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Slide 1: 2001 Annual Report
Slide 2: I N M E M O R Y O F TERENCE E. “TED” ADDERLEY JR. 1979 - 2001 The tragic events of September 11, 2001, touched our lives in a very personal way. Terence E. Adderley Jr. — son of our Chairman and CEO Terence E. Adderley and grandson of our company’s founder William Russell Kelly — was among those lost in the World Trade Center. Ted, a recent graduate of Vanderbilt University, was working as a securities analyst at Fred Alger Management. This bright, energetic young man was making his mark in life and in business. He will be remembered for his thoughtfulness toward others and generosity of heart. We are deeply saddened by his death. Ted will be greatly missed. We are deeply saddened by his death. Ted will be greatly missed.
Slide 3: C ONTENTS 2 3 Financial Highlights Letter to Stockholders Staffing Solutions U.S. Commercial Professional and Technical Staffing Alternatives International 6 8 10 11 12 14 15 C ORPORATE P ROFILE Staffing the World Directors and Officers Financial Contents William Russell Kelly founded Kelly Services, Inc. and the modern temporary help industry in 1946. Today, Kelly® is a leading global provider of staffing services. Over the past 55 years, Kelly’s range of staffing solutions has grown steadily to match the needs of our global customers. We assign temporary employees in a wide variety of disciplines, including: office services, finance, engineering, information technology, law, science, healthcare, marketing, call centers, light industrial, education, and home care. We have more than 2,300 company-owned and operated offices in 26 countries. Last year, the company assigned more than 700,000 employees to work for 200,000 customers. Sales in 2001 were $4.3 billion. Kelly is headquartered in Troy, Michigan, U.S.A. 1
Slide 4: H I G H L I G Financial H T S 2001 2000 $4,487,291 145,276 58,100 87,176 2.44 2.43 .99 336,240 623,469 1,089,576 Change (5.1)% (81.0)% (81.0)% (81.0)% (81.1)% (81.1)% (14.1)% (4.2)% (2.6)% (4.6)% ( In thousands of dollars except per share items) Sales of services Earnings before income taxes Income taxes Net earnings Basic earnings per share Diluted earnings per share Dividends per share Working capital Stockholders’ equity Total assets $4,256,892 27,586 11,037 16,549 .46 .46 .85 322,013 607,155 1,039,381 Sales of Services (Billions of dollars) Diluted Earnings Per Share $4.5 $4.3 $2.12 $2.36 $2.43 $3.9 $4.1 $4.3 $2.23 $.46 $.46 0 97 98 99 00 01 0 97 98 99 00 01 2
Slide 5: Terence E. Adderley, Chairman and Chief Executive Officer (left); Carl T. Camden, President and Chief Operating Officer (right). T O O U R S T O C K H O L D E R S T he world has changed since we published our last annual report: our lives have been profoundly affected by the tragic events of September 11, both in business and on a deeply personal level. Economic Impact of a Recession Prior to September, the economy began to slow significantly and our business felt the impact. After months of speculation and three consecutive quarters of economic stagnation, economists finally agreed: we were in a recession. Contrary to popular myth, the staffing industry does not do well in an economic downturn. As businesses seek to lower costs by making reductions in their workforce, the temporary staff budget is often first to be cut. This proved to be the case in 2001, and our sales and net earnings were significantly affected. 2001 Results Kelly’s sales for the year 2001 totaled nearly $4.3 billion, down 5% from our record sales of $4.5 billion for the previous year. Net earnings for 2001 were $16.5 million, 81% lower than the $87 million we earned in 2000. Diluted earnings per share were $.46 compared to $2.43 per share last year. However, our performance was better than might have been expected, given the severity of this recession. We put more than 700,000 people to work, retained existing customers, gained new ones, turned a profit, and grew market share. In fact, we opened more than 50 branches during 2001, including Kelly’s first office in Hong Kong, our 26th country. 3
Slide 6: Responding to the Recession Over the past 55 years, our company has weathered a number of recessions, giving us the experience to manage successfully through the current economy. Our business objectives in this downturn were clear: preserve our relationships, maintain our branch network, and gain market share while controlling expenses and improving our financial position. Over the past 55 years, Kelly has weathered a number of recessions, giving us the experience to manage through the current economy. Strengthening relationships with our customers and temporary employees was a critical focus in 2001. As demand began to rapidly decline, we concentrated on helping our customers adjust their workforce to match their requirements. We also made a conscious decision not to retreat from markets or from our business lines. At the same time, special efforts were made to keep our valued temporary employees actively assigned. As a result, we were able to grow market share. Controlling expenses also received our full attention. We implemented expense reduction initiatives at headquarters and across all our business segments — U.S. Commercial, Professional, Technical and Staffing Alternatives, and International. We made judicious reductions in staff, both in the field and at headquarters, and later in the year suspended the opening of new branches. In short, Kelly recommitted to the basics that underpin our business: selling, recruiting, hiring, assigning employees, strengthening relationships with our customers and temporary employees, and increasing productivity. These basics continue to apply in all phases of the economic cycle. Strengthening our Financial Position A strong financial position is vital to success during a recession. In keeping with Kelly’s long-standing conservative accounting and financial practices, we continued to maintain a strong balance sheet. The company has no long-term debt, and the modest amount of short-term debt we carried was reduced during the year. To further strengthen our cash position, the board of directors reduced the quarterly dividend on both Class A and Class B common stock, from $.25 to $.10 per share. While not an easy decision to make, the reduction aligned us more closely with current dividend practice and measurements. It is important to note that this has been the only dividend reduction since Kelly began paying dividends 39 years ago — an achievement very few companies share. Building Leadership Kelly Services® has changed dramatically during the last decade. To better manage a complex, multibillion-dollar corporation, we realigned the company into three business segments, increased our focus on domestic and
Slide 7: global expansion, expanded our breadth of services, and assembled a talented group of executives to guide the company. Our management team represents a balanced mix of industry veterans and skilled professionals, which positions us well for the future. This year, we took another important management step, promoting Carl Camden to President of Kelly Services and naming him to our board of directors, effective December 1, 2001. Over the years, Carl has managed a number of critical areas including Field Operations, Sales, and Marketing. Only the fourth president in our history, Carl will continue as Chief Operating Officer, working closely with Terry Adderley, who led the company through an unprecedented period of growth and expansion during his 33-year tenure as Kelly’s President. Terry will continue as Chairman and Chief Executive Officer of Kelly Services. We also promoted Michael Morrow to Senior Vice President of Marketing and Marc Rosenow to Senior Vice President of Service. These individuals are charged with creating innovative products and services to support both temporary employees and customers. In October, Eileen Youds joined Kelly as Senior Vice President and Chief Information Officer. Eileen is responsible for integrating new and existing global systems to meet the current and future business strategies of the company. Positioned for Recovery Just as recessions vary in severity and length, recoveries differ as well. History has shown that the demand for temporary staffing increases quickly as the economy recovers. This has been true for every recession since Kelly began. While we expect the pattern will be repeated, there are no guarantees. For that reason, we continue to maintain conservative financial practices, while aggressively growing our company. In closing, we want to thank our full-time and temporary employees for their dedicated efforts during a difficult year. We are also most appreciative of our customers, whose loyalty sustains us, our board of directors for their thoughtful guidance, and you, our stockholders, for the confidence you place in Kelly Services. We will continue to do our best to earn your support. In 2001, Kelly recommitted to the basics of our business: selling, recruiting, hiring, assigning employees, strengthening relationships, and increasing productivity. Terence E. Adderley Chairman and Chief Executive Officer Carl T. Camden President and Chief Operating Officer 5
Slide 8: U . Commercial .S Kelly Services hired its first temporary employee — a secretary — in 1946. Today, U.S. commercial staffing remains the largest segment of our business — nearly 50% of sales in 2001. K ELLY O FFICE S ERVICES For over 55 years, more companies have turned to Kelly for temporary and full-time office help than any other staffing company. Today, our thoroughly skilled, trained, and tested employees work as desktop publishers, word processors, data entry clerks, receptionists, and more. K ELLY C O N N E C T® We provide the most qualified call center personnel for thousands of call centers, technical support hotlines, and telemarketing units. Our innovative approach to call center staffing includes tools for recruiting, assessing, training, and retaining the best customer contact personnel. The KellyConnect training system uses reallife simulations and assesses on-the-job success before employees are sent to work. KEL STA LY E DUCATIONAL F F I N G® Kelly Educational Staffing is the first nationwide program dedicated to providing qualified substitute teachers for grades K-12. Our substitutes meet all local certification requirements, allowing schools to focus on their top priority: education. 6
Slide 9: K ELLY M ARKETING S ERVICES We provide centralized coordination and local support for our clients’ projects, including seminars, trade shows, sales promotions, sampling, and more. Our network of qualified marketing employees helps to reduce clients’ set-up, tear-down, registration, and distribution costs. K A ELLY E LECTRONIC SSEMBLY S ERVICES Our assemblers, technicians, and quality control specialists are preferred employees in industries ranging from automotive and aerospace to pharmaceutical and consumer products. Kelly utilizes proprietary evaluation tools such as the Kelly Dexterity Indexer System and Keltronics® to identify the most qualified electronic assembly workers. K ELLY L IGHT I NDUSTRIAL S ERVICES When companies need to keep their factories and warehouses operating at peak capacity, they often rely on our expertise in facilities maintenance, materials handling, product assembly, and food service. K ELLY S ELECT ® KellySelect is a temporary-to-full-time service that gives both our clients and temporary employees an opportunity to evaluate their fit before full-time decisions are made. When companies need to hire a candidate immediately, we also provide direct placement services. Both options save our clients time and money, and provide our temporary employees with access to outstanding jobs. 7
Slide 10: PTSA K PROFESSIONAL, TECHNICAL AND STAFFING ALTERNATIVES In the past decade, Kelly’s PTSA offerings have increased from three service lines to thirteen. Organized into two groups — Professional & Technical and Staffing Alternatives — this segment now represents 25% of our sales. PROFESSIONAL & TECHNICAL ELLY S CIENTIFIC R E S O U R C E S® With experience levels ranging from entry-level to Ph.D., our worldwide pool of scientific talent supports a variety of industries in biology, chemistry, geology, biochemistry, physics, and more. K ELLY F INANCIAL R E S O U R C E S® Our analysts, accountants, auditors, and financial support personnel meet the needs of corporate finance departments, accounting firms, and financial institutions. K ELLY L AW R E G I S T R Y® Kelly provides legal staffing to more than 1,400 major corporations and law firms across the U.S. We have attorneys, paralegals, and legal administrators qualified in every facet of the law. K ELLY IT R E S O U R C E S® We provide our clients with information technology specialists who have a full complement of skills, from database management to website development. 8
Slide 11: KELLY HEALT R E S O U R C E S® HCARE With skills ranging from case management to nursing, our healthcare professionals go to work at hospitals, ambulatory care centers, insurance companies, and HMOs. K ELLY A UTOMOTIVE S ERVICES G ROUP With our world headquarters in greater Detroit, Kelly has supported the automotive industry since 1946. We provide staffing for all levels — from customer service and administrative assistants to systems analysts and design engineers. K R ELLY E NGINEERING E S O U R C E S® Engineers and technicians around the world have chosen Kelly Engineering Resources to manage their careers in fields that include aerospace, automotive, chemical, electrical, mechanical, and petrochemical engineering. K ELLY H OME C ARE S ERVICES TM Elderly, ill, or disabled clients retain their independence in the comfort of their own homes with the care and companionship of Kelly’s dedicated nurses, home health aides, and caregivers. 9
Slide 12: STAFFING ALTERNATIVES K ELLY S TAFF L E A S I N G® Kelly Staff Leasing allows customers to transfer their employees to us. In turn, we provide those employees with cost-effective, high-quality benefits and payroll administration. K ELLY M ANAGEMENT S E R V I C E S® Kelly Management Services, our outsourcing business, provides the operational management of entire departments or functions, on- or off-site. Customers focus on their core business, while we manage the areas of our greatest expertise, such as mail services, reprographics, financial transactions, payroll, and quality management. K ELLY G ENERAL C ONTRACTOR S ERVICES This service assembles and manages a network of suppliers to provide our clients with a complete array of professional, technical, and commercial staffing. HR F IRST TM HR First is our industry-leading recruitment consulting business. We provide the technologies and processes that decrease costs, reduce cycle times, and utilize best practices throughout the employment process. K ELLY HR C ONSULTING TM Our HR consultants help clients optimize their investment in people and improve business performance in the areas of strategic staffing, training, and compensation and benefits. 10
Slide 13: International S PECIALTY S TAFFING In addition to providing commercial, professional, and technical staffing, our International division also offers a variety of unique services to address the specific needs of our global customers. K ELLY A SSESS KellyAssess provides customized personnel assessment. Our KellyAssess centers evaluate behaviors required to successfully perform a particular job and provide targeted assessment techniques for selection, promotion, and performance management. K ELLY M ULTI H IRE When companies need to quickly hire a large number of employees, but don’t have the resources to manage the process, Kelly MultiHire acts as an extension of their human resources department. Using Kelly MultiHire, clients are able to take advantage of Kelly’s recruiting resources and experience to secure the best candidates to fit their needs. K ELLY A RTWORKS Kelly Artworks provides freelance and permanent staff to creative and multimedia industries and departments. We assign employees with skills ranging from production artist to creative director. K ELLY M ULTILINGUAL S TAFFING Kelly provides clients with qualified multilingual temporary employees. We also train our clients on how to best recruit, assess, train, and retain their own multilingual employees. 11
Slide 14: United Kingdom Our new U.K. management team — in place since late 2000 — is producing good results. During 2001, performance improved steadily throughout the organization. United States Kelly is the leader in providing substitute teachers in the U.S. This year, Kelly Educational Staffing assigned substitute teachers in more than 1,000 schools throughout 34 states. France Kelly continued to expand its specialty staffing units in 2001, including engineering, healthcare, and science. Australia Belgium Canada Denmark France Germany Hong Kong India Indonesia Ireland Italy Luxembourg Malaysia Mexico Netherlands New Zealand Norway Philippines Puerto Rico Russia Singapore Spain Sweden Switzerland Thailand United Kingdom United States Italy Aggressive branch expansion in Italy doubled our market coverage and generated strong revenue growth. Staffing T H E W O R L D 12
Slide 15: Russia Russia’s economy picked up in 2001, resulting in strong growth in temporary staffing. K elly’s International segment provides commercial, professional, and technical staffing throughout Europe, the Asia-Pacific region, and the Americas. In the past 10 years, we have expanded from 10 to 26 countries. Our International segment now comprises 26% of total revenue. Global expansion is a key part of Kelly’s strategy. Half of Malaysia In a market where temporary staffing is still a new concept, Kelly has emerged as the industry leader in Malaysia. our country operations began through an acquisition. We seek out companies with strong leadership, a team-oriented culture, and shared business values. Hong Kong Kelly opened its first office in Hong Kong this year, where we specialize in executive search, executive contracting, and project recruitment. 13
Slide 16: Directors &O F F I C E R S B D OARD OF IRECTORS Terence E. Adderley Chairman and Chief Executive Officer Carl T. Camden President and Chief Operating Officer Maureen A. Fay, O.P., Ph.D. President, University of Detroit Mercy Cedric V. Fricke Professor Emeritus, The University of Michigan-Dearborn Verne G. Istock Retired Chairman/President, Bank One Corporation B. Joseph White Interim President, The University of Michigan S E N I O R O F F I C E R S Michael S. Morrow Senior Vice President, Marketing George M. Reardon Senior Vice President, General Counsel and Secretary Marc W. Rosenow Senior Vice President, Service Larry J. Seyfarth Senior Vice President, Technical Services Group James A. Tanchon Senior Vice President, Global Sales Bernard Tommasini Senior Vice President and Regional Manager, Western Europe Andrew R. Watt Senior Vice President, PTSA Michael S. Webster Senior Vice President and Division General Manager Eileen M. Youds Senior Vice President and Chief Information Officer Terence E. Adderley Chairman and Chief Executive Officer Carl T. Camden President and Chief Operating Officer William K. Gerber Executive Vice President and Chief Financial Officer Michael L. Durik Executive Vice President, Human Resources Arlene G. Grimsley Executive Vice President, U.S. Commercial Staffing James H. Bradley Senior Vice President, Administration Joan M. Brancheau Senior Vice President and General Manager, Strategic Customer Relations George S. Corona Senior Vice President and Division General Manager Carol J. Johnson Senior Vice President and Division General Manager Rolf E. Kleiner Senior Vice President, International 14
Slide 17: O F F I C E R S William L. Heinz Christine M. Hoebermann Bonnie D. Huber Thomas P. Huizenga Charles G. Jackson Venson J. Jennings Catherine J. King Donald P. Kingston Gregory S. Kruger Susan C. Laminack Nicole M. Lewis Wilma I. Lopez Richard J. Lueders Robert J. Lyons Thomas H. Manceor Susan J. Marks Timothy G. McAward Timothy T. McClain Dane D. McSpedon Jonathan D. Means W. Edward Meisenheimer Lisa R. Miller Teresa A. Moskus Terrence T. Murphy Seelin Naidoo Michael F. Orsini Carolyn J. Palmer Deborah L. Perrault Matthew V. Piwowar Antonina M. Ramsey Nicholas F. Regaldi Diane E. Reynolds Marc J. Riou Ingrid A. Roberts Rodger J. Rooney Lori L. Sakorafis Virginia A. Scaduto Aly A. Schambourg Michelle C. Schorr Lynn G. Schwartz Teresa E. Setting Dhirendra Shantilal Bradley J. Shaw Debra S. Sheehan Mark A. Siegal Glenn L. Sorrie Allen J. Sowers J. Leon Stanek Richard G. Struble Michael J. Tilley Thomas L. Totte Andrew P. Trestrail Tami A. Troxell Josefa Vidal Dana M. Warren Barbara A. Wilson Larry D. Worthen Leonard Zera Steven S. Armstrong D. Craig Atkinson Brian C. Ault Kent L. Barry Richard Binier Paul A. Bordonaro Alice M. Bowers Peter F. Brixius Barry L. Brown Jane M. Brown Jeanine E. Burgen Michael S. Butler Robert J. Buwalda Eileen M. Candels Lorenzo Caporaletti Mary Ann Carey Daniel D. Catlin Cheryl F. Courier Michael E. Debs Jacqueline B. Devin John P. Drew Sherry A. Drew John W. Fitter Shaun M. Fracassi Sandra W. Galac Sergio Gomez Paul M. Hampton Heidi L. Hanes Matthew L. Harvill F I N A N C I A L C O N T E N T S Eleven Year Financial Summary ........................................................16 Statements of Earnings ......................................................................18 Statements of Cash Flows ..................................................................19 Balance Sheets ....................................................................................20 Statements of Stockholders’ Equity ..................................................22 Notes to Financial Statements ..........................................................23 Financial Review ..................................................................................29 Report of Independent Accountants ................................................33 Selected Quarterly Financial Data ....................................................34 Common Stock Price Information ....................................................35 Stockholders’ Information..................................................................36 15
Slide 18: ELEVEN YEAR FINANCIAL SUMMARY Kelly Services, Inc. and Subsidiaries 10 Year Operating Results (In millions of dollars) Sales of services Cost of services Gross profit Selling, general and administrative (5) Earnings from operations Interest (expense) income, net Earnings before taxes Income taxes Net earnings Dividends Summary of total taxes (3) Financial Position (In millions of dollars) Current assets Current liabilities Working capital Net property and equipment Total assets Stockholders' equity Capital expenditures Depreciation and amortization Common Stock Data (4) Earnings per share Basic Diluted Dividends per share: Classes A and B Stockholders' equity (book value) per share Stock price per share: Class A at year end Number of common shares outstanding at year end (thousands) Average number of shares outstanding (thousands) Basic Diluted Stock splits Financial Ratios (1) Return on sales Return on average assets Return on average stockholders' equity Effective tax rate Current assets to current liabilities (current ratio) Price earnings ratio at year end Growth Rates (1) 5 Year 1 Year 2001 2000 11.6% 12.3 8.5 9.8 (5.0) N/A (7.5) (6.5) (8.1) 3.4 10.4 5.2% 5.8 2.6 6.4 (25.4) N/A (25.8) (26.0) (25.7) (0.8) 2.6 (5.1)% (3.7) (11.9) 2.2 (79.6) (6.8) (81.0) (81.0) (81.0) (13.9) (13.6) $ 4,256.9 3,559.0 697.9 669.9 28.0 (0.4) 27.6 11.0 16.5 30.4 385.3 $ 4,487.3 3,695.0 792.3 655.2 137.1 (0.4) 145.3 58.1 87.2 35.3 445.8 5.1% 14.3 0.2 15.2 8.0 5.5 6.1 15.5 0.9% 5.9 (3.2) 16.8 4.4 3.3 3.1 11.2 (7.1)% (9.5) (4.2) 5.4 (4.6) (2.6) (21.6) 12.5 $ 670.2 348.2 322.0 212.0 1,039.4 607.2 42.5 44.4 $ 721.1 384.8 336.2 201.1 1,089.6 623.5 54.2 39.5 (7.7)% (7.7) 4.1 6.0 0.0 (24.9)% (24.8) 0.5 4.5 (4.3) (81.1)% (81.1) (14.1) (3.0) (6.6) $ .46 .46 .85 16.93 22.06 35,868 35,829 35,930 — $ 2.44 2.43 .99 17.45 23.63 35,739 35,721 35,843 — 0.4% 1.6% 2.7% 40.0% 1.9 48.0 1.9% 8.2% 14.5% 40.0% 1.9 9.7 (1) Growth rates and financial ratios calculated based on data rounded to thousands. (2) Fiscal year included 53 weeks. (3) Consists of payroll taxes and federal, state, and local taxes. (4) Shares consist of Class A and B common stock adjusted for all stock splits. (5) For 1999, 1998, and 1997, includes Year 2000 expenses of $11 million, $8 million, and $1 million, respectively. Note: Certain prior year amounts have been reclassified to conform with the current presentation. 16 16
Slide 19: 1999 1998 (2) 1997 1996 1995 1994 1993 1992 (2) 1991 $ 4,269.1 3,503.1 766.0 622.1 143.9 (0.2) 143.7 58.6 85.1 34.0 421.1 $ 4,092.3 3,361.0 731.3 590.7 140.6 3.0 143.6 58.9 84.7 34.2 416.2 $ 3,852.9 3,171.6 681.3 545.5 135.8 1.2 137.0 56.2 80.8 33.2 388.2 $ 3,302.3 2,689.5 612.8 491.8 121.0 1.9 122.9 49.9 73.0 31.6 339.7 $ 2,689.8 2,148.4 541.4 435.1 106.3 7.0 113.3 43.8 69.5 29.6 283.5 $ 2,362.6 1,899.6 463.0 370.9 92.1 6.4 98.5 37.4 61.1 26.6 246.4 $ 1,954.5 1,573.8 380.7 316.8 63.9 7.0 70.9 26.3 44.6 23.8 202.4 $ 1,712.7 1,372.4 340.3 289.1 51.2 9.8 61.0 21.8 39.2 22.0 173.2 $ 1,424.3 1,115.7 308.6 262.0 46.6 13.6 60.2 21.6 38.6 21.7 143.0 $ 706.3 361.6 344.7 187.0 1,033.7 582.4 76.7 36.2 $ 690.9 344.1 346.8 146.4 964.2 537.8 59.1 28.9 $ 745.8 334.8 411.0 112.7 967.2 559.8 39.7 28.3 $ 640.4 262.0 378.4 97.7 838.9 516.9 36.5 26.1 $ 544.9 191.1 353.8 84.4 718.7 476.1 34.0 22.7 $ 515.1 163.2 351.9 70.2 642.4 431.5 18.4 19.1 $ 441.3 116.1 325.2 68.3 542.1 386.2 16.1 17.5 $ 406.1 93.4 312.7 69.3 496.1 367.3 32.4 14.7 $ 408.4 91.3 317.1 51.5 479.4 355.0 23.5 10.5 $ 2.37 2.36 .95 16.23 25.13 35,874 35,854 36,030 — $ 2.24 2.23 .91 15.02 31.75 35,807 37,745 37,945 — $ 2.12 2.12 .87 14.67 29.25 38,163 38,099 38,191 — $ 1.92 1.91 .83 13.58 27.50 38,059 38,043 38,133 — $ 1.83 1.83 .78 12.52 27.75 38,015 37,993 38,057 — $ 1.61 1.61 .70 11.37 27.50 37,963 37,956 38,005 — $ 1.18 1.18 .63 10.23 27.75 37,755 37,728 37,761 5 for 4 $ 1.04 1.04 .58 9.74 35.00 37,706 37,668 37,711 — $ 1.03 1.02 .57 9.43 22.00 37,624 37,616 37,679 — 2.0% 8.5% 15.2% 40.8% 2.0 10.6 2.1% 8.8% 15.4% 41.0% 2.0 14.2 2.1% 8.9% 15.0% 41.0% 2.2 13.8 2.2% 9.4% 14.7% 40.6% 2.4 14.4 2.6% 10.2% 15.3% 38.7% 2.9 15.2 2.6% 10.3% 14.9% 38.0% 3.2 17.1 2.3% 8.6% 11.8% 37.1% 3.8 23.5 2.3% 8.0% 10.9% 35.7% 4.3 33.7 2.7% 8.4% 11.1% 35.9% 4.5 21.6 17
Slide 20: S TAT E M E N T S OF EARNINGS 2001 2000 1999 Kelly Services, Inc. and Subsidiaries (In thousands of dollars except per share items) Sales of services Cost of services Gross profit Selling, general and administrative expenses Earnings from operations Gain on disposition of property Interest expense, net Earnings before income taxes Income taxes Net earnings Basic earnings per share Diluted earnings per share Dividends per share Average shares outstanding (thousands): Basic Diluted See accompanying Notes to Financial Statements. $ 4,256,892 3,559,037 697,855 669,888 27,967 – (381) 27,586 11,037 $ 4,487,291 3,694,982 792,309 655,191 137,118 8,567 (409) 145,276 58,100 $ 4,269,113 3,503,052 766,061 622,110 143,951 – (241) 143,710 58,600 $ $ $ $ 16,549 .46 46 .85 $ $ $ $ 87,176 2.44 2.43 .99 $ $ $ $ 85,110 2.37 2.36 .95 35,829 35,930 35,721 35,843 35,854 36,030 18
Slide 21: S TAT E M E N T S OF CASH FLOWS 2001 2000 (In thousands of dollars) Kelly Services, Inc. and Subsidiaries 1999 Cash flows from operating activities Net earnings Noncash adjustments: Depreciation and amortization Gain on disposition of property Deferred income taxes Changes in operating assets and liabilities Net cash from operating activities Cash flows from investing activities Capital expenditures Acquisition of building Proceeds from disposition of property Short-term investments Decrease (increase) in other assets Acquisition of companies Net cash from investing activities Cash flows from financing activities (Decrease) increase in short-term borrowings Dividend payments Exercise of stock options and other Purchase of treasury stock Net cash from financing activities Net change in cash and equivalents Cash and equivalents at beginning of year Cash and equivalents at end of year See accompanying Notes to Financial Statements. $ 16,549 $ 87,176 $ 85,110 44,396 – (242) 84,092 144,795 39,465 (8,567) (593) (28,624) 88,857 36,238 – (2,678) (3,206) 115,464 (42,525) (11,783) – 1,764 3,317 (192) (54,237) – 10,309 3,624 (8,018) (20,923) (69,245) (76,696) – – 6,051 (10,872) (5,557) (87,074) (49,419) (24,900) (30,408) 139 (64) (55,233) 40,143 43,318 $ 83,461 $ 10,629 (35,303) 85 (5,737) (30,326) (10,714) 54,032 43,318 $ (419) (34,041) 854 (551) (34,157) (5,767) 59,799 54,032 19 19
Slide 22: BALANCE SHEETS Kelly Services, Inc. and Subsidiaries ASSETS 2001 2000 (In thousands of dollars) 1999 Current Assets Cash and equivalents Short-term investments Accounts receivable, less allowances of $12,105, $13,614 and $13,575, respectively Prepaid expenses and other current assets Deferred taxes Total current assets $ 83,461 630 $ 43,318 2,394 $ 54,032 6,018 539,692 24,950 21,469 670,202 631,771 24,903 18,688 721,074 602,485 22,801 20,983 706,319 Property and Equipment Land and buildings Equipment, furniture and leasehold improvements Accumulated depreciation Total property and equipment 56,639 275,063 (119,729) 211,973 44,971 253,666 (97,552) 201,085 49,458 231,654 (94,112) 187,000 Noncurrent Deferred Taxes Intangibles and Other Assets Total Assets 31,415 125,791 $ 1,039,381 33,521 133,896 $ 1,089,576 29,849 110,523 $ 1,033,691 See accompanying Notes to Financial Statements. 20 20
Slide 23: LIABILITIES AND STOCKHOLDERS’ EQUITY 2001 2000 (In thousands of dollars) 1999 Current Liabilities Short-term borrowings Accounts payable Payroll and related taxes Accrued insurance Income and other taxes Total current liabilities Noncurrent Liabilities Accrued insurance Accrued retirement benefits Total noncurrent liabilities Stockholders’ Equity Capital stock, $1.00 par value Class A common stock, shares issued 36,609,078 at 2001, 36,609,040 at 2000 and 36,602,210 at 1999 Class B common stock, shares issued 3,506,788 at 2001, 3,506,826 at 2000 and 3,513,656 at 1999 $ 32,939 65,896 177,134 24,071 48,149 348,189 $ 57,839 69,375 187,803 21,003 48,814 384,834 $ 47,210 73,516 166,866 25,035 49,005 361,632 39,273 44,764 84,037 34,269 47,004 81,273 40,846 48,840 89,686 36,609 3,507 36,609 3,507 36,602 3,514 Treasury stock, at cost Class A common stock, 4,232,542 shares at 2001, 4,363,578 at 2000 and 4,234,524 at 1999 Class B common stock, 15,675 shares at 2001, 12,817 at 2000 and 7,767 at 1999 (81,721) (435) 17,035 661,483 (29,323) 607,155 $ 1,039,381 (84,251) (371) 16,371 675,388 (23,784) 623,469 $ 1,089,576 (80,538) (248) 15,761 623,564 (16,282) 582,373 $ 1,033,691 Paid-in capital Earnings invested in the business Accumulated foreign currency adjustments Total stockholders’ equity Total Liabilities and Stockholders’ Equity 21 21
Slide 24: S TAT E M E N T S OF STOCKHOLDERS’ EQUITY 2001 2000 (In thousands of dollars) Kelly Services, Inc. and Subsidiaries 1999 Capital Stock Class A common stock Balance at beginning of year Conversions from Class B Balance at end of year Class B common stock Balance at beginning of year Conversions to Class A Balance at end of year Treasury Stock Class A common stock Balance at beginning of year Exercise of stock options, restricted stock awards, and other Treasury stock issued for acquisitions Purchase of treasury stock Balance at end of year Class B common stock Balance at beginning of year Purchase of treasury stock Balance at end of year Paid-in Capital Balance at beginning of year Exercise of stock options, restricted stock awards, and other Treasury stock issued for acquisitions Balance at end of year Earnings Invested in the Business Balance at beginning of year Net earnings Dividends Balance at end of year Accumulated Foreign Currency Adjustments Balance at beginning of year Equity adjustment for foreign currency Balance at end of year Stockholders’ Equity at end of year Comprehensive Income Net earnings Other comprehensive income - Foreign currency adjustments Comprehensive income See accompanying Notes to Financial Statements. 22 $ 36,609 – 36,609 3,507 – 3,507 $ 36,602 7 36,609 3,514 (7) 3,507 $ 36,541 61 36,602 3,575 (61) 3,514 (84,251) 1,609 921 – (81,721) (371) (64) (435) 16,371 453 211 17,035 675,388 16,549 (30,454) 661,483 (23,784) (5,539) (29,323) $ $ 607,155 16,549 (5,539) 11,010 $ $ (80,538) 1,379 522 (5,614) (84,251) (248) (123) (371) 15,761 498 112 16,371 623,564 87,176 (35,352) 675,388 (16,282) (7,502) (23,784) 623,469 87,176 (7,502) 79,674 $ $ (81,669) 1,438 244 (551) (80,538) (248) – (248) 14,844 808 109 15,761 572,517 85,110 (34,063) 623,564 (7,796) (8,486) (16,282) 582,373 85,110 (8,486) 76,624 $ $ $ 22
Slide 25: NOTES TO F I N A N C I A L S TAT E M E N T S Kelly Services, Inc. and Subsidiaries (In thousands of dollars except share and per share items) 1. Summary of Significant Accounting Policies Fiscal Year The Company’s fiscal year ends on the Sunday nearest to December 31. The three most recent years, all of which contained 52 weeks, ended on December 30, 2001 (2001), December 31, 2000 (2000) and January 2, 2000 (1999). Principles of Consolidation The financial statements include the accounts and operations of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. Cash and Equivalents Cash and equivalents are stated at cost, which approximates market. 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 range from 15 to 45 years for land improvements, buildings and building improvements, 5 years for equipment, furniture and leasehold improvements and 3 to 12 years for computer hardware and software. The Company capitalizes external costs and internal payroll costs incurred in the development of software for internal use in accordance with American Institute of Certified Public Accountants Statement of Position No. 98-1. Capitalized software is included with equipment, furniture and leasehold improvements on the balance sheet. Depreciation expense was $41,500 for 2001, $37,200 for 2000 and $33,900 for 1999. Intangible Assets Purchased intangible assets, other than goodwill, are valued at acquisition cost and are amortized over their respective useful lives (up to 10 years) on a straight-line basis. Goodwill derived from acquisitions is capitalized and amortized over periods ranging from 20 to 40 years. The Company periodically assesses the recoverability of its goodwill based upon projected future cash flows. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets,” which requires the discontinuance of goodwill amortization. SFAS 142 is required to be applied for fiscal years beginning after December 15, 2001, with certain early adoption permitted. The Company expects to adopt SFAS 142 in its first fiscal quarter of 2002, and does not expect the adoption to have a material effect on its financial condition. The elimination of goodwill amortization is expected to benefit 2002 earnings before income taxes by approximately $2,700. Payroll and Related Taxes Included in payroll and related taxes are outstanding payroll checks in excess of funds on deposit. Such amounts totaled $32,200, $29,400 and $23,200 at year-end 2001, 2000 and 1999, respectively. Workers' Compensation Expense 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 Acquisitions In 2000, the Company acquired the ProStaff Group in the U.S. (Wisconsin), the Business Trends Group, headquartered in Singapore, with offices in six Southeast Asia countries, and ETT Extra in Spain. In 1999, the Company completed acquisitions in Australia, Luxembourg, Mexico and Sweden. All of the acquisitions were accounted for as purchases and did not have a material effect on the assets, liabilities, revenues or net earnings of the Company. Foreign Currency Translation Substantially 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 of $600, $1,100 and $700 in 2001, 2000 and 1999, respectively, are reported as accumulated foreign currency adjustments in stockholders’ equity and are recorded as a component of comprehensive income. Revenue Recognition Revenue from sales of services is recognized as services are provided by the temporary, contract or leased employees. Revenue from permanent placement services is recognized at the time the permanent placement candidate begins full-time employment. Provisions for sales allowances, based on historical experience, are recognized at the time the related sale is recognized. Allowance for Bad Debts The Company records an allowance for bad debts based on historical bad debt experience, customer payment patterns and current economic trends. The Company reviews the adequacy of the allowance for bad debts on a quarterly basis and, if necessary, increases or decreases the balance. Advertising Expenses Advertising expenses, which are expensed as incurred, were $13,500, $15,800 and $15,000 in 2001, 2000 and 1999, respectively. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 23 23
Slide 26: NOTES TO F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D ) Kelly Services, Inc. and Subsidiaries (In thousands of dollars except share and per share items) current legal, economic and regulatory factors. 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. Reclassifications Certain prior year amounts have been reclassified to conform with the current presentation. 2. Short-term Investments Short-term investments are classified as available for sale. Federal, state and local government obligations included in short-term investments represented 0%, 40% and 60% of the total in 2001, 2000 and 1999, respectively. The carrying amounts approximate market value at December 30, 2001, December 31, 2000 and January 2, 2000. Interest income was $2,301, $2,770 and $2,272 for the years 2001, 2000 and 1999, respectively. 3. Land Sale On October 9, 2000, the Company sold undeveloped land for $10,309. The Company recognized a pretax gain in 2000 of $8,567, which is included in gain on disposition of property. The proceeds from the sale of property were used on January 8, 2001 for the purchase of an office building that will be utilized by the Company for future expansion. For tax purposes, the transaction has been treated as an IRS Code Section 1031 tax-free exchange. 4. Intangibles and Other Assets Intangibles includes goodwill of $85,400, $86,900 and $67,900 at year-end 2001, 2000 and 1999, respectively. Accumulated amortization of goodwill at year-end 2001, 2000 and 1999 was $11,700, $9,500 and $7,900, respectively. Goodwill and other intangibles amortization expense was $2,900 in 2001 and $2,300 in 2000 and 1999. Other assets includes the cash surrender value of certain company-owned variable universal life insurance policies, as more fully described in Note 9. 5. Short-term Borrowings The Company has a committed $100 million, five-year unsecured multi-currency revolving credit facility used to fund working capital, acquisitions and for general corporate purposes. The facility expires in 2003. The interest rate applicable to borrowings under the line of credit is 20 basis points over LIBOR and may include additional costs if the funds are drawn from certain countries. LIBOR rates varied by currency and ranged from 1.9% to 4.3% at December 30, 2001. Borrowings under this arrangement were $23,600, $44,300 and $47,200 at year-end 2001, 2000 and 1999, respectively. During September 2000, the Company arranged an $8,300 one-year uncommitted credit facility to be used to fund its Singapore acquisition. During 2001, the amount was increased to $11,000 and the term extended to March 2002. The outstanding balance totaled $7,800 and $7,400 at December 30, 2001 and December 31, 2000, respectively. The interest rate for this loan was 2.2% at December 30, 2001. The Company has additional uncommitted one-year credit facilities in a number of countries which aggregate to $25,000 as of December 30, 2001. Borrowings under these lines totaled $1,500 and $6,100 at year-end 2001 and 2000, respectively. Interest rates ranged from 4.0% to 6.5% at December 30, 2001. All of the borrowings are foreign currency denominated and support the Company's international working capital position. The carrying amounts of the Company's borrowings under the lines of credit described above approximate their fair values. Interest expense, interest payments and weighted average interest rates related to the short-term borrowings for 2001, 2000 and 1999 were as follows: 2001 2,682 2,698 3.3% 2000 3,179 2,672 5.5% 1999 2,513 2,567 4.6% Interest expense Interest payments Weighted average interest rate $ $ $ 6. Capitalization 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. During 2001, the Company repurchased 2,858 shares of its Class B common stock. The total value of the Class B shares repurchased was $64. During 2000, the Company repurchased 227,500 shares of its Class A common stock. The total value of the Class A shares repurchased was $5,614. The Company also repurchased 5,050 shares of its Class B common stock during 2000 at a total cost of $123. During December 1999, the Company repurchased 22,500 shares of its Class A common stock. The total value of the Class A shares repurchased was $551. 24 24
Slide 27: 7. Earnings Per Share The reconciliations of earnings per share computations for the fiscal years 2001, 2000 and 1999 were as follows: Net earnings 2001 $ 16,549 $ 2000 87,176 $ 1999 85,110 Determination of shares (thousands): Weighted average common shares outstanding 35,829 Effect of dilutive securities: Stock of options 1 Restricted and performance awards and other 100 Weighted average common shares outstanding – assuming dilution 35,930 Earnings per share – basic Earnings per share – assuming dilution $ $ .46 .46 $ $ 35,721 – 122 35,854 41 135 9. Retirement Benefits The Company provides a qualified defined contribution plan covering substantially all full-time employees, except officers and certain other management employees. Upon approval by the Board of Directors, a discretionary contribution based on eligible wages is funded annually. The plan also offers a savings feature with Company matching contributions. 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 is made annually. This plan also includes provisions for salary deferrals and Company matching contributions. The liability for the unqualified plan was $44,800, $47,000 and $48,800 as of year-end 2001, 2000 and 1999, respectively, and is included in accrued retirement benefits. 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 publicly traded mutual funds, was $44,200, $49,200 and $44,100 at year-end 2001, 2000 and 1999, respectively. These investments are included in intangibles and other assets and are restricted for the use of funding this plan. Amounts expensed for retirement benefits totaled $7,700 in 2001, $5,300 in 2000 and $7,600 in 1999. 10. Income Taxes Pretax income (loss) for the years 2001, 2000 and 1999 was taxed under the following jurisdictions: 2001 $ 38,597 (11,011) $ 27,586 2000 $ 149,431 (4,155) $ 145,276 1999 $ 134,572 9,138 $ 143,710 35,843 2.44 2.43 $ $ 36,030 2.37 2.36 Stock options to purchase 2,503,000, 2,309,000 and 1,162,000 shares of common stock at a weighted average price per share of $27.04, $27.30 and $31.52 were outstanding during 2001, 2000 and 1999, respectively, but were not included in the computation of diluted earnings per share. The exercise prices of these options were greater than the average market price of the common shares and the options were therefore anti-dilutive. 8. Supplemental Cash Flow Information Changes in operating assets and liabilities, as disclosed in the statements of cash flows, for the years 2001, 2000 and 1999 were as follows: 2001 Decreased (increase) in accounts receivable Increase in prepaid expenses and other current assets Increase (decrease) in accounts payable (Decrease) increase in payroll and related taxes Increase (decrease) in accrued insurance (Decrease) increase in income and other taxes Total $ 85,470 $ 2000 (31,748) $ 1999 (26,972) (1,371) 1,184 (9,075) 8,079 (195) $ 84,092 $ (2,997) (5,678) 22,208 (10,590) 181 (28,624) (9,138) (3,059) Domestic Foreign Total The provision for income taxes was as follows: 23,614 2001 (924) 13,273 (3,206) Current tax expense: U.S. federal U.S. state and local Foreign Total current Total deferred Total provision $ 6,780 2,000 2,499 11,279 (242) $ 11,037 $ 2000 43,151 10,840 4,702 58,693 (593) 58,100 $ 1999 42,898 11,500 6,880 61,278 (2,678) 58,600 $ Cash flows from short-term investments for 2001, 2000 and 1999 were as follows: Sales/Maturities Purchases Total $ $ 2001 2,318 (554) 1,764 $ $ 2000 8,507 (4,883) 3,624 $ $ 1999 7,803 (1,752) 6,051 $ $ 25 25
Slide 28: NOTES TO F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D ) Kelly Services, Inc. and Subsidiaries (In thousands of dollars except share and per share items) Deferred tax assets are comprised of the following: 2001 Depreciation and amortization Employee compensation and benefit plans Workers’ compensation Translation adjustment Bad debt allowance Loss carryforwards Valuation allowance Other, net Total deferred tax assets $ (14,158) 26,112 22,154 4,058 3,194 9,350 (3,330) 5,504 52,884 $ 2000 (8,628) $ 1999 (6,420) 23,276 22,352 2,417 3,896 4,793 (3,118) 3,636 50,832 $ 26,055 19,127 3,504 4,237 6,271 (1,581) 3,224 $ 52,209 Company's Class A stock. 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. 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 year-end 2001, 2000 and 1999 were 1,269,000, 1,283,000 and 946,000, respectively. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for the Plan. Accordingly, no compensation cost has been recognized for incentive and nonqualified stock options. If compensation cost had been determined based on the fair value at the grant dates for awards under the Plan consistent with the method of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income would have been reduced by $1,686, $1,729 and $1,487 for 2001, 2000 and 1999, respectively, and basic and diluted earnings per share would have been reduced by $.05 in 2001 and 2000 and $.04 in 1999. Since stock options generally become exercisable over several years and additional grants are likely to be made in future years, the pro forma amounts for compensation cost may not be indicative of the effects on net income and earnings per share for future years. The fair value of each option included in the following tables is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: 2001 4.0% 5.0% 30.0% 6 yrs 2000 4.0% 5.9% 29.0% 6 yrs 1999 4.0% 5.7% 30.0% 6 yrs $ The differences between income taxes for financial reporting purposes and the U.S. statutory rate of 35% are as follows: 2001 Income tax based on statutory rate State income taxes, net of federal benefit General business credits Life insurance cash surrender value Other, net Total $ 9,655 1,300 (1,755) 2,236 (399) 11,037 2000 $ 50,847 7,046 (2,275) (2,538) 5,020 $ 58,100 $ 1999 50,299 7,475 (2,275) (125) 3,226 58,600 $ $ The Company has loss carryforwards, all related to foreign operations, at December 30, 2001 totaling $28,113 which expire as follows: Year 2002-2004 2005-2007 2008-2011 No expiration Total Amount 11 2,837 7,330 17,935 $ 28,113 $ Dividend yield Risk-free interest rate Expected volatility Expected lives The Company has established a valuation allowance for loss carryforwards related to certain foreign operations, which management believes may not be utilized before expiration. Provision has not been made for U.S. or additional foreign income taxes on an estimated $16,750 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. The Company paid income taxes of $12,700 in 2001, $58,800 in 2000 and $53,400 in 1999. 11. Performance Incentive Plan Under the Performance Incentive Plan (the "Plan"), the Company may grant stock options (both incentive and nonqualified), stock appreciation rights (SARs), restricted awards and performance awards to key employees utilizing the A summary of the status of stock option grants under the Plan as of December 30, 2001, December 31, 2000 and January 2, 2000, and changes during the years ended on those dates, is presented as follows: Weighted Avg. Exercise Price 1999: Outstanding at beginning of year Granted Exercised Cancelled Outstanding at end of year Options exercisable at year end Weighted average fair value of options granted during the year Options 1,330,000 592,000 (32,000) (298,000) 1,592,000 552,000 $ 6.30 $ $ $ 30.78 25.05 26.80 30.54 28.77 29.08 26 26
Slide 29: 2000: Outstanding at beginning of year Granted Exercised Cancelled Outstanding at end of year Options exercisable at year end Weighted average fair value of options granted during the year 2001: Outstanding at beginning of year Granted Exercised Cancelled Outstanding at end of year Options exercisable at year end Weighted average fair value of options granted during the year Options Weighted Avg. Exercise Price 1,592,000 730,000 (2,000) (197,000) 2,123,000 763,000 $ 5.98 Options $ $ $ 28.77 24.01 24.77 27.15 27.29 29.05 Total compensation cost recognized for restricted and performance awards was $2,200, $2,000 and $1,000 for 2001, 2000 and 1999, respectively. As of December 30, 2001, no SARs have been granted under the Plan. 12. Lease 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 December 30, 2001: Fiscal year: 2002 2003 2004 2005 2006 Later years Total Weighted Avg. Exercise Price 2,123,000 539,000 (4,000) (288,000) 2,370,000 1,022,000 $ 5.86 $ $ $ 27.29 24.36 24.68 27.52 26.60 28.25 $ 37,600 28,900 20,100 14,700 9,500 17,800 $ 128,600 The following table summarizes information about options outstanding at December 30, 2001: Options Outstanding Range of Exercise Prices Weighted Weighted Number Average Outstanding Average Remaining Exercise as of Life (Years) Price 12/30/01 Options Exercisable Number Exercisable as of 12/30/01 Weighted Average Exercise Price Lease expense for 2001, 2000 and 1999 amounted to $44,500, $45,100 and $43,100, respectively. 13. Contingencies The Company is subject to various legal proceedings, claims and liabilities which arise in the ordinary course of its business. Litigation is subject to many uncertainties, the outcome of individual litigated matters is not predictable with assurance and it is reasonably possible that some of the foregoing matters could be decided unfavorably to the Company. Although the amount of the liability at December 30, 2001 with respect to these matters cannot be ascertained, the Company believes that any resulting liability will not be material to the financial statements of the Company at December 30, 2001. The Company has no material unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated entities. 14. Segment Disclosures The Company's reportable segments are: (1) U.S. Commercial Staffing, (2) Professional, Technical and Staffing Alternatives (PTSA) and (3) International. U.S. Commercial Staffing includes traditional office services, along with education, call center and light industrial staffing. PTSA includes various specialty staffing services ranging from finance and engineering to information and health care, along with the businesses of staff leasing, outsourcing, consulting, recruitment and general contractor services. International includes staffing services in the countries outside the U.S. listed below. The accounting policies of the segments are the same as those described in the "Summary of Significant Accounting Policies." During 2001, international operations were conducted in Australia, Belgium, Canada, Denmark, France, Germany, Hong Kong, India, Indonesia, Ireland, Italy, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, the Philippines, 27 $21.00-23.00 $23.01-24.00 $24.01-25.00 $25.01-26.00 $26.01-30.00 $30.01-38.50 $21.00-38.50 159,000 550,000 430,000 400,000 409,000 422,000 2,370,000 9.83 8.20 6.77 9.57 5.05 5.52 7.26 $21.18 24.00 24.50 25.60 27.90 33.84 $26.60 3,000 137,000 226,000 2,000 343,000 311,000 1,022,000 $22.75 24.00 24.54 25.54 27.89 33.31 $28.25 Restricted awards are issued to certain key employees and are subject to forfeiture until the end of an established restriction period. Restricted awards totaling 166,500, 105,400 and 87,000 shares were granted under the Plan during 2001, 2000 and 1999, respectively. The weighted average grant date price of such awards was $26.21, $24.02 and $26.55 for 2001, 2000 and 1999, respectively. Restricted awards outstanding totaled 241,000, 165,000 and 104,000 shares at year-ends 2001, 2000 and 1999, respectively, and have a weighted average remaining life of 1.9 years at December 30, 2001. Under the Plan, performance awards may be granted to certain key employees, the payout of which is determined by the degree of attainment of objectively determinable performance goals over the established relevant performance period. No performance awards were granted during 2001, 2000 or 1999. There were no unearned performance awards outstanding at December 30, 2001 and December 31, 2000. Unearned performance awards outstanding at year-end 1999 were 70,000. 27
Slide 30: NOTES TO F I N A N C I A L S TAT E M E N T S ( C O N T I N U E D ) Kelly Services, Inc. and Subsidiaries (In thousands of dollars except share and per share items) Puerto Rico, Russia, Singapore, Spain, Sweden, Switzerland, Thailand and the United Kingdom. The following table presents information about the reported operating income of the Company for the fiscal years 2001, 2000 and 1999. Segment data presented is net of intersegment revenues. Asset information by reportable segment is not reported, since the Company does not produce such information internally. 2001 Sales: U.S. Commercial Staffing PTSA International Consolidated Total $ 2,097,703 1,072,190 1,086,999 $ 4,256,892 2000 $ 2,328,065 1,057,749 1,101,477 $ 4,487,291 1999 $ 2,244,558 940,264 1,084,291 $ 4,269,113 A summary of long-lived assets information by geographic area as of the years ended 2001, 2000 and 1999 follows: 2001 Long-Lived Assets: Domestic International Total $ $ 218,774 73,597 292,371 $ $ 2000 205,945 $ 78,669 284,614 $ 1999 177,930 74,463 252,393 Long-lived assets include 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. 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. Earnings from Operations: U.S. Commercial Staffing $ PTSA International Corporate Consolidated Total $ 115,406 $ 47,399 9,414 (144,252) 27,967 $ 181,900 $ 190,808 72,534 55,111 21,545 32,576 (138,861) (134,544) 137,118 $ 143,951 Specified items included in segment earnings for the fiscal years 2001, 2000 and 1999 were as follows: 2001 Depreciation and Amortization: U.S. Commercial Staffing $ 5,322 PTSA 2,747 International 11,723 Corporate 24,604 Consolidated Total $ 44,396 Interest Income: U.S. Commercial Staffing PTSA International Corporate Consolidated Total Interest Expense: U.S. Commercial Staffing PTSA International Corporate Consolidated Total 2000 $ 5,881 $ 2,597 11,137 19,850 39,465 $ 1999 5,911 2,395 11,228 16,704 36,238 $ $ $ 417 1,884 2,301 $ $ 107 630 2,033 2,770 $ $ 23 615 1,634 2,272 $ $ 2,542 140 2,682 $ $ -$ 3,020 159 3,179 $ 2,389 124 2,513 28 28
Slide 31: FINANCIAL REVIEW Kelly Services, Inc. and Subsidiaries Results of Operations 2001 versus 2000 Sales for 2001 totaled $4.257 billion, a decrease of 5.1% compared to the $4.487 billion reported in the prior year. The decrease was a result of a decline in hours worked of 7.7% partially offset by an increase in average hourly bill rates of 2.0%. The 2001 gross profit rate averaged 16.4%, a decrease of 1.3 percentage points compared to the 17.7% rate earned in 2000. This reflected decreases in the gross profit rates of all three of the Company’s business segments. Selling, general and administrative expenses expressed as a percentage of sales were 15.7%, a 1.1 percentage point increase compared to the 14.6% rate in the prior year. Selling, general and administrative expenses totaled $669.9 million and grew 2.2% from 2000. The Company implemented a number of expense reduction initiatives that increasingly began to show results as the year progressed. These initiatives included targeted staff and expense reductions in both field operations and headquarters units. Earnings from operations totaled $28.0 million, a 79.6% decrease compared to the $137.1 million reported for 2000. Earnings were 0.7% of sales as compared to 3.1% for 2000. Net interest expense was $381 thousand in 2001 and $409 thousand in 2000. Net interest expense for the year was essentially flat and was attributable to higher average cash levels and reduced short-term debt balances, both impacted by lower interest rates. The effective income tax rate was 40.0% in 2001 and 2000. Net earnings totaled $16.5 million in 2001, a decrease of 81.0% compared to the $87.2 million earned in 2000. The rate of return on sales was 0.4% compared with last year’s 1.9% rate. Diluted earnings per share for 2001 were $.46, an 81.1% decrease as compared to diluted earnings per share of $2.43 in 2000. U.S. Commercial Staffing Sales in the U.S. Commercial Staffing segment totaled $2.098 billion, a 9.9% decrease compared to the $2.328 billion reported for 2000. This reflected a decrease in hours worked of 13.6% partially offset by an increase in average hourly bill rates of 4.4%. Year-over-year sales comparisons were flat in the first quarter, and declined consistently over the balance of the year reflecting a 7.7% decrease in the second quarter, a 14.3% decrease in the third quarter and a 16.6% decrease in the fourth quarter. The Company expects continued significantly negative U.S. Commercial Staffing year-over-year sales comparisons for at least the first and second quarters of 2002. U.S. Commercial sales represented 49% of total Company sales in 2001 and 51% of total Company sales in 2000. U.S. Commercial earnings decreased 36.6% in 2001, as a result of both the sales decrease and lower gross profit rates. The decline in gross profit rates reflects an ongoing shift in mix of sales to larger customers and decreases in fee based income. U.S. Commercial gross margins may continue to decrease in 2002 as the Company expects its large corporate and national accounts will continue to increase as a percentage of total sales. Professional, Technical and Staffing Alternatives Sales in the Professional, Technical and Staffing Alternatives (PTSA) segment totaled $1.072 billion, an increase of 1.4% compared to the $1.058 billion reported in 2000. The growth is due to an increase in average hourly bill rates of 5.3% partially offset by a decrease in hours worked of 5.2% in the temporary staffing businesses. In addition, there was an increase in revenues of 6.0% in the staffing alternatives businesses which include staff leasing and management services. On a year-overyear basis, fourth quarter PTSA sales declined 1.0%. This is a decrease from the 3.1% growth in the first quarter, 3.6% growth in the second quarter and a 0.2% decrease in the third quarter. Results continued to be mixed among the 13 business units that comprise PTSA. Kelly Healthcare, Kelly Financial and General Contractor Services were the leading performers during the year, exhibiting positive sales growth. Kelly Staff Leasing maintained positive sales growth throughout the year as well. However, several units within PTSA did experience sales decreases as the year progressed. In particular, Automotive Services Group and the Law Registry experienced double-digit sales declines as compared to 2000. These decreases, however, were consistent with industry trends in their staffing sectors. PTSA sales represented 25% of total Company sales in 2001 and 24% of total Company sales in 2000. PTSA earnings decreased 34.7% from 2000. During the first nine months of 2001, the Company continued to invest in those professional and technical businesses which exhibited stronger growth. The Company opened 13 new branches and implemented new technology, which caused expenses to be higher as compared to the prior year. In addition, recruitment fee income decreased significantly in many PTSA business units, which negatively impacted the Company’s gross profit rate. International Translated U.S. dollar sales in International totaled $1.087 billion, a 1.3% decrease compared to the $1.101 billion reported in 2000. This decrease resulted from a decline in the U.S. dollar average hourly bill rates of 3.9% partially offset by an increase in hours worked of 2.9%. 29
Slide 32: FINANCIAL REVIEW (CONTINUED) Kelly Services, Inc. and Subsidiaries However, on a same currency basis, international revenue increased 2.5%. This compared to 9.9% same currency sales growth in 2000. Year-over-year same currency sales for the fourth quarter of 2001 decreased 3%. This compared to 6% same currency sales growth in the first quarter, 4% growth in the second quarter and 2% growth in the third quarter. Global slowing in staffing demand worsened over the course of 2001 in the International segment. The slowdown was initially felt in Australia, Canada and Puerto Rico. In the fourth quarter, the decline was most apparent in Continental Europe. International sales represented 26% of total Company sales in 2001 and 25% of total Company sales in 2000. International earnings decreased 56.3% from 2000, reflecting the slowing in staffing demand. In addition, decreases in fee based income negatively impacted gross profit rates. However, the Company continued to see significant progress in the U.K. throughout the year. Expense reduction initiatives allowed the U.K. to significantly improve profitability in 2001. Finally, during 2001, the Company expanded geographic coverage to 26 countries with the opening of an office in Hong Kong. Results of Operations 2000 versus 1999 Sales totaled $4.487 billion in 2000, an increase of 5.1% compared to the $4.269 billion for 1999. This increase was a result of an increase of hours worked of 5.3% partially offset by a decrease in average hourly bill rates of 1.0%. The 2000 gross profit rate averaged 17.7%, which was 0.2% lower than the 17.9% rate earned in 1999. This reflected lower rates in the U.S. Commercial and International segments partially offset by an increase in the gross profit rate of PTSA. Selling, general and administrative expenses expressed as a percentage of sales were 14.6% in 2000 and 1999. The expense rate in 2000 reflected the elimination of Year 2000 Project costs, offset in part by increased depreciation expenses associated with the Company’s technology investments. Earnings from operations totaled $137.1 million, a 4.7% decrease from the $144.0 million reported for 1999. Earnings were 3.1% of sales as compared to 3.4% for 1999. During October 2000, the Company sold undeveloped land for $10.3 million and recognized a pretax gain of $8.6 million. The proceeds from the sale were used in January 2001 for the purchase of an office building that will be utilized by the Company for future expansion. Net interest expense was $409 thousand compared to $241 thousand in 1999. This reflected higher average borrowing levels and higher interest rates throughout the year. The effective income tax rate was 40.0% in 2000 as compared to 40.8% in 1999, reflecting continued reductions in the Company’s consolidated state and local tax rate. Net earnings totaled a record $87.2 million in 2000, a 2.4% increase over 1999. The rate of return on sales was 1.9%, compared with the 2.0% rate in 1999. Basic earnings per share were $2.44, a 3.0% increase over 1999. Diluted earnings per share for 2000 were $2.43, a 3.0% increase compared to $2.36 for 1999. U.S. Commercial Staffing Sales in the U.S. Commercial Staffing segment grew by 3.7% for the full year. This reflected an increase in average hourly bill rates of 4.0% partially offset by a decrease in hours worked of 0.5%. Sales growth improved consistently from a decrease of 0.4% in the first quarter, to 2.0%, 5.6% and 7.6% growth in the second, third and fourth quarters, respectively. U.S. Commercial earnings decreased 4.7% in 2000, due to a continued shift to larger corporate account business, which negatively impacted gross profit rates. Professional, Technical and Staffing Alternatives PTSA sales grew in 2000 by 12.5% compared to 1999. The growth was due to an increase in hours worked of 4.9% and an increase in the average hourly bill rates of 5.8% in temporary staffing businesses, as well as an increase in revenues of 15.6% in the staffing alternatives businesses. Within the PTSA segment, growth was particularly strong in the science, healthcare and staff leasing business units. PTSA earnings increased 31.6% from 1999, reflecting sales growth of 12.5%, combined with a significant gross profit rate increase and favorable expense leverage. International The strong U.S. dollar significantly weakened translated sales for the International segment. International sales grew by 1.6% as compared to 1999. This reflected an increase in hours worked of 18.6% partially offset by a decrease in translated U.S. dollar average hourly bill rates of 14.5%. The increase in hours was primarily due to acquisitions made in Mexico in October 1999, Singapore in September 2000 and Malaysia in October 2000. The decrease in average hourly bill rates was due to both unfavorable currency exchange and mix. However, on a constant currency basis, international sales growth was 9.9%. International sales represented 25% of total Company sales in 2000 and 1999. International earnings decreased 33.9% from 1999, reflecting the impact of unfavorable foreign currency translation on international results. In addition, significantly lower operating results in the U.K. reflected the slowing economy and the costs associated with turnover of senior country management positions. 30
Slide 33: Liquidity and Capital Resources Cash and short-term investments totaled $84 million at the end of 2001, an increase of $38 million from the $46 million balance at year-end 2000. Accounts receivable totaled $540 million at year end, a decrease of $92 million from $632 million at year-end 2000, reflecting lower sales, but also improved days sales outstanding. The global days sales outstanding for the fourth quarter were 47 days, which is a three-day improvement versus the Company’s performance in the prior year. Short-term debt totaled $33 million, which decreased $25 million compared to the $58 million level in the prior year. All short-term borrowings are foreign currency denominated and reduce the Company’s exposure to foreign exchange fluctuations. At year end, debt represented only 5% of total capital. The Company’s working capital position was $322 million at the end of 2001, a decrease of $14 million from 2000 and $23 million from 1999. The current ratio was 1.9 in 2001 and 2000 and 2.0 in 1999. Capital expenditures for 2001 totaled $43 million, down 22% from the $54 million spent in 2000. Of the total, over 75% related to Information Technology investments. The Company’s capital expenditures peaked in 1999 at $77 million. For 2002, capital expenditures are expected to total between $40 and $50 million. During the first quarter of 2001, the Company acquired a fully leased commercial office building that will be used for future expansion. This transaction was the second leg of a taxfree exchange for undeveloped land the Company initiated in the fourth quarter of 2000. The land was effectively swapped for the building, but in accordance with generally accepted accounting principles, it is shown as a cash acquisition for $11.8 million during 2001. The related $10.3 million cash proceeds from the sale of property is reflected in the 2000 cash from investing activities. Depreciation and amortization for 2001 totaled $44.4 million, a 12% increase from the $39.5 million for 2000. As a result of the implementation of Statement of Financial Accounting Standard (SFAS) No. 142 at the beginning of 2002, the Company will eliminate approximately $2.7 million of amortization of goodwill in 2002. For planning purposes, the Company expects depreciation and amortization of intangible assets other than goodwill to total approximately $45 to $50 million for 2002, reflecting on-going implementation of major IT projects. Assets totaled $1.039 billion in 2001, compared to $1.090 billion in 2000. The decrease in assets is primarily the result of the decrease in accounts receivable offset by an increase in cash as discussed above. The return on average assets was 1.6% in 2001, 8.2% in 2000 and 8.5% in 1999. Stockholders’ equity was $607 million in 2001, which represents a 2.6% decrease from 2000. The decrease in stockholders’ equity is primarily the result of dividends paid exceeding net earnings in 2001. The return on average stockholders’ equity was 2.7% in 2001, 14.5% in 2000 and 15.2% in 1999. Dividends paid per common share were $.85 in 2001, a decrease of 14.1% from 2000 dividends of $.99 per share. The quarterly dividend was reduced in the fourth quarter of 2001 by 60% to a new rate of $.10 per share per quarter, or $.40 per share annually. The cash saved from this reduction will total over $21 million per year. Dividends in 1999 were $.95 per share. The Company’s financial position remains strong. The Company continues to carry no long-term debt and expects to meet its growth requirements principally through cash generated from operations, available cash and short term investments and committed unused credit facilities totaling $76 million at December 30, 2001. The Company has no material unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated entities. Market Risk-Sensitive Instruments and Positions The Company does not hold or invest in derivative contracts. The Company is exposed to foreign currency risk primarily due to its net investment in foreign subsidiaries. This risk is mitigated by the use of the Company’s multi-currency line of credit. This credit facility is used to borrow in local currencies which mitigates the exchange rate risk resulting from foreign currency-denominated net investments fluctuating in relation to the U.S. dollar. In addition, the Company is exposed to interest rate risks through its use of the multi-currency line of credit. In addition, the Company is exposed to market risk as a result of its obligation to pay benefits under its nonqualified deferred compensation plan and its related investments in companyowned variable universal life insurance policies. The obligation to employees increases and decreases based on movements in the equity and debt markets. The investments in publicly traded 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, the Company’s holdings and positions in market risksensitive instruments do not subject the Company to material risk. 31
Slide 34: FINANCIAL REVIEW (CONTINUED) Kelly Services, Inc. and Subsidiaries Critical Accounting Policies The Company prepared its financial statements in conformity with accounting principles generally accepted in the United States of America. In this process, it is necessary for management to make certain assumptions and related estimates affecting the amounts reported in the consolidated financial statements and the attached notes. These estimates and assumptions have been developed based upon all available information using the Company’s best estimates. However, actual results can differ from assumed and estimated amounts. The significant accounting policies applied in preparing the Company’s financial statements are described in Note 1 to the financial statements. Policies which are considered critical are described below. Revenue Recognition Revenue from sales of services is recognized as services are provided by the temporary, contract or leased employees. Revenue from permanent placement services is recognized at the time the permanent placement candidate begins full-time employment. Provisions for sales allowances, based on historical experience, are recognized at the time the related sale is recognized. Allowance for Bad Debts The Company records an allowance for bad debts based on historical bad debt experience, customer payment patterns and current economic trends. The Company reviews the adequacy of the allowance for bad debts on a quarterly basis and, if necessary, increases or decreases the balance. Workers’ Compensation Expense 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 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. New Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, “Goodwill and Other Intangible Assets,” which requires the discontinuance of goodwill amortization. SFAS 142 is required to be applied for fiscal years beginning after December 15, 2001, with certain early adoption permitted. The Company expects to adopt SFAS 142 in its first fiscal quarter of 2002, and does not expect the adoption to have a material effect on its financial condition. The elimination of goodwill amortization is expected to benefit 2002 earnings before income taxes by approximately $2.7 million. In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS 144 supersedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. The Company is in the process of assessing the effect of adopting SFAS 143 and 144, which will be effective for the Company’s fiscal 2003 and 2002 respectively. Adoption of the Euro A segment of the Company’s information technology programs was devoted to changes necessary to deal with the introduction of a European single currency (the euro). The transition period for implementation was January 1, 1999, through January 1, 2002. The introduction and use of the euro has not had a material effect on the Company’s results of operations. While the Company will continue to evaluate the impact of the euro over time, the Company does not believe that the use of the euro currency will have a material adverse impact on its consolidated financial condition, cash flows or results of operations. Forward-Looking Statements Except for the historical statements and discussions contained herein, statements contained in this report relate to future events that are subject to risks and uncertainties, such as: 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 not passed on to customers, currency fluctuations, changes in laws and regulations, the Company’s ability to effectively implement and manage its information technology programs, the ability of the Company to successfully expand into new markets and service lines and other factors discussed in the report and in the Company’s filings with the Securities and Exchange Commission. Actual results may differ materially from any projections contained herein. 32
Slide 35: REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Kelly Services, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, of cash flows and of stockholders’ equity, as set forth on pages 18 through 28, present fairly, in all material respects, the financial position of Kelly Services, Inc., and its subsidiaries at December 30, 2001, December 31, 2000 and January 2, 2000, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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. We believe that our audits provide a reasonable basis for our opinion. Detroit, Michigan January 22, 2002 33 33
Slide 36: S E L E C T E D Q U A R T E R LY F I N A N C I A L D ATA ( U N A U D I T E D ) Kelly Services, Inc. and Subsidiaries First Quarter Second Quarter Third Quarter Fourth Quarter Year (In thousands of dollars except per share items) Sales of services 2001 2000 1999 Cost of services 2001 2000 1999 Selling, general and administrative 2001 2000 1999 Net earnings 2001 2000 1999 Basic earnings per share 2001 2000 1999 (1) $1,087,198 1,080,069 1,025,959 $1,066,255 1,106,740 1,066,783 $1,066,380 1,154,480 1,092,002 $1,037,059 1,146,002 1,084,369 $4,256,892 4,487,291 4,269,113 905,824 892,095 846,828 887,936 909,731 876,809 894,659 948,683 893,900 870,618 944,473 885,515 3,559,037 3,694,982 3,503,052 173,199 161,406 153,539 167,448 160,342 154,841 163,975 162,017 155,390 165,266 171,426 158,340 669,888 655,191 622,110 4,800 16,060 15,188 6,460 21,825 20,734 4,566 26,003 25,018 723 23,288 24,170 16,549 87,176 85,110 .13 .45 .42 (1) .18 .61 .58 .13 .73 .70 .02 .65 .67 .46 2.44 2.37 Diluted earnings per share 2001 2000 1999 Dividends per share 2001 2000 1999 .13 .45 .42 .18 .61 .58 .13 .73 .69 .02 .65 .67 .46 2.43 2.36 .25 .24 .23 .25 .25 .24 .25 .25 .24 .10 .25 .24 .85 .99 .95 (1) Earnings per share amounts for each quarter are required to be computed independently and may not equal the amounts computed for the total year. 34 34
Slide 37: C O M M O N S T O C K P R I C E I N F O R M AT I O N Kelly Services, Inc. and Subsidiaries First Quarter Second Quarter Third Quarter Fourth Quarter Year 2001 Class A common High Low Final Class B common High Low Final 2000 Class A common High Low Final Class B common High Low Final 1999 Class A common High Low Final Class B common High Low Final $ 29.25 18.50 23.58 29.00 24.56 27.00 $ 26.00 21.90 24.25 26.00 21.00 22.00 $ 27.09 17.85 20.20 24.00 19.25 21.99 $ 24.70 18.34 22.06 23.00 19.67 21.00 $ 29.25 17.85 22.06 29.00 19.25 21.00 26.25 23.00 23.94 26.75 22.00 23.00 25.00 22.06 23.13 24.13 22.50 24.13 26.88 22.13 23.63 24.81 24.00 24.75 29.00 20.25 23.63 25.50 24.50 24.56 29.00 20.25 23.63 26.75 22.00 24.56 32.50 24.13 26.75 29.38 28.25 29.00 32.50 25.00 31.50 29.75 26.25 28.75 31.63 25.38 27.81 30.88 23.75 28.00 30.75 22.88 25.13 29.88 24.00 24.00 32.50 22.88 25.13 30.88 23.75 24.00 35 35
Slide 38: S T O C K H O L D E R S ’ I N F O R M AT I O N Kelly Services, Inc. Corporate Headquarters 999 West Big Beaver Road Troy, Michigan 48084-4782 (248) 362-4444 www.kellyservices.com Investor Relations Contact James M. Polehna Director, Investor Relations Kelly Services, Inc. 999 West Big Beaver Road Troy, Michigan 48084-4782 Telephone: (248) 244-4586 Annual Meeting The Annual Meeting of Stockholders will be held on May 14, 2002, at 11:30 a.m. Eastern Daylight Time, at the Corporate Headquarters of the Company. All Stockholders are invited to attend. Stock Transfer Agent & Registrar Mellon Investor Services, LLC P.O. Box 3315 South Hackensack, NJ 07606-3315 For assistance with transfers of stock to another name, lost or destroyed stock certificates, lost dividend checks, direct deposit of dividends, consolidation of accounts, or change of addresses, please contact Mellon at: Toll Free (U.S. and Canada): TDD for Hearing Impaired: Foreign Stockholders: TDD Foreign Stockholders: (866) 249-2607 (800) 231-5469 (201) 329-8660 (201) 329-8354 Financial Reports for Stockholders Stockholders, security analysts, and interested investors may obtain additional quantities of this annual report, the Company’s quarterly reports, as well as a copy of the Company’s annual report to the Securities and Exchange Commission on Form 10-K, without charge, by addressing requests to the director of Investor Relations. Quarterly financial information can also be found at the Kelly Services website. Dividend Reinvestment and Direct Stock Purchase Plan Registered stockholders can purchase additional shares of Kelly’s Class A common stock through Kelly’s Dividend Reinvestment and Direct Stock Purchase Plan. Initial purchases of Kelly’s Class A common stock can also be made through this Plan. Participation is voluntary and allows for automatic reinvestment of cash dividends, direct cash investments, and safekeeping of stock certificates. For more information about this service, visit our website: www.kellyservices.com and select Investor Relations or contact Investor Relations at Kelly. Stock Listings Kelly Services Class A and Class B common stock trade on the Nasdaq Stock MarketSM under the symbols: KELYA and KELYB. Forward-Looking Statements This report contains forward-looking statements relating to future events that are subject to risks and uncertainties more fully described on page 32. Actual results may differ materially. You may also visit their website: www.melloninvestor.com, or contact Kelly’s director of Investor Relations. Independent Accountants PricewaterhouseCoopers LLP 400 Renaissance Center Detroit, Michigan 48243-1507 Recycled Recyclable © 2002 Kelly Services, Inc. 36
Slide 39: 999 West Big Beaver Road Troy, Michigan 48084 248-362-4444 www.kellyservices.com