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Index to Exhibits on page 12
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 October 1, 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 November 6, 1995, 34,414,227 shares of Class A and 3,598,657 shares of
Class B common stock of the Registrant were outstanding.
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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 11
Index to Exhibits Required by
Item 601, Regulation S-K 12
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KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands of dollars except per share items)
13 Weeks Ended 39 Weeks Ended
------------------------------ ------------------------------
Oct. 1, 1995 Oct. 2, 1994 Oct. 1, 1995 Oct. 2, 1994
------------- ------------- ------------- -------------
Sales of services $698,453 $630,196 $1,971,555 $1,731,200
Cost of services 555,968 505,668 1,574,374 1,395,135
-------- -------- ---------- ----------
Gross profit 142,485 124,528 397,181 336,065
Selling, general and
administrative expenses 111,125 95,070 323,219 271,605
-------- -------- ---------- ----------
Earnings from operations 31,360 29,458 73,962 64,460
Interest income 1,798 1,661 6,508 4,832
-------- -------- ---------- ----------
Earnings before income taxes 33,158 31,119 80,470 69,292
-------- -------- ---------- ----------
Income taxes:
Federal 10,285 9,440 25,180 20,960
State and other 2,500 2,390 5,995 5,390
-------- -------- ---------- ----------
Total income taxes 12,785 11,830 31,175 26,350
-------- -------- ---------- ----------
Net earnings $ 20,373 $ 19,289 $ 49,295 $ 42,942
======== ======== ========== ==========
Earnings per share $.54 $.51 $1.30 $1.13
Dividends per share $.20 $.18 $.58 $.52
Average shares outstanding
(thousands) 38,005 37,960 37,986 37,954
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KELLY SERVICES, INC. AND SUBSIDIARIES
BALANCE SHEETS AS OF OCTOBER 1, 1995 AND JANUARY 1, 1995
(UNAUDITED)
(In thousands of dollars)
ASSETS 1995 1994
- ------ ------------ ------------
CURRENT ASSETS:
Cash and equivalents $ 41,370 $ 49,207
Short-term investments 95,265 142,723
Accounts receivable, less
allowances of $8,265 and
$5,660, respectively 387,153 307,478
Prepaid expenses and other
current assets 26,126 27,018
--------- ---------
Total current assets 549,914 526,426
PROPERTY AND EQUIPMENT:
Land and buildings 35,106 34,044
Equipment, furniture and
leasehold improvements 115,480 90,868
Accumulated depreciation (69,235) (54,731)
--------- ---------
Total property and equipment 81,351 70,181
INTANGIBLES AND OTHER ASSETS 61,962 45,491
--------- ---------
TOTAL ASSETS $693,227 $642,098
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Accounts payable $ 40,320 $ 33,716
Payroll and related taxes 126,965 102,911
Accrued insurance 48,147 57,390
Income and other taxes 13,430 16,565
--------- ---------
Total current liabilities 228,862 210,582
--------- ---------
STOCKHOLDERS' EQUITY:
Capital stock, $1 par value 40,116 40,116
Treasury stock, 2,103 shares in
1995 and 2,153 shares in 1994,
respectively, at cost (6,330) (6,186)
Paid-in capital 7,170 5,868
Earnings invested in the business 423,409 391,718
--------- ---------
Total stockholders' equity 464,365 431,516
--------- ---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $693,227 $642,098
========= =========
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KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands of dollars)
13 Weeks Ended 39 Weeks Ended
---------------------------- -----------------------------
Oct. 1, 1995 Oct. 2, 1994 Oct. 1, 1995 Oct. 2, 1994
------------ ------------ ------------ ------------
Capital Stock
Class A common stock
Balance at beginning of period $ 36,511 $ 36,507 $ 36,507 $ 36,507
Conversions from Class B -- -- 4 --
--------- --------- --------- ---------
Balance at end of period 36,511 36,507 36,511 36,507
Class B common stock
Balance at beginning of period 3,605 3,609 3,609 3,609
Conversions to Class A -- -- (4) --
--------- --------- --------- ---------
Balance at end of period 3,605 3,609 3,605 3,609
Treasury Stock
Balance at beginning of period (6,181) (6,138) (6,186) (6,702)
Exercise of stock options (155) (45) (185) (10)
Restricted stock awards 6 -- 41 --
Treasury stock issued for acquisition -- -- -- 529
--------- --------- --------- ---------
Balance at end of period (6,330) (6,183) (6,330) (6,183)
Paid-in Capital
Balance at beginning of period 6,638 5,736 5,868 679
Exercise of stock options 475 82 948 336
Restricted stock awards 57 -- 354 --
Treasury stock issued for acquisition -- -- -- 4,803
--------- --------- --------- ---------
Balance at end of period 7,170 5,818 7,170 5,818
Earnings Invested in the Business
Balance at beginning of period 411,040 364,876 391,718 352,126
Net earnings 20,373 19,289 49,295 42,942
Cash dividends (7,603) (6,833) (22,036) (19,737)
Equity adjustment for foreign
currency translation (cumulative
credit of $3,024 in 1995 and
charge of $2,785 in 1994) (401) 1,727 4,432 3,728
--------- --------- --------- ---------
Balance at end of period 423,409 379,059 423,409 379,059
Stockholders' Equity at end of period $464,365 $418,810 $464,365 $418,810
========= ========= ========= =========
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KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE 39 WEEKS ENDED OCTOBER 1, 1995 AND OCTOBER 2, 1994
(In thousands of dollars)
1995 1994
---------- ----------
Cash flows from operating activities:
Net earnings $49,295 $42,942
Noncash adjustments:
Depreciation 14,504 13,140
Changes in certain working capital
components (58,049) (24,797)
-------- --------
Net cash from operating activities 5,750 31,285
-------- --------
Cash flows from investing activities:
Capital expenditures (24,931) (13,039)
Short-term investments 47,458 11,816
Increase in intangibles and other assets (15,236) (11,936)
-------- --------
Net cash from investing activities 7,291 (13,159)
-------- --------
Cash flows from financing activities:
Dividend payments (22,036) (19,737)
Exercise of stock options and
restricted stock awards 1,158 326
-------- --------
Net cash from financing activities (20,878) (19,411)
-------- --------
Net change in cash and equivalents (7,837) (1,285)
Cash and equivalents at beginning
of period 49,207 36,020
-------- --------
Cash and equivalents at end of period $41,370 $34,735
======== ========
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations:
Third Quarter
Sales of services in the third quarter of 1995 totaled $698,453,000, an
increase of 10.8% 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 and
management's continued challenging of low yielding, higher risk light
industrial business. International sales continued to grow at double
digit rates, with the United Kingdom and French companies posting
significant increases for the quarter.
Cost of services, consisting of payroll and related costs of employees
assigned to customers, increased 9.9% in the third quarter as compared
to the same period in 1994. Average hourly wages and related costs
increased almost 6% from 1994 due to inflation and a shift in business
mix toward higher margin service lines.
Gross profit of $142,485,000 was 14.4% higher than 1994 due to both
increased volume and gross profit rates which, combined, averaged 20.4%
compared to 19.8% 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 $111,125,000 in the
third quarter, an increase of 16.9% over the same period in 1994. As a
percent of sales, the spending rate averaged 15.9%, or .8 percentage
point over last year's third quarter. This increase resulted from
expected growth in business activity, increased national advertising
costs related to promoting the introduction of new customer products
and services, 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 $33,158,000, an increase of 6.6%,
compared to pretax earnings of $31,119,000 for the same period in 1994.
The pretax margin was 4.7%, a .2 percentage point decrease from the
third quarter of 1994. The increased rate of expense spending noted
above was the principal reason for the decline in the return on pretax
earnings.
Income taxes were 38.6% of pretax income, which was a .6 percentage
point increase over the applicable tax rate for the third 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.
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Net earnings were $20,373,000 in the third quarter of 1995, an increase
of 5.6% over the third quarter of 1994. Earnings per share were $.54
compared to the $.51 in the same period last year.
Year-to-Date
Sales of services totaled $1,971,555,000 during the first nine months
of 1995, an increase of 13.9% over 1994. This increase reflects
continued growth in the volume of domestic and especially international
sales, particularly in Europe. Sales of OK Personnel 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 $1,574,374,000 was 12.8% higher than last year,
reflecting volume growth, acquisitions, modest inflationary increases
in hourly payroll costs and a shift towards higher margin service
lines.
Gross profit increased 18.2% in 1995 due to increased sales volume,
acquisitions, and a rate of gross profit that averaged 20.1% for the
first nine months of 1995 compared to the 19.4% rate of 1994. This
change reflects the increased mix of business in higher margin service
lines such as office and technical, plus strong sales growth in
international operations.
Selling, general and administrative expenses of $323,219,000 were 19.0%
higher than last year, reflecting higher business activity, the
acquisition of new businesses and investments in new programs.
Earnings before taxes were $80,470,000, an increase of 16.1% over 1994.
These earnings averaged a pretax margin of 4.1%, or .1 percentage point
improvement over 1994. Income taxes were 38.7% of pretax earnings and
were .7 percentage point higher than last year's first nine months'
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 $49,295,000, or 14.8% higher than the first nine
months of 1994. Earnings per share were $1.30 compared to $1.13 last
year.
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Financial Condition
Assets totaled $693,227,000 at October 1, 1995, an increase of 8% over
the $642,098,000 at January 1, 1995. Working capital increased
$5,208,000 during the nine-month period. The current ratio was 2.4 at
October 1, 1995, a decline of .1 percentage point since January 1.
Increased business activity and capital expenditures, including the
acquisition of The Wallace Law Registry, Inc. during the second quarter
of 1995, 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 $.20 per share in the third quarter of 1995.
This compares to a dividend rate of $.18 per share in the third 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.
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PART II. OTHER INFORMATION
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: November 10, 1995
/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
---------------------
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
5
9-MOS
DEC-31-1995
OCT-01-1995
41,370
95,265
395,418
8,265
0
549,914
150,586
69,235
693,227
228,862
0
40,116
0
0
424,249
693,227
0
1,971,555
0
1,574,374
0
0
0
80,470
31,175
49,295
0
0
0
49,295
1.30
0
