PAGE>
-22-
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
EARNINGS PER SHARE
The reconciliations of earnings per share computations for the fiscal
years 1997, 1996 and 1995 were as follows:
1997 1996 1995
---------- --------- ----------
Net earnings $ 80,780 $ 73,009 $ 69,491
========== ========== ==========
Determination of shares:
Weighted average common shares 38,099 38,043 37,993
outstanding
Effect of dilutive securities:
Stock options 61 36 46
Restricted and performance awards 31 54 18
--------- --------- ---------
Weighted average common
shares outstanding - assuming dilution 38,191 38,133 38,057
========== ========== ==========
Earnings per share - basic $ 2.12 $ 1.92 $ 1.83
Earnings per share - assuming dilution $ 2.12 $ 1.91 $ 1.83
Stock options to purchase 423,000, 618,000 and 194,000 shares of common stock
at a weighted average price per share of $31.02, $30.46 and $29.76 were
outstanding during 1997, 1996 and 1995, respectively, but were not included
in the computation of diluted earnings per share. The options' exercise
price was greater than the average market price of the common shares and were
anti-dilutive.
SHORT-TERM BORROWINGS
Short-term borrowings of $54,958, $41,616 and $16,462 at year-ends 1997,
1996 and 1995, respectively, represent credit lines with banks maintained by
certain of the Company's foreign subsidiaries. Weighted average interest
rates were 7.8%, 6.8% and 7.8% at year ends 1997, 1996 and 1995,
respectively. Interest expense and payments related to the short-term
borrowings for 1997, 1996 and 1995 were as follows:
1997 1996 1995
--------- ---------- ---------
Interest expense $ 3,174 $ 2,247 $ 1,182
Interest payments 2,174 2,100 1,024
<PAGE>
<PAGE>
-23-
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
In addition, the Company has an uncommitted line of credit of
$25 million at year ends 1997 and 1996. Through December 28, 1997, there
have been no borrowings under the line of credit agreement. The carrying
amounts of the Company's borrowings under the lines of credit described above
approximate their fair value.
RETIREMENT BENEFITS
The Company provides a qualified defined contribution plan covering
substantially all full-time employees, except officers and certain other
management employees. Upon approval by the Board of Directors, a
contribution based on eligible wages is funded annually. The plan offers a
savings feature with Company matching contributions. Assets of this plan are
held by an independent trustee for the sole benefit of participating
employees.
A nonqualified defined contribution plan is provided for officers and
certain other management employees. Upon approval by the Board of Directors,
a contribution based on eligible wages is set aside annually. This plan also
includes provisions for salary deferrals and Company matching contributions.
The total amounts provided for retirement benefits amounted to $6,300 in
1997, $4,900 in 1996 and $4,400 in 1995.
INCOME TAXES
The following summarizes the differences between income taxes for
financial reporting purposes and the United States statutory tax rate for the
years 1997, 1996 and 1995.
1997 1996 1995
--------- --------- --------
Statutory rate . . . . . . . 35.0 % 35.0 % 35.0 %
State and local taxes,
net of federal benefit . . 5.1 4.9 5.3
Tax exempt income
and other tax credits . . (1.1) (0.7) (2.6)
Other . . . . . . . . . . . 2.0 1.4 1.0
--------- --------- --------
Effective tax rate . . . . . 41.0 % 40.6 % 38.7 %
========= ========= ========
Deferred taxes are related to the effect of temporary differences
between financial and tax reporting. These differences are related
principally to depreciation, benefit plan costs, provisions for workers'
compensation claims, full-time and temporary employee vacation costs and
provisions for doubtful accounts.
The Company paid income taxes of $64,300 in 1997, $46,500 in 1996 and
$52,900 in 1995.
<PAGE>
<PAGE>
-24-
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
PERFORMANCE INCENTIVE PLAN
Under the 1992 Performance Incentive Plan as amended and restated in
1996 (the "Plan"), the Company may grant stock options (both incentive and
nonqualified), Stock Appreciation Rights (SARs), restricted awards and
performance awards to key employees utilizing the Company's Class A stock.
Stock options may not be granted at prices less than the fair market value on
the date of grant, nor for a term to exceed 10 years. The Plan provides that
the maximum number of shares available for grants is 7-1/2 percent of the
outstanding Class A stock, adjusted for Plan activity over the preceding five
years. Shares available for future grants at the end of 1997, 1996 and 1995
were 1,149,000; 1,394,000 and 911,000, respectively.
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for the Plan. Accordingly, no compensation
cost has been recognized for incentive and nonqualified stock options. If
compensation cost had been determined based on the fair value at the grant
dates for awards under the Plan consistent with the method of Statement of
Financial Accounting Standards 123, Accounting for Stock-Based Compensation,
the Company's net income would have been reduced by $809, $497 and $207 for
1997, 1996 and 1995, respectively; basic earnings per share would have been
reduced by $.02 in 1997 and $.01 in 1996 and 1995; and diluted earnings per
share would have been reduced by $.03 in 1997 and $.01 in 1996 and 1995.
Since stock options generally become exercisable over several years and
additional grants are likely to be made in future years, the pro forma
amounts for compensation cost may not be indicative of the effects on net
income and earnings per share for future years.
The fair value of each option included in the following tables is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants in 1997, 1996
and 1995, respectively: dividend yield of 3.0 percent in all three years,
expected volatility of 30, 31 and 33 percent, risk-free interest rates of 5.9,
5.7 and 6.5 percent and expected lives of seven years in all three years.
A summary of the status of stock option grants under the Plan as of
December 28, 1997, December 29, 1996 and December 31, 1995, and changes
during the years ended on those dates is presented as follows:
Weighted Avg.
1997: Options Exercise Price
---------- ---------------
Outstanding at beginning of year. . 1,022,000 $28.69
Granted . . . . . . . . . . . . . . 434,000 28.50
Exercised . . . . . . . . . . . . . (90,000) 27.76
Cancelled . . . . . . . . . . . . . (206,000) 28.72
----------
Outstanding at end of year. . . . . 1,160,000 $28.68
==========
Options exercisable at year end . . 280,000 $27.70
Weighted average fair value of
options granted during the year . $8.69
<PAGE>
<PAGE>
-25-
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
Weighted Avg.
1996: Options Exercise Price
---------- ---------------
Outstanding at beginning of year. . 697,000 $27.36
Granted . . . . . . . . . . . . . . 457,000 30.55
Exercised . . . . . . . . . . . . . (21,000) 25.82
Cancelled . . . . . . . . . . . . . (111,000) 28.61
----------
Outstanding at end of year. . . . . 1,022,000 $28.69
==========
Options exercisable at year end . . 260,000 $27.10
Weighted average fair value of
options granted during the year . $9.46
1995:
Outstanding at beginning of year. . 646,000 $26.41
Granted . . . . . . . . . . . . . . 178,000 29.29
Exercised . . . . . . . . . . . . . (47,000) 23.56
Cancelled . . . . . . . . . . . . . (80,000) 26.17
----------
Outstanding at end of year. . . . . 697,000 $27.36
==========
Options exercisable at year end . . 169,000 $26.74
Weighted average fair value of
options granted during the year . $9.86
Stock options outstanding at December 28, 1997 have a weighted average
remaining life of 7.94 years.
As of December 28, 1997, no SARs have been granted under the Plan.
Restricted awards are issued to certain key employees and are subject to
forfeiture until the end of an established restriction period. Restricted
awards totaling 38,900, 2,400 and 66,800 shares were granted under the Plan
during 1997, 1996 and 1995, respectively. The weighted average grant date
price of such awards were $29.58, $27.38 and $29.45 for 1997, 1996 and 1995,
respectively. Restricted awards outstanding totaled 52,800; 55,700 and
98,100 shares at year-ends 1997, 1996 and 1995, respectively, and have a
weighted average remaining life of 2.4 years at December 28, 1997.
Under the Plan, performance awards may be granted to senior executive
officers, the payout of which is determined by the degree of attainment of
objectively determinable performance goals over the established relevant
performance period. Performance awards totaling 44,500 and 42,000 shares
were granted under the Plan during 1997 and 1996, respectively. The weighted
average grant date prices of such awards were $28.06 and $29.75 for 1997 and
1996, respectively. Unearned performance awards outstanding at year-ends
1997 and 1996 were 76,300 and 38,500, respectively, and have a weighted
average remaining life of 1.6 years at December 28, 1997. Total compensation
cost recognized for restricted and performance awards was $1,400, $1,300 and
$800 for 1997, 1996 and 1995, respectively.
<PAGE>
<PAGE>
-26-
<TABLE>
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
SELECTED QUARTERLY FINANCIAL DATA (unaudited)
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----------
(In thousands of dollars except per share items)
<S> <C> <C> <C> <C>
Sales of services
1997 . . . . . . . . . $880,846 $959,726 $1,001,209 $1,011,154 $3,852,935
1996 . . . . . . . . . 733,931 804,262 873,242 890,868 3,302,303
1995 . . . . . . . . . 620,685 652,417 698,453 718,244 2,689,799
Cost of services
1997 . . . . . . . . . 724,508 789,618 824,820 832,643 3,171,589
1996 . . . . . . . . . 596,245 652,007 711,950 729,321 2,689,523
1995 . . . . . . . . . 498,667 519,739 555,968 574,032 2,148,406
Selling, general and
administrative
1997 . . . . . . . . . 132,219 137,636 136,464 139,263 545,582
1996 . . . . . . . . . 117,302 123,778 125,101 125,647 491,828
1995 . . . . . . . . . 104,083 107,510 110,809 112,724 435,126
Net earnings
1997 . . . . . . . . . 14,228 19,443 23,587 23,522 80,780
1996 . . . . . . . . . 12,903 17,448 21,430 21,228 73,009
1995 . . . . . . . . . 12,262 16,660 20,373 20,196 69,491
Basic earnings per share
1997 . . . . . . . . . .37 .51 .62 .62 2.12
1996 . . . . . . . . . .34 .46 .56 .56 1.92
1995 . . . . . . . . . .32 .44 .54 .53 1.83
Diluted earnings per share
1997 . . . . . . . . . .37 .51 .62 .61 2.12
1996 . . . . . . . . . .34 .46 .56 .56 1.91
1995 . . . . . . . . . .32 .44 .54 .53 1.83
Dividends per share
1997 . . . . . . . . . .21 .22 .22 .22 .87
1996 . . . . . . . . . .20 .21 .21 .21 .83
1995 . . . . . . . . . .18 .20 .20 .20 .78
</TABLE>
<PAGE>
<PAGE>
-27-
<TABLE>
SCHEDULE II - VALUATION RESERVES
Kelly Services, Inc. and Subsidiaries
DECEMBER 28, 1997
(In thousands of dollars)
<CAPTION>
Additions
------------------------
Balance at Charged to Deductions - Balance at
beginning costs and uncollectible end
of year expenses accounts of year
---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Description
- -----------
Fifty-two weeks ended December 28, 1997:
Reserve deducted in the balance sheet
from the assets to which it applies -
Allowance for doubtful accounts $8,320 $12,250 $8,195 $12,375
======= ======== ======= ========
Fifty-two weeks ended December 29, 1996:
Reserve deducted in the balance sheet
from the assets to which it applies -
Allowance for doubtful accounts $6,950 $ 5,710 $4,340 $ 8,320
======= ======== ======= ========
Fifty-two weeks ended December 31, 1995:
Reserve deducted in the balance sheet
from the assets to which it applies -
Allowance for doubtful accounts $5,660 $ 4,240 $2,950 $ 6,950
======= ======== ======= ========
</TABLE>
<PAGE>
<PAGE>
-28-
<TABLE>
INDEX TO EXHIBITS
REQUIRED BY ITEM 601,
REGULATION S-K
<CAPTION>
Exhibit
No. Description Page
- ------- ----------- ----
<S> <C> <C>
3.1 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).
3.2 By-laws. (Reference is made to Exhibit 3 to the Form 10-Q for
the quarterly period ended September 29, 1996, filed with the
Commission in November, 1996, which is incorporated herein by
reference).
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).
10.1 Short-Term Incentive Plan, as amended and restated on March 11, 1997. 1
(Document 2)
10.2 Kelly Services, Inc. Amended and Restated Performance Incentive
Plan. (Reference is made to Exhibit B to the Definitive Proxy for
the fiscal year ended December 31, 1995, filed with the
Commission in April, 1996, which is incorporated herein by
reference).
10.3 Kelly Services, Inc. Non-employee Director Stock Award Plan. (Reference
is made to Exhibit A to the Definitive Proxy for the fiscal year ended
January 1, 1995, filed with the Commission in April, 1995, which is
incorporated herein by reference).
11 Additional Earnings Per Share Information. 1
(Document 3)
21 Subsidiaries of Registrant. 1
(Document 4)
23 Consent of Independent Accountants. 1
(Document 5)
24 Power of Attorney. 1
(Document 6)
27.1 1997 Financial Data Schedule. 1
(Document 7)
27.2 1996 and 1995 Restated Financial Data Schedule 1
(Document 8)
</TABLE>
<PAGE>
<PAGE>
-1-
KELLY SERVICES, INC.
SHORT-TERM INCENTIVE PLAN
(As Amended and Restated by Action
of the Board of Directors)
(March 11, 1997)
Section 1 - Purposes.
This KELLY SERVICES, INC. SHORT-TERM INCENTIVE PLAN (the "Plan")
provides for annual incentive compensation payable in cash to those key
officers and employees of the Company or any affiliated entity, who, from
time to time may be selected for participation. The Plan is intended to
provide incentives and rewards for the contributions of such employees toward
the successful achievement of the Company's financial and business goals
established for the current year.
Section 2 - Administration.
The Plan shall be administered by the Compensation Committee of the
Board of Directors. The Committee shall have authority to make rules and
adopt administrative procedures in connection with the Plan and shall have
discretion to provide for situations or conditions not specifically provided
for herein consistent with the overall purposes of the Plan.
Section 3 - Selection of Participants.
The Committee may delegate to the chief executive officer of the
Company, if also a director, its authority to select those key officers and
employees entitled to participate under the Plan each year. Approval of
eligible participants may be made at any time during each award year.
Section 4 - Establishing Performance Objectives.
The Committee annually during the first quarter of the year shall
establish one or more performance objectives, at least one of which shall be
a quantitatively measured Company performance objective. The Committee shall
have discretion to establish other objectives, the achievement of which may
require subjective assessments by the Committee.
Section 5 - Establishing Target Awards.
During the first quarter of each year the Committee shall establish a
target award, expressed as a percentage of eligible salary for that year
(annual base salary, excluding pay for disability, overtime, bonuses, sick
pay and other reimbursements and allowances), for each officer or other
employee selected to participate under the Plan. Individual participants may
earn an award payout ranging from zero percent to the maximum percent of
their target award that the Committee may set in place from time to time.
The Committee shall also specify what portion of the target award is based on
the achievement of the Company performance objective and what portion or
portions are based on the achievement of other objectives. The Committee
will establish an award payout schedule based upon the extent to which the
Company performance objective is or is not achieved or exceeded.
<PAGE>
<PAGE>
-2-
Section 6 - Determining Final Awards.
The Committee shall have discretion to adjust final awards up or down
from the target award depending on (a) the extent to which the Company
performance objective(s) is either exceeded or not met, and (b) the extent to
which other objectives, e.g. subsidiary, division, department, unit or other
performance objectives are attained. The Committee shall have full
discretion to make other adjustments in final awards based on individual
performance as it considers appropriate in the circumstances.
Section 7 - Special Provisions Applicable to the
President and Chief Executive Officer.
In the case of the President and Chief Executive Officer (the "CEO"),
the Committee, during the first quarter of each year, will establish a Plan
target award, expressed as a percentage of his eligible salary. At the same
time, the Committee will establish a Company performance objective for such
year expressed either as a certain dollar amount of the Company's pre-tax
earnings for the year or the equivalent of such amount in earnings per share.
The Committee will also establish a payout schedule for relating the award
actually earned to performance above or below the performance objective.
Final awards for the CEO shall be based entirely on the extent to which actual
pre-tax earnings or the equivalent of such amount in earnings per share are
either less than or greater than the Company performance objective. In no
event shall any award to the CEO under the Plan exceed $1,500,000. The
Committee retains the right in its discretion to reduce the award based on
performance considerations, but will have no discretion to increase any award
so calculated.
Section 8 - Time of Distribution.
Distribution of awards shall be made in one or more installments, as the
Committee shall determine, as soon as practicable following the close of the
year for which earned. If an award is less than $3,000, the full amount of
the award shall be paid in the year following the award year.
Section 9 - Forfeiture.
Until such time as the full amount of an award has been paid, a
participant's right to receive any unpaid amount shall be wholly contingent
and shall be forfeited if, prior to payment, the participant is no longer in
the employ of the Company, provided, however, that the Committee may in its
discretion, waive such condition of continued employment. It shall be an
overriding precondition to the payment of any award (a) that the participant
not engage in any activity that, in the opinion of the Committee, is in
competition with any activity of the Company or any affiliated entity or
otherwise inimical to the best interests of the Company and (b) that the
participant furnish the Committee with all such information confirming
satisfaction of the foregoing condition as the Committee shall reasonably
request. If the Committee makes a determination that a participant has
engaged in any such competitive or otherwise inimical activity, such
determination shall operate to immediately cancel all then unpaid award
amounts.
<PAGE>
<PAGE>
-3-
Section 10 - Death.
Any award remaining unpaid, in whole or in part, at the death of a
participant shall be paid to the participant's legal representative or to a
beneficiary designated by the participant in accord with rules established by
the Committee.
Section 11 - No Right to Employment or Award.
No person shall have any claim or right to receive an award, and
selection to participate in the Plan shall not confer upon any employee a
right with respect to continued employment by the Company. Further the
Company and each affiliated entity reaffirms its at-will relationship with
its employees and expressly reserves the right at any time to dismiss a
participant free from any liability or claim, except as provided under this
Plan.
Section 12 - Amendment or Termination.
The Board of Directors of the Company reserves the right at any time to
make any changes in the Plan as it may consider desirable or may discontinue
or terminate the Plan at any time except that Section 7 cannot be changed in
anyway which would violate IRS regulations under Internal Revenue Code
Section 162(n) without stockholder approval.
<PAGE>
<PAGE>
-1-
<TABLE>
ADDITIONAL EARNINGS PER SHARE INFORMATION
Kelly Services, Inc. and Subsidiaries
Details of the common shares used to compute earnings per share are as follows
in thousands except per share items:
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
Dec. 28, Dec. 29, Dec. 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Weighted average shares outstanding 38,099 38,043 37,993
Adjustment for dilutive shares from stock
options under the treasury stock method
Shares assumed issued 953 592 647
Less - Shares assumed repurchased 861 502 583
------- --------- --------
Additional shares assumed outstanding 92 90 64
------- --------- --------
Applicable shares as adjusted 38,191 38,133 38,057
======== ========= ========
Net earnings $80,780 $73,009 $69,491
======== ======== ========
Diluted earnings per common share $2.12 $1.91 $1.83
===== ===== =====
Percent dilution of earnings per share 0.2% 0.2% 0.2%
==== ==== ====
This calculation is submitted in accordance with Regulation S-K item 601(b)(11).
</TABLE>
<PAGE>
<PAGE>
-1-
<TABLE>
SUBSIDIARIES OF REGISTRANT
Kelly Services, Inc.
<CAPTION>
State/Jurisdiction
Subsidiary of Incorporation Business Name
<S> <C> <C>
Kelly Services (Canada), Ltd. Canada Kelly Temporary Services
Societe Services Kelly Delaware Kelly Services
Kelly Properties, Inc. Michigan Kelly Properties
Kelly Services (Ireland), Ltd. Delaware Kelly Temporary Services
(a subsidiary of Kelly Properties, Inc.)
Kelly Services (UK), Ltd. United Kingdom Kelly Temporary Services
(a subsidiary of Kelly Properties, Inc.)
Kelly Assisted Living Services, Inc. Delaware Kelly Assisted Living Services
Kelly Services (Australia), Ltd. Delaware Kelly Temporary Services
Kelly Services (New Zealand), Ltd. Delaware Kelly Temporary Services
Kelly Professional and Technical Services, Inc. Delaware Kelly Professional and Technical
Services
The Wallace Law Registry, Inc. Connecticut Wallace Law Registry
(a subsidiary of Kelly Professional and
Technical Services, Inc.)
Kelly Professional Services (France), Inc. Delaware Kelly Professional Services
Kelly Services of Denmark, Inc. Delaware Kelly Services (Danmark)
Kelly Services (Nederland), B.V. The Netherlands Kelly Uitzendburo
Kelly Services Norge A.S. Norway Kelly Bemmanings/oslinger
(a subsidiary of Kelly Services (Nederland), B.V.)
Kelly de Mexico, S.A. de C.V. Mexico Kelly Temporary Services
KSI Acquisition Corporation California Kelly Staff Leasing
<PAGE>
<PAGE>
-2-
SUBSIDIARIES OF REGISTRANT (continued)
Kelly Services, Inc.
<CAPTION>
State/Jurisdiction
Subsidiary of Incorporation Business Name
<S> <C> <C>
Kelly Services (Switzerland) Inc. Switzerland Kelly Services Switzerland
Kelly Services France S.A. France Kelly Services France
Bourse Du Travail Temporaire 2000 France BTT 2000
(a subsidiary of Kelly Services France S.A.)
Kelly Formation S.A.R.L. France Kelly Formation
(a subsidiary of Kelly Services France S.A.)
Kelly Services Luxembourg S.A.R.L. Luxembourg Kelly Services
Kelly Services Italia SRL Italy Kelly Services
(a subsidiary of Kelly Services, Inc. and
Kelly Properties, Inc.)
Kelly Services (Societa di Italy Kelly Services Italia SpA
fornitura di lavaro temporaneo) SpA
(a subsidiary of Kelly Services, Inc. and
Kelly Properties, Inc.)
Kelly Services Iberia Holding Company, S.L. Spain Kelly Services E.T.T.
Kelly Services Empleo E.T.T., S.L. Spain Kelly Services E.T.T.
(a subsidiary of Kelly Services Iberia
Holding Company, S.L.)
Kelly Services Seleccion y Formacion, S.L. Spain Kelly Services E.T.T.
(a subsidiary of Kelly Services Iberia
Holding Company, S.L.)
Kelly Services CIS, Inc. Delaware Kelly Services
Personnel Corps ZAO Russia Kelly Services St. Petersburg
(a subsidiary of Daylesford Investments
Limited, a Cyprus Holding Company)
</TABLE>
<PAGE>
<PAGE>
-1-
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 Number 2-85867, 33-48782 and 33-51239 of Kelly
Services, Inc. of our report dated February 3, 1998, appearing on page 14 of
this Annual Report on Form 10-K.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Detroit, Michigan
March 25, 1998
<PAGE>
<PAGE>
-1-
POWER OF ATTORNEY
Each of the undersigned directors of Kelly Services, Inc. does hereby
appoint each of Eugene L. Hartwig and Paul K. Geiger, signing singly, his
true and lawful attorneys, to execute for and on behalf of the undersigned
the Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 28, 1997, to be filed
with the Securities and Exchange Commission in Washington, D.C. under the
provisions of the Securities Exchange Act of 1934, as amended, and any and
all amendments to said Form 10-K whether said amendments add to, delete from
or otherwise alter the Form 10-K, or add to or withdraw any exhibit or
exhibits, schedule or schedules to be filed therewith, and any and all
instruments necessary or incidental in connection therewith, hereby granting
unto said attorneys and each of them full power and authority to do and
perform in the name and on behalf of each of the undersigned, and in any and
all capacities, every act and thing whatsoever required or necessary to be
done in the exercise of any of the rights and powers herein granted, as fully
and to all intents and purposes as each of the undersigned might or could do
in person, hereby ratifying and approving the acts of said attorneys and each
of them.
IN WITNESS WHEREOF the undersigned have caused this Power of Attorney to
be executed as of this 17th day of February, 1998.
/s/ Terence E. Adderley
-----------------------
Terence E. Adderley
/s/ Maureen A. Fay, O.P.
------------------------
Maureen A. Fay, O.P.
/s/ Cedric V. Fricke
-----------------------
Cedric V. Fricke
/s/ Verne G. Istock
-----------------------
Verne G. Istock
/s/ B. Joseph White
-----------------------
B. Joseph White
<PAGE>
<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> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> DEC-28-1997
<CASH> 76,690
<SECURITIES> 67,301
<RECEIVABLES> 584,509
<ALLOWANCES> 12,375
<INVENTORY> 0
<CURRENT-ASSETS> 770,972
<PP&E> 174,877
<DEPRECIATION> 62,144
<TOTAL-ASSETS> 967,229
<CURRENT-LIABILITIES> 407,400
<BONDS> 0
0
0
<COMMON> 40,116
<OTHER-SE> 519,713
<TOTAL-LIABILITY-AND-EQUITY> 967,229
<SALES> 0
<TOTAL-REVENUES> 3,852,935
<CGS> 0
<TOTAL-COSTS> 3,171,589
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 136,980
<INCOME-TAX> 56,200
<INCOME-CONTINUING> 80,780
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,780
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 2.12
</TABLE>
<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>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-29-1996
<PERIOD-END> DEC-31-1995 DEC-29-1996
<CASH> 52,811 33,408
<SECURITIES> 74,737 28,035
<RECEIVABLES> 404,484 562,345
<ALLOWANCES> 6,950 8,320
<INVENTORY> 0 0
<CURRENT-ASSETS> 558,602 658,586
<PP&E> 148,674 162,485
<DEPRECIATION> 64,286 64,763
<TOTAL-ASSETS> 718,687 838,879
<CURRENT-LIABILITIES> 242,583 321,980
<BONDS> 0 0
0 0
0 0
<COMMON> 40,116 40,116
<OTHER-SE> 435,988 476,783
<TOTAL-LIABILITY-AND-EQUITY> 718,687 838,879
<SALES> 0 0
<TOTAL-REVENUES> 2,689,799 3,302,303
<CGS> 0 0
<TOTAL-COSTS> 2,148,406 2,689,523
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 113,291 122,909
<INCOME-TAX> 43,800 49,900
<INCOME-CONTINUING> 69,491 73,009
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 69,491 73,009
<EPS-PRIMARY> 1.83 1.92
<EPS-DILUTED> 1.83 1.91
</TABLE>
