1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 25, 2005
KELLY SERVICES, INC.
(Exact name of Registrant as specified in its charter)
| DELAWARE | 0-1088 | 38-1510762 | ||
| (State or other jurisdiction of | (Commission File Number) | (IRS Employer | ||
| incorporation) | Identification Number) |
| 999 WEST BIG BEAVER ROAD, TROY, MICHIGAN | 48084 | |||
| (Address of principal executive offices) | (Zip Code) |
(248) 362-4444
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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| Item 2.02. | Results of Operations and Financial Condition |
Kelly Services, Inc. (the “Company”) today released financial information containing highlighted financial data for the three months ended April 3, 2005. A copy of the press release is attached as exhibit 99.1 herein.
| Item 4.02 (a) | Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review |
The Company is in the process of completing a review of its lease accounting practices. As a result, the Company is correcting its accounting for operating leases to recognize step rent increases on a straight-line basis over the lease term. Previously, the Company recorded rent expense as incurred. In addition, the Company will also record allowances provided by landlords as deferred rent in the balance sheet and as an operating cash flow in the statement of cash flows. Previously, these amounts had been recorded as reductions of property and equipment in the balance sheet and as capital expenditures in the statement of cash flows.
On April 25, 2005 management concluded, with the concurrence of the Audit Committee of the Board of Directors, that the Company will restate its financial statements for the fiscal years ended December 29, 2002, December 28, 2003 and January 2, 2005 and the appropriate related interim periods to correct the errors in lease accounting noted above. As a result, these financial statements should no longer be relied upon. This conclusion has been discussed with the Company’s independent registered public accountants. Although the Company has not completed its review, the Company does not believe that the restatement will have a material effect on any of the previously issued financial statements. The Company will restate the aforementioned financial statements by filing an amended 2004 Form 10-K, and related 10-Qs as appropriate, as soon as practical.
| Item 9.01. | Financial Statements and Exhibits |
(c) Exhibits
| 99.1 | Press Release dated April 26, 2005. |
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SIGNATURES
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, hereunto duly authorized.
| KELLY SERVICES, INC. | ||||
| Date: April 26, 2005 |
||||
| /s/ William K. Gerber | ||||
| William K. Gerber | ||||
| Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||||
| Date: April 26, 2005 |
||||
| /s/ Michael E. Debs | ||||
| Michael E. Debs | ||||
| Vice President and Corporate Controller (Principal Accounting Officer) | ||||
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EXHIBIT INDEX
| Exhibit No. |
Description | |
| 99.1 | Press release dated April 26, 2005 |
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Exhibit 99.1
| ANALYST CONTACT: |
MEDIA CONTACT: | |
| James Polehna |
Renee Walker | |
| (248) 244-4586 |
(248) 244-5362 | |
| james_polehna@kellyservices.com |
renee_walker@kellyservices.com |
KELLY SERVICES REPORTS RECORD REVENUE AND
STRONG EARNINGS GROWTH FOR THE 1st QUARTER OF 2005
TROY, MI (April 26, 2005)—Kelly Services, Inc., a global provider of staffing services, today announced record revenue and strong earnings growth for first quarter ended April 3, 2005.
Terence E. Adderley, Kelly Services chairman and chief executive officer, announced revenue for the first quarter of 2005 totaled $1.249 billion, a 7.8% increase compared to the $1.159 billion for the corresponding quarter in 2004.
Net earnings for the first quarter of 2005 totaled $4.1 million, a 286% increase compared to $1.1 million reported for the first quarter of 2004. Diluted earnings per share in the first quarter of 2005 were $0.11, a 267% increase as compared to first quarter 2004 earnings of $0.03 per share.
Commenting on the results, Adderley said, “Our first quarter sales of $1.249 billion achieved a new sales record for the first quarter, exceeding the previous record we set in 2004 by over $90 million.
“We expect second quarter 2005 earnings to be in the range of $0.24 to $0.29, as compared to $0.14 per share in the second quarter of 2004. For the full year of 2005, we are maintaining our forecast that earnings will range between $1.00 and $1.20 per share. This forecast is based on moderate global economic growth in 2005.
“Revenue in our U.S. Commercial staffing segment, which accounted for 45% of total sales, increased 2.9% year over year during the first quarter. The gross profit rate in this segment increased nine-tenths of a percent, due to a combination of improved pricing, the decision to exit certain customers, lower workers compensation costs, and higher fee based income. Expenses increased 4.9% compared to last year. Operating earnings totaled $29.4 million, an increase of 20.9% compared to last year.
“Revenue in our Professional, Technical, and Staffing Alternatives (PTSA) segment, which accounted for 22% of total sales, increased 14.1% year over year during the first quarter. Kelly Scientific Resources, Kelly Engineering Resources and Kelly Financial Resources were the leading professional and technical performers in the first quarter. Kelly HRfirst continued to be the leading staffing alternatives unit. Kelly Home Care and the Automotive Services Group experienced small revenue decreases during the quarter. Kelly Staff Leasing revenue also declined, reflecting the repositioning of its customer mix. The PTSA gross profit rate decreased one tenth of a percent, primarily due to business unit mix, partially offset by higher fee based income. Expenses increased 14.7% as compared to last year. Operating earnings totaled $15.5 million and increased 10.2% on a year over year basis.
“Revenue in our International segment, which accounted for 33% of total sales, increased 11.0% year over year during the first quarter. The International gross profit rate increased by two-tenths of a percent, primarily due to growth in fee based income. Operating expenses increased by 9.8% in U.S. dollar terms. Operating earnings totaled $537 thousand, a significant improvement compared to a loss of $905 thousand last year.
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“On a constant currency basis, International segment revenue increased 6.8%, and total Company revenue increased 6.5% year over year in the first quarter.”
On February 7, 2005, the SEC issued a general letter on lease accounting. As a result, nearly 250 public companies have announced lease related restatements, adjustments or reviews of lease accounting. The Company is in process of completing a review of its lease accounting practices, and in consultation with its audit committee, plans to restate its financial statements for 2002, 2003 and 2004 to reflect what are expected to be certain immaterial adjustments. This conclusion has been discussed with the Company’s independent registered public accountants.
The Company is revising its accounting for branch leases to recognize step rent increases on a straight line basis over the lease term. For over twenty-five years, the Company had consistently recognized rent expense as paid.
Although the corrections are not expected to be material to any period, the Company will provide comparable historical information by restating its financial statements for 2002, 2003 and 2004. Selling, general and administrative expense is estimated to increase or decrease by immaterial amounts for each of the three years.
The Company will also record allowances provided by landlords as deferred rent. Previously, these allowances had been recorded as reductions of property and equipment. The balance sheet correction is expected to increase property and equipment and deferred rent in equal amounts.
The net cumulative effect of the estimated corrections to lease accounting for all years prior to 2002, and any other prior period adjustments resulting from the restatement, are expected to be recorded as an adjustment to beginning of year 2002 retained earnings. The combined estimated after tax adjustment is expected to represent less than three tenths of a percent of stockholders’ equity.
The adjustments for lease accounting, and any other adjustments resulting from the restatement, are not expected to have a material effect on historically reported diluted earnings per share. The adjustments are not expected to have any effect on historical or future total cash flows, or the timing of payments under the related leases. The adjustment for lease accounting had no material impact on first quarter 2005 results, and is not presently expected to have a material impact on future results.
In conjunction with its first quarter earnings release, Kelly Services, Inc. will host a conference call at 9:00 a.m. (ET) on April 26, 2005 to review the results. The call may be accessed in one of the following ways:
Via the Telephone:
| U.S. |
1-888-423-3281 | |
| International |
1-612-332-0345 |
The conference call leader is Terence Adderley
The passcode is Kelly Services
Via the Internet:
You may access the call via the internet through the Kelly Services website:
www.kellyservices.com
This release contains statements that are forward looking in nature and accordingly, are subject to risks and uncertainties. These factors include: competition, changing market and economic conditions, currency fluctuations, changes in laws and regulations, including tax laws, the company’s ability to effectively manage its information technology programs, and other factors discussed in this release and in the company’s filings with the Securities and Exchange Commission. Actual results may differ materially from any projections contained herein.
Kelly Services, Inc. (NASDAQ: KELYA, KELYB) is a Fortune 500 company headquartered in Troy, Mich., offering staffing solutions that include temporary staffing services, staff leasing, outsourcing, vendor on-site and full-time placement. Kelly owns and operates nearly 2,600 offices in 27 countries. Kelly provides employment to over 700,000 employees annually, with skills including office services, accounting, engineering, information technology, law, science, marketing, light industrial, education, health care, and home care. Revenue in 2004 was $4.98 billion. Visit www.kellyservices.com.
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KELLY SERVICES, INC. AND SUBSIDIARIES
PRELIMINARY STATEMENTS OF EARNINGS
FOR THE 13 WEEKS ENDED APRIL 3, 2005 AND MARCH 28, 2004
(UNAUDITED)
(In thousands of dollars except per share data)
| 2005 |
2004 |
Change |
% Change |
||||||||||||
| Revenue from services |
$ | 1,249,335 | $ | 1,158,811 | $ | 90,524 | 7.8 | % | |||||||
| Cost of services |
1,044,967 | 975,455 | 69,512 | 7.1 | |||||||||||
| Gross profit |
204,368 | 183,356 | 21,012 | 11.5 | |||||||||||
| Selling, general and administrative expenses |
197,989 | 181,342 | 16,647 | 9.2 | |||||||||||
| Earnings from operations |
6,379 | 2,014 | 4,365 | 216.7 | |||||||||||
| Interest expense, net |
(35 | ) | (239 | ) | 204 | 85.4 | |||||||||
| Earnings before taxes |
6,344 | 1,775 | 4,569 | 257.4 | |||||||||||
| Income taxes |
2,230 | 710 | 1,520 | 214.1 | |||||||||||
| Net earnings |
$ | 4,114 | $ | 1,065 | $ | 3,049 | 286.3 | % | |||||||
| Basic earnings per share |
$ | 0.12 | $ | 0.03 | $ | 0.09 | 300.0 | % | |||||||
| Diluted earnings per share |
$ | 0.11 | $ | 0.03 | $ | 0.08 | 266.7 | % | |||||||
| STATISTICS: |
|||||||||||||||
| Gross profit rate |
16.4 | % | 15.8 | % | 0.6 | % | |||||||||
| Expenses as a% of revenue |
15.8 | 15.6 | 0.2 | ||||||||||||
| % Return - Earnings from operations |
0.5 | 0.2 | 0.3 | ||||||||||||
| Earnings before taxes |
0.5 | 0.2 | 0.3 | ||||||||||||
| Net earnings |
0.3 | 0.1 | 0.2 | ||||||||||||
| Effective income tax rate |
35.2 | 40.0 | (4.8 | ) | |||||||||||
| Average number of shares outstanding (thousands): |
|||||||||||||||
| Basic |
35,535 | 34,881 | |||||||||||||
| Diluted |
35,934 | 35,302 | |||||||||||||
The financial information above is considered preliminary and is subject
to change related to the Company’s review of lease accounting.
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KELLY SERVICES, INC.
PRELIMINARY RESULTS OF OPERATIONS BY SEGMENT
(UNAUDITED)
(In thousands of dollars)
| First Quarter |
|||||||||||||||
| 2005 |
2004 |
Change |
% Change |
||||||||||||
| Revenue from Services: |
|||||||||||||||
| U.S. Commercial Staffing |
$ | 565,514 | $ | 549,330 | $ | 16,184 | 2.9 | % | |||||||
| PTSA |
272,422 | 238,790 | 33,632 | 14.1 | |||||||||||
| International |
411,399 | 370,691 | 40,708 | 11.0 | |||||||||||
| Consolidated Total |
$ | 1,249,335 | $ | 1,158,811 | $ | 90,524 | 7.8 | % | |||||||
| Earnings (Loss) from Operations: |
|||||||||||||||
| U.S. Commercial Staffing |
$ | 29,386 | $ | 24,307 | $ | 5,079 | 20.9 | % | |||||||
| PTSA |
15,469 | 14,032 | 1,437 | 10.2 | |||||||||||
| International |
537 | (905 | ) | 1,442 | N/A | ||||||||||
| Corporate Expense |
(39,013 | ) | (35,420 | ) | (3,593 | ) | (10.1 | ) | |||||||
| Consolidated Total |
$ | 6,379 | $ | 2,014 | $ | 4,365 | 216.7 | % | |||||||
The financial information above is considered preliminary and is subject
to change related to the Company’s review of lease accounting.
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KELLY SERVICES, INC.
PRELIMINARY RECONCILIATION OF CONSTANT CURRENCY
REVENUE FROM SERVICES TO REPORTED REVENUE FROM SERVICES
UNAUDITED
(In thousands of dollars)
| First Quarter |
||||||||||||
| 2005 |
2004 |
Change |
% Change |
|||||||||
| U.S. Commercial Staffing |
$ | 565,514 | $ | 549,330 | $ | 16,184 | 2.9 | % | ||||
| PTSA |
272,422 | 238,790 | 33,632 | 14.1 | ||||||||
| International - constant currency* |
395,789 | 370,691 | 25,098 | 6.8 | ||||||||
| Revenue from services - constant currency |
1,233,725 | 1,158,811 | 74,914 | 6.5 | % | |||||||
| Foreign currency impact |
15,610 | 15,610 | ||||||||||
| Revenue from services |
$ | 1,249,335 | $ | 1,158,811 | $ | 90,524 | 7.8 | % | ||||
| * | Information on constant currencies is provided to allow investors to separate the impact of foreign currency translations on reported results. Constant currency results are calculated by translating the current year results at prior year average exchange rates. |
The financial information above is considered preliminary and is subject
to change related to the Company’s review of lease accounting.
10
KELLY SERVICES, INC. AND SUBSIDIARIES
PRELIMINARY STATEMENTS OF CASH FLOWS
FOR THE 13 WEEKS ENDED APRIL 3, 2005 AND MARCH 28, 2004
UNAUDITED
(In thousands of dollars)
| 2005 |
2004 |
|||||||
| Cash flows from operating activities |
||||||||
| Net earnings |
$ | 4,114 | $ | 1,065 | ||||
| Noncash adjustments: |
||||||||
| Depreciation and amortization |
10,382 | 11,326 | ||||||
| Increase in trade accounts receivable, net |
(21,698 | ) | (47,447 | ) | ||||
| Changes in other operating assets and liabilities |
7,222 | 18,743 | ||||||
| Net cash from operating activities |
20 | (16,313 | ) | |||||
| Cash flows from investing activities |
||||||||
| Capital expenditures |
(5,945 | ) | (4,375 | ) | ||||
| Decrease in short-term investments |
834 | 5 | ||||||
| Increase in other assets |
(2,867 | ) | (173 | ) | ||||
| Investment in unconsolidated affiliate |
(18,450 | ) | — | |||||
| Net cash from investing activities |
(26,428 | ) | (4,543 | ) | ||||
| Cash flows from financing activities |
||||||||
| Increase (decrease) in short-term borrowings |
14,674 | (708 | ) | |||||
| Dividend payments |
(3,554 | ) | (3,491 | ) | ||||
| Stock options and other |
(777 | ) | 4,169 | |||||
| Purchase of treasury stock |
— | (3 | ) | |||||
| Net cash from financing activities |
10,343 | (33 | ) | |||||
| Effect of exchange rates on cash and equivalents |
(1,958 | ) | (142 | ) | ||||
| Net change in cash and equivalents |
(18,023 | ) | (21,031 | ) | ||||
| Cash and equivalents at beginning of period |
87,554 | 76,378 | ||||||
| Cash and equivalents at end of period |
$ | 69,531 | $ | 55,347 | ||||
The financial information above is considered preliminary and is subject
to change related to the Company’s review of lease accounting.
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KELLY SERVICES, INC. AND SUBSIDIARIES
PRELIMINARY BALANCE SHEETS
UNAUDITED
(In thousands of dollars)
| April 3, 2005 |
January 2, 2005 |
March 28, 2004 |
||||||||||
| Current Assets |
||||||||||||
| Cash and equivalents |
$ | 69,531 | $ | 87,554 | $ | 55,347 | ||||||
| Short-term investments |
512 | 1,288 | 452 | |||||||||
| Trade accounts receivable, less allowances of $16,296, $16,228 and $16,004, respectively |
740,980 | 727,366 | 704,771 | |||||||||
| Prepaid expenses and other current assets |
41,447 | 40,736 | 34,777 | |||||||||
| Deferred taxes |
36,339 | 34,967 | 24,530 | |||||||||
| Total current assets |
888,809 | 891,911 | 819,877 | |||||||||
| Property and Equipment, Net |
174,805 | 179,786 | 181,487 | |||||||||
| Noncurrent Deferred Taxes |
18,489 | 17,960 | 14,378 | |||||||||
| Goodwill, Net |
92,031 | 94,652 | 84,398 | |||||||||
| Other Assets |
82,706 | 63,059 | 58,847 | |||||||||
| Total Assets |
$ | 1,256,840 | $ | 1,247,368 | $ | 1,158,987 | ||||||
| Current Liabilities |
||||||||||||
| Short-term borrowings |
$ | 47,061 | $ | 34,289 | $ | 37,904 | ||||||
| Accounts payable |
109,635 | 102,264 | 96,561 | |||||||||
| Accrued payroll and related taxes |
245,442 | 246,061 | 218,792 | |||||||||
| Accrued insurance |
32,734 | 33,165 | 33,674 | |||||||||
| Income and other taxes |
62,419 | 67,839 | 52,754 | |||||||||
| Total current liabilities |
497,291 | 483,618 | 439,685 | |||||||||
| Noncurrent Liabilities |
||||||||||||
| Accrued insurance |
57,828 | 58,548 | 54,941 | |||||||||
| Accrued retirement benefits |
52,156 | 50,892 | 48,788 | |||||||||
| Total noncurrent liabilities |
109,984 | 109,440 | 103,729 | |||||||||
| Stockholders’ Equity |
||||||||||||
| Common stock |
40,116 | 40,116 | 40,116 | |||||||||
| Treasury stock |
(96,328 | ) | (97,693 | ) | (108,023 | ) | ||||||
| Paid-in capital |
22,787 | 22,530 | 19,651 | |||||||||
| Earnings invested in the business |
664,738 | 664,813 | 654,300 | |||||||||
| Accumulated other comprehensive income |
18,252 | 24,544 | 9,529 | |||||||||
| Total stockholders’ equity |
649,565 | 654,310 | 615,573 | |||||||||
| Total Liabilities and Stockholders’ Equity |
$ | 1,256,840 | $ | 1,247,368 | $ | 1,158,987 | ||||||
| STATISTICS: |
||||||||||||
| Working Capital |
$ | 391,518 | $ | 408,293 | $ | 380,192 | ||||||
| Current Ratio |
1.8 | 1.8 | 1.9 | |||||||||
| Debt-to-capital % |
6.8 | % | 5.0 | % | 5.8 | % | ||||||
| Global Days Sales Outstanding |
||||||||||||
| Year-to-date |
54 | 54 | 55 | |||||||||
The financial information above is considered preliminary and is subject
to change related to the Company’s review of lease accounting.