KELYA Kelly Services Inc

TROY, Mich., April 24 /PRNewswire-FirstCall/ -- Kelly Services, Inc. (NASDAQ:KELYANASDAQ:KELYB), a global provider of staffing services, today announced results for the first quarter ended April 1, 2007. (Logo: http://www.newscom.com/cgi-bin/prnh/19991208/KELLYLOGO ) Carl T. Camden, President and Chief Executive Officer, announced revenue for the first quarter of 2007 totaled $1.351 billion, a 1.1% increase compared to the $1.336 billion for the corresponding quarter in 2006. On a constant currency basis revenue decreased 1.1%. Net earnings for the first quarter of 2007 totaled $11.9 million, a 39.2% increase compared to $8.6 million reported for the first quarter of 2006. Effective March 31, 2007, the Company sold its Home Care business unit for cash proceeds of $12.5 million and recorded an after tax gain on sale of $6.2 million. During the first quarter the Company also incurred after tax costs of $2.6 million related to the restructuring of its UK operations. Excluding the gain on sale of the Home Care business and the UK restructuring charges, net earnings were $8.4 million, a 2.0% decrease compared to last year. Diluted earnings per share in the first quarter of 2007 were $0.32, an increase of 33.3% as compared to first quarter 2006 earnings of $0.24 per share. Excluding the $0.17 per share after tax gain on sale of the Home Care business, and the $0.07 per share after tax cost of the UK restructuring, diluted earnings were $0.23 per share, a 4.2% decrease compared to last year. Commenting on the results, Camden said, "Despite continued slowing in the Americas staffing markets, we're pleased that we delivered solid profitable results. We also accomplished a number of key strategic objectives during the first quarter. We moved aggressively to diversify geographically and move into higher margin fee based businesses. -- We acquired Talents Technology, a permanent placement and executive search firm with operations in the Czech Republic and Poland. -- In support of our expansion into the Asia-Pacific markets, we acquired the remaining 51% interest in our Tempstaff - Kelly joint venture. Kelly now owns 100% of this $40 million annual revenue operation in Japan. -- We also acquired CGR/seven, a creative services staffing and placement firm with operations in New York. This acquisition adds a new higher margin business to our professional staffing portfolio. "Although these acquisitions did not have any significant financial impact on the first quarter, they position us well for enhanced growth and profitability going forward. "Effective with the first quarter, we have realigned our operations into four reporting segments: Americas Commercial, Americas Professional, Technical and Staffing Alternatives (PTSA), International Commercial, and International PTSA. The Americas include our U.S. operations, as well as Canada, Mexico and Puerto Rico, which were previously included in International. In addition, we have allocated corporate expenses that directly support the operating units to the results of the four segments. This change provides greater transparency in our financial reporting and allows more accountability by our segment leadership for total business performance. Reclassified historical financial statements reflecting these changes are available on the Company's investor relations web site. "Revenue in our Americas Commercial segment, which accounted for 51% of total sales, decreased 4.3% year over year in the first quarter. Operating earnings totaled $21.1 million, essentially flat to last year. "Revenue in our Americas PTSA segment, which accounted for 19% of total sales, decreased 6.2% year over year in the first quarter. Operating earnings totaled $13.6 million and decreased 6.5% on a year over year basis. "Revenue in our International Commercial segment, which accounted for 27% of total sales, increased 16.3% year over year in the first quarter. On a constant currency basis revenue increased 7.3%. The reported segment operating loss totaled $4.5 million. Excluding the $2.6 million of UK restructuring charges, the operating loss was $1.9 million, a 20.5% improvement compared to the prior year. "Revenue in our International PTSA segment, which accounted for 3% of total sales, increased 40.0% year over year in the first quarter. On a constant currency basis revenue increased 29.4%. Operating earnings totaled $248 thousand, a 37.8% increase compared to last year. "Corporate expenses totaled $19.9 million and decreased 3.9% compared to last year. "Earnings from operations totaled $10.5 million. Excluding the $2.6 million of UK restructuring charges, earnings from operations totaled $13.1 million and increased 2.6% on a year over year basis. "The effective tax rate from continuing operations for the first quarter was 52.9%, compared to 36.3% last year. The increase in the effective tax rate is primarily due to the impact of the UK restructuring charges, where the tax benefit is not recognized because of valuation allowances recorded against existing UK tax loss carry forwards. Mr. Camden added, "We expect second quarter 2007 earnings to be in the range of $0.35 to $0.40 per share, as compared to $0.33 per share from continuing operations in the second quarter of 2006. Not included in this guidance are additional planned restructuring costs of approximately $3 million, or $0.08 per share related primarily to the completion of the branch closings and headquarters consolidation in our UK operation." Mr. Camden concluded, "For the full year of 2007, we are currently forecasting that earnings will range between $1.65 and $1.80 per share, compared to $1.56 per share from continuing operations in 2006. The range excludes the gain on the sale of the Home Care business and UK restructuring costs. This guidance reflects our view that the U.S. economy will avoid a recession in 2007, and that our Americas staffing segments will resume positive revenue growth in the 3rd quarter of this year. " In conjunction with its first quarter earnings release, Kelly Services, Inc. will host a conference call at 9:00 a.m. (ET) on April 24, 2007 to review the results and answer questions. The call may be accessed in one of the following ways: Via the Telephone: U.S. 1-800-288-8961 International 1-612-332-0632 The pass code is Kelly Services Via the Internet: The call is also available via the internet through the Kelly Services website: http://www.kellyservices.com/ This release contains statements that are forward looking in nature and accordingly, are subject to risks and uncertainties. These factors include: competition, changing market and economic conditions, currency fluctuations, changes in laws and regulations, including tax laws, and other factors discussed in this release and in the company's filings with the Securities and Exchange Commission. Actual results may differ materially from any projections contained herein. Kelly Services, Inc. (NASDAQ:KELYANASDAQ:KELYB) is a Fortune 500 company headquartered in Troy, Mich., offering staffing solutions that include temporary staffing services, outsourcing, vendor on-site and full-time placement. Kelly operates in 32 countries and territories. Kelly provides employment to more than 750,000 employees annually, with skills including office services, accounting, engineering, information technology, law, science, marketing, creative services, light industrial, education, and health care. Revenue in 2006 was $5.6 billion. Visit http://www.kellyservices.com/. KELLY SERVICES, INC. AND SUBSIDIARIES STATEMENTS OF EARNINGS FOR THE 13 WEEKS ENDED APRIL 1, 2007 AND APRIL 2, 2006 (UNAUDITED) (In thousands of dollars except per share data) 2007 2006 Change % Change Revenue from services $1,350,858 $1,335,605 $15,253 1.1% Cost of services 1,121,650 1,122,569 (919) (0.1) Gross profit 229,208 213,036 16,172 7.6 Selling, general and administrative expenses 218,715 200,240 18,475 9.2 Earnings from operations 10,493 12,796 (2,303) (18.0) Other income, net 673 40 633 NM Earnings from continuing operations before taxes 11,166 12,836 (1,670) (13.0) Income taxes 5,908 4,664 1,244 26.7 Earnings from continuing operations 5,258 8,172 (2,914) (35.7) Earnings from discontinued operations, net of tax 6,657 386 6,271 NM Net earnings $11,915 $8,558 $3,357 39.2% Basic earnings per share Earnings from continuing operations $0.14 $0.23 $(0.09) (39.1)% Earnings from discontinued operations 0.18 0.01 0.17 NM Net earnings $0.33 $0.24 $0.09 37.5% Diluted earnings per share Earnings from continuing operations $0.14 $0.23 $(0.09) (39.1)% Earnings from discontinued operations 0.18 0.01 0.17 NM Net earnings $0.32 $0.24 $0.08 33.3% STATISTICS: Gross profit rate 17.0% 16.0% 1.0% Expenses as a % of revenue 16.2 15.0 1.2 % Return - Earnings from operations 0.8 1.0 (0.2) Earnings from continuing operations before taxes 0.8 1.0 (0.2) Earnings from continuing operations 0.4 0.6 (0.2) Net earnings 0.9 0.6 0.3 Effective income tax rate 52.9% 36.3% 16.6% Average number of shares outstanding (thousands): Basic 36,511 35,872 Diluted 36,898 36,076 KELLY SERVICES, INC. AND SUBSIDIARIES RESULTS OF OPERATIONS BY SEGMENT (UNAUDITED) (In thousands of dollars) First Quarter 2007 2006 Change % Change Revenue from Services: Americas - Commercial $684,051 $714,465 $(30,414) (4.3)% Americas - PTSA 263,433 280,736 (17,303) (6.2) Total Americas 947,484 995,201 (47,717) (4.8) International - Commercial 358,950 308,679 50,271 16.3 International - PTSA 44,424 31,725 12,699 40.0 Total International 403,374 340,404 62,970 18.5 $1,350,858 $1,335,605 $15,253 1.1% Earnings from Operations (As Reported): Americas - Commercial $21,059 $21,133 $(74) (0.4)% Americas - PTSA 13,615 14,562 (947) (6.5) Total Americas 34,674 35,695 (1,021) (2.9) International - Commercial (4,493) (2,339) (2,154) (92.1) International - PTSA 248 180 68 37.8 Total International (4,245) (2,159) (2,086) (96.6) Corporate Expense (19,936) (20,740) 804 3.9 $10,493 $12,796 $(2,303) (18.0)% Earnings from Operations (Excluding the UK Restructuring Charge): Americas - Commercial $21,059 $21,133 $(74) (0.4)% Americas - PTSA 13,615 14,562 (947) (6.5) Total Americas 34,674 35,695 (1,021) (2.9) International - Commercial (1,859) (2,339) 480 20.5 International - PTSA 248 180 68 37.8 Total International (1,611) (2,159) 548 25.4 Corporate Expense (19,936) (20,740) 804 3.9 $13,127 $12,796 $331 2.6% KELLY SERVICES, INC. AND SUBSIDIARIES RECONCILIATION OF CONSTANT CURRENCY REVENUE FROM SERVICES TO REPORTED REVENUE FROM SERVICES (UNAUDITED) (In thousands of dollars) First Quarter 2007 2006 Change % Change Revenue from services - constant currency*: Americas - Commercial $685,513 $714,465 $(28,952) (4.1)% Americas - PTSA 263,531 280,736 (17,205) (6.1) Total Americas - constant currency* 949,044 995,201 (46,157) (4.6) International - Commercial 331,164 308,679 22,485 7.3 International - PTSA 41,061 31,725 9,336 29.4 Total International - constant currency* 372,225 340,404 31,821 9.3 Total revenue from services - constant currency* 1,321,269 1,335,605 (14,336) (1.1)% Foreign currency impact 29,589 29,589 Revenue from services $1,350,858 $1,335,605 $15,253 1.1 % * Information on constant currencies is provided to allow investors to separate the impact of foreign currency translations on reported results. Constant currency results are calculated by translating the current year results at prior year average exchange rates. KELLY SERVICES, INC. AND SUBSIDIARIES SUMMARY OF DISCONTINUED OPERATIONS (UNAUDITED) (In thousands of dollars) First Quarter 2007 2006 Revenue from services: KHC $14,777 $14,720 KSL - 9,764 Operating income (loss) from discontinued operations: KHC $674 $(42) KSL 124 683 798 641 Less: Income taxes 307 255 Earnings from discontinued operations, net of tax 491 386 Gain on sale of KHC discontinued operations 10,153 - Less: Income taxes 3,987 - Gain on sale of KHC discontinued operations, net of tax 6,166 - Discontinued operations, net of tax $6,657 $386 Effective March 31, 2007, the Company sold Kelly Home Care ("KHC"), a wholly owned subsidiary. Effective December 31, 2006, the Company sold Kelly Staff Leasing ("KSL"), a wholly owned subsidiary. The operating results for KHC and KSL, as well as the gain on the sale of KHC, have been excluded from earnings from continuing operations. This schedule provides information on KHC's and KSL's results from operations for the first quarter of 2007 and 2006 and the gain on the sale of KHC, all of which are included as discontinued operations on the face of the statements of earnings. KELLY SERVICES, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED) (In thousands of dollars except per share data) First Quarter 2007 2006 Amount Per Share Amount Per Share Net earnings $11,915 $0.32 $8,558 $0.24 Gain on the sale of Kelly Home Care (6,166) (0.17) - - UK restructuring charge (1) 2,634 0.07 - - Net earnings excluding the gain on sale and UK restructuring charge $8,383 $0.23 $8,558 $0.24 First Quarter 2007 2006 % change Selling, general and administrative expenses $218,715 $200,240 UK restructuring charge (1) (2,634) - Selling, general and administrative expenses excluding the UK restructuring charge $216,081 $200,240 7.9% Earnings from operations $10,493 $12,796 UK restructuring charge (1) 2,634 - Earnings from operations excluding the UK restructuring charge $13,127 $12,796 2.6% Earnings from continuing operations $5,258 $8,172 UK restructuring charge (1) 2,634 - Earnings from continuing operations excluding the UK restructuring charge $7,892 $8,172 (3.4%) International Commercial Earnings from operations $(4,493) $(2,339) UK restructuring charge (1) 2,634 - International Commercial Earnings excluding the UK restructuring charge $(1,859) $(2,339) 20.5% International Earnings from operations $(4,245) $(2,159) UK restructuring charge (1) 2,634 - International Commercial Earnings excluding the UK restructuring charge $(1,611) $(2,159) 25.4% KELLY SERVICES, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED) (In thousands of dollars except per share data) Management believes that the non-GAAP (Generally Accepted Accounting Principles) information excluding the gain on the sale of Kelly Home Care and the UK restructuring charge is useful to understand the Company's fiscal 2007 financial performance and increases comparability with prior year results. Specifically, Management believes that excluding these items allows for a more meaningful comparison of current period operating performance with the operating results of prior periods. These non-GAAP measures may have limitations as analytical tools because they exclude items which can have a material impact on cash flow and earnings per share. As a result, Management considers these measures, along with reported results, when it reviews and evaluates the Company's financial performance. Management believes that these measures provide greater transparency to investors and provide insight into how Management is evaluating the Company's financial performance. Non-GAAP measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. (1) The UK restructuring charge is comprised of facility exit costs associated with the closure of 18 branch locations and the accelerated depreciation of the leasehold improvements and personal property at the impacted locations. KELLY SERVICES, INC. AND SUBSIDIARIES BALANCE SHEETS (UNAUDITED) (In thousands of dollars) April 1, December 31, April 2, 2007 2006 2006 Current Assets Cash and equivalents $120,829 $118,428 $60,395 Trade accounts receivable, less allowances of $17,884, $16,818 and $17,114, respectively 828,005 838,246 819,995 Prepaid expenses and other current assets 49,569 45,316 43,792 Deferred taxes 25,678 29,543 33,586 Total current assets 1,024,081 1,031,533 957,768 Property and Equipment, Net 168,230 170,288 161,569 Noncurrent Deferred Taxes 35,731 35,437 22,442 Goodwill, Net 121,207 96,504 89,324 Other Assets 135,570 135,662 106,173 Total Assets $1,484,819 $1,469,424 $1,337,276 Current Liabilities Short-term borrowings $75,594 $68,928 $51,298 Accounts payable 135,382 132,819 114,236 Accrued payroll and related taxes 266,039 274,284 270,985 Accrued insurance 24,203 24,191 32,798 Income and other taxes 56,580 68,055 52,279 Total current liabilities 557,798 568,277 521,596 Noncurrent Liabilities Accrued insurance 57,219 57,277 52,465 Accrued retirement benefits 74,519 71,990 61,522 Other long-term liabilities 21,293 13,323 13,273 Total noncurrent liabilities 153,031 142,590 127,260 Stockholders' Equity Common stock 40,116 40,116 40,116 Treasury stock (74,231) (78,841) (88,999) Paid-in capital 33,205 32,048 27,651 Earnings invested in the business 742,718 735,104 692,961 Accumulated other comprehensive income 32,182 30,130 16,691 Total stockholders' equity 773,990 758,557 688,420 Total Liabilities and Stockholders' Equity $1,484,819 $1,469,424 $1,337,276 STATISTICS: Working Capital $466,283 $463,256 $436,172 Current Ratio 1.8 1.8 1.8 Debt-to-capital % 8.9% 8.3% 6.9% Global Days Sales Outstanding Year-to-date 56 55 56 KELLY SERVICES, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE 13 WEEKS ENDED APRIL 1, 2007 AND APRIL 2, 2006 (In thousands of dollars) 2007 2006 Cash flows from operating activities Net earnings $11,915 $8,558 Noncash adjustments: Depreciation and amortization 10,551 10,329 Provision for bad debts 1,961 1,116 Stock-based compensation 918 1,297 Gain on sale of discontinued operations (6,166) - Other, net (262) (35) Changes in other operating assets and liabilities (4,884) (10,270) Net cash from operating activities 14,033 10,995 Cash flows from investing activities Capital expenditures (8,544) (5,950) Proceeds from sale of discontinued operations 12,500 - Acquisition of companies, net of cash received (16,869) - Other investing activities 13 (392) Net cash from investing activities (12,900) (6,342) Cash flows from financing activities Net decrease in revolving line of credit (1,857) (5,891) Proceeds from short-term debt 8,223 - Dividend payments (4,633) (3,630) Stock options and other stock sales 4,895 1,330 Other financing activities (6,565) 393 Net cash from financing activities 63 (7,798) Effect of exchange rates on cash and equivalents 1,205 (159) Net change in cash and equivalents 2,401 (3,304) Cash and equivalents at beginning of period 118,428 63,699 Cash and equivalents at end of period $120,829 $60,395 http://www.newscom.com/cgi-bin/prnh/19991208/KELLYLOGO DATASOURCE: Kelly Services, Inc. CONTACT: ANALYST CONTACT: James Polehna, +1-248-244-4586, , or MEDIA CONTACT: Renee Walker, +1-248-244-5362, , both of Kelly Services, Inc. Web site: http://www.kellyservices.com/

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