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Index to Exhibits on page 12
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 29, 1998
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)
(248) 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 1, 1998, 34,653,026 shares of Class A and 3,570,195 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 11
Index to Exhibits Required by
Item 601, Regulation S-K 12
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<TABLE>
KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands of dollars except per share items)
<CAPTION>
13 Weeks Ended
-------------------------------
March 29, 1998 March 30, 1997
-------------- --------------
<S> <C> <C>
Sales of services $959,382 $880,846
Cost of services 791,472 724,508
--------- ---------
Gross profit 167,910 156,338
Selling, general and
administrative expenses 143,069 132,219
--------- ---------
Earnings from operations 24,841 24,119
Interest income, net 693 4
--------- ---------
Earnings before income taxes 25,534 24,123
--------- ---------
Income taxes:
Federal 8,555 8,135
State and other 1,915 1,760
--------- ---------
Total income taxes 10,470 9,895
--------- ---------
Net earnings $ 15,064 $ 14,228
========= =========
Earnings per share:
Basic $.39 $.37
Diluted .39 .37
Average shares outstanding
(thousands):
Basic 38,177 38,061
Diluted 38,384 38,115
Dividends per share $.22 $.21
</TABLE>
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<TABLE>
KELLY SERVICES, INC. AND SUBSIDIARIES
BALANCE SHEETS AS OF MARCH 29, 1998 AND DECEMBER 28, 1997
(In thousands of dollars)
<S> <C> <C>
ASSETS 1998 1997
- ------ ----------- ---------
CURRENT ASSETS: (UNAUDITED)
Cash and equivalents $ 115,493 $ 76,690
Short-term investments 67,628 67,301
Accounts receivable, less
allowances of $11,830 and
$12,375, respectively 570,636 572,134
Prepaid expenses and other
current assets 55,996 54,847
----------- ---------
Total current assets 809,753 770,972
PROPERTY AND EQUIPMENT:
Land and buildings 44,376 44,405
Equipment, furniture and
leasehold improvements 136,711 130,472
Accumulated depreciation (67,602) (62,144)
----------- ---------
Total property and equipment 113,485 112,733
INTANGIBLES AND OTHER ASSETS 80,769 83,524
----------- ---------
TOTAL ASSETS $1,004,007 $967,229
=========== =========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 47,858 $ 54,958
Accounts payable 68,710 60,408
Payroll and related taxes 220,740 197,092
Accrued insurance 63,082 61,077
Income and other taxes 36,878 33,865
----------- ---------
Total current liabilities 437,268 407,400
----------- ---------
STOCKHOLDERS' EQUITY:
Capital stock, $1 par value 40,116 40,116
Treasury stock, 1,894,000 shares in
1998 and 1,953,000 shares in 1997,
respectively, at cost (6,282) (6,214)
Paid-in capital 12,627 10,980
Earnings invested in the business 528,703 522,039
Accumulated foreign currency adjustments (8,425) (7,092)
----------- ---------
Total stockholders' equity 566,739 559,829
----------- ---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $1,004,007 $967,229
=========== =========
</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 29, 1998 March 30, 1997
-------------- --------------
<S> <C> <C>
Capital Stock
Class A common stock
Balance at beginning of period $ 36,538 $ 36,527
Conversions from Class B 2 4
--------- ---------
Balance at end of period 36,540 36,531
Class B common stock
Balance at beginning of period 3,578 3,589
Conversions to Class A (2) (4)
--------- ---------
Balance at end of period 3,576 3,585
Treasury Stock
Balance at beginning of period (6,214) (6,197)
Exercise of stock options (73) (9)
Restricted stock awards 5 2
--------- ---------
Balance at end of period (6,282) (6,204)
Paid-in Capital
Balance at beginning of period 10,980 8,265
Exercise of stock options 1,612 84
Restricted stock awards 35 16
--------- ---------
Balance at end of period 12,627 8,365
Earnings Invested in the Business
Balance at beginning of period 522,039 474,409
Net earnings 15,064 14,228
Cash dividends (8,400) (7,993)
--------- ---------
Balance at end of period 528,703 480,644
Accumulated Foreign Currency Adjustments
Balance at beginning of period (7,092) 306
Equity adjustment for foreign currency (1,333) (5,132)
--------- ---------
Balance at end of period (8,425) (4,826)
--------- ---------
Stockholders' Equity at end of period $566,739 $518,095
========= =========
Comprehensive Income
Net earnings $ 15,064 $ 14,228
Other comprehensive income - Foreign
currency adjustments (1,333) (5,132)
--------- ---------
Comprehensive Income $ 13,731 $ 9,096
========= =========
</TABLE>
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<TABLE>
KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE 13 WEEKS ENDED MARCH 29, 1998 AND MARCH 30, 1997
(In thousands of dollars)
<S> <C> <C>
1998 1997
---------- ----------
Cash flows from operating activities:
Net earnings $ 15,064 $ 14,228
Noncash adjustments:
Depreciation and amortization 6,802 6,439
Changes in certain working capital
components 36,677 22,254
--------- ---------
Net cash from operating activities 58,543 42,921
--------- ---------
Cash flows from investing activities:
Capital expenditures (7,031) (6,131)
Proceeds from sales and maturities of
short-term investments 409,802 518,006
Purchases of short-term investments (410,129) (511,384)
Decrease in intangibles and other assets 1,539 1,355
--------- ---------
Net cash from investing activities (5,819) 1,846
--------- ---------
Cash flows from financing activities:
(Decrease) increase in short-term
borrowings (7,100) 622
Dividend payments (8,400) (7,993)
Exercise of stock options and
restricted stock awards 1,579 93
--------- ---------
Net cash from financing activities (13,921) (7,278)
--------- ---------
Net change in cash and equivalents 38,803 37,489
Cash and equivalents at beginning
of period 76,690 33,408
--------- ---------
Cash and equivalents at end of period $115,493 $ 70,897
========= =========
</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 1998 were $959.4 million, an
increase of 8.9% from the same period in 1997. Sales growth was strong
in foreign operations while domestic sales expanded at a moderate rate.
Cost of services, consisting of payroll and related tax and benefit
costs of employees assigned to customers, increased 9.2% in the first
quarter as compared to the same period in 1997. Direct wage costs have
increased from 1997 at a rate somewhat higher than the general
inflation rate, due to strong worldwide demand for labor.
Gross profit of $167.9 million was 7.4% higher than the first quarter
of 1997, and gross profit as a percentage of sales declined from 17.7%
in 1997 to 17.5% in 1998. The growth of sales with our largest
customers where contracts require special pricing and additional
implementation costs, especially in the foreign markets, and the upward
pressure on wage costs noted above had the effect of reducing the
consolidated gross profit rate.
Selling, general and administrative expenses were $143.1 million in the
first quarter, an increase of 8.2% over the same period in 1997.
Expenses averaged 14.9% of sales as compared to 15.0% in last year's
first quarter. The rate of growth of these expenses inclusive of year
2000 modification costs in relationship to the sales increases reflects
the Company's emphasis on expense control.
Earnings from operations of $24.8 million were 3.0% greater than the
first quarter of 1997. Interest income (net) of $.7 million increased
significantly as compared to the first quarter of 1997 due to higher
average cash and short-term investment balances.
Earnings before income taxes were $25.5 million, an increase of 5.8%,
compared to pretax earnings of $24.1 million for the same period in
1997. The pretax margin was 2.7% in the first quarters of both 1998
and 1997. Income taxes were 41.0% of pretax income in the first
quarters of 1998 and 1997.
Net earnings were $15.1 million in the first quarter of 1998, an
increase of 5.9% over the first quarter of 1997. Basic and diluted
earnings per share were $.39 compared to $.37 in the same period last
year.
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Financial Condition
Assets totaled $1.0 billion at March 29, 1998, an increase of 3.8% over
the $967.2 million at December 28, 1997. Working capital increased
$8.9 million during the three-month period. The current ratio was 1.9
at March 29, 1998 and December 28, 1997.
During the first three months of 1998, net cash from operating
activities was $58.5 million, an increase of 36% over the comparable
period in 1997. This increase resulted principally from increases in
net earnings and accrued liability balances, along with a containment
on the growth of accounts receivable. Capital expenditures of $7.0
million in 1998 and $6.1 million in 1997 were principally for expanding
and improving the worldwide branch network and developing new
information systems.
The quarterly dividend rate applicable to Class A and Class B shares
outstanding was $.22 per share in the first quarter of 1998. This
represents a 5% increase compared to a dividend rate of $.21 per share
in the first quarter of 1997.
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.
New Accounting Standard
Effective December 29, 1997, the Company adopted Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income". This
Statement establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income is
comprised of net earnings and other comprehensive income. Foreign
currency adjustments represent the only component of other
comprehensive income.
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.
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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., 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., SA, Kelly de Mexico, S.A. de C.V., Kelly
Services Norge A.S., KSI Acquisition Corp., Kelly Staff Leasing, Inc.,
The Wallace Law Registry, Inc., Kelly Services (Switzerland) 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., Kelly Services CIS, Inc., Personnel Corps ZAO and Kelly Services
(societa di fornitura di lavaro temporaneo) SpA.
The information furnished reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results
of operations for the period in this filing.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) See Index to Exhibits required by Item 601,
Regulation S-K, set forth on page 12 of this filing.
(b) 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.
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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 12, 1998
/s/ William K. Gerber
William K. Gerber
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).
11 Additional Earnings Per Share Information. 2
27.1 Financial Data Schedule for three months ended
March 29, 1998. 3
27.2 Restated Financial Data Schedule for three months
ended March 30, 1997. 4
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<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>
13 Weeks Ended
---------------------
March 29, March 30,
1998 1997
-------- --------
<S> <C> <C>
Weighted average shares outstanding 38,177 38,061
Adjustment for dilutive shares from stock
options under the treasury stock method
Shares assumed issued 1,335 479
Less - Shares assumed repurchased (1,128) (425)
-------- ---------
Additional shares assumed outstanding 207 54
-------- ---------
Applicable shares as adjusted 38,384 38,115
======== =========
Net earnings $15,064 $14,228
======== ========
Diluted earnings per common share $.39 $.37
==== ====
This calculation is submitted in accordance with Regulation
S-K item 601(b)(11).
</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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-END> MAR-29-1998
<CASH> 115,493
<SECURITIES> 67,628
<RECEIVABLES> 582,466
<ALLOWANCES> 11,830
<INVENTORY> 0
<CURRENT-ASSETS> 809,753
<PP&E> 181,087
<DEPRECIATION> 67,602
<TOTAL-ASSETS> 1,004,007
<CURRENT-LIABILITIES> 437,268
<BONDS> 0
0
0
<COMMON> 40,116
<OTHER-SE> 526,623
<TOTAL-LIABILITY-AND-EQUITY> 1,004,007
<SALES> 0
<TOTAL-REVENUES> 959,382
<CGS> 0
<TOTAL-COSTS> 791,472
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 25,534
<INCOME-TAX> 10,470
<INCOME-CONTINUING> 15,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,064
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</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>
<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> .37
</TABLE>
