KELLY SERVICES INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 3, 2005

¨	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 of incorporation or organization)		(I.R.S. Employer Identification No.)


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)

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 ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

At May 6, 2005, 32,105,887 shares of Class A and 3,472,598 shares of Class B common stock of the Registrant were outstanding.

KELLY SERVICES, INC. AND SUBSIDIARIES


		Page Number
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Statements of Earnings		3

Balance Sheets		4

Statements of Stockholders’ Equity		5

Statements of Cash Flows		6

Notes to Financial Statements		7

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		12

Item 3. Quantitative and Qualitative Disclosures About Market Risk		16

Item 4. Controls and Procedures		16

PART II. OTHER INFORMATION AND SIGNATURES

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		17

Item 5. Other Information		17

Item 6. Exhibits		17

Signatures		18

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF EARNINGS

(UNAUDITED)

(In thousands of dollars except per share items)


	13 Weeks Ended
	April 3, 2005			March 28, 2004 (As restated, see Note 2)
Revenue from services	$	1,249,335		$	1,158,811
Cost of services		1,045,251			975,455

Gross profit		204,084			183,356
Selling, general and administrative expenses		197,989			181,482

Earnings from operations		6,095			1,874
Interest expense, net		(35	)		(239	)

Earnings before income taxes		6,060			1,635
Income taxes		2,122			1,344

Net earnings	$	3,938		$	291

Earnings per share:
Basic	$	.11		$	.01
Diluted		.11			.01
Average shares outstanding (thousands):
Basic		35,535			34,881
Diluted		35,934			35,302
Dividends per share	$	.10		$	.10

See accompanying Notes to Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

BALANCE SHEETS

(In thousands of dollars)


	April 3, 2005			January 2, 2005
	(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and equivalents	$	69,531		$	82,554
Short-term investments		512			6,288
Trade accounts receivable, less allowances of $16,296 and $16,228, respectively		740,980			727,366
Prepaid expenses and other current assets		41,447			40,736
Deferred taxes		37,146			36,055

Total current assets		889,616			892,999
PROPERTY AND EQUIPMENT:
Land and buildings		58,254			58,236
Equipment, furniture and leasehold improvements		305,794			303,213
Accumulated depreciation		(187,943	)		(180,363	)

Net property and equipment		176,105			181,086
NONCURRENT DEFERRED TAXES		18,489			17,960
GOODWILL, NET		92,031			94,652
OTHER ASSETS		82,706			63,059

TOTAL ASSETS	$	1,258,947		$	1,249,756

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term borrowings	$	47,061		$	34,289
Accounts payable		113,057			105,685
Accrued payroll and related taxes		245,442			246,802
Accrued insurance		32,734			33,165
Income and other taxes		62,419			67,839

Total current liabilities		500,713			487,780
NONCURRENT LIABILITIES:
Accrued insurance		57,828			58,548
Accrued retirement benefits		52,156			50,892

Total noncurrent liabilities		109,984			109,440
STOCKHOLDERS’ EQUITY:
Capital stock, $1.00 par value
Class A common stock, shares issued 36,619,693 at 2005 and 2004		36,620			36,620
Class B common stock, shares issued 3,496,173 at 2005 and 2004		3,496			3,496
Treasury stock, at cost
Class A common stock, 4,524,203 shares at 2005 and 4,588,739 at 2004		(95,702	)		(97,067	)
Class B common stock, 23,575 shares at 2005 and 2004		(626	)		(626	)
Paid-in capital		22,787			22,530
Earnings invested in the business		663,423			663,039
Accumulated other comprehensive income		18,252			24,544

Total stockholders’ equity		648,250			652,536

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,258,947		$	1,249,756

See accompanying Notes to Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands of dollars)


	13 Weeks Ended
	April 3, 2005			March 28, 2004 (As restated, see Note 2)
Capital Stock
Class A common stock
Balance at beginning of period	$	36,620		$	36,619
Conversions from Class B		—			1

Balance at end of period		36,620			36,620
Class B common stock
Balance at beginning of period		3,496			3,497
Conversions to Class A		—			(1	)

Balance at end of period		3,496			3,496
Treasury Stock
Class A common stock
Balance at beginning of period		(97,067	)		(112,535	)
Exercise of stock options, restricted stock awards and other		1,365			5,138

Balance at end of period		(95,702	)		(107,397	)
Class B common stock
Balance at beginning of period		(626	)		(623	)
Purchase of treasury stock		—			(3	)

Balance at end of period		(626	)		(626	)
Paid-in Capital
Balance at beginning of period		22,530			19,096
Exercise of stock options, restricted stock awards and other		257			555

Balance at end of period		22,787			19,651
Earnings Invested in the Business
Balance at beginning of period		663,039			655,871
Net earnings		3,938			291
Dividends		(3,554	)		(3,491	)

Balance at end of period		663,423			652,671
Accumulated Other Comprehensive Income
Balance at beginning of period		24,544			10,976
Foreign currency translation adjustments, net of tax		(6,034	)		(1,324	)
Unrealized gains on investments, net of tax		(258	)		23

Balance at end of period		18,252			9,675

Stockholders’ Equity at end of period	$	648,250		$	614,090

Comprehensive loss
Net earnings	$	3,938		$	291
Foreign currency translation adjustments, net of tax		(6,034	)		(1,324	)
Unrealized gains on investments, net of tax		42			23
Reclassification adjustment for gains included in net earnings		(300	)		—

Comprehensive loss	$	(2,354	)	$	(1,010	)

See accompanying Notes to Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands of dollars)


	13 Weeks Ended
	April 3, 2005			March 28, 2004 (As restated, see Note 2)
Cash flows from operating activities:
Net earnings	$	3,938		$	291
Noncash adjustments:
Depreciation and amortization		10,382			11,356
Increase in trade accounts receivable, net		(21,698	)		(47,447	)
Changes in other operating assets and liabilities		12,398			19,575

Net cash from operating activities		5,020			(16,225	)

Cash flows from investing activities:
Capital expenditures		(5,945	)		(4,463	)
Proceeds from sales and maturities of short-term investments		859			80
Purchases of short-term investments		(25	)		(75	)
Investment in unconsolidated affiliate		(18,450	)		—
Increase in other assets		(2,867	)		(173	)

Net cash from investing activities		(26,428	)		(4,631	)

Cash flows from financing activities:
Decrease in short-term borrowings		(3,776	)		(708