Index to Exhibits on page 12
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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 July 3, 1994
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 August 8, 1994, 34,355,816 shares of Class A and 3,603,124 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
Note to Financial Statements 7
Management's Discussion and
Analysis of Results of
Operations and Financial
Condition 8
PART II. OTHER INFORMATION 10
Signature 11
Index to Exhibits Required by
Item 601, Regulation S-K 12
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KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF EARNINGS
(In thousands of dollars except per share items)
13 Weeks Ended 26 Weeks Ended
----------------------------- ------------------------------
July 3, 1994 July 4, 1993 July 3, 1994 July 4, 1993
------------- ------------ ------------ ------------
Sales of services $570,813 $482,034 $1,101,004 $932,688
Cost of services 461,093 388,906 889,467 753,630
--------- --------- ----------- ---------
Gross profit 109,720 93,128 211,537 179,058
Selling, general and
administrative expenses 88,111 79,178 176,535 156,374
--------- --------- ----------- ---------
Earnings from operations 21,609 13,950 35,002 22,684
Interest income 1,666 1,739 3,171 3,704
--------- --------- ----------- ---------
Earnings before income taxes 23,275 15,689 38,173 26,388
--------- --------- ----------- ---------
Income taxes:
Federal 7,000 4,345 11,520 7,320
State and other 1,855 1,335 3,000 2,180
--------- --------- ----------- ---------
Total income taxes 8,855 5,680 14,520 9,500
--------- --------- ----------- ---------
Net earnings $ 14,420 $ 10,009 $ 23,653 $ 16,888
========= ========= =========== =========
Earnings per share $.38 $.27 $.62 $.45
Dividends per share $.18 $.16 $.34 $.312
Average shares outstanding
(thousands) 37,955 37,723 37,951 37,721
See accompanying Note to Financial Statements.
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KELLY SERVICES, INC. AND SUBSIDIARIES
BALANCE SHEETS AS OF JULY 3, 1994 AND JANUARY 2, 1994
(In thousands of dollars)
ASSETS 1994 1993
- ------ ------------ ------------
CURRENT ASSETS:
Cash and equivalents $ 42,791 $ 36,020
Short-term investments (at cost
which approximates market) 144,787 144,988
Accounts receivable, less
allowances of $5,595 and
$4,735, respectively 280,366 248,161
Prepaid expenses and other
current assets 17,639 17,881
--------- ---------
Total current assets 485,583 447,050
PROPERTY AND EQUIPMENT:
Land and buildings 30,932 29,882
Equipment, furniture and
leasehold improvements 89,276 82,227
Accumulated depreciation (52,430) (43,827)
--------- ---------
Total property and equipment 67,778 68,282
OTHER ASSETS 33,948 26,768
--------- ---------
TOTAL ASSETS $587,309 $542,100
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Accounts payable $ 23,799 $ 24,621
Payroll and related taxes 94,161 68,451
Accrued insurance 55,547 51,841
Income and other taxes 9,212 10,968
--------- ---------
Total current liabilities 182,719 155,881
--------- ---------
STOCKHOLDERS' EQUITY:
Capital stock, $1 par value 40,116 40,116
Treasury stock, 2,157 shares in
1994 and 2,361 shares in 1993,
respectively, at cost (6,138) (6,702)
Paid-in capital 5,736 679
Earnings invested in the business 364,876 352,126
--------- ---------
Total stockholders' equity 404,590 386,219
--------- ---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $587,309 $542,100
========= =========
See accompanying Note to Financial Statements.
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KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands of dollars)
13 Weeks Ended 26 Weeks Ended
---------------------------- ----------------------------
July 3, 1994 July 4, 1993 July 3, 1994 July 4, 1993
------------ ------------ ------------ ------------
Capital Stock
Class A common stock
Balance at beginning of period $ 36,507 $ 29,206 $ 36,507 $ 29,195
Five-for-four stock split -- 7,301 -- 7,301
Conversions from Class B -- -- -- 11
--------- --------- --------- ---------
Balance at end of period 36,507 36,507 36,507 36,507
Class B common stock
Balance at beginning of period 3,609 2,887 3,609 2,898
Five-for-four stock split -- 722 -- 722
Conversions to Class A -- -- -- (11)
--------- --------- --------- ---------
Balance at end of period 3,609 3,609 3,609 3,609
Treasury Stock
Balance at beginning of period (6,153) (6,696) (6,702) (6,736)
Exercise of stock options 15 (4) 35 36
Treasury stock issued for acquisition -- -- 529 --
--------- --------- --------- ---------
Balance at end of period (6,138) (6,700) (6,138) (6,700)
Paid-in Capital
Balance at beginning of period 5,628 3,947 679 3,629
Exercise of stock options 108 18 254 336
Five-for-four stock split -- (3,965) -- (3,965)
Treasury stock issued for acquisition -- -- 4,803 --
--------- --------- --------- ---------
Balance at end of period 5,736 -- 5,736 --
Earnings Invested in the Business
Balance at beginning of period 355,219 339,856 352,126 338,273
Net earnings 14,420 10,009 23,653 16,888
Cash dividends (6,832) (6,035) (12,904) (11,769)
Five-for-four stock split -- (4,058) -- (4,058)
Fractional shares paid -- (18) -- (18)
Equity adjustment for foreign
currency translation (cumulative
charge of $4,512 in 1994 and
$4,559 in 1993) 2,069 (1,268) 2,001 (830)
--------- --------- --------- ---------
Balance at end of period 364,876 338,486 364,876 338,486
Stockholders' Equity at end of period $404,590 $371,902 $404,590 $371,902
========= ========= ========= =========
See accompanying Note to Financial Statements.
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KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE 26 WEEKS ENDED JULY 3, 1994 AND JULY 4, 1993
(In thousands of dollars)
1994 1993
---------- ----------
Cash flows from operating activities:
Net earnings $23,653 $16,888
Noncash adjustments:
Depreciation 8,603 8,013
Changes in certain working capital
components (4,018) (24,740)
-------- --------
Net cash from operating activities 28,238 161
-------- --------
Cash flows from investing activities:
Capital expenditures (7,759) (5,721)
Short-term investments 201 18,999
Increase in other assets (1,294) (1,953)
-------- --------
Net cash from investing activities (8,852) 11,325
-------- --------
Cash flows from financing activities:
Dividend payments (12,904) (11,769)
Exercise of stock options 289 372
Fractional shares paid -- (18)
-------- --------
Net cash from financing activities (12,615) (11,415)
-------- --------
Net change in cash and equivalents 6,771 71
Cash and equivalents at beginning
of period 36,020 29,700
-------- --------
Cash and equivalents at end of period $42,791 $29,771
======== ========
See accompanying Note to Financial Statements.
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KELLY SERVICES, INC. AND SUBSIDIARIES
NOTE TO FINANCIAL STATEMENTS
Acquisition
- -----------
In January, 1994, the Company acquired all outstanding stock of Your
Staff, Inc., an employee leasing company, through the issuance of Class
A common stock shares from treasury. The acquisition has been
accounted for using the purchase method of accounting and therefore the
accompanying financial statements include the accounts of Your Staff,
Inc. since the date of acquisition. Pro forma results of the
acquisition, assuming it had been made at the beginning of each period
presented, would not be materially different from the results reported.
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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 1994 totaled $570,813,000,
an increase of 18.4% from the same period in 1993. This increase
reflected a growth in both domestic and international sales and the
inclusion of recent acquisitions.
Cost of services, consisting of payroll and related costs of temporary
employees, increased 18.6% in the second quarter as compared to the
same period in 1993. Average hourly payroll costs increased 5% over
1993 due to inflation and business mix.
The gross profit rate of 19.2% in the second quarter was .1 percentage
point lower than the previous year, down slightly with the inclusion of
lower margin employee leasing operations this year. Continued
improvement in U.S. temporary help margins since the middle of last
year has helped to offset pricing pressures in certain European
countries.
Selling, general, and administrative expenses of $88,111,000 in the
second quarter increased 11.3% from the same period in 1993. This
increase was due to the higher level of business activity, new programs
and operating expenses incurred by new acquisitions.
Earnings before taxes were $23,275,000, an increase of 48.4% compared
to the pretax earnings for the same period in 1993. The pretax margin
was 4.1% compared to 3.3% in the second quarter of 1993. Income taxes
as a percentage of pretax earnings were 38.0%, 1.8 percentage points
more than the rate applicable to the second quarter of 1993. The 1994
rate reflected the impact of the statutory increase in the corporate
tax rate which was enacted in 1993, as well as reduced tax exempt
investment income.
Net earnings were $14,420,000 in the second quarter of 1994, compared
to $10,009,000 in 1993, an increase of 44.1%. Earnings per share
were $.38 compared to the $.27 earned in the same period last year.
Year-to-Date
Sales of services totaled $1,101,004,000 an increase of 18.0% from 1993
sales. This increase reflects a continued improvement in
year-over-year sales performance and acquisitions.
Cost of services of $889,467,000 was 18.0% higher than last year,
reflecting growth in hours volume and inflationary increases in payroll
costs during the year.
The gross profit rate was 19.2% for both years.
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Selling, general, and administrative expenses of $176,535,000 were
12.9% higher than last year, reflecting greater business acivity and
continuing investment in domestic and overseas markets.
Earnings before taxes were $38,173,000, a 44.7% increase from last
year. The pretax margin was 3.5%, an increase of .7 percentage point
from last year. Income taxes as a percentage of pretax earnings were
38.0%, 2 percentage points higher than the rate applicable to last
year, reflecting the impact of the statutory increase in the corporate
tax rate enacted in 1993.
Net earnings were $23,653,000 which was 40.1% over 1993. Earnings per
share were $.62 as compared to $.45 in 1993.
Financial Condition
Assets totaled $587,309,000 at July 3, 1994, an increase of 8% over the
$542,100,000 at January 2, 1994. Working capital increased $7,977,000
in the second quarter and $11,695,000 since the 1993 year-end.
The quarterly dividend rate applicable to Class A and Class B shares
outstanding was $.18 and $.16 per share in the second quarters of 1994
and 1993, respectively.
The Company believes it is in a sound financial position to fully meet
its current working capital needs and its longer term capital
requirements.
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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 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., Kelly de
Mexico, S.A. de C.V., Kelly Services Norge A.S., KSI Acquisition Corp.,
Mentrix Corporation and Your Staff, 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.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
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(a) The annual meeting of stockholders of registrant was held
May 18, 1994.
(b) The nominees for director, as listed in the Company's
proxy statement dated April 8, 1994, 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"
------------ ------------
C. V. Fricke 3,474,415 891
V. G. Istock 3,474,415 891
(2) Ratification of the selection of Price Waterhouse as
the Company's independent auditors:
Shares voted "For" 3,473,661
Shares voted "Abstaining" 1,645
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 12 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: August 15, 1994
/s/ R. F. Stoner
R. F. Stoner
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
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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.)
