Index to Exhibits on page 26
-1-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
__X__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 29, 1996
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________________ to _____________________
Commission file number 0-1088
_________________KELLY SERVICES, INC._________________
(Exact Name of Registrant as specified in its Charter)
________Delaware________ __________38-1510762________
(State of Incorporation) (IRS Employer Identification
Number)
___999 West Big Beaver Road, Troy, Michigan___ ____48084___
(Address of Principal Executive Office) (Zip Code)
___________________(810) 362-4444___________________
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class A Common NASDAQ/NMS
Class B Common NASDAQ/NMS
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 _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. __X__
The aggregate market value of the Class B common stock, par value $1.00, the
only class of the registrant's securities with voting rights, held by
non-affiliates of the registrant on March 14, 1997, was $10,172,400 based upon
the closing price of $28.00 per share.
Registrant had 34,480,715 shares of Class A and 3,581,924 of Class B
common stock, par value $1.00, outstanding as of March 14, 1997.
Documents Incorporated by Reference
The proxy statement of the registrant with respect to the 1997 Annual Meeting
of Stockholders is incorporated by reference in Part III.
Dated: March 25, 1997
-2-
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) General Development of Business. Registrant, a successor to the
business established by William R. Kelly in 1946, was incorporated under the
laws of Delaware on August 27, 1952. Throughout its existence, registrant has
been engaged in the temporary help service business. During the last fiscal
year, registrant continued to provide temporary help services and other
staffing and human resources services to a diversified group of customers.
(b) Financial Information about Industry Segments. Registrant operates
in a single industry segment of providing temporary help services. The
financial information concerning registrant is included in Item 8 in Part II of
this filing.
(c) Narrative Description of Business.
(i) Principal Services Rendered. Registrant, and its subsidiaries,
which are service organizations, provide temporary office clerical, marketing,
professional, technical, light industrial, home care services (to those who
need help with their daily living needs and personal care), management services
and other business services to a diversified group of customers through offices
located in major cities of the United States, Australia, Canada, Denmark,
France, Ireland, Italy, Luxembourg, Mexico, the Netherlands, New Zealand,
Norway, Russia, Spain, Switzerland and United Kingdom. These services are
generally furnished under the name of Kelly Temporary Services, with the
following specific services provided: office clerical, marketing,
professional, technical, semi-skilled light industrial and management services.
Staff leasing services are provided under the name of Your Staff, a wholly
owned subsidiary of the registrant. Home care services to those who need help
with their daily living needs and personal care are furnished under the name of
Kelly Assisted Living Services, Inc., which is a wholly owned subsidiary of
registrant. Legal staffing services are provided under the name of The Wallace
Law Registry, a wholly owned subsidiary of the registrant. Registrant performs
these services through its temporary employees by assigning them to work on the
premises of registrant's customers.
The temporary services furnished by registrant afford economies and
flexibility in meeting uneven or peak work loads caused by such predictable
factors as vacations, inventories, month-end activities, special projects or
new promotions and such non-predictable factors as illnesses or emergencies.
When work peaks occur which cannot be handled by the customer's normal staff,
the customer can temporarily supplement regular personnel by the use of
registrant's services. The cost and inconvenience to the customer of hiring
additional employees, including advertising, interviewing, screening, testing
and training are eliminated. Also, recordkeeping is simplified because the
customer pays an hourly rate, based on hours of service furnished by
registrant.
Registrant serves a wide cross-section of customers from industry,
commerce, the professions, government, and individuals. During recent years
approximately 215,000 customers, including the largest corporations in the
world, use the registrant's services. There have been no significant
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changes in the services rendered or in the markets or methods of distribution
since the beginning of registrant's fiscal year.
Registrant operates through approximately 1,500 domestic and foreign
offices located in all 50 states, the District of Columbia and Puerto Rico; and
Australia, Canada, Denmark, France, Ireland, Italy, Luxembourg, Mexico, the
Netherlands, New Zealand, Norway, Russia, Spain, Switzerland and United
Kingdom. Each office provides the services of one or more of the divisions or
subsidiaries and are operated directly by the registrant.
(ii) New Services. There are no new industry segments that the
registrant is planning to enter or new service areas that will require a
material investment of assets.
(iii) Raw Materials. Registrant is involved in a service business and
raw materials are nonexistent in the business.
(iv) Service Marks. Registrant is the owner of numerous service marks,
which are registered with the United States Patent and Trade Mark Office and in
foreign countries.
(v) Seasonal Business Implications. Registrant's business is not
seasonal.
(vi) Working Capital. Registrant believes there are no unusual or
special working capital requirements in the temporary help industry.
(vii) Customers. The business of registrant and its subsidiaries is not
dependent upon either a single customer or a limited number of customers.
(viii) Backlog. Backlog of orders is not material to the business of
registrant.
(ix) Government Contracts. Although registrant conducts business under
various government contracts, that portion of registrant's business is not
significant.
(x) Competition. Registrant is one of the largest global suppliers of
temporary help services. In the United States, there are less than 100
national competitors, and approximately 20,000 organizations locally compete in
varying degrees in different localities where registrant operates local
offices. In foreign markets there are several similar levels of global,
national and local competitors. The most significant competitive factors
worldwide are geographic coverage, breadth of service, service quality and
price.
(xi) Research Activities. Registrant's expenditure for research and the
number of people involved are not material.
(xii) Environmental Matters. Registrant is involved in a service
business and is not affected by federal, state and local provisions regulating
the discharge of materials into the environment.
-4-
(xiii) Employees. Registrant and subsidiaries employ on a full time basis
approximately 1,100 persons at its headquarters in Troy, Michigan, and
approximately 5,000 persons in branch offices operated directly by registrant.
Registrant employed in the last fiscal year approximately 686,000 men and women
for temporary periods. As the employer, registrant is responsible for and pays
Social Security and Medicare taxes, workers' compensation, federal and state
unemployment compensation taxes, liability insurance and other similar costs,
and is responsible for payroll deductions of Social Security, Medicare and
income taxes. Although the work may be done in the office of the registrant's
customer, registrant remains the employer of its temporary employees with
responsibility for their assignment and reassignment.
(d) Foreign Operations. For information regarding sales, earnings from
operations and identifiable assets by domestic and foreign operations,
reference is made to the information presented in the Summary of Significant
Accounting Policies note to the consolidated financial statements presented in
Item 8 in Part II of this report.
ITEM 2. PROPERTIES.
Registrant owns the premises in Troy, Michigan, from which its
headquarters, subsidiaries and divisional offices are presently operated.
Registrant purchased the original headquarters building in Troy, Michigan, in
1977 and has expanded operations into an adjacent building that was purchased
in 1991. The combined floor space for the headquarters complex approximates
214,000 square feet, plus leased space nearby of 103,000 square feet. The
buildings are in good condition, are considered to be adequate for the uses to
which they are being put and are in regular use. In addition, registrant owns
vacant land in Troy and northern Oakland County, Michigan, for future
expansion. Registrant's branch offices are conducted from premises which are
leased. A majority of the leases are for fixed terms, from one to five years.
Registrant owns virtually all office furniture and equipment used in its
headquarters building and branch offices.
ITEM 3. LEGAL PROCEEDINGS.
In 1992 the Internal Revenue Service (IRS) proposed the imposition of an
accumulated earnings tax totaling $49 million for 1988, 1989 and 1990 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 IRS.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders in the
fourth quarter of 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
Kelly Services' stock is traded over-the-counter in the NASDAQ National
Market System (NMS). The high and low selling prices for the Class A common
stock and Class B common stock as quoted by the National Association of
Securities Dealers, Inc. and the dividends paid on the common stock for each
quarterly period in the last two fiscal years are reported below:
Per share amounts (in dollars)
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -------
1996
- ----
Stock Prices
Class A common
High . . . . . . . . $32 1/2 $32 1/2 $31 3/4 $30 1/4 $32 1/2
Low . . . . . . . . 26 28 3/4 26 25 1/4 25 1/4
Class B common
High . . . . . . . . 32 32 34 31 34
Low . . . . . . . . 30 30 31 29 29
Dividends. . . . . . . . .20 .21 .21 .21 .83
1995
- ----
Stock Prices
Class A common
High . . . . . . . . $37 $36 3/4 $31 3/4 $28 1/2 $37
Low . . . . . . . . 26 1/2 25 1/4 25 5/8 24 1/2 24 1/2
Class B common
High . . . . . . . . 34 34 31 1/2 29 34
Low . . . . . . . . 27 1/4 30 31 1/2 28 27 1/4
Dividends. . . . . . . . .18 .20 .20 .20 .78
The number of holders of record of the Class A and Class B common stock, par
value $1.00, of registrant were 1,168 and 259 respectively, as of
March 14, 1997.
-6-
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes selected financial information of Kelly
Services, Inc. and its subsidiaries for each of the most recent six fiscal
years. This table should be read in conjunction with other financial
information of the registrant including "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and financial statements
included elsewhere herein.
(In millions except (1)
per share amounts) 1996 1995 1994 1993 1992 1991
- ------------------- ---- ---- ---- ---- ---- ----
Sales of services . . . . $3,302.3 $2,689.8 $2,362.6 $1,954.5 $1,712.7 $1,424.3
Earnings before taxes . . 122.9 113.3 98.5 70.9 61.0 60.2
Net earnings. . . . . . . 73.0 69.5 61.1 44.6 39.2 38.6
Per share data:
Earnings . . . . . . . $ 1.92 $ 1.83 $ 1.61 $ 1.18 $ 1.04 $ 1.03
Dividends . . . . . . .
Class A common. . . . .83 .78 .70 .63 .58 .57
Class B common. . . . .83 .78 .70 .63 .58 .57
Working capital . . . . . $ 336.6 $ 316.0 $ 315.8 $ 291.2 $ 279.8 $ 287.0
Total assets. . . . . . . 838.9 718.7 642.4 542.1 496.1 479.4
(1) Fiscal year included 53 weeks.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
1996 versus 1995
Sales reached a record level of $3.3 billion in 1996, an increase of 23%
over 1995. Domestic sales grew 23% and foreign sales 24%. Foreign sales
accounted for over 19% of total company sales.
Cost of services, representing payroll and related taxes and benefits for
temporary employees, increased 25%. Increases in pay rates, payroll taxes and
other direct costs accounted for these changes. Overall, the percentage of
gross profit to sales decreased to 18.6% in 1996 from 20.1% in 1995. A major
factor influencing the decrease was competitive conditions worldwide,
including reduced margins on large national contracts and staff leasing.
Selling, general and administrative expenses increased 13% over 1995. The
increase reflects normal growth, including opening and equipping new offices.
As a percentage of sales, expenses decreased to 14.9%, from 16.2% in 1995.
-7-
Earnings from operations in 1996 were $121 million, a new record for the
Company, and an increase of 14% over 1995. These earnings were 3.7% of sales,
compared to 4.0% in 1995.
Interest income declined to $4.2 million in 1996 from $8.2 million in
1995. This decline was the result of the need for cash to be used for
operating activities, including capital expenditures.
Interest expense, which grew from $1.2 million in 1995 to $2.2 million in
1996, was related to short-term borrowings in Europe to finance business
expansion and operations.
Earnings before income taxes were a record $122.9 million, an increase of
8% over 1995. Pre-tax margins as a percentage of sales were 3.7% in 1996
and 4.2% in 1995. Income taxes increased 14% over 1995 with an effective tax
rate of 40.6% of pre-tax income. The current tax rate rose primarily as a
result of reduced tax exempt income, the expiration of the targeted jobs tax
credit and higher foreign taxes.
Net earnings were a record $73.0 million in 1996, 5% higher than the 1995
results of $69.5 million. The rate of return on sales was 2.2% in 1996 and
2.6% in 1995. Earnings per share were $1.92, a 5% increase over the $1.83 per
share earned in 1995.
1995 versus 1994
Sales reached a record level of $2.69 billion in 1995, an increase of 14%
over 1994. International sales grew most rapidly, accounting for 19% of total
company sales, up from 15% in 1994.
Cost of services, representing payroll and related taxes and benefits for
temporary employees, increased 13%. Increases in pay rates, payroll taxes and
other direct costs accounted for these changes. Overall, the percentage of
gross profit to sales increased to 20.1% in 1995 from 19.6% in 1994.
Selling, general and administrative expenses increased 17% over 1994. As
a percentage of sales, expenses increased to 16.2%, up from 15.7% in 1994.
The increase principally reflects the opening of new offices, the effect of
acquired companies for full years and normal growth.
Earnings from operations in 1995 totaled $106 million, a new record for
the Company, and an increase of 15% over 1994. These earnings were 4.0% of
sales, compared to 3.9% in 1994.
Interest income increased to $8.2 million in 1995 which was 22% higher
than the $6.7 million earned in 1994. The increase resulted from higher rates
of return on investments. Interest expense, which related to short-term
borrowings in Europe, increased from $ .3 million to $1.2 million.
Earnings before income taxes were a record $113.3 million, an increase of
15% over 1994. Pre-tax margins as a percentage of sales were 4.2% in both
years. Income taxes increased 17% over 1994 with an effective tax rate of
38.7% of pre-tax income. The current tax rate rose primarily as a result of
higher state and local taxes and higher foreign tax rates.
-8-
Net earnings were $69.5 million in 1995, 14% higher than the 1994 results
of $61.1 million. The rate of return on sales was 2.6% in both 1995 and 1994.
Earnings per share were $1.83, a 14% increase over the $1.61 per share earned
in 1994.
Liquidity and Capital Resources
In 1996, strong sales increases including a significant growth in
business with large national and international customers (generally with
longer payment cycles) resulted in a 39% increase in trade accounts receivable
over 1995. This increase, investments to expand and improve the worldwide
branch network, business acquisitions and dividends were financed through
operations, investing and financing activities. Lines of credit with banks
have been utilized to finance short term needs of foreign subsidiaries. At
the end of 1996, the amounts due under these lines were $42 million, up from
$16 million in 1995 and $9 million in 1994. In 1995 and 1994, cash was
directed primarily toward purchases of equipment, dividends and the
acquisitions of businesses.
The Company's working capital of $337 million in 1996 increased $21
million over 1995 and 1994. The current ratio was 2.0 in 1996, 2.3 in 1995
and 2.5 in 1994. The current ratios have declined over this period due
principally to the use of current assets to finance continued business
expansion, including the acquisition of businesses and additional properties.
Stockholders' equity grew 9% in 1996 following growth of 10% in 1995 and
12% in 1994. The return on average stockholders' equity was 14.7% in 1996,
15.3% in 1995 and 14.9% in 1994. Dividends paid per share were $.83 in 1996,
an increase of 6% over the $.78 per share paid in 1995.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this Item are
set in the accompanying index on page 12 of this filing and are presented in
pages 13-25.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
PART III
Information required by Part III with respect to Directors and Executive
Officers of the registrant, except as set forth under the title "Executive
Officers of the Registrant" which is included on page 9, (Item 10), Executive
Compensation (Item 11), Security Ownership of Certain Beneficial Owners and
Management (Item 12), and Certain Relationships and Related Transactions (Item
13) is to be included in a definitive proxy statement filed by the registrant
not later than 120 days after the close of its fiscal year and such proxy
statement, when filed, is incorporated herein by reference.
-9-
ITEM 10
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
Served as an Business Experience
Name/Office Age Officer Since (2) During Last 5 Years
- ------------------------ ---------------- ----------------- --------------------------------
William R. Kelly 91 1952 Served as officer of registrant.
Chairman of the Board
Terence E. Adderley (1) 63 1961 Served as officer of registrant.
President and Chief
Executive Officer
Robert G. Barranco 56 1989 Served as officer of registrant
Executive Vice President or one of its operating
divisions.
Carl T. Camden 42 1995 Served as officer of registrant
Executive Vice President (3) since April, 1995. From 1993
served as Senior Vice President
at Society Management Company,
the parent of Key Bank and
Society Bank Groups. Prior
thereto, served as Co-President
of Wyse Advertising.
Paul K. Geiger 63 1993 Served as officer of registrant
Senior Vice President and since April, 1993. Prior
Chief Financial Officer thereto, served as
Vice President and Chief
Financial Officer of the
University of Detroit Mercy.
Eugene L. Hartwig 63 1990 Served as officer of registrant.
Senior Vice President,
General Counsel and
Secretary
Robert E. Thompson 54 1982 Served as officer of registrant.
Executive Vice President
Tommi A. White 46 1993 Served as officer of registrant
Executive Vice President (3) since November, 1993. From
1992, served as Vice President
of Automated Data Processing.
Prior thereto, served as Chief
Information Officer at Skandia
Direct Operations Corporation.
(1) Mr. Adderley is Mr. William R. Kelly's son.
(2) Each officer serves continuously until removed by the Board of Directors.
(3) Effective April 1, 1997.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial statements -
Report of Independent Accountants
Balance Sheets at December 29, 1996, December 31, 1995 and
January 1, 1995
Statements of Earnings for the three fiscal years ended
December 29, 1996
Statements of Cash Flows for the three fiscal years ended
December 29, 1996
Statements of Stockholders' Equity for the three fiscal years
ended December 29, 1996
Notes to Financial Statements
(2) Financial Statement Schedule -
For the three fiscal years ended December 29, 1996:
Schedule II - Valuation Reserves
(3) The Exhibits are listed in the Index to Exhibits Required by Item 601
of Regulation S-K at Item (c) below and included at page 26 which
is incorporated herein by reference.
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
No additional financial information has been provided for the registrant as an
individual company since the total amount of net assets of subsidiaries which
are restricted as to transfer to the registrant through intercompany loans,
advances or cash dividends does not exceed 25 percent of total consolidated net
assets at December 29, 1996.
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
(c) The Index to Exhibits and required Exhibits are included following
the Financial Statement Schedule beginning at page 26 of this
filing.
(d) The Index to Financial Statements and Supplemental Schedule is
included following the signatures beginning at page 12 of this
filing.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 25, 1997 KELLY SERVICES, INC.
Registrant
By /s/ P. K. Geiger
---------------------------------------
P. K. Geiger
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 25, 1997 * W. R. Kelly
--------------------------------------
W. R. Kelly
Chairman of the Board
Date: March 25, 1997 * T. E. Adderley
--------------------------------------
T. E. Adderley
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: March 25, 1997 * C. V. Fricke
--------------------------------------
C. V. Fricke
Director
Date: March 25, 1997 * H. E. Guenther
--------------------------------------
H. E. Guenther
Director
Date: March 25, 1997 * V. G. Istock
--------------------------------------
V. G. Istock
Director
Date: March 25, 1997 * B. J. White
--------------------------------------
B. J. White
Director
Date: March 25, 1997 /s/ P. K. Geiger
--------------------------------------
P. K. Geiger
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: March 25, 1997 *By /s/ P. K. Geiger
--------------------------------------
P. K. Geiger
Attorney-in-Fact
-12-
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULE
Kelly Services, Inc. and Subsidiaries
Page Reference
in Report on
Form 10-K
--------------
Report of Independent Accountants 13
Balance Sheets at December 29, 1996, December 31, 1995
and January 1, 1995 14
Statements of Earnings for the three fiscal years ended
December 29, 1996 15
Statements of Cash Flows for the three fiscal years ended
December 29, 1996 16
Statements of Stockholders' Equity for the three fiscal
years ended December 29, 1996 17
Notes to Financial Statements 18 - 24
Financial Statement Schedule -
Schedule II - Valuation Reserves 25
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors,
Kelly Services, Inc.
In our opinion, the accompanying consolidated financial statements as listed in
Item 14(a) 1 and 2 of this Form 10-K present fairly, in all material respects,
the financial position of Kelly Services, Inc. and its subsidiaries at December
29, 1996, December 31, 1995 and January 1, 1995, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Detroit, Michigan
January 30, 1997
-14-
BALANCE SHEETS
Kelly Services, Inc. and Subsidiaries
1996 1995 1994
--------- --------- ---------
(In thousands of dollars)
ASSETS
Current Assets
Cash and equivalents . . . . . . . . . . . . $ 33,408 $ 52,811 $ 49,207
Short-term investments . . . . . . . . . . . 28,035 74,737 142,723
Accounts receivable, less allowances of
$8,320, $6,950 and $5,660, respectively. . 554,025 397,534 307,514
Prepaid expenses and other current assets. . 43,118 33,520 27,259
--------- --------- ---------
Total current assets. . . . . . . . . . 658,586 558,602 526,703
Property and Equipment
Land and buildings . . . . . . . . . . . . . 43,748 35,153 34,044
Equipment, furniture and leasehold
improvements . . . . . . . . . . . . . . . 118,737 113,521 90,868
Accumulated depreciation . . . . . . . . . . (64,763) (64,286) (54,731)
--------- --------- ---------
Total property and equipment. . . . . . 97,722 84,388 70,181
Intangibles and Other Assets . . . . . . . . . 82,571 75,697 45,491
--------- --------- ---------
Total Assets . . . . . . . . . . . . . . . . . $ 838,879 $ 718,687 $ 642,375
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings. . . . . . . . . . . . $ 41,616 $ 16,462 $ 9,234
Accounts payable . . . . . . . . . . . . . . 48,111 36,551 24,518
Payroll and related taxes . . . . . . . . . 151,769 118,996 102,911
Accrued insurance. . . . . . . . . . . . . . 53,119 51,309 57,390
Income and other taxes . . . . . . . . . . . 27,365 19,265 16,806
--------- --------- ---------
Total current liabilities . . . . . . . 321,980 242,583 210,859
Stockholders' Equity
Capital stock, $1.00 par value
Class A common stock, shares issued 36,527
in 1996, 36,512 in 1995 and 36,507
and in 1994 . . . . . . . . . . . . . . 36,527 36,512 36,507
Class B common stock, shares issued 3,589
in 1996, 3,604 in 1995 and 3,609 in 1994 3,589 3,604 3,609
Treasury stock, at cost
Class A common stock, 2,057 shares in
1996, 2,101 in 1995 and 2,153 in 1994. . (6,197) (6,327) (6,186)
Paid-in capital. . . . . . . . . . . . . . . 8,265 7,215 5,868
Earnings invested in the business. . . . . . 474,715 435,100 391,718
--------- --------- ---------
Total stockholders' equity. . . . . . . 516,899 476,104 431,516
--------- --------- ---------
Total Liabilities and Stockholders' Equity . . $ 838,879 $ 718,687 $ 642,375
========= ========= =========
See accompanying Notes to Financial Statements.
-15-
STATEMENTS OF EARNINGS
Kelly Services, Inc. and Subsidiaries
1996 1995 1994
------------ ------------ ------------
(In thousands of dollars except per share items)
Sales of services. . . . . . . . . . . . . . . . $ 3,302,303 $ 2,689,799 $ 2,362,561
Cost of services . . . . . . . . . . . . . . . . 2,689,523 2,148,406 1,899,552
----------- ----------- -----------
Gross profit . . . . . . . . . . . . . . . . . . 612,780 541,393 463,009
Selling, general and administrative expenses . . 491,828 435,126 370,909
----------- ----------- -----------
Earnings from operations . . . . . . . . . . . . 120,952 106,267 92,100
Interest income, net . . . . . . . . . . . . . . 1,957 7,024 6,357
----------- ----------- -----------
Earnings before income taxes . . . . . . . . . . 122,909 113,291 98,457
Income taxes:
Federal . . . . . . . . . . . . . . . . . . . 40,560 34,645 29,915
State and other . . . . . . . . . . . . . . . 9,340 9,155 7,485
----------- ----------- -----------
Total income taxes . . . . . . . . . . . . . . . 49,900 43,800 37,400
----------- ----------- -----------
Net earnings . . . . . . . . . . . . . . . . . . $ 73,009 $ 69,491 $ 61,057
=========== =========== ===========
Earnings per share . . . . . . . . . . . . . . . $1.92 $1.83 $1.61
Dividends per share . . . . . . . . . . . . . . $ .83 $ .78 $ .70
Average shares outstanding (thousands) . . . . . 38,043 37,993 37,956
See accompanying Notes to Financial Statements.
-16-
STATEMENTS OF CASH FLOWS
Kelly Services, Inc. and Subsidiaries
1996 1995 1994
-------- -------- --------
(In thousands of dollars)
Cash flows from operating activities
Net earnings . . . . . . . . . . . . . . . . . . $ 73,009 $ 69,491 $ 61,057
Noncash adjustments:
Depreciation and amortization. . . . . . . . . 26,136 22,685 19,105
Changes in certain working capital components. (112,763) (70,180) (17,275)
-------- -------- --------
Net cash from operating activities . . . . . (13,618) 21,996 62,887
Cash flows from investing activities
Capital expenditures . . . . . . . . . . . . . . (36,548) (33,982) (18,433)
Short-term investments . . . . . . . . . . . . . 46,702 67,986 2,265
Increase in intangibles and other assets . . . . (10,694) (31,192) (13,610)
-------- -------- --------
Net cash from investing activities . . . . . (540) 2,812 (29,778)
Cash flows from financing activities
Increase in short-term borrowings. . . . . . . . 25,154 7,228 6,275
Dividend payments. . . . . . . . . . . . . . . . (31,579) (29,638) (26,570)
Exercise of stock options and restricted stock
awards . . . . . . . . . . . . . . . . . . . . 1,180 1,206 373
-------- -------- --------
Net cash from financing activities . . . . . (5,245) (21,204) (19,922)
Net change in cash and equivalents . . . . . . . . (19,403) 3,604 13,187
Cash and equivalents at beginning of year. . . . . 52,811 49,207 36,020
-------- -------- --------
Cash and equivalents at end of year. . . . . . . . $ 33,408 $ 52,811 $ 49,207
======== ======== ========
See accompanying Notes to Financial Statements.
-17-
STATEMENTS OF STOCKHOLDERS' EQUITY
Kelly Services, Inc. and Subsidiaries
1996 1995 1994
--------- --------- ---------
(In thousands of dollars)
Capital Stock
Class A common stock
Balance at beginning of year . . . . . . . . $ 36,512 $ 36,507 $ 36,507
Conversions from Class B . . . . . . . . . . 15 5 ---
-------- -------- --------
Balance at end of year . . . . . . . . . . . 36,527 36,512 36,507
Class B common stock
Balance at beginning of year . . . . . . . . 3,604 3,609 3,609
Conversions to Class A . . . . . . . . . . (15) (5) ---
-------- -------- --------
Balance at end of year . . . . . . . . . . . 3,589 3,604 3,609
Treasury Stock
Balance at beginning of year . . . . . . . . (6,327) (6,186) (6,702)
Exercise of stock options. . . . . . . . . . 61 (184) (13)
Restricted stock awards. . . . . . . . . . . 69 43 ---
Treasury stock issued for acquisition . . . . --- --- 529
-------- -------- --------
Balance at end of year . . . . . . . . . . . (6,197) (6,327) (6,186)
Paid-in Capital
Balance at beginning of year . . . . . . . . 7,215 5,868 679
Exercise of stock options. . . . . . . . . . 476 977 386
Restricted stock awards . . . . . . . . . . 574 370 ---
Treasury stock issued for acquisition . . . . --- --- 4,803
-------- -------- --------
Balance at end of year . . . . . . . . . . . 8,265 7,215 5,868
Earnings Invested in the Business
Balance at beginning of year . . . . . . . . 435,100 391,718 352,126
Net earnings . . . . . . . . . . . . . . . . 73,009 69,491 61,057
Cash dividends . . . . . . . . . . . . . . . (31,579) (29,638) (26,570)
Equity adjustment for foreign currency
translation; cumulative credit of $306
in 1996 and $2,121 in 1995; cumulative
charge of $1,408 in 1994 . . . . . . . . . (1,815) 3,529 5,105
-------- -------- --------
Balance at end of year . . . . . . . . . . . 474,715 435,100 391,718
-------- -------- --------
Stockholders' Equity at end of year. . . . . . . $516,899 $476,104 $431,516
======== ======== ========
See accompanying Notes to Financial Statements.
-18-
NOTES TO FINANCIAL STATEMENTS
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's fiscal year ends on the Sunday nearest to December 31.
The three most recent years ended on December 29, 1996 (1996), December 31,
1995 (1995) and January 1, 1995 (1994).
The Company operates in the single industry segment of providing
temporary help services to a diversified group of customers.
The financial statements consolidate the accounts and operations of the
Company and its subsidiaries, all of which are wholly owned, after
elimination of all intercompany accounts and transactions.
The accounts of the Company's foreign operations are translated at
appropriate rates of exchange. Foreign operations are conducted in Australia,
Canada, Denmark, France, Ireland, Italy, Luxembourg, Mexico, the Netherlands,
New Zealand, Norway, Russia, Spain, Switzerland and United Kingdom. Domestic
and foreign sales, earnings from operations and identifiable assets were as
follows:
1996 1995 1994
----------- ----------- ----------
Sales:
Domestic Operations... $ 2,661,000 $ 2,172,100 $ 2,005,500
Foreign Operations.... 641,300 517,700 357,100
----------- ----------- ----------
Total................. $ 3,302,300 $ 2,689,800 $ 2,362,600
=========== =========== ==========
Earnings from operations:
Domestic Operations... $ 109,400 $ 96,300 $ 87,200
Foreign Operations.... 11,600 10,000 4,900
----------- ----------- ----------
Total................. $ 121,000 $ 106,300 $ 92,100
=========== =========== ==========
Identifiable assets:
Domestic Operations... $ 625,800 $ 548,300 $ 524,800
Foreign Operations.... 213,100 170,400 117,600
----------- ----------- ----------
Total................. $ 838,900 $ 718,700 $ 642,400
=========== =========== ==========
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform with the
current presentation.
-19-
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
CURRENT ASSETS
Cash and equivalents are stated at cost, which approximates market.
Included are highly liquid debt instruments with original maturities of three
months or less.
Short-term investments are debt instruments having original maturities
of more than three months. Of these investments, federal, state and local
government obligations comprised approximately 90% in 1996 and 1995 and 80%
in 1994. The entire short-term investments balance in 1996 is due within one
year. Short-term investments due within one year totaled $67,000 in 1995 and
$119,000 in 1994, with the balance due within two years and available for
sale. The difference between carrying amounts and market was not material at
December 29, 1996, December 31, 1995 and January 1, 1995.
Interest income was $4,204, $8,206 and $6,710, respectively, for the years
1996, 1995 and 1994.
Cash flows from short-term investments for 1996, 1995 and 1994 were as
follows:
1996 1995 1994
--------- -------- ---------
Sales/Maturities. . $ 1,229,408 $ 951,817 $ 1,279,383
Purchases . . . . . (1,182,706) (883,831) (1,277,118)
--------- -------- ---------
Total . . . . . . . $ 46,702 $ 67,986 $ 2,265
========= ======== =========
CHANGES IN CERTAIN WORKING CAPITAL COMPONENTS
Changes in certain working capital components, as disclosed in the
statements of cash flows, for the years 1996, 1995, and 1994 are as follows:
1996 1995 1994
--------- ------- -------
Increase in accounts
receivable . . . . . . . $ (158,596) $(86,512) $(54,571)
Increase in prepaid
expenses and other
current assets . . . . . (9,928) (5,522) (8,350)
Increase in accounts
payable. . . . . . . . . 12,325 11,076 1,801
Increase in payroll and
related taxes. . . . . . 33,188 15,030 33,008
Increase (decrease) in
accrued insurance. . . . 1,819 (6,101) 5,512
Increase in income and
other taxes . . . . . . 8,429 1,849 5,325
--------- ------- -------
Total. . . . . . . . . . . $ (112,763) $(70,180) $(17,275)
========= ======= =======
-20-
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
PROPERTY AND EQUIPMENT
Properties are stated at cost and include expenditures for additions and
major improvements. Fully depreciated assets are eliminated from the
accounts. For financial reporting purposes, assets are depreciated over
their estimated useful lives, principally by the straight-line method.
Depreciation expense for 1996, 1995 and 1994 was $22,900, $20,400 and
$17,300, respectively.
The Company conducts its field operations primarily from leased
facilities. The following are future minimum lease commitments for the
five-year period commencing in 1997: $34,900, $27,400, $21,100, $12,500 and
$7,900. Lease expense for 1996, 1995 and 1994 amounted to $32,900, $29,800
and $26,700, respectively.
INTANGIBLES AND OTHER ASSETS
Intangibles and other assets include goodwill of $58,000, $55,400 and
$32,000 at year-ends 1996, 1995 and 1994, respectively. Goodwill, which
represents the excess of cost over net assets of businesses acquired, is
amortized on a straight-line basis over periods not exceeding 40 years.
Accumulated amortization at 1996, 1995 and 1994 was $4,200, $3,100 and
$1,900, respectively.
The Company periodically reviews the specific carrying amounts of
goodwill and has determined that no impairments have occurred. Such reviews
are based on various analyses including profitability projections and
management's judgment of the related business' ability to achieve sufficient
profitability.
Other assets include deposits and cash values of life insurance on the
lives of officers and key employees.
CAPITALIZATION
The authorized capital stock of the Company is 100,000,000 shares of
Class A common stock and 10,000,000 shares of Class B common stock. Class A
shares have no voting rights and are not convertible. Class B shares have
voting rights and are convertible into Class A shares on a share-for-share
basis at any time. Both classes of stock have identical rights in the event
of liquidation.
Earnings per share are based on the average number of Class A and Class
B common shares outstanding during the year.
SHORT-TERM BORROWINGS
Short-term borrowings of $41,616, $16,462 and $9,234 at year-ends 1996,
1995 and 1994, respectively, represent credit lines with banks maintained by
certain of the Company's foreign subsidiaries. Weighted average interest
rates were 6.8%, 7.8% and 7% at year ends 1996, 1995 and 1994, respectively.
Interest expense related to the short-term borrowings for 1996, 1995 and 1994
was $2,247, $1,182 and $353, respectively. Interest payments approximated
these amounts.
-21-
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
In addition, the Company has an uncommitted line of credit of
$25 million at year end 1996. Through December 29, 1996, there have been no
borrowings under the line of credit agreement. The carrying amounts of the
Company's borrowings under the lines of credit described above approximate
their fair value.
RETIREMENT BENEFITS
The Company provides a qualified defined contribution plan covering
substantially all full-time employees, except officers and certain other
management employees. Upon approval by the Board of Directors, a
contribution based on eligible wages is funded annually. The plan offers a
savings feature with Company matching contributions. Assets of this plan are
held by an independent trustee for the sole benefit of participating
employees.
A nonqualified defined contribution plan is provided for officers and
certain other management employees. Upon approval by the Board of Directors,
a contribution based on eligible wages is set aside annually. This plan also
includes provisions for salary deferrals and Company matching contributions.
The total amounts provided for retirement benefits amounted to $4,900 in
1996, $4,400 in 1995 and $3,900 in 1994.
INCOME TAXES
The following summarizes the differences between income taxes for
financial reporting purposes and the United States statutory tax rate for the
years 1996, 1995 and 1994.
1996 1995 1994
--------- --------- --------
Statutory rate . . . . . . . 35.0 % 35.0 % 35.0 %
State and local taxes
net of federal benefit . . 4.9 5.3 4.9
Tax exempt income
and other tax credits . . (0.7) (2.6) (2.2)
Other . . . . . . . . . . . 1.4 1.0 0.3
--------- --------- --------
Effective tax rate . . . . . 40.6 % 38.7 % 38.0 %
========= ========= ========
Deferred taxes are related to the effect of temporary differences
between financial and tax reporting. These differences are related
principally to depreciation, benefit plan costs, provisions for workers'
compensation claims, full-time and temporary employee vacation costs and
provisions for doubtful accounts.
In 1992 the Internal Revenue Service (IRS) proposed the imposition of an
accumulated earnings tax totaling $49 million for 1988, 1989 and 1990 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 IRS.
The Company paid income taxes of $46,500 in 1996, $52,900 in 1995 and
$43,300 in 1994.
-22-
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
PERFORMANCE INCENTIVE PLAN
Under the 1992 Performance Incentive Plan as amended and restated in
1996 (the "Plan"), the Company may grant stock options (both incentive and
nonqualified), Stock Appreciation Rights (SARs), restricted awards and
performance awards to key employees utilizing the Company's Class A stock.
Stock options may not be granted at prices less than the fair market value on
the date of grant, nor for a term to exceed 10 years. The Plan provides that
the maximum number of shares available for grants is 7-1/2 percent of the
outstanding Class A stock, adjusted for Plan activity over the preceding five
years. Shares available for future grants at the end of 1996, 1995 and 1994
were 1,394,121; 910,674 and 1,060,947, respectively.
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for the Plan. Accordingly, no compensation
cost has been recognized for incentive and nonqualified stock options. If
compensation cost had been determined based on the fair value at the grant
dates for awards under the Plan consistent with the method of Statement of
Financial Accounting Standard 123, Accounting for Stock-Based Compensation
(SFAS 123), the Company's net income would have been reduced by $497 and $207
for 1996 and 1995, respectively, and earnings per share would have been
reduced by $.01 in both years.
During the initial phase-in period, as required by SFAS 123, the pro
forma amounts above were determined based on grants in 1996 and 1995 only.
Since stock options generally become exercisable over several years and
additional grants are likely to be made in future years, the pro forma
amounts for compensation cost may not be indicative of the effects on net
income and earnings per share for future years.
The fair value of each option included in the following tables is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in 1996 and
1995, respectively: dividend yield of 3.0 and 3.0 percent, expected
volatility of 31 and 33 percent, risk-free interest rates of 5.7 and 6.5
percent and expected lives of seven and seven years.
A summary of the status of stock option grants under the Plan as of
December 29, 1996, December 31, 1995 and January 1, 1995, and changes during
the years ending on those dates is presented as follows:
Weighted Avg.
1996: Options Exercise Price
-------- ---------------
Outstanding at beginning of year. . 696,767 $27.36
Granted . . . . . . . . . . . . . . 456,500 30.55
Exercised . . . . . . . . . . . . . (20,828) 25.82
Cancelled . . . . . . . . . . . . . (110,882) 28.61
---------
Outstanding at end of year. . . . . 1,021,557 $28.69
=========
-23-
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
Weighted Avg.
1996 (cont.) Options Exercise Price
-------- ---------------
Options exercisable at year end . . 260,171 $27.10
Weighted average fair value of
options granted during year . . . $9.46
1995:
Outstanding at beginning of year. . 646,014 $26.41
Granted . . . . . . . . . . . . . . 178,100 29.29
Exercised . . . . . . . . . . . . . (47,122) 23.56
Cancelled . . . . . . . . . . . . . (80,225) 26.17
---------
Outstanding at end of year. . . . . 696,767 $27.36
=========
Options exercisable at year end . . 169,438 $26.74
Weighted average fair value of
options granted during the year . $9.86
1994:
Outstanding at beginning of year 455,358 $25.69
Granted . . . . . . . . . . . . . . 254,929 27.36
Exercised . . . . . . . . . . . . . (19,150) 22.91
Cancelled . . . . . . . . . . . . . (45,123) 25.99
---------
Outstanding at end of year. . . . . 646,014 $26.41
=========
Options exercisable at year end . . 125,573 $25.40
Stock options outstanding at December 29, 1996 have a weighted average
remaining life of 8.14 years.
As of December 29, 1996, no SARs have been granted under the Plan.
Restricted awards are issued to certain key employees and are subject to
forfeiture until the end of an established restriction period. Restricted
awards totaling 2,400 and 66,800 shares were granted under the Plan during
1996 and 1995, respectively. The weighted average grant date price of such
awards were $27.38 and $29.45 for 1996 and 1995, respectively. Restricted
awards outstanding totaled 55,700; 98,100 and 53,000 shares at year-ends
1996, 1995 and 1994, respectively, and have weighted average remaining life
of 1.2 years at December 29, 1996.
Under the Plan, performance awards may be granted to senior executive
officers, the payout of which is determined by the degree of attainment of
objectively determinable performance goals over the established relevant
performance period. Performance awards totaling 42,000 shares were granted
under the Plan during 1996 with a weighted average grant date price of
$29.75. Unearned performance awards outstanding at December 29, 1996 were
38,500 and have a remaining life of 2 years. Total compensation cost
recognized for restricted and performance awards was $1,300, $800 and $300
for 1996, 1995 and 1994, respectively.
-24-
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
SELECTED QUARTERLY FINANCIAL DATA (unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----------
(In thousands of dollars except per share items)
Sales of services
1996 . . . . . . . . . $733,931 $804,262 $873,242 $890,868 $3,302,303
1995 . . . . . . . . . 620,685 652,417 698,453 718,244 2,689,799
1994 . . . . . . . . . 530,191 570,813 630,196 631,361 2,362,561
Cost of services
1996 . . . . . . . . . 596,245 652,007 711,950 729,321 2,689,523
1995 . . . . . . . . . 498,667 519,739 555,968 574,032 2,148,406
1994 . . . . . . . . . 428,374 461,093 505,668 504,417 1,899,552
Selling, general and
administrative
1996 . . . . . . . . . 117,302 123,778 125,101 125,647 491,828
1995 . . . . . . . . . 104,083 107,510 110,809 112,724 435,126
1994 . . . . . . . . . 88,381 88,050 94,979 99,499 370,909
Net earnings
1996 . . . . . . . . . 12,903 17,448 21,430 21,228 73,009
1995 . . . . . . . . . 12,262 16,660 20,373 20,196 69,491
1994 . . . . . . . . . 9,233 14,420 19,289 18,115 61,057
Earnings per share
1996 . . . . . . . . . .34 .46 .56 .56 1.92
1995 . . . . . . . . . .32 .44 .54 .53 1.83
1994 . . . . . . . . . .24 .38 .51 .48 1.61
Dividends per share
1996 . . . . . . . . . .20 .21 .21 .21 .83
1995 . . . . . . . . . .18 .20 .20 .20 .78
1994 . . . . . . . . . .16 .18 .18 .18 .70
-25-
SCHEDULE II - VALUATION RESERVES
Kelly Services, Inc. and Subsidiaries
DECEMBER 29, 1996
(In thousands of dollars)
Additions
------------------------
Balance at Charged to Charged to Deductions - Balance at
beginning costs and other uncollectible end
of year expenses accounts* accounts of year
---------- ---------- ---------- ------------- ----------
Description
- -----------
Fifty-two weeks ended December 29, 1996:
Reserve deducted in the balance sheet
from the assets to which it applies -
Allowance for doubtful accounts $6,950 $5,710 -- $4,340 $8,320
====== ====== ====== ======
Fifty-two weeks ended December 31, 1995:
Reserve deducted in the balance sheet
from the assets to which it applies -
Allowance for doubtful accounts $5,660 $4,240 -- $2,950 $6,950
====== ====== ====== ======
Fifty-two weeks ended January 1, 1995:
Reserve deducted in the balance sheet
from the assets to which it applies -
Allowance for doubtful accounts $4,735 $4,005 $280 $3,360 $5,660
====== ====== ==== ====== ======
* Allowance of companies acquired.
-26-
INDEX TO EXHIBITS
REQUIRED BY ITEM 601,
REGULATION S-K
Exhibit
No. Description Page
- ------- ----------- ----
3.1 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).
3.2 By-laws. (Reference is made to Exhibit 3 to the Form 10-Q for
the quarterly period ended September 29, 1996, filed with the
Commission in November, 1996, which is incorporated herein by
reference).
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).
10.1 Short-Term Incentive Plan, as amended and restated on 1
August 20, 1996. (Document 2)
10.2 Kelly Services, Inc. 1982 Incentive Stock Option Plan. (Reference
is made to Exhibit 10.3 to the Form 10-K for the fiscal year
ended January 2, 1994, filed with the Commission in March, 1994,
which is incorporated herein by reference.)
10.3 Kelly Services, Inc. Amended and Restated Performance Incentive
Plan. (Reference is made to Exhibit B to the Definitive Proxy for
the fiscal year ended December 31, 1995, filed with the
Commission in April, 1996, which is incorporated herein by
reference).
10.4 Kelly Services, Inc. Non-employee Director Stock Award Plan. (Reference
is made to Exhibit A to the Definitive Proxy for the fiscal year ended
January 1, 1995, filed with the Commission in April, 1995, which is
incorporated herein by reference).
11 Additional Earnings Per Share Information. 1
(Document 3)
21 Subsidiaries of Registrant. 1
(Document 4)
-27-
INDEX TO EXHIBITS
REQUIRED BY ITEM 601,
REGULATION S-K (continued)
Exhibit
No. Description Page
- ------- ----------- ----
23 Consent of Independent Accountants. 1
(Document 5)
24 Powers of Attorney. 1
(Document 6)
27 Financial Data Schedule 1
(Document 7)
-1-
KELLY SERVICES, INC.
SHORT-TERM INCENTIVE PLAN
(As Amended and Restated by Action
of the Board of Directors)
(August 20, 1996)
Section 1 - Purposes.
This KELLY SERVICES, INC. SHORT-TERM INCENTIVE PLAN (the "Plan")
provides for annual incentive compensation payable in cash to those key
officers and employees of the Company or any affiliated entity, who, from
time to time may be selected for participation. The Plan is intended to
provide incentives and rewards for the contributions of such employees toward
the successful achievement of the Company's financial and business goals
established for the current year.
Section 2 - Administration.
The Plan shall be administered by the Compensation Committee of the
Board of Directors. The Committee shall have authority to make rules and
adopt administrative procedures in connection with the Plan and shall have
discretion to provide for situations or conditions not specifically provided
for herein consistent with the overall purposes of the Plan.
Section 3 - Selection of Participants.
The Committee may delegate to the chief executive officer of the
Company, if also a director, its authority to select those key officers and
employees entitled to participate under the Plan each year. Approval of
eligible participants may be made at any time during each award year.
Section 4 - Establishing Performance Objectives.
The Committee annually during the first quarter of the year shall
establish one or more performance objectives, at least one of which shall be
a quantitatively measured Company performance objective. The Committee shall
have discretion to establish other objectives, the achievement of which may
require subjective assessments by the Committee.
Section 5 - Establishing Target Awards.
During the first quarter of each year the Committee shall establish a
target award, expressed as a percentage of eligible salary for that year
(annual base salary, excluding pay for disability, overtime, bonuses, sick
pay and other reimbursements and allowances), for each officer or other
employee selected to participate under the Plan. Individual participants may
earn an award payout ranging from zero percent to the maximum percent of
their target award that the Committee may set in place from time to time.
The Committee shall also specify what portion of the target award is based on
the achievement of the Company performance objective and what portion or
portions are based on the achievement of other objectives. The Committee
will establish an award payout schedule based upon the extent to which the
Company performance objective is or is not achieved or exceeded.
-2-
Section 6 - Determining Final Awards.
The Committee shall have discretion to adjust final awards up or down
from the target award depending on (a) the extent to which the Company
performance objective(s) is either exceeded or not met, and (b) the extent to
which other objectives, e.g. subsidiary, division, department, unit or other
performance objectives are attained. The Committee shall have full
discretion to make other adjustments in final awards based on individual
performance as it considers appropriate in the circumstances.
Section 7 - Special Provisions Applicable to
Senior Executive Officers.
For officers at or above the rank of executive vice president (the
"Senior Executive Officers"), the Committee, during the first quarter of each
year, will establish a Plan target award, expressed as a percentage of their
eligible salary. At the same time, the Committee will establish a Company
performance objective for such year expressed either as a certain dollar
amount of the Company's pre-tax earnings for the year or the equivalent of
such amount in earnings per share. The Committee will also establish a
payout schedule for relating the award actually earned to performance above
or below the performance objective. Final awards for Senior Executive
Officers shall be based entirely on the extent to which actual pre-tax
earnings or the equivalent of such amount in earnings per share are either
less than or greater than the Company performance objective. In no event
shall any award to a Senior Executive Officer under the Plan exceed
$1,500,000. The Committee retains the right in its discretion to reduce a
Senior Executive Officer's award based on performance considerations, but
will have no discretion to increase any award so calculated.
Section 8 - Time of Distribution.
Distribution of awards shall be made in one or more installments, as the
Committee shall determine, as soon as practicable following the close of the
year for which earned. If an award is less than $3,000, the full amount of
the award shall be paid in the year following the award year.
Section 9 - Forfeiture.
Until such time as the full amount of an award has been paid, a
participant's right to receive any unpaid amount shall be wholly contingent
and shall be forfeited if, prior to payment, the participant is no longer in
the employ of the Company, provided, however, that the Committee may in its
discretion, waive such condition of continued employment. It shall be an
overriding precondition to the payment of any award (a) that the participant
not engage in any activity that, in the opinion of the Committee, is in
competition with any activity of the Company or any affiliated entity or
otherwise inimical to the best interests of the Company and (b) that the
participant furnish the Committee with all such information confirming
satisfaction of the foregoing condition as the Committee shall reasonably
request. If the Committee makes a determination that a participant has
engaged in any such competitive or otherwise inimical activity, such
determination shall operate to immediately cancel all then unpaid award
amounts.
-3-
Section 10 - Death.
Any award remaining unpaid, in whole or in part, at the death of a
participant shall be paid to the participant's legal representative or to a
beneficiary designated by the participant in accord with rules established by
the Committee.
Section 11 - No Right to Employment or Award.
No person shall have any claim or right to receive an award, and
selection to participate in the Plan shall not confer upon any employee a
right with respect to continued employment by the Company. Further the
Company and each affiliated entity reaffirms its at-will relationship with
its employees and expressly reserves the right at any time to dismiss a
participant free from any liability or claim, except as provided under this
Plan.
Section 12 - Amendment or Termination.
The Board of Directors of the Company reserves the right at any time to
make any changes in the Plan as it may consider desirable or may discontinue
or terminate the Plan at any time except that Section 7 cannot be changed in
anyway which would violate IRS regulations under Internal Revenue Code
Section 162 (n) without stockholder approval.
-1-
ADDITIONAL EARNINGS PER SHARE INFORMATION
Kelly Services, Inc. and Subsidiaries
Details of the common shares used to compute earnings per share are as follows
in thousands except per share items:
FISCAL YEAR ENDED
-------------------------------
Dec. 29, Dec. 31, Jan. 1,
1996 1995 1995
-------- -------- --------
Weighted average shares outstanding 38,043 37,993 37,956
Adjustment for dilutive shares from stock
options under the treasury stock method:
Shares assumed issued 590 637 431
Less - Shares assumed repurchased 442 502 364
-------- --------- --------
Additional shares assumed outstanding 148 135 67
-------- --------- --------
Applicable shares as adjusted 38,191 38,128 38,023
======== ========= ========
Net earnings $73,009 $69,491 $61,057
======== ======== ========
Earnings per common share $1.91 $1.82 $1.61
===== ===== =====
Percent dilution of earnings per share 0.4% 0.4% 0.2%
==== ==== ====
This calculation is submitted in accordance with Regulation S-K item 601(b)(11)
although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because
it results in dilution of less than 3%.
-1-
SUBSIDIARIES OF REGISTRANT
Kelly Services, Inc.
State/Jurisdiction
Subsidiary of Incorporation Business Name
Kelly Services (Canada), Ltd. Canada Kelly Temporary Services
Les Services Kelly (Quebec) Inc. Quebec Les Services Kelly
(a subsidiary of Kelly Services (Canada), Ltd.)
Societe Services Kelly Delaware Kelly Services
Kelly Properties, Inc. Michigan Kelly Properties
Kelly Services (Ireland), Ltd. Delaware Kelly Temporary Services
(a subsidiary of Kelly Properties, Inc.)
Kelly Services (UK), Ltd. Delaware Kelly Temporary Services
(a subsidiary of Kelly Properties, Inc.)
Kelly Assisted Living Services, Inc. Delaware Kelly Assisted Living Services
Kelly Services (Australia), Ltd. Delaware Kelly Temporary Services
Kelly Services (New Zealand), Ltd. Delaware Kelly Temporary Services
Kelly Professional and Technical Services, Inc. Delaware Kelly Professional and Technical
Services
The Wallace Law Registry, Inc. Connecticut Wallace Law Registry
(a subsidiary of Kelly Professional and
Technical Services, Inc.)
Kelly Professional Services (France), Inc. Delaware Kelly Professional Services
Kelly Services of Denmark, Inc. Delaware Kelly Bemanningslosninger
Karin Lanng Kelly
Kelly Services (Nederland), B.V. The Netherlands Kelly Uitzendburo
Kelly Services Norge A.S. Norway Kelly Personal Byraet
(a subsidiary of Kelly Services (Nederland), B.V.)
Kelly de Mexico, S.A. de C.V. Mexico Kelly Temporary Services
KSI Acquisition Corporation California Your Staff
-2-
SUBSIDIARIES OF REGISTRANT (continued)
Kelly Services, Inc.
State/Jurisdiction
Subsidiary of Incorporation Business Name
OK Personnel Service Holding SA Switzerland OK Personnel
Kelly Services France S.A. France Kelly Services France
Bourse Du Travail Temporaire 2000 France BTT 2000
(a subsidiary of Kelly Services France S.A.)
Kelly Formation S.A.R.L. France Kelly Formation
(a subsidiary of Kelly Services France S.A.)
Kelly Services Luxembourg S.A.R.L. Luxembourg Kelly Services
Kelly Services Italia SRL Italy Kelly Services
(a subsidiary of Kelly Services, Inc. and
Kelly Properties, Inc.)
Kelly Service Iberia Holding Company, S.L. Spain Kelly Services E.T.T.
Kelly Services Empleo E.T.T., S.L. Spain Kelly Services E.T.T.
(a subsidiary of Kelly Services Iberia
Holding Company, S.L.)
Kelly Services Seleccian y Formacion, S.L. Spain Kelly Services E.T.T.
(a subsidiary of Kelly Services Iberia
Holding Company, S.L.)
Kelly Service CIS, Inc. Delaware Kelly Services
-1-
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 Number 2-85867, 33-48782 and 33-51239 of Kelly
Services, Inc. of our report dated January 30, 1997, appearing on page 13 of
this Annual Report on Form 10-K.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Detroit, Michigan
March 25, 1997
-1-
POWER OF ATTORNEY
The undersigned director of Kelly Services, Inc. does hereby appoint
each of Eugene L. Hartwig and Paul K. Geiger, signing singly, his true and
lawful attorneys, to execute for and on behalf of the undersigned the Form
10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 29, 1996, to be filed with the
Securities and Exchange Commission in Washington, D.C. under the provisions
of the Securities Exchange Act of 1934, as amended, and any and all
amendments to said Form 10-K whether said amendments add to, delete from or
otherwise alter the Form 10-K, or add to or withdraw any exhibit or exhibits,
schedule or schedules to be filed therewith, and any and all instruments
necessary or incidental in connection therewith, hereby granting unto said
attorneys and each of them full power and authority to do and perform in the
name and on behalf of each of the undersigned, and in any and all capacities,
every act and thing whatsoever required or necessary to be done in the
exercise of any of the rights and powers herein granted, as fully and to all
intents and purposes as each of the undersigned might or could do in person,
hereby ratifying and approving the acts of said attorneys and each of them.
IN WITNESS WHEREOF the undersigned has caused this Power of Attorney to
be executed as of this 14th day of February, 1997.
/s/ William R. Kelly
--------------------
William R. Kelly
-2-
POWER OF ATTORNEY
Each of the undersigned directors of Kelly Services, Inc. does hereby
appoint each of Eugene L. Hartwig and Paul K. Geiger, signing singly, his
true and lawful attorneys, to execute for and on behalf of the undersigned
the Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 29, 1996, to be filed
with the Securities and Exchange Commission in Washington, D.C. under the
provisions of the Securities Exchange Act of 1934, as amended, and any and
all amendments to said Form 10-K whether said amendments add to, delete from
or otherwise alter the Form 10-K, or add to or withdraw any exhibit or
exhibits, schedule or schedules to be filed therewith, and any and all
instruments necessary or incidental in connection therewith, hereby granting
unto said attorneys and each of them full power and authority to do and
perform in the name and on behalf of each of the undersigned, and in any and
all capacities, every act and thing whatsoever required or necessary to be
done in the exercise of any of the rights and powers herein granted, as fully
and to all intents and purposes as each of the undersigned might or could do
in person, hereby ratifying and approving the acts of said attorneys and each
of them.
IN WITNESS WHEREOF the undersigned have caused this Power of Attorney to
be executed as of this 20th day of February, 1997.
/s/ Terence E. Adderley
-----------------------
Terence E. Adderley
/s/ Cedric V. Fricke
-----------------------
Cedric V. Fricke
/s/ Verne G. Istock
-----------------------
Verne G. Istock
/s/ B. Joseph White
-----------------------
B. Joseph White
-3-
POWER OF ATTORNEY
The undersigned director of Kelly Services, Inc. does hereby appoint
each of Eugene L. Hartwig and Paul K. Geiger, signing singly, his true and
lawful attorneys, to execute for and on behalf of the undersigned the Form
10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 29, 1996, to be filed with the
Securities and Exchange Commission in Washington, D.C. under the provisions
of the Securities Exchange Act of 1934, as amended, and any and all
amendments to said Form 10-K whether said amendments add to, delete from or
otherwise alter the Form 10-K, or add to or withdraw any exhibit or exhibits,
schedule or schedules to be filed therewith, and any and all instruments
necessary or incidental in connection therewith, hereby granting unto said
attorneys and each of them full power and authority to do and perform in the
name and on behalf of each of the undersigned, and in any and all capacities,
every act and thing whatsoever required or necessary to be done in the
exercise of any of the rights and powers herein granted, as fully and to all
intents and purposes as each of the undersigned might or could do in person,
hereby ratifying and approving the acts of said attorneys and each of them.
IN WITNESS WHEREOF the undersigned has caused this Power of Attorney to
be executed as of this 18th day of February, 1997.
/s/ Harold E. Guenther
-----------------------
Harold E. Guenther
5
1,000
YEAR
DEC-29-1996
DEC-29-1996
33,408
28,035
562,345
8,320
0
658,586
162,485
64,763
838,879
321,980
0
0
0
40,116
476,783
838,879
0
3,302,303
0
2,689,523
0
0
0
122,909
49,900
73,009
0
0
0
73,009
1.92
0