- 1 -
                          Index to Exhibits on page 11
                                           

                                  UNITED STATES        
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 30, 1997

                                       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)

                                    No Change
              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report.)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was 
required to file such reports), and (2) has been subject to such filing 
requirements for the past 90 days.  Yes  X      No
                                        ----       ----
At May 2, 1997, 34,485,515 shares of Class A and 3,579,524 shares of Class B 
common stock of the Registrant were outstanding.
 

                           
                            - 2 -


            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                                9

      Signature                                           10

      Index to Exhibits Required by
        Item 601, Regulation S-K                          11



                                                
                                                 - 3 -


                                  KELLY SERVICES, INC. AND SUBSIDIARIES

                                         STATEMENTS OF EARNINGS
                                               (UNAUDITED)
                            (In thousands of dollars except per share items)

13 Weeks Ended ------------------------------- March 30, 1997 March 31, 1996 -------------- -------------- Sales of services $880,846 $733,931 Cost of services 724,508 596,245 --------- --------- Gross profit 156,338 137,686 Selling, general and administrative expenses 132,219 117,302 --------- --------- Earnings from operations 24,119 20,384 Interest income, net 4 1,109 --------- --------- Earnings before income taxes 24,123 21,493 --------- --------- Income taxes: Federal 8,135 6,785 State and other 1,760 1,805 --------- --------- Total income taxes 9,895 8,590 --------- --------- Net earnings $ 14,228 $ 12,903 ========= ========= Earnings per share $.37 $.34 Dividends per share $.21 $.20 Average shares outstanding (thousands) 38,061 38,016
- 4 - KELLY SERVICES, INC. AND SUBSIDIARIES BALANCE SHEETS AS OF MARCH 30, 1997 AND DECEMBER 29, 1996 (UNAUDITED) (In thousands of dollars) ASSETS 1997 1996 - ------ ------------ ------------ CURRENT ASSETS: Cash and equivalents $ 70,897 $ 33,408 Short-term investments 21,413 28,035 Accounts receivable, less allowances of $9,900 and $8,320, respectively 557,995 554,025 Prepaid expenses and other current assets 43,336 43,118 --------- --------- Total current assets 693,641 658,586 PROPERTY AND EQUIPMENT: Land and buildings 43,746 43,748 Equipment, furniture and leasehold improvements 122,167 118,737 Accumulated depreciation (68,516) (64,763) --------- --------- Total property and equipment 97,397 97,722 INTANGIBLES AND OTHER ASSETS 78,667 82,571 --------- --------- TOTAL ASSETS $869,705 $838,879 ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY - ---------------------------------- CURRENT LIABILITIES: Short-term borrowings $ 42,238 $ 41,616 Accounts payable 58,091 48,111 Payroll and related taxes 166,263 151,769 Accrued insurance 56,071 53,119 Income and other taxes 28,947 27,365 --------- --------- Total current liabilities 351,610 321,980 --------- --------- STOCKHOLDERS' EQUITY: Capital stock, $1 par value 40,116 40,116 Treasury stock, 2,053 shares in 1997 and 2,057 shares in 1996, respectively, at cost (6,204) (6,197) Paid-in capital 8,365 8,265 Earnings invested in the business 475,818 474,715 --------- --------- Total stockholders' equity 518,095 516,899 --------- --------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $869,705 $838,879 ========= =========
- 5 - KELLY SERVICES, INC. AND SUBSIDIARIES STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (In thousands of dollars)
13 Weeks Ended ------------------------------ March 30, 1997 March 31, 1996 -------------- -------------- Capital Stock Class A common stock Balance at beginning of period $ 36,527 $ 36,512 Conversions from Class B 4 -- --------- --------- Balance at end of period 36,531 36,512 Class B common stock Balance at beginning of period 3,589 3,604 Conversions to Class A (4) -- --------- --------- Balance at end of period 3,585 3,604 Treasury Stock Balance at beginning of period (6,197) (6,327) Exercise of stock options (9) 9 Restricted stock awards 2 4 --------- --------- Balance at end of period (6,204) (6,314) Paid-in Capital Balance at beginning of period 8,265 7,215 Exercise of stock options 84 72 Restricted stock awards 16 37 --------- --------- Balance at end of period 8,365 7,324 Earnings Invested in the Business Balance at beginning of period 474,715 435,100 Net earnings 14,228 12,903 Cash dividends (7,993) (7,603) Equity adjustment for foreign currency translation (cumulative charge of $4,826 in 1997 and credit of $824 in 1996) (5,132) (1,297) --------- --------- Balance at end of period 475,818 439,103 --------- --------- Stockholders' Equity at end of period $518,095 $480,229 ========= =========
- 6 - KELLY SERVICES, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE 13 WEEKS ENDED MARCH 30, 1997 AND MARCH 31, 1996 (In thousands of dollars) 1997 1996 ---------- ---------- Cash flows from operating activities: Net earnings $14,228 $12,903 Noncash adjustments: Depreciation and amortization 6,439 6,440 Changes in certain working capital components 22,254 6,479 -------- -------- Cash from operating activities 42,921 25,822 -------- -------- Cash flows from investing activities: Capital expenditures (6,131) (4,888) Proceeds from sales and maturities of short-term investments 518,006 333,018 Purchases of short-term investments (511,384) (334,572) (Increase) decrease in intangibles and other assets 1,355 (1,642) -------- -------- Net cash from investing activities 1,846 (8,084) -------- -------- Cash flows from financing activities: Increase (decrease) in short-term borrowings 622 (727) Dividend payments (7,993) (7,603) Exercise of stock options and restricted stock awards 93 122 -------- -------- Net cash from financing activities (7,278) (8,208) -------- -------- Net change in cash and equivalents 37,489 9,530 Cash and equivalents at beginning of period 33,408 52,811 -------- -------- Cash and equivalents at end of period $70,897 $62,341 ======== ========
- 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations: First Quarter Sales of services in the first quarter of 1997 were $880,846,000, an increase of 20% from the same period in 1996. Sales growth was generally strong in both domestic and foreign operations. Cost of services, consisting of payroll and related tax and benefit costs of employees assigned to customers, increased 21.5% in the first quarter as compared to the same period in 1996. Average hourly wage rates and related costs from U.S. operations have increased from 1996 at a rate somewhat higher than the general inflation rate, due to a tightening labor market. Gross profit of $156,338,000 was 13.5% higher than the first quarter of 1996, and gross profit as a percentage of sales declined from 18.8% in 1996 to 17.7% in 1997. The growth of sales with our largest customers where contracts require special pricing and additional implementation costs, the upward pressure on wage rates noted above and growth in the staff leasing business with its inherently lower margins all had the effect of reducing the consolidated gross profit rate. Selling, general and administrative expenses were $132,219,000 in the first quarter, an increase of 12.7% over the same period in 1996. As a percent of sales, the spending rate averaged 15.0%, compared to 16.0% in last year's first quarter. The rate of growth of these expenses in relationship to the sales increases reflects the Company's emphasis on expense control. Earnings from operations of $24,119,000 were 18.3% greater than the first quarter of 1996. Earnings before income taxes were $24,123,000, an increase of 12.2%, compared to pretax earnings of $21,493,000 for the same period in 1996. The pretax margin was 2.7%, a .2 percentage point decrease from the first quarter of 1996. This was due to lower interest income, net and the lower gross profit and expense ratios. Income taxes were 41.0% of pretax income. This was 1.0 percentage point over the applicable tax rate for the first quarter of 1996 due to reduced tax-exempt income and higher foreign tax rates. (The income tax rate for the year 1996 averaged 40.6%.) - 8 - Net earnings were $14,228,000 in the first quarter of 1997, an increase of 10.3% over the first quarter of 1996. Earnings per share were $.37 compared to $.34 in the same period last year. Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share," was issued in February 1997. Adoption of SFAS 128, effective for periods ending after December 15, 1997, is not expected to have a material effect on reported earnings per share. Financial Condition Assets totaled $869,705,000 at March 30, 1997, an increase of 3.7% over the $838,879,000 at December 29, 1996. Working capital increased $5,425,000 during the three-month period. The current ratio was 2.0 at March 30, 1997 and December 29, 1996. During the first quarter of 1997, the Company generated cash flows from operating activities totaling $42,921,000, an increase of 66% over the comparable period in 1996. This increase resulted principally from increases in net earnings and liability balances. Capital expenditures were principally for expanding and improving the worldwide branch network. The quarterly dividend rate applicable to Class A and Class B shares outstanding was $.21 per share in the first quarter of 1997. This compares to a dividend rate of $.20 per share in the first quarter of 1996. 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. -------------------------------------------------------------- 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., 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 Staff Leasing, Inc. (formerly Your Staff, Inc.), The Wallace Law Registry, Inc., Kelly Services France S.A., Bourse Du Travail Temporaire 2000, Kelly Formation S.A.R.L., Kelly Services Luxembourg S.A.R.L., Kelly Services Italia S.R.L., Kelly Services Iberia Holding Company, S.L., Kelly Services Empleo E.T.T., S.L., Kelly Services Seleccion y Formacion, S.L. and Kelly Services CIS, 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. - 9 - 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 11 of this filing. (b) No reports on Form 8-K were filed during the quarter for which this report is filed. - 10 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KELLY SERVICES, INC. Date: May 13, 1997 /s/ P. K. Geiger P. K. Geiger Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) - 11 - 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 June 30, 1996, filed with the Commission in August, 1996, which is incorporated herein by reference.) 27 Financial Data Schedule 2
 

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND STATEMENT OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-28-1997 MAR-30-1997 70,897 21,413 567,895 9,900 0 693,641 165,913 68,516 869,705 351,610 0 0 0 40,116 477,979 869,705 0 880,846 0 724,508 0 0 0 24,123 9,895 14,228 0 0 0 14,228 .37 0