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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): October 24, 2006
| KELLY SERVICES, INC.
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(Exact name of Registrant as specified in its charter) |
| DELAWARE
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0-1088
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38-1510762
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(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification Number) |
| 999 WEST BIG BEAVER ROAD, TROY, MICHIGAN 48084
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(Address of principal executive offices) |
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| (Zip Code) |
| (248) 362-4444
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(Registrant’s telephone number, including area code) |
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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 and nine-month periods ended October 1, 2006. A copy of the press release is attached as exhibit 99.1 herein.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
99.1 Press Release dated October 24, 2006.
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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: October 24, 2006 | ||
| /s/ William K. Gerber | ||
| William K. Gerber | ||
| Executive Vice President and | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
| Date: October 24, 2006 | ||
| /s/ Michael E. Debs | ||
| Michael E. Debs | ||
| Senior Vice President and Corporate Controller | ||
| (Principal Accounting Officer) | ||
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EXHIBIT INDEX
| Exhibit No. | Description | |
| 99.1 | Press release dated October 24, 2006 | |
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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 41% INCREASE IN NET EARNINGS
FOR THE THIRD QUARTER OF 2006
TROY, MI (October 24, 2006) — Kelly Services, Inc., a global provider of staffing services, today announced record revenue and a 41% increase in net earnings for the third quarter ended October 1, 2006.
Carl T. Camden, President and Chief Executive Officer, announced revenue for the third quarter of 2006 totaled $1.419 billion, a 5.5% increase compared to the $1.345 billion for the corresponding quarter in 2005. Revenue for the nine-month period totaled $4.195 billion, a 7.4% increase compared to the $3.906 billion for the first nine months of 2005.
Net earnings for the third quarter of 2006 totaled $17.8 million, a 40.6% increase compared to $12.7 million reported for the third quarter of 2005. Net earnings for the first nine months of 2006 totaled $39.0 million, a 50.5% increase compared to the $25.9 million earned in the comparable period of 2005.
Diluted earnings per share in the third quarter of 2006 were $0.49, an increase of 40.0% as compared to third quarter 2005 earnings of $0.35 per share. Diluted earnings per share for the first nine months of 2006 were $1.08, a 50.0% increase compared to the $0.72 per share earned last year.
Commenting on the results, Camden said, “We’re pleased that we delivered solid earnings performance despite a slowdown in the U.S. economy. Our PTSA and International segments delivered particularly strong profit increases.
“Our earnings before taxes grew by nearly 48% during the third quarter. However, our net earnings after taxes increased at a lower rate of 41%, because our tax rate was higher than last year. This was primarily due to the fact that legislation to retroactively extend Work Opportunity Credits for 2006 was not passed in the third quarter, as was originally expected. It is not unusual for the credits to be delayed, and we still believe that this legislation will be passed before year end.
“Revenue in our U.S. Commercial segment, which accounted for 44% of total sales, increased 1.0% year over year in the third quarter. Operating earnings totaled $32.5 million, an increase of 5.4% compared to last year.
“Revenue in our Professional, Technical, and Staffing Alternatives (PTSA) segment, which accounted for 20% of total sales, increased 0.9% year over year in the third quarter. Operating earnings totaled $20.8 million and increased 25.0% on a year over year basis.
“Revenue in our International segment, which accounted for 36% of total sales, increased 14.9% year over year in the third quarter. Operating earnings totaled $10.4 million, and increased 77.9% compared to last year.
“On a constant currency basis, International segment revenue increased 10.8% year over year in the third quarter. On a constant currency basis, total company revenue increased 4.2% year over year in the third quarter.
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“Corporate expenses totaled $38.5 million and increased 6.8% compared to last year. Operating earnings totaled $25.3 million, and increased 45.7% on a year over year basis.”
Mr. Camden concluded, “We expect fourth quarter 2006 earnings to be in the range of $0.46 to $0.51 per share, as compared to $0.37 per share in the fourth quarter of 2005. This guidance includes a tax rate of approximately 24%, which assumes legislation to retroactively extend Work Opportunity Credits to the beginning of 2006 will be signed during the fourth quarter. For the full year, we now forecast earnings between $1.54 and $1.59 per share.”
In conjunction with its third quarter earnings release, Kelly Services, Inc. will host a conference call at 9:00 a.m. (ET) on October 24, 2006 to review the results and answer questions. The call may be accessed in one of the following ways:
Via the Telephone:
| U.S. | 1-866-269-9613 | |
| International | 1-651-291-0900 |
The pass code is Kelly Services
Via the Internet:
The call is also available 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, 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 operates in 30 countries and territories. Kelly provides employment to more than 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 2005 was $5.3 billion. Visit www.kellyservices.com.
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KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF EARNINGS
FOR THE 13 WEEKS ENDED OCTOBER 1, 2006 AND OCTOBER 2, 2005
(UNAUDITED)
(In thousands of dollars except per share data)
| 2006 | 2005 | Change | % Change | ||||||||||||
| Revenue from services | $ | 1,418,804 | $ | 1,344,644 | $ | 74,160 | 5.5 | % | |||||||
| Cost of services |
1,180,207 | 1,126,466 | 53,741 | 4.8 | |||||||||||
| Gross profit | 238,597 | 218,178 | 20,419 | 9.4 | |||||||||||
| Selling, general and administrative expenses |
213,345 | 200,849 | 12,496 | 6.2 | |||||||||||
| Earnings from operations | 25,252 | 17,329 | 7,923 | 45.7 | |||||||||||
| Other income, net |
348 | 10 | 338 | NM | |||||||||||
| Earnings before taxes | 25,600 | 17,339 | 8,261 | 47.6 | |||||||||||
| Income taxes |
7,782 | 4,664 | 3,118 | 66.9 | |||||||||||
| Net earnings | $ | 17,818 | $ | 12,675 | $ | 5,143 | 40.6 | % | |||||||
| Basic earnings per share | $ | 0.49 | $ | 0.35 | $ | 0.14 | 40.0 | % | |||||||
| Diluted earnings per share | $ | 0.49 | $ | 0.35 | $ | 0.14 | 40.0 | % | |||||||
| STATISTICS: | |||||||||||||||
| Gross profit rate |
16.8 | % | 16.2 | % | 0.6 | % | |||||||||
| Expenses as a % of revenue |
15.0 | 14.9 | 0.1 | ||||||||||||
| % Return - Earnings from operations |
1.8 | 1.3 | 0.5 | ||||||||||||
| Earnings before taxes |
1.8 | 1.3 | 0.5 | ||||||||||||
| Net earnings |
1.3 | 0.9 | 0.4 | ||||||||||||
| Effective income tax rate |
30.4 | % | 26.9 | % | 3.5 | % | |||||||||
| Average number of shares outstanding (thousands): |
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| Basic |
35,997 | 35,725 | |||||||||||||
| Diluted |
36,225 | 36,006 | |||||||||||||
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KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF EARNINGS
FOR THE 39 WEEKS ENDED OCTOBER 1, 2006 AND OCTOBER 2, 2005
(UNAUDITED)
(In thousands of dollars except per share data)
| 2006 | 2005 | Change | % Change | ||||||||||||
| Revenue from services | $ | 4,195,302 | $ | 3,905,883 | $ | 289,419 | 7.4 | % | |||||||
| Cost of services |
3,507,120 | 3,269,519 | 237,601 | 7.3 | |||||||||||
| Gross profit | 688,182 | 636,364 | 51,818 | 8.1 | |||||||||||
| Selling, general and administrative expenses |
628,167 | 599,332 | 28,835 | 4.8 | |||||||||||
| Earnings from operations | 60,015 | 37,032 | 22,983 | 62.1 | |||||||||||
| Other income (expense), net |
853 | (177) | 1,030 | NM | |||||||||||
| Earnings before taxes | 60,868 | 36,855 | 24,013 | 65.2 | |||||||||||
| Income taxes |
21,819 | 10,909 | 10,910 | 100.0 | |||||||||||
| Net earnings | $ | 39,049 | $ | 25,946 | $ | 13,103 | 50.5 | % | |||||||
| Basic earnings per share | $ | 1.09 | $ | 0.73 | $ | 0.36 | 49.3 | % | |||||||
| Diluted earnings per share | $ | 1.08 | $ | 0.72 | $ | 0.36 | 50.0 | % | |||||||
| STATISTICS: | |||||||||||||||
| Gross profit rate |
16.4 | % | 16.3 | % | 0.1 | % | |||||||||
| Expenses as a % of revenue |
15.0 | 15.3 | (0.3) | ||||||||||||
| % Return - Earnings from operations |
1.4 | 0.9 | 0.5 | ||||||||||||
| Earnings before taxes |
1.5 | 0.9 | 0.6 | ||||||||||||
| Net earnings |
0.9 | 0.7 | 0.2 | ||||||||||||
| Effective income tax rate |
35.8 | % | 29.6 | % | 6.2 | % | |||||||||
| Average number of shares outstanding (thousands): |
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| Basic |
35,937 | 35,619 | |||||||||||||
| Diluted |
36,226 | 35,903 | |||||||||||||
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KELLY SERVICES, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS BY SEGMENT
(UNAUDITED)
(In thousands of dollars)
| Third Quarter | ||||||||||||
| 2006 | 2005 | Change | % Change | |||||||||
| Revenue from Services: |
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| U.S. Commercial Staffing |
$ | 625,241 | $ | 619,324 | $ | 5,917 | 1.0 | % | ||||
| PTSA |
287,592 | 284,889 | 2,703 | 0.9 | ||||||||
| International |
505,971 | 440,431 | 65,540 | 14.9 | ||||||||
| Consolidated Total |
$ | 1,418,804 | $ | 1,344,644 | $ | 74,160 | 5.5 | % | ||||
| Earnings from Operations: |
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| U.S. Commercial Staffing |
$ | 32,531 | $ | 30,866 | $ | 1,665 | 5.4 | % | ||||
| PTSA |
20,821 | 16,659 | 4,162 | 25.0 | ||||||||
| International |
10,390 | 5,842 | 4,548 | 77.9 | ||||||||
| Corporate Expense |
(38,490) | (36,038) | (2,452) | (6.8) | ||||||||
| Consolidated Total |
$ | 25,252 | $ | 17,329 | $ | 7,923 | 45.7 | % | ||||
|
September Year to Date |
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| 2006 | 2005 | Change | % Change | |||||||||
| Revenue from Services: |
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| U.S. Commercial Staffing |
$ | 1,883,297 | $ | 1,787,263 | $ | 96,034 | 5.4 | % | ||||
| PTSA |
879,190 | 838,275 | 40,915 | 4.9 | ||||||||
| International |
1,432,815 | 1,280,345 | 152,470 | 11.9 | ||||||||
| Consolidated Total |
$ | 4,195,302 | $ | 3,905,883 | $ | 289,419 | 7.4 | % | ||||
| Earnings from Operations: |
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| U.S. Commercial Staffing |
$ | 95,619 | $ | 85,144 | $ | 10,475 | 12.3 | % | ||||
| PTSA |
58,644 | 47,467 | 11,177 | 23.5 | ||||||||
| International |
18,889 | 9,819 | 9,070 | 92.4 | ||||||||
| Corporate Expense |
(113,137) | (105,398) | (7,739) | (7.3) | ||||||||
| Consolidated Total |
$ | 60,015 | $ | 37,032 | $ | 22,983 | 62.1 | % | ||||
| Note: | Earnings from Operations for 2005 were reclassified to reflect the chargeback of payroll, billing and accounts receivable costs previously included in Corporate Expense to the U.S. Commercial, PTSA and International segments. This change did not affect Consolidated Total Earnings from Operations. |
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KELLY SERVICES, INC. AND SUBSIDIARIES
RECONCILIATION OF CONSTANT CURRENCY
REVENUE FROM SERVICES TO REPORTED REVENUE FROM SERVICES
(UNAUDITED)
(In thousands of dollars)
| Third Quarter | ||||||||||||
| 2006 | 2005 | Change | % Change | |||||||||
| U.S. Commercial |
$ | 625,241 | $ | 619,324 | $ | 5,917 | 1.0 | % | ||||
| PTSA |
287,592 | 284,889 | 2,703 | 0.9 | ||||||||
| International - constant currency* |
487,977 | 440,431 | 47,546 | 10.8 | ||||||||
| Revenue from services - constant currency |
1,400,810 | 1,344,644 | 56,166 | 4.2 | % | |||||||
| Foreign currency impact |
17,994 | 17,994 | ||||||||||
| Revenue from services |
$ | 1,418,804 | $ | 1,344,644 | $ | 74,160 | 5.5 | % | ||||
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September Year to Date |
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| 2006 | 2005 | Change | % Change | |||||||||
| U.S. Commercial |
$ | 1,883,297 | $ | 1,787,263 | $ | 96,034 | 5.4 | % | ||||
| PTSA |
879,190 | 838,275 | 40,915 | 4.9 | ||||||||
| International - constant currency* |
1,430,407 | 1,280,345 | 150,062 | 11.7 | ||||||||
| Revenue from services - constant currency |
4,192,894 | 3,905,883 | 287,011 | 7.3 | % | |||||||
| Foreign currency impact |
2,408 | 2,408 | ||||||||||
| Revenue from services |
$ | 4,195,302 | $ | 3,905,883 | $ | 289,419 | 7.4 | % | ||||
| * | 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. |
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KELLY SERVICES, INC. AND SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)
(In thousands of dollars)
| October 1, 2006 |
January 1, 2006 |
October 2, 2005 |
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| Current Assets |
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| Cash and equivalents |
$ 77,493 | $ 63,699 | $ 59,286 | ||||||
| Short-term investments |
227 | 154 | 221 | ||||||
| Trade accounts receivable, less allowances of $17,840, $16,648 and $17,320, respectively |
878,336 | 803,812 | 811,583 | ||||||
| Prepaid expenses and other current assets |
44,849 | 47,434 | 47,032 | ||||||
| Deferred taxes |
34,693 | 33,805 | 37,702 | ||||||
| Total current assets |
1,035,598 | 948,904 | 955,824 | ||||||
| Property and Equipment, Net |
162,791 | 165,757 | 165,947 | ||||||
| Noncurrent Deferred Taxes |
23,128 | 22,088 | 18,353 | ||||||
| Goodwill, Net |
94,592 | 88,217 | 88,723 | ||||||
| Other Assets |
113,599 | 87,891 | 87,082 | ||||||
| Total Assets |
$1,429,708 | $1,312,857 | $1,315,929 | ||||||
| Current Liabilities |
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| Short-term borrowings |
$ 58,375 | $ 56,644 | $ 47,991 | ||||||
| Accounts payable |
125,213 | 110,411 | 111,246 | ||||||
| Accrued payroll and related taxes |
293,223 | 263,112 | 270,672 | ||||||
| Accrued insurance |
32,728 | 34,097 | 33,683 | ||||||
| Income and other taxes |
63,559 | 56,651 | 64,561 | ||||||
| Total current liabilities |
573,098 | 520,915 | 528,153 | ||||||
| Noncurrent Liabilities |
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| Accrued insurance |
53,294 | 54,517 | 59,883 | ||||||
| Accrued retirement benefits |
63,641 | 57,443 | 56,024 | ||||||
| Other long-term liabilities |
15,238 | 7,939 | 8,236 | ||||||
| Total noncurrent liabilities |
132,173 | 119,899 | 124,143 | ||||||
| Stockholders’ Equity |
|||||||||
| Common stock |
40,116 | 40,116 | 40,116 | ||||||
| Treasury stock |
(86,665) | (90,919) | (91,666) | ||||||
| Paid-in capital |
28,955 | 27,015 | 26,320 | ||||||
| Earnings invested in the business |
715,249 | 688,033 | 678,298 | ||||||
| Accumulated other comprehensive income |
26,782 | 7,798 | 10,565 | ||||||
| Total stockholders’ equity |
724,437 | 672,043 | 663,633 | ||||||
| Total Liabilities and Stockholders’ Equity |
$1,429,708 | $1,312,857 | $1,315,929 | ||||||
| STATISTICS: |
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| Working Capital |
$ 462,500 | $ 427,989 | $ 427,671 | ||||||
| Current Ratio |
1.8 | 1.8 | 1.8 | ||||||
| Debt-to-capital % |
7.5 | % | 7.8 | % | 6.7 | % | |||
| Global Days Sales Outstanding |
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| Quarter |
56 | 53 | 55 | ||||||
| Year-to-date |
57 | 55 | 57 | ||||||
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KELLY SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE 39 WEEKS ENDED OCTOBER 1, 2006 AND OCTOBER 2, 2005
(UNAUDITED)
(In thousands of dollars)
| 2006 | 2005 | |||||
| Cash flows from operating activities | ||||||
| Net earnings |
$ | 39,049 | $ | 25,946 | ||
| Noncash adjustments: |
||||||
| Depreciation and amortization |
30,949 | 31,709 | ||||
| Stock-based compensation |
3,913 | 2,448 | ||||
| Increase in trade accounts receivable, net |
(56,252) | (103,981) | ||||
| Changes in other operating assets and liabilities |
41,455 | 58,784 | ||||
| Net cash from operating activities |
59,114 | 14,906 | ||||
| Cash flows from investing activities | ||||||
| Capital expenditures |
(26,111) | (17,899) | ||||
| (Increase) decrease in short-term investments |
(73) | 1,135 | ||||
| Increase in other assets |
(468) | (8,422) | ||||
| Acquisition of company, net of cash received |
(4,531) | - | ||||
| Investment in unconsolidated affiliates |
- | (19,681) | ||||
| Net cash from investing activities |
(31,183) | (44,867) | ||||
| Cash flows from financing activities | ||||||
| Net (decrease) increase in short-term borrowings |
(289) | 16,973 | ||||
| Dividend payments |
(11,833) | (10,687) | ||||
| Stock options and other stock sales |
1,683 | 5,031 | ||||
| Other financing activities |
(4,504) | 1,168 | ||||
| Net cash from financing activities |
(14,943) | 12,485 | ||||
| Effect of exchange rates on cash and equivalents | 806 | (2,586) | ||||
| Net change in cash and equivalents | 13,794 | (20,062) | ||||
| Cash and equivalents at beginning of period | 63,699 | 79,348 | ||||
| Cash and equivalents at end of period | $ | 77,493 | $ | 59,286 | ||