8-K

1

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

October 21, 2003

Date of Report (Date of earliest event reported)

Commission File Number 0-1088

KELLY SERVICES, INC.

(Exact name of Registrant as specified in its charter)

DELAWARE	38-1510762
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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)

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Item 7. Financial Statements and Exhibits

(c) Exhibits

99.1 Press Release dated October 21, 2003.

Item 12. Results of Operations and Financial Condition

Kelly Services, Inc. today released financial information containing highlighted financial data for the three-month and nine-month periods ended September 28, 2003. A copy of the press release is attached as exhibit 99.1 herein.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	KELLY SERVICES, INC.
Date: October 21, 2003
	/s/    William K. Gerber
	William K. Gerber
	Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release dated October 21, 2003

EX-99.1

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Exhibit 99.1

ANALYST CONTACT:	MEDIA CONTACT:
James Polehna	Robert Doetsch
Director, Investor Relations	Director, Public Relations
(248) 244-4586	(248) 244-5362
james_polehna@kellyservices.com	robert_doetsch@kellyservices.com

KELLY SERVICES REPORTS SALES AND EARNINGS

FOR THE 3rd QUARTER OF 2003

TROY, MI (October 21, 2003)—Kelly Services, Inc., a global provider of staffing services, today announced sales and earnings results for the third quarter ended September 28, 2003.

Terence E. Adderley, Kelly Services chairman and chief executive officer, announced sales for the third quarter of 2003 totaled $1.097 billion, a 3.8% increase compared to the $1.057 billion for the corresponding quarter in 2002. Sales for the third quarter increased 3.6% compared to the second quarter of 2003. Sales for the nine-month period totaled $3.160 billion, a 5.0% increase compared to the $3.009 billion for the first nine months of 2002.

Net earnings for the third quarter of 2003 totaled $1.5 million, compared to $6.5 million reported for the third quarter of 2002. Net earnings for the third quarter increased by 1.3% compared to the second quarter of 2003. Net earnings for the first nine months of 2003 totaled $3.3 million, compared to the $11.2 million earned during the comparable nine-month period in 2002.

Diluted earnings per share in the third quarter of 2003 were $0.04 per share, as compared to third quarter 2002 earnings of $0.18 per share. Diluted earnings per share were the same as reported for the second quarter of 2003. Diluted earnings per share for the first nine months of 2003 were $0.09 per share, compared to the $0.31 per share earned in the first nine months of 2002.

Commenting on the results, Adderley said, “The decline in earnings during the third quarter reflected significant increases in workers’ compensation costs in our U.S. Commercial and Kelly Staff Leasing businesses. The third quarter results include an additional charge of $6.4 million related to increases in workers’ compensation, primarily due to escalating medical costs.

“Substantial increases in state unemployment taxes that began in the first quarter are for the most part, now reflected in prices in our U.S. operations. Overall, expenses were well managed during the quarter.

“Sales in our U.S. Commercial staffing segment decreased 2.6% during the third quarter, compared to the 0.7% sales decrease reported in the second quarter of 2003. The U.S. Commercial gross profit rate decreased 2.1 percentage points primarily due to increased workers’ compensation costs. Expenses decreased 5.1% compared to last year. Operating earnings totaled $22.7 million, a decrease of 31.8% compared to last year.

- more -

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“Sales in our Professional, Technical, and Staffing Alternatives (PTSA) segment decreased by 0.4% during the third quarter, compared to second quarter sales growth of 1.6%, with the individual business units showing mixed rates of growth. Kelly Financial Resources and Kelly HR First continued to exhibit strong sales growth, while Kelly Scientific Resources and Kelly Home Care experienced sales decreases during the quarter. The PTSA gross profit rate decreased seven-tenths of a percent compared to last year, while expenses increased 0.3% as compared to 2002. Operating earnings totaled $11.5 million and decreased 13.7% on a year-over-year basis.

“International revenue, as measured in U.S. dollars, increased 19.4% during the third quarter, as compared to a 16.8% increase in the second quarter. The International gross profit rate decreased by 1.4 percentage points, due to gross profit rate decreases in UK and Continental Europe along with decreases in fee based income. Operating expenses increased by 14.0% in U.S. dollar terms. International operating earnings totaled $1.6 million, compared to earnings of $3.1 million last year. Sequentially, the earnings show significant improvement compared to the second quarter, when the International operating loss totaled $1.0 million.

“On a constant currency basis, International revenue increased 10.1% in the third quarter, as compared to 3.3% growth in the second quarter. Constant currency sales growth was positive in all regions: Americas increased 11%, Asia Pacific increased 12%, UK/Ireland increased 12% and Continental Europe increased 8%. Expenses increased by 4.8% on a constant currency basis.

“After nearly three quarters of nearly flat growth, demand for temporary staffing began to improve significantly in the third quarter. We have seen strong sequential increases in assignments over the past eight weeks. Although we are optimistic that we have reached the turning point of this cycle, forecasting remains difficult. As a result, we will continue our practice of providing guidance on a quarterly basis. At this time, we expect that fourth quarter 2003 earnings will range from $0.00 per share to $0.04 per share, as compared to earnings of $0.21 per share in the fourth quarter of 2002.”

In conjunction with its third quarter earnings release, Kelly Services, Inc. will host a conference call at 9:00 a.m. (ET) on October 21, 2003 to review the results. The call may be accessed in one of the following ways:

Via the Telephone:

U.S.	(888) 577-8991
International	1-773-756-4708

The conference call leader is Terence Adderley

The passcode is Kelly Services

Via the Internet:

You may access the call via the Internet through Kelly Services website:

www.kellyservices.com

This release contains statements that are forward looking in nature and accordingly, are subject to risks and uncertainties. These factors include: competition, changing market and economic conditions, currency fluctuations, changes in laws and regulations, including federal, state and international tax laws, the company’s ability to effectively manage its information technology programs, and other factors discussed in this release and in the company’s filings with the Securities and Exchange Commission. Actual results may differ materially from any projections contained herein.

Kelly Services, Inc. (NASDAQ: KELYA, KELYB) is a Fortune 500 company headquartered in Troy, Mich., offering human resources solutions that include temporary services, staff leasing, outsourcing, vendor on-site and full-time placement. With more than 2,400 company owned and operated offices in 26 countries, Kelly provides to its customers nearly 700,000 employees annually, with skills including office services, accounting, engineering, information technology, law, science, marketing, light industrial, education and health care. Sales in 2002 were $4.1 billion. Visit www.kellyservices.com.

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KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF EARNINGS

FOR THE 13 WEEKS ENDED SEPTEMBER 28, 2003 AND SEPTEMBER 29, 2002

(UNAUDITED)

(In thousands of dollars except per share data)

	2003			2002			Change			% Change
Sales of services	$	1,097,268		$	1,057,290		$	39,978		3.8	%
Cost of services		924,661			875,028			49,633		5.7
Gross profit		172,607			182,262			(9,655	)	(5.3	)
Selling, general and administrative expenses		169,898			171,547			(1,649	)	(1.0	)
Earnings from operations		2,709			10,715			(8,006	)	(74.7	)
Interest (expense) income, net		(84	)		35			(119	)	(340.0	)
Earnings before taxes		2,625			10,750			(8,125	)	(75.6	)
Income taxes		1,121			4,245			(3,124	)	(73.6	)
Net earnings	$	1,504		$	6,505		$	(5,001	)	(76.9	)%
Basic earnings per share	$	0.04		$	0.18		$	(0.14	)	(77.8	)%
Diluted earnings per share	$	0.04		$	0.18		$	(0.14	)	(77.8	)%
STATISTICS:
Gross profit rate		15.7	%		17.2	%		(1.5	)%
Expenses as a % of sales		15.5			16.2			(0.7	)
% Return—Earnings from operations		0.2			1.0			(0.8	)
Earnings before taxes		0.2			1.0			(0.8	)
Net earnings		0.1			0.6			(0.5	)
Effective income tax rate		42.7			39.5			3.2
Average number of shares outstanding (thousands):
Basic		35,321			35,508
Diluted		35,490			35,603

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KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF EARNINGS

FOR THE 39 WEEKS ENDED SEPTEMBER 28, 2003 AND SEPTEMBER 29, 2002

(UNAUDITED)

(In thousands of dollars except per share data)

	2003			2002			Change			% Change
Sales of services	$	3,160,182		$	3,008,744		$	151,438		5.0	%
Cost of services		2,649,619			2,497,306			152,313		6.1
Gross profit		510,563			511,438			(875	)	(0.2	)
Selling, general and administrative expenses		505,015			493,062			11,953		2.4
Earnings from operations		5,548			18,376			(12,828	)	(69.8	)
Interest income, net		42			258			(216	)	(83.7	)
Earnings before taxes		5,590			18,634			(13,044	)	(70.0	)
Income taxes		2,292			7,398			(5,106	)	(69.0	)
Net earnings	$	3,298		$	11,236		$	(7,938	)	(70.6	)%
Basic earnings per share	$	0.09		$	0.31		$	(0.22	)	(71.0	)%
Diluted earnings per share	$	0.09		$	0.31		$	(0.22	)	(71.0	)%
STATISTICS:
Gross profit rate		16.2	%		17.0	%		(0.8	)%
Expenses as a % of sales		16.0			16.4			(0.4	)
% Return—Earnings from operations		0.2			0.6			(0.4	)
Earnings before taxes		0.2			0.6			(0.4	)
Net earnings		0.1			0.4			(0.3	)
Effective income tax rate		41.0			39.7			1.3
Average number of shares outstanding (thousands):
Basic		35,488			35,792
Diluted		35,549			35,968

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KELLY SERVICES, INC.

RESULTS OF OPERATIONS BY SEGMENT

(UNAUDITED)

(In thousands of dollars)

	Third Quarter
	2003			2002			Change			% Change
Sales:
U.S. Commercial Staffing	$	535,345		$	549,904		$	(14,559	)	(2.6	)%
PTSA		221,221			221,999			(778	)	(0.4	)
International		340,702			285,387			55,315		19.4
	$	1,097,268		$	1,057,290		$	39,978		3.8	%
Earnings from Operations:
U.S. Commercial Staffing	$	22,729		$	33,319		$	(10,590	)	(31.8	)%
PTSA		11,472			13,300			(1,828	)	(13.7	)
International		1,621			3,066			(1,445	)	(47.1	)
Corporate		(33,113	)		(38,970	)		5,857		15.0
	$	2,709		$	10,715		$	(8,006	)	(74.7	)%
	September Year to Date
	2003			2002			Change			% Change
Sales:
U.S. Commercial Staffing	$	1,562,319		$	1,557,137		$	5,182		0.3	%
PTSA		666,445			650,908			15,537		2.4
International		931,418			800,699			130,719		16.3
	$	3,160,182		$	3,008,744		$	151,438		5.0	%
Earnings from Operations:
U.S. Commercial Staffing	$	69,871		$	84,238		$	(14,367	)	(17.1	)%
PTSA		38,101			37,243			858		2.3
International		(2,555	)		2,247			(4,802	)	(213.7	)
Corporate		(99,869	)		(105,352	)		5,483		5.2
	$	5,548		$	18,376		$	(12,828	)	(69.8	)%

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KELLY SERVICES, INC.

RECONCILIATION OF CONSTANT CURRENCY

SALES OF SERVICES TO REPORTED SALES OF SERVICES

(UNAUDITED)

(In thousands of dollars)

	Third Quarter
	2003		2002		Change			% Change
US Commercial	$	535,345	$	549,904	$	(14,559	)	(2.6	)%
PTSA		221,221		221,999		(778	)	(0.4	)
International—constant currency*		314,264		285,387		28,877		10.1
Sales of services—constant currency		1,070,830		1,057,290		13,540		1.3	%
Foreign currency impact		26,438		—		26,438
Sales of services	$	1,097,268	$	1,057,290	$	39,978		3.8	%
	September Year to Date
	2003		2002		Change			% Change
US Commercial	$	1,562,319	$	1,557,137	$	5,182		0.3	%
PTSA		666,445		650,908		15,537		2.4
International—constant currency*		838,498		800,699		37,799		4.7
Sales of services—constant currency		3,067,262		3,008,744		58,518		1.9	%
Foreign currency impact		92,920		—		92,920
Sales of services	$	3,160,182	$	3,008,744	$	151,438		5.0	%

* Information on constant currencies is provided to allow investors to separate the impact of foreign currency translations on reported results. Constant currency results are calculated by translating the current year results at prior year average exchange rates.

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KELLY SERVICES, INC. AND SUBSIDIARIES

BALANCE SHEETS

(In thousands of dollars)

	Sept. 28, 2003			December 29, 2002			Sept. 29, 2002
	(UNAUDITED)						(UNAUDITED)
Current Assets
Cash and equivalents	$	60,838		$	100,936		$	80,363
Short-term investments		508			599			4,300
Accounts receivable, less allowances of $14,541, $12,533 and $13,044, respectively		637,850			567,517			590,976
Prepaid expenses and other current assets		30,478			26,387			25,653
Deferred taxes		22,355			23,916			20,815
Total current assets		752,029			719,355			722,107
Property and Equipment, Net		187,976			202,332			200,533
Noncurrent Deferred Taxes		20,909			21,065			26,802
Goodwill, Net		82,989			80,260			77,807
Other Assets		53,407			49,121			45,599
Total Assets	$	1,097,310		$	1,072,133		$	1,072,848
Current Liabilities
Short-term borrowings	$	32,665		$	24,770		$	27,781
Accounts payable		84,991			85,310			87,028
Payroll and related taxes		204,337			181,585			199,815
Accrued insurance		31,676			27,912			25,644
Income and other taxes		46,265			47,617			43,427
Total current liabilities		399,934			367,194			383,695
Noncurrent Liabilities
Accrued insurance		51,683			45,540			41,840
Accrued retirement benefits		43,962			40,335			37,992
Total noncurrent liabilities		95,645			85,875			79,832
Stockholders’ Equity
Common stock		40,116			40,116			40,116
Treasury stock		(116,412	)		(92,159	)		(92,324	)
Paid-in capital		18,404			17,902			17,873
Earnings invested in the business		658,381			665,759			661,980
Accumulated foreign currency adjustments		1,242			(12,554	)		(18,324	)
Total stockholders’ equity		601,731			619,064			609,321
Total Liabilities and Stockholders’ Equity	$	1,097,310		$	1,072,133		$	1,072,848
STATISTICS:
Working Capital	$	352,095		$	352,161		$	338,412
Current Ratio		1.9			2.0			1.9
Stockholders’ Equity Per Share	$	17.38		$	17.42		$	17.15
Global Days Sales Outstanding
Quarter		53			49			51
Year-to-date		55			51			54

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KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS

FOR THE 39 WEEKS ENDED SEPTEMBER 28, 2003 AND SEPTEMBER 29, 2002

(UNAUDITED)

(In thousands of dollars)

	2003			2002
Cash flows from operating activities
Net earnings	$	3,298		$	11,236
Noncash adjustments:
Depreciation and amortization		36,092			33,281
Increase in accounts receivable, net		(63,572	)		(39,368	)
Changes in other operating assets and liabilities		35,868			37,696
Net cash from operating activities		11,686			42,845
Cash flows from investing activities
Capital expenditures		(20,154	)		(20,027	)
Decrease (increase) in short-term investments		91			(3,670	)
(Increase) decrease in other assets		(2,282	)		6,705
Net cash from investing activities		(22,345	)		(16,992	)
Cash flows from financing activities
Increase (decrease) in short-term borrowings		5,562			(7,718	)
Dividend payments		(10,676	)		(10,739	)
Stock options and other		177			842
Purchase of treasury stock		(26,141	)		(13,177	)
Net cash from financing activities		(31,078	)		(30,792	)
Effect of exchange rates on cash and equivalents		1,639			1,841
Net change in cash and equivalents		(40,098	)		(3,098	)
Cash and equivalents at beginning of period		100,936			83,461
Cash and equivalents at end of period	$	60,838		$	80,363