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): January 21, 2009
KELLY SERVICES, INC.
(Exact name of Registrant as specified in its charter)
| DELAWARE |
0-1088 |
38-1510762 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer 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)) |
2
Item 2.02. Results of Operations and Financial Condition
On January 22, 2009, Kelly Services, Inc. (the “Company”) released financial information containing highlighted financial data for the three months and year ended December 28, 2008. A copy of the press release is attached as exhibit 99.1 herein.
Item 2.05. Costs Associated with Exit or Disposal Activities
On January 21, 2009, the Chief Executive Officer of Kelly Services, Inc. authorized a restructuring plan for our United Kingdom operations (“Kelly U.K.”). The plan is the result of management’s strategic review of the operations of Kelly U.K. which identified the opportunity for additional operational cost savings. We have not yet identified specific branches or employees affected, but expect that the plan will result in the consolidation of certain operations and staff reductions. We expect that the plan will be completed by the end of 2009.
We currently estimate that we will incur total pre-tax charges associated with these actions of approximately $11 million to $14 million, including approximately $9 million to $11 million in facility exit costs and approximately $2 million to $3 million in severance expenses. We recorded $1.5 million of severance costs in the fourth quarter of 2008 and expect the remainder to be recorded in 2009 in accordance with generally accepted accounting principles. We expect all of the expense will result from future cash expenditures.
Item 5.02(e). Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
At its meeting held January 21, 2009, the Board of Directors, based upon the recommendation of the Benefit Plans Committee and the Compensation Committee, respectively, approved a recommendation to freeze the Company matching contribution under Section 4.4 of the Company’s 2008 Management Retirement Plan (“MRP”) by indefinitely suspending the Company matching contribution with respect to employee deferrals credited under the Plan on and after February 1, 2009. The MRP is a non-qualified defined contribution/deferred compensation plan available to all highly compensated employees, including the Company’s named executive officers. But for the suspension of the match, the Company would have credited a matching credit to an eligible employee’s account in an amount equal to 50% of the first 8% of the employee’s base salary that was deferred for a payroll period and an amount equal to 50% of the first 8% of an eligible employee’s commissions and bonus that were deferred.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
99.1 Press Release dated January 22, 2009.
3
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: January 22, 2009
|
||
| /s/ Patricia Little | ||
| Patricia Little
| ||
| Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||
| Date: January 22, 2009
|
||
| /s/ Michael E. Debs | ||
| Michael E. Debs
| ||
| Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | ||
4
EXHIBIT INDEX
| Exhibit No. |
Description | |||
| 99.1 | Press release dated January 22, 2009 | |||
5
Exhibit 99.1
KELLY SERVICES REPORTS 4th QUARTER AND FULL YEAR 2008 RESULTS
TROY, MI (January 22, 2009) – Kelly Services, Inc., a world leader in human resources solutions, today announced results for the fourth quarter and year ended December 28, 2008.
Carl T. Camden, President and Chief Executive Officer, announced revenue for the fourth quarter of 2008 totaled $1.3 billion, a 13% decrease compared to the corresponding quarter in 2007. Revenue for the full year totaled $5.5 billion, a 3% decrease compared to 2007.
Losses from operations for the fourth quarter of 2008 totaled $83.6 million, compared to earnings from operations of $26.5 million reported for the fourth quarter of 2007. Included in the results from operations for the fourth quarter 2008 are impairment charges totaling $80.5 million and $1.5 million of restructuring costs relating to the Company’s UK operations. Earnings from operations in the fourth quarter 2007 included $1.3 million of restructuring costs related primarily to our Americas Commercial operations. Excluding the impairment and restructuring charges, the loss from operations was $1.6 million for the fourth quarter of 2008, compared to earnings from operations of $27.9 million in the fourth quarter of 2007.
Losses from operations for the full year of 2008 totaled $70.3 million, compared to earnings from operations of $80.1 million in 2007. The results for the full year 2008 include the $80.5 million of impairment charges, the $1.5 million of restructuring in the UK as well as a $22.5 million third quarter charge related to several litigation matters. Included in earnings from operations for 2007 are $8.9 million of costs related to the restructuring of the Americas Commercial and UK operations.
Diluted losses per share from continuing operations in the fourth quarter of 2008 were $2.55, compared to fourth quarter 2007 earnings of $0.52 per share. The impairment charges totaled $2.22 per share and the UK restructuring charges totaled $0.04 per share in 2008. Fourth quarter 2007 diluted earnings include the $0.02 per share cost of the Americas Commercial restructuring.
Diluted losses per share from continuing operations for the full year of 2008 were $2.35, compared to 2007 earnings per share of $1.47. The impairment charges totaled $2.22, the UK restructuring charges totaled $0.04 and the litigation charges totaled $0.40 per diluted share from continuing operations in 2008. The Americas Commercial and UK restructuring costs totaled $0.21 per share in 2007.
The fourth quarter impairment charges include adjustments to the value of goodwill for the Company’s EMEA Commercial segment, the Company’s investment in Temp Holdings Co. Ltd. (formerly Tempstaff), a Japanese staffing company, and assets related to operations in the UK. The UK restructuring charge is part of a plan to further consolidate and close branches in the UK during 2009.
Commenting on the fourth quarter results, Camden called the Company’s loss disappointing, but not unexpected.
“This year, we’ve witnessed a widespread economic slowdown as anxiety over the global financial crisis intensified. With the loss of 2.6 million jobs in the U.S. alone, it comes as no surprise that demand for temporary staffing has declined dramatically – here, and throughout the world.”
Camden emphasized that Kelly is making prudent decisions to reduce costs and be responsive to the economic times. He added that the Company continues to execute a strategic plan aimed at building long-term value for its stakeholders.
“We remain focused on diversifying globally, expanding our professional and technical staffing, and growing our outsourcing and consulting services,” said Camden.
6
In conjunction with its fourth quarter earnings release, Kelly Services, Inc. will host a conference call at 9:00 a.m. (ET) on January 22, 2009 to review the results and answer questions. The call may be accessed in one of the following ways:
Via the Telephone:
| U.S. | 1 888 428-4480 | |
| International | 1 651 291-5254 |
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 forward looking statements contained herein.
A reconciliation of certain non-GAAP financial measures discussed in this release is included in the attached financial information schedules.
About Kelly Services
Kelly Services, Inc. (NASDAQ: KELYA, KELYB) is a world leader in human resources solutions headquartered in Troy, Michigan, offering temporary staffing services, outsourcing, vendor on-site and full-time placement to clients on a global basis. Kelly provides employment to more than 750,000 employees annually, with skills including office services, accounting, engineering, information technology, law, science, marketing, creative services, light industrial, education, and health care. Revenue in 2008 was $5.5 billion. Visit www.kellyservices.com.
| ANALYST CONTACT: James Polehna (248) 244-4586 james_polehna@kellyservices.com |
MEDIA CONTACT: Judith Clark (248) 244-5362 judith_clark@kellyservices.com |
7
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE 13 WEEKS ENDED DECEMBER 28, 2008 AND DECEMBER 30, 2007
(UNAUDITED)
(In thousands of dollars except per share data)
| 2008 | 2007 | Change | % Change | ||||||||||||
| Revenue from services |
$ | 1,279,091 | $ | 1,475,759 | $ | (196,668 | ) | (13.3 | )% | ||||||
| Cost of services |
1,054,445 | 1,210,323 | (155,878 | ) | (12.9 | ) | |||||||||
| Gross profit |
224,646 | 265,436 | (40,790 | ) | (15.4 | ) | |||||||||
| Selling, general and administrative expenses |
227,734 | 238,895 | (11,161 | ) | (4.7 | ) | |||||||||
| Asset impairments |
80,533 | — | 80,533 | N/A | |||||||||||
| (Loss) earnings from operations |
(83,621 | ) | 26,541 | (110,162 | ) | (415.1 | ) | ||||||||
| Other (expense) income, net |
(3,426 | ) | 1,021 | (4,447 | ) | (435.6 | ) | ||||||||
| (Loss) earnings from continuing operations before taxes |
(87,047 | ) | 27,562 | (114,609 | ) | (415.8 | ) | ||||||||
| Income taxes |
1,536 | 9,089 | (7,553 | ) | (83.1 | ) | |||||||||
| (Loss) earnings from continuing operations |
(88,583 | ) | 18,473 | (107,056 | ) | (579.5 | ) | ||||||||
| (Loss) earnings from discontinued operations, net of tax |
(186 | ) | 158 | (344 | ) | (217.7 | ) | ||||||||
| Net (loss) earnings |
$ | (88,769 | ) | $ | 18,631 | $ | (107,400 | ) | (576.5 | )% | |||||
| Basic (loss) earnings per share |
|||||||||||||||
| (Loss) earnings from continuing operations |
$ | (2.55 | ) | $ | 0.52 | $ | (3.07 | ) | (590.4 | )% | |||||
| (Loss) earnings from discontinued operations |
(0.01 | ) | — | (0.01 | ) | N/A | |||||||||
| Net (loss) earnings |
$ | (2.55 | ) | $ | 0.52 | $ | (3.07 | ) | (590.4 | )% | |||||
| Diluted (loss) earnings per share |
|||||||||||||||
| (Loss) earnings from continuing operations |
$ | (2.55 | ) | $ | 0.52 | $ | (3.07 | ) | (590.4 | )% | |||||
| (Loss) earnings from discontinued operations |
(0.01 | ) | — | (0.01 | ) | N/A | |||||||||
| Net (loss) earnings |
$ | (2.55 | ) | $ | 0.52 | $ | (3.07 | ) | (590.4 | )% | |||||
|
STATISTICS:
|
|||||||||||||||
| Gross profit rate |
17.6 | % | 18.0 | % | (0.4 | ) pts. | |||||||||
| Selling, general and administrative expenses: |
|||||||||||||||
| % of revenue |
17.8 | 16.2 | 1.6 | ||||||||||||
| % of gross profit |
101.4 | 90.0 | 11.4 | ||||||||||||
| % Return - (Loss) earnings from operations |
(6.5 | ) | 1.8 | (8.3 | ) | ||||||||||
| (Loss) earnings from continuing operations before taxes |
(6.8 | ) | 1.9 | (8.7 | ) | ||||||||||
| (Loss) earnings from continuing operations |
(6.9 | ) | 1.3 | (8.2 | ) | ||||||||||
| Net (loss) earnings |
(6.9 | ) | 1.3 | (8.2 | ) | ||||||||||
| Effective income tax rate |
(1.8 | )% | 33.0 | % | (34.8 | ) pts. | |||||||||
| Average number of shares outstanding (thousands): |
|||||||||||||||
| Basic |
34,764 | 35,759 | |||||||||||||
| Diluted |
34,764 | 35,858 | |||||||||||||
8
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE 52 WEEKS ENDED DECEMBER 28, 2008 AND DECEMBER 30, 2007
(In thousands of dollars except per share data)
| 2008 | 2007 | Change | % Change | ||||||||||||
| Revenue from services |
$ | 5,517,290 | $ | 5,667,589 | $ | (150,299 | ) | (2.7 | )% | ||||||
| Cost of services |
4,539,639 | 4,678,500 | (138,861 | ) | (3.0 | ) | |||||||||
| Gross profit |
977,651 | 989,089 | (11,438 | ) | (1.2 | ) | |||||||||
| Selling, general and administrative expenses |
967,389 | 909,009 | 58,380 | 6.4 | |||||||||||
| Asset impairments |
80,533 | — | 80,533 | N/A | |||||||||||
| (Loss) earnings from operations |
(70,271 | ) | 80,080 | (150,351 | ) | (187.8 | ) | ||||||||
| Other (expense) income, net |
(3,452 | ) | 3,211 | (6,663 | ) | (207.5 | ) | ||||||||
| (Loss) earnings from continuing operations before taxes |
(73,723 | ) | 83,291 | (157,014 | ) | (188.5 | ) | ||||||||
| Income taxes |
7,992 | 29,567 | (21,575 | ) | (73.0 | ) | |||||||||
| (Loss) earnings from continuing operations |
(81,715 | ) | 53,724 | (135,439 | ) | (252.1 | ) | ||||||||
| (Loss) earnings from discontinued operations, net of tax |
(524 | ) | 7,292 | (7,816 | ) | (107.2 | ) | ||||||||
| Net (loss) earnings |
$ | (82,239 | ) | $ | 61,016 | $ | (143,255 | ) | (234.8 | )% | |||||
| Basic (loss) earnings per share |
|||||||||||||||
| (Loss) earnings from continuing operations |
$ | (2.35 | ) | $ | 1.48 | $ | (3.83 | ) | (258.8 | )% | |||||
| (Loss) earnings from discontinued operations |
(0.02 | ) | 0.20 | (0.22 | ) | (110.0 | ) | ||||||||
| Net (loss) earnings |
$ | (2.37 | ) | $ | 1.68 | $ | (4.05 | ) | (241.1 | )% | |||||
| Diluted (loss) earnings per share |
|||||||||||||||
| (Loss) earnings from continuing operations |
$ | (2.35 | ) | $ | 1.47 | $ | (3.82 | ) | (259.9 | )% | |||||
| (Loss) earnings from discontinued operations |
(0.02 | ) | 0.20 | (0.22 | ) | (110.0 | ) | ||||||||
| Net (loss) earnings |
$ | (2.37 | ) | $ | 1.67 | $ | (4.04 | ) | (241.9 | )% | |||||
| STATISTICS: | |||||||||||||||
| Gross profit rate |
17.7 | % | 17.5 | % | 0.2 | pts. | |||||||||
| Selling, general and administrative expenses: |
|||||||||||||||
| % of revenue |
17.5 | 16.0 | 1.5 | ||||||||||||
| % of gross profit |
99.0 | 91.9 | 7.1 | ||||||||||||
| % Return - (Loss) earnings from operations |
(1.3 | ) | 1.4 | (2.7 | ) | ||||||||||
| (Loss) earnings from continuing operations before taxes |
(1.3 | ) | 1.5 | (2.8 | ) | ||||||||||
| (Loss) earnings from continuing operations |
(1.5 | ) | 0.9 | (2.4 | ) | ||||||||||
| Net (loss) earnings |
(1.5 | ) | 1.1 | (2.6 | ) | ||||||||||
| Effective income tax rate |
(10.8 | )% | 35.5 | % | (46.3 | ) pts. | |||||||||
| Average number of shares outstanding (thousands): |
|||||||||||||||
| Basic |
34,760 | 36,357 | |||||||||||||
| Diluted |
34,760 | 36,495 | |||||||||||||
9
KELLY SERVICES, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS BY SEGMENT
(UNAUDITED)
(In millions of dollars)
| Fourth Quarter | ||||||||||||||
| 2008 | 2007 | Change | Constant Currency Change |
|||||||||||
| Americas Commercial |
||||||||||||||
| Revenue from services (including fee-based income) |
$ | 591.9 | $ | 695.8 | (14.9 | )% | (12.9 | )% | ||||||
| Fee-based income |
2.7 | 4.9 | (42.2 | ) | (37.8 | ) | ||||||||
| Earnings from operations |
16.3 | 26.5 | (38.8 | ) | ||||||||||
| Earnings from operations (excluding restructuring charges) |
16.3 | 27.9 | (42.0 | ) | ||||||||||
| Gross profit rate |
16.3 | % | 16.1 | % | 0.2 | pts. | ||||||||
| Expense rates: |
||||||||||||||
| % of revenue |
13.5 | 12.3 | 1.2 | |||||||||||
| % of gross profit |
83.2 | 76.4 | 6.8 | |||||||||||
| Operating margin |
2.7 | 3.8 | (1.1 | ) | ||||||||||
| Americas PT |
||||||||||||||
| Revenue from services (including fee-based income) |
$ | 212.8 | $ | 229.5 | (7.3 | ) % | (7.1 | )% | ||||||
| Fee-based income |
3.6 | 5.0 | (27.5 | ) | (27.1 | ) | ||||||||
| Earnings from operations |
9.5 | 13.0 | (26.6 | ) | ||||||||||
| Gross profit rate |
17.5 | % | 18.1 | % | (0.6 | ) pts. | ||||||||
| Expense rates: |
||||||||||||||
| % of revenue |
13.0 | 12.5 | 0.5 | |||||||||||
| % of gross profit |
74.4 | 68.9 | 5.5 | |||||||||||
| Operating margin |
4.5 | 5.6 | (1.1 | ) | ||||||||||
| EMEA Commercial |
||||||||||||||
| Revenue from services (including fee-based income) |
$ | 283.2 | $ | 340.8 | (16.9 | ) % | (5.0 | )% | ||||||
| Fee-based income |
7.5 | 10.0 | (25.0 | ) | (14.7 | ) | ||||||||
| Earnings from operations |
(6.8 | ) | 6.1 | (210.4 | ) | |||||||||
| Earnings from operations (excluding restructuring charges) |
(5.3 | ) | 6.0 | (187.3 | ) | |||||||||
| Gross profit rate |
16.8 | % | 18.6 | % | (1.8 | ) pts. | ||||||||
| Expense rates: |
||||||||||||||
| % of revenue |
19.2 | 16.8 | 2.4 | |||||||||||
| % of gross profit |
114.2 | 90.4 | 23.8 | |||||||||||
| Operating margin |
(2.4 | ) | 1.8 | (4.2 | ) | |||||||||
| EMEA PT |
||||||||||||||
| Revenue from services (including fee-based income) |
$ | 38.4 | $ | 43.1 | (10.8 | )% | 1.6 | % | ||||||
| Fee-based income |
5.5 | 6.4 | (14.0 | ) | (3.7 | ) | ||||||||
| Earnings from operations |
(0.5 | ) | 0.6 | (189.0 | ) | |||||||||
| Gross profit rate |
29.1 | % | 28.9 | % | 0.2 | pts. | ||||||||
| Expense rates: |
||||||||||||||
| % of revenue |
30.5 | 27.6 | 2.9 | |||||||||||
| % of gross profit |
104.7 | 95.2 | 9.5 | |||||||||||
| Operating margin |
(1.4 | ) | 1.4 | (2.8 | ) | |||||||||
10
KELLY SERVICES, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS BY SEGMENT (continued)
(UNAUDITED)
(In millions of dollars)
| Fourth Quarter | ||||||||||||||
| 2008 | 2007 | Change | Constant Currency Change |
|||||||||||
| APAC Commercial |
||||||||||||||
| Revenue from services (including fee-based income) |
$ | 73.5 | $ | 89.3 | (17.7 | )% | (5.5 | )% | ||||||
| Fee-based income |
3.1 | 4.0 | (23.4 | ) | (13.2 | ) | ||||||||
| Earnings from operations |
(1.1 | ) | (0.1 | ) | (869.7 | ) | ||||||||
| Gross profit rate |
15.5 | % | 16.8 | % | (1.3 | ) pts. | ||||||||
| Expense rates: |
||||||||||||||
| % of revenue |
16.9 | 16.9 | 0.0 | |||||||||||
| % of gross profit |
109.3 | 100.7 | 8.6 | |||||||||||
| Operating margin |
(1.4 | ) | (0.1 | ) | (1.3 | ) | ||||||||
| APAC PT |
||||||||||||||
| Revenue from services (including fee-based income) |
$ | 7.2 | $ | 8.2 | (12.2 | )% | (2.4 | )% | ||||||
| Fee-based income |
0.8 | 1.3 | (44.8 | ) | (37.7 | ) | ||||||||
| Earnings from operations |
(0.3 | ) | 0.4 | (165.1 | ) | |||||||||
| Gross profit rate |
26.4 | % | 31.9 | % | (5.5 | ) pts. | ||||||||
| Expense rates: |
||||||||||||||
| % of revenue |
29.9 | 27.2 | 2.7 | |||||||||||
| % of gross profit |
113.1 | 85.3 | 27.8 | |||||||||||
| Operating margin |
(3.5 | ) | 4.7 | (8.2 | ) | |||||||||
| OCG |
||||||||||||||
| Revenue from services (including fee-based income) |
$ | 72.1 | $ | 69.0 | 4.4 | % | 6.3 | % | ||||||
| Fee-based income |
7.2 | 5.0 | 43.9 | 50.7 | ||||||||||
| Earnings from operations |
0.6 | 5.0 | (86.7 | ) | ||||||||||
| Gross profit rate |
26.6 | % | 26.2 | % | 0.4 | pts. | ||||||||
| Expense rates: |
||||||||||||||
| % of revenue |
25.6 | 19.0 | 6.6 | |||||||||||
| % of gross profit |
96.5 | 72.4 | 24.1 | |||||||||||
| Operating margin |
0.9 | 7.2 | (6.3 | ) | ||||||||||
| Corporate Expense |
$ | (20.9 | ) | $ | (24.9 | ) | 15.9 | % | ||||||
11
KELLY SERVICES, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS BY SEGMENT
(UNAUDITED)
(In millions of dollars)
| December Year to Date | ||||||||||||||
| 2008 | 2007 | Change | Constant Currency Change |
|||||||||||
| Americas Commercial |
||||||||||||||
| Revenue from services (including fee-based income) |
$ | 2,504.3 | $ | 2,759.4 | (9.2 | )% | (9.3 | )% | ||||||
| Fee-based income |
15.7 | 18.9 | (16.5 | ) | (16.7 | ) | ||||||||
| Earnings from operations |
70.0 | 95.6 | (26.8 | ) | ||||||||||
| Earnings from operations (excluding restructuring charges) |
70.0 | 98.5 | (29.0 | ) | ||||||||||
| Gross profit rate |
15.9 | % | 15.9 | % | 0.0 | pts. | ||||||||
| Expense rates: |
||||||||||||||
| % of revenue |
13.1 | 12.4 | 0.7 | |||||||||||
| % of gross profit |
82.4 | 78.2 | 4.2 | |||||||||||
| Operating margin |
2.8 | 3.5 | (0.7 | ) | ||||||||||
| Americas PT |
||||||||||||||
| Revenue from services (including fee-based income) |
$ | 911.6 | $ | 929.1 | (1.9 | )% | (1.9 | )% | ||||||
| Fee-based income |
19.4 | 20.6 | (5.8 | ) | (6.0 | ) | ||||||||
| Earnings from operations |
47.7 | 53.5 | (10.8 | ) | ||||||||||
| Gross profit rate |
17.6 | % | 17.8 | % | (0.2 | ) pts. | ||||||||
| Expense rates: |
||||||||||||||
| % of revenue |
12.4 | 12.0 | 0.4 | |||||||||||
| % of gross profit |
70.3 | 67.6 | 2.7 | |||||||||||
| Operating margin |
5.2 | 5.8 | (0.6 | ) | ||||||||||
| EMEA Commercial |
||||||||||||||
| Revenue from services (including fee-based income) |
$ | 1,310.4 | $ | 1,292.4 | 1.4 | % | (1.6 | )% | ||||||
| Fee-based income |
39.5 | 38.2 | 3.5 | 0.0 | ||||||||||
| Earnings from operations |
(3.0 | ) | 8.9 | (133.5 | ) | |||||||||
| Earnings from operations (excluding restructuring charges) |
(1.5 | ) | 14.8 | (109.9 | ) | |||||||||
| Gross profit rate |
17.4 | % | 17.7 | % | (0.3 | ) pts. | ||||||||
| Expense rates: |
||||||||||||||
| % of revenue |
17.6 | 17.0 | 0.6 | |||||||||||
| % of gross profit |
101.3 | 96.1 | 5.2 | |||||||||||
| Operating margin |
(0.2 | ) | 0.7 | (0.9 | ) | |||||||||
| EMEA PT |
||||||||||||||
| Revenue from services (including fee-based income) |
$ | 172.5 | $ | 158.8 | 8.7 | % | 4.6 | % | ||||||
| Fee-based income |
26.8 | 21.9 | 22.4 | 15.8 | ||||||||||
| Earnings from operations |
2.3 | 2.4 | (5.7 | ) | ||||||||||
| Gross profit rate |
29.7 | % | 28.2 | % | 1.5 | pts. | ||||||||
| Expense rates: |
||||||||||||||
| % of revenue |
28.3 | 26.7 | 1.6 | |||||||||||
| % of gross profit |
95.5 | 94.6 | 0.9 | |||||||||||
| Operating margin |
1.3 | 1.5 | (0.2 | ) | ||||||||||
12
KELLY SERVICES, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS BY SEGMENT (continued)
(UNAUDITED)
(In millions of dollars)
| December Year to Date | ||||||||||||||
| 2008 | 2007 | Change | Constant Currency Change |
|||||||||||
| APAC Commercial |
||||||||||||||
| Revenue from services (including fee-based income) |
$ | 336.0 | $ | 310.6 | 8.2 | % | 5.2 | % | ||||||
| Fee-based income |
17.0 | 15.0 | 13.2 | 9.1 | ||||||||||
| Earnings from operations |
(0.3 | ) | 3.2 | (109.1 | ) | |||||||||
| Gross profit rate |
16.8 | % | 17.1 | % | (0.3 | ) pts. | ||||||||
| Expense rates: |
||||||||||||||
| % of revenue |
16.8 | 16.0 | 0.8 | |||||||||||
| % of gross profit |
100.5 | 93.9 | 6.6 | |||||||||||
| Operating margin |
(0.1 | ) | 1.0 | (1.1 | ) | |||||||||
| APAC PT |
||||||||||||||
| Revenue from services (including fee-based income) |
$ | 34.3 | $ | 26.7 | 28.3 | % | 22.4 | % | ||||||
| Fee-based income |
5.1 | 5.0 | 1.0 | (4.3 | ) | |||||||||
| Earnings from operations |
(0.5 | ) | 0.1 | (491.6 | ) | |||||||||
| Gross profit rate |
29.8 | % | 33.0 | % | (3.2 | ) pts. | ||||||||
| Expense rates: |
||||||||||||||
| % of revenue |
31.2 | 32.6 | (1.4 | ) | ||||||||||
| % of gross profit |
104.6 | 98.6 | 6.0 | |||||||||||
| Operating margin |
(1.4 | ) | 0.4 | (1.8 | ) | |||||||||
| OCG |
||||||||||||||
| Revenue from services (including fee-based income) |
$ | 248.2 | $ | 190.6 | 30.2 | % | 29.3 | % | ||||||
| Fee-based income |
27.8 | 16.7 | 66.6 | 65.1 | ||||||||||
| Earnings from operations |
3.4 | 8.0 | (57.2 | ) | ||||||||||
| Gross profit rate |
29.7 | % | 26.4 | % | 3.3 | pts. | ||||||||
| Expense rates: |
||||||||||||||
| % of revenue |
28.3 | 22.2 | 6.1 | |||||||||||
| % of gross profit |
95.3 | 84.0 | 11.3 | |||||||||||
| Operating margin |
1.4 | 4.2 | (2.8 | ) | ||||||||||
| Corporate Expense |
$ | (109.4 | ) | $ | (91.7 | ) | (19.3 | )% | ||||||
13
KELLY SERVICES, INC. AND SUBSIDIARIES
SUMMARY OF DISCONTINUED OPERATIONS
(UNAUDITED)
(In thousands of dollars)
| Fourth Quarter | December Year to Date | ||||||||||||||
| 2008 | 2007 | 2008 | 2007 | ||||||||||||
| Revenue from services |
$ | — | $ | — | $ | — | $ | 14,777 | |||||||
| Operating (loss) income from discontinued operations |
$ | (302 | ) | $ | (119 | ) | $ | (849 | ) | $ | 1,454 | ||||
| Less: Income taxes |
(116 | ) | (277 | ) | (325 | ) | 328 | ||||||||
| (Loss) earnings from discontinued operations, net of tax |
(186 | ) | 158 | (524 | ) | 1,126 | |||||||||
| Gain on sale of discontinued operations |
— | — | — | 10,153 | |||||||||||
| Less: Income taxes |
— | — | — | 3,987 | |||||||||||
| Gain on sale of discontinued operations, net of tax |
— | — | — | 6,166 | |||||||||||
| Discontinued operations, net of tax |
$ | (186 | ) | $ | 158 | $ | (524 | ) | $ | 7,292 | |||||
Effective March 31, 2007, the Company sold Kelly Home Care (“KHC”), a wholly owned subsidiary.
Effective December 31, 2006, the Company sold Kelly Staff Leasing (“KSL”), a wholly owned subsidiary.
The operating results for KHC and KSL, as well as the gain on the sale of KHC, have been excluded from earnings from continuing operations. This schedule provides information on KHC’s and KSL’s results from operations for the fourth quarter of 2008 and 2007 and December year to date 2008 and 2007, as well as the gain on the sale of KHC, all of which are included as discontinued operations on the face of the statements of earnings.
14
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
| December 28, 2008 |
December 30, 2007 |
|||||||
| Current Assets |
||||||||
| Cash and equivalents |
$ | 118,277 | $ | 92,817 | ||||
| Trade accounts receivable, less allowances of $17,003 and $18,172, respectively |
815,789 | 888,334 | ||||||
| Prepaid expenses and other current assets |
61,959 | 53,392 | ||||||
| Deferred taxes |
31,929 | 29,294 | ||||||
| Total current assets |
1,027,954 | 1,063,837 | ||||||
| Property and Equipment, Net |
151,292 | 178,019 | ||||||
| Noncurrent Deferred Taxes |
40,020 | 43,436 | ||||||
| Goodwill, Net |
117,824 | 147,168 | ||||||
| Other Assets |
120,165 | 141,537 | ||||||
| Total Assets |
$ | 1,457,255 | $ | 1,573,997 | ||||
| Current Liabilities |
||||||||
| Short-term borrowings |
$ | 35,197 | $ | 49,729 | ||||
| Accounts payable and accrued liabilities |
244,119 | 171,471 | ||||||
| Accrued payroll and related taxes |
243,160 | 270,575 | ||||||
| Accrued insurance |
26,312 | 23,696 | ||||||
| Income and other taxes |
51,809 | 69,779 | ||||||
| Total current liabilities |
600,597 | 585,250 | ||||||
| Noncurrent Liabilities |
||||||||
| Long-term debt |
80,040 | 48,394 | ||||||
| Accrued insurance |
46,901 | 60,404 | ||||||
| Accrued retirement benefits |
61,576 | 78,382 | ||||||
| Other long-term liabilities |
15,234 | 13,338 | ||||||
| Total noncurrent liabilities |
203,751 | 200,518 | ||||||
| Stockholders’ Equity |
||||||||
| Common stock |
40,116 | 40,116 | ||||||
| Treasury stock |
(111,229 | ) | (106,312 | ) | ||||
| Paid-in capital |
35,788 | 34,500 | ||||||
| Earnings invested in the business |
676,047 | 777,338 | ||||||
| Accumulated other comprehensive income |
12,185 | 42,587 | ||||||
| Total stockholders’ equity |
652,907 | 788,229 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 1,457,255 | $ | 1,573,997 | ||||
| STATISTICS: |
||||||||
| Working Capital |
$ | 427,357 | $ | 478,587 | ||||
| Current Ratio |
1.7 | 1.8 | ||||||
| Debt-to-capital % |
15.0 | % | 11.1 | % | ||||
| Global Days Sales Outstanding |
50 | 49 | ||||||
15
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 52 WEEKS ENDED DECEMBER 28, 2008 AND DECEMBER 30, 2007
(In thousands of dollars)
| 2008 | 2007 | |||||||
| Cash flows from operating activities |
||||||||
| Net (loss) earnings |
$ | (82,239 | ) | $ | 61,016 | |||
| Noncash adjustments: |
||||||||
| Depreciation and amortization |
45,958 | 42,601 | ||||||
| Impairment of assets |
80,533 | — | ||||||
| Provision for bad debts |
6,712 | 6,654 | ||||||
| Stock-based compensation |
4,440 | 3,941 | ||||||
| Gain on sale of discontinued operations |
— | (6,166 | ) | |||||
| Other, net |
3,721 | (573 | ) | |||||
| Changes in operating assets and liabilities |
42,472 | (34,129 | ) | |||||
| Net cash from operating activities |
101,597 | 73,344 | ||||||
| Cash flows from investing activities |
||||||||
| Capital expenditures |
(31,136 | ) | (45,975 | ) | ||||
| Acquisition of companies, net of cash received |
(32,712 | ) | (48,417 | ) | ||||
| Proceeds from sale of discontinued operations |
— | 12,500 | ||||||
| Other investing activities |
(236 | ) | (532 | ) | ||||
| Net cash from investing activities |
(64,084 | ) | (82,424 | ) | ||||
| Cash flows from financing activities |
||||||||
| Net change in revolving line of credit |
(34,174 | ) | 17,500 | |||||
| Proceeds from debt |
42,450 | 57,277 | ||||||
| Repayment of debt |
— | (49,054 | ) | |||||
| Dividend payments |
(19,052 | ) | (19,114 | ) | ||||
| Purchase of treasury stock |
(7,975 | ) | (34,703 | ) | ||||
| Stock options and other stock sales |
111 | 5,781 | ||||||
| Other financing activities |
9,874 | (165 | ) | |||||
| Net cash from financing activities |
(8,766 | ) | (22,478 | ) | ||||
| Effect of exchange rates on cash and equivalents |
(3,287 | ) | 5,947 | |||||
| Net change in cash and equivalents |
25,460 | (25,611 | ) | |||||
| Cash and equivalents at beginning of period |
92,817 | 118,428 | ||||||
| Cash and equivalents at end of period |
$ | 118,277 | $ | 92,817 | ||||
16
KELLY SERVICES, INC. AND SUBSIDIARIES
REVENUE FROM SERVICES
(UNAUDITED)
(In thousands of dollars)
| Fourth Quarter (Commercial, PT and OCG) | ||||||||||||
| % Change | ||||||||||||
| 2008 | 2007 | US$ | Constant Currency |
|||||||||
| Americas |
||||||||||||
| United States |
$ | 781,496 | $ | 881,640 | (11.4 | )% | (11.4 | )% | ||||
| Canada |
50,225 | 69,041 | (27.3 | ) | (10.8 | ) | ||||||
| Puerto Rico |
18,606 | 19,431 | (4.2 | ) | (4.2 | ) | ||||||
| Mexico |
18,060 | 18,557 | (2.7 | ) | 15.8 | |||||||
| Total Americas |
868,387 | 988,669 | (12.2 | ) | (10.7 | ) | ||||||
| EMEA |
||||||||||||
| United Kingdom |
80,659 | 114,113 | (29.3 | ) | (9.0 | ) | ||||||
| France |
75,121 | 87,084 | (13.7 | ) | (5.4 | ) | ||||||
| Switzerland |
41,467 | 50,199 | (17.4 | ) | (16.6 | ) | ||||||
| Italy |
25,209 | 31,893 | (21.0 | ) | (13.1 | ) | ||||||
| Russia |
22,309 | 19,652 | 13.5 | 25.0 | ||||||||
| Germany |
17,642 | 20,091 | (12.2 | ) | (3.5 | ) | ||||||
| Norway |
16,995 | 21,527 | (21.1 | ) | (2.4 | ) | ||||||
| Portugal |
15,604 | — | N/A | N/A | ||||||||
| Other |
32,693 | 42,402 | (22.9 | ) | (14.1 | ) | ||||||
| Total EMEA |
327,699 | 386,961 | (15.3 | ) | (3.3 | ) | ||||||
| APAC |
||||||||||||
| Australia |
25,966 | 39,779 | (34.7 | ) | (14.1 | ) | ||||||
| Singapore |
16,124 | 18,373 | (12.2 | ) | (10.3 | ) | ||||||
| Other |
40,915 | 41,977 | (2.5 | ) | 5.8 | |||||||
| Total APAC |
83,005 | 100,129 | (17.1 | ) | (5.0 | ) | ||||||
| Total Kelly Services, Inc. |
$ | 1,279,091 | $ | 1,475,759 | (13.3 | )% | (8.3 | )% | ||||
17
KELLY SERVICES, INC. AND SUBSIDIARIES
REVENUE FROM SERVICES
(UNAUDITED)
(In thousands of dollars)
| December Year to Date (Commercial, PT and OCG) | ||||||||||||
| % Change | ||||||||||||
| 2008 | 2007 | US$ | Constant Currency |
|||||||||
| Americas |
||||||||||||
| United States |
$ | 3,237,137 | $ | 3,454,922 | (6.3 | )% | (6.3 | )% | ||||
| Canada |
237,809 | 260,050 | (8.6 | ) | (9.7 | ) | ||||||
| Puerto Rico |
77,406 | 76,772 | 0.8 | 0.8 | ||||||||
| Mexico |
76,179 | 73,406 | 3.8 | 5.2 | ||||||||
| Total Americas |
3,628,531 | 3,865,150 | (6.1 | ) | (6.2 | ) | ||||||
| EMEA |
||||||||||||
| United Kingdom |
397,987 | 469,903 | (15.3 | ) | (9.0 | ) | ||||||
| France |
350,848 | 315,008 | 11.4 | 3.4 | ||||||||
| Switzerland |
184,930 | 180,951 | 2.2 | (8.1 | ) | |||||||
| Italy |
131,863 | 124,674 | 5.8 | (2.2 | ) | |||||||
| Russia |
90,893 | 68,528 | 32.6 | 29.0 | ||||||||
| Norway |
86,138 | 78,050 | 10.4 | 4.6 | ||||||||
| Germany |
82,951 | 65,593 | 26.5 | 17.5 | ||||||||
| Portugal |
27,469 | — | N/A | N/A | ||||||||
| Other |
154,427 | 153,209 | 0.8 | (6.0 | ) | |||||||
| Total EMEA |
1,507,506 | 1,455,916 | 3.5 | 0.3 | ||||||||
| APAC |
||||||||||||
| Australia |
133,599 | 135,886 | (1.7 | ) | (3.7 | ) | ||||||
| Singapore |
71,285 | 62,447 | 14.2 | 7.0 | ||||||||
| Other |
176,369 | 148,190 | 19.0 | 16.5 | ||||||||
| Total APAC |
381,253 | 346,523 | 10.0 | 6.9 | ||||||||
| Total Kelly Services, Inc. |
$ | 5,517,290 | $ | 5,667,589 | (2.7 | )% | (3.7 | )% | ||||
18
KELLY SERVICES, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
(UNAUDITED)
(In thousands of dollars except per share data)
| Fourth Quarter | ||||||||||||||||
| 2008 | 2007 | |||||||||||||||
| Amount | Per Share | Amount | Per Share | |||||||||||||
| (Loss) earnings from continuing operations |
$ | (88,583 | ) | $ | (2.55 | ) | $ | 18,473 | $ | 0.52 | ||||||
| Restructuring charges, net of taxes (Notes 1 and 2) |
1,500 | 0.04 | 802 | 0.02 | ||||||||||||
| Asset impairments, net of taxes (Note 3) |
77,172 | 2.22 | — | — | ||||||||||||
| (Loss) earnings from continuing operations excluding restructuring and asset impairment charges, net of taxes |
$ | (9,911 | ) | $ | (0.29 | ) | $ | 19,275 | $ | 0.54 | ||||||
| Fourth Quarter | ||||||||||||||||
| 2008 | 2007 | % Change | ||||||||||||||
| Selling, general and administrative expenses |
$ | 227,734 | $ | 238,895 | ||||||||||||
| Restructuring charges (Notes 1 and 2) |
(1,500 | ) | (1,343 | ) | ||||||||||||
| Selling, general and administrative expenses excluding restructuring charges |
$ | 226,234 | $ | 237,552 | (4.8% | ) | ||||||||||
| (Loss) earnings from operations |
$ | (83,621 | ) | $ | 26,541 | |||||||||||
| Restructuring charges (Notes 1 and 2) |
1,500 | 1,343 | ||||||||||||||
| Asset impairments (Note 3) |
80,533 | — | ||||||||||||||
| (Loss) earnings from operations excluding restructuring and asset impairment charges |
$ | (1,588 | ) | $ | 27,884 | (105.7% | ) | |||||||||
| Americas Commercial selling, general and administrative expenses |
$ | 80,014 | $ | 85,696 | ||||||||||||
| Americas restructuring charge (Note 1) |
— | (1,442 | ) | |||||||||||||
| Americas Commercial selling, general and administrative expenses excluding the Americas restructuring charge |
$ | 80,014 | $ | 84,254 | (5.0% | ) | ||||||||||
| Americas Commercial earnings from operations |
$ | 16,207 | $ | 26,485 | ||||||||||||
| Americas restructuring charge (Note 1) |
— | 1,442 | ||||||||||||||
| Americas Commercial earnings from operations excluding the Americas restructuring charge |
$ | 16,207 | $ | 27,927 | (42.0% | ) | ||||||||||
| EMEA Commercial selling, general and administrative expenses |
$ | 54,376 | $ | 57,377 | ||||||||||||
| U.K. restructuring charge (Note 2) |
(1,500 | ) | 99 | |||||||||||||
| EMEA Commercial selling, general and administrative expenses excluding the U.K. restructuring charge |
$ | 52,876 | $ | 57,476 | (8.0% | ) | ||||||||||
| EMEA Commercial (loss) earnings from operations |
$ | (6,741 | ) | $ | 6,105 | |||||||||||
| U.K. restructuring charge (Note 2) |
1,500 | (99 | ) | |||||||||||||
| EMEA Commercial (loss) earnings from operations excluding the U.K. restructuring charge |
$ | (5,241 | ) | $ | 6,006 | (187.3% | ) | |||||||||
19
KELLY SERVICES, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
(UNAUDITED)
(In thousands of dollars except per share data)
| December Year to Date | ||||||||||||||||
| 2008 | 2007 | |||||||||||||||
| Amount | Per Share | Amount | Per Share | |||||||||||||
| (Loss) earnings from continuing operations |
$ | (81,715 | ) | $ | (2.35 | ) | $ | 53,724 | $ | 1.47 | ||||||
| Restructuring charges, net of taxes (Notes 1 and 2) |
1,500 | 0.04 | 7,766 | 0.21 | ||||||||||||
| Asset impairments, net of taxes (Note 3) |
77,172 | 2.22 | — | — | ||||||||||||
| (Loss) earnings from continuing operations excluding restructuring and asset impairment charges, net of taxes |
$ | (3,043 | ) | $ | (0.09 | ) | $ | 61,490 | $ | 1.68 | ||||||
| December Year to Date | ||||||||||||||||
| 2008 | 2007 | % Change | ||||||||||||||
| Selling, general and administrative expenses |
$ | 967,389 | $ | 909,009 | ||||||||||||
| Restructuring charges (Notes 1 and 2) |
(1,500 | ) | (8,889 | ) | ||||||||||||
| Selling, general and administrative expenses excluding restructuring charges |
$ | 965,889 | $ | 900,120 | 7.3 | % | ||||||||||
| (Loss) earnings from operations |
$ | (70,271 | ) | $ | 80,080 | |||||||||||
| Restructuring charges (Notes 1 and 2) |
1,500 | 8,889 | ||||||||||||||
| Asset impairments (Note 3) |
80,533 | — | ||||||||||||||
| Earnings from operations excluding restructuring and asset impairment charges |
$ | 11,762 | $ | 88,969 | (86.8% | ) | ||||||||||
| Americas Commercial selling, general and administrative expenses |
$ | 328,435 | $ | 342,197 | ||||||||||||
| Americas restructuring charge (Note 1) |
— | (2,953 | ) | |||||||||||||
| Americas Commercial selling, general and administrative expenses excluding the Americas restructuring charge |
$ | 328,435 | $ | 339,244 | (3.2% | ) | ||||||||||
| Americas Commercial earnings from operations |
$ | 69,956 | $ | 95,566 | ||||||||||||
| Americas restructuring charge (Note 1) |
— | 2,953 | ||||||||||||||
| Americas Commercial earnings from operations excluding the Americas restructuring charge |
$ | 69,956 | $ | 98,519 | (29.0% | ) | ||||||||||
| EMEA Commercial selling, general and administrative expenses |
$ | 230,364 | $ | 220,135 | ||||||||||||
| U.K. restructuring charge (Note 2) |
(1,500 | ) | (5,936 | ) | ||||||||||||
| EMEA Commercial selling, general and administrative expenses excluding the U.K. restructuring charge |
$ | 228,864 | $ | 214,199 | 6.8 | % | ||||||||||
| EMEA Commercial (loss) earnings from operations |
$ | (2,971 | ) | $ | 8,871 | |||||||||||
| U.K. restructuring charge (Note 2) |
1,500 | 5,936 | ||||||||||||||
| EMEA Commercial (loss) earnings from operations excluding the U.K. restructuring charge |
$ | (1,471 | ) | $ | 14,807 | (109.9% | ) | |||||||||
20
KELLY SERVICES, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
(UNAUDITED)
(In thousands of dollars except per share data)
Management believes that the non-GAAP (Generally Accepted Accounting Principles) information excluding the impairment and restructuring charges is useful to understand the Company’s fiscal 2008 financial performance and increases comparability. Specifically, Management believes that excluding these items allows for a more meaningful comparison of current period operating performance with the operating results of prior periods. These non-GAAP measures may have limitations as analytical tools because they exclude items which can have a material impact on cash flow and earnings per share. As a result, Management considers these measures, along with reported results, when it reviews and evaluates the Company’s financial performance. Management believes that these measures provide greater transparency to investors and provide insight into how Management is evaluating the Company’s financial performance. Non-GAAP measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
(1) The Americas restructuring charge is comprised of facility exit costs associated with the closure of 42 branch locations and the accelerated depreciation of the leasehold improvements and personal property at the impacted locations.
(2) The 2007 UK restructuring charge is comprised of facility exit costs associated with the closure of 22 branch locations and the accelerated depreciation of the leasehold improvements and personal property at the impacted locations. The 2008 U.K. restructuring charge represents severance costs related to 2009 planned branch consolidations and closures.
(3) The impairment charges include adjustments to the value of goodwill for the Company’s EMEA Commercial segment, the Company’s investment in Tempstaff, and assets related to operations in the U.K.