0000055135-95-000017.txt : 19950816 0000055135-95-000017.hdr.sgml : 19950816 ACCESSION NUMBER: 0000055135-95-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950702 FILED AS OF DATE: 19950815 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KELLY SERVICES INC CENTRAL INDEX KEY: 0000055135 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 381510762 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-01088 FILM NUMBER: 95564376 BUSINESS ADDRESS: STREET 1: 999 W BIG BEAVER RD CITY: TROY STATE: MI ZIP: 48084 BUSINESS PHONE: 81024444 MAIL ADDRESS: STREET 1: 999 WEST BIG BEAVER RD CITY: TROY STATE: MI ZIP: 48084 10-Q 1 DOCUMENT - 1 - Index to Exhibits on page 13 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 2, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-1088 KELLY SERVICES, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) DELAWARE 38-1510762 --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 999 WEST BIG BEAVER ROAD, TROY, MICHIGAN 48084 ---------------------------------------------- (Address of principal executive offices) (Zip Code) (810) 362-4444 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- At August 7, 1995, 34,398,359 shares of Class A and 3,598,657 shares of Class B common stock of the Registrant were outstanding. - 2 - KELLY SERVICES, INC. AND SUBSIDIARIES Page Number ------ PART I. FINANCIAL INFORMATION Statements of Earnings 3 Balance Sheets 4 Statements of Stockholders' Equity 5 Statements of Cash Flows 6 Management's Discussion and Analysis of Results of Operations and Financial Condition 7 PART II. OTHER INFORMATION 10 Signature 12 Index to Exhibits Required by Item 601, Regulation S-K 13 - 3 - KELLY SERVICES, INC. AND SUBSIDIARIES STATEMENTS OF EARNINGS (UNAUDITED) (In thousands of dollars except per share items)
13 Weeks Ended 26 Weeks Ended ------------------------------ ------------------------------ July 2, 1995 July 3, 1994 July 2, 1995 July 3, 1994 ------------- ------------- ------------- ------------- Sales of services $652,417 $570,813 $1,273,102 $1,101,004 Cost of services 519,739 461,093 1,018,406 889,467 -------- -------- ---------- ---------- Gross profit 132,678 109,720 254,696 211,537 Selling, general and administrative expenses 107,789 88,111 212,094 176,535 -------- -------- ---------- ---------- Earnings from operations 24,889 21,609 42,602 35,002 Interest income 2,321 1,666 4,710 3,171 -------- -------- ---------- ---------- Earnings before income taxes 27,210 23,275 47,312 38,173 -------- -------- ---------- ---------- Income taxes: Federal 8,505 7,000 14,895 11,520 State and other 2,045 1,855 3,495 3,000 -------- -------- ---------- ---------- Total income taxes 10,550 8,855 18,390 14,520 -------- -------- ---------- ---------- Net earnings $ 16,660 $ 14,420 $ 28,922 $ 23,653 ======== ======== ========== ========== Earnings per share $.44 $.38 $.76 $.62 Dividends per share $.20 $.18 $.38 $.34 Average shares outstanding (thousands) 37,987 37,955 37,977 37,951
- 4 - KELLY SERVICES, INC. AND SUBSIDIARIES BALANCE SHEETS AS OF JULY 2, 1995 AND JANUARY 1, 1995 (UNAUDITED) (In thousands of dollars) ASSETS 1995 1994 ------ ------------ ------------ CURRENT ASSETS: Cash and equivalents $ 50,963 $ 49,207 Short-term investments 114,388 142,723 Accounts receivable, less allowances of $8,065 and $5,660, respectively 347,114 307,478 Prepaid expenses and other current assets 26,231 27,018 --------- --------- Total current assets 538,696 526,426 PROPERTY AND EQUIPMENT: Land and buildings 35,026 34,044 Equipment, furniture and leasehold improvements 105,883 90,868 Accumulated depreciation (64,639) (54,731) --------- --------- Total property and equipment 76,270 70,181 INTANGIBLES AND OTHER ASSETS 61,539 45,491 --------- --------- TOTAL ASSETS $676,505 $642,098 ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY ---------------------------------- CURRENT LIABILITIES: Accounts payable $ 35,291 $ 33,716 Payroll and related taxes 121,724 102,911 Accrued insurance 55,650 57,390 Income and other taxes 12,227 16,565 --------- --------- Total current liabilities 224,892 210,582 --------- --------- STOCKHOLDERS' EQUITY: Capital stock, $1 par value 40,116 40,116 Treasury stock, 2,121 shares in 1995 and 2,153 shares in 1994, respectively, at cost (6,181) (6,186) Paid-in capital 6,638 5,868 Earnings invested in the business 411,040 391,718 --------- --------- Total stockholders' equity 451,613 431,516 --------- --------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $676,505 $642,098 ========= =========
- 5 - KELLY SERVICES, INC. AND SUBSIDIARIES STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (In thousands of dollars)
13 Weeks Ended 26 Weeks Ended ---------------------------- ----------------------------- July 2, 1995 July 3, 1994 July 2, 1995 July 3, 1994 ------------ ------------ ------------ ------------ Capital Stock Class A common stock Balance at beginning of period $ 36,510 $ 36,507 $ 36,507 $ 36,507 Conversions from Class B 1 -- 4 -- --------- --------- --------- --------- Balance at end of period 36,511 36,507 36,511 36,507 Class B common stock Balance at beginning of period 3,606 3,609 3,609 3,609 Conversions to Class A (1) -- (4) -- --------- --------- --------- --------- Balance at end of period 3,605 3,609 3,605 3,609 Treasury Stock Balance at beginning of period (6,216) (6,153) (6,186) (6,702) Restricted stock awards 35 -- 35 -- Exercise of stock options -- 15 (30) 35 Treasury stock issued for acquisition -- -- -- 529 --------- --------- --------- --------- Balance at end of period (6,181) (6,138) (6,181) (6,138) Paid-in Capital Balance at beginning of period 6,210 5,628 5,868 679 Restricted stock awards 297 -- 297 -- Exercise of stock options 131 108 473 254 Treasury stock issued for acquisition -- -- -- 4,803 --------- --------- --------- --------- Balance at end of period 6,638 5,736 6,638 5,736 Earnings Invested in the Business Balance at beginning of period 402,592 355,219 391,718 352,126 Net earnings 16,660 14,420 28,922 23,653 Cash dividends (7,599) (6,832) (14,433) (12,904) Equity adjustment for foreign currency translation (cumulative credit of $3,425 in 1995 and charge of $4,512 in 1994) (613) 2,069 4,833 2,001 --------- --------- --------- --------- Balance at end of period 411,040 364,876 411,040 364,876 Stockholders' Equity at end of period $451,613 $404,590 $451,613 $404,590 ========= ========= ========= =========
- 6 - KELLY SERVICES, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE 26 WEEKS ENDED JULY 2, 1995 AND JULY 3, 1994 (In thousands of dollars) 1995 1994 ---------- ---------- Cash flows from operating activities: Net earnings $28,922 $23,653 Noncash adjustments: Depreciation 9,908 8,603 Changes in certain working capital components (21,891) (4,018) -------- -------- Net cash from operating activities 16,939 28,238 -------- -------- Cash flows from investing activities: Capital expenditures (15,260) (7,759) Short-term investments 28,335 201 Increase in intangibles and other assets (14,600) (1,294) -------- -------- Net cash from investing activities (1,525) (8,852) -------- -------- Cash flows from financing activities: Dividend payments (14,433) (12,904) Exercise of stock options and restricted stock awards 775 289 -------- -------- Net cash from financing activities (13,658) (12,615) -------- -------- Net change in cash and equivalents 1,756 6,771 Cash and equivalents at beginning of period 49,207 36,020 -------- -------- Cash and equivalents at end of period $50,963 $42,791 ======== ========
- 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations: Second Quarter Sales of services in the second quarter of 1995 totaled $652,417,000, an increase of 14.3% from the same period in 1994. Modest growth in domestic sales, at less than 10% over the same period in 1994, reflected slowed economic conditions in the United States economy and management's continued challenging of low yielding, higher risk light industrial business. International sales continued to grow at double digit rates and benefited from the inclusion of OK Personnel Service Holding SA in Switzerland, purchased in July, 1994. Cost of services, consisting of payroll and related costs of employees assigned to customers, increased 12.7% in the second quarter as compared to the same period in 1994. Average hourly wages and related costs increased over 6.0% from 1994 due to inflation and a shift in business mix toward higher margin service lines. Gross profit of $132,678,000 was 20.9% higher than 1994 due to both increased volume and gross profit rates which, combined, averaged 20.3% compared to 19.2% in 1994. This increased rate of gross profit was related principally to a greater mix of sales in higher margin service lines, such as office and technical. Strong growth of international sales carrying higher gross profit rates also contributed to the overall increase in margins. Selling, general and administrative expenses were $107,789,000 in the second quarter, an increase of 22.3% over the same period in 1994. This increase resulted largely from expected growth in business activity, inclusion of newly acquired operations, and continued aggressive investments in new service lines and programs, which promote and improve service quality and customer satisfaction. Earnings before income taxes were $27,210,000, an increase of 16.9%, compared to pretax earnings of $23,275,000 for the same period in 1994. The pretax margin was 4.2%, a .1 percentage point gain over the second quarter of 1994. The increased gross profit rate on sales and volume increases were the principal reasons for the improvement in pretax earnings when compared to the second quarter of 1994. Income taxes were 38.8% of pretax income, which was a .8 percentage point increase over the applicable tax rate for the second quarter of 1994, due to reduced credits available from the U.S. targeted jobs tax credit program. The program was discontinued effective January 1, 1995. - 8 - Net earnings were $16,660,000 in the second quarter of 1995, an increase of 15.5% over the second quarter of 1994. Earnings per share were $.44 compared to the $.38 in the same period last year. The quarter included the results of operations of The Wallace Law Registry, Inc., acquired on April 28, 1995. The transaction was accounted for as a purchase and was not material. Year-to-Date Sales of services totaled $1,273,102,000 during the first six months of 1995, an increase of 15.6% over 1994. This increase reflects continued growth in the volume of domestic and especially international sales, particularly in Europe. Sales of OK Personnel Service Holding SA in Switzerland (completed July, 1994) and The Wallace Law Registry, Inc. (purchased as of April, 1995) are included with 1995 sales. Cost of services of $1,018,406,000 was 14.5% higher than last year, reflecting volume growth, acquisitions, modest inflationary increases in hourly payroll costs and a shift towards higher margin service lines. The gross profit increased 20.4% in 1995 due to increased sales volume, acquisitions, and a rate of gross profit that averaged 20.0% for the first half of 1995 compared to the 19.2% rate of 1994. This change reflects the increased mix of business in higher margin service lines such as office and technical, plus strong first half sales growth in international operations. Selling, general and administrative expenses of $212,094,000 were 20.1% higher than last year, reflecting higher business activity, the acquisition of new businesses and investments in new programs. Earnings before taxes were $47,312,000, an increase of 23.9% over 1994. These earnings averaged a pretax margin of 3.7%, or .2 percentage point improvement over 1994. Income taxes were 38.9% of pretax earnings and were .9 percentage point higher than last year's first half income tax rate. As explained above, the elimination of the U.S. targeted jobs tax credit, effective January 1, 1995, is the principal reason for this rate increase. Net earnings were $28,922,000, or 22.3% higher than the first six months of 1994. Earnings per share were $.76 compared to $.62 last year. - 9 - Financial Condition Assets totaled $676,505,000 at July 2, 1995, an increase of 5% over the $642,098,000 at January 1, 1995. Working capital decreased $2,040,000 during the half-year period. The current ratio was 2.4 at July 2, 1995, a decline of .1 percentage point since January 1. Increased business activity and capital expenditures, including the acquisition during the second quarter of 1995 described above, accounted for the change. Enhancements to automated systems in all branches continue to be made and were a major element of capital spending. The quarterly dividend rate applicable to Class A and Class B common shares outstanding was increased to $.20 per share in the second quarter of 1995. This compares to a dividend rate of $.18 per share in the second quarter of 1994. Management believes the financial condition of the Company continues to be exceptionally strong, which enables it to fund working capital requirements and longer-term growth opportunities from internal resources. -------------------------------------------------------------- Companies for which this report is filed are: Kelly Services, Inc. and its subsidiaries, Kelly Assisted Living Services, Inc., Kelly Properties, Inc., Kelly Professional and Technical Services, Inc., Kelly Services (Canada), Ltd., Les Services Kelly (Quebec) Inc., Lenore Simpson Personnel, Ltd., Societe Services Kelly, Kelly Professional Services (France), Inc., Kelly Services (UK), Ltd., Kelly Services (Ireland), Ltd., Kelly Services (Australia), Ltd., Kelly Services (New Zealand), Ltd., Kelly Services (Nederland), B.V., Kelly Services of Denmark, Inc., OK Personnel Service Holding SA, Kelly de Mexico, S.A. de C.V., Kelly Services Norge A.S., KSI Acquisition Corp., Kelly Pinpoint, Inc., Your Staff, Inc. and The Wallace Law Registry, Inc. The information furnished reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the period in this filing. - 10 - PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------- (a) The annual meeting of stockholders of registrant was held May 17, 1995. (b) The nominees for director, as listed in the Company's proxy statement dated April 13, 1995, were elected. The directors whose terms of office continued after the meeting are also listed in the proxy statement. (c) A brief description and the results of the matters voted upon at the meeting follow. (1) Election of the following directors: Shares Voted Shares Voted "For" "Withheld" ------------ ------------ T. E. Adderley 3,529,373 38 H. E. Guenther 3,529,373 38 B. J. White 3,529,373 38 (2) Ratification of Non-employee Director Stock Award Plan: Shares voted "For" 3,479,367 Shares voted "Against" 49,327 Shares voted "Withheld" 717 (3) Approval of standards for performance based, annual incentive awards for certain executive officers under the Company's Short-Term Incentive Plan: Shares voted "For" 3,475,953 Shares voted "Against" 46,434 Shares voted "Withheld" 7,024 (4) Ratification of the selection of Price Waterhouse LLP as the Company's independent auditors: Shares voted "For" 3,529,410 Shares voted "Against" 1 - 11 - Item 6. Exhibits and Reports on Form 8-K. --------------------------------- (a) See Index to Exhibits required by Item 601, Regulation S-K, set forth on page 13 of this filing. (b) No reports on Form 8-K were filed during the quarter for which this report is filed. - 12 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KELLY SERVICES, INC. Date: August 15, 1995 /s/ P. K. Geiger P. K. Geiger Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) - 13 - INDEX TO EXHIBITS REQUIRED BY ITEM 601, REGULATION S-K --------------------- Exhibit No. Description Document ------- ----------- -------- 4 Rights of security holders are defined in Articles Fourth, Fifth, Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth and Fifteenth of the Certificate of Incorporation. (Reference is made to Exhibit 3.2 to the Form 10-Q for the quarterly period ended October 3, 1993, filed with the Commission in November, 1993, which is incorporated herein by reference.) 27 Financial Data Schedule 2 EX-27 2
5 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. 6-MOS DEC-31-1995 JUL-02-1995 50,963 114,388 355,179 8,065 0 538,696 140,909 64,639 676,505 224,892 0 40,116 0 0 411,497 676,505 0 1,273,102 0 1,018,406 0 0 0 47,312 18,390 28,922 0 0 0 28,922 0.76 0