-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, USfCknxdoGd9Is0QqjUtu7A8SQRzasqXEwFUhIFweyIigV9mSL2hqlb0ne8sfcIG be8ZjNNQJTF+qrpIn3p2jg== 0000889697-00-000103.txt : 20000517 0000889697-00-000103.hdr.sgml : 20000517 ACCESSION NUMBER: 0000889697-00-000103 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000402 FILED AS OF DATE: 20000516 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: SEC FILE NUMBER: 000-01088 FILM NUMBER: 637171 BUSINESS ADDRESS: STREET 1: 999 W BIG BEAVER RD CITY: TROY STATE: MI ZIP: 48084 BUSINESS PHONE: 2483624444 MAIL ADDRESS: STREET 1: 999 WEST BIG BEAVER RD CITY: TROY STATE: MI ZIP: 48084 10-Q 1 1 Index to Exhibits on page 14 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 April 2, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-1088 KELLY SERVICES, INC. - ----------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) DELAWARE 38-1510762 - ------------------------------------------- ----------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 999 WEST BIG BEAVER ROAD, TROY, MICHIGAN 48084 - ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (248) 362-4444 - ----------------------------------------------------------------------------- (Registrant's telephone number, including area code) No Change - ----------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No___ At May 5, 2000, 32,210,000 shares of Class A and 3,501,659 shares of Class B common stock of the Registrant were outstanding. 2 KELLY SERVICES, INC. AND SUBSIDIARIES Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Statements of Earnings 3 Balance Sheets 4 Statements of Stockholders' Equity 5 Statements of Cash Flows 6 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9 PART II. OTHER INFORMATION AND SIGNATURE Item 2. Changes in Securities 12 Item 6. Exhibits and Reports on Form 8-K 12 Signature 13 Index to Exhibits Required by Item 601, Regulation S-K 14 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. KELLY SERVICES, INC. AND SUBSIDIARIES STATEMENTS OF EARNINGS (UNAUDITED) (In thousands of dollars except per share data) 13 Weeks Ended ---------------------------- April 2, 2000 April 4, 1999 ------------- ------------- Sales of services $1,080,069 $1,025,959 Cost of services 892,095 846,828 ---------- ---------- Gross profit 187,974 179,131 Selling, general and administrative expenses 161,406 153,539 ---------- ---------- Earnings from operations 26,568 25,592 Interest income, net 287 151 ---------- ---------- Earnings before income taxes 26,855 25,743 Income taxes 10,795 10,555 ---------- ---------- Net earnings $ 16,060 $ 15,188 ========== ========== Earnings per share: Basic $ .45 $ .42 Diluted .45 .42 Average shares outstanding (thousands): Basic 35,705 35,814 Diluted 35,808 35,953 Dividends per share $ .24 $ .23 See accompanying Notes to Financial Statements. 4 KELLY SERVICES, INC. AND SUBSIDIARIES BALANCE SHEETS AS OF APRIL 2, 2000 AND JANUARY 2, 2000 (In thousands of dollars) ASSETS 2000 1999 ----------- ----------- CURRENT ASSETS: (UNAUDITED) Cash and equivalents $ 51,975 $ 54,032 Short-term investments 3,340 6,018 Accounts receivable, less allowances of $13,605 and $13,575, respectively 601,122 602,485 Prepaid expenses and other current assets 21,902 22,801 Deferred taxes 51,857 50,832 ----------- ----------- Total current assets 730,196 736,168 PROPERTY AND EQUIPMENT: Land and buildings 49,832 49,458 Equipment, furniture and leasehold improvements 240,992 231,654 Accumulated depreciation (100,872) (94,112) ----------- ----------- Total property and equipment 189,952 187,000 INTANGIBLES AND OTHER ASSETS 114,400 110,523 ----------- ----------- TOTAL ASSETS $ 1,034,548 $ 1,033,691 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings $ 41,671 $ 47,210 Accounts payable 56,212 73,516 Payroll and related taxes 239,491 215,706 Accrued insurance 63,238 65,881 Income and other taxes 52,572 49,005 ----------- ----------- Total current liabilities 453,184 451,318 STOCKHOLDERS' EQUITY: Capital stock, $1 par value Class A common stock, shares issued 36,606,440 in 2000 and 36,602,210 in 1999 36,606 36,602 Class B common stock, shares issued 3,509,426 in 2000 and 3,513,656 in 1999 3,510 3,514 Treasury stock, at cost Class A common stock, 4,396,559 shares in 2000 and 4,234,524 shares in 1999 (84,888) (80,538) Class B common stock, 7,767 shares in 2000 and 1999 (248) (248) Paid-in capital 16,167 15,761 Earnings invested in the business 631,067 623,564 Accumulated foreign currency adjustments (20,850) (16,282) ----------- ----------- Total stockholders' equity 581,364 582,373 ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,034,548 $ 1,033,691 =========== =========== See accompanying Notes to Financial Statements. 5 KELLY SERVICES, INC. AND SUBSIDIARIES STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (In thousands of dollars) 13 Weeks Ended ----------------------------- April 2, 2000 April 4, 1999 ------------- -------------- Capital Stock Class A common stock Balance at beginning of period $ 36,602 $ 36,541 Conversions from Class B 4 -- --------- --------- Balance at end of period 36,606 36,541 Class B common stock Balance at beginning of period 3,514 3,575 Conversions to Class A (4) -- --------- --------- Balance at end of period 3,510 3,575 Treasury Stock Class A common stock Balance at beginning of period (80,538) (81,669) Treasury stock issued for acquisition 164 -- Purchase of treasury stock (5,614) -- Exercise of stock options, restricted stock awards and other 1,100 589 --------- --------- Balance at end of period (84,888) (81,080) Class B common stock Balance at beginning of period (248) (248) --------- --------- Balance at end of period (248) (248) Paid-in Capital Balance at beginning of period 15,761 14,844 Treasury stock issued for acquisition 39 -- Exercise of stock options, restricted stock awards and other 367 361 --------- --------- Balance at end of period 16,167 15,205 Earnings Invested in the Business Balance at beginning of period 623,564 572,517 Net earnings 16,060 15,188 Dividends (8,557) (8,237) --------- --------- Balance at end of period 631,067 579,468 Accumulated Foreign Currency Adjustments Balance at beginning of period (16,282) (7,796) Equity adjustment for foreign currency (4,568) (5,930) --------- --------- Balance at end of period (20,850) (13,726) --------- --------- Stockholders' Equity at end of period $ 581,364 $ 539,735 ========= ========= Comprehensive Income Net earnings $ 16,060 $ 15,188 Other comprehensive income - Foreign currency adjustments (4,568) (5,930) --------- --------- Comprehensive Income $ 11,492 $ 9,258 ========= ========= See accompanying Notes to Financial Statements. 6 KELLY SERVICES, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE 13 WEEKS ENDED APRIL 2, 2000 AND APRIL 4, 1999 (In thousands of dollars) 2000 1999 --------- --------- Cash flows from operating activities: Net earnings $ 16,060 $ 15,188 Noncash adjustments: Depreciation and amortization 9,625 8,129 Increase in accounts receivable, net (4,180) (10,634) Changes in certain working capital components 12,552 26,764 --------- --------- Net cash from operating activities 34,057 39,447 --------- --------- Cash flows from investing activities: Capital expenditures (12,821) (15,224) Proceeds from sales and maturities of short-term investments 278,782 298,598 Purchases of short-term investments (276,104) (298,819) Increase in other assets (4,796) (3,455) Acquisition of companies, net of cash received (1,534) (2,205) --------- --------- Net cash from investing activities (16,473) (21,105) --------- --------- Cash flows from financing activities: (Decrease) increase in short-term borrowings (5,539) 4,466 Dividend payments (8,545) (8,237) Purchase of treasury stock (5,614) -- Stock options and other 57 9 --------- --------- Net cash from financing activities (19,641) (3,762) --------- --------- Net change in cash and equivalents (2,057) 14,580 Cash and equivalents at beginning of period 54,032 59,799 --------- --------- Cash and equivalents at end of period $ 51,975 $ 74,379 ========= ========= See accompanying Notes to Financial Statements. 7 KELLY SERVICES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (In thousands of dollars) 1. Basis of Presentation The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and notes required by generally accepted accounting principles for complete financial statements. All adjustments, consisting only of normal recurring adjustments, have been made which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year. The unaudited consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto for the fiscal year ended January 2, 2000 (the 1999 consolidated financial statements). 2. Segment Disclosures The Company's reportable segments, which are based on the Company's method of internal reporting, are: (1) U.S. Commercial Staffing, (2) Professional, Technical and Staffing Alternatives (PTSA) and (3) International. The following table presents information about the reported sales and earnings from operations of the Company for the 13-week periods ended April 2, 2000 and April 4, 1999. Segment data presented is net of intersegment revenues. Asset information by reportable segment is not presented, since the Company does not produce such information internally. 13 Weeks Ended 2000 1999 ----------- ----------- Sales: U.S. Commercial Staffing $ 549,666 $ 551,703 PTSA 257,546 227,950 International 272,857 246,306 ----------- ----------- Consolidated Total $ 1,080,069 $ 1,025,959 =========== =========== Earnings from Operations: U.S. Commercial Staffing $ 42,323 $ 44,183 PTSA 15,742 12,197 International 5,094 4,291 Corporate (36,591) (35,079) ----------- ----------- Consolidated Total $ 26,568 $ 25,592 =========== =========== 3. 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 April 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 April 2, 2000. 8 KELLY SERVICES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (continued) (UNAUDITED) (In thousands of dollars) 4. Earnings Per Share The reconciliations of earnings per share computations for the 13-week periods ended April 2, 2000 and April 4, 1999 were as follows: 13 Weeks Ended 2000 1999 ------ ------ Net earnings $16,060 $15,188 ======= ======= Determination of shares (thousands): Weighted average common shares outstanding 35,705 35,814 Effect of dilutive securities: Stock options 2 18 Restricted and performance awards and other 101 121 ------- ------- Weighted average common shares outstanding - assuming dilution 35,808 35,953 ======= ======= Earnings per share - basic $ .45 $ .42 Earnings per share - assuming dilution $ .45 $ .42 9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. Results of Operations: First Quarter Sales of services in the first quarter of 2000 were $1.080 billion, an increase of 5.3% from the same period in 1999. Sales performance in the U.S. Commercial Staffing segment was slightly negative. Tightness in the U.S. labor market continues to be the principal constraint on growth in this segment. Professional, Technical and Staffing Alternatives (PTSA) sales grew by 13.0% while International sales grew by 10.8% as compared to the first quarter of 1999. Cost of services, consisting of payroll and related tax and benefit costs of employees assigned to customers, increased 5.3% in the first quarter as compared to the same period in 1999. Direct wage costs have increased from 1999 at a rate somewhat higher than the general inflation rate, due to strong worldwide demand for labor. Gross profit of $188.0 million was 4.9% higher than the first quarter of 1999, and gross profit as a percentage of sales was 17.4% in 2000 and 17.5% in 1999. This reflected a small decrease in the gross profit rate of both the U.S. Commercial Staffing and International segments. Selling, general and administrative expenses were $161.4 million in the first quarter, an increase of 5.1% over the same period in 1999. Expenses averaged 14.9% of sales as compared to 15.0% in last year's first quarter. This quarter benefited from the elimination of Y2K expenses, partially offset by increased depreciation expense. Earnings from operations of $26.6 million were 3.8% greater than the first quarter of 1999. Net interest income of $0.3 million almost doubled as compared to the first quarter of 1999. The increase is attributable to higher average U.S. interest rates earned on the Company's cash balances, combined with lower short-term borrowings this year. Earnings before income taxes were $26.9 million, an increase of 4.3%, compared to pretax earnings of $25.7 million earned for the same period in 1999. Income taxes were 40.2% of pretax income in the first quarter of 2000 and 41.0% in the first quarter of 1999. Net earnings were $16.1 million in the first quarter of 2000, an increase of 5.7% over the first quarter of 1999. Basic and diluted earnings per share were $.45 compared to $.42 in the same period last year, a 7.1% increase. Financial Condition Assets totaled $1,034.5 million at April 2, 2000, an increase of 0.1% over the $1,033.7 million at January 2, 2000. Working capital decreased $7.8 million during the three-month period. The current ratio was 1.6 at April 2, 2000 and January 2, 2000. During the first three months of 2000, net cash from operating activities was $34.1 million, a decrease of 13.7% from the comparable period in 1999. This decrease resulted principally from a decrease in the accounts payable balance offset by a containment on the growth in the accounts receivable balance. The Company's global day's sales outstanding for the 13-week period improved to 51 days, as compared to 52 days for the same period last year. Capital expenditures of $12.8 million in 2000 decreased somewhat from the $15.2 million spent during the same period of 1999. Of the total, the majority related to Information Technology investments. Specifically, capital expenditures related to the branch automation and Oracle projects totaled approximately $9.8 million, or nearly 75% of total capital expenditures. Annual capital expenditures are projected to total $65 million this year, a decline from the $77 million spent in 1999. The quarterly dividend rate applicable to Class A and Class B shares outstanding was $.24 per share in the first quarter of 2000. This represents a 4.3% increase compared to a dividend rate of $.23 per share in the first quarter of 1999. The Company's financial position continues to be strong. This strength will allow it to continue to aggressively pursue growth opportunities, while supporting current operations. 10 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. New Accounting Standard In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. Pursuant to SAB 101A, which amends SAB 101, the Company is required to adopt SAB 101 in the second quarter of fiscal 2000. Management does not expect the adoption of SAB 101 to have a material effect on the Company's operations or financial position. 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. 11 Companies for which this report is filed are: Kelly Services, Inc. and its subsidiaries: Kelly Assisted Living Services, Inc. Kelly Properties, Inc. Kelly Services (Canada), Ltd. 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. Kelly de Mexico, S.A. de C.V. Kelly Services Norge A.S. KSI Acquisition Corp. Kelly Staff Leasing, Inc. Kelly Services (Suisse) Holding S.A. Kelly Professional Services (France), Inc. Kelly Services France S.A. Competences RH S.A.R.L. Kelly Services Luxembourg S.A.R.L. Kelly Services Italia Srl Kelly Services Iberia Holding Company, S.L. Kelly Services Empleo Empresa de Trabajo Temporal, S.L. Kelly Services Seleccion y Formacion, S.L. Kelly Services CIS, Inc. ooo Kelly Services Kelly Services (Societa di fornitura di lavaro temporaneo) SpA Kelly Services Interim, S.A. Kelly Services Deutschland GmbH Kelly Services Consulting GmbH Kelly Services Interim (Belgium) S.A., N.V. Kelly Services Select (Belgium) S.A., N.V. Kelly Services Sverige A.B. LabStaff Pty. Ltd. HTM Group Interim Job S.A.R.L. Expertos en Trabajo E.T.T., S.L. 12 PART II. OTHER INFORMATION AND SIGNATURE Item 2. Changes in Securities. In February, 1999, the Company signed an acquisition agreement (the "Agreement") for the acquisition of all of the common stock of Help Holding AB. The Agreement provided for partial payment to be made in installments. Pursuant to the Agreement, the first installment, paid in March, 2000, consisted of 8,506 shares of Class A non-voting common stock. The shares were issued to the former owner of the acquired company, and the issuance of such shares was exempt from the registration requirement of the Securities Act of 1933, as amended, by reason of Section 4(2) of that Act and Regulation D thereunder, because they were issued in a transaction that did not involve a public offering, were not acquired with a view to their further distribution and are subject to appropriate restrictions on resale. Two additional installments shall be paid in cash pursuant to the Agreement on March 31, 2001 and March 31, 2002. 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 14 of this filing. (b) No reports on Form 8-K were filed during the quarter for which this report is filed. 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KELLY SERVICES, INC. Date: May 15, 2000 /s/ William K. Gerber William K. Gerber Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 14 INDEX TO EXHIBITS REQUIRED BY ITEM 601, REGULATION S-K Exhibit No. Description Document - ------- ----------- -------- 4 Rights of security holders are defined in Articles Fourth, Fifth, Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth and Fifteenth of the Certificate of Incorporation. (Reference is made to Exhibit 3.2 to the Form 10-Q for the quarterly period ended June 30, 1996, filed with the Commission in August, 1996, which is incorporated herein by reference). 27 Financial Data Schedule for three months ended April 2, 2000. 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. 1,000 3-MOS DEC-31-2000 APR-02-2000 51,975 3,340 614,727 13,605 0 730,196 290,824 100,872 1,034,548 453,184 0 0 0 40,116 541,248 1,034,548 0 1,080,069 0 892,095 0 0 0 26,855 10,795 16,060 0 0 0 16,060 0.45 0.45
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