1
Index to Exhibits on page 29
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 January 2, 2000
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 1, 2000, was $6,719,520 based upon
the closing price of $23.50 per share.
Registrant had 32,180,723 shares of Class A and 3,502,359 of Class B common
stock, par value $1.00, outstanding as of March 17, 2000.
Documents Incorporated by Reference
-----------------------------------
The proxy statement of the registrant with respect to the 2000
Annual Meeting of Stockholders is incorporated by reference in Part III.
Dated: March 28, 2000
2
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. The Company divides
its operations into three segments: (1) U.S. Commercial Staffing, (2)
Professional, Technical and Staffing Alternatives (PTSA) and (3)
International. PTSA includes the following: Kelly Scientific Resources, Kelly
Healthcare Resources, Kelly Assisted Living Services, Inc., Automotive
Services Group, Kelly Engineering Resources, Kelly Information Technology
Resources, Kelly Law Registry (formerly The Law Registry), Kelly Financial
Resources, National Payroll Services, Kelly Management Services, Kelly
Merchandising Resources, Kelly Staff Leasing, Inc. and General Contractor
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 North America
(United States, Canada, Puerto Rico, and Mexico), Europe (Belgium, Denmark,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Russia,
Spain, Sweden, Switzerland and the United Kingdom) and the Pacific Rim
(Australia and New Zealand). These services are generally furnished under the
name of Kelly Services. U.S. Commercial Staffing includes office services,
merchandising, electronic assembly, light industrial, call centers and
educational staffing services. PTSA includes technical skills related to
engineering, information technology, scientific, accounting and finance,
healthcare 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 Kelly Law Registry (formerly
The Law Registry). 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 200,000 customers, including the largest corporations in the
world, use registrant's services. There have been no significant 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 1,800 domestic and foreign
offices located in North America, Europe and the Pacific Rim. 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.
3
(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 generally affected by federal, state and local provisions
regulating the discharge of materials into the environment.
(xiii) Employees. Registrant and subsidiaries employ on a full time
basis approximately 1,100 persons at its headquarters in Troy, Michigan, and
approximately 6,300 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 of its temporary work
force, registrant is responsible for and pays Social Security (or its
equivalent outside the United States), Medicare and health care taxes,
workers' compensation, unemployment compensation taxes, liability insurance
and other similar costs, and is responsible for payroll deductions of Social
Security, Medicare and income taxes. Although the services may be provided 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 long-lived assets by domestic and foreign operations,
reference is made to the information presented in the Segment Disclosures
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 usable floor space for the headquarters
complex approximates 230,000 square feet, plus leased space nearby of 93,000
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.
4
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 1999.
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
------ ------ ------- ------- ----
1999
Class A common
High .......... $32.50 $32.50 $31.63 $30.75 $32.50
Low ........... 24.13 25.00 25.38 22.88 22.88
Class B common
High .......... 29.38 29.75 30.88 29.88 30.88
Low ........... 28.25 26.25 23.75 24.00 23.75
Dividends ........ .23 .24 .24 .24 .95
1998
Class A common
High .......... $37.75 $38.50 $35.63 $35.13 $38.50
Low ........... 29.25 30.25 25.63 23.75 23.75
Class B common
High .......... 58.75 38.00 36.25 33.50 58.75
Low ........... 29.50 34.00 29.00 28.75 28.75
Dividends ........ .22 .23 .23 .23 .91
The number of holders of record of the Class A and Class B common stock, par
value $1.00, of registrant were 947 and 210, respectively, as of March 17,
2000.
5
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.
<TABLE>
<CAPTION>
(1)
(In millions except
per share amounts) 1999 1998 1997 1996 1995 1994
- ---------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales of services ................ $ 4,269.1 $ 4,092.3 $ 3,852.9 $ 3,302.3 $ 2,689.8 $ 2,362.6
Earnings before taxes ............ 143.7 143.6 137.0 122.9 113.3 98.5
Net earnings ..................... 85.1 84.7 80.8 73.0 69.5 61.1
Per share data:
Basic earnings per share .... 2.37 2.24 2.12 1.92 1.83 1.61
Diluted earnings per share .. 2.36 2.23 2.12 1.91 1.83 1.61
Dividends per share
Classes A and B common ...... 0.95 0.91 0.87 0.83 0.78 0.70
Working capital .................. 284.9 293.4 363.6 336.6 316.0 315.8
Total assets ..................... 1,033.7 964.2 967.2 838.9 718.7 642.4
<FN>
(1) Fiscal year included 53 weeks.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
Kelly Services' fiscal 1999, a normal 52-week year, contained four
13-week quarters. However, fiscal 1998, a 53-week year, included three
13-week quarters and a 14-week fourth quarter. To provide a better
understanding of operating results, sales comparisons are provided two ways:
First, 1999 actual is compared to the audited 53-week 1998, and second, as
supplementary disclosure, 1999 actual is compared to the unaudited, adjusted
52-week 1998.
Results of Operations
1999 versus 1998
Sales for the 52-week fiscal year reached a record $4.269 billion in
1999, an increase of 4.3% compared to the $4.092 billion for the 53-week
fiscal year in 1998. Sales increased 5.6% on an adjusted basis versus the
52-week 1998 period. Sales in the U.S. Commercial Staffing segment declined
slightly by 0.7% compared to the 53-week 1998, while Professional, Technical
and Staffing Alternatives (PTSA) sales grew by 8.5% compared to last year.
International sales grew by 12.4% as compared to 1998. International sales
represented 25% of total Company sales in 1999, as compared to 24% in 1998.
The 1999 gross profit rate averaged 17.9%, which was consistent with the
17.9% rate earned in 1998.
Selling, general and administrative expenses expressed as a percentage
of sales were 14.6% as compared to 14.4% last year. The increase in expenses
as a percentage of sales is attributable to the Year 2000 Project expenses
and increased depreciation associated with the deployment of the Oracle
finance and administration systems, and proprietary front office branch
automation technology.
Earnings from operations totaled $144.0 million, a 2.4% increase from
the $140.6 million reported for the 53-week 1998. Earnings were 3.4% of sales
as compared to 3.4% for the 53-week period in 1998.
Net interest expense was $0.2 million compared to last year's net
interest income of $3.0 million. The decrease is attributable to lower cash
balances than a year ago, as a result of a 30% increase in our capital
expenditures, and $76 million utilized in the share repurchase program, which
was completed midway through the fourth quarter of 1998.
6
The effective income tax rate was 40.8%, slightly lower than last year's
41.0% rate, reflecting reductions in the Company's consolidated state and
local tax rate.
Net earnings totaled a record $85.1 million in 1999, a 0.5% increase
over the 53-week 1998. The rate of return on sales was 2.0%, compared with
last year's 2.1% rate. Basic earnings per share were $2.37 or 5.8% over last
year. Diluted earnings per share for 1999 were $2.36, a 5.8% increase
compared to $2.23 for the 53-week 1998.
Results of Operations
1998 versus 1997
Sales for the 53-week fiscal year reached $4.092 billion in 1998, an
increase of 6.2% compared to the $3.853 billion for the 52-week fiscal year
in 1997. On an adjusted 52-week basis for 1998, sales increased 4.9% over
1997. Sales in the U.S. Commercial Staffing segment grew by 2.8%, while
Professional, Technical and Staffing Alternatives (PTSA) sales grew by 8.4%
compared to last year. International sales grew by 12.9% as compared to 1997.
International sales represented 24% of total Company sales in 1998, as
compared to 22% in 1997.
The 1998 gross profit rate averaged 17.9% versus 17.7% in 1997. The
improvement was principally related to an increased mix of fee-based
permanent placement income and an increase in the share of our international
business as a percentage of total revenue. The international component
carries a higher average gross profit rate than U.S. commercial staffing.
Selling, general and administrative expenses expressed as a percentage
of sales were 14.4% as compared to 14.2% in 1997. The rate of growth of
expenses principally reflects increased spending for the Year 2000 Project
and information technology programs.
Earnings from operations totaled $140.6 million, a 3.6% increase from
the $135.8 million reported in 1997. Earnings were 3.4% of sales as compared
to 3.5% in 1997.
Net interest income was $3.0 million, a 147% increase versus 1997. The
increase in investment income related to an improved cash and investment
position as compared to 1997.
The effective income tax rate was 41.0% in both 1998 and 1997.
Net earnings totaled $84.7 million in 1998, a 4.9% increase over 1997.
The rate of return on sales was 2.1% in both 1998 and 1997. Basic earnings
per share were $2.24 or a 5.7% increase over 1997. Diluted earnings per share
were $2.23 or 5.2% higher than 1997.
Liquidity and Capital Resources
Cash and short-term investments totaled $60 million at the end of 1999,
down from the $72 million at year-end 1998. Year-end cash was slightly lower
than last year, principally as a result of the increased accounts receivable
and the 30% increase in our capital expenditure program.
Accounts receivable totaled $602 million at year end as compared to $585
million at year-end 1998. Strong accounts receivable management during the
year reduced global days sales outstanding to 51 days, down from 53 days in
1998.
Short-term debt totaled $47 million, which is virtually unchanged from
$48 million at year-end 1998. All short-term borrowings are foreign currency
denominated and support the growth of the Company's international working
capital position.
The Company's working capital position was $285 million at the end of
1999, a decrease of $9 million from 1998 and $79 million from 1997. The
current ratio was 1.6 in 1999, 1.7 in 1998 and 1.9 in 1997. The lower ratio
in 1999 and 1998 as compared to 1997 was principally a result of the cash
utilized in the share repurchase program, as well as the growth of the
Company's capital expenditure program.
Assets totaled $1.034 billion in 1999 compared to $964 million in 1998.
In 1997, assets totaled $967 million. The return on average assets was 8.5%
in 1999 and 8.8% in 1998. In 1997 the return was 8.9%.
7
Stockholders' equity was $582 million in 1999, which represents 8.3%
growth over 1998. In 1998 stockholders' equity was 3.9% below 1997. The
return on average stockholders' equity was 15.2% in 1999, 15.4% in 1998 and
15.0% in 1997. Dividends paid per common share were $.95 in 1999, an increase
of 4.4% over 1998 dividends of $.91 per share. Dividends in 1997 were $.87
per share.
The Company's financial position remains very strong. The Company
continues to carry no long-term debt and expects to meet its growth
requirements principally through cash flow from operations.
Year 2000 Systems Update
In 1995, the Company embarked upon a global Year 2000 Project. The
project scope included hardware, software and embedded chip technology. A
formal Project Office was established with complete executive sponsorship and
funding in February 1997. This initiated a global business system strategy
that included a wide-scale Oracle implementation of business and financial
systems, plus major enhancements to branch automation systems. Included in
these initiatives is the remediation of Year 2000 noncompliant systems.
The Company's ability to deliver services and products to its customers
on a timely basis has not been impacted by any problems arising as a result
of the Year 2000 issues. To date, the Company experienced no failures of any
mission critical applications, nor were there any reports of any significant
interruptions to the Company's business operations as a result of the failure
of its own computer systems or those of a third party.
Year 2000 Costs
Total cost of the Year 2000 remediation project was $20.6 million,
slightly below our original estimate of $21 million. The total amount
incurred for 1999 approximated $11 million. Related expenses for 1998 were $8
million, and $1 million was expended in 1997.
The total cost of the Year 2000 project is expected to be at least
somewhat offset by the benefits to be realized by the Company. These include:
enhanced functionality at the branch level; a worldwide inventory of
information technology and systems; a high-level documentation of business
processes used by strategic business units; rationalization and
standardization of diverse information systems; upgrades and standardization
of desktop computing; upgrade of wide area network to remote business units;
improved software quality assurance; and clean-up and documentation of older
program code.
Market Risk-Sensitive Instruments and Positions
The market risk inherent in the Company's market risk-sensitive
instruments and positions is the potential loss arising from adverse changes
in foreign currency exchange rates and interest rates. Foreign currency
exchange risk is mitigated by the usage of the Company's multi-currency line
of credit. This credit facility can be used to borrow in the local currencies
that can mitigate the exchange rate risk resulting from foreign
currency-denominated assets fluctuating in relation to the U.S. dollar.
The Company's holdings and positions in market risk-sensitive
instruments do not subject the Company to material risk exposures.
Adoption of the Euro
A segment of the global business system implementation is devoted to
changes necessary to deal with the introduction of a European single currency
(the Euro). The transition period for implementation is January 1, 1999
through January 1, 2002.
The Company does not expect that introduction and use of the Euro will
result in any material increase in costs.
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.
8
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 11 of this filing and are presented
in pages 12-28.
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 8, (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.
ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
Served as an Business Experience
Name/Office Age Officer Since (1) During Last 5 Years
- ------------------------ --- ----------------- -------------------------
<S> <C> <C> <C>
Terence E. Adderley 66 1961 Served as officer of registrant.
Chairman, President and
Chief Executive Officer
Carl T. Camden 45 1995 Served as officer of registrant since
Executive Vice President April, 1995. From 1993 served as
Senior Vice President at Key Corp.,
the parent of Key Bank and Society
Bank Groups.
Michael L. Durik 51 1999 Served as officer of registrant since
Senior Vice President July, 1999. From 1993 was owner of
MLD Management, an independent
consulting firm.
William K. Gerber 46 1998 Served as officer of registrant since April,
Executive Vice President and 1998. Prior thereto, served as Vice President
Chief Financial Officer of Finance at The Limited, Inc.
Arlene Grimsley 52 1994 Served as officer of registrant.
Senior Vice President
George M. Reardon 52 1998 Served as officer of registrant since
Senior Vice President, June, 1998. From 1994, served in
General Counsel and Secretary private practice in Houston, Texas.
Tommi A. White 49 1993 Served as officer of registrant.
Executive Vice President
<FN>
(1) Each officer serves continuously until termination of employment or
removal by the Board of Directors.
</TABLE>
9
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
Statements of Earnings for the three fiscal years ended January 2,
2000
Statements of Cash Flows for the three fiscal years ended
January 2, 2000
Balance Sheets at January 2, 2000, January 3, 1999 and
December 28, 1997
Statements of Stockholders' Equity for the three fiscal years
ended January 2, 2000
Notes to Financial Statements
(2) Financial Statement Schedule -
For the three fiscal years ended January 2, 2000:
Schedule II - Valuation Reserves
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
(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 29 which is incorporated herein by reference.
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 January 2, 2000.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
(c) The Index to Exhibits and required Exhibits are included following the
Financial Statement Schedule beginning at page 29 of this filing.
(d) The Index to Financial Statements and Supplemental Schedule is included
following the signatures beginning at page 11 of this filing.
10
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 28, 2000 KELLY SERVICES, INC.
--------------------
Registrant
By /s/ W. K. Gerber
----------------------------
W. K. Gerber
Executive 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 28, 2000 * T. E. Adderley
--------------------------------------
T. E. Adderley
Chairman, President, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: March 28, 2000 * C. V. Fricke
--------------------------------------
C. V. Fricke
Director
Date: March 28, 2000 * M. A. Fay, O.P.
--------------------------------------
M. A. Fay, O.P.
Director
Date: March 28, 2000 * V. G. Istock
--------------------------------------
V. G. Istock
Director
Date: March 28, 2000 * B. J. White
--------------------------------------
B. J. White
Director
Date: March 28, 2000 /s/ W. K. Gerber
--------------------------------------
W. K. Gerber
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: March 28, 2000 *By /s/ W. K. Gerber
--------------------------------------
W. K. Gerber
Attorney-in-Fact
11
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULE
Kelly Services, Inc. and Subsidiaries
Page Reference
in Report on
Form 10-K
--------------
Report of Independent Accountants 12
Statements of Earnings for the three fiscal years
ended January 2, 2000 13
Statements of Cash Flows for the three fiscal years
ended January 2, 2000 14
Balance Sheets at January 2, 2000, January 3, 1999 and
December 28, 1997 15
Statements of Stockholders' Equity for the three fiscal
years ended January 2, 2000 16
Notes to Financial Statements 17 - 27
Financial Statement Schedule - Schedule II - Valuation Reserves 28
12
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors,
Kelly Services, Inc.
In our opinion, the accompanying financial statements listed in the index
appearing under Item 14(a)1 on page 11 present fairly, in all material
respects, the financial position of Kelly Services, Inc. and its subsidiaries
at January 2, 2000, January 3, 1999 and December 28, 1997, and the results of
their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States. In
addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)2 on page 11 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States, 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/ PricewaterhouseCoopers LLP
- --------------------------------------------
PricewaterhouseCoopers LLP
Detroit, Michigan
January 27, 2000
13
STATEMENTS OF EARNINGS
Kelly Services, Inc. and Subsidiaries
(1)
1999 1998 1997
---- ---- ----
(In thousands of dollars except
per share items)
Sales of services .............. $ 4,269,113 $ 4,092,251 $ 3,852,935
Cost of services ............... 3,503,052 3,360,976 3,171,589
----------- ----------- -----------
Gross profit ................... 766,061 731,275 681,346
Selling, general and
administrative expenses ...... 622,110 590,659 545,582
----------- ----------- -----------
Earnings from operations ....... 143,951 140,616 135,764
Interest (expense) income, net.. (241) 2,999 1,216
----------- ----------- -----------
Earnings before income taxes ... 143,710 143,615 136,980
Income taxes ................... 58,600 58,900 56,200
----------- ----------- -----------
Net earnings ................... $ 85,110 $ 84,715 $ 80,780
=========== =========== ===========
Basic earnings per share ....... $ 2.37 $ 2.24 $ 2.12
Diluted earnings per share ..... $ 2.36 $ 2.23 $ 2.12
Dividends per share ............ $ .95 $ .91 $ .87
Average shares outstanding
(thousands):
Basic ........................ 35,854 37,745 38,099
Diluted ...................... 36,030 37,945 38,191
See accompanying Notes to Financial Statements.
(1) Fiscal year included 53 weeks.
14
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Kelly Services, Inc. and Subsidiaries
(1)
1999 1998 1997
---- ---- ----
(In thousands of dollars)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ................................. $ 85,110 $ 84,715 $ 80,780
Noncash adjustments:
Depreciation and amortization .............. 36,238 28,865 28,341
Changes in certain working capital
components ............................... (6,923) 2,239 38,751
--------- --------- ---------
Net cash from operating activities ...... 114,425 115,819 147,872
Cash flows from investing activities:
Capital expenditures ......................... (76,696) (59,089) (39,710)
Short-term investments ....................... 6,051 55,232 (39,266)
Increase in intangibles and other assets ..... (10,872) (11,133) (7,168)
Acquisition of companies, net of
cash received .............................. (5,557) (3,385) (1,336)
--------- --------- ---------
Net cash from investing activities ...... (87,074) (18,375) (87,480)
Cash flows from financing activities:
(Decrease) increase in short-term borrowings.. (419) (7,329) 13,342
Dividend payments ............................ (34,041) (34,237) (33,150)
Exercise of stock options, restricted
stock awards and other ..................... 1,893 3,180 2,698
Purchase of treasury stock ................... (551) (75,949) --
--------- --------- ---------
Net cash from financing activities ...... (33,118) (114,335) (17,110)
Net change in cash and equivalents .............. (5,767) (16,891) 43,282
Cash and equivalents at beginning of year ....... 59,799 76,690 33,408
--------- --------- ---------
Cash and equivalents at end of year ............. $ 54,032 $ 59,799 $ 76,690
========= ========= =========
<FN>
See accompanying Notes to Financial Statements.
(1) Fiscal year included 53 weeks.
</TABLE>
15
<TABLE>
<CAPTION>
BALANCE SHEETS
Kelly Services, Inc. and Subsidiaries
1999 1998 1997
---- ---- ----
(In thousands of dollars)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents ................... $ 54,032 $ 59,799 $ 76,690
Short-term investments ................. 6,018 12,069 67,301
Accounts receivable, less allowances
of $13,575, $13,035 and $12,375,
respectively ........................ 602,485 584,653 572,134
Prepaid expenses and other current
assets .............................. 22,801 15,012 12,892
Deferred taxes ......................... 50,832 48,343 41,955
---------- ---------- ----------
Total current assets ................... 736,168 719,876 770,972
Property and Equipment:
Land and buildings ..................... 49,458 44,135 44,405
Equipment, furniture and
leasehold improvements ............... 231,654 179,707 130,472
Accumulated depreciation ............... (94,112) (77,491) (62,144)
---------- ---------- ----------
Total property and equipment ........... 187,000 146,351 112,733
Intangibles and Other Assets ............. 110,523 98,020 83,524
---------- ---------- ----------
Total Assets ............................. $1,033,691 $ 964,247 $ 967,229
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings .................. $ 47,210 $ 47,629 $ 54,958
Accounts payable ....................... 73,516 79,089 60,408
Payroll and related taxes .............. 215,706 195,670 197,092
Accrued insurance ...................... 65,881 66,830 61,077
Income and other taxes ................. 49,005 37,265 33,865
---------- ---------- ----------
Total current liabilities .............. 451,318 426,483 407,400
Stockholders' Equity:
Capital stock, $1 par value
Class A common stock, shares issued
36,602,210 in 1999, 36,540,770 in
1998 and 36,537,584 in 1997 ........... 36,602 36,541 36,538
Class B common stock, shares issued
3,513,656 in 1999, 3,575,096 in
1998 and 3,578,282 in 1997 ............ 3,514 3,575 3,578
Treasury stock, at cost
Class A common stock, 4,234,524 shares
in 1999, 4,301,321 in 1998 and
1,947,156 in 1997 ..................... (80,538) (81,669) (6,029)
Class B common stock, 7,767 shares
in 1999 and 1998 and 5,830 in 1997 .... (248) (248) (185)
Paid-in capital ........................ 15,761 14,844 10,980
Earnings invested in the business ...... 623,564 572,517 522,039
Accumulated foreign currency
adjustments .......................... (16,282) (7,796) (7,092)
---------- ---------- ----------
Total stockholders' equity ............. 582,373 537,764 559,829
---------- ---------- ----------
Total Liabilities and Stockholders'
Equity ................................. $1,033,691 $ 964,247 $ 967,229
========== ========== ==========
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
16
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
Kelly Services, Inc. and Subsidiaries
(1)
1999 1998 1997
---- ---- ----
(In thousands of dollars)
<S> <C> <C> <C>
Capital Stock
Class A common stock
Balance at beginning of year ............. $ 36,541 $ 36,538 $ 36,527
Conversions from Class B ................. 61 3 11
--------- --------- ---------
Balance at end of year ................... 36,602 36,541 36,538
Class B common stock
Balance at beginning of year ............. 3,575 3,578 3,589
Conversions to Class A ................... (61) (3) (11)
--------- --------- ---------
Balance at end of year ................... 3,514 3,575 3,578
Treasury Stock
Class A common stock
Balance at beginning of year ............. (81,669) (6,029) (6,012)
Exercise of stock options, restricted
stock awards and other ................. 1,438 144 (17)
Treasury stock issued for acquisition .... 244 102 --
Purchase of treasury stock ............... (551) (75,886) --
--------- --------- ---------
Balance at end of year ................... (80,538) (81,669) (6,029)
Class B common stock
Balance at beginning of year ............. (248) (185) (185)
Purchase of treasury stock ............... -- (63) --
--------- --------- ---------
Balance at end of year ................... (248) (248) (185)
Paid-in Capital
Balance at beginning of year ............. 14,844 10,980 8,265
Exercise of stock options, restricted
stock awards and other ................ 808 3,036 2,715
Treasury stock issued for acquisition .... 109 828 --
--------- --------- ---------
Balance at end of year ................... 15,761 14,844 10,980
Earnings Invested in the Business
Balance at beginning of year ............. 572,517 522,039 474,409
Net earnings ............................. 85,110 84,715 80,780
Dividends ................................ (34,063) (34,237) (33,150)
--------- --------- ---------
Balance at end of year ................... 623,564 572,517 522,039
Accumulated Foreign Currency Adjustments
Balance at beginning of year ............. (7,796) (7,092) 306
Equity adjustment for foreign currency ... (8,486) (704) (7,398)
--------- --------- ---------
Balance at end of year ................... (16,282) (7,796) (7,092)
--------- --------- ---------
Stockholders' Equity at end of year ............ $ 582,373 $ 537,764 $ 559,829
========= ========= =========
Comprehensive Income
Net earnings ............................. $ 85,110 $ 84,715 $ 80,780
Other comprehensive income - Foreign
currency adjustments ................... (8,486) (704) (7,398)
--------- --------- ---------
Comprehensive Income ..................... $ 76,624 $ 84,011 $ 73,382
========= ========= =========
<FN>
See accompanying Notes to Financial Statements.
(1) Fiscal year included 53 weeks.
</TABLE>
17
NOTES TO FINANCIAL STATEMENTS
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
1. 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 January 2, 2000 (1999), January 3, 1999
(1998) and December 28, 1997 (1997).
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 Company divides its operations into three segments: (1) U.S.
Commercial Staffing, (2) Professional, Technical and Staffing Alternatives
and (3) International. The accounts of the Company's foreign operations are
translated at appropriate rates of exchange. Revenues, costs and expenses of
foreign subsidiaries are translated to U.S. dollars at average-period
exchange rates. Assets and liabilities of foreign subsidiaries are translated
to U.S. dollars at year-end exchange rates with the effects of these
translation adjustments being reported as a separate component of accumulated
other comprehensive income in stockholders' equity.
Foreign operations are conducted in Australia, Belgium, Canada, Denmark,
France, Germany, Ireland, Italy, Luxembourg, Mexico, the Netherlands, New
Zealand, Norway, Puerto Rico, Russia, Spain, Sweden, Switzerland and the
United Kingdom. Refer to the Segment Disclosures footnote for additional
information.
Revenue from sales of services is recognized as services are provided by
the temporary, contract or leased employees. Revenue from permanent placement
services is recognized at the time the permanent placement candidate begins
full-time employment.
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.
2. 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 and are classified as available for sale. Of these
investments, federal, state and local government obligations comprised
approximately 60% in 1999, 80% in 1998 and 70% in 1997. Short-term
investments due within one year totaled $5,800 in 1999 and $64,000 in 1997,
with the balance due within two years. The entire short-term investments
balance in 1998 was due within one year. The difference between carrying
amounts and market was not material at January 2, 2000, January 3, 1999 and
December 28, 1997.
Interest income was $2,272, $6,206 and $4,390, respectively, for the years
1999, 1998 and 1997.
18
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
3. Supplemental Cash Flow Information
Changes in certain working capital components, as disclosed in the
statements of cash flows, for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997
---- ---- ----
Increase in accounts receivable $(26,972) $(12,712) $(27,444)
Increase in prepaid expenses and
other current assets (9,138) (2,277) (1,499)
Increase in deferred taxes (2,655) (6,389) (11,732)
Increase (decrease) in accounts payable (3,059) 16,582 16,094
Increase (decrease) in payroll and
related taxes 22,575 (1,905) 47,319
Increase (decrease) in accrued insurance (924) 5,755 7,981
Increase in income and other taxes 13,250 3,185 8,032
-------- -------- --------
Total $ (6,923) $ 2,239 $ 38,751
======== ======== ========
Cash flows from short-term investments for 1999, 1998 and 1997 were as
follows:
1999 1998 1997
---- ---- ----
Sales/Maturities $ 905,326 $ 1,645,815 $ 1,749,954
Purchases (899,275) (1,590,583) (1,789,220)
---------- ----------- -----------
Total $ 6,051 $ 55,232 $ (39,266)
========== =========== ===========
4. Property and Equipment
Properties are stated at cost and include expenditures for additions and
major improvements. The Company capitalizes professional fees and internal
payroll costs incurred in the development of software for internal use in
accordance with Statement of Position 98-1. 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. Estimated useful lives range from 15 to 45 years for
land improvements, buildings and building improvements, 5 years for
equipment, furniture and leasehold improvements and 3 to 12 years for
computer hardware and software. Depreciation expense was $33,900 for 1999,
$25,400 for 1998 and $22,900 for 1997.
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 January 2, 2000:
Fiscal year:
2000 $ 43,400
2001 30,000
2002 22,000
2003 14,800
2004 8,600
Later years 16,400
--------
Total $135,200
========
Lease expense for 1999, 1998 and 1997 amounted to $43,100, $38,600 and
$35,900, respectively.
19
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
5. Intangibles and Other Assets
Intangibles and other assets include goodwill of $67,900, $64,100 and
$56,000 at year-ends 1999, 1998 and 1997, 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 of goodwill at 1999, 1998 and 1997 was $7,900,
$6,900 and $5,300, respectively. Goodwill and other intangible amortization
expense was $2,300, $3,500 and $5,400 in 1999, 1998 and 1997, 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.
6. 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.
During December 1999, the Company repurchased 22,500 shares of its Class
A common stock. The total value of the Class A shares repurchased was $551.
On September 29, 1998 and November 24, 1998, the Company repurchased
1,500,000 and 1,000,000 shares of its Class A common stock, respectively, in
negotiated transactions from the William R. Kelly Trust. The total value of
the Class A shares repurchased was $75,886. In addition, the Company
repurchased 1,937 Class B shares at a total cost of $63.
7. Earnings Per Share
The reconciliations of earnings per share computations for the fiscal
years 1999, 1998 and 1997 were as follows:
1999 1998 1997
---- ---- ----
Net earnings $85,110 $84,715 $80,780
======= ======= =======
Determination of shares (thousands):
Weighted average common
shares outstanding 35,854 37,745 38,099
Effect of dilutive securities:
Stock options 41 90 61
Restricted and performance
awards and other 135 110 31
------- ------- -------
Weighted average common shares
outstanding - assuming dilution 36,030 37,945 38,191
======= ======= =======
Earnings per share - basic $ 2.37 $ 2.24 $ 2.12
Earnings per share - assuming dilution $ 2.36 $ 2.23 $ 2.12
20
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
Stock options to purchase 1,162,000, 458,000 and 423,000 shares of
common stock at a weighted average price per share of $24.98, $35.17 and
$31.02 were outstanding during 1999, 1998 and 1997, 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 was anti-dilutive.
8. Short-term Borrowings
Short-term borrowings of $47,210, $47,629 and $54,958 were outstanding
at year-ends 1999, 1998 and 1997, respectively. Weighted average interest
rates were 4.6%, 5.3% and 7.8% at year-ends 1999, 1998 and 1997,
respectively. Interest expense and payments related to the short-term
borrowings for 1999, 1998 and 1997 were as follows:
1999 1998 1997
---- ---- ----
Interest expense $2,513 $3,207 $3,174
Interest payments 2,567 3,956 2,174
During the fourth quarter of 1998 the Company entered into a committed
$100 million, five-year multi-currency revolving credit facility to be used
to fund working capital, acquisitions, and for general corporate purposes.
The interest rate applicable to borrowings under the line of credit is 20
basis points over LIBOR and may include additional costs if the funds are
drawn from certain countries. All of the borrowings are foreign currency
denominated and support the Company's international working capital position.
The carrying amounts of the Company's borrowings under the lines of credit
described above approximate their fair value.
9. 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 benefit 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.
Amounts provided for retirement benefits totaled $7,600 in 1999, $7,000
in 1998 and $6,300 in 1997.
10. Income Taxes
Pretax income for the years 1999, 1998 and 1997 was taxed under the
following jurisdictions:
1999 1998 1997
---- ---- ----
Domestic $134,572 $134,731 $129,533
Foreign 9,138 8,884 7,447
-------- -------- --------
Total $143,710 $143,615 $136,980
======== ======== ========
21
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
The provision for income taxes was as follows:
1999 1998 1997
---- ---- ----
Current tax expense:
U.S. federal $ 42,898 $ 47,599 $ 52,517
U.S. state and local 11,500 12,000 10,715
Foreign 6,880 5,802 4,405
-------- -------- --------
Total current 61,278 65,401 67,637
Total deferred (2,678) (6,501) (11,437)
-------- -------- --------
Total provision $ 58,600 $ 58,900 $ 56,200
======== ======== ========
Deferred tax assets (liabilities) are comprised of the following:
1999 1998 1997
---- ---- ----
Depreciation and amoritization $ (6,420) $ (5,307) $ (5,604)
Employee compensation and benefit plans 23,276 22,845 19,143
Workers' compensation 22,352 22,428 19,811
Loss carryforwards 4,793 3,453 2,946
Other, net 9,949 7,987 8,322
Valuation allowance (3,118) (3,063) (2,663)
-------- -------- --------
Total deferred tax assets 50,832 48,343 41,955
Total deferred tax liabilities (1,044) (1,279) (1,363)
-------- -------- --------
Total $ 49,788 $ 47,064 $ 40,592
======== ======== ========
The differences between income taxes for financial reporting purposes
and the U.S. statutory rate are as follows:
1999 1998 1997
---- ---- ----
Income tax based on statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 5.2 5.4 5.1
Other, net 0.6 0.6 0.9
---- ---- ----
Total 40.8% 41.0% 41.0%
==== ==== ====
The Company has loss carryforwards at January 2, 2000, totaling $4,793
which expire as follows:
Year Amount
---- ------
2000 $ 8
2001 423
2002 196
2003-2009 1,082
No expiration 3,084
------
Total $4,793
======
22
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
A valuation allowance of $3,118 has been recorded against the loss
carryforwards. The valuation allowance is provided on the tax benefits unless
it is considered more likely than not that the benefit will be realized.
Provision has not been made for U.S. or additional foreign income taxes
on an estimated $15,700 of undistributed earnings of foreign subsidiaries
which are permanently reinvested. If such earnings were to be remitted,
management believes that U.S. foreign tax credits would largely eliminate any
such U.S. and foreign income taxes.
The Company paid income taxes of $53,400 in 1999, $65,700 in 1998 and
$64,300 in 1997.
11. 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 1999, 1998 and 1997
were 946,000, 1,213,000 and 1,149,000, 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 $1,487, $1,135 and $809
for 1999, 1998 and 1997, respectively; basic earnings per share would have
been reduced by $.04 in 1999, $.03 in 1998 and $.02 in 1997; and diluted
earnings per share would have been reduced by $.04 in 1999 and $.03 in 1998
and 1997.
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 1999, 1998
and 1997, respectively: dividend yield of 4.0 percent in 1999 and 3.0 percent
in 1998 and 1997, expected volatility of 30, 31 and 30 percent, risk-free
interest rates of 5.7, 5.3 and 5.9 percent and expected lives of six years in
1999 and 1998, and seven years in 1997.
23
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
A summary of the status of stock option grants under the Plan as of
January 2, 2000, January 3, 1999 and December 28, 1997, and changes during
the years ended on those dates, is presented as follows:
Weighted Avg.
1999: Options Exercise Price
--------- -------------
Outstanding at beginning of year 1,330,000 $30.78
Granted 592,000 25.05
Exercised (32,000) 26.80
Cancelled (298,000) 30.54
---------
Outstanding at end of year 1,592,000 $28.77
=========
Options exercisable at year end 552,000 $29.08
Weighted average fair value of
options granted during the year $ 6.30
1998:
Outstanding at beginning of year 1,160,000 $28.68
Granted 448,000 35.16
Exercised (104,000) 28.15
Cancelled (174,000) 29.67
---------
Outstanding at end of year 1,330,000 $30.78
=========
Options exercisable at year end 404,000 $28.07
Weighted average fair value of
options granted during the year $10.06
1997:
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
24
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
The following table summarizes information about options outstanding at
January 2, 2000:
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted Weighted Weighted
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices as of 1/2/00 Life (Years) Price as of 1/2/00 Price
- ------------ ------------ ----------- -------- ------------ --------
$24.00-24.50 448,000 9.15 $24.50 2,000 $24.50
$24.51-28.00 285,000 6.08 26.52 223,000 26.44
$28.01-29.00 264,000 7.44 28.23 93,000 28.19
$29.01-33.00 255,000 6.03 30.60 160,000 30.51
$33.01-38.50 340,000 8.10 35.32 74,000 35.27
--------- ---- ------ ------- ------
$24.00-38.50 1,592,000 7.59 $28.77 552,000 $29.08
========= ==== ====== ======= ======
As of January 2, 2000, 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 87,000, 14,500 and 38,900 shares were granted under the Plan
during 1999, 1998 and 1997, respectively. The weighted average grant date
price of such awards was $26.55, $35.64 and $29.58 for 1999, 1998 and 1997,
respectively. Restricted awards outstanding totaled 104,000, 36,200 and
52,800 shares at year-ends 1999, 1998 and 1997, respectively, and have a
weighted average remaining life of 2.2 years at January 2, 2000.
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. No performance awards were granted during 1999.
Performance awards totaling 51,500 and 44,500 shares were granted under the
Plan during 1998 and 1997, respectively. The weighted average grant date
prices of such awards were $34.94 and $28.06 for 1998 and 1997, respectively.
Unearned performance awards outstanding at year-ends 1999, 1998 and 1997 were
70,000, 115,200 and 76,300, respectively, and have a weighted average
remaining life of six months at January 2, 2000. Total compensation cost
recognized for restricted and performance awards was $1,000, $2,000 and
$1,400 for 1999, 1998 and 1997, respectively.
12. Contingencies
The Company is subject to various legal proceedings, claims and
liabilities which arise in the ordinary course of its business. Litigation is
subject to many uncertainties, the outcome of individual litigated matters is
not predictable with assurance and it is reasonably possible that some of the
foregoing matters could be decided unfavorably to the Company. Although the
amount of the liability at January 2, 2000, with respect to these matters
cannot be ascertained, the Company believes that any resulting liability will
not be material to the financial statements of the Company at January 2,
2000.
25
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
13. Segment Disclosures
In 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) 131, Disclosures About Segments of an Enterprise and Related
Information, which revises reporting and disclosure requirements for
operating segments.
The Company has determined that its reportable segments are those that
are based on the Company's method of internal reporting, which disaggregates
its business by segment. The Company's reportable segments are: (1) U.S.
Commercial Staffing, (2) Professional, Technical and Staffing Alternatives
(PTSA) and (3) International. The accounting policies of the segments are the
same as those described in the "Summary of Significant Accounting Policies."
The following table presents information about the reported operating
income of the Company for the fiscal years 1999, 1998 and 1997. Segment data
presented is net of intersegment revenues. Asset information by reportable
segment is not reported, since the Company does not produce such information
internally.
1999 1998 1997
52 weeks 53 weeks 52 weeks
-------- -------- --------
Sales:
U.S. Commercial Staffing $ 2,247,700 $ 2,263,500 $ 2,201,000
PTSA 937,100 864,000 797,400
International 1,084,300 964,800 854,500
----------- ----------- -----------
Consolidated Total $ 4,269,100 $ 4,092,300 $ 3,852,900
=========== =========== ===========
Earnings from Operations:
U.S. Commercial Staffing $ 198,600 $ 200,500 $ 194,800
PTSA 55,000 44,100 37,400
International 33,600 29,600 20,500
Corporate (143,200) (133,600) (116,900)
----------- ----------- -----------
Consolidated Total $ 144,000 $ 140,600 $ 135,800
=========== =========== ===========
26
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
Specified items included in segment earnings from operations for the
fiscal years 1999, 1998 and 1997 were as follows:
1999 1998 1997
52 weeks 53 weeks 52 weeks
-------- -------- --------
Depreciation and Amortization:
U.S. Commercial Staffing $ 5,911 $ 6,237 $ 7,531
PTSA 2,395 1,977 1,972
International 11,228 10,262 9,213
Corporate 16,704 10,389 9,625
------- ------- -------
Consolidated Total $36,238 $28,865 $28,341
======= ======= =======
Interest Income:
U.S. Commercial Staffing $ -- $ -- $ --
PTSA 23 141 57
International 615 783 492
Corporate 1,634 5,282 3,841
------- ------- -------
Consolidated Total $ 2,272 $ 6,206 $ 4,390
======= ======= =======
Interest Expense:
U.S. Commercial Staffing $ -- $ -- $ --
PTSA -- -- --
International 2,389 3,207 2,774
Corporate 124 -- 400
------- ------- -------
Consolidated Total $ 2,513 $ 3,207 $ 3,174
======= ======= =======
The following is long-lived assets information by geographic area as of
the years ended 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Long-Lived Assets:
Domestic $223,000 $170,500 $130,000
International 74,500 73,900 66,300
-------- -------- --------
Total $297,500 $244,400 $196,300
======== ======== ========
Long-lived assets include Property and Equipment and Intangibles and
Other Assets. No single foreign country's long-lived assets were material to
the consolidated long-lived assets of the Company.
Foreign revenue is based on the country in which the legal subsidiary is
domiciled. No single foreign country's revenue was material to the
consolidated revenues of the Company.
27
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
SELECTED QUARTERLY FINANCIAL DATA (unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
(In thousands of dollars except per share items)
<S> <C> <C> <C> <C> <C>
Sales of services
1999.............. $1,025,959 $1,066,783 $1,092,002 $1,084,369 $4,269,113
1998 (53 weeks)... 959,382 1,001,286 1,032,875 1,098,708 4,092,251
1997.............. 880,846 959,726 1,001,209 1,011,154 3,852,935
Cost of services
1999.............. 846,828 876,809 893,900 885,515 3,503,052
1998 (53 weeks)... 791,472 823,542 846,094 899,868 3,360,976
1997.............. 724,508 789,618 824,820 832,643 3,171,589
Selling, general
and administrative
1999.............. 153,539 154,841 155,390 158,340 622,110
1998 (53 weeks)... 143,069 143,584 145,404 158,602 590,659
1997.............. 132,219 137,636 136,464 139,263 545,582
Net earnings
1999.............. 15,188 20,734 25,018 24,170 85,110
1998 (53 weeks)... 15,064 20,623 24,903 24,125 84,715
1997.............. 14,228 19,443 23,587 23,522 80,780
Basic earnings
per share (1)
1999.............. .42 .58 .70 .67 2.37
1998 (53 weeks)... .39 .54 .65 .66 2.24
1997.............. .37 .51 .62 .62 2.12
Diluted earnings
per share (1)
1999.............. .42 .58 .69 .67 2.36
1998 (53 weeks)... .39 .54 .65 .66 2.23
1997.............. .37 .51 .62 .61 2.12
Dividends per
share
1999.............. .23 .24 .24 .24 .95
1998.............. .22 .23 .23 .23 .91
1997.............. .21 .22 .22 .22 .87
<FN>
(1) Earnings per share amounts for each quarter are required to be computed
independently and may not equal the amounts computed for the total year.
</TABLE>
28
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION RESERVES
Kelly Services, Inc. and Subsidiaries
JANUARY 2, 2000
(In thousands of dollars)
Additions
-------------------------
Balance at Charged to Deductions- Balance
beginning costs and uncollectible at end
Description of year expenses accounts of year
- ----------- --------- ---------- ------------- -------
<S> <C> <C> <C> <C>
Fifty-two weeks ended January 2, 2000:
Reserve deducted in the balance
sheet from the assets to which it
applies -
Allowance for doubtful accounts $13,035 $ 5,125 $4,585 $13,575
======= ======= ====== =======
Fifty-three weeks ended January 3, 1999:
Reserve deducted in the balance
sheet from the assets to which it
applies -
Allowance for doubtful accounts $12,375 $ 7,355 $6,695 $13,035
======= ======= ====== =======
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
======= ======= ====== =======
</TABLE>
29
INDEX TO EXHIBITS
REQUIRED BY ITEM 601,
REGULATION S-K
Exhibit No Description Page
- ---------- ----------- ----
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 23, 1998. (Reference is made
to Exhibit 10 to the Form 10-Q for the
quarterly period ended June 28, 1998, filed
with the Commission in August, 1998, which is
incorporated herein by reference).
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. 1999 Non-Employee
Directors Stock Option Plan. (Reference is
made to Exhibit A to the Definitive Proxy for
the fiscal year ended January 3, 1999, filed
with the Commission in April, 1999, which is
incorporated herein by reference).
21 Subsidiaries of Registrant. 1
(Document 2)
23 Consent of Independent Accountants. 1
(Document 3)
24 Power of Attorney. 1
(Document 4)
27 1999 Financial Data Schedule. 1
(Document 5)
1
SUBSIDIARIES OF REGISTRANT
Kelly Services, Inc.
<TABLE>
<CAPTION>
State/Jurisdiction
Subsidiary of Incorporation Business Name
---------- ----------------- -------------
<S> <C> <C>
Kelly Services (Canada), Ltd. Canada Kelly Temporary Services
Kelly Properties, Inc. Michigan Kelly Properties
Kelly Services (Ireland), Ltd. Delaware Kelly 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 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
Kelly Services (Suisse) Holding S.A. Switzerland Kelly Services Suisse
Kelly Services France S.A. France Kelly Services France
Kelly Services Interim, S.A. France Kelly Services Interim
(a subsidiary of Kelly Services
France S.A.)
Competences RH SARL 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 fornitura di lavaro Italy Kelly Services Italia SpA
temporaneo) SpA
(a subsidiary of Kelly Services, Inc. and
Kelly Properties, Inc.)
2
SUBSIDIARIES OF REGISTRANT (continued)
Kelly Services, Inc.
<CAPTION>
State/Jurisdiction
Subsidiary of Incorporation Business Name
---------- ----------------- -------------
<S> <C> <C>
Kelly Services Iberia Holding Company, S.L. Spain Kelly Services E.T.T.
Kelly Services Empleo Empresa de Trabajo Spain Kelly Services E.T.T.
Temporal, S.L.
(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
ooo Kelly Services Russia Kelly Services
(a subsidiary of Daylesford Investments
Limited, a Cyprus Holding Company)
Kelly Services Deutschland GmbH Germany Kelly Services
Kelly Services Consulting GmbH Germany Kelly Services
(a subsidiary of Kelly Services
Deutschland GmbH)
Kelly Services Interim (Belgium) S.A., N.V. Belgium Kelly Services Interim
(a subsidiary of Kelly Services, Inc. and
Kelly Properties, Inc.)
Kelly Services Select (Belgium) S.A., N.V. Belgium Kelly Services Select
(a subsidiary of Kelly Services, Inc. and
Kelly Properties, Inc.)
Kelly Services Sverige A.B. Sweden Help Personal A.B.
LabStaff Holdings, Pty. Ltd. Australia LabStaff
(a subsidiary of Kelly Services (Australia),
Ltd.)
HTM Group Mexico Kelly Services
(a subsidiary of Kelly de Mexico S.A.
de CV and Kelly Properties, Inc.)
Interim Job S.A.R.L. Luxembourg Interim Job
(a subsidiary of Kelly Services
Luxembourg S.A.R.L.)
Expertos en Trabajo E.T.T., S.L. Spain Extra
(a subsidiary of Kelly Services Empleo
Empresa de Trabajo Temporal, S.L.)
</TABLE>
1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (Nos. 2-85867, 33-48782 and 33-51239) and on Form S-3
(No. 333-79329) of Kelly Services, Inc. of our report dated January 27, 2000,
relating to the financial statements and financial statement schedule, which
appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- --------------------------------------------
Pricewaterhouse Coopers LLP
Detroit, Michigan
March 28, 2000
1
POWER OF ATTORNEY
Each of the undersigned directors of Kelly Services, Inc. does
hereby appoint each of George M. Reardon and William K. Gerber, 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 January 2,
2000, 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 9th day of February, 2000.
/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
<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
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-END> JAN-02-2000
<CASH> 54,032
<SECURITIES> 6,018
<RECEIVABLES> 616,060
<ALLOWANCES> 13,575
<INVENTORY> 0
<CURRENT-ASSETS> 736,168
<PP&E> 281,112
<DEPRECIATION> 94,112
<TOTAL-ASSETS> 1,033,691
<CURRENT-LIABILITIES> 451,318
<BONDS> 0
0
0
<COMMON> 40,116
<OTHER-SE> 542,257
<TOTAL-LIABILITY-AND-EQUITY> 1,033,691
<SALES> 0
<TOTAL-REVENUES> 4,269,113
<CGS> 0
<TOTAL-COSTS> 3,503,052
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 143,710
<INCOME-TAX> 58,600
<INCOME-CONTINUING> 85,110
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,110
<EPS-BASIC> 2.37
<EPS-DILUTED> 2.36
</TABLE>
