Index to Exhibits on page 11
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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.
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(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
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(Address of principal executive offices)
(Zip Code)
(810) 362-4444
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(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 May 6, 1996, 34,449,007 shares of Class A and 3,583,605 shares of Class B
common stock of the Registrant were outstanding.
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KELLY SERVICES, INC. AND SUBSIDIARIES
Page
Number
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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 9
Signature 10
Index to Exhibits Required by
Item 601, Regulation S-K 11
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KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands of dollars except per share items)
13 Weeks Ended
------------------------------
March 31, 1996 April 2, 1995
------------- -------------
Sales of services $733,931 $620,685
Cost of services 596,245 498,667
-------- --------
Gross profit 137,686 122,018
Selling, general and
administrative expenses 117,738 104,305
-------- --------
Earnings from operations 19,948 17,713
Interest income 1,545 2,389
-------- --------
Earnings before income taxes 21,493 20,102
-------- --------
Income taxes:
Federal 6,785 6,390
State and other 1,805 1,450
-------- --------
Total income taxes 8,590 7,840
-------- --------
Net earnings $ 12,903 $ 12,262
======== ========
Earnings per share $.34 $.32
Dividends per share $.20 $.18
Average shares outstanding
(thousands) 38,016 37,967
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KELLY SERVICES, INC. AND SUBSIDIARIES
BALANCE SHEETS AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
(In thousands of dollars)
ASSETS 1996 1995
- ------ ------------ ------------
CURRENT ASSETS:
Cash and equivalents $ 62,341 $ 52,811
Short-term investments 76,291 74,737
Accounts receivable, less
allowances of $9,870 and
$6,950, respectively 413,392 397,534
Prepaid expenses and other
current assets 33,706 33,520
--------- ---------
Total current assets 585,730 558,602
PROPERTY AND EQUIPMENT:
Land and buildings 35,134 35,153
Equipment, furniture and
leasehold improvements 116,237 113,521
Accumulated depreciation (68,077) (64,286)
--------- ---------
Total property and equipment 83,294 84,388
INTANGIBLES AND OTHER ASSETS 76,178 75,697
--------- ---------
TOTAL ASSETS $745,202 $718,687
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Accounts payable $ 51,310 $ 53,013
Payroll and related taxes 133,905 118,996
Accrued insurance 52,918 51,309
Income and other taxes 26,840 19,265
--------- ---------
Total current liabilities 264,973 242,583
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STOCKHOLDERS' EQUITY:
Capital stock, $1 par value 40,116 40,116
Treasury stock, 2,097 shares in
1996 and 2,101 shares in 1995,
respectively, at cost (6,314) (6,327)
Paid-in capital 7,324 7,215
Earnings invested in the business 439,103 435,100
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Total stockholders' equity 480,229 476,104
--------- ---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $745,202 $718,687
========= =========
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KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands of dollars)
13 Weeks Ended
----------------------------
March 31, 1996 April 2, 1995
------------- -------------
Capital Stock
Class A common stock
Balance at beginning of period $ 36,512 $ 36,507
Conversions from Class B -- 3
--------- ---------
Balance at end of period 36,512 36,510
Class B common stock
Balance at beginning of period 3,604 3,609
Conversions to Class A -- (3)
--------- ---------
Balance at end of period 3,604 3,606
Treasury Stock
Balance at beginning of period (6,327) (6,186)
Exercise of stock options 9 (30)
Restricted stock awards 4 --
--------- ---------
Balance at end of period (6,314) (6,216)
Paid-in Capital
Balance at beginning of period 7,215 5,868
Exercise of stock options 72 342
Restricted stock awards 37 --
--------- ---------
Balance at end of period 7,324 6,210
Earnings Invested in the Business
Balance at beginning of period 435,100 391,718
Net earnings 12,903 12,262
Cash dividends (7,603) (6,834)
Equity adjustment for foreign
currency translation (cumulative
credits of $824 in 1996 and
$4,038 in 1995) (1,297) 5,446
--------- ---------
Balance at end of period 439,103 402,592
--------- ---------
Stockholders' Equity at end of period $480,229 $442,702
========= =========
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KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE 13 WEEKS ENDED MARCH 31, 1996 AND APRIL 2, 1995
(In thousands of dollars)
1996 1995
---------- ----------
Cash flows from operating activities:
Net earnings $12,903 $12,262
Noncash adjustments:
Depreciation and amortization 6,440 5,138
Changes in certain working capital
components 5,752 18,515
-------- --------
Cash from operating activities 25,095 35,915
-------- --------
Cash flows from investing activities:
Capital expenditures (4,888) (4,518)
Proceeds from sales and maturities of
short-term investments 333,018 301,744
Purchases of short-term investments (334,572) (314,461)
Increase in intangibles and other assets (1,642) (677)
-------- --------
Net cash from investing activities (8,084) (17,912)
-------- --------
Cash flows from financing activities:
Dividend payments (7,603) (6,834)
Exercise of stock options and
restricted stock awards 122 312
-------- --------
Net cash from financing activities (7,481) (6,522)
-------- --------
Net change in cash and equivalents 9,530 11,481
Cash and equivalents at beginning
of period 52,811 49,207
-------- --------
Cash and equivalents at end of period $62,341 $60,688
======== ========
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations:
First Quarter
Sales of services in the first quarter of 1996 were $733,931,000, an
increase of 18.2% over the same period in 1995. Domestic sales grew
17%, reflecting growth in the traditional staffing business and
significant expansion in our staff leasing services. International
sales continued to grow at double digit rates.
Cost of services, consisting of payroll and related costs of employees
assigned to customers, increased 19.6% in the first quarter as compared
to the same period in 1995. Average hourly wages and related costs
from U.S. operations increased 8% from 1995 due to a tightening labor
market.
Gross profit of $137,686,000 was 12.8% higher than 1995, while the
Company-wide gross profit rate declined from 19.7% in 1995 to 18.8% in
1996. Growth in the staff leasing business, with its inherently lower
margins, along with the upward pressure on wage rates noted above and
growth of sales with our very large customers, where contracts require
special pricing and additional implementation costs, all had the effect
of reducing the consolidated gross profit rate.
Selling, general and administrative expenses were $117,738,000 in the
first quarter, an increase of 12.9% over the same period in 1995. As a
percent of sales, the spending rate averaged 16.0%, or .8 percentage
point below last year's first quarter.
Earnings before income taxes were $21,493,000, an increase of 6.9%
compared to pre-tax earnings of $20,102,000 for the same period in
1995. The pre-tax margin was 2.9%, a .3 percentage point decrease from
the first quarter of 1995. Lower interest income represented .2
percentage point of the decline while the net of lower gross margins
and lower expense spending accounted for the remaining .1 percentage
point of the decrease.
Income taxes were 40% of pre-tax income. This was one percentage point
over the applicable tax rate for the first quarter of 1995 due to
increased state tax rates, reduced tax-exempt income and the expiration
of tax credits earned through the targeted jobs tax credit program.
Net earnings were $12,903,000 in the first quarter of 1996, an increase
of 5.2% over the first quarter of 1995. Earnings per share were $.34
compared to the $.32 in the same period last year.
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Financial Condition
Assets totaled $745,202,000 at March 31, 1996, an increase of 3.7% over
the $718,687,000 at December 31, 1995. Working capital increased
$4,738,000 during the three-month period. The current ratio was 2.2 at
March 31, 1996, a decline of .1 percentage point since December 31,
1995. Increased business activity during the first quarter of 1996
accounted for the change.
The quarterly dividend rate applicable to Class A and Class B shares
was $.20 and $.18 per share in the first quarters of 1996 and 1995,
respectively.
Management believes the financial condition of the Company continues to
be strong, which enables it to fund working capital requirements and
long-term growth opportunities from internal resources.
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Companies for which this report is filed are: Kelly Services, Inc. and
its subsidiaries, Kelly Assisted Living Services, Inc., Kelly
Properties, Inc., Kelly Professional and Technical Services, Inc.,
Kelly Services (Canada), Ltd., 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., The Wallace Law Registry, Inc.,
Kelly Services France S.A., Bourse Du Travail Temporaire 2000, Kelly
Formation S.A.R.L. and Kelly Services Luxembourg S.A.R.L.
The information furnished reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results
of operations for the period in this filing.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
Reference is made to Item 3, Legal Proceedings, of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and to the description therein of the
imposition by the Internal Revenue Service of an
accumulated earnings tax in connection with an audit of
the Company's consolidated federal tax liability. In
April, 1996, this assessment was waived in its entirety
by the Internal Revenue Service.
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 11 of this filing.
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
KELLY SERVICES, INC.
Date: May 14, 1996
/s/ P. K. Geiger
P. K. Geiger
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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INDEX TO EXHIBITS
REQUIRED BY ITEM 601,
REGULATION S-K
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Exhibit
No. Description Document
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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