KELLY SERVICES INC
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended January 3, 2010
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
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) |
(IRS Employer Identification Number) |
| 999 West Big Beaver Road, Troy, Michigan | 48084 | |
| (Address of Principal Executive Office) | (Zip Code) |
(248) 362-4444
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| Class A Common | NASDAQ Global Market | |
| Class B Common | NASDAQ Global Market |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes
o
No
þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
Yes
o
No
þ
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
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for shorter period that the registrant
was required to submit and post such files).
Yes
o
No
o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
þ
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes
o
No
þ
Table of Contents
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the last
business day of the registrant’s most recently completed second fiscal quarter, was
approximately $320,177,595.
Registrant had 31,522,711 shares of Class A and 3,459,785 of Class B common stock,
par value $1.00, outstanding as of February 8, 2010.
Documents Incorporated by Reference
The proxy statement of the registrant with respect to its 2010 Annual Meeting of
Stockholders is incorporated by reference in Part III.
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TABLE OF CONTENTS
Table of Contents
Unless the context otherwise requires, throughout this Annual Report on Form 10-K the words
“Kelly,” “Kelly Services,” “the Company,” “we,” “us” and “our” refer to Kelly Services, Inc. and
its consolidated subsidiaries.
| ITEM 1. | BUSINESS . |
History and Development of Business
Founded by William R. Kelly in 1946, Kelly Services has delivered pioneering workforce solutions to
customers in a variety of industries throughout our 63-year history. Our range of solutions and
geographic coverage has grown steadily over the years to match the expanding needs of our
customers.
We have evolved from a United States-based company concentrating primarily on traditional office
staffing into a global workforce solutions leader with a breadth of specialty businesses. We
currently assign professional and technical employees in the fields of creative services,
education, legal and health care—while ranking as one of the world’s largest scientific staffing
providers, and among the leaders in information technology, engineering and financial staffing.
These specialty service lines complement our expertise in office services, contact center, light
industrial and electronic assembly staffing. In addition to staffing, we offer innovative talent
management solutions for our customers including outsourcing, consulting, recruitment, career
transition and vendor management services.
Geographic Breadth of Services
Headquartered in Troy, Michigan, we serve customers in all major markets throughout the
world. We provide temporary employment for approximately 480,000 employees annually to a variety
of customers around the globe — including more than 90 percent of the
Fortune
500 companies.
Kelly’s workforce solutions are provided to a diversified group of customers through offices in
three regions: the
Americas, Europe, the Middle East, and Africa (“EMEA”)
and
Asia Pacific
(“APAC”)
.
Description of Business Segments
Our operations are divided into seven principal business segments:
Americas Commercial,
Americas
Professional and Technical
(“Americas PT”), EMEA Commercial,
EMEA Professional and Technical
(“EMEA
PT”)
,
APAC Commercial,
APAC Professional and Technical
(“APAC PT”)
and the Outsourcing and
Consulting Group
(“OCG”).
Americas Commercial
Our Americas Commercial segment includes:
Kelly Office Services
, offering trained employees who
work in word processing, data entry and as administrative support staff;
KellyConnect
, providing
staff for contact centers, technical support hotlines and telemarketing units;
Kelly Educational
Staffing
, the first nationwide program supplying qualified substitute teachers;
Kelly Marketing
Services
, including support staff for seminars, sales and trade shows;
Kelly Electronic Assembly
Services
, providing technicians to serve the technology, aerospace and pharmaceutical industries;
Kelly Light Industrial Services
, placing maintenance workers, material handlers and assemblers;
KellySelect
, a temporary to full-time service that provides both customers and temporary staff the
opportunity to evaluate their relationship before making a full-time employment decision; and
KellyDirect
, a permanent placement service used across all staffing business units.
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Table of Contents
Americas PT
Our Americas PT segment includes a number of industry-specific services:
CGR/seven
, placing
employees in creative services positions;
Kelly Engineering Resources
, supplying engineering
professionals across all disciplines including aeronautical, chemical, civil/structural,
electrical/instrumentation, environmental, industrial, mechanical, petroleum, pharmaceutical,
quality and telecommunications;
Kelly Financial Resources
, serving the needs of corporate finance
departments, accounting firms and financial institutions with professional personnel;
Kelly
Government Solutions
, providing a full spectrum of talent management solutions to the U.S. federal
government;
Kelly Healthcare Resources
, providing all levels of healthcare specialists and
professionals for work in hospitals, ambulatory care centers, HMOs and other health insurance
companies;
Kelly IT Resources
, placing information technology specialists across all IT
disciplines;
Kelly Law Registry
, placing legal professionals including attorneys, paralegals,
contract administrators, compliance specialists and legal administrators; and
Kelly Scientific
Resources
, providing entry-level to Ph.D. professionals to a broad spectrum of scientific and
clinical research industries. Our temporary-to-hire service,
KellySelect
, and permanent placement
service,
KellyDirect
, are also offered in this segment.
EMEA Commercial
Our EMEA Commercial segment provides a similar range of commercial staffing services as described
for our Americas Commercial segment above, including:
Kelly Office Services
,
KellyConnect
,
Kelly
Educational Staffing
,
Kelly Light Industrial Services
and
KellySelect
. Additional service areas of
focus include
Kelly Catering and Hospitality,
providing chefs, porters and hospitality
representatives; and
Kelly Industrial,
supplying manual workers to semi-skilled professionals in a
variety of trade, non-trade and operational positions.
EMEA PT
Our EMEA PT segment provides many of the same services as described for our Americas PT segment,
including:
Kelly Engineering Resources, Kelly Financial Resources, Kelly Healthcare Resources,
Kelly IT Resources
and
Kelly Scientific Resources
.
APAC Commercial
Our APAC Commercial segment offers a similar range of commercial staffing services as described for
our Americas and EMEA Commercial segments above, through staffing solutions that include permanent
placement, temporary staffing, temporary to full-time staffing and vendor on-site.
APAC PT
Our APAC PT segment provides many of the same services as described for our Americas and EMEA PT
segments, including:
Kelly Engineering Resources, Kelly IT Resources and Kelly Scientific
Resources
. Additional service areas include
Kelly Selection
and
Kelly Executive
(Australia and New
Zealand only) which offer mid- to senior-level search and selection to identify leaders who help
organizations grow, in core practice areas such as HR, Sales and Marketing, Finance, Procurement
and General Management.
OCG
Our Outsourcing and Consulting Group segment delivers integrated talent management solutions
configured to satisfy our customers’ needs across multiple regions, skill sets and the entire
spectrum of human resources. Services in this segment include:
Recruitment Process Outsourcing
(“RPO”)
, offering end-to-end talent acquisition solutions, including customized recruitment
projects;
Contingent Workforce Outsourcing (“CWO”)
, providing globally managed service solutions
that integrate supplier and vendor management technology partners to optimize contingent workforce
spend;
Independent Contractor Solutions
, delivering evaluation, classification and risk management
services that enable safe access to this critical talent pool;
Business Process Outsourcing
(“BPO”)
, offering full staffing and operational management of non-core functions or departments;
HR
Consulting
, providing human capital solutions from consulting resources and services, to global
mobility and strategic workforce planning;
Career Transition & Organizational Effectiveness
,
offering a range of custom solutions to maintain effective operations and maximize employee
motivation and performance in the wake of corporate restructurings; and
Executive Search
, providing
leadership in executive placement worldwide.
Financial information regarding our industry segments is included in the Segment Disclosure note to
our consolidated financial statements presented in Part II, Item 8 of this report.
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Table of Contents
Business Objectives
Kelly’s philosophy is rooted in our conviction that we can and do make a difference on a daily
basis— for our customers, in the lives of our employees, in the local communities we serve and in
our industry. Our vision is “To provide the world’s best workforce solutions.” We aspire to be a
strategic business partner to our customers, and strive to assist them in running efficient,
profitable organizations. Our consultative approach to customer relationships leverages a
collective expertise spanning more than 60 years of thought leadership, while Kelly solutions are
customizable to benefit them on any scope or scale required.
For most of our customers, navigating the human capital arena has never been more complex. As the
use of contingent labor, consultants, and independent contractors becomes more prevalent and
critical to the ongoing success of our customer base—our core competencies are refined to help them
realize their respective business objectives. Kelly offers a comprehensive array of outsourcing
and consulting services, as well as world-class staffing on a temporary, temp-to-hire and permanent
placement basis. Kelly will continue to deliver the strategic expertise our customers need to
transform their workforce management challenges into opportunity.
Business Operations
Service Marks
We own numerous service marks that are registered with the United States Patent and Trademark
Office, the European Union Community Trademark Office and numerous individual country trademark
offices.
Office, the European Union Community Trademark Office and numerous individual country trademark
offices.
Seasonality
Our quarterly operating results are affected by the seasonality of our customers’ businesses.
Demand for staffing services historically has been lower during the first and fourth quarters, in
part as a result of holidays, and typically increases during the second and third quarters of the
year.
Working Capital
Our working capital requirements are primarily generated from temporary employee payroll and
customer accounts receivable. Since receipts from customers generally lag payroll to temporary
employees, working capital requirements increase substantially in periods of growth.
Customers
We are not dependent on any single customer, or a limited segment of customers. Our largest single
customer accounted for approximately four percent of total revenue in 2009.
Government Contracts
Although we conduct business under various federal, state, and local government contracts, they do
not account for a significant portion of our business.
Competition
The worldwide temporary staffing industry is competitive and highly fragmented. In the United
States, approximately 100 competitors operate nationally, and approximately 10,000 smaller
companies compete in varying degrees at local levels. Additionally, several similar staffing
companies compete globally. In 2009, our largest competitors were Adecco S.A, Manpower Inc.,
Randstad Holding N.V., Allegis Group, Robert Half International, Inc. and Spherion Corporation.
Key factors that influence our success are geographic coverage, breadth of service, quality of
service, and price.
Geographic presence is of utmost importance, as temporary employees are generally unwilling to
travel great distances for assignment, and customers prefer working with companies in their local
market. Breadth of service, or ability to manage staffing suppliers, has become more critical as
customers seek “one-stop shopping” for all their staffing needs.
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Table of Contents
Quality of service is highly dependent on the availability of qualified, competent temporary
employees, and our ability to recruit, screen, train, retain, and manage a pool of employees who
match the skills required by particular customers. Conversely, during an economic downturn, we
must balance competitive pricing pressures with the need to retain a qualified workforce. Price
competition in the staffing industry is intense—particularly for office clerical and light
industrial personnel—and pricing pressure from customers and competitors continues to be
significant.
Environmental Concerns
Because we are involved in a service business, federal, state or local laws that regulate the
discharge of materials into the environment do not materially impact us.
Employees
We employ approximately 1,100 people at our corporate headquarters in Troy, Michigan, and
approximately 6,800 staff members in our international network of branch offices. In 2009, we
assigned approximately 480,000 temporary employees with a variety of customers around the globe.
While services may be provided inside the facilities of customers, we remain the employer of record
for our temporary employees. We retain responsibility for employee assignments, the employer’s
share of all applicable payroll taxes and the administration of the employee’s share of these
taxes.
Foreign Operations
For information regarding sales, earnings from operations and long-lived assets by domestic and
foreign operations, please refer to the information presented in the Segment Disclosures note to
our consolidated financial statements, presented in Part II, Item 8 of this report.
Access to Company Information
We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission
(“SEC”). The public may read and copy any of the reports that are filed with the SEC at the SEC’s
Public Reference Room at 100 F. Street, NE, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet website at www.sec.gov that contains reports, proxy and
information statements and other information regarding issuers that file electronically.
We make available, free of charge, through our Internet website, and by responding to requests
addressed to our director of investor relations, our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and all amendments to those reports. These reports are
available as soon as reasonably practicable after such material is electronically filed with or
furnished to the SEC. Our website address is: www.kellyservices.com. The information contained on
our website, or on other websites linked to our website, is not part of this report.
| ITEM 1A. | RISK FACTORS. |
We operate in a highly competitive industry with low barriers to entry, and may be unable to
compete successfully against existing or new competitors.
The worldwide staffing services market is highly competitive with limited barriers to entry. We
compete in global, national, regional and local markets with full-service and specialized temporary
staffing companies. While the majority of our competitors are significantly smaller than us,
several competitors, including Adecco S.A., Manpower Inc., Randstad Holding N.V., Allegis Group,
Robert Half International, Inc. and Spherion Corporation, have substantial marketing and financial
resources. In particular, Adecco S.A., Manpower Inc., and Randstad Holding N.V. are considerably
larger than we are and, thus have significantly more marketing and financial resources than we do.
Price competition in the staffing industry is intense, particularly for the provision of office
clerical and light industrial personnel. We expect that the level of competition will remain high,
which could limit our ability to maintain or increase our market share or profitability.
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Table of Contents
There has been a significant increase in the number of customers consolidating their staffing
services purchases with a single provider or small group of providers. The trend to consolidate
purchases has in some cases made it more difficult for us to obtain or retain customers. We also
face the risk that our current or prospective customers may decide to provide similar services
internally. As a result, there can be no assurance that we will not encounter increased
competition in the future.
Our business is significantly affected by fluctuations in general economic conditions.
Demand for staffing services is significantly affected by the general level of economic activity
and employment in the United States and the other countries in which we operate. When economic
activity increases, temporary employees are often added before full-time employees are hired. As
economic activity slows, however, many companies reduce their use of temporary employees before
laying off full-time employees. We may also experience more competitive pricing pressure during
periods of economic downturn. A substantial portion of our revenues and earnings are generated by
our business operations in the United States. Any significant economic downturn in the United
States or certain other countries in which we operate has a material adverse effect on our
business, financial condition and results of operations. In 2009, the already-weak economic
conditions and employment trends present at the start of the year, continued to worsen as the year
progressed. The weakened global economy significantly affected our earnings performance in 2009.
We cannot predict when the global economy will begin to recover or when and to what extent
conditions affecting the temporary staffing industry will improve. We also cannot ensure that the
actions we have taken or may take in the future in response to these challenges will be successful
or that our business, financial condition or results of operations will not continue to be
adversely impacted by these conditions.
Our loss of major customers or the deterioration of their financial condition or prospects could
have a material adverse effect on our business.
Our business strategy is increasingly focused on serving large corporate customers through high
volume global service agreements. While our strategy is intended to enable us to increase our
revenues and earnings from our major corporate customers, the strategy also exposes us to increased
risks arising from the possible loss of major customer accounts. In addition, some of our
customers are in industries, such as the automotive and manufacturing industries, that have
experienced adverse business and financial conditions in recent years. The deterioration of the
financial condition or business prospects of these customers could reduce their need for temporary
employment services, and result in a significant decrease in the revenues and earnings we derive
from these customers.
Our customer contracts contain termination provisions that could decrease our future revenues and
earnings.
Most of our customer contracts can be terminated by the customer on short notice without penalty.
Our customers are, therefore, not contractually obligated to continue to do business with us in the
future. This creates uncertainty with respect to the revenues and earnings we may recognize with
respect to our customer contracts.
We depend on our ability to attract and retain qualified temporary personnel (employed directly by
us or through a third-party supplier).
We depend on our ability to attract qualified temporary personnel who possess the skills and
experience necessary to meet the staffing requirements of our customers. We must continually
evaluate our base of available qualified personnel to keep pace with changing customer needs.
Competition for individuals with proven professional skills is intense, and demand for these
individuals is expected to remain strong for the foreseeable future. There can be no assurance
that qualified personnel will continue to be available in sufficient numbers and on terms of
employment acceptable to us. Our success is substantially dependent on our ability to recruit and
retain qualified temporary personnel.
7
Table of Contents
We may be exposed to employment-related claims and losses, including class action lawsuits, that
could have a material adverse effect on our business.
Temporary staffing services providers employ and assign personnel in the workplaces of other
businesses. The risks of these activities include possible claims relating to:
| • | discrimination and harassment; |
| • | wrongful termination or denial of employment; |
| • | violations of employment rights related to employment screening or privacy issues; |
| • | classification of employees including independent contractors; |
| • | employment of illegal aliens; |
| • | violations of wage and hour requirements; |
| • | retroactive entitlement to employee benefits; and |
| • | errors and omissions by our temporary employees, particularly for the actions of professionals such as attorneys, accountants and scientists. |
We are also subject to potential risks relating to misuse of customer proprietary information,
misappropriation of funds, damage to customer facilities due to negligence of temporary employees,
criminal activity and other similar claims. We may incur fines and other losses or negative
publicity with respect to these problems. In addition, these claims may give rise to litigation,
which could be time-consuming and expensive. In the U.S. and certain other countries in which we
operate, new employment and labor laws and regulations have been proposed or adopted that may
increase the potential exposure of employers to employment-related claims and litigation. There
can be no assurance that the corporate policies we have in place to help reduce our exposure to
these risks will be effective or that we will not experience losses as a result of these risks.
There can also be no assurance that the insurance policies we have purchased to insure against
certain risks will be adequate or that insurance coverage will remain available on reasonable terms
or be sufficient in amount or scope of coverage.
Unexpected changes in claim trends on our workers’ compensation and benefit plans may negatively
impact our financial condition.
We self-insure, or otherwise bear financial responsibility for, a significant portion of expected
losses under our workers’ compensation program and medical benefits claims. Unexpected changes in
claim trends, including the severity and frequency of claims, actuarial estimates and medical cost
inflation could result in costs that are significantly different than initially reported. If
future claims-related liabilities increase due to unforeseen circumstances, our costs could
increase significantly. There can be no assurance that we will be able to increase the fees
charged to our customers in a timely manner and in a sufficient amount to cover increased costs as
a result of any changes in claims-related liabilities.
Failure to maintain specified financial covenants in our bank credit facilities could adversely
restrict our financial and operating flexibility and subject us to other risks, including access to
capital markets.
Our Bank Credit Facilities contain covenants that require us to maintain specified financial ratios
and satisfy other financial conditions. In the past year, we did not meet certain of the covenant
requirements, received temporary waivers of those requirements and subsequently renegotiated our
Bank Credit Facilities. Our ability to continue to meet these financial covenants, particularly
with respect to EBITDA coverage (see Debt Note 8 in the footnotes to the consolidated financial
statements), may not be assured. If we default under any of these requirements, the lenders could
declare all outstanding borrowings, accrued interest and fees to be due and payable or
significantly increase the cost of the facility. In these circumstances, there can be no assurance
that we would have sufficient liquidity to repay or refinance this indebtedness at favorable rates
or at all.
8
Table of Contents
Damage to our key data centers could affect our ability to sustain critical business applications.
Many business processes critical to the Company’s continued operation are housed in the Company’s
data center situated within the corporate headquarters complex as well as regional data centers in
Asia-Pacific and Europe. Those processes include, but are not limited to, payroll, customer
reporting and order management. While we have taken steps to protect the Company’s operations, the
loss of a data center would create a substantial risk of business
interruption.
Our investment in the PeopleSoft payroll, billing and accounts receivable project may not yield its
intended results.
In the fourth quarter of 2004, we commenced the PeopleSoft project to replace our payroll, billing
and accounts receivable information systems in the United States, Canada, Puerto Rico, the United
Kingdom and Ireland. To date we have several modules in production including accounts receivable
and payroll in Canada and payroll and billing in the United Kingdom and Ireland. We are delaying
implementation of the remaining components, including payroll and billing in the United States and
billing in Canada, until at least 2011 and do not have an estimate of the cost for completion.
There is a risk that if the remaining modules are not completed or the cost of completion is
prohibitive, an impairment charge relating to all or a portion of the $6.2 million capitalized cost
of the in-process modules could be required.
We are highly dependent on our senior management and the continued performance and productivity of
our local management and field personnel.
We are highly dependent on the continued efforts of the members of our senior management. We are
also highly dependent on the performance and productivity of our local management and field
personnel. The loss of any of the members of our senior management may cause a significant
disruption in our business. In addition, the loss of any of our local managers or field personnel
may jeopardize existing customer relationships with businesses that use our services based on
relationships with these individuals. The loss of the services of members of our senior management
could have a material adverse effect on our business.
Our business is subject to extensive government regulation, which may restrict the types of
employment services we are permitted to offer or result in additional or increased taxes, including
payroll taxes, or other costs that reduce our revenues and earnings.
The temporary employment industry is heavily regulated in many of the countries in which we
operate. Changes in laws or government regulations may result in prohibition or restriction of
certain types of employment services we are permitted to offer or the imposition of new or
additional benefit, licensing or tax requirements that could reduce our revenues and earnings.
There can be no assurance that we will be able to increase the fees charged to our customers in a
timely manner and in a sufficient amount to cover increased costs as a result of any changes in
laws or government regulations. Any future changes in laws or government regulations may make it
more difficult or expensive for us to provide staffing services and could have a material adverse
effect on our business, financial condition and results of operations.
We conduct a significant portion of our operations outside of the United States and we are subject
to risks relating to our international business activities, including fluctuations in currency
exchange rates.
We conduct our business in all major staffing markets throughout the world. Our operations outside
the United States are subject to risks inherent in international business activities, including:
| • | fluctuations in currency exchange rates; |
| • | varying economic and political conditions; |
| • | differences in cultures and business practices; |
| • | differences in tax laws and regulations; |
| • | differences in accounting and reporting requirements; |
| • | changing and, in some cases, complex or ambiguous laws and regulations; and |
| • | litigation and claims. |
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Table of Contents
Our operations outside the United States are reported in the applicable local currencies and then
translated into U.S. dollars at the applicable currency exchange rates for inclusion in our
consolidated financial statements. Exchange rates for currencies of these countries may fluctuate
in relation to the U.S. dollar and these fluctuations may have an adverse or favorable effect on
our operating results when translating foreign currencies into U.S. dollars.
Our controlling stockholder exercises voting control over our company and has the ability to elect
or remove from office all of our directors.
Terence E. Adderley, the Chairman of our board of directors, and certain trusts with respect to
which he acts as trustee or co-trustee, control approximately 92.9% of the outstanding shares of
Kelly Class B common stock, which is the only class of our common stock entitled to voting rights.
Mr. Adderley is therefore able to exercise voting control with respect to all matters requiring
stockholder approval, including the election or removal from office of all of our directors.
We are not subject to most of the listing standards that normally apply to companies whose shares
are quoted on the NASDAQ Global Market.
Our Class A and Class B common stock are quoted on the NASDAQ Global Market. Under the listing
standards of the NASDAQ Global Market, we are deemed to be a “controlled company” by virtue of the
fact that Terence E. Adderley, the Chairman of our board of directors, and certain trusts of which
he acts as trustee or co-trustee have voting power with respect to more than fifty percent of our
outstanding voting stock. A controlled company is not required to have a majority of its board of
directors comprised of independent directors. Director nominees are not required to be selected or
recommended for the board’s selection by a majority of independent directors or a nominations
committee comprised solely of independent directors, nor do the NASDAQ Global Market listing
standards require a controlled company to certify the adoption of a formal written charter or board
resolution, as applicable, addressing the nominations process. A controlled company is also exempt
from NASDAQ Global Market’s requirements regarding the determination of officer compensation by a
majority of independent directors or a compensation committee comprised solely of independent
directors. A controlled company is required to have an audit committee composed of at least three
directors, who are independent as defined under the rules of both the Securities and Exchange
Commission and the NASDAQ Global Market. The NASDAQ Global Market further requires that all
members of the audit committee have the ability to read and understand fundamental financial
statements and that at least one member of the audit committee possess financial sophistication.
The independent directors must also meet at least twice a year in meetings at which only they are
present.
We currently comply with certain of the listing standards of the NASDAQ Global Market that do not
apply to controlled companies. Our compliance is voluntary, however, and there can be no assurance
that we will continue to comply with these standards in the future.
Provisions in our certificate of incorporation and bylaws and Delaware law may delay or prevent an
acquisition of our company.
Our restated certificate of incorporation and bylaws contain provisions that could make it harder
for a third party to acquire us without the consent of our board of directors. For example, if a
potential acquirer were to make a hostile bid for us, the acquirer would not be able to call a
special meeting of stockholders to remove our board of directors or act by written consent without
a meeting. The acquirer would also be required to provide advance notice of its proposal to
replace directors at any annual meeting, and would not be able to cumulate votes at a meeting,
which would require the acquirer to hold more shares to gain representation on the board of
directors than if cumulative voting were permitted.
Our board of directors also has the ability to issue additional shares of common stock that could
significantly dilute the ownership of a hostile acquirer. In addition, Section 203 of the Delaware
General Corporation Law limits mergers and other business combination transactions involving 15
percent or greater stockholders of Delaware corporations unless certain board or stockholder
approval requirements are satisfied. These provisions and other similar provisions make it more
difficult for a third party to acquire us without negotiation.
Our board of directors could choose not to negotiate with an acquirer that it did not believe was
in our strategic interests. If an acquirer is discouraged from offering to acquire us or prevented
from successfully completing a hostile acquisition by these or other measures, our shareholders
could lose the opportunity to sell their shares at a favorable price.
10
Table of Contents
The holders of shares of our Class A common stock are not entitled to voting rights.
Under our certificate of incorporation, the holders of shares of our Class A common stock are not
entitled to voting rights, except as otherwise required by Delaware law. As a result, Class A
common stock holders do not have the right to vote for the election of directors or in connection
with most other matters submitted for the vote of our stockholders.
Our stock price may be subject to significant volatility and could suffer a decline in value.
The market price of our common stock may be subject to significant volatility. We believe that
many factors, including several which are beyond our control, have a significant effect on the
market price of our common stock. These include:
| • | actual or anticipated variations in our quarterly operating results; |
| • | announcements of new services by us or our competitors; |
| • | announcements relating to strategic relationships or acquisitions; |
| • | changes in financial estimates by securities analysts; |
| • | changes in general economic conditions; |
| • | actual or anticipated changes in laws and government regulations; |
| • | changes in industry trends or conditions; and |
| • | sales of significant amounts of our common stock or other securities in the market. |
In addition, the stock market in general, and the NASDAQ Global Market in particular, have
experienced significant price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of listed companies. These broad market and industry
factors may seriously harm the market price of our common stock, regardless of our operating
performance. In the past, securities class action litigation has often been instituted following
periods of volatility in the market price of a company’s securities. A securities class action
suit against us could result in substantial costs, potential liabilities and the diversion of our
management’s attention and resources. Further, our operating results may be below the expectations
of securities analysts or investors. In such event, the price of our common stock may decline.
11
Table of Contents
| ITEM 1B. | UNRESOLVED STAFF COMMENTS. |
None.
| ITEM 2. | PROPERTIES. |
We own our headquarters in Troy, Michigan, where corporate, subsidiary and divisional offices are
currently located. The original headquarters building was purchased in 1977. Headquarters
operations were expanded into additional buildings purchased in 1991, 1997 and 2001.
The combined usable floor space in the headquarters complex is approximately 350,000 square feet.
Our buildings are in good condition and are currently adequate for their intended purpose and use.
We also own undeveloped land in Troy and northern Oakland County, Michigan, for possible future
expansion.
Branch office business is conducted in leased premises with the majority of leases being fixed for
terms of generally five years in the United States and 5 to 10 years outside the United States. We
own virtually all of the office furniture and the equipment used in our corporate headquarters and
branch offices.
| ITEM 3. | LEGAL PROCEEDINGS. |
See Note 17, Contingencies, in the Notes to Consolidated Financial Statements of this Annual
Report on Form 10-K for a discussion of current legal proceedings.
Disclosure of Certain IRS Penalties
None.
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
There were no matters submitted to a vote of security holders in the fourth quarter of 2009.
12
Table of Contents
| ITEM 5. | MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
Market Information and Dividends
Our Class A and Class B common stock is traded on the NASDAQ Global Market under the symbols
“KELYA” and “KELYB,” respectively. The high and low selling prices for our Class A common stock
and Class B common stock as quoted by the NASDAQ Global Market and the dividends paid on the common
stock for each quarterly period in the last two fiscal years are reported in the table below.
Payments of dividends are restricted by the financial covenants contained in our short- and
long-term debt facilities, as described in the Debt footnote to the consolidated financial
statements.
| Per share amounts (in dollars) | ||||||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||||||
| Quarter | Quarter | Quarter | Quarter | Year | ||||||||||||||||
|
|
||||||||||||||||||||
|
2009
|
||||||||||||||||||||
|
Class A common
|
||||||||||||||||||||
|
High
|
$ | 14.13 | $ | 12.99 | $ | 14.10 | $ | 13.69 | $ | 14.13 | ||||||||||
|
Low
|
6.11 | 7.68 | 10.39 | 10.01 | 6.11 | |||||||||||||||
|
|
||||||||||||||||||||
|
Class B common
|
||||||||||||||||||||
|
High
|
14.50 | 11.65 | 14.12 | 14.99 | 14.99 | |||||||||||||||
|
Low
|
9.21 | 10.00 | 10.74 | 11.18 | 9.21 | |||||||||||||||
|
|
||||||||||||||||||||
|
Dividends
|
— | — | — | — | — | |||||||||||||||
|
|
||||||||||||||||||||
|
2008
|
||||||||||||||||||||
|
Class A common
|
||||||||||||||||||||
|
High
|
$ | 21.38 | $ | 23.20 | $ | 21.53 | $ | 19.68 | $ | 23.20 | ||||||||||
|
Low
|
15.01 | 19.38 | 16.50 | 9.47 | 9.47 | |||||||||||||||
|
|
||||||||||||||||||||
|
Class B common
|
||||||||||||||||||||
|
High
|
25.99 | 22.01 | 20.00 | 22.92 | 25.99 | |||||||||||||||
|
Low
|
19.55 | 19.75 | 17.00 | 10.99 | 10.99 | |||||||||||||||
|
|
||||||||||||||||||||
|
Dividends
|
.135 | .135 | .135 | .135 | .54 | |||||||||||||||
Holders
The number of holders of record of our Class A and Class B common stock were 5,715 and 415,
respectively, as of February 8, 2010.
Recent Sales of Unregistered Securities
None.
13
Table of Contents
Issuer Purchases of Equity Securities
| Maximum Number | ||||||||||||||||
| Total Number | (or Approximate | |||||||||||||||
| of Shares (or | Dollar Value) of | |||||||||||||||
| Total Number | Average | Units) Purchased | Shares (or Units) | |||||||||||||
| of Shares | Price Paid | as Part of Publicly | That May Yet Be | |||||||||||||
| (or Units) | per Share | Announced Plans | Purchased Under the | |||||||||||||
| Period | Purchased | (or Unit) | or Programs | Plans or Programs | ||||||||||||
| (in millions of dollars) | ||||||||||||||||
|
September 28, 2009 through
November 1, 2009 |
575 | $ | 12.47 | — | $ | — | ||||||||||
|
|
||||||||||||||||
|
November 2, 2009 through
November 29, 2009 |
— | — | — | — | ||||||||||||
|
|
||||||||||||||||
|
November 30, 2009 through
January 3, 2010 |
7,608 | 11.93 | — | — | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total
|
8,183 | $ | 11.97 | — | ||||||||||||
|
|
||||||||||||||||
On August 8, 2007, the board of directors authorized the repurchase of up to $50 million of the
Company’s outstanding Class A common shares. In connection with this program, which expired in
August, 2009, the Company repurchased $42.7 million of shares in the open market. We may reacquire
shares outside the program in connection with the surrender of shares to cover taxes due upon the
vesting of restricted stock held by employees. Accordingly, 8,183 shares were reacquired in
transactions outside the repurchase program during the Company’s fourth quarter.
14
Table of Contents
Performance Graph
The following graph compares the cumulative total return of our Class A common stock with that of
the S&P MidCap 400 Index, the S&P 600 SmallCap Index and the S&P 1500 Human Resources and
Employment Services Index for the five years ended December 31, 2009. The graph assumes an
investment of $100 on December 31, 2004 and that all dividends were reinvested. Standard & Poor’s
often makes S&P index changes for the S&P MidCap 400 and the S&P SmallCap 600 at the end of the
year. As a result of these changes Kelly Services moved from the S&P MidCap 400 to the S&P
SmallCap 600 Index. We have included both indices in the Total Return Performance Graph below.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Assumes Initial Investment of $100
December 31, 2004 – December 31, 2009
Assumes Initial Investment of $100
December 31, 2004 – December 31, 2009
| 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | |||||||||||||||||||
|
Kelly Services, Inc.
|
$ | 100.00 | $ | 88.10 | $ | 98.85 | $ | 65.11 | $ | 46.86 | $ | 42.98 | ||||||||||||
|
S&P MidCap 400 Index
|
$ | 100.00 | $ | 112.55 | $ | 124.16 | $ | 134.06 | $ | 85.51 | $ | 117.49 | ||||||||||||
|
S&P SmallCap 600 Index
|
$ | 100.00 | $ | 107.68 | $ | 123.96 | $ | 123.59 | $ | 85.19 | $ | 106.98 | ||||||||||||
|
S&P 1500 Human
Resources and
Employment Services
Index
|
$ | 100.00 | $ | 115.19 | $ | 137.77 | $ | 105.14 | $ | 67.65 | $ | 93.50 | ||||||||||||
15
Table of Contents
| ITEM 6. | SELECTED FINANCIAL DATA. |
The following table summarizes selected financial information of Kelly Services, Inc. and its
subsidiaries for each of the most recent five fiscal years. This table should be read in
conjunction with the other financial information, including “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and the consolidated financial statements
included elsewhere in this report.
| (In millions except per share amounts) | 2009 (1,2) | 2008 (2) | 2007 | 2006 | 2005 | |||||||||||||||
|
|
||||||||||||||||||||
|
Revenue from services
|
$ | 4,314.8 | $ | 5,517.3 | $ | 5,667.6 | $ | 5,546.8 | $ | 5,186.4 | ||||||||||
|
(Loss) earnings from continuing operations
|
(105.1 | ) | (81.7 | ) | 53.7 | 56.8 | 37.7 | |||||||||||||
|
Earnings (loss) from discontinued operations, net of tax (3)
|
0.6 | (0.5 | ) | 7.3 | 6.7 | 1.6 | ||||||||||||||
|
Net (loss) earnings
|
(104.5 | ) | (82.2 | ) | 61.0 | 63.5 | 39.3 | |||||||||||||
|
|
||||||||||||||||||||
|
Basic (loss) earnings per share (4):
|
||||||||||||||||||||
|
(Loss) earnings from continuing operations
|
(3.01 | ) | (2.35 | ) | 1.46 | 1.56 | 1.05 | |||||||||||||
|
Earnings (loss) from discontinued operations
|
0.02 | (0.02 | ) | 0.20 | 0.18 | 0.05 | ||||||||||||||
|
Net (loss) earnings
|
(3.00 | ) | (2.37 | ) | 1.65 | 1.74 | 1.09 | |||||||||||||
|
|
||||||||||||||||||||
|
Diluted (loss) earnings per share (4):
|
||||||||||||||||||||
|
(Loss) earnings from continuing operations
|
(3.01 | ) | (2.35 | ) | 1.45 | 1.55 | 1.04 | |||||||||||||
|
Earnings (loss) from discontinued operations
|
0.02 | (0.02 | ) | 0.20 | 0.18 | 0.05 | ||||||||||||||
|
Net (loss) earnings
|
(3.00 | ) | (2.37 | ) | 1.65 | 1.73 | 1.09 | |||||||||||||
|
|
||||||||||||||||||||
|
Dividends per share
|
||||||||||||||||||||
|
Classes A and B common
|
— | 0.54 | 0.52 | 0.45 | 0.40 | |||||||||||||||
|
|
||||||||||||||||||||
|
Working capital
|
360.8 | 427.4 | 478.6 | 463.3 | 428.0 | |||||||||||||||
|
Total assets
|
1,301.7 | 1,457.3 | 1,574.0 | 1,469.4 | 1,312.9 | |||||||||||||||
|
Total noncurrent liabilities
|
197.7 | 203.8 | 200.5 | 142.6 | 119.9 | |||||||||||||||
| (1) | Fiscal year included 53 weeks. | |
| (2) | Included in results of continuing operations are asset impairments of $53.1 million in 2009 and $80.5 million in 2008. | |
| (3) | As discussed in Note 4 to the consolidated financial statements, Kelly Home Care (“KHC”) was sold effective March 31, 2007 for an after-tax gain of $6.2 million. Additionally, Kelly Staff Leasing (“KSL”) was sold effective December 31, 2006 for an after-tax gain of $2.3 million. In accordance with the Discontinued Operations Subtopic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification, the gains on the sales as well as KHC’s and KSL’s results of operations for the current and prior periods have been reported as discontinued operations in the Company’s consolidated statements of earnings. | |
| (4) | In June 2008, the FASB issued guidance which clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities and, therefore, included in the calculation of earnings per share using the two-class method. This guidance was effective beginning with the first quarter of 2009, and all prior period earnings per share data presented was adjusted retrospectively to conform with the provisions of this guidance. |
16
Table of Contents
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Executive Overview
Fiscal 2009 was one of the most challenging in Kelly’s 63-year history. Global economic conditions
had a profound and unprecedented impact on our financial performance, and fundamental changes in
the staffing market emerged, as larger companies increased their focus on developing comprehensive
solutions for managing their workforce going
forward. For the fiscal year, we reported a net loss from continuing operations of $3.01 per
diluted share, compared to a net loss of $2.35 per share in 2008. Our gross profit rate for the
year declined to 16.3% from 17.7% in 2008, primarily due to changing business mix and declining
fee-based income.
During this period, we took the opportunity to reassess our operations and adjust our strategy —
reshaping Kelly to become leaner, more agile and more customer-focused. Amidst a deep and
prolonged global recession, we moved aggressively to restructure our operations by closing and
consolidating branches, eliminating unprofitable staffing operations in certain countries, reducing
workforce, controlling costs and becoming more efficient in our service delivery to our customers.
As a result of our actions, we incurred $30 million of global restructuring costs in 2009,
representing primarily severance, lease terminations and asset write-offs. The discretionary and
structural cost-containment initiatives we implemented in late 2008 more than offset the effects of
this additional spending. As a result, total expenses for 2009, including restructuring costs,
were $173 million below 2008.
We intend to remain vigilant in controlling costs and leveraging our lower expense base to focus on
profitability in the year ahead. We have adjusted our strategy to meet the changes in the
marketplace and remain committed to achieving profitability in each operation, accelerating growth
of higher-margin services such as our professional and technical disciplines, increasing our focus
on customer acquisition and partnering with our valued customers to effectively manage their
workforce needs through our Outsourcing and Consulting Group.
Results of Operations
2009 versus 2008
2009 versus 2008
Revenue from services for 2009 totaled $4.31 billion, a decrease of 21.8% from 2008. This was the
result of a decrease in hours worked of 18.7% combined with a decrease in average hourly bill rates
of 5.0% (1.2% on a constant currency basis). Fee-based income, which is included in revenue from
services, totaled $86.1 million, or 2.0% of total revenue, for 2009, a decrease of 43.1% as
compared to $151.3 million for 2008. Revenue for 2009 decreased in all seven business segments,
reflecting the global economic slowdown.
17
Table of Contents
Compared to 2008, the U.S. dollar was stronger against many foreign currencies, including the euro,
British pound, Australian dollar and Canadian dollar. As a result, our consolidated U.S. dollar
translated revenue was lower than would have otherwise been reported. On a constant currency
basis, revenue for 2009 decreased 19.2% as compared with the prior year. When we use the term
“constant currency,” it means that we have translated financial data for 2009 into U.S. dollars
using the same foreign currency exchange rates that we used to translate financial data for 2008.
We believe that constant currency measurements are an important analytical tool to aid in
understanding underlying operating trends without distortion due to currency fluctuations. The
table below summarizes the impact of foreign exchange adjustments on revenue for 2009 on a 53-week
reported basis:
| Revenue from Services | ||||||||||||
| 2009 | 2008 | |||||||||||
| (53 Weeks) | (52 Weeks) | % Change | ||||||||||
| (In millions of dollars) | ||||||||||||
|
Revenue from Services — Constant Currency:
|
||||||||||||
|
Americas Commercial
|
$ | 2,006.1 | $ | 2,516.7 | (20.3 | )% | ||||||
|
Americas PT
|
793.4 | 938.2 | (15.4 | ) | ||||||||
|
|
||||||||||||
|
Total Americas Commercial and PT — Constant Currency
|
2,799.5 | 3,454.9 | (19.0 | ) | ||||||||
|
|
||||||||||||
|
EMEA Commercial
|
984.3 | 1,310.5 | (24.9 | ) | ||||||||
|
EMEA PT
|
154.0 | 172.5 | (10.7 | ) | ||||||||
|
|
||||||||||||
|
Total EMEA Commercial and PT — Constant Currency
|
1,138.3 | 1,483.0 | (23.2 | ) | ||||||||
|
|
||||||||||||
|
APAC Commercial
|
299.2 | 336.0 | (11.0 | ) | ||||||||
|
APAC PT
|
26.0 | 34.3 | (24.3 | ) | ||||||||
|
|
||||||||||||
|
Total APAC Commercial and PT — Constant Currency
|
325.2 | 370.3 | (12.2 | ) | ||||||||
|
|
||||||||||||
|
OCG — Constant Currency
|
222.3 | 233.3 | (4.7 | ) | ||||||||
|
|
||||||||||||
|
Less: Intersegment revenue
|
(25.3 | ) | (24.2 | ) | 5.0 | |||||||
|
|
||||||||||||
|
Total Revenue from Services — Constant Currency
|
4,460.0 | 5,517.3 | (19.2 | ) | ||||||||
|
Foreign Currency Impact
|
(145.2 | ) | ||||||||||
|
|
||||||||||||
|
Revenue from Services
|
$ | 4,314.8 | $ | 5,517.3 | (21.8 | )% | ||||||
|
|
||||||||||||
In addition, the 2009 fiscal year included a 53
rd
week. This fiscal leap year
occurs every five or six years and is necessary to align the fiscal and calendar periods. The
53
rd
week added approximately 1% to 2009 revenue.
Gross profit of $701.7 million was 28.2% lower than the gross profit of $977.6 million for the
prior year. The gross profit rate for 2009 was 16.3%, versus 17.7% for 2008. Compared to the
prior year, the gross profit rate decreased in all business segments, with the exception of APAC
PT. The decrease in the gross profit rate is primarily due to decreases in fee-based income, lower
margins as a result of business and customer mix and a lower level of favorable workers’
compensation adjustments in the Americas. Our average mark-up has been impacted by shifts to a
higher proportion of light industrial business compared to clerical, and to large corporate
customers compared to retail.
Fee-based income has a significant impact on gross profit rates. There are very low direct costs
of services associated with fee-based recruitment income. Therefore, increases or decreases can
have a disproportionate impact on gross profit rates.
As more fully described in Critical Accounting Estimates, we regularly update our estimates of the
ultimate costs of open workers’ compensation claims. As a result, we reduced the estimated cost of
prior year workers’ compensation claims by $2.8 million for 2009. This compares to an adjustment
reducing prior year workers’ compensation claims by $12.7 million for 2008.
Selling, general and administrative (“SG&A”) expenses totaled $794.7 million, a year-over-year
decrease of $172.7 million, or 17.9% (14.8% on a constant currency basis). Included in SG&A
expenses for 2009 are litigation costs of $5.3 million and restructuring charges of $29.9 million,
of which $14.4 million related to severance, $7.9 million related to lease termination costs and
$7.6 million related to asset write-offs and other costs. Included in SG&A expenses for 2008 are
litigation costs of $22.5 million and restructuring costs of $6.5 million.
18
Table of Contents
Starting in the third quarter of 2008, we began taking selected cost savings actions, including
employee headcount reductions and branch closings. In January, 2009, we initiated a more
significant restructuring plan for our U.K. operations, and completed it during the year.
Throughout 2009, we continued to expand our focus to achieve further cost savings and related
efficiencies by assessing the scale of our global branch network, along with permanent employee
headcount levels. By the 2009 year end, our restructuring actions encompassed a global reach
beyond that originally anticipated. Accordingly, we included all related costs, including
severance and lease terminations, in connection with these actions taken around the world, in our
reported restructuring charges for 2009 and 2008. Refer to the segment discussions for more detail
of the restructuring actions.
The largest components of the $172.7 million year-over-year decrease in SG&A expenses are
approximately $110 million of structural changes, $55 million of compensation and other
discretionary savings and the $17 million decrease in year-over-year litigation costs, partially
offset by restructuring charges and incremental costs related to prior year’s acquisitions and
investments. Structural changes represent the restructuring actions we have taken around the world
during the last 18 months to reduce expenses, including a reduction of approximately 1,900
full-time employees and the closing, sale or consolidation of approximately 240 branches, some of
which are still in process. Compensation and other discretionary savings represent the impact of
expense-reduction initiatives implemented during the first quarter, including suspension of
headquarters and field-based incentive compensation and retirement matching contribution, along
with a reduction in discretionary spending on travel and general expenses.
During 2009, asset impairment charges of $53.1 million were also recorded. Due to significantly
worse than anticipated economic conditions and the impacts to our business in the second quarter of
2009, we revised our
internal forecasts for all of our segments, which we deemed to be a triggering event for purposes
of assessing goodwill for impairment. Accordingly, goodwill at all of our reporting units was
tested for impairment in the second quarter of 2009. This resulted in the recognition of a
goodwill impairment loss of $50.5 million in total, of which $16.4 million related to the Americas
Commercial segment, $12.1 million related to the APAC Commercial segment and $22.0 million related
to the EMEA PT segment.
Additionally, we evaluate long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be recoverable. When estimated
undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the
asset is written down to its fair value, determined by estimated future discounted cash flows. The
Company’s estimates as of June 28, 2009 resulted in a $2.1 million reduction in the carrying value
of long-lived assets and intangible assets in Japan. The Company’s estimates as of September 27,
2009 resulted in a $0.5 million reduction in the carrying value of long-lived assets and intangible
assets in Europe.
During 2008, we recorded goodwill impairment charges of $50.4 million related to the EMEA
Commercial segment,
long-lived asset impairment charges of $11.4 million related to U.K. and an other-than-temporary
impairment of $18.7 million related to our investment in Temp Holdings.
As a result of the above, we reported a loss from operations for 2009 totaling $146.1 million,
compared to $70.3 million reported for 2008.
Income tax benefit on continuing operations for 2009 was $43.2 million, compared to expense of $8.0
million for 2008. Income taxes were negatively impacted in 2009 and 2008 by non-deductible
impairment charges and valuation allowances on operating losses and restructuring charges in
certain foreign countries, offset by work opportunity tax credits in the U.S. 2009 income taxes
also benefited from investments in life insurance policies used to fund the Company’s deferred
compensation plan, which generated non-taxable income in 2009, and non-deductible losses in 2008.
The Company incurred tax losses in 2009 in the United States and a number of foreign countries.
Continued tax losses in these jurisdictions could result in recording an additional valuation
allowance against the Company’s deferred tax assets. See Note 14, Income Taxes, in the Notes to
Consolidated Financial Statements.
Loss from continuing operations was $105.1 million in 2009, compared to $81.7 million in 2008.
Included in loss from continuing operations in 2009 were $50.0 million, net of tax, of asset
impairment charges, $24.0 million, net of tax, of restructuring charges and $3.3 million, net of
tax, related to litigation expenses. Included in loss from continuing operations in 2008 were
$77.2 million, net of tax, of impairment charges, $13.9 million, net of tax, of litigation expenses
and $5.3 million, net of tax, of restructuring charges.
19
Table of Contents
Discontinued operations include the operating results of Kelly Home Care (“KHC”), which was sold in
2007 and Kelly Staff Leasing (“KSL”), which was sold in 2006. Earnings from discontinued
operations totaled $0.6 million for 2009, compared to a loss of $0.5 million for 2008. These
amounts represent adjustments to assets and liabilities retained as part of the sale agreements.
Net loss for 2009 totaled $104.5 million, compared to $82.2 million in 2008. Diluted loss from
continuing operations per share for 2009 was $3.01, as compared to diluted loss from continuing
operations per share of $2.35 for 2008.
Effective with the first quarter of 2009, we adopted the provisions of Financial Accounting
Standards Board guidance which clarifies that share-based payment awards that entitle their holders
to receive nonforfeitable dividends before vesting should be considered participating securities
and, therefore, included in the calculation of earnings per share using the two-class method in
accordance with generally accepted accounting principles. Accordingly, all prior period earnings
per share data presented was adjusted retrospectively to conform with the provisions of this
guidance. Adopting these provisions had no effect on previously reported basic or diluted earnings
per share for the year ended December 28, 2008.
Americas Commercial
| Constant | ||||||||||||||||
| 2009 | 2008 | Currency | ||||||||||||||
| (53 Weeks) | (52 Weeks) | Change | Change | |||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Revenue from Services
|
$ | 1,980.3 | $ | 2,516.7 | (21.3 | )% | (20.3 | )% | ||||||||
|
Fee-based income
|
6.6 | 15.7 | (58.4 | ) | (56.8 | ) | ||||||||||
|
Gross profit
|
290.7 | 399.0 | (27.1 | ) | (26.3 | ) | ||||||||||
|
SG&A expenses excluding restructuring charges
|
273.2 | 328.2 | (16.7 | ) | ||||||||||||
|
Restructuring charges
|
7.2 | 0.9 | NM | |||||||||||||
|
Total SG&A expenses
|
280.4 | 329.1 | (14.8 | ) | (13.8 | ) | ||||||||||
|
Earnings from Operations
|
10.3 | 69.9 | (85.1 | ) | ||||||||||||
|
|
||||||||||||||||
|
Gross profit rate
|
14.7 | % | 15.9 | % | (1.2 | ) pts. | ||||||||||
|
Expense rates (excluding restructuring charges):
|
||||||||||||||||
|
% of revenue
|
13.8 | 13.0 | 0.8 | |||||||||||||
|
% of gross profit
|
93.9 | 82.2 | 11.7 | |||||||||||||
|
Operating margin
|
0.5 | 2.8 | (2.3 | ) | ||||||||||||
The change in Americas Commercial revenue from services reflected a decrease in hours worked of
20.3%, combined with a decrease in average hourly bill rates of 0.9% (an increase of 0.3% on a
constant currency basis). Americas Commercial represented 45.9% of total Company revenue for 2009
and 45.6% for 2008.
The decrease in the gross profit rate was due to lower fee-based income, an increase in the
proportion of lower-margin light industrial business to higher-margin clerical business, as well as
the impact of lower favorable workers’ compensation adjustments from prior years. Of the total
$2.8 million adjustment in 2009 noted above, $2.4 million is reflected in the results of Americas
Commercial. This compares to an adjustment of $10.5 million in 2008.
The decrease in SG&A expenses reflects reduced salaries and incentive compensation related to
expense control initiatives. Restructuring charges in 2009 and 2008 include severance, lease
termination and other costs to close or consolidate approximately 115 branches.
20
Table of Contents
Americas PT
| Constant | ||||||||||||||||
| 2009 | 2008 | Currency | ||||||||||||||
| (53 Weeks) | (52 Weeks) | Change | Change | |||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Revenue from Services
|
$ | 792.6 | $ | 938.2 | (15.5 | )% | (15.4 | )% | ||||||||
|
Fee-based income
|
9.4 | 19.4 | (51.5 | ) | (51.4 | ) | ||||||||||
|
Gross profit
|
125.1 | 161.7 | (22.6 | ) | (22.5 | ) | ||||||||||
|
SG&A expenses excluding restructuring charges
|
100.9 | 113.3 | (10.9 | ) | ||||||||||||
|
Restructuring charges
|
1.0 | — | NM | |||||||||||||
|
Total SG&A expenses
|
101.9 | 113.3 | (10.0 | ) | (9.8 | ) | ||||||||||
|
Earnings from Operations
|
23.2 | 48.4 | (52.2 | ) | ||||||||||||
|
|
||||||||||||||||
|
Gross profit rate
|
15.8 | % | 17.2 | % | (1.4 | ) pts. | ||||||||||
|
Expense rates (excluding restructuring charges):
|
||||||||||||||||
|
% of revenue
|
12.7 | 12.1 | 0.6 | |||||||||||||
|
% of gross profit
|
80.7 | 70.1 | 10.6 | |||||||||||||
|
Operating margin
|
2.9 | 5.2 | (2.3 | ) | ||||||||||||
The change in Americas PT revenue from services reflected a decrease in hours worked of 15.3%,
partially offset by an increase in average billing rates of 0.7% (0.8% on a constant currency
basis). Americas PT revenue represented 18.4% of total Company revenue for 2009 and 17.0% for
2008.
The Americas PT gross profit rate decreased, due primarily to lower fee-based income, changes in
customer mix and higher growth in certain lower-margin customer accounts.
The decrease in SG&A expenses was primarily due to lower incentive compensation, combined with
reduced recruiting and retention, travel and other costs as a result of lower volume and
cost-savings initiatives.
EMEA Commercial
| Constant | ||||||||||||||||
| 2009 | 2008 | Currency | ||||||||||||||
| (53 Weeks) | (52 Weeks) | Change | Change | |||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Revenue from Services
|
$ | 895.2 | $ | 1,310.5 | (31.7 | )% | (24.9 | )% | ||||||||
|
Fee-based income
|
16.6 | 39.5 | (58.0 | ) | (52.6 | ) | ||||||||||
|
Gross profit
|
140.2 | 227.3 | (38.4 | ) | (32.5 | ) | ||||||||||
|
SG&A expenses excluding restructuring charges
|
150.3 | 226.5 | (33.7 | ) | ||||||||||||
|
Restructuring charges
|
15.6 | 3.9 | 301.4 | |||||||||||||
|
Total SG&A expenses
|
165.9 | 230.4 | (28.0 | ) | (20.2 | ) | ||||||||||
|
Earnings from Operations
|
(25.7 | ) | (3.1 | ) | NM | |||||||||||
|
|
||||||||||||||||
|
Gross profit rate
|
15.7 | % | 17.4 | % | (1.7 | ) pts. | ||||||||||
|
Expense rates (excluding restructuring charges):
|
||||||||||||||||
|
% of revenue
|
16.8 | 17.3 | (0.5 | ) | ||||||||||||
|
% of gross profit
|
107.2 | 99.6 | 7.6 | |||||||||||||
|
Operating margin
|
(2.9 | ) | (0.2 | ) | (2.7 | ) | ||||||||||
The change in revenue from services in EMEA Commercial resulted from a 28.8% decrease in hours
worked and a decrease in fee-based income, combined with a decrease in average hourly bill rates of
7.6% (an increase of 1.9% on a constant currency basis). EMEA Commercial revenue represented 20.7%
of total Company revenue for 2009 and 23.8% for 2008.
21
Table of Contents
The decrease in the gross profit rate was due primarily to decreases in fee-based income, a decline
in temporary margins due to pricing pressure and shift in customer mix to corporate accounts, along
with the effect of French payroll tax credits recorded in 2008, which contributed approximately 30
basis points to the EMEA Commercial gross profit rate.
During 2009, EMEA Commercial completed a significant restructuring within the United Kingdom and
exited the staffing business in Spain, Turkey, Ukraine and Finland. These restructuring actions
resulted in the closure of approximately 85 branches and reduction of approximately 525 permanent
employees during 2009. Total restructuring costs for EMEA Commercial in 2009 included $5.0 million
of severance, $4.4 million of lease termination costs and $6.2 million of asset write-offs and
other costs. These actions and other cost-savings initiatives resulted in the decrease in SG&A
expenses.
EMEA PT
| Constant | ||||||||||||||||
| 2009 | 2008 | Currency | ||||||||||||||
| (53 Weeks) | (52 Weeks) | Change | Change | |||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Revenue from Services
|
$ | 141.9 | $ | 172.5 | (17.8 | )% | (10.7 | )% | ||||||||
|
Fee-based income
|
15.7 | 26.8 | (41.2 | ) | (33.2 | ) | ||||||||||
|
Gross profit
|
37.8 | 51.2 | (26.2 | ) | (18.8 | ) | ||||||||||
|
SG&A expenses
|
40.6 | 48.9 | (16.9 | ) | (8.5 | ) | ||||||||||
|
Earnings from Operations
|
(2.8 | ) | 2.3 | NM | ||||||||||||
|
|
||||||||||||||||
|
Gross profit rate
|
26.6 | % | 29.7 | % | (3.1 | ) pts. | ||||||||||
|
Expense rates:
|
||||||||||||||||
|
% of revenue
|
28.6 | 28.3 | 0.3 | |||||||||||||
|
% of gross profit
|
107.6 | 95.5 | 12.1 | |||||||||||||
|
Operating margin
|
(2.0 | ) | 1.3 | (3.3 | ) | |||||||||||
The change in revenue from services in EMEA PT resulted from the decrease in fee-based income,
a decrease in hours worked of 10.7%, combined with a 3.7% decrease in average hourly bill rates (an
increase of 3.9% on a constant currency basis). EMEA PT revenue represented 3.3% of total Company
revenue for 2009 and 3.1% for 2008.
The decrease in the EMEA PT gross profit rate was primarily due to decreases in fee-based income.
SG&A expenses declined, due to reductions in personnel and incentive compensation.
22
Table of Contents
APAC Commercial
| Constant | ||||||||||||||||
| 2009 | 2008 | Currency | ||||||||||||||
| (53 Weeks) | (52 Weeks) | Change | Change | |||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Revenue from Services
|
$ | 284.9 | $ | 336.0 | (15.2 | )% | (11.0 | )% | ||||||||
|
Fee-based income
|
9.7 | 17.0 | (43.0 | ) | (40.6 | ) | ||||||||||
|
Gross profit
|
41.6 | 56.3 | (26.1 | ) | (22.6 | ) | ||||||||||
|
SG&A expenses excluding restructuring charges
|
44.6 | 56.6 | (21.3 | ) | ||||||||||||
|
Restructuring charges
|
1.6 | — | NM | |||||||||||||
|
Total SG&A expenses
|
46.2 | 56.6 | (18.5 | ) | (14.8 | ) | ||||||||||
|
Earnings from Operations
|
(4.6 | ) | (0.3 | ) | NM | |||||||||||
|
|
||||||||||||||||
|
Gross profit rate
|
14.6 | % | 16.8 | % | (2.2 | ) pts. | ||||||||||
|
Expense rates (excluding restructuring charges):
|
||||||||||||||||
|
% of revenue
|
15.6 | 16.8 | (1.2 | ) | ||||||||||||
|
% of gross profit
|
107.0 | 100.5 | 6.5 | |||||||||||||
|
Operating margin
|
(1.6 | ) | (0.1 | ) | (1.5 | ) | ||||||||||
The change in revenue from services in APAC Commercial resulted from a decrease in average
hourly bill rates of 11.6% (7.1% on a constant currency basis), combined with the decrease in
fee-based income and a decrease in hours worked of 2.6%. The decrease in the average hourly bill
rates for APAC Commercial was due to a change in mix from countries with higher average bill rates
to those with lower average bill rates, such as India and Malaysia. APAC Commercial revenue
represented 6.6% of total Company revenue for 2009 and 6.1% for 2008.
The decrease in the APAC Commercial gross profit rate was primarily due to decreases in fee-based
income. SG&A expenses declined, due to reductions in personnel and incentive compensation.
APAC PT
| Constant | ||||||||||||||||
| 2009 | 2008 | Currency | ||||||||||||||
| (53 Weeks) | (52 Weeks) | Change | Change | |||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Revenue from Services
|
$ | 25.4 | $ | 34.3 | (26.0 | )% | (24.3 | )% | ||||||||
|
Fee-based income
|
3.8 | 5.1 | (25.0 | ) | (21.0 | ) | ||||||||||
|
Gross profit
|
7.7 | 10.2 | (25.1 | ) | (22.6 | ) | ||||||||||
|
SG&A expenses
|
9.2 | 10.7 | (14.2 | ) | (9.9 | ) | ||||||||||
|
Earnings from Operations
|
(1.5 | ) | (0.5 | ) | (224.9 | ) | ||||||||||
|
|
||||||||||||||||
|
Gross profit rate
|
30.2 | % | 29.8 | % | 0.4 | pts. | ||||||||||
|
Expense rates:
|
||||||||||||||||
|
% of revenue
|
36.2 | 31.2 | 5.0 | |||||||||||||
|
% of gross profit
|
119.8 | 104.6 | 15.2 | |||||||||||||
|
Operating margin
|
(6.0 | ) | (1.4 | ) | (4.6 | ) | ||||||||||
The change in translated U.S. dollar revenue from services in APAC PT resulted from a decrease
in the translated U.S. dollar average hourly bill rates of 13.4% (11.8% on a constant currency
basis), combined with a decrease in hours worked of 14.8% and the decrease in fee-based income.
The decrease in the average hourly bill rates for APAC PT was due to a change in mix from countries
with higher average bill rates to those with lower average bill rates, such as India. APAC PT
revenue represented 0.6% of total Company revenue for 2009 and 2008.
SG&A expenses declined, due to reductions in personnel and incentive compensation.
23
Table of Contents
OCG
| Constant | ||||||||||||||||
| 2009 | 2008 | Currency | ||||||||||||||
| (53 Weeks) | (52 Weeks) | Change | Change | |||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Revenue from Services
|
$ | 219.9 | $ | 233.3 | (5.7 | )% | (4.7 | )% | ||||||||
|
Fee-based income
|
24.4 | 27.8 | (12.3 | ) | (9.4 | ) | ||||||||||
|
Gross profit
|
59.7 | 72.9 | (18.0 | ) | (16.1 | ) | ||||||||||
|
SG&A expenses excluding restructuring charges
|
69.6 | 69.5 | 0.0 | |||||||||||||
|
Restructuring charges
|
1.9 | 0.5 | 328.4 | |||||||||||||
|
Total SG&A expenses
|
71.5 | 70.0 | 2.0 | 4.3 | ||||||||||||
|
Earnings from Operations
|
(11.8 | ) | 2.9 | NM | ||||||||||||
|
|
||||||||||||||||
|
Gross profit rate
|
27.2 | % | 31.2 | % | (4.0 | ) pts. | ||||||||||
|
Expense rates (excluding restructuring charges):
|
||||||||||||||||
|
% of revenue
|
31.7 | 29.8 | 1.9 | |||||||||||||
|
% of gross profit
|
116.6 | 95.6 | 21.0 | |||||||||||||
|
Operating margin
|
(5.3 | ) | 1.2 | (6.5 | ) | |||||||||||
Revenue from services in the OCG segment for 2009 decreased in all three regions — Americas,
Europe and Asia-Pacific. OCG revenue represented 5.1% of total Company revenue for 2009 and 4.2%
for 2008.
The OCG gross profit rate decreased primarily due to a shift in revenue mix among the OCG business
units. Revenue in the higher-margin recruitment process outsourcing (“RPO”) and contingent
workforce outsourcing (“CWO”) units declined, while revenue in our lower-margin business process
outsourcing (“BPO”) unit grew modestly during 2009. This change in business mix, coupled with a
decrease in the gross profit rates in our RPO practice as compared to 2008, resulted in the overall
gross profit decline.
Total SG&A expenses were relatively unchanged from the prior year. Continuing costs related to
investments to build out implementation and operations infrastructure from the second and third
quarters of 2008, and continued investment in new initiatives, were partially offset by a reduction
in salary costs in our RPO and executive placement business units, as well as an overall decrease
in discretionary spending on business travel and general staffing expenses.
Results of Operations
2008 versus 2007
2008 versus 2007
Revenue from services for 2008 totaled $5.5 billion, a decrease of 2.7% from 2007. This was the
result of a decrease in hours worked of 8.3%, partially offset by an increase in average hourly
bill rates of 4.1% (3.0% on a constant currency basis). Fee-based income, which is included in
revenue from services, totaled $151.3 million, or 2.7% of total revenue for 2008, an increase of
11.1% as compared to $136.3 million in 2007. Revenue decreased in the Americas Commercial and
Americas PT business segments and increased in each of the five other business segments.
Reflecting the accelerating slowdown in the global economy, the trend in revenue growth during 2008
was negative in all business units, with the largest decline occurring in the fourth quarter.
24
Table of Contents
Compared to 2007, the U.S. dollar was weaker against certain foreign currencies, including the euro
and the Swiss franc. As a result, our consolidated U.S. dollar translated revenue was higher than
would have otherwise been reported. On a constant currency basis, 2008 revenue from services
decreased 3.7% as compared with 2007. The table below summarizes the impact of foreign exchange
adjustments on revenue from services for 2008:
| Revenue from Services | ||||||||||||
| 2008 | 2007 | % Change | ||||||||||
| (In millions of dollars) | ||||||||||||
|
Revenue from Services — Constant Currency:
|
||||||||||||
|
Americas Commercial
|
$ | 2,514.9 | $ | 2,772.5 | (9.3 | )% | ||||||
|
Americas PT
|
938.2 | 950.3 | (1.3 | ) | ||||||||
|
|
||||||||||||
|
Total Americas Commercial and PT — Constant Currency
|
3,453.1 | 3,722.8 | (7.2 | ) | ||||||||
|
|
||||||||||||
|
EMEA Commercial
|
1,271.3 | 1,292.3 | (1.6 | ) | ||||||||
|
EMEA PT
|
166.1 | 158.8 | 4.6 | |||||||||
|
|
||||||||||||
|
Total EMEA Commercial and PT — Constant Currency
|
1,437.4 | 1,451.1 | (1.0 | ) | ||||||||
|
|
||||||||||||
|
APAC Commercial
|
326.9 | 310.6 | 5.2 | |||||||||
|
APAC PT
|
32.7 | 26.7 | 22.4 | |||||||||
|
|
||||||||||||
|
Total APAC Commercial and PT — Constant Currency
|
359.6 | 337.3 | 6.6 | |||||||||
|
|
||||||||||||
|
OCG — Constant Currency
|
231.7 | 180.0 | 28.8 | |||||||||
|
|
||||||||||||
|
Less: Intersegment revenue
|
(24.2 | ) | (23.6 | ) | (2.4 | ) | ||||||
|
|
||||||||||||
|
Total Revenue from Services — Constant Currency
|
5,457.6 | 5,667.6 | (3.7 | ) | ||||||||
|
Foreign Currency Impact
|
59.7 | |||||||||||
|
|
||||||||||||
|
Revenue from Services
|
$ | 5,517.3 | $ | 5,667.6 | (2.7 | )% | ||||||
|
|
||||||||||||
Gross profit of $977.6 million was 1.2% lower than in 2007. Gross profit as a percentage of
revenues was 17.7% in 2008 and increased 0.2 percentage points compared to the 17.5% rate in 2007.
Compared to 2007, the gross profit rate increased in the EMEA PT and OCG segments, and was
relatively flat in the Americas Commercial business segment. The gross profit rate decreased in
all other business segments. The improvement in the gross profit rate was primarily due to growth
in fee-based income.
The gross profit rate for 2008 and 2007 also included the effect of French payroll tax credits.
During 2007, the French government changed the method of calculating payroll tax credits,
retroactive to the beginning of 2006 and on a go-forward basis until October 1, 2007. During 2008,
the French government extended eligibility to claim payroll tax credits to 2005. In connection
with these changes, $2.4 million of French payroll tax credits were recognized in 2008 and $4.8
million were recognized in 2007.
As a result of regularly updating our estimates of the ultimate cost of open workers’ compensation
claims, we reduced the estimated cost of 2008 workers’ compensation claims by $12.7 million. This
compares to an adjustment reducing prior year workers’ compensation claims by $11.6 million in
2007.
SG&A expenses totaled $967.4 million, an increase of 6.4% (5.2% on a constant currency basis) from
2007. SG&A expenses expressed as a percentage of gross profit were 99.0% in 2008, a 7.1 percentage
point increase compared to the 91.9% rate in 2007. Included in SG&A expenses for 2008 are $22.5
million of litigation costs for several pending lawsuits. (See Note 17, Contingencies, in the
Notes to Consolidated Financial Statements for further discussion.) Also included in SG&A expenses
for 2008 was $6.5 million of costs related to global restructuring charges. Included in SG&A
expenses for 2007 were $8.9 million of expenses related to 2007 Americas and U.K. restructuring
actions.
During the fourth quarter of 2008, impairment charges of $80.5 million were also recorded. We
completed our goodwill impairment test during the fourth quarter of 2008 and, due to worsening
economic conditions, the Company’s discounted cash flow forecast for future years was revised.
This resulted in the recognition of a goodwill impairment loss of $50.4 million in the EMEA
Commercial segment in 2008. At December 28, 2008, the Company also determined that its
available-for-sale investment in Temp Holdings Co. Ltd. (“Temp Holdings,” formerly Tempstaff), a
Japanese staffing company, was impaired and an other-than-temporary impairment of $18.7 million was
recorded. While Temp Holdings’ performance was strong, its value was affected by global market
movements. The Company’s determination that the impairment was other-than-temporary was based on
the length of time (approximately nine months as of December 28, 2008) and extent to which the
market value of the investment had been less than cost.
25
Table of Contents
Additionally, the Company evaluates long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. When estimated
undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the
asset is written down to its fair value, determined by estimated future discounted cash flows. The
Company’s evaluation as of December 28, 2008, which included consideration of a history of losses
in the U.K. and uncertainty around future financial projections, resulted in an $11.4 million
reduction in the carrying value of long-lived assets in the U.K.
As a result of the above, the Company reported losses from operations for 2008 of $70.3 million,
compared to earnings from operations of $80.1 million reported in 2007.
Other expense was $3.4 million in 2008, compared to income of $3.2 million in 2007. Included in
other expense for 2008 was $3.7 million of foreign exchange losses booked primarily in the fourth
quarter, related to yen-denominated net debt for the Temp Holdings investment and ruble-denominated
intercompany balances in Russia. Foreign exchange losses were not significant in 2007.
Income tax expense on continuing operations for 2008 was $8.0 million, compared to expense of $29.6
million in 2007. Most of the impairment and restructuring charges were not tax deductible. In
foreign countries where future
tax deductions are possible, a valuation allowance was recorded against the deferred tax assets
created by the charges. The valuation allowances related to impairment and restructuring charges
equaled $2.2 million in Germany, $7.9 million in Japan and $1.3 million in the United Kingdom. The
2008 income tax expense was also impacted by nondeductible losses in the cash surrender value of
life insurance policies used to fund the Company’s deferred compensation plans, and by losses in
foreign countries which were not currently deductible.
Loss from continuing operations was $81.7 million in 2008, compared to earnings of $53.7 million in
2007. Included in loss from continuing operations in 2008 were $77.2 million, net of tax, of
impairment charges, $13.9 million, net of tax, of litigation expenses, $5.3 million, net of tax, of
restructuring costs and $1.6 million of French payroll tax credits, net of tax. Included in
earnings from continuing operations in 2007 were $7.8 million of expenses, net of tax, related to
the U.K. and Americas restructuring actions and $3.2 million of French payroll tax credits, net of
tax.
Loss from discontinued operations, which includes KHC’s and KSL’s operating results, totaled $0.5
million for 2008, compared to earnings of $7.3 million for 2007. Discontinued operations for 2008
represent adjustments to assets and liabilities retained as part of the sale agreements.
Discontinued operations for 2007 included the $6.2 million gain, net of tax, on the sale of KHC.
Net loss in 2008 was $82.2 million, compared to earnings of $61.0 million in 2007. Diluted loss
per share from continuing operations for 2008 was $2.35, as compared to diluted earnings per share
from continuing operations of $1.45 in 2007. Diluted loss per share from continuing operations for
2008 included the $2.22 per share cost of impairments, $0.40 per share cost of litigation expenses,
$0.15 per share cost of restructuring costs and a $0.05 per share benefit related to French payroll
tax credits. Diluted earnings per share from continuing operations for 2007 included $0.21 per
share of restructuring costs and a $0.09 per share benefit related to French payroll tax credits.
The impact of including share-based payment awards in the calculation of earnings per share using
the two-class method in accordance with generally accepted accounting principles effective with the
first quarter of 2009 was to lower previously reported earnings per share amounts for the year
ended December 30, 2007 as follows: basic and diluted earnings per share from continuing
operations by $0.02, basic earnings per share on net earnings by $0.03 and diluted earnings per
share on net earnings by $0.02.
26
Table of Contents
Americas Commercial
| Constant | ||||||||||||||||
| Currency | ||||||||||||||||
| 2008 | 2007 | Change | Change | |||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Revenue from Services
|
$ | 2,516.7 | $ | 2,772.5 | (9.2 | )% | (9.3 | )% | ||||||||
|
Fee-based income
|
15.7 | 18.9 | (15.9 | ) | (16.2 | ) | ||||||||||
|
Gross profit
|
399.0 | 438.3 | (9.0 | ) | (9.0 | ) | ||||||||||
|
SG&A expenses
|
329.1 | 342.7 | (4.0 | ) | (4.0 | ) | ||||||||||
|
Earnings from Operations
|
69.9 | 95.6 | (26.8 | ) | ||||||||||||
|
|
||||||||||||||||
|
Gross profit rate
|
15.9 | % | 15.8 | % | 0.1 | pts. | ||||||||||
|
Expense rates:
|
||||||||||||||||
|
% of revenue
|
13.1 | 12.4 | 0.7 | |||||||||||||
|
% of gross profit
|
82.5 | 78.2 | 4.3 | |||||||||||||
|
Operating margin
|
2.8 | 3.4 | (0.6 | ) | ||||||||||||
The change in revenue from services in the Americas Commercial segment reflected the decrease
in fee-based income, a decrease in hours worked of 12.4%, partially offset by an increase in
average hourly bill rates of 3.7% (3.6% on a constant currency basis). Year-over-year revenue
comparisons reflect decreases of 6.5% in the first quarter, 6.1% in the second quarter, 9.4% in the
third quarter, and 14.9% in the fourth quarter. Americas Commercial represented 45.6% of total
Company revenue for 2008 and 48.9% for 2007.
As noted above, the Company revised its estimate of the cost of outstanding workers’ compensation
claims and, accordingly, reduced expense in 2008. Of the total $12.7 million adjustment recorded
in 2008, $10.5 million is reflected in the results of Americas Commercial. This compares to an
adjustment of $10.0 million in 2007. SG&A expenses decreased compared to 2007, but were higher as
a percentage of revenue due to lower revenue from services.
Americas PT
| Constant | ||||||||||||||||
| Currency | ||||||||||||||||
| 2008 | 2007 | Change | Change | |||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Revenue from Services
|
$ | 938.2 | $ | 950.3 | (1.3 | )% | (1.3 | )% | ||||||||
|
Fee-based income
|
19.4 | 20.6 | (5.8 | ) | (6.0 | ) | ||||||||||
|
Gross profit
|
161.7 | 166.4 | (2.9 | ) | (2.9 | ) | ||||||||||
|
SG&A expenses
|
113.3 | 112.4 | 0.8 | 0.7 | ||||||||||||
|
Earnings from Operations
|
48.4 | 54.0 | (10.4 | ) | ||||||||||||
|
|
||||||||||||||||
|
Gross profit rate
|
17.2 | % | 17.5 | % | (0.3 | ) pts. | ||||||||||
|
Expense rates:
|
||||||||||||||||
|
% of revenue
|
12.1 | 11.8 | 0.3 | |||||||||||||
|
% of gross profit
|
70.1 | 67.6 | 2.5 | |||||||||||||
|
Operating margin
|
5.2 | 5.7 | (0.5 | ) | ||||||||||||
The change in revenue from services in Americas PT reflected the decrease in fee-based income,
a decrease in hours worked of 4.2%, partially offset by an increase in average billing rates of
2.5%. On a year-over-year basis, revenue increased 2.8% in the first quarter and 1.7% in the
second quarter, and decreased 2.5% in the third quarter and 7.0% in the fourth quarter. Americas
PT revenue represented 17.0% of total Company revenue for 2008 and 16.8% for 2007.
27
Table of Contents
Americas PT’s share of the reduction in workers’ compensation expense was $1.4 million in 2008
and $1.0 million in 2007. SG&A expenses were flat compared to 2007, but were higher as a
percentage of revenue due to lower revenue from services.
EMEA Commercial
| Constant | ||||||||||||||||
| Currency | ||||||||||||||||
| 2008 | 2007 | Change | Change | |||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Revenue from Services
|
$ | 1,310.5 | $ | 1,292.3 | 1.4 | % | (1.6 | )% | ||||||||
|
Fee-based income
|
39.5 | 38.1 | 3.5 | 0.0 | ||||||||||||
|
Gross profit
|
227.3 | 229.0 | (0.7 | ) | (4.8 | ) | ||||||||||
|
SG&A expenses
|
230.4 | 220.1 | 4.6 | 2.1 | ||||||||||||
|
Earnings from Operations
|
(3.1 | ) | 8.9 | (133.5 | ) | |||||||||||
|
|
||||||||||||||||
|
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 | ) | |||||||||||
The change in translated U.S. dollar revenue from services in EMEA Commercial resulted from the
increase in fee-based income and an increase in average hourly bill rates of 4.0% (an increase of
0.7% on a constant currency basis), partially offset by a decrease in hours worked of 4.7%.
Constant currency year-over-year revenue comparisons reflect decreases of 1.6% in the first quarter
and 1.1% in the second quarter, an increase of 1.3% in the third quarter and decrease of 5.0% in
the fourth quarter. EMEA Commercial revenue represented 23.8% of total
Company revenue for 2008 and 22.8% for 2007. Acquisitions contributed approximately 2 percentage
points to EMEA Commercial year-over-year constant currency revenue growth.
The change in the gross profit rate was due to lower French payroll tax credits recognized in 2008
as compared to 2007, and lower temporary gross profit rates primarily in the U.K. Included in SG&A
expenses was the effect of $3.9 million of restructuring costs in 2008 and $5.9 million in U.K.
restructuring costs in 2007.
EMEA Commercial earnings from operations for 2008 included $3.9 million of restructuring charges
and a $2.4 million benefit related to French payroll tax credits. Earnings from operations for
2007 included a $5.9 million charge related to the restructuring of the U.K. operations and a $4.8
million benefit related to French payroll tax credits.
EMEA PT
| Constant | ||||||||||||||||
| Currency | ||||||||||||||||
| 2008 | 2007 | Change | Change | |||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Revenue from Services
|
$ | 172.5 | $ | 158.8 | 8.7 | % | 4.6 | % | ||||||||
|
Fee-based income
|
26.8 | 21.9 | 22.4 | 15.8 | ||||||||||||
|
Gross profit
|
51.2 | 44.8 | 14.3 | 8.3 | ||||||||||||
|
SG&A expenses
|
48.9 | 42.4 | 15.4 | 10.7 | ||||||||||||
|
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 | ) | ||||||||||||
28
Table of Contents
The change in translated U.S. dollar revenue from services in EMEA PT resulted from an increase
in fee-based income, a 4.7% increase in average hourly bill rates (1.0% on a constant currency
basis), and an increase in hours worked of 1.2%. Constant currency year-over-year revenue
comparisons reflect increases of 9.3% in the first quarter, 5.6% in the second quarter, 2.7% in the
third quarter and 1.6% in the fourth quarter. EMEA PT revenue represented 3.1% of total Company
revenue for 2008 and 2.8% for 2007. Acquisitions contributed approximately 2 percentage points to
EMEA PT year-over-year constant currency revenue growth.
The increase in the EMEA PT gross profit rate was primarily due to growth in fee-based income.
SG&A expenses increased from 2007, due to costs associated with branch openings during the second
half of 2007. Excluding the effect of acquisitions, constant currency SG&A expenses increased
approximately 7% from 2007.
APAC Commercial
| Constant | ||||||||||||||||
| Currency | ||||||||||||||||
| 2008 | 2007 | Change | Change | |||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Revenue from Services
|
$ | 336.0 | $ | 310.6 | 8.2 | % | 5.2 | % | ||||||||
|
Fee-based income
|
17.0 | 15.0 | 13.2 | 9.1 | ||||||||||||
|
Gross profit
|
56.3 | 53.0 | 6.1 | 2.8 | ||||||||||||
|
SG&A expenses
|
56.6 | 49.9 | 13.6 | 10.2 | ||||||||||||
|
Earnings from Operations
|
(0.3 | ) | 3.1 | (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 | ) | |||||||||||
The change in translated U.S. dollar revenue from services in APAC Commercial resulted from the
increase in fee-based income and an increase in average hourly bill rates of 6.1% (3.3% on a
constant currency basis), combined with an increase in hours worked of 1.6%. Constant currency
year-over-year revenue comparisons reflect increases of 23.4% in the first quarter, 6.5% in the
second quarter, 1.7% in the third quarter and a decrease of 5.5% in the fourth quarter. APAC
Commercial revenue represented 6.1% of total Company revenue in 2008 and 5.5% in 2007.
Acquisitions in 2007 contributed approximately 4 percentage points to APAC Commercial
year-over-year constant currency revenue growth.
On a constant currency basis, SG&A expenses increased, due to significant investments in this
region, through acquisitions made in 2007 and costs associated with new branches.
APAC PT
| Constant | ||||||||||||||||
| Currency | ||||||||||||||||
| 2008 | 2007 | Change | Change | |||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Revenue from Services
|
$ | 34.3 | $ | 26.7 | 28.3 | % | 22.4 | % | ||||||||
|
Fee-based income
|
5.1 | 5.1 | 0.9 | (4.3 | ) | |||||||||||
|
Gross profit
|
10.2 | 8.9 | 16.0 | 10.3 | ||||||||||||
|
SG&A expenses
|
10.7 | 8.7 | 22.9 | 18.1 | ||||||||||||
|
Earnings from Operations
|
(0.5 | ) | 0.2 | (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 | ) | |||||||||||
29
Table of Contents
The change in translated U.S. dollar revenue from services in APAC PT resulted from an increase
in hours worked of 27.6%, combined with an increase in average hourly bill rates of 0.1% (a
decrease of 4.4% on a constant currency basis). The constant currency change in average hourly
bill rates was impacted by a change in mix to lower average wage rate countries, such as Malaysia
and India. Constant currency year-over-year revenue comparisons reflect increases of 63.5% in the
first quarter, 42.4% in the second quarter, 9.5% in the third quarter and a decrease of 2.4% in the
fourth quarter. APAC PT revenue represented 0.6% of total Company revenue for 2008 and 0.5% for
2007.
The decrease in the APAC PT gross profit rate in 2008 was due to a higher mix of traditional
temporary-based revenue as compared to fee-based income. On a constant currency basis, SG&A
expenses increased, due primarily to significant investments in this region, including costs
associated with new branches.
OCG
| Constant | ||||||||||||||||
| Currency | ||||||||||||||||
| 2008 | 2007 | Change | Change | |||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Revenue from Services
|
$ | 233.3 | $ | 180.0 | 29.6 | % | 28.8 | % | ||||||||
|
Fee-based income
|
27.8 | 16.7 | 66.6 | 65.1 | ||||||||||||
|
Gross profit
|
72.9 | 49.6 | 46.7 | 44.7 | ||||||||||||
|
SG&A expenses
|
70.0 | 42.1 | 66.3 | 64.8 | ||||||||||||
|
Earnings from Operations
|
2.9 | 7.5 | (63.3 | ) | ||||||||||||
|
|
||||||||||||||||
|
Gross profit rate
|
31.2 | % | 27.6 | % | 3.6 | pts. | ||||||||||
|
Expense rates:
|
||||||||||||||||
|
% of revenue
|
30.0 | 23.4 | 6.6 | |||||||||||||
|
% of gross profit
|
96.2 | 84.9 | 11.3 | |||||||||||||
|
Operating margin
|
1.2 | 4.2 | (3.0 | ) | ||||||||||||
Revenue from services in the OCG segment for 2008 increased in all three regions — Americas,
Europe and Asia-Pacific. Constant currency year-over-year revenue comparisons reflect increases of
39.1% in the first quarter, 56.0% in the second quarter, 30.4% in the third quarter and 6.9% in the
fourth quarter. OCG revenue represented 4.2% of total Company revenue in 2008 and 3.2% for 2007.
Acquisitions completed in the fourth quarter of 2007 contributed approximately 9 percentage points
to OCG year-over-year constant currency revenue growth.
The OCG gross profit rate increased primarily due to improved margins in the RPO unit, coupled with
revenue growth in fee-based business units, such as CWO. Constant currency SG&A expenses increased
from 2007, due to investments to build out implementation and operations infrastructure.
Results of Operations
Financial Condition
Financial Condition
Historically, we have financed our operations through cash generated by operating activities and
access to credit markets. Our working capital requirements are primarily generated from temporary
employee payroll and customer accounts receivable. Since receipts from customers generally lag
payroll to temporary employees, working capital requirements increase substantially in periods of
growth. As highlighted in the consolidated statements of cash flows, our liquidity and available
capital resources are impacted by four key components: cash and equivalents, operating activities,
investing activities and financing activities.
Cash and Equivalents
Cash and equivalents totaled $88.9 million at the end of 2009, a decrease of $29.4 million from the
$118.3 million at year-end 2008. As further described below, during 2009, we used $17.2 million of
cash from operating activities, used $23.4 million of cash in investing activities and generated
$9.4 million from financing activities.
30
Table of Contents
Operating Activities
In 2009, we used $17.2 million in cash from our operating activities, as compared to generating
$101.6 million in 2008 and $73.4 million in 2007. The decrease from 2008 and 2007 was primarily
due to the decline in operating earnings, after adjustment for non-cash asset impairments and
deferral of tax benefits.
Trade accounts receivable totaled $717.9 million at the end of 2009. Global days sales outstanding
for the fourth quarter were 51 days for 2009, compared to 50 days for 2008.
Our working capital position was $360.8 million at the end of 2009, a decrease of $66.6 million
from year-end 2008, due to a decrease in cash and increase in short-term borrowings. The current
ratio was 1.7 at year-end 2009 and 2008.
Investing Activities
In 2009, we used $23.4 million for investing activities, compared to $64.0 million in 2008 and
$82.4 million in 2007. The decrease from 2008 and 2007 was due to lower capital expenditures and
decreased spending for acquisitions. Capital expenditures totaled $13.1 million in 2009, $31.1
million in 2008 and $46.0 million in 2007. Capital expenditures are primarily related to the
Company’s information technology programs. In 2008 and 2007, capital expenditures included costs
for the implementation of the PeopleSoft payroll, billing and accounts receivable project.
The PeopleSoft payroll, billing and accounts receivable project is intended to cover the U.S.,
Canada, Puerto Rico, U.K. and Ireland. Through 2007, the Company implemented accounts receivable
in all locations, and payroll and billing in the U.K. and Ireland. The Company implemented payroll
in Canada at the start of the fourth quarter of 2008.
The total cost of the project to date is $79 million, of which $56 million was capital expenditures
and $23 million was selling, general and administrative expenses. The U.S. and Puerto Rico payroll
implementations, and U.S., Canada and Puerto Rico billing implementations have been delayed until
at least 2011. The total cost to complete these implementations has not yet been determined.
Included in the consolidated balance sheet at year-end 2009 are $6.2 million of capitalized costs
related to unimplemented PeopleSoft modules.
During 2009, we made the following payments: $5.7 million earnout payment related to the 2007
acquisition of access AG, $1.0 million related to the 2007 acquisition CGR/seven LLC, $0.6 million
earnout payment related to the 2006 acquisition of The Ayers Group and $0.2 million earnout payment
related to the 2008 acquisition of Toner Graham.
During 2008, we made the following net cash payments: $13.0 million related to the acquisition of
the Portuguese subsidiaries of Randstad Holding N.V., $9.1 million related to the acquisition of
Toner Graham, $7.6 million related primarily to the acquisition of access AG and $3.0 million
related to the acquisition of CGR/seven LLC.
During 2007, we made the following net cash payments: $1.9 million related to the purchase of the
remaining shares of Tempstaff Kelly, Inc., $3.1 million related to the purchase of Talents
Technology, $12.2 million related to the purchase of CGR/seven, $8.1 million related to the
acquisition of P-Serv and $23.1 million related to the acquisition of access AG.
As of January 3, 2010, earnings targets for Talents Technology and Toner Graham were not met, and
one contingent earnout payment for Toner Graham remains, for up to approximately $4.7 million based
on 2010 earnings.
During the first quarter of 2007, we sold the KHC business for cash proceeds of $12.5 million.
Financing Activities
In 2009, we generated $9.4 million from financing activities, as compared to using $8.8 million in
2008 and $22.5 million in 2007. Debt totaled $137.1 million at year-end 2009 compared to $115.2
million at year-end 2008. At the end of 2009, debt represented approximately 19.5% of total
capital.
Effective September 28, 2009, we negotiated a new secured revolving credit facility. Our new
revolver has total capacity of $90 million and carries a term of three years, maturing in September
of 2012. Effective December 4, 2009, we established a 364-day, $100 million securitization
facility. The total net change in short-term borrowings during 2009 includes $55 million related
to borrowings on the securitization facility.
31
Table of Contents
During 2009, we repaid short-term debt of $22.9 million, and $7.6 million due on our
yen-denominated loan noted below. Details of our debt facilities as of the 2009 year end are
contained in the Liquidity section and footnote 8, Debt.
On October 10, 2008, we closed and funded a three-year syndicated term loan facility comprised of 9
million euros and 5 million U.K. pounds. The facility was used to refinance the short-term
borrowings related to the Portugal and Toner Graham acquisitions.
During 2007, we repurchased 1,679,873 Class A shares for $34.7 million under the $50 million Class
A share repurchase program authorized by the board of directors in August, 2007. During 2008, we
repurchased 436,697 Class A shares for $8.0 million. No shares were repurchased during 2009 under
the share repurchase program, which expired in August, 2009.
In the first quarter of 2007, we obtained short-term financing utilizing an $8.2 million
yen-denominated credit facility to purchase the remaining interest in Tempstaff Kelly, as well as
to fund local working capital. In the fourth quarter of 2007, we refinanced $49.1 million of the
short-term yen-denominated borrowings with a five-year, amortizing 5.5 billion yen-denominated term
loan.
As of year-end 2009, we had $81.0 million of committed unused credit facilities. At year-end 2009,
we had additional uncommitted one-year credit facilities totaling $15.0 million, under which we had
borrowed $1.0 million.
Dividends paid per common share were $0.54 in 2008 and $0.52 in 2007. No dividends were paid in
2009. Payments of dividends are restricted by the financial covenants contained in our short- and
long-term debt facilities. Details of this restriction are contained in the Debt footnote to our
consolidated financial statements.
Contractual Obligations and Commercial Commitments
Summarized below are our obligations and commitments to make future payments as of year-end 2009:
| Payment due by period | ||||||||||||||||||||
| Less than | More than | |||||||||||||||||||
| Total | 1 year | 1-3 Years | 3-5 Years | 5 years | ||||||||||||||||
| (In millions of dollars) | ||||||||||||||||||||
|
Operating leases
|
$ | 145.7 | $ | 48.4 | $ | 59.2 | $ | 23.3 | $ | 14.8 | ||||||||||
|
Short-term borrowings
and current portion of long-term debt
|
79.6 | 79.6 | — | — | — | |||||||||||||||
|
Accrued insurance
|
67.0 | 19.7 | 18.9 | 8.1 | 20.3 | |||||||||||||||
|
Accrued retirement benefits
|
84.1 | 7.4 | 14.5 | 14.5 | 47.7 | |||||||||||||||
|
Long-term debt
|
57.5 | — | 57.5 | — | — | |||||||||||||||
|
Payments related to acquisitions
|
4.7 | — | 4.7 | — | — | |||||||||||||||
|
Other long-term liabilities
|
3.7 | 0.6 | 1.2 | 1.2 | 0.7 | |||||||||||||||
|
Uncertain income tax positions, interest
and penalties
|
6.4 | 0.4 | 0.9 | 5.0 | 0.1 | |||||||||||||||
|
Purchase obligations
|
20.4 | 12.4 | 7.6 | 0.4 | — | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Total
|
$ | 469.1 | $ | 168.5 | $ | 164.5 | $ | 52.5 | $ | 83.6 | ||||||||||
|
|
||||||||||||||||||||
The table above excludes interest payments and, in certain cases, payment streams are
estimated. We have no material, unrecorded commitments, losses, contingencies or guarantees
associated with any related parties or unconsolidated entities.
32
Table of Contents
Liquidity
We expect to meet our ongoing short- and long-term cash requirements principally through cash
generated from operations, available cash and equivalents, securitization, and committed unused
credit facilities. Additional funding sources could include public or private bonds, asset-based
lending, additional bank facilities or other sources.
As of January 3, 2010, we had $81 million of available capacity on our $90 million revolving credit
facility and $0.7 million of available capacity on our $100 million securitization facility. The
securitization facility carried $55.0 million of short-term borrowings and $44.3 million of standby
letters of credit related to workers’ compensation. Together, the revolving credit and securitization facilities provide the Company with committed
funding capacity that may be used for general corporate purposes. While we believe these
facilities will cover our working capital needs over the short term, if economic conditions improve
rapidly or deteriorate further, we may need to seek additional sources of funds to cover
increased working capital needs.
In the
past year, we did not meet certain EBITDA covenant requirements. We
received temporary waivers of those requirements and subsequently
renegotiated our Bank Credit Facilities. While we believe we will
continue to meet our revised EBITDA covenants, there can be no
assurance we will do so. Details of our debt facilities and
associated covenants are contained in the Debt footnote to our
consolidated financial statements.
Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with accounting principles generally
accepted in the United States. In this process, it is necessary for us to make certain assumptions
and related estimates affecting the amounts reported in the consolidated financial statements and
the attached notes. Actual results can differ from assumed and estimated amounts.
Critical accounting estimates are those that we believe require the most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the effect of matters that
are inherently uncertain. We base our
estimates on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from other sources.
Judgments and uncertainties affecting the application of those estimates may result in materially
different amounts being reported under different conditions or using different assumptions. We
consider the following estimates to be most critical in understanding the judgments involved in
preparing our consolidated financial statements.
Allowance for Uncollectible Accounts Receivable
We make ongoing estimates relating to the collectibility of our accounts receivable and maintain an
allowance for estimated losses resulting from the inability of our customers to make required
payments. In determining the amount of the allowance, we consider our historical level of credit
losses and apply percentages to certain aged receivable categories. We also make judgments about
the creditworthiness of significant customers based on ongoing credit evaluations, and we monitor
current economic trends that might impact the level of credit losses in the future. Historically,
losses from uncollectible accounts have not exceeded our allowance. Since we cannot predict with
certainty future changes in the financial stability of our customers, actual future losses from
uncollectible accounts may differ from our estimates. If the financial condition of our customers
were to deteriorate, resulting in their inability to make payments, a larger allowance may be
required. In the event we determined that a smaller or larger allowance was appropriate, we would
record a credit or a charge to SG&A expense in the period in which we made such a determination.
In addition, we also include a provision for sales allowances, based on our historical experience,
in our allowance for uncollectible accounts receivable. If sales allowances vary from our
historical experience, an adjustment to the allowance may be required. As of year-end 2009 and
2008, the allowance for uncollectible accounts receivable was $15.0 million and $17.0 million,
respectively.
33
Table of Contents
Workers’ Compensation
We have a combination of insurance and self-insurance contracts under which we effectively bear the
first $500,000 of risk per single accident, except in the state of California, where we bear the
first $750,000 of risk per single accident. We establish accruals for workers’ compensation
utilizing actuarial methods to estimate the undiscounted future cash payments that will be made to
satisfy the claims, including an allowance for incurred-but-not-reported claims. This process
includes establishing loss development factors, based on our historical claims experience, as well
as industry experience, and applying those factors to current claims information to derive an
estimate of our ultimate claims liability. In preparing the estimates, we also consider the
nature, frequency and severity of the claims, analyses provided by third party claims
administrators, performance of our medical cost management programs, changes in our territory and
business line mix, as well as current legal, economic and regulatory factors. Where appropriate,
multiple generally-accepted actuarial techniques are applied and tested in the course of preparing
our estimates.
We evaluate the accrual, and the underlying assumptions, regularly throughout the year and make
adjustments as needed. The ultimate cost of these claims may be greater than or less than the
established accrual. While we believe that the recorded amounts are adequate, there can be no
assurance that changes to our estimates will not occur due to limitations inherent in the
estimation process. In the event we determine that a smaller or larger accrual is appropriate, we
would record a credit or a charge to cost of services in the period in which we made such a
determination. The accrual for workers’ compensation was $67.0 million and $73.2 million at
year-end 2009 and 2008, respectively.
Goodwill
We test goodwill for impairment annually and whenever events or circumstances make it more likely
than not that an impairment may have occurred. Generally accepted accounting principles require
that goodwill be tested for impairment at a reporting unit level. We have determined that our
reporting units are the same as our operating and
reportable segments. Goodwill is tested for impairment using a two-step process. In the first
step, the estimated fair value of a reporting unit is compared to its carrying value. If the
estimated fair value of a reporting unit exceeds the carrying value of the net assets assigned to a
reporting unit, goodwill is not considered impaired and no further testing is required. To derive
the estimated fair value of reporting units, we primarily relied on an income approach. Under the
income approach, estimated fair value is determined based on estimated future cash flows discounted
by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk
of the reporting unit being measured. Estimated future cash flows are based on our internal
projection model. We also considered estimated fair value based on a market value approach.
If the carrying value of the net assets assigned to a reporting unit exceeds the estimated fair
value of a reporting unit, a second step of the impairment test is performed in order to determine
the implied fair value of a reporting unit’s goodwill. Determining the implied fair value of
goodwill requires valuation of a reporting unit’s tangible and intangible assets and liabilities in
a manner similar to the allocation of purchase price in a business combination. If the carrying
value of a reporting unit’s goodwill exceeds its implied fair value, goodwill is deemed impaired
and is written down to the extent of the difference.
Due to significantly worse than anticipated economic conditions and the impacts to our business in
the second quarter of 2009, we revised our internal forecasts for all of our segments, which we
deemed to be a triggering event for purposes of assessing goodwill for impairment. Accordingly,
goodwill at all of our reporting units was tested for impairment in the second quarter of 2009.
From step one of the goodwill impairment test, we determined that the estimated fair values of our
Americas Commercial, APAC Commercial and EMEA PT reporting units were less than their carrying
value. As a result, we performed step two of the goodwill impairment tests to determine the
implied fair value of Americas Commercial, APAC Commercial and EMEA PT goodwill. From step two of
the goodwill impairment test, we determined that the implied fair value of the goodwill was less
than the carrying value of the goodwill for these reporting units. As a result, we recorded a
goodwill impairment loss of $16.4 million related to the Americas Commercial reporting unit, $12.1
million related to the APAC Commercial reporting unit and $22.0 million related to the EMEA PT
reporting unit. This expense was recorded in the asset impairments line on the consolidated
statement of earnings. The estimated fair values of all other reporting units exceeded their
carrying values.
We completed our annual impairment test in the fourth quarter for the year ended January 3, 2010
and determined that goodwill was not impaired.
34
Table of Contents
The goodwill impairment loss of $50.4 million recognized in the fourth quarter of 2008 related to
the EMEA Commercial reporting unit. This expense has been recorded in the asset impairment line on
the consolidated statement of earnings.
Our analysis used significant assumptions by segment, including: expected future revenue and
expense growth rates, profit margins, cost of capital, discount rate and forecasted capital
expenditures. Our projections assumed revenue remained relatively flat in the near term, followed
by a recovery and long-term modest growth. Assumptions and estimates about future cash flows and
discount rates are complex and subjective. They can be affected by a variety of factors, including
external factors such as industry and economic trends, and internal factors such as changes in our
business strategy and our internal forecasts.
Although we believe the assumptions and estimates we made are reasonable and appropriate, different
assumptions and estimates could materially impact our reported financial results. Different
assumptions of the anticipated future results and growth from these businesses could result in an
impairment charge, which would decrease operating income and result in lower asset values on our
consolidated balance sheet. For example, a continued worsening of the economy or assumed growth
rate reduced by half for the next two years could result in the estimated fair value of the OCG
segment falling below its book value. At year-end 2009 and 2008, total goodwill amounted to $67.3
million and $117.8 million, respectively (See Note 6).
Income Taxes
Income tax expense is based on expected income and statutory tax rates in the various jurisdictions
in which we operate. Judgment is required in determining our income tax expense. We establish
accruals for uncertain tax positions under generally accepted accounting principles, which require
that a position taken or expected to be taken in a tax return be recognized in the financial
statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the
position would be sustained upon examination by tax authorities that have full knowledge of all
relevant information. A recognized tax position is then measured at the largest amount of benefit
that is greater than fifty percent likely of being realized upon ultimate settlement. Our
effective tax rate includes the impact of accrual
provisions and changes to accruals that we consider appropriate, as well as related interest and
penalties. A number of years may elapse before a particular matter, for which we have or have not
established an accrual, is audited and finally resolved. While it is often difficult to predict
the final outcome or the timing of resolution of any particular tax matter, we believe that our
accruals are appropriate under generally accepted accounting principles. Favorable or unfavorable
adjustment of the accrual for any particular issue would be recognized as an increase or decrease
to our income tax expense in the period of a change in facts and circumstances. Our current tax
accruals are presented in the balance sheet within income and other taxes and long-term tax
accruals are presented in the balance sheet within other long-term liabilities.
Tax laws require items to be included in the tax return at different times than the items are
reflected in the financial statements. As a result, the income tax expense reflected in our
financial statements is different than the liability reported in our tax return. Some of these
differences are permanent, such as expenses which are not deductible on our tax return, and some
are temporary differences, such as depreciation expense. Temporary differences create deferred tax
assets and liabilities. Deferred tax assets generally represent items that can be used as a tax
deduction or credit in our tax return in future years for which we have already recorded the tax
benefit in our income statement. We establish valuation allowances for our deferred tax assets
when the amount of expected future taxable income is not likely to support the use of the deduction
or credit. Deferred tax liabilities generally represent items for which we have already taken a
deduction on our tax return, but have not yet recognized as expense in our financial statements.
Litigation
Kelly is subject to legal proceedings and claims arising out of the normal course of business.
Kelly routinely assesses the likelihood of any adverse judgments or outcomes to these matters, as
well as ranges of probable losses. A determination of the amount of the accruals required, if any,
for these contingencies is made after analysis of each known issue. Development of the analysis
includes consideration of many factors including: potential exposure, the status of proceedings,
negotiations, results of similar litigation and participation rates. The required accruals may
change in the future due to new developments in each matter. For further discussion, see Note 17,
Contingencies, in the Notes to Consolidated Financial Statements of this Annual Report on Form
10-K. At year-end 2009 and 2008, the accrual for litigation costs amounted to $2.3 million and
$24.2 million, respectively, and is included in accounts payable and accrued liabilities on the
consolidated balance sheet. Of the $2.3 million litigation accrual for year-end 2009, Kelly paid
$2.2 million on February 2, 2010.
35
Table of Contents
New Accounting Pronouncements
See Note 19 to our consolidated financial statements presented in Part II, Item 8 of this report
for a description of new accounting pronouncements.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are “forward-looking” statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements include
statements which are predictive in nature, which depend upon or refer to future events or
conditions, or which include words such as “expects,” “anticipates,” “intends,” “plans,”
“believes,” “estimates,” or variations or negatives thereof or by similar or comparable words or
phrases. In addition, any statements concerning future financial performance (including future
revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future
actions by us that may be provided by management are also forward-looking statements.
Forward-looking statements are based on current expectations and projections about future events
and are subject to risks, uncertainties, and assumptions about our company and economic and market
factors in the countries in which we do business, among other things. These statements are not
guarantees of future performance, and we have no specific intention to update these statements.
Actual events and results may differ materially from those expressed or forecasted in
forward-looking statements due to a number of factors. The principal important risk factors that
could cause our actual performance and future events and actions to differ materially from such
forward-looking statements include, but are not limited to, competitive market pressures including
pricing, changing market and economic conditions, material changes in demand from large corporate
customers, availability of temporary workers with appropriate skills required by customers,
increases in wages paid to temporary workers, liabilities for client and employee actions, foreign
currency fluctuations, changes in laws and regulations (including federal, state and international
tax laws), our ability to effectively implement and manage our information technology programs, and
our ability to successfully expand into new markets and service lines. Certain risk factors are
discussed more fully under “Risk Factors” in Part I, Item 1A of this report.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . |
We do not hold or invest in derivative contracts. We are exposed to foreign currency risk
primarily from our net investment in foreign subsidiaries, which conduct business in their local
currencies, and related foreign currency-denominated debt.
In addition, we are exposed to interest rate risks through our use of the multi-currency line of
credit and other borrowings. A hypothetical fluctuation of 10% in market interest rates would not
have a material impact on 2009 earnings.
Marketable equity investments, representing our investment in Temp Holdings, are stated at fair
value and marked to market through stockholders’ equity, net of tax. Impairments in value below
historical cost, if any, deemed to be other than temporary, would be expensed in the consolidated
statement of earnings. See Note 2, Fair Value Measurements, in the Notes to Consolidated Financial
Statements of this Annual Report on Form 10-K for further discussion.
We are exposed to market risk as a result of our obligation to pay benefits under our nonqualified
deferred compensation plan and our related investments in company-owned variable universal life
insurance policies. The obligation to employees increases and decreases based on movements in the
equity and debt markets. The investments in mutual funds, as part of the company-owned variable
universal life insurance policies, are designed to mitigate this risk with offsetting gains and
losses.
Overall, our holdings and positions in market risk-sensitive instruments do not subject us to
material risk.
36
Table of Contents
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
The financial statements and supplementary data required by this Item are set forth in the
accompanying index on page 43 of this filing and are presented in pages 44-76.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
| ITEM 9A. | CONTROLS AND PROCEDURES. |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this report, our Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective.
Management’s Report on Internal Control Over Financial Reporting
Management’s report on internal control over financial reporting is presented preceding the
consolidated financial statements on page 44 of this report.
Attestation Report of Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, independent registered public accounting firm, has audited the
effectiveness of our internal control over financial reporting as of January 3, 2010 as stated in
their report which appears herein.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our
fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
| ITEM 9B. | OTHER INFORMATION |
None.
37
Table of Contents
Information required by Part III with respect to Directors, Executive Officers and Corporate
Governance (Item 10), Executive Compensation (Item 11), Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters (Item 12), Certain Relationships and Related
Transactions, and Director Independence (Item 13) and Principal Accounting Fees and Services (Item
14), except as set forth under the titles “Executive Officers of the Registrant”, which is included
on page 38, and “Code of Business Conduct and Ethics,” which is included on page 39, (Item 10), and
except as set forth under the title “Equity Compensation Plan Information,” which is included on
page 39, (Item 12), is to be included in a definitive proxy statement filed not later than 120 days
after the close of our fiscal year and the proxy statement, when filed, is incorporated in this
report by reference.
| ITEM 10. | EXECUTIVE OFFICERS OF THE REGISTRANT. |
| Served as an | Business Experience | |||||
| Name/Office | Age | Officer Since | During Last 5 Years | |||
|
|
||||||
|
Carl T. Camden
|
55 | 1995 | Served as officer of the Company. | |||
|
President and
Chief Executive Officer (1) |
||||||
|
|
||||||
|
George S. Corona
|
51 | 2000 | Served as officer of the Company. | |||
|
Executive Vice President and
Chief Operating Officer (2) |
||||||
|
|
||||||
|
Michael L. Durik
|
61 | 1999 | Served as officer of the Company. | |||
|
Executive Vice President and
Chief Administrative Officer (3) |
||||||
|
|
||||||
|
Patricia Little
|
49 | 2008 | Served as officer of the Company since | |||
|
Executive Vice President and
|
July 2008. Served in various key | |||||
|
Chief Financial Officer (4)
|
finance positions at Ford Motor | |||||
|
|
Company from 1984 to 2008, most | |||||
|
|
recently as general auditor (2006 – | |||||
|
|
2008) and director of global accounting | |||||
|
|
(2002 – 2006). | |||||
|
|
||||||
|
Michael S. Webster
|
54 | 1996 | Served as officer of the Company. | |||
|
Executive Vice President
|
||||||
|
|
||||||
|
Rolf E. Kleiner
|
55 | 1995 | Served as officer of the Company. | |||
|
Senior Vice President
|
||||||
|
|
||||||
|
Daniel T. Lis
|
63 | 2003 | Served as officer of the Company. | |||
|
Senior Vice President,
General Counsel and Corporate Secretary |
||||||
|
|
||||||
|
Antonina M. Ramsey
|
55 | 1992 | Served as officer of the Company. | |||
|
Senior Vice President
|
| (1) | Mr. Camden was appointed Acting Chief Executive Officer on February 9, 2006 and was appointed Chief Executive Officer on February 27, 2006. | |
| (2) | Mr. Corona was appointed Chief Operating Officer effective January 1, 2009. | |
| (3) | Mr. Durik was appointed Chief Administrative Officer on May 19, 2004. | |
| (4) | Ms. Little was appointed Chief Financial Officer effective July 1, 2008. |
38
Table of Contents
CODE OF BUSINESS CONDUCT AND ETHICS.
We have adopted a Code of Business Conduct and Ethics that applies to our directors, officers and
employees, including our principal executive officer, principal financial officer, principal
accounting officer or controller or persons performing similar functions. The Code of Business
Conduct and Ethics is included as Exhibit 14 in the Index to Exhibits on page 78. We have posted
our Code of Business Conduct and Ethics on our website at
www.kellyservices.com
. We intend to post
any changes in or waivers from our Code of Business Conduct and Ethics applicable to any of these
officers on our website.
| ITEM 12. | SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS. |
Equity Compensation Plan Information
The following table shows the number of shares of our common stock that may be issued upon the
exercise of outstanding options, warrants and rights, the weighted-average exercise price of
outstanding options, warrants and rights, and the number of securities remaining available for
future issuance under our equity compensation plans as of the fiscal year end for 2009.
| Number of securities | ||||||||||||
| remaining available | ||||||||||||
| for future issuance | ||||||||||||
| Number of securities | under equity | |||||||||||
| to be issued upon | Weighted-average | compensation plans | ||||||||||
| exercise of outstanding | exercise price of | (excluding securities | ||||||||||
| options, warrants | outstanding options, | reflected in the first | ||||||||||
| and rights | warrants and rights | column) (2) | ||||||||||
|
Equity compensation plans
approved by security
holders (1)
|
851,306 | $ | 25.09 | 2,382,795 | ||||||||
|
|
||||||||||||
|
Equity compensation plans
not approved by security
holders (3)
|
— | — | — | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total
|
851,306 | $ | 25.09 | 2,382,795 | ||||||||
|
|
||||||||||||
| (1) | The equity compensation plans approved by our stockholders include our Equity Incentive Plan, Non-Employee Director Stock Option Plan and Non-Employee Director Stock Award Plan. | |
| The number of shares to be issued upon exercise of outstanding options, warrants and rights excludes 519,070 of restricted stock awards granted to employees and not yet vested at January 3, 2010. | ||
| (2) | The Equity Incentive Plan provides that the maximum number of shares available for grants, including stock options and restricted stock awards, is 10 percent of the outstanding Class A common stock, adjusted for plan activity over the preceding five years. | |
| The Non-Employee Director Stock Option Plan provides that the maximum number of shares available for settlement of options is 250,000 shares of Class A common stock. | ||
| The Non-Employee Director Stock Award Plan provides that the maximum number of shares available for awards is one-quarter of one percent of the outstanding Class A common stock. | ||
| (3) | We have no equity compensation plans that have not been approved by our stockholders. |
39
Table of Contents
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
| (a) | The following documents are filed as part of this report: |
| (1) | Financial statements: | ||
| Management’s Report on Internal Control Over Financial Reporting | |||
| Report of Independent Registered Public Accounting Firm | |||
| Consolidated Statements of Earnings for the three fiscal years ended January 3, 2010 | |||
| Consolidated Statements of Cash Flows for the three fiscal years ended January 3, 2010 | |||
| Consolidated Balance Sheets at January 3, 2010 and December 28, 2008 | |||
| Consolidated Statements of Stockholders’ Equity for the three fiscal years ended January 3, 2010 | |||
| Notes to Consolidated Financial Statements |
| (2) | Financial Statement Schedule - | ||
| For the three fiscal years ended January 3, 2010: | |||
| Schedule II — Valuation Reserves | |||
| All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. | |||
| (3) | The Exhibits are listed in the Index to Exhibits included beginning at page 77 which is incorporated herein by reference. |
| (b) | The Index to Exhibits and required Exhibits are included following the Financial Statement Schedule beginning at page 77 of this filing. | |
| (c) | None. |
40
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| Date: February 18, 2010 |
KELLY SERVICES, INC.
|
|||
| By | /s/ P. Little | |||
| P. Little | ||||
| Executive Vice President and Chief Financial Officer | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
Date: February 18, 2010
|
* | T. E. Adderley | ||
|
|
T. E. Adderley | |||
|
|
Chairman and Director | |||
|
|
||||
|
Date: February 18, 2010
|
* | C. T. Camden | ||
|
|
C. T. Camden | |||
|
|
President, Chief Executive Officer and Director | |||
|
|
(Principal Executive Officer) | |||
|
|
||||
|
Date: February 18, 2010
|
* | J. E. Dutton | ||
|
|
J. E. Dutton | |||
|
|
Director | |||
|
|
||||
|
Date: February 18, 2010
|
* | M. A. Fay, O.P. | ||
|
|
M. A. Fay, O.P. | |||
|
|
Director | |||
|
|
||||
|
Date: February 18, 2010
|
* | V. G. Istock | ||
|
|
V. G. Istock | |||
|
|
Director | |||
|
|
||||
|
Date: February 18, 2010
|
* | L. A. Murphy | ||
|
|
L. A. Murphy | |||
|
|
Director | |||
|
|
||||
|
Date: February 18, 2010
|
* |
D. R. Parfet
D. R. Parfet |
||
|
|
Director | |||
|
|
||||
|
Date: February 18, 2010
|
* |
B. J. White
B. J. White |
||
|
|
Director |
41
Table of Contents
SIGNATURES (continued)
| Date: February 18, 2010 | /s/ P. Little | |||
| P. Little | ||||
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |
||||
| Date: February 18, 2010 | /s/ M. E. Debs | |||
| M. E. Debs | ||||
|
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer) |
||||
| Date: February 18, 2010 | *By | /s/ P. Little | ||
| P. Little | ||||
| Attorney-in-Fact | ||||
42
Table of Contents
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULE
SUPPLEMENTAL SCHEDULE
Kelly Services, Inc. and Subsidiaries
| Page Reference | ||||
| in Report on | ||||
| Form 10-K | ||||
|
|
||||
| 44 | ||||
|
|
||||
| 45 | ||||
|
|
||||
| 46 | ||||
|
|
||||
| 47 | ||||
|
|
||||
| 48 | ||||
|
|
||||
| 49 | ||||
|
|
||||
| 50 - 75 | ||||
|
|
||||
| 76 | ||||
43
Table of Contents
Management’s Report on Internal Control Over Financial Reporting
The management of Kelly Services, Inc. (the “Company”), is responsible for establishing and
maintaining adequate internal control over financial reporting. Internal control over financial
reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act
of 1934 as a process designed by, or under the supervision of, the Company’s principal executive
and principal financial officers and effected by the Company’s board of directors, management and
other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
| • | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| • | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; |
| • | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may change.
The Company’s management assessed the effectiveness of the Company’s internal control over
financial reporting as of January 3, 2010. In making this assessment, the Company’s management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework.
Based on our assessment, management determined that, as of January 3, 2010, the Company’s internal
control over financial reporting was effective based on those criteria.
The effectiveness of the Company’s internal control over financial reporting as of January 3, 2010
has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm,
as stated in their report which appears on page 45.
44
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Kelly Services, Inc.:
In our opinion, the consolidated financial statements listed in the index appearing under Item
15(a)(1) present fairly, in all material respects, the financial position of Kelly Services, Inc.
and its subsidiaries at January 3, 2010 and December 28, 2008, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended January 3, 2010 in
conformity with accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index appearing under Item
15(a)(2) presents fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of
January 3, 2010, based on criteria established in
Internal Control — Integrated Framework
issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s
management is responsible for these financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in Management’s Report on
Internal Controls Over Financial Reporting. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and on the Company’s internal control
over financial reporting based on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective internal control
over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits
also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
|
/s/ PricewaterhouseCoopers LLP
|
||
|
Detroit, MI
|
||
|
February 18, 2010
|
45
Table of Contents
Kelly Services, Inc. and Subsidiaries
| 2009 (1) | 2008 | 2007 | ||||||||||
| (In millions of dollars except per share items) | ||||||||||||
|
|
||||||||||||
|
Revenue from services
|
$ | 4,314.8 | $ | 5,517.3 | $ | 5,667.6 | ||||||
|
|
||||||||||||
|
Cost of services
|
3,613.1 | 4,539.7 | 4,678.5 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Gross profit
|
701.7 | 977.6 | 989.1 | |||||||||
|
|
||||||||||||
|
Selling, general and
administrative expenses
|
794.7 | 967.4 | 909.0 | |||||||||
|
|
||||||||||||
|
Asset impairments
|
53.1 | 80.5 | — | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
(Loss) earnings from operations
|
(146.1 | ) | (70.3 | ) | 80.1 | |||||||
|
|
||||||||||||
|
Other (expense) income, net
|
(2.2 | ) | (3.4 | ) | 3.2 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
(Loss) earnings from continuing operations
before taxes
|
(148.3 | ) | (73.7 | ) | 83.3 | |||||||
|
|
||||||||||||
|
Income taxes
|
(43.2 | ) | 8.0 | 29.6 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
(Loss) earnings from continuing operations
|
(105.1 | ) | (81.7 | ) | 53.7 | |||||||
|
|
||||||||||||
|
Earnings (loss) from discontinued operations, net of tax
|
0.6 | (0.5 | ) | 7.3 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net (loss) earnings
|
$ | (104.5 | ) | $ | (82.2 | ) | $ | 61.0 | ||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic (loss) earnings per share
|
||||||||||||
|
(Loss) earnings from continuing operations
|
$ | (3.01 | ) | $ | (2.35 | ) | $ | 1.46 | ||||
|
Earnings (loss) from discontinued operations
|
0.02 | (0.02 | ) | 0.20 | ||||||||
|
Net (loss) earnings
|
$ | (3.00 | ) | $ | (2.37 | ) | $ | 1.65 | ||||
|
|
||||||||||||
|
Diluted (loss) earnings per share
|
||||||||||||
|
(Loss) earnings from continuing operations
|
$ | (3.01 | ) | $ | (2.35 | ) | $ | 1.45 | ||||
|
Earnings (loss) from discontinued operations
|
0.02 | (0.02 | ) | 0.20 | ||||||||
|
Net (loss) earnings
|
$ | (3.00 | ) | $ | (2.37 | ) | $ | 1.65 | ||||
|
|
||||||||||||
|
Dividends per share
|
$ | — | $ | 0.54 | $ | 0.52 | ||||||
|
|
||||||||||||
|
Average shares outstanding (millions):
|
||||||||||||
|
Basic
|
34.9 | 34.8 | 36.4 | |||||||||
|
Diluted
|
34.9 | 34.8 | 36.4 | |||||||||
| (1) | Fiscal year included 53 weeks. |
See accompanying Notes to Consolidated Financial Statements.
46
Table of Contents
Kelly Services, Inc. and Subsidiaries
| 2009 (1) | 2008 | 2007 | ||||||||||
| (In millions of dollars) | ||||||||||||
|
|
||||||||||||
|
Cash flows from operating activities
|
||||||||||||
|
Net (loss) earnings
|
$ | (104.5 | ) | $ | (82.2 | ) | $ | 61.0 | ||||
|
Noncash adjustments:
|
||||||||||||
|
Impairment of assets
|
53.1 | 80.5 | — | |||||||||
|
Depreciation and amortization
|
40.9 | 46.0 | 42.6 | |||||||||
|
Provision for bad debts
|
2.2 | 6.7 | 6.7 | |||||||||
|
Stock-based compensation
|
5.1 | 4.4 | 3.9 | |||||||||
|
Deferred income taxes
|
(31.0 | ) | 7.5 | (5.3 | ) | |||||||
|
Gain on sale of discontinued operations
|
— | — | (6.2 | ) | ||||||||
|
Other, net
|
(2.2 | ) | 3.7 | (0.5 | ) | |||||||
|
Changes in operating assets and liabilities:
|
19.2 | 35.0 | (28.8 | ) | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash from operating activities
|
(17.2 | ) | 101.6 | 73.4 | ||||||||
|
|
||||||||||||
|
Cash flows from investing activities
|
||||||||||||
|
Capital expenditures
|
(13.1 | ) | (31.1 | ) | (46.0 | ) | ||||||
|
Acquisition of companies, net of cash received
|
(7.5 | ) | (32.7 | ) | (48.4 | ) | ||||||
|
Proceeds from sale of discontinued operations
|
— | — | 12.5 | |||||||||
|
Other investing activities
|
(2.8 | ) | (0.2 | ) | (0.5 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash from investing activities
|
(23.4 | ) | (64.0 | ) | (82.4 | ) | ||||||
|
|
||||||||||||
|
Cash flows from financing activities
|
||||||||||||
|
Net change in short-term borrowings
|
52.7 | (34.2 | ) | 17.5 | ||||||||
|
Proceeds from debt
|
— | 42.5 | 57.3 | |||||||||
|
Repayment of debt
|
(30.5 | ) | — | (49.1 | ) | |||||||
|
Dividend payments
|
— | (19.1 | ) | (19.1 | ) | |||||||
|
Purchase of treasury stock
|
— | (8.0 | ) | (34.7 | ) | |||||||
|
Other financing activities
|
(12.8 | ) | 10.0 | 5.6 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash from financing activities
|
9.4 | (8.8 | ) | (22.5 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Effect of exchange rates on cash and equivalents
|
1.8 | (3.3 | ) | 5.9 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net change in cash and equivalents
|
(29.4 | ) | 25.5 | (25.6 | ) | |||||||
|
Cash and equivalents at beginning of year
|
118.3 | 92.8 | 118.4 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash and equivalents at end of year
|
$ | 88.9 | $ | 118.3 | $ | 92.8 | ||||||
|
|
||||||||||||
| (1) | Fiscal year included 53 weeks. |
See accompanying Notes to Consolidated Financial Statements.
47
Table of Contents
Kelly Services, Inc. and Subsidiaries
| 2009 | 2008 | |||||||
| (In millions of dollars) | ||||||||
|
ASSETS
|
||||||||
|
Current Assets
|
||||||||
|
Cash and equivalents
|
$ | 88.9 | $ | 118.3 | ||||
|
Trade accounts receivable, less allowances of
$15.0 and $17.0, respectively
|
717.9 | 815.8 | ||||||
|
Prepaid expenses and other current assets
|
70.6 | 62.0 | ||||||
|
Deferred taxes
|
21.0 | 31.9 | ||||||
|
|
||||||||
|
Total current assets
|
898.4 | 1,028.0 | ||||||
|
|
||||||||
|
Property and Equipment
|
||||||||
|
Land and buildings
|
58.8 | 59.2 | ||||||
|
Computer hardware and software, equipment,
furniture and leasehold improvements
|
264.0 | 302.6 | ||||||
|
Accumulated depreciation
|
(195.7 | ) | (210.5 | ) | ||||
|
|
||||||||
|
Net property and equipment
|
127.1 | 151.3 | ||||||
|
|
||||||||
|
Noncurrent Deferred Taxes
|
77.5 | 40.0 | ||||||
|
|
||||||||
|
Goodwill, net
|
67.3 | 117.8 | ||||||
|
|
||||||||
|
Other Assets
|
131.4 | 120.2 | ||||||
|
|
||||||||
|
|
||||||||
|
Total Assets
|
$ | 1,301.7 | $ | 1,457.3 | ||||
|
|
||||||||
|
|
||||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current Liabilities
|
||||||||
|
Short-term borrowings and current portion of long-term debt
|
$ | 79.6 | $ | 35.2 | ||||
|
Accounts payable and accrued liabilities
|
182.6 | 244.1 | ||||||
|
Accrued payroll and related taxes
|
208.3 | 243.2 | ||||||
|
Accrued insurance
|
19.7 | 26.3 | ||||||
|
Income and other taxes
|
47.4 | 51.8 | ||||||
|
|
||||||||
|
Total current liabilities
|
537.6 | 600.6 | ||||||
|
|
||||||||
|
Noncurrent Liabilities
|
||||||||
|
Long-term debt
|
57.5 | 80.0 | ||||||
|
Accrued insurance
|
47.3 | 46.9 | ||||||
|
Accrued retirement benefits
|
76.9 | 61.6 | ||||||
|
Other long-term liabilities
|
16.0 | 15.3 | ||||||
|
|
||||||||
|
Total noncurrent liabilities
|
197.7 | 203.8 | ||||||
|
|
||||||||
|
Stockholders’ Equity
|
||||||||
|
Capital stock, $1.00 par value
|
||||||||
|
Class A common stock, shares issued 36.6 million
at 2009 and 2008
|
36.6 | 36.6 | ||||||
|
Class B common stock, shares issued 3.5 million
at 2009 and 2008
|
3.5 | 3.5 | ||||||
|
Treasury stock, at cost
|
||||||||
|
Class A common stock, 5.1 million shares at 2009
and 5.3 million at 2008
|
(106.6 | ) | (110.6 | ) | ||||
|
Class B common stock
|
(0.6 | ) | (0.6 | ) | ||||
|
Paid-in capital
|
36.9 | 35.8 | ||||||
|
Earnings invested in the business
|
571.5 | 676.0 | ||||||
|
Accumulated other comprehensive income
|
25.1 | 12.2 | ||||||
|
|
||||||||
|
|
||||||||
|
Total stockholders’ equity
|
566.4 | 652.9 | ||||||
|
|
||||||||
|
|
||||||||
|
Total Liabilities and Stockholders’ Equity
|
$ | 1,301.7 | $ | 1,457.3 | ||||
|
|
||||||||
See accompanying Notes to Consolidated Financial Statements.
48
Table of Contents
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Kelly Services, Inc. and Subsidiaries
| 2009 (1) | 2008 | 2007 | ||||||||||
| (In millions of dollars) | ||||||||||||
|
Capital Stock
|
||||||||||||
|
Class A common stock
|
||||||||||||
|
Balance at beginning of year
|
$ | 36.6 | $ | 36.6 | $ | 36.6 | ||||||
|
Conversions from Class B
|
— | — | — | |||||||||
|
|
||||||||||||
|
Balance at end of year
|
36.6 | 36.6 | 36.6 | |||||||||
|
|
||||||||||||
|
Class B common stock
|
||||||||||||
|
Balance at beginning of year
|
3.5 | 3.5 | 3.5 | |||||||||
|
Conversions to Class A
|
— | — | — | |||||||||
|
|
||||||||||||
|
Balance at end of year
|
3.5 | 3.5 | 3.5 | |||||||||
|
|
||||||||||||
|
Treasury Stock
|
||||||||||||
|
Class A common stock
|
||||||||||||
|
Balance at beginning of year
|
(110.6 | ) | (105.7 | ) | (78.2 | ) | ||||||
|
Exercise of stock options, restricted stock awards and other
|
4.0 | 3.1 | 7.2 | |||||||||
|
Purchase of treasury stock
|
— | (8.0 | ) | (34.7 | ) | |||||||
|
|
||||||||||||
|
Balance at end of year
|
(106.6 | ) | (110.6 | ) | (105.7 | ) | ||||||
|
|
||||||||||||
|
Class B common stock
|
||||||||||||
|
Balance at beginning of year
|
(0.6 | ) | (0.6 | ) | (0.6 | ) | ||||||
|
Exercise of stock options, restricted stock awards and other
|
— | — | — | |||||||||
|
|
||||||||||||
|
Balance at end of year
|
(0.6 | ) | (0.6 | ) | (0.6 | ) | ||||||
|
|
||||||||||||
|
Paid-in Capital
|
||||||||||||
|
Balance at beginning of year
|
35.8 | 34.5 | 32.0 | |||||||||
|
Exercise of stock options, restricted stock awards and other
|
1.1 | 1.3 | 2.5 | |||||||||
|
|
||||||||||||
|
Balance at end of year
|
36.9 | 35.8 | 34.5 | |||||||||
|
|
||||||||||||
|
Earnings Invested in the Business
|
||||||||||||
|
Balance at beginning of year
|
676.0 | 777.3 | 735.1 | |||||||||
|
Net (loss) earnings
|
(104.5 | ) | (82.2 | ) | 61.0 | |||||||
|
Dividends
|
— | (19.1 | ) | (19.1 | ) | |||||||
|
Adoption of ASC 740
|
— | — | 0.3 | |||||||||
|
|
||||||||||||
|
Balance at end of year
|
571.5 | 676.0 | 777.3 | |||||||||
|
|
||||||||||||
|
Accumulated Other Comprehensive Income
|
||||||||||||
|
Balance at beginning of year
|
12.2 | 42.6 | 30.1 | |||||||||
|
Foreign currency translation adjustments, net of tax
|
12.3 | (29.7 | ) | 18.1 | ||||||||
|
Unrealized gains (losses) on investments, net of tax
|
1.6 | — | (6.4 | ) | ||||||||
|
Reclassification of unrealized losses on investments, net
of tax to net (loss) earnings
|
— | 0.1 | — | |||||||||
|
Pension liability adjustments, net of tax
|
(1.0 | ) | (0.8 | ) | 0.8 | |||||||
|
|
||||||||||||
|
Balance at end of year
|
25.1 | 12.2 | 42.6 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Stockholders’ Equity at end of year
|
$ | 566.4 | $ | 652.9 | $ | 788.2 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Comprehensive Income
|
||||||||||||
|
Net (loss) earnings
|
$ | (104.5 | ) | $ | (82.2 | ) | $ | 61.0 | ||||
|
Foreign currency translation adjustments, net of tax
|
12.3 | (29.7 | ) | 18.1 | ||||||||
|
Unrealized gains (losses) on investments, net of tax
|
1.6 | (10.8 | ) | (6.4 | ) | |||||||
|
Pension liability adjustments, net of tax
|
(1.0 | ) | (0.8 | ) | 0.9 | |||||||
|
Reclassification adjustments included in net (loss) earnings
|
— | 10.9 | (0.1 | ) | ||||||||
|
|
||||||||||||
|
Comprehensive Income
|
$ | (91.6 | ) | $ | (112.6 | ) | $ | 73.5 | ||||
|
|
||||||||||||
| (1) | Fiscal year included 53 weeks. |
See accompanying Notes to Consolidated Financial Statements.
49
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kelly Services, Inc. and Subsidiaries
1. Summary of Significant Accounting Policies
Nature of Operations
Kelly Services, Inc. is a global workforce solutions provider operating in
all major markets throughout the world.
Fiscal Year
The Company’s fiscal year ends on the Sunday nearest to December 31. The three most
recent years ended on January 3, 2010 (2009, which contained 53 weeks), December 28, 2008 (2008,
which contained 52 weeks) and December 30, 2007 (2007, which contained 52 weeks). Period costs
included in selling, general and administrative (“SG&A”) expenses are recorded on a calendar-year
basis.
Principles of Consolidation
The consolidated financial statements include the accounts and
operations of the Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Available-for-sale securities are carried at fair value with the unrealized gains or losses, net of
tax, included as a component of accumulated other comprehensive income (loss) in stockholders’
equity. Realized gains and losses and declines in value below cost judged to be
other-than-temporary on such securities are included as a component of asset impairments expense in
consolidated statement of earnings. The fair values of available-for-sale securities are based on
quoted market prices.
We have evaluated the consolidated financial statements for subsequent events through the date of
the filing of this Annual Report on Form 10-K.
Foreign Currency Translation
All of the Company’s international subsidiaries use their local
currency as their functional currency. Revenue and expense accounts of foreign subsidiaries are
translated to U.S. dollars at average exchange rates, while assets and liabilities are translated
to U.S. dollars at year-end exchange rates. Resulting translation adjustments, net of deferred
taxes, where applicable, are reported as accumulated foreign currency adjustments in stockholders’
equity and are recorded as a component of accumulated other comprehensive income.
Revenue Recognition
Revenue from services is recognized as services are provided by the temporary
or contract employees. Revenue from permanent placement services is recognized at the time the
permanent placement candidate begins full-time employment. Revenue from other fee-based consulting
services is recognized when the services are provided. Provisions for sales allowances, based on
historical experience, are recognized at the time the related sale is recognized as a reduction in
revenue from services.
Allowance for Uncollectible Accounts Receivable
The Company records an allowance for uncollectible
accounts receivable based on historical loss experience, customer payment patterns and current
economic trends. The reserve for sales allowances, as discussed above, is also included in the
allowance for uncollectible accounts receivable. The Company reviews the adequacy of the allowance
for uncollectible accounts receivable on a quarterly basis and, if necessary, increases or
decreases the balance by recording a charge or credit to SG&A expenses.
Cost of Services
Cost of services are those costs directly associated with the earning of revenue.
The primary examples of these types of costs are temporary employee wages, along with associated
payroll taxes, temporary employee benefits, such as service bonus and holiday pay, and workers’
compensation costs. These costs differ fundamentally from SG&A expenses in that they arise
specifically from the action of providing our services to
customers whereas SG&A costs are incurred regardless of whether or not we place temporary employees
with our customers.
Advertising Expenses
Advertising expenses from continuing operations, which are expensed as
incurred and are included in SG&A expenses, were $7.1 million in 2009 and $11.1 million in 2008 and
2007.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts in the consolidated financial statements and accompanying notes. Estimates are
used for, but not limited to, the accounting for the allowance for uncollectible accounts
receivable, workers’ compensation, goodwill and long-lived asset impairment, litigation costs and
income taxes. Actual results could differ materially from those estimates.
50
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
Cash and Equivalents
Cash and equivalents are stated at fair value. The Company considers
securities with original maturities of three months or less to be cash and equivalents.
Property and Equipment
Property and equipment are stated at cost and are depreciated over
their estimated useful lives, principally by the straight-line method. Estimated useful lives of
property and equipment by function are as follows:
| Category | 2009 | 2008 | Life | |||||||
| (In millions of dollars) | ||||||||||
|
Land
|
$ | 3.8 | $ | 3.8 | — | |||||
|
Work in process
|
8.2 | 8.1 | — | |||||||
|
Buildings and improvements
|
55.0 | 55.4 | 15 to 45 years | |||||||
|
Computer hardware and software
|
181.0 | 201.4 | 3 to 12 years | |||||||
|
Equipment, furniture and fixtures
|
36.9 | 42.5 | 5 years | |||||||
|
Leasehold improvements
|
37.9 | 50.6 | The lesser of the life of the lease or 5 years | |||||||
|
|
||||||||||
|
Total property and equipment
|
$ | 322.8 | $ | 361.8 | ||||||
|
|
||||||||||
The Company capitalizes external costs and internal payroll costs incurred in the development of
software for internal use as required by the Internal-Use Software Subtopic of the Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). Work in process
represents capitalized costs for internal use software not yet in service and is included with
computer hardware and software, equipment, furniture and leasehold improvements on the consolidated
balance sheet. Depreciation expense from continuing operations was $36.0 million for 2009, $41.4
million for 2008 and $40.4 million for 2007.
Operating Leases
The Company recognizes rent expense on a straight-line basis over the lease term.
This includes the impact of both scheduled rent increases and free or reduced rents (commonly
referred to as “rent holidays”). The Company records allowances provided by landlords for
leasehold improvements as deferred rent in the consolidated balance sheet and as operating cash
flows in the consolidated statement of cash flows.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the
fair value of net assets acquired. Purchased intangible assets with definite lives are recorded at
estimated fair value at the date of acquisition and are amortized over their respective useful
lives (from 3 to 15 years) on an accelerated basis commensurate with the related cash flows.
Impairment of Long-Lived Assets and Intangible Assets
The Company evaluates long-lived assets and
intangible assets with definite lives for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. When estimated undiscounted
future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is
written down to its estimated fair value. Assets to be disposed of by sale, if any, are reported
at the lower of the carrying amount or estimated fair value less cost to sell.
We test goodwill for impairment at the reporting unit level annually and whenever events or
circumstances make it more likely than not that an impairment may have occurred. We have
determined that our reporting units are the same as our operating and reportable segments based on
our organizational structure and the financial information that is provided to and reviewed by
management. Goodwill is tested for impairment using a two-step process. In the first step, the
estimated fair value of a reporting unit is compared to its carrying value. If the estimated fair
value of a reporting unit exceeds the carrying value of the net assets assigned to a reporting
unit, goodwill is not considered impaired and no further testing is required.
If the carrying value of the net assets assigned to a reporting unit exceeds the estimated fair
value of a reporting unit, a second step of the impairment test is performed in order to determine
the implied fair value of a reporting unit’s goodwill. Determining the implied fair value of
goodwill requires valuation of a reporting unit’s tangible and intangible assets and liabilities in
a manner similar to the allocation of purchase price in a business combination. If the carrying
value of a reporting unit’s goodwill exceeds its implied fair value, goodwill is deemed impaired
and is written down to the extent of the difference.
51
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
Accounts Payable
Included in accounts payable are outstanding checks in excess of funds on
deposit. Such amounts totaled $21.7 million and $28.4 million at year-end 2009 and 2008,
respectively.
Accrued Payroll and Related Taxes
Included in accrued payroll and related taxes are outstanding
checks in excess of funds on deposit. Such amounts totaled $6.3 million and $9.9 million at
year-end 2009 and 2008, respectively. Payroll taxes are recognized proportionately to direct wages
for interim periods based on expected full-year amounts.
Income Taxes
The Company accounts for income taxes using the liability method. Under this method,
deferred tax assets and liabilities are recognized for the expected tax consequences of temporary
differences between the tax bases of assets and liabilities and their reported amounts. Valuation
allowances are provided against deferred tax assets when it is more likely than not that some
portion or all of the deferred tax asset will not be realized.
Uncertain tax positions that are taken or expected to be taken in a tax return are recognized in
the financial statements when it is more likely than not (i.e., a likelihood of more than fifty
percent) that the position would be sustained upon examination by tax authorities that have full
knowledge of all relevant information. A recognized tax position is then measured at the largest
amount of benefit that is greater than fifty percent likely of being realized upon ultimate
settlement.
Interest and penalties related to income taxes are accounted for as income tax expense.
Stock-Based Compensation
The Company may grant restricted stock awards, stock options (both
incentive and nonqualified), stock appreciation rights and performance awards to key employees
utilizing the Company’s Class A stock. The Company utilizes the market price on the date of grant
as the fair market value for restricted stock awards and estimates the fair value of stock option
awards on the date of grant using an option-pricing model. The value of awards that are ultimately
expected to vest is recognized as expense over the requisite service periods in SG&A expense in the
Company’s consolidated statements of earnings.
Workers’ Compensation
The Company establishes accruals for workers’ compensation claims utilizing
actuarial methods to estimate the undiscounted future cash payments that will be made to satisfy
the claims. The estimates are based both on historical experience as well as current legal,
economic and regulatory factors. The Company regularly updates its estimates, and the ultimate
cost of these claims may be greater than or less than the established accrual. However, the
Company believes that any such adjustments will not materially affect its consolidated financial
position. During 2009, the Company revised its estimate of the cost of outstanding workers’
compensation claims and, accordingly, reduced expense by $2.8 million. This compares to
adjustments reducing prior year workers’ compensation claims by $12.7 million in 2008 and $11.6
million in 2007.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
presentation.
52
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
2. Fair Value Measurements
Trade accounts receivable, accounts payable, accrued liabilities and short-term borrowings
approximate their fair values due to the short-term maturities of these assets and liabilities. As
of January 3, 2010 and December 28, 2008, the carrying value of long-term debt (see Note 8),
approximates the fair value.
Assets Measured at Fair Value on a Recurring Basis
The following tables present the assets carried at fair value as of January 3, 2010 and December
28, 2008 on the consolidated balance sheet by fair value hierarchy level, as described below. The
Company carried no liabilities at fair value as of January 3, 2010 and December 28, 2008.
| Fair Value Measurements on a Recurring Basis | ||||||||||||||||
| As of January 3, 2010 | ||||||||||||||||
| Description | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Money market funds
|
$ | 1.0 | $ | 1.0 | $ | — | $ | — | ||||||||
|
Available-for-sale investment
|
23.6 | 23.6 | — | — | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total assets at fair value
|
$ | 24.6 | $ | 24.6 | $ | — | $ | — | ||||||||
|
|
||||||||||||||||
| Fair Value Measurements on a Recurring Basis | ||||||||||||||||
| As of December 28, 2008 | ||||||||||||||||
| Description | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| (In millions of dollars) | ||||||||||||||||
|
Money market funds
|
$ | 28.6 | $ | 28.6 | $ | — | $ | — | ||||||||
|
Available-for-sale investment
|
22.5 | 22.5 | — | — | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total assets at fair value
|
$ | 51.1 | $ | 51.1 | $ | — | $ | — | ||||||||
|
|
||||||||||||||||
Level 1 measurements consist of quoted prices in active markets for identical assets or
liabilities. Level 2 measurements include quoted prices in markets that are not active or model
inputs that are observable either directly or indirectly for substantially the full term of the
asset or liability. Level 3 measurements include significant unobservable inputs.
Money market funds as of January 3, 2010 represent investments in money market accounts, all of
which is restricted cash, which is included in prepaid expenses and other current assets on the
consolidated balance sheet. Money market funds as of December 28, 2008 represent investments in
money market accounts, of which $27.3 million is included in cash and equivalents and $1.3 million
of restricted cash is included in prepaid expenses and other current assets on the consolidated
balance sheet. The valuations were based on quoted market prices of those accounts as of the
respective period end.
Available-for-sale investment represents the Company’s investment in Temp Holdings Co., Ltd. (“Temp
Holdings”) and is included in other assets on the consolidated balance sheet. The valuation is
based on the quoted market price of Temp Holdings stock on the Tokyo Stock Exchange as of the
period end. The unrealized gain of $1.6 million pretax and net of tax for the year ended January
3, 2010 was recorded in other comprehensive income, as well as in accumulated other comprehensive
income, a component of stockholders’ equity.
During the fourth quarter of 2008, the Company recorded in the asset impairments of the
consolidated statement of earnings an other-than-temporary impairment of $18.7 million related to
the investment in Temp Holdings.
53
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
2. Fair Value Measurements (continued)
Assets Measured at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain assets at fair value on a
nonrecurring basis, such as when there is evidence of impairment. The following table presents
assets carried on the consolidated balance sheet by fair value hierarchy level described above as
of January 3, 2010 for which a nonrecurring change in fair value has been recorded during the 2009
fiscal year.
| Fair Value Measurements on a Nonrecurring Basis | Total | |||||||||||||||||||
| As of January 3, 2010 | Gains | |||||||||||||||||||
| Description | Total | Level 1 | Level 2 | Level 3 | (Losses) | |||||||||||||||
| (In millions of dollars) | ||||||||||||||||||||
|
Goodwill
|
$ | 67.3 | $ | — | $ | — | $ | 67.3 | $ | (50.5 | ) | |||||||||
|
Long-lived assets and
intangible assets
|
140.1 | — | — | 140.1 | (2.6 | ) | ||||||||||||||
Due to significantly worse than anticipated economic conditions and the impacts to our business in
the second quarter of 2009, we revised our internal forecasts for all of our segments, which we
deemed to be a triggering event for purposes of assessing goodwill for impairment. Accordingly,
goodwill at all of our reporting units was tested for impairment in the second quarter of 2009.
The Company’s reporting units are the same as its operating and reportable segments.
The Company primarily used a discounted cash flow methodology to determine the estimated fair value
of its reporting units. We also considered other valuation techniques, such as the market
approach. We determined that the estimated fair value of our Americas Commercial, APAC Commercial
and EMEA PT reporting units were less than their carrying value. As a result, we performed
additional impairment testing to determine the implied fair value of goodwill for these reporting
units. The implied fair value of the goodwill was less than the carrying value of the goodwill in
each of those reporting units. As a result, we recorded a goodwill impairment loss of $50.5
million, of which $16.4 million is related to the Americas Commercial reporting unit, $12.1 million
is related to the APAC Commercial reporting unit and $22.0 million is related to the EMEA PT
reporting unit (See Note 6). This expense was recorded in the asset impairments line on the
consolidated statement of earnings. The estimated fair value of all other reporting units exceeded
their carrying value.
Our analysis used significant assumptions by segment, including: expected future revenue and
expense growth rates, profit margins, cost of capital, discount rate and forecasted capital
expenditures. Our projections assumed that revenue remained relatively flat in the near term,
followed by a recovery and long-term modest growth. Assumptions and estimates about future cash
flows and discount rates are complex and subjective. They can be affected by a variety of factors,
including external factors such as industry and economic trends, and internal factors such as
changes in our business strategy and our internal forecasts.
Although we believe the assumptions and estimates we made are reasonable and appropriate, different
assumptions and estimates could materially impact our reported financial results. Different
assumptions of the anticipated future results and growth from these businesses could result in an
impairment charge of our remaining goodwill balance of $67.3 million. Such a charge would decrease
operating income and result in lower asset values on our consolidated balance sheet. For example,
a continued worsening of the economy or assumed growth rate reduced by half for the next two years
could result in the estimated fair value of the OCG segment falling below its book value.
We completed our annual impairment test in the fourth quarter for the year ended January 3, 2010
and determined that goodwill was not impaired.
54
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
2. Fair Value Measurements (continued)
During 2008, we determined that the fair value of our EMEA Commercial reporting unit was less than
its carrying value. As a result, we recognized a goodwill impairment loss of $50.4 million in the
EMEA Commercial reporting unit during the fourth quarter of 2008. This expense was recorded in the
asset impairments line on the consolidated statement of earnings.
The Company’s estimates as of June 28, 2009 resulted in a $2.1 million reduction in the carrying
value of long-lived assets and intangible assets in Japan. Additionally, the Company’s estimates
as of September 27, 2009 resulted in a $0.5 million reduction in the carrying value of long-lived
assets and intangible assets in Europe. The Company tested its long-lived assets in the U.K. for
impairment as of December 28, 2008, resulting in an impairment charge of $11.4 million, which was
recorded in the asset impairments line of the Company’s consolidated statement of earnings. The
impairment primarily included computer software and leasehold improvements.
3. Acquisitions
As part of a strategy to diversify and expand our global operations, we completed two acquisitions
during 2008. Effective August 1, 2008, we acquired all of the shares of the Portuguese
subsidiaries of Randstad Holding N.V., Randstad – Empresa de Trabalho Temporario, Unipessoal, Lda
and Randstad – Gestao de Processos, Lda. for approximately $13.2 million in cash. In addition to
traditional temporary staffing services, current business lines include on-site personnel
management and permanent placement. This acquisition is included in the EMEA Commercial segment.
On August 28, 2008, we completed the acquisition of Toner Graham, a specialized accountancy and
finance recruitment services company headquartered in the United Kingdom, for approximately $9.1
million in cash. Toner Graham is included in the EMEA PT segment. As of the 2009 year end, one
contingent earnout payment remains, for up to approximately $4.7 million based on 2010 earnings.
During 2009, $7.5 million was paid related to acquisitions made in previous years.
4. Discontinued Operations
Effective March 31, 2007, the Company sold its Kelly Home Care (“KHC”) business unit to ResCare,
Inc. for $12.5 million and recognized a pre-tax gain on sale of $10.2 million ($6.2 million net of
tax). Effective December 31, 2006, the Company sold its Kelly Staff Leasing business unit (“KSL”).
Discontinued operations for 2009 and 2008 represent adjustments to KHC’s and KSL’s assets and
liabilities retained as part of the sale agreements, including adjustments related to litigation
costs. Discontinued operations for 2007 includes the gain recognized in conjunction with the sale
of KHC.
55
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
5. Restructuring
Starting in the third quarter of 2008, we began taking selected cost savings actions, including
employee headcount reductions and branch closings. In January, 2009, we initiated a more
significant restructuring plan for our U.K. operations, and completed it during the year.
Throughout 2009, we continued to expand our focus to achieve further cost savings and related
efficiencies by assessing the scale of our global branch network, along with permanent employee
headcount levels. By the 2009 year end, our restructuring actions encompassed a wider global reach
than originally anticipated, and resulted in the reduction of approximately 1,900 people and the
closure, sale or consolidation of approximately 240 branch locations, some of which are still in
process.
We included all related global costs, including severance, lease terminations, and asset
write-offs, in our restructuring charges, which totaled $29.9 million in 2009 and $6.5
million in 2008. Included in the 2009 restructuring costs are $14.4 million related to severance,
$7.9 million related to lease termination costs and $7.6 million related to asset write-offs and
other costs. These restructuring expenses were reported as a component of SG&A expenses within the
respective segment, as detailed below. We expect to incur approximately $5.0 million of additional
restructuring costs in 2010, primarily related to lease terminations in the EMEA Commercial
segment, that were in the process of closure at the end of 2009. These additional costs will
result in future cash expenditures to be recorded in SG&A expenses.
In our Americas Commercial and Americas PT segments, we incurred total restructuring costs of $8.2
million and $0.9 million in 2009 and 2008, respectively. The restructuring costs related to
closing or consolidating approximately 115 branches and reducing the number of permanent employees
by approximately 700. The costs incurred in 2009 consisted of $4.2 million in severance, $3.0
million in lease buyouts and $1.0 million in asset write-offs and other related costs.
In our EMEA Commercial segment, we incurred total restructuring costs of $15.6 million and $3.9
million in 2009 and 2008, respectively. The restructuring costs related to closing, selling or
consolidating approximately 120 branches and reducing the number of permanent employees by
approximately 600. The costs incurred in 2009 consisted of $5.0 million in severance, $4.4 million
in lease buyouts, $6.2 million in asset write-offs and other costs, including the cost related to
the sale of 31 branches in the U.K. to Hexagon Staffing Solutions Limited.
In our APAC Commercial segment, we incurred total restructuring costs of $1.6 million in 2009. The
restructuring costs related to closing or consolidating 7 branches and reducing the number of
permanent employees by approximately 200, and consisted of $0.8 million in severance, $0.5 million
in lease buyouts, and $0.3 million of other related costs.
In our OCG segment, we incurred total restructuring costs of $1.9 million and $0.5 million in 2009
and 2008, respectively. The costs incurred in 2009 consisted primarily of severance, relating to
the reduction of approximately 200 permanent employees.
In our Corporate headquarters, we incurred total restructuring costs of $2.6 million and $1.2
million in 2009 and 2008, respectively. Since the start of this restructuring plan, we reduced the
number of permanent employees by approximately 200. The $2.6 million in costs incurred in 2009
consisted of severance.
56
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
5. Restructuring (continued)
A summary of our balance sheet accrual related to the global restructuring costs follows (in
millions of dollars). The balance as of December 30, 2007 represented the remaining accruals
related to previous Americas and U.K. restructuring actions which were initiated and completed
during 2007. The balance as of January 3, 2010 is expected to be paid during fiscal 2010.
|
Balance as of December 30, 2007
|
$ | 0.4 | ||
|
|
||||
|
Additions charged to operations
|
6.5 | |||
|
Reductions for cash payments
|
(2.8 | ) | ||
|
|
||||
|
|
||||
|
Balance as of December 28, 2008
|
$ | 4.1 | ||
|
|
||||
|
Additions charged to operations
|
29.9 | |||
|
Noncash charges
|
(1.6 | ) | ||
|
Reductions for cash payments
|
(19.7 | ) | ||
|
|
||||
|
|
||||
|
Balance as of January 3, 2010
|
$ | 12.7 | ||
|
|
||||
6. Goodwill
The changes in the net carrying amount of goodwill for the fiscal years 2009 and 2008 are as
follows:
| Goodwill, Net | Accumulated Impairment Losses | |||||||||||||||||||||||
| Balance | Impairment | Balance | Balance | Impairment | Balance | |||||||||||||||||||
| as of | Losses | as of | as of | Losses | as of | |||||||||||||||||||
| Dec. 28, 2008 | (Note 2) | Jan. 3, 2010 | Dec. 28, 2008 | (Note 2) | Jan. 3, 2010 | |||||||||||||||||||
| (In millions of dollars) | (In millions of dollars) | |||||||||||||||||||||||
|
Americas
|
||||||||||||||||||||||||
|
Americas Commercial
|
$ | 16.4 | $ | (16.4 | ) | $ | — | $ | — | $ | (16.4 | ) | $ | (16.4 | ) | |||||||||
|
Americas PT
|
39.2 | — | 39.2 | — | — | — | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total Americas
|
55.6 | (16.4 | ) | 39.2 | — | (16.4 | ) | (16.4 | ) | |||||||||||||||
|
|
||||||||||||||||||||||||
|
EMEA
|
||||||||||||||||||||||||
|
EMEA Commercial
|
— | — | — | (50.4 | ) | — | (50.4 | ) | ||||||||||||||||
|
EMEA PT
|
22.0 | (22.0 | ) | — | — | (22.0 | ) | (22.0 | ) | |||||||||||||||
|
|
||||||||||||||||||||||||
|
Total EMEA
|
22.0 | (22.0 | ) | — | (50.4 | ) | (22.0 | ) | (72.4 | ) | ||||||||||||||
|
|
||||||||||||||||||||||||
|
APAC
|
||||||||||||||||||||||||
|
APAC Commercial
|
12.1 | (12.1 | ) | — | — | (12.1 | ) | (12.1 | ) | |||||||||||||||
|
APAC PT
|
1.8 | — | 1.8 | — | — | — | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total APAC
|
13.9 | (12.1 | ) | 1.8 | — | (12.1 | ) | (12.1 | ) | |||||||||||||||
|
|
||||||||||||||||||||||||
|
OCG
|
26.3 | — | 26.3 | — | — | — | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Consolidated Total
|
$ | 117.8 | $ | (50.5 | ) | $ | 67.3 | $ | (50.4 | ) | $ | (50.5 | ) | $ | (100.9 | ) | ||||||||
|
|
||||||||||||||||||||||||
57
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
6. Goodwill (continued)
| Goodwill, Net | Accumulated Impairment Losses | |||||||||||||||||||||||||||
| Balance | Acquisitions | Balance | Balance | Balance | ||||||||||||||||||||||||
| as of | and | Impairment | as of | as of | Impairment | as of | ||||||||||||||||||||||
| Dec. 30, | Purchase | Losses | Dec. 28, | Dec. 30, | Losses | Dec. 28, | ||||||||||||||||||||||
| 2007 | Price Adj. | (Note 2) | 2008 | 2007 | (Note 2) | 2008 | ||||||||||||||||||||||
| (In millions of dollars) | (In millions of dollars) | |||||||||||||||||||||||||||
|
Americas
|
||||||||||||||||||||||||||||
|
Americas Commercial
|
$ | 16.4 | $ | — | $ | — | $ | 16.4 | $ | — | $ | — | $ | — | ||||||||||||||
|
Americas PT
|
39.2 | — | — | 39.2 | — | — | — | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total Americas
|
55.6 | — | — | 55.6 | — | — | — | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
EMEA
|
||||||||||||||||||||||||||||
|
EMEA Commercial
|
42.0 | 8.4 | (50.4 | ) | — | — | (50.4 | ) | (50.4 | ) | ||||||||||||||||||
|
EMEA PT
|
15.2 | 6.8 | — | 22.0 | — | — | — | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total EMEA
|
57.2 | 15.2 | (50.4 | ) | 22.0 | — | (50.4 | ) | (50.4 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
APAC
|
||||||||||||||||||||||||||||
|
APAC Commercial
|
10.9 | 1.2 | — | 12.1 | — | — | — | |||||||||||||||||||||
|
APAC PT
|
1.8 | — | — | 1.8 | — | — | — | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total APAC
|
12.7 | 1.2 | — | 13.9 | — | — | — | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
OCG
|
21.7 | 4.6 | — | 26.3 | — | — | — | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Consolidated Total
|
$ | 147.2 | $ | 21.0 | $ | (50.4 | ) | $ | 117.8 | $ | — | $ | (50.4 | ) | $ | (50.4 | ) | |||||||||||
|
|
||||||||||||||||||||||||||||
Goodwill excluding impairment losses as of January 3, 2010 and December 28, 2008 was $168.2
million.
7. Other Assets
Included in other assets are the following:
| 2009 | 2008 | |||||||
| (In millions of dollars) | ||||||||
|
Deferred compensation plan (See Note 9)
|
$ | 78.3 | $ | 65.1 | ||||
|
Available-for-sale investment (See Note 2)
|
23.6 | 22.5 | ||||||
|
Intangibles, net of accumulated amortization of
$15.3 and $8.2, respectively
|
13.0 | 19.9 | ||||||
|
Other
|
16.5 | 12.7 | ||||||
|
|
||||||||
|
|
||||||||
|
Other assets
|
$ | 131.4 | $ | 120.2 | ||||
|
|
||||||||
Intangible amortization expense was $4.9 million, $4.6 million and $2.0 million in 2009, 2008 and
2007, respectively. Included in accumulated amortization as of year-end 2009 is $2.2 million
related to the impairment of intangible assets in Japan and Europe.
58
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
8. Debt
On September 28, 2009, the Company entered into an agreement with its lenders for a new $90 million
revolving credit facility (“facility”). The new facility is secured by the assets of the Company
and has a three-year term, maturing on September 28, 2012. This facility replaced the $150 million
facility, which was canceled upon mutual agreement between the lenders and the Company. The
facility allows for borrowings in various currencies, and is used to fund working capital,
acquisitions and for general corporate purposes. The interest rate applicable to borrowings under
the facility at year end was 310 basis points over the London InterBank Offering Rate (“LIBOR”) in
addition to a 40 bps facility fee. LIBOR rates vary by currency. Borrowings under the facility
were $9.0 million at year-end 2009 and carried an interest rate of 5.35%. The facility contained
financial covenants and certain restrictions, described below, all of which were met at January 3,
2010.
| • | As long as any loan is outstanding under the facility, the Company must maintain a level of earnings before interest, taxes, depreciation, amortization and certain cash and non-cash charges that are non-recurring in nature (“EBITDA”) for the last twelve months of not less than negative $30 million as of the end of Q3 2009 and Q4 2009, negative $20 million as of the end of Q1 2010 and negative $7.5 million as of the end of Q2 2010. This covenant expires after Q2 2010. |
| • | The Company must not allow its ratio of EBITDA to interest expense (“Interest Coverage Ratio”) for the last twelve months to be below 1.5 to 1.0 as of the end of Q3 2010, 3.0 to 1.0 as of the end of Q4 2010, and 3.5 to 1.0 as of the end of Q1 2011 and thereafter. |
| • | The Company must keep its ratio of total indebtedness to the sum of net worth and total indebtedness below 0.4 to 1.0 at all times. |
| • | Dividends, stock buybacks and similar transactions are restricted when the Interest Coverage Ratio is less than 3.0 to 1.0. When the Interest Coverage Ratio is above 3.0 to 1.0, the Company may pay up to $20 million annually, and when the Interest Coverage Ratio is above 5.0 to 1.0, the Company may pay up to $30 million annually. |
| • | The Company must adhere to other operating restrictions relating to the conduct of business, such as certain limitations on asset sales and the type and scope of investments. |
At year-end 2008, borrowings under the prior $150 million facility were $8.2 million and carried an
interest rate of 2.37%.
On December 4, 2009, the Company and Kelly Receivables Funding, LLC, a wholly owned bankruptcy
remote special purpose subsidiary of the Company (the “Receivables Entity”) entered into a
Receivables Purchase Agreement to establish a 364-day, $100 million securitization facility
(“Securitization Facility”). The Receivables Purchase Agreement will terminate in five years,
unless terminated earlier pursuant to its terms. Under the Securitization Facility, the Company
will sell certain trade receivables and related rights (“Receivables”), on a revolving basis, to
the Receivables Entity. The Receivables Entity may from time to time sell an undivided variable
percentage ownership interest in the Receivables. The Securitization Facility also allows for the
issuance of standby letters of credit (“SBLC”). The Securitization Facility contains a
cross-default clause that could result in a termination of the facility if defaults occur under our
other loan agreements. The Securitization Facility also contains certain restrictions based on the
performance of the Receivables. As of January 3, 2010, the Securitization Facility carried $55.0
million of short-term borrowings at a rate of 1.87%. The cost of borrowings on this facility
varies on a daily basis. The Securitization Facility also contained $44.3 million of SBLC’s
related to workers’ compensation. The remaining capacity on the facility was $0.7 million.
59
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
8. Debt (continued)
The Receivables Entity’s sole business consists of the purchase or acceptance through capital
contributions of trade accounts receivable and related rights from the Company. As described
above, the Receivables Entity may retransfer these receivables or grant a security interest in
those receivables under the terms and conditions of the Receivables Purchase Agreement. The
Receivables Entity is a separate legal entity with its own creditors who would be entitled, if it
were ever liquidated, to be satisfied out of its assets prior to any assets or value in the
Receivables Entity becoming available to its equity holders. The assets of the Receivables Entity
are not available to pay creditors of the Company or any of its other subsidiaries. The assets and
liabilities of the Receivables Entity are included in the consolidated financial statements of the
Company.
On February 6, 2008, the Company closed an 18 million euro term loan facility, which matured and
was repaid on February 4, 2009. At December 28, 2008, the amount outstanding under this loan
agreement totaled approximately $25.1 million.
The Company has additional uncommitted one-year local credit facilities that total $15.0 million as
of January 3, 2010. Borrowings under these lines totaled $1.0 million and $1.9 million at year-end
2009 and 2008, respectively. The interest rate for these borrowings was 2.2% at January 3, 2010
and ranged from 3.2% to 6.7% at the end of fiscal 2008.
Long-Term Debt
The Company has a three-year syndicated term loan facility comprised of 9.0 million euros and 5.0
million U.K. pounds, dated October 10, 2008 and maturing October 3, 2011. The facility was used to
refinance short-term borrowings related to the Portugal and Toner Graham acquisitions. On
September 28, 2009, the Company amended this term loan to conform to the pricing, terms, and
conditions of the new $90 million revolving credit facility. The maturity date of the term loan
remained unchanged. As of year end, the loan bore interest at the LIBOR rate applicable to each
currency plus a spread of 350 basis points. The entire principal amount is due upon maturity with
interest payments due at intervals of one, two, three, or six months, as elected by the Company.
The interest rate on the amount outstanding under the loan agreement varied by currency and ranged
from 3.95% to 4.02% at the end of 2009 and 3.55% to 4.15% at the end of 2008. The U.S. dollar
amount outstanding, which fluctuates based on foreign exchange rates, totaled approximately $20.9
million at January 3, 2010, and $19.9 million at December 28, 2008.
In November, 2007, the Company entered into a five-year 5.5 billion yen-denominated loan agreement,
the proceeds of which were used to repay all of the Company’s outstanding short-term
yen-denominated borrowings. On September 28, 2009, the Company amended this term loan to conform
to the pricing, terms, and conditions of the new $90 million revolving credit facility described
above. As of year end the loan bore interest at JPY LIBOR plus 350 basis points. The interest
rate on the outstanding debt was 4.03% at the end of 2009 and 1.51% at the end of 2008. As a
result of the amendment, principal payments equal to 12.5% of the original 5.5 billion
yen-denominated loan balance, as well the related interest payments are required on May 13, 2010,
November 13, 2010, May 13, 2011, and the remaining 50% due on October 3, 2011 . On November 17,
2009, the Company paid the first required principal payment equal to 12.5% of the original 5.5
billion yen-denominated loan balance, as well the related interest payments. The U.S. dollar
amount outstanding, which fluctuates based on foreign exchange rates, totaled approximately $51.2
million at January 3, 2010, of which $14.6 million is classified as current, and $60.1 million at
December 28, 2008.
The Company’s long-term debt is secured by the general assets of the Company. All the long-term
loans carry the same financial covenants and restrictions as described above for the $90 million
revolving credit facility, all of which were met as of January 3, 2010.
60
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
9. Retirement Benefits
The Company provides a qualified defined contribution plan covering substantially all U.S.-based
full-time employees, except officers and certain other management employees. Upon approval by the
Board of Directors, a discretionary contribution based on eligible wages may be funded annually.
No discretionary contributions were made in 2009 and 2008. The plan also offers a savings feature
with Company matching contributions. Company matching contributions were suspended as of October,
2009. Assets of this plan are held by an independent trustee for the sole benefit of participating
employees.
A nonqualified deferred compensation plan is provided for officers and certain other management
employees. Upon approval by the Board of Directors, a discretionary contribution based on eligible
wages may be made annually. No discretionary contributions were made in 2009 and 2008. This plan
also includes provisions for salary deferrals and Company matching contributions. Company matching
contributions were suspended as of February, 2009.
The liability for the nonqualified plan was $80.5 million and $65.9 million as of year-end 2009 and
2008, respectively, and is included in current accrued payroll and related taxes and noncurrent
accrued retirement benefits. The cost of participants’ earnings on this liability, which were
charged to SG&A expenses, were $13.6 million in 2009, losses of $25.3 million in 2008, and earnings
of $5.9 million in 2007. In connection with the administration of this plan, the Company has
purchased company-owned variable universal life insurance policies insuring the lives of certain
officers and key employees. The cash surrender value of these policies, which is based primarily
on investments in mutual funds and can only be used for payment of the Company’s obligations
related to the non-qualified deferred compensation plan noted above, was $78.3 million and $65.1
million at year-end 2009 and 2008, respectively. These investments are included in other assets
and are restricted for the use of funding this plan. Earnings on these assets, which were included
in SG&A expenses, were $13.8 million in 2009, losses of $24.3 million in 2008, and earnings of $7.3
million in 2007.
The net expense from continuing operations for retirement benefits, including employer
contributions for both the qualified and nonqualified deferred compensation plans, totaled $0.6
million in 2009, $3.7 million in 2008 and $4.7 million in 2007.
In addition, the Company also has several defined benefit pension plans in locations outside of the
United States. The total projected benefit obligation, assets and unfunded liability for these
plans, as of January 3, 2010, were $10.5 million, $6.9 million and $3.6 million, respectively.
The total projected benefit obligation, assets and unfunded liability for these plans, as of
December 28, 2008, were $5.5 million, $3.2 million and $2.3 million, respectively. Total pension
expense for these plans was $1.0 million, $0.5 million and $0.7 million in 2009, 2008 and 2007,
respectively. Pension contributions and the amount of accumulated other comprehensive income
expected to be recognized in 2010 are not significant.
61
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
10. Stockholders’ Equity
Common Stock
The authorized capital stock of the Company is 100,000,000 shares of Class A common stock and
10,000,000 shares of Class B common stock. Class A shares have no voting rights and are not
convertible. Class B shares have voting rights and are convertible into Class A shares on a
share-for-share basis at any time. Both classes of stock have identical rights in the event of
liquidation.
Class A shares and Class B shares are both entitled to receive dividends, subject to the limitation
that no cash dividend on the Class B shares may be declared unless the Board of Directors declares
an equal or larger cash dividend on the Class A shares. As a result, a cash dividend may be
declared on the Class A shares without declaring a cash dividend on the Class B shares.
On August 8, 2007, the board of directors authorized the repurchase of up to $50 million of the
Company’s outstanding Class A common shares. During 2008, the Company repurchased 436,697 Class A
shares for $8.0 million. During 2007, the Company repurchased 1,679,873 Class A shares for $34.7
million. The share repurchase program expired in August, 2009.
Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income at year-end 2009, 2008 and 2007 were as
follows:
| 2009 | 2008 | 2007 | ||||||||||
| (in millions of dollars) | ||||||||||||
|
Cumulative translation adjustments, net of tax benefit of
of $1.6 million in 2009 and $5.2 million
in 2008, and taxes of $0.7 million in 2007
|
$ | 25.3 | $ | 13.0 | $ | 42.8 | ||||||
|
|
||||||||||||
|
Unrealized gain (loss) on marketable securities, net
of tax benefit of $0.1 million in 2007
|
1.6 | — | (0.1 | ) | ||||||||
|
|
||||||||||||
|
Pension liability, net of tax benefit of $0.5 million in
2009, $0.3 million in 2008 and $0.1 million in 2007
|
(1.8 | ) | (0.8 | ) | (0.1 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
|
$ | 25.1 | $ | 12.2 | $ | 42.6 | ||||||
|
|
||||||||||||
62
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
11. Earnings Per Share
In June 2008, the FASB issued guidance which clarifies that share-based payment awards that entitle
their holders to receive nonforfeitable dividends before vesting should be considered participating
securities and, therefore, included in the calculation of earnings per share using the two-class
method. This guidance was effective beginning with the first quarter of 2009, and all prior period
earnings per share data presented was adjusted retrospectively to conform with the provisions of
this guidance. The impact of adopting the provisions of this guidance was to lower earnings per
share amounts for 2007 as follows: basic and diluted earnings per share on income from continuing
operations by $0.02, basic earnings per share on net earnings by $0.03 and diluted earnings per
share on net earnings by $0.02. There was no impact on previously reported earnings per share
amounts for 2008.
The two-class method is an earnings allocation formula that determines earnings per share for each
class of common stock and participating security according to dividends declared and participation
rights in undistributed earnings. Under this method, earnings from continuing operations (or net
earnings) is reduced by the amount of dividends declared, and the remaining undistributed earnings
is allocated to common stock and participating securities based on the proportion of each class’s
weighted average shares outstanding to the total weighted average shares outstanding. The
calculation of diluted earnings per share includes the effect of potential common shares
outstanding in the average weighted shares outstanding.
63
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
11. Earnings Per Share (continued)
The reconciliation of basic earnings per share on common stock for the year ended December 30, 2007
is as follows (in millions of dollars except per share data):
| 2007 | ||||
|
|
||||
|
Earnings from continuing operations
|
$ | 53.7 | ||
|
Less: Earnings allocated to participating securities
|
(0.8 | ) | ||
|
|
||||
|
Earnings from continuing operations available to
common shareholders
|
$ | 52.9 | ||
|
|
||||
|
Earnings from discontinued operations
|
$ | 7.3 | ||
|
Less: Earnings allocated to participating securities
|
(0.1 | ) | ||
|
|
||||
|
Earnings from discontinued operations available to
common shareholders
|
$ | 7.2 | ||
|
|
||||
|
Net earnings
|
$ | 61.0 | ||
|
Less: Earnings allocated to participating securities
|
(0.9 | ) | ||
|
|
||||
|
Net earnings available to common shareholders
|
$ | 60.1 | ||
|
|
||||
|
Basic earnings per share on common stock:
|
||||
|
Earnings from continuing operations
|
$ | 1.46 | ||
|
Earnings from discontinued operations
|
$ | 0.20 | ||
|
Net earnings
|
$ | 1.65 | ||
|
|
||||
|
Diluted earnings per share on common stock:
|
||||
|
Earnings from continuing operations
|
$ | 1.45 | ||
|
Earnings from discontinued operations
|
$ | 0.20 | ||
|
Net earnings
|
$ | 1.65 | ||
|
|
||||
|
Average common shares outstanding (millions)
|
||||
|
Basic
|
36.4 | |||
|
Diluted
|
36.4 | |||
Due to the fact that there were no potentially dilutive common shares outstanding during the
period, the computations of basic and diluted earnings per share on common stock are the same for
2009 and 2008. Stock options representing 0.9 million, 1.1 million and 0.5 million shares,
respectively, for 2009, 2008 and 2007, respectively, were excluded from the computation of diluted
(loss) earnings per share due to their anti-dilutive effect.
We have presented earnings per share for our two classes of common stock on a combined basis. This
presentation is consistent with the earnings per share computations that result for each class of
common stock utilizing the two-class method as described in ASC Topic 260, “Earnings Per Share”.
The two-class method is an earnings allocation formula which determines earnings per share for each
class of common stock according to the dividends declared (or accumulated) and participation rights
in the undistributed earnings.
In applying the two class method, we have determined that the undistributed earnings should be
allocated to each class on a pro rata basis after consideration of all of the participation rights
of the Class B shares (including voting and conversion rights) and our history of paying dividends
equally to each class of common stock on a per share basis.
64
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
11. Earnings Per Share (continued)
The Company’s Restated Certificate of Incorporation allows the Board of Directors to declare a cash
dividend to Class A shares without declaring equal dividends to the Class B shares. Class B
shares’ voting and conversion rights, however, effectively allow the Class B shares to participate
in dividends equally with Class A shares on a per share basis.
The Class B shares are the only shares with voting rights. The Class B shareholders are therefore
able to exercise voting control with respect to all matters requiring stockholder approval,
including the election of or removal of directors. The Board of Directors has historically declared
and the Company historically has paid equal per share dividends on both the Class A and Class B
shares. Each class has participated equally in all dividends declared since 1987.
In addition, Class B shares are convertible, at the option of the holder, into Class A shares on a
one for one basis. As a result, Class B shares can participate equally in any dividends declared
on the Class A shares by exercising their conversion rights.
12. Stock-Based Compensation
Under the Equity Incentive Plan (the “Plan”), which became effective in May 2005, the Company may
grant stock options (both incentive and nonqualified), stock appreciation rights, restricted stock
awards and performance awards to key employees utilizing the Company’s Class A stock. The Plan
provides that the maximum number of shares available for grants is 10 percent of the outstanding
Class A stock, adjusted for Plan activity over the preceding five years. Shares available for
future grants at January 3, 2010 under the Equity Incentive Plan were 2,142,690. The Company
issues shares out of treasury stock to satisfy stock-based awards. The Company has no intent to
repurchase additional shares for the purpose of satisfying stock-based awards.
In 2009, 2008 and 2007, the Company recognized stock-based compensation cost of $6.0 million, $5.6
million and $5.6 million, respectively, as well as related tax benefits of $2.3 million, $2.2
million and $1.9 million, respectively.
Restricted Stock Awards
Restricted stock awards, which typically vest over a period of 3 to 5 years, are issued to certain
key employees and are subject to forfeiture until the end of an established restriction period.
The Company utilizes the market price on the date of grant as the fair market value of restricted
stock awards and expenses the fair value on a straight-line basis over the vesting period.
A summary of the status of nonvested restricted stock awards under the Plan as of the year ended
January 3, 2010 and changes during this period is presented as follows:
| Weighted | ||||||||
| Average | ||||||||
| Restricted | Grant Date | |||||||
| Stock | Fair Value | |||||||
|
Nonvested at December 28, 2008
|
682,028 | $ | 24.09 | |||||
|
Granted
|
100,700 | 12.82 | ||||||
|
Vested
|
(242,892 | ) | 24.28 | |||||
|
Forfeited
|
(20,766 | ) | 21.42 | |||||
|
|
||||||||
|
Nonvested at January 3, 2010
|
519,070 | $ | 21.92 | |||||
|
|
||||||||
As of January 3, 2010, unrecognized compensation cost related to unvested restricted shares totaled
$8.0 million. The weighted average period over which this cost is expected to be recognized is
approximately one and a half years. The weighted average grant date fair value of restricted stock
awards granted during 2009, 2008 and 2007 was $12.82, $20.61 and $28.41, respectively. The total
fair market value of restricted shares vested during 2009, 2008 and 2007 was $2.8 million, $3.7
million and $5.2 million, respectively.
65
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
12. Stock-Based Compensation (continued)
Stock Options
Under the terms of the Plan, stock options may not be granted at prices less than the fair market
value on the date of grant, nor for a term exceeding 10 years, and typically vest over 3 years.
The Company expenses the fair value of stock option grants on a straight-line basis over the
vesting period. No stock options were granted in 2009, 2008 or 2007.
A summary of the status of stock option grants under the Plan as of the year ended January 3, 2010
and changes during this period is presented as follows:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Exercise | Contractual | Intrinsic | ||||||||||||||
| Options | Price | Term (Years) | Value | |||||||||||||
|
Outstanding at December 28, 2008
|
1,027,963 | $ | 25.07 | |||||||||||||
|
Granted
|
— | — | ||||||||||||||
|
Exercised
|
— | — | ||||||||||||||
|
Forfeited
|
— | — | ||||||||||||||
|
Expired
|
(176,657 | ) | 25.00 | |||||||||||||
|
|
||||||||||||||||
|
Outstanding at January 3, 2010
|
851,306 | $ | 25.09 | 2.71 | $ | — | ||||||||||
|
|
||||||||||||||||
|
Options exercisable at January 3, 2010
|
851,306 | $ | 25.09 | 2.71 | $ | — | ||||||||||
|
|
||||||||||||||||
The table above includes 64,500 of non-employee director shares outstanding at January 3, 2010.
As of January 3, 2010, there was no unrecognized compensation cost related to unvested stock
options. No stock options were exercised in 2009 or 2008. The total intrinsic value of options
exercised during 2007 was $1.2 million.
There were no windfall tax benefits arising from stock-based compensation in 2009. In 2008 and
2007, windfall tax benefits arising from stock-based compensation totaled $0.1 million and $0.4
million, respectively and are included in the “Other financing activities” component of net cash
from financing activities in the consolidated statement of cash flows.
13. Other (Expense) Income, Net
Included in other (expense) income, net are the following:
| 2009 | 2008 | 2007 | ||||||||||
| (In millions of dollars) | ||||||||||||
|
|
||||||||||||
|
Interest income
|
$ | 1.3 | $ | 3.8 | $ | 4.8 | ||||||
|
Interest expense
|
(4.1 | ) | (4.1 | ) | (2.4 | ) | ||||||
|
Dividend income
|
0.6 | 0.7 | 0.7 | |||||||||
|
Foreign exchange losses
|
(0.5 | ) | (3.7 | ) | — | |||||||
|
Other
|
0.5 | (0.1 | ) | 0.1 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Other (expense) income, net
|
$ | (2.2 | ) | $ | (3.4 | ) | $ | 3.2 | ||||
|
|
||||||||||||
Dividend income includes dividends earned on the Company’s investment in Temp Holdings (see
Note 2). Foreign exchange losses in 2008 related to yen-denominated net debt for the Temp Holdings
investment and ruble-denominated intercompany balances in Russia.
66
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
14. Income Taxes
(Loss) earnings from continuing operations before taxes for the years 2009, 2008 and 2007 were
taxed under the following jurisdictions:
| 2009 | 2008 | 2007 | ||||||||||
| (in million of dollars) | ||||||||||||
|
|
||||||||||||
|
Domestic
|
$ | (56.8 | ) | $ | 8.7 | $ | 63.0 | |||||
|
Foreign
|
(91.5 | ) | (82.4 | ) | 20.3 | |||||||
|
|
||||||||||||
|
Total
|
$ | (148.3 | ) | $ | (73.7 | ) | $ | 83.3 | ||||
|
|
||||||||||||
The provision for income taxes from continuing operations was as follows:
| 2009 | 2008 | 2007 | ||||||||||
| (in millions of dollars) | ||||||||||||
|
Current tax expense:
|
||||||||||||
|
U.S. federal
|
$ | (14.0 | ) | $ | (6.9 | ) | $ | 14.7 | ||||
|
U.S. state and local
|
0.9 | 0.1 | 6.5 | |||||||||
|
Foreign
|
0.9 | 8.2 | 14.2 | |||||||||
|
|
||||||||||||
|
Total current
|
(12.2 | ) | 1.4 | 35.4 | ||||||||
|
|
||||||||||||
|
Deferred tax expense:
|
||||||||||||
|
U.S. federal
|
(21.6 | ) | 5.5 | (5.6 | ) | |||||||
|
U.S. state and local
|
(3.3 | ) | 1.3 | (1.5 | ) | |||||||
|
Foreign
|
(6.1 | ) | (0.2 | ) | 1.3 | |||||||
|
|
||||||||||||
|
Total deferred
|
(31.0 | ) | 6.6 | (5.8 | ) | |||||||
|
|
||||||||||||
|
Total provision
|
$ | (43.2 | ) | $ | 8.0 | $ | 29.6 | |||||
|
|
||||||||||||
Deferred taxes are comprised of the following:
| 2009 | 2008 | |||||||
| (in millions of dollars) | ||||||||
|
|
||||||||
|
Depreciation and amortization
|
$ | (7.7 | ) | $ | (16.4 | ) | ||
|
Employee compensation and benefit plans
|
41.1 | 39.4 | ||||||
|
Workers’ compensation
|
25.7 | 28.6 | ||||||
|
Unrealized loss on securities
|
7.0 | 7.9 | ||||||
|
Other comprehensive income
|
0.8 | 4.1 | ||||||
|
Bad debt allowance
|
3.8 | 5.7 | ||||||
|
Loss carryforwards
|
45.8 | 30.6 | ||||||
|
Legal claims
|
0.2 | 9.7 | ||||||
|
Credit Carryforwards
|
36.2 | 1.3 | ||||||
|
Other, net
|
(6.0 | ) | (1.3 | ) | ||||
|
Valuation allowance
|
(52.7 | ) | (44.2 | ) | ||||
|
|
||||||||
|
Net deferred tax assets
|
$ | 94.2 | $ | 65.4 | ||||
|
|
||||||||
67
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
14. Income Taxes (continued)
The deferred tax balance is classified in the consolidated balance sheet as:
| 2009 | 2008 | |||||||
| (in millions of dollars) | ||||||||
|
|
||||||||
|
Current assets, deferred tax
|
$ | 21.0 | $ | 31.9 | ||||
|
Noncurrent deferred tax asset
|
77.5 | 40.0 | ||||||
|
Current liabilities, income and other taxes
|
(0.9 | ) | (0.9 | ) | ||||
|
Noncurrent liabilities, other long-term liabilities
|
(3.4 | ) | (5.6 | ) | ||||
|
|
||||||||
|
|
$ | 94.2 | $ | 65.4 | ||||
|
|
||||||||
The differences between income taxes from continuing operations for financial reporting purposes
and the U.S. statutory rate of 35% are as follows:
| 2009 | 2008 | 2007 | ||||||||||
| (in millions of dollars) | ||||||||||||
|
|
||||||||||||
|
Income tax based on statutory rate
|
$ | (51.9 | ) | $ | (25.8 | ) | $ | 29.2 | ||||
|
State income taxes, net of federal benefit
|
(1.6 | ) | 0.9 | 3.3 | ||||||||
|
General business credits
|
(11.8 | ) | (11.3 | ) | (8.9 | ) | ||||||
|
Life insurance cash surrender value
|
(4.6 | ) | 8.7 | (2.3 | ) | |||||||
|
Impairment
|
15.6 | 25.1 | — | |||||||||
|
Restructuring
|
4.9 | 1.2 | 2.1 | |||||||||
|
Foreign items
|
6.1 | 8.5 | 5.4 | |||||||||
|
Worthless stock benefit
|
(3.6 | ) | — | — | ||||||||
|
Other, net
|
3.7 | 0.7 | 0.8 | |||||||||
|
|
||||||||||||
|
Total
|
$ | (43.2 | ) | $ | 8.0 | $ | 29.6 | |||||
|
|
||||||||||||
The Company has U.S. general business credit carryforwards of $35.3 million which expire from
2027 to 2029 and foreign tax credit carryforwards of $0.9 million which expire in 2019. The net
tax effect of foreign loss carryforwards at January 3, 2010 totaled $45.8 million which expire as
follows (in millions of dollars):
| Year | Amount | |||
|
|
||||
|
2010-2012
|
$ | 1.1 | ||
|
2013-2015
|
2.9 | |||
|
2016-2020
|
4.8 | |||
|
2021-2024
|
1.7 | |||
|
No expiration
|
35.3 | |||
|
|
||||
|
Total
|
$ | 45.8 | ||
|
|
||||
68
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
14. Income Taxes (continued)
The Company has established a valuation allowance for loss carryforwards and future deductible
items in certain foreign jurisdictions. The valuation allowance is determined in accordance with
the provisions of ASC Topic 740 (“ASC 740”), Income Taxes, which requires an assessment of both
negative and positive evidence when measuring the need for a valuation allowance. The Company’s
foreign losses in recent periods in these jurisdictions represented sufficient negative evidence to
require a valuation allowance under ASC 740. The Company intends to maintain a valuation allowance
until sufficient positive evidence exists to support realization of the foreign deferred tax
assets.
Provision has not been made for U.S. or additional foreign income taxes on an estimated $39.6
million of undistributed earnings of foreign subsidiaries, which are permanently reinvested. If
such earnings were to be remitted, management believes that U.S. foreign tax credits would largely
eliminate any such U.S. and foreign income taxes.
Deferred income taxes recorded in other comprehensive income include:
| 2009 | 2008 | 2007 | ||||||||||
| (in millions of dollars) | ||||||||||||
|
|
||||||||||||
|
Cumulative translation adjustments
|
$ | (3.5 | ) | $ | 5.9 | $ | (0.2 | ) | ||||
|
Unrealized gain (loss) on marketable securities
|
— | — | 4.9 | |||||||||
|
Pension liability
|
0.1 | 0.3 | — | |||||||||
|
|
||||||||||||
|
Total
|
$ | (3.4 | ) | $ | 6.2 | $ | 4.7 | |||||
|
|
||||||||||||
In the fourth quarter of 2009, an adjustment was made to deferred taxes to correct an
immaterial error related to years prior to 2007. This caused the income tax benefit to be reduced
by $1.7 million, and other comprehensive income to be reduced by $1.5 million.
The Company adopted the provisions of ASC 740 dealing with Accounting for Uncertainty in Income
Taxes on January 1, 2007. Upon adoption, the Company recognized a $0.3 million increase in its
retained earnings balance. A reconciliation of the beginning and ending amount of unrecognized tax
benefits is as follows:
| 2009 | 2008 | 2007 | ||||||||||
| (in millions of dollars) | ||||||||||||
|
|
||||||||||||
|
Balance at beginning of the year
|
$ | 2.5 | $ | 3.7 | $ | 6.2 | ||||||
|
|
||||||||||||
|
Additions based on tax positions related to the current year
|
4.8 | 0.4 | 0.4 | |||||||||
|
Additions for prior years’ tax positions
|
0.4 | 0.5 | 0.6 | |||||||||
|
Reductions for prior years’ tax positions
|
(0.4 | ) | (0.9 | ) | (0.5 | ) | ||||||
|
Reductions for settlements
|
(0.2 | ) | (0.9 | ) | (2.7 | ) | ||||||
|
Reductions for expiration of statutes
|
(0.3 | ) | (0.3 | ) | (0.3 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Balance at end of the year
|
$ | 6.8 | $ | 2.5 | $ | 3.7 | ||||||
|
|
||||||||||||
If the $6.8 million in 2009, $2.5 million in 2008 and $3.7 million in 2007 of unrecognized tax
benefits were recognized, they would have a favorable effect of $6.2 million in 2009, $2.0 million
in 2008 and $2.8 million in 2007 on the effective tax rate.
69
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
14. Income Taxes (continued)
The Company recognizes both interest and penalties as part of the income tax provision. The
Company recognized a benefit of approximately $0.2 million in 2009 and $0.5 million in 2008 and
expense of $0.2 million in 2007 for interest and penalties. At year end, accrued interest and
penalties were $0.5 million in 2009, $0.7 million in 2008 and $1.7 million in 2007.
The Company files income tax returns in the U.S. and in various states and foreign countries. In
the major jurisdictions where the Company operates, it is generally no longer subject to income tax
examinations by tax authorities for years before 2002.
The Company and its subsidiaries have various other income tax returns in the process of
examination, administrative appeals or litigation. The unrecognized tax benefit and related
interest and penalty balances include approximately $1.3 million for 2009, $2.1 million for 2008
and $2.0 million for 2007 related to tax positions which are
reasonably possible to change within the next twelve months due to income tax audits, settlements
and statute expirations.
15. Supplemental Cash Flow Information
Changes in operating assets and liabilities, net of acquisitions, as disclosed in the statements of
cash flows, for the fiscal years 2009, 2008 and 2007, respectively, were as follows:
| 2009 | 2008 | 2007 | ||||||||||
| (in millions of dollars) | ||||||||||||
|
|
||||||||||||
|
Decrease (increase) in trade accounts receivable
|
$ | 116.6 | $ | 28.9 | $ | (14.2 | ) | |||||
|
Decrease (increase) in prepaid expenses and other current assets
|
1.6 | (19.7 | ) | (16.7 | ) | |||||||
|
(Decease) increase in accounts payable and accrued liabilities
|
(52.4 | ) | 59.5 | 18.7 | ||||||||
|
Decrease in accrued payroll and related taxes
|
(38.3 | ) | (9.7 | ) | (13.0 | ) | ||||||
|
(Decrease) increase in accrued insurance
|
(6.3 | ) | (10.9 | ) | 2.6 | |||||||
|
Decrease in income and other taxes
|
(2.0 | ) | (13.1 | ) | (6.2 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total changes in operating assets and liabilities
|
$ | 19.2 | $ | 35.0 | $ | (28.8 | ) | |||||
|
|
||||||||||||
The Company paid interest of $4.2 million, $3.7 million and $2.1 million in 2009, 2008 and
2007, respectively. The Company received a refund of income taxes of $9.4 million in 2009 and paid
income taxes of $26.9 million in 2008 and $46.0 million in 2007.
70
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
16. Commitments
The Company conducts its field operations primarily from leased facilities. The following is a
schedule by fiscal year of future minimum commitments under operating leases as of January 3, 2010
(in millions of dollars):
|
Fiscal year:
|
||||
|
2010
|
$ | 48.4 | ||
|
2011
|
34.8 | |||
|
2012
|
24.4 | |||
|
2013
|
15.4 | |||
|
2014
|
7.9 | |||
|
Later years
|
14.8 | |||
|
|
||||
|
|
||||
|
Total
|
$ | 145.7 | ||
|
|
||||
Lease expense from continuing operations for fiscal 2009, 2008 and 2007 amounted to $56.8 million,
$61.8 million and $63.8 million, respectively.
In addition to operating lease agreements, the Company has entered into unconditional purchase
obligations totaling $20.4 million. These obligations relate primarily to voice and data
communications services which the Company expects to utilize generally within the next two fiscal
years, in the ordinary course of business. The Company has no material unrecorded commitments,
losses, contingencies or guarantees associated with any related parties or unconsolidated entities.
17. Contingencies
On February 5, 2003, an action was commenced in the Federal District Court for the Eastern District
of California by Lynn Noyes against the Company, alleging religious discrimination. In August
2004, Kelly’s Motion for Summary Judgment was granted dismissing the complaint. Noyes appealed and
the case was remanded for trial. On April 4, 2008, a jury returned a verdict, finding the Company
liable for religious discrimination. The verdict was comprised of: $0.2 million for economic
damages, $0.5 million for emotional distress damages and $5.9 million in punitive damages. The
Company pursued post trial motions which resulted in the reduction of punitive damages to $0.7
million. The Company continues to believe there is no basis for finding religious discrimination
and has filed and argued its appeal with the United States Court of Appeals for the 9
th
Circuit. The Appeals Court upheld the jury’s verdict along with the reduction of the punitive
damages amount. The Company paid the final settlement of $2.2 million on February 2, 2010.
The Company is subject to various legal proceedings and claims which arise in the ordinary course
of its business, typically employment discrimination and wage and hour matters. These legal
proceedings and claims are subject to many uncertainties, the outcome of which is not predictable.
It is reasonably possible that some matters could be decided
unfavorably to the Company and, if so, could have a material adverse
impact on our consolidated financial statements. The
Company’s exposure is most significant in matters involving alleged violations of state wage and
hour laws. Certain legal proceedings seek class action status; these matters individually and in
the aggregate seek compensatory, statutory and/or punitive damages. Disclosure of the most likely
outcomes of individual cases and significant assumptions made in estimating related reserves are
likely to have adverse consequences to the Company including, by way of example, the possibility
that the disclosures themselves constitute admissible evidence in a trial and the potential to set
a floor in settlement negotiations.
During 2008 and 2009, several matters reached the stage in the litigation process that caused the
Company to reassess its litigation risk and establish reserves which, in the aggregate accumulated
to $27.8 million. The Company negotiated settlements in the two most significant of these cases,
which received final court approval and were paid by the 2009 year end. No additional reserve was
taken as a result of the final court orders.
71
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
18. Segment Disclosures
The Company’s segments are based on the organizational structure for which financial results are
regularly evaluated by the Company’s chief operating decision maker to determine resource
allocation and assess performance. Each reportable segment is managed by its own management team
and reports to executive management. The Company’s seven reporting segments are: (1) Americas
Commercial, (2) Americas Professional and Technical (“Americas PT”), (3) Europe, Middle East and
Africa Commercial (“EMEA Commercial”), (4) Europe, Middle East and Africa Professional and
Technical (“EMEA PT”), (5) Asia Pacific Commercial (“APAC Commercial”), (6) Asia Pacific
Professional and Technical (“APAC PT”) and (7) Outsourcing and Consulting Group (“OCG”). Effective
with the first quarter of 2009, segment data has been revised to include the effect of intersegment
revenues. Prior periods have been reclassified to conform with the current presentation.
The Commercial business segments within the Americas, EMEA and APAC regions represent traditional
office services, contract-center staffing, marketing, electronic assembly, light industrial and
substitute teachers. The PT segments encompass a wide range of highly skilled temporary employees,
including scientists, financial professionals, attorneys, engineers, IT specialists and healthcare
workers. OCG includes recruitment process outsourcing, contingent workforce outsourcing, business
process outsourcing, executive placement and career transition/outplacement services. Corporate
expenses that directly support the operating units have been allocated to the seven segments.
Included in unallocated Corporate expenses is $53.1 million in 2009 and $80.5 million in 2008
related to asset impairment charges (see Notes 2 and 6) and $5.3 million in 2009 and $22.5 million
in 2008 related to litigation costs (see Note 17).
72
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
18. Segment Disclosures (continued)
The following table presents information about the reported operating income of the Company for the
fiscal years 2009, 2008 and 2007. Asset information by reportable segment is not reported, since
the Company does not produce such information internally nor does it use such data to manage its
business.
| 2009 | 2008 | 2007 | ||||||||||
| (In millions of dollars) | ||||||||||||
|
Revenue from Services:
|
||||||||||||
|
Americas Commercial
|
$ | 1,980.3 | $ | 2,516.7 | $ | 2,772.5 | ||||||
|
Americas PT
|
792.6 | 938.2 | 950.3 | |||||||||
|
|
||||||||||||
|
Total Americas Commercial and PT
|
2,772.9 | 3,454.9 | 3,722.8 | |||||||||
|
|
||||||||||||
|
EMEA Commercial
|
895.2 | 1,310.5 | 1,292.3 | |||||||||
|
EMEA PT
|
141.9 | 172.5 | 158.8 | |||||||||
|
|
||||||||||||
|
Total EMEA Commercial and PT
|
1,037.1 | 1,483.0 | 1,451.1 | |||||||||
|
|
||||||||||||
|
APAC Commercial
|
284.9 | 336.0 | 310.6 | |||||||||
|
APAC PT
|
25.4 | 34.3 | 26.7 | |||||||||
|
|
||||||||||||
|
Total APAC Commercial and PT
|
310.3 | 370.3 | 337.3 | |||||||||
|
|
||||||||||||
|
OCG
|
219.9 | 233.3 | 180.0 | |||||||||
|
|
||||||||||||
|
Less: Intersegment revenue
|
(25.4 | ) | (24.2 | ) | (23.6 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Consolidated Total
|
$ | 4,314.8 | $ | 5,517.3 | $ | 5,667.6 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
(Loss) Earnings from Operations:
|
||||||||||||
|
Americas Commercial
|
$ | 10.3 | $ | 69.9 | $ | 95.6 | ||||||
|
Americas PT
|
23.2 | 48.4 | 54.0 | |||||||||
|
|
||||||||||||
|
Total Americas Commercial and PT
|
33.5 | 118.3 | 149.6 | |||||||||
|
|
||||||||||||
|
EMEA Commercial
|
(25.7 | ) | (3.1 | ) | 8.9 | |||||||
|
EMEA PT
|
(2.8 | ) | 2.3 | 2.4 | ||||||||
|
|
||||||||||||
|
Total EMEA Commercial and PT
|
(28.5 | ) | (0.8 | ) | 11.3 | |||||||
|
|
||||||||||||
|
APAC Commercial
|
(4.6 | ) | (0.3 | ) | 3.1 | |||||||
|
APAC PT
|
(1.5 | ) | (0.5 | ) | 0.2 | |||||||
|
|
||||||||||||
|
Total APAC Commercial and PT
|
(6.1 | ) | (0.8 | ) | 3.3 | |||||||
|
|
||||||||||||
|
OCG
|
(11.8 | ) | 2.9 | 7.5 | ||||||||
|
|
||||||||||||
|
Corporate Expense (including
asset impairments)
|
(133.2 | ) | (189.9 | ) | (91.6 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Consolidated Total
|
$ | (146.1 | ) | $ | (70.3 | ) | $ | 80.1 | ||||
|
|
||||||||||||
73
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
18. Segment Disclosures (continued)
A summary of revenue from services by geographic area for 2009, 2008 and 2007 follows:
| 2009 | 2008 | 2007 | ||||||||||
| (In millions of dollars) | ||||||||||||
|
Revenue From Services:
|
||||||||||||
|
Domestic
|
$ | 2,634.3 | $ | 3,237.1 | $ | 3,454.9 | ||||||
|
International
|
1,680.5 | 2,280.2 | 2,212.7 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total
|
$ | 4,314.8 | $ | 5,517.3 | $ | 5,667.6 | ||||||
|
|
||||||||||||
Foreign revenue is based on the country in which the legal subsidiary is domiciled. No single
foreign country’s revenue was material to the consolidated revenues of the Company.
A summary of long-lived assets information by geographic area as of the years ended 2009 and 2008
follows:
| 2009 | 2008 | |||||||
| (In millions of dollars) | ||||||||
|
Long-Lived Assets:
|
||||||||
|
Domestic
|
$ | 110.5 | $ | 133.5 | ||||
|
International
|
29.6 | 37.7 | ||||||
|
|
||||||||
|
|
||||||||
|
Total
|
$ | 140.1 | $ | 171.2 | ||||
|
|
||||||||
Long-lived assets include primarily property and equipment and intangible assets. No single
foreign country’s long-lived assets were material to the consolidated long-lived assets of the
Company.
19. New Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, Fair Value
Measurements and Disclosures (“ASU 2010-06”). The new standard amends Subtopic 820-10 of the FASB
ASC by adding new disclosure requirements on transfers in and out of Level 1 and 2 fair value
measurements and on activity within Level 3 fair value measurements. The new disclosures are
required for all entities that are required to provide disclosures about recurring and nonrecurring
fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosure on Level 3 fair value activity, which
is effective for fiscal years beginning after December 15, 2010. We are in the process of
evaluating the potential impacts of this new guidance, but do not expect it will have a material
effect on our consolidated financial statements.
74
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
Kelly Services, Inc. and Subsidiaries
SELECTED QUARTERLY FINANCIAL DATA (unaudited)
| Fiscal Year 2009 | ||||||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||||||
| Quarter | Quarter | Quarter | Quarter | Year | ||||||||||||||||
| (In millions of dollars) | ||||||||||||||||||||
|
|
||||||||||||||||||||
|
Revenue from services
|
$ | 1,042.6 | $ | 1,028.9 | $ | 1,049.2 | $ | 1,194.1 | $ | 4,314.8 | ||||||||||
|
Gross profit
|
175.5 | 171.7 | 166.2 | 188.3 | 701.7 | |||||||||||||||
|
SG&A expenses
|
206.1 | 193.6 | 193.7 | 201.3 | 794.7 | |||||||||||||||
|
Restructuring charges (included in SG&A)
|
7.2 | 4.7 | 4.6 | 13.4 | 29.9 | |||||||||||||||
|
Litigation charges (included in SG&A)
|
1.0 | — | 4.3 | — | 5.3 | |||||||||||||||
|
Asset impairments
|
— | 52.6 | 0.5 | — | 53.1 | |||||||||||||||
|
Loss from continuing operations
|
(16.1 | ) | (66.0 | ) | (14.8 | ) | (8.2 | ) | (105.1 | ) | ||||||||||
|
Earnings from discontinued operations, net of tax
|
0.6 | — | — | — | 0.6 | |||||||||||||||
|
Net loss
|
(15.5 | ) | (66.0 | ) | (14.8 | ) | (8.2 | ) | (104.5 | ) | ||||||||||
|
Basic (loss) earnings per share (1, 2)
|
||||||||||||||||||||
|
Loss from continuing operations
|
(0.46 | ) | (1.89 | ) | (0.43 | ) | (0.23 | ) | (3.01 | ) | ||||||||||
|
Earnings from discontinued operations
|
0.02 | — | — | — | 0.02 | |||||||||||||||
|
Net loss
|
(0.45 | ) | (1.89 | ) | (0.43 | ) | (0.23 | ) | (3.00 | ) | ||||||||||
|
Diluted (loss) earnings per share (1, 2)
|
||||||||||||||||||||
|
Loss from continuing operations
|
(0.46 | ) | (1.89 | ) | (0.43 | ) | (0.23 | ) | (3.01 | ) | ||||||||||
|
Earnings from discontinued operations
|
0.02 | — | — | — | 0.02 | |||||||||||||||
|
Net loss
|
(0.45 | ) | (1.89 | ) | (0.43 | ) | (0.23 | ) | (3.00 | ) | ||||||||||
|
Dividends per share
|
— | — | — | — | — | |||||||||||||||
|
|
||||||||||||||||||||
| Fiscal Year 2008 | ||||||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||||||
| Quarter | Quarter | Quarter | Quarter | Year | ||||||||||||||||
| (In millions of dollars) | ||||||||||||||||||||
|
|
||||||||||||||||||||
|
Revenue from services
|
$ | 1,388.4 | $ | 1,452.0 | $ | 1,397.8 | $ | 1,279.1 | $ | 5,517.3 | ||||||||||
|
Gross profit
|
249.9 | 257.4 | 245.7 | 224.6 | 977.6 | |||||||||||||||
|
SG&A expenses
|
237.0 | 242.4 | 260.2 | 227.8 | 967.4 | |||||||||||||||
|
Restructuring charges (included in SG&A)
|
— | — | 2.2 | 4.3 | 6.5 | |||||||||||||||
|
Litigation charges (included in SG&A)
|
— | — | 22.5 | — | 22.5 | |||||||||||||||
|
Asset impairments
|
— | — | — | 80.5 | 80.5 | |||||||||||||||
|
Earnings (loss) from continuing operations
|
8.0 | 10.4 | (11.5 | ) | (88.6 | ) | (81.7 | ) | ||||||||||||
|
Earnings (loss) from discontinued operations, net of tax
|
0.2 | 0.1 | (0.7 | ) | (0.1 | ) | (0.5 | ) | ||||||||||||
|
Net earnings (loss)
|
8.2 | 10.5 | (12.2 | ) | (88.7 | ) | (82.2 | ) | ||||||||||||
|
Basic earnings (loss) per share (1, 2)
|
||||||||||||||||||||
|
Earnings (loss) from continuing operations
|
0.23 | 0.30 | (0.33 | ) | (2.55 | ) | (2.35 | ) | ||||||||||||
|
Earnings (loss) from discontinued operations
|
0.01 | — | (0.02 | ) | (0.01 | ) | (0.02 | ) | ||||||||||||
|
Net earnings (loss)
|
0.23 | 0.30 | (0.35 | ) | (2.55 | ) | (2.37 | ) | ||||||||||||
|
Diluted earnings (loss) per share (1, 2)
|
||||||||||||||||||||
|
Earnings (loss) from continuing operations
|
0.23 | 0.30 | (0.33 | ) | (2.55 | ) | (2.35 | ) | ||||||||||||
|
Earnings (loss) from discontinued operations
|
0.01 | — | (0.02 | ) | (0.01 | ) | (0.02 | ) | ||||||||||||
|
Net earnings (loss)
|
0.23 | 0.30 | (0.35 | ) | (2.55 | ) | (2.37 | ) | ||||||||||||
|
Dividends per share
|
0.135 | 0.135 | 0.135 | 0.135 | 0.54 | |||||||||||||||
| (1) | Earnings (loss) per share amounts for each quarter are required to be computed independently and may not equal the amounts computed for the total year. | |
| (2) | In June 2008, the FASB issued guidance which clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities and, therefore, included in the calculation of earnings per share using the two-class method. This guidance was effective beginning with the first quarter of 2009, and all prior period earnings per share data presented was adjusted retrospectively to conform with the provisions of this guidance. |
75
Table of Contents
SCHEDULE II — VALUATION RESERVES
Kelly Services, Inc. and Subsidiaries
January 3, 2010
(In millions of dollars)
Kelly Services, Inc. and Subsidiaries
January 3, 2010
(In millions of dollars)
| Additions | ||||||||||||||||||||||||
| Balance at | Charged to | Charged to | Currency | Deductions | Balance | |||||||||||||||||||
| Beginning | costs and | other | exchange | from | at end | |||||||||||||||||||
| Description | of year | expenses | accounts * | effects | reserves | of year | ||||||||||||||||||
|
Fiscal year ended January 3, 2010:
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Reserve deducted in the balance sheet
from the assets to which it applies -
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 17.0 | 2.2 | — | 0.6 | (4.8 | ) | $ | 15.0 | |||||||||||||||
|
|
||||||||||||||||||||||||
|
Deferred tax assets valuation allowance
|
$ | 44.2 | 7.5 | — | 2.3 | (1.3 | ) | $ | 52.7 | |||||||||||||||
|
|
||||||||||||||||||||||||
|
Fiscal year ended December 28, 2008:
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Reserve deducted in the balance sheet
from the assets to which it applies -
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 18.2 | 6.7 | 0.9 | (1.4 | ) | (7.4 | ) | $ | 17.0 | ||||||||||||||
|
|
||||||||||||||||||||||||
|
Deferred tax assets valuation allowance
|
$ | 28.7 | 24.9 | — | (6.2 | ) | (3.2 | ) | $ | 44.2 | ||||||||||||||
|
|
||||||||||||||||||||||||
|
Fiscal year ended December 30, 2007:
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Reserve deducted in the balance sheet
from the assets to which it applies -
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 16.8 | 6.7 | 0.1 | 0.7 | (6.1 | ) | $ | 18.2 | |||||||||||||||
|
|
||||||||||||||||||||||||
|
Deferred tax assets valuation allowance
|
$ | 28.1 | 9.4 | — | 1.6 | (10.4 | ) | $ | 28.7 | |||||||||||||||
| * | Allowance of companies acquired. |
76
Table of Contents
INDEX TO EXHIBITS
REQUIRED BY ITEM 601,
REGULATION S-K
REQUIRED BY ITEM 601,
REGULATION S-K
| Exhibit No. | Description | Document | ||||||
|
|
||||||||
| 3.1 |
Restated Certificate of Incorporation, effective May 6, 2009 (Reference is made
to Exhibit 3.1 to the Form 8-K filed with the Commission on May 8, 2009 which
is incorporated herein by reference).
|
|||||||
|
|
||||||||
| 3.2 |
By-laws, effective May 6, 2009 (Reference is made to Exhibit 3.2 to the Form
8-K filed with the Commission on May 8, 2009, which is incorporated herein
by reference).
|
|||||||
|
|
||||||||
| 10.1 |
Short-Term Incentive Plan, as amended and restated on March 23, 1998 and
further amended on February 6, 2003 and November 8, 2007 (Reference is
made to Exhibit 10.1 to the Form 8-K filed with the Commission on November
14, 2007, which is incorporated herein by reference).
|
|||||||
|
|
||||||||
| 10.2 |
Kelly Services, Inc. Equity Incentive Plan (Reference is made to Exhibit 99 to
the Form S-8 filed with the Commission on May 20, 2005, which is incorporated
herein by reference).
|
|||||||
|
|
||||||||
| 10.3 |
Kelly Services, Inc. Executive Severance Plan, as amended November 8, 2007
(Reference is made to Exhibit 10.3 to the Form 8-K filed with the Commission
on November 14, 2007, which is incorporated herein by reference).
|
|||||||
|
|
||||||||
| 10.4 |
Kelly Services, Inc. 1999 Non-Employee Directors Stock Option Plan (Reference
is made to Appendix B to the Definitive Proxy Statement furnished in connection with
the solicitation of proxies on behalf of the Board of Directors for use at the
Annual Meeting of Stockholders of the Company held on May 10, 2006 filed
with the Commission on April 10, 2006, which is incorporated herein by reference).
|
|||||||
|
|
||||||||
| 10.5 |
Kelly Services, Inc. Non-Employee Director Stock Award Plan, as amended and
Restated effective February 12, 2008 (Reference is made to Appendix A to the
Definitive Proxy Statement furnished in connection with the solicitation of proxies
on behalf of the Board of Directors for use at the Annual Meeting of Stockholders
of the Company held May 6, 2008 filed with the Commission on April 4, 2008, which
is incorporated herein by reference).
|
|||||||
|
|
||||||||
| 10.6 |
Three-year, secured, revolving credit agreement, dated September 28, 2009
(Reference is made to Exhibit 10.6 to the Form 8-K filed with the Commission on
September 29, 2009, which is incorporated herein by reference).
|
|||||||
|
|
||||||||
| 10.7 |
Kelly Services, Inc. Performance Incentive Plan, as amended and restated on
March 29, 1996 and April 14, 2000 (Reference is made to Exhibit 10 to the Form 10-Q
for the quarterly period ended April 1, 2001, filed with the Commission on May 14, 2001,
which is incorporated herein by reference).
|
|||||||
|
|
||||||||
| 10.8 |
Form of Amendment to Performance Incentive Plan (Reference is made to Exhibit 10.1
to the Form 8-K filed with the Commission on November 9, 2006, which is incorporated
herein by reference).
|
|||||||
77
Table of Contents
INDEX TO EXHIBITS
REQUIRED BY ITEM 601,
REGULATION S-K (continued)
REQUIRED BY ITEM 601,
REGULATION S-K (continued)
| Exhibit No. | Description | Document | ||||||
|
|
||||||||
| 10.9 |
Form of Amendments to Equity Incentive Plan (Reference is made to Exhibit 10.2
to the Form 8-K filed with the Commission on November 9, 2006, which is
incorporated herein by reference).
|
|||||||
|
|
||||||||
| 10.10 |
Form of Amendments to 1999 Non-Employee Directors Stock Option Plan
(Reference is made to Exhibit 10.4 to the Form 8-K filed with the Commission on
November 9, 2006, which is incorporated herein by reference).
|
|||||||
|
|
||||||||
| 10.11 |
Form of Amendment to 1999 Non-Employee Director Stock Award Plan
(Reference is made to Exhibit 10.3 to the Form 8-K filed with the Commission on
November 9, 2006, which is incorporated herein by reference).
|
|||||||
|
|
||||||||
| 10.12 |
2008 Management Retirement Plan (Reference is made to Exhibit 10.12 to the
Form 8-K filed with the Commission on November 14, 2007, which is incorporated
herein by reference).
|
|||||||
|
|
||||||||
| 10.14 |
Pledge and Security Agreement, dated September 28, 2009 (Reference is made to
Exhibit 10.14 to the Form 8-K filed with the Commission on September 29, 2009,
which is incorporated herein by reference).
|
|||||||
|
|
||||||||
| 10.15 |
Receivables Purchase Agreement, dated December 4, 2009 (Reference is made to
Exhibit 10.17 to the Form 8-K filed with the Commission on December 9, 2009,
which is incorporated herein by reference).
|
|||||||
|
|
||||||||
| 14 |
Code of Business Conduct and Ethics, adopted February 9, 2004, as amended on
April 7, 2009 (Reference is made to Exhibit 14 to the Form 10-K for the annual
period ended December 28, 2008, filed with the Commission on February 11, 2009,
which is incorporated herein by reference).
|
|||||||
|
|
||||||||
| 21 |
Subsidiaries of Registrant.
|
2 | ||||||
|
|
||||||||
| 23 |
Consent of Independent Registered Public Accounting Firm.
|
3 | ||||||
|
|
||||||||
| 24 |
Power of Attorney.
|
4 | ||||||
|
|
||||||||
| 31.1 |
Certification Pursuant to Rule 13a-14(a)/15d-14(a).
|
5 | ||||||
|
|
||||||||
| 31.2 |
Certification Pursuant to Rule 13a-14(a)/15d-14(a).
|
6 | ||||||
|
|
||||||||
| 32.1 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
7 | ||||||
|
|
||||||||
| 32.2 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
8 | ||||||
78
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersPart IIItem 5. Market For The Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Executive Officers Of The RegistrantItem 12. Securities Authorized For Issuance Under Equity Compensation PlansPart IVItem 15. Exhibits, Financial Statement Schedules