Kelly Services, Inc.
KELLY SERVICES INC (Form: 10-Q, Received: 05/07/2014 10:06:52)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

      For the quarterly period ended March 30, 2014

 

OR

 

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 0-1088

 

KELLY SERVICES, INC.

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(Exact name of registrant as specified in its charter)

 

DELAWARE

38-1510762

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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

                            

 

999 WEST BIG BEAVER ROAD, TROY, MICHIGAN 48084

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(Address of principal executive offices)  (Zip Code)

 

(248) 362-4444

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(Registrant's telephone number, including area code)

 

No Change

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(Former name, former address and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).                                           Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]

 Accelerated filer [X]

Non-accelerated filer [  ] (Do not check if a smaller reporting company)

Smaller reporting company [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                                                             Yes [  ] No [X]

 

At April 25, 2014, 33,975,010 shares of Class A and 3,451,161 shares of Class B common stock of the Registrant were outstanding.

 

 
 

 

 

KELLY SERVICES, INC. AND SUBSIDIARIES

 

 

   

Page Number

     

PART I. FINANCIAL INFORMATION

 
     

Item 1. Financial Statements (unaudited)

 
     
 

Consolidated Statements of Earnings

3
     
 

Consolidated Statements of Comprehensive Income

4
     
 

Consolidated Balance Sheets

5
     
 

Consolidated Statements of Stockholders' Equity

6
     
 

Consolidated Statements of Cash Flows

7
     
 

Notes to Consolidated Financial Statements

8
 

 

 

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

16
 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

25
     

Item 4. Controls and Procedures

25
     

PART II. OTHER INFORMATION

 
     

Item 1. Legal Proceedings

25
 

 

 

Item 1A. Risk Factors

26
     

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

26
     

Item 4. Mine Safety Disclosures

26
     

Item 6. Exhibits

26
     

SIGNATURES

27

 

 
2

 

   

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)

 (In millions of dollars except per share data)

 

   

13 Weeks Ended

 
   

March 30, 2014

   

March 31, 2013

 

Revenue from services

  $ 1,330.8     $ 1,314.8  
                 

Cost of services

    1,108.5       1,097.9  
                 

Gross profit

    222.3       216.9  
                 

Selling, general and administrative expenses

    216.0       209.8  
                 

Earnings from operations

    6.3       7.1  
                 

Other expense, net

    1.7       1.0  
                 

Earnings before taxes

    4.6       6.1  
                 

Income tax expense (benefit)

    2.1       (6.8 )
                 

Net earnings

  $ 2.5     $ 12.9  
                 
                 

Basic earnings per share

  $ 0.07     $ 0.34  

Diluted earnings per share

  $ 0.07     $ 0.34  
                 

Dividends per share

  $ 0.05     $ 0.05  
                 

Average shares outstanding (millions):

               

Basic

    37.4       37.2  

Diluted

    37.4       37.2  

 

See accompanying unaudited Notes to Consolidated Financial Statements.

 

 
3

 

 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(In millions of dollars)

 

   

13 Weeks Ended

 
   

March 30,

2014

   

March 31,

2013

 
                 
                 
                 
                 

Net earnings

  $ 2.5     $ 12.9  
                 

Other comprehensive income, net of tax:

               

 Foreign currency translation adjustments, net of tax expense of $0.2 in 2014 and benefit of $0.0 in 2013

    0.4       (7.0 )
                 

 Unrealized (losses) gains on investment, net of tax benefit of $0.3 in 2014 and expense of $4.4 in 2013

    (0.1 )     12.3  
                 

Other comprehensive income

    0.3       5.3  
                 

 Comprehensive Income

  $ 2.8     $ 18.2  

 

 

See accompanying unaudited Notes to Consolidated Financial Statements.


 

 
4

 

 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 

(UNAUDITED)

(In millions)

 

ASSETS

 

March 30, 2014

   

Dec. 29, 2013

 

CURRENT ASSETS:

               

  Cash and equivalents

  $ 57.9     $ 125.7  

  Trade accounts receivable, less allowances of $10.2 and $9.9, respectively

    1,080.2       1,023.1  

  Prepaid expenses and other current assets

    61.6       52.2  

  Deferred taxes

    29.2       35.5  

  Total current assets

    1,228.9       1,236.5  

PROPERTY AND EQUIPMENT:

               

  Property and equipment

    352.4       350.5  

  Accumulated depreciation

    (261.6 )     (258.5 )

  Net property and equipment

    90.8       92.0  

NONCURRENT DEFERRED TAXES

    129.3       121.7  

GOODWILL, NET

    90.3       90.3  

OTHER ASSETS

    265.1       258.1  

TOTAL ASSETS

  $ 1,804.4     $ 1,798.6  

LIABILITIES AND STOCKHOLDERS' EQUITY

               

CURRENT LIABILITIES:

               

  Short-term borrowings

  $ 54.8     $ 28.3  

  Accounts payable and accrued liabilities

    321.7       342.4  

  Accrued payroll and related taxes

    291.2       294.9  

  Accrued insurance

    25.5       27.6  

  Income and other taxes

    68.4       68.8  

  Total current liabilities

    761.6       762.0  

NONCURRENT LIABILITIES:

               

  Accrued insurance

    45.4       46.0  

  Accrued retirement benefits

    140.4       134.7  

  Other long-term liabilities

    31.8       33.3  

  Total noncurrent liabilities

    217.6       214.0  

Commitments and contingencies (See contingencies footnote)

               

STOCKHOLDERS' EQUITY:

               

  Capital stock, $1.00 par value

               

Class A common stock, shares issued 36.6 at 2014 and 2013

    36.6       36.6  

Class B common stock, shares issued 3.5 at 2014 and 2013

    3.5       3.5  

  Treasury stock, at cost

               

Class A common stock, 2.7 shares at 2014 and 2013

    (55.4 )     (55.6 )

Class B common stock

    (0.6 )     (0.6 )

  Paid-in capital

    27.5       26.0  

  Earnings invested in the business

    751.9       751.3  

  Accumulated other comprehensive income

    61.7       61.4  

  Total stockholders' equity

    825.2       822.6  

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

  $ 1,804.4     $ 1,798.6  

 

See accompanying unaudited Notes to Consolidated Financial Statements.

 

 
5

 

 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

(In millions of dollars)

 

   

13 Weeks Ended

 
   

March 30,

2014

   

March 31,

2013

 

Capital Stock

               

  Class A common stock

               

   Balance at beginning of period

  $ 36.6     $ 36.6  

   Conversions from Class B

    -       -  

   Balance at end of period

    36.6       36.6  
                 

  Class B common stock

               

   Balance at beginning of period

    3.5       3.5  

   Conversions to Class A

    -       -  

   Balance at end of period

    3.5       3.5  
                 

Treasury Stock

               

  Class A common stock

               

   Balance at beginning of period

    (55.6 )     (61.0 )

   Issuance of restricted stock and other

    0.2       0.5  

   Balance at end of period

    (55.4 )     (60.5 )
                 

  Class B common stock

               

   Balance at beginning of period

    (0.6 )     (0.6 )

   Issuance of restricted stock and other

    -       -  

   Balance at end of period

    (0.6 )     (0.6 )
                 

Paid-in Capital

               

  Balance at beginning of period

    26.0       27.1  

  Issuance of restricted stock and other

    1.5       0.7  

  Balance at end of period

    27.5       27.8  
                 

Earnings Invested in the Business

               

  Balance at beginning of period

    751.3       700.0  

  Net earnings

    2.5       12.9  

  Dividends

    (1.9 )     (1.9 )

  Balance at end of period

    751.9       711.0  
                 

Accumulated Other Comprehensive Income

               

  Balance at beginning of period

    61.4       35.4  

  Other comprehensive income, net of tax

    0.3       5.3  

  Balance at end of period

    61.7       40.7  
                 

Stockholders' Equity at end of period

  $ 825.2     $ 758.5  

 

See accompanying unaudited Notes to Consolidated Financial Statements.

 

 
6

 

 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In millions of dollars)

 

   

13 Weeks Ended

 
   

March 30,

2014

   

March 31,

2013

 
                 

Cash flows from operating activities:

               

Net earnings

  $ 2.5     $ 12.9  

Noncash adjustments:

               

  Depreciation and amortization

    5.3       5.3  

  Provision for bad debts

    1.6       0.4  

  Stock-based compensation

    1.7       1.2  

  Other, net

    0.3       0.2  

Changes in operating assets and liabilities

    (102.2 )     (14.1 )
                 

 Net cash (used in) from operating activities

    (90.8 )     5.9  
                 
                 

Cash flows from investing activities:

               

Capital expenditures

    (3.3 )     (2.8 )

Investment in equity affiliate

    (0.6 )     -  

Other investing activities

    0.1       0.2  
                 

 Net cash used in investing activities

    (3.8 )     (2.6 )
                 
                 

Cash flows from financing activities:

               

Net change in short-term borrowings

    26.5       (13.7 )

Dividend payments

    (1.9 )     (1.9 )
                 

 Net cash from (used in) financing activities

    24.6       (15.6 )
                 

Effect of exchange rates on cash and equivalents

    2.2       (1.9 )
                 

Net change in cash and equivalents

    (67.8 )     (14.2 )

Cash and equivalents at beginning of period

    125.7       76.3  
                 
                 

Cash and equivalents at end of period

  $ 57.9     $ 62.1  

 

 

See accompanying unaudited Notes to Consolidated Financial Statements.

 

 
7

 

 

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1 .   Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Kelly Services, Inc. (the “Company,” “Kelly,” “we” or “us”) have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and notes required by generally accepted accounting principles for complete financial statements. All adjustments, including normal recurring adjustments, have been made which, in the opinion of management, are necessary for a fair statement of the results of the interim periods. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year. The unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended December 29, 2013, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 13, 2014 (the 2013 consolidated financial statements). The Company’s first fiscal quarter ended on March 30, 2014 (2014) and March 31, 2013 (2013), each of which contained 13 weeks.

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. During the third quarter of 2013, the Company determined that both cash and equivalents and accrued payroll and related taxes were understated by $4.8 million as of December 30, 2012. The Company determined that the impact of this error on the consolidated balance sheets and consolidated statements of cash flows was not material. As a result of this error, changes in operating assets and liabilities and net cash from operating activities are both overstated by $2.2 million in the consolidated statements of cash flows for the first quarter of 2013. Effective with the first quarter of 2014, the project-based legal services business in the Americas PT segment was reclassified to the OCG segment and the prior period was revised to conform to the current presentation.

 

2.  Fair Value Measurements

 

Trade accounts receivable, accounts payable, accrued liabilities, accrued payroll and related taxes and short-term borrowings approximate their fair values due to the short-term maturities of these assets and liabilities.

 

Assets Measured at Fair Value on a Recurring Basis

The following tables present assets measured at fair value on a recurring basis on the consolidated balance sheet as of first quarter-end 2014 and year-end 2013 by fair value hierarchy level, as described below.

 

Level 1 measurements consist of unadjusted quoted prices in active markets for identical assets or liabilities.  Level 2 measurements include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3 measurements include significant unobservable inputs.

 

   

Fair Value Measurements on a Recurring Basis

As of First Quarter-End 2014

 

Description

 

Total

   

Level 1

   

Level 2

   

Level 3

 
   

(In millions of dollars)

 

Money market funds

  $ 2.9     $ 2.9     $ -     $ -  

Available-for-sale investment

    80.6       80.6       -       -  
                                 

Total assets at fair value

  $ 83.5     $ 83.5     $ -     $ -  

 

 
8

 

 

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

 

2.  Fair Value Measurements (continued)

 

   

Fair Value Measurements on a Recurring Basis

As of Year-End 2013

 

Description

 

Total

   

Level 1

   

Level 2

   

Level 3

 
   

(In millions of dollars)

 

Money market funds

  $ 2.9     $ 2.9     $ -     $ -  

Available-for-sale investment

    80.7       80.7       -       -  
                                 

Total assets at fair value

  $ 83.6     $ 83.6     $ -     $ -  

 

 

Money market funds as of first quarter-end 2014 and as of year-end 2013 represent investments in money market accounts, all of which are restricted as to use and are included in other assets on the consolidated balance sheet. The valuations were based on quoted market prices of those accounts as of the respective period end.

 

Available-for-sale investment represents the Company’s investment in Temp Holdings Co., Ltd. (“Temp Holdings”), a leading integrated human resources company in Japan, and is included in other assets on the consolidated balance sheet. The valuation is based on the quoted market price of Temp Holdings stock on the Tokyo Stock Exchange as of the period end. The unrealized loss, net of tax, of $0.1 million for the 13 weeks ended 2014 and the unrealized gain, net of tax, of $12.3 million for the 13 weeks ended 2013 was recorded in other comprehensive income, as well as in accumulated other comprehensive income, a component of stockholders’ equity. The cost of this yen-denominated investment, which fluctuates based on foreign exchange rates, was $20.1 million as of the first quarter-end 2014 and $19.7 million at year-end 2013.

 

 
9

 

   

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

 

3.  Goodwill

 

The changes in the net carrying amount of goodwill for the 13 weeks ended 2014 are included in the table below. Effective with the first quarter of 2014, the project-based legal services business in the Americas PT segment was reclassified to the OCG segment. Accordingly, the related portion of Americas PT goodwill was reclassified to OCG during the 13 weeks ended 2014.

 

   

As of Year-End 2013

           

As of First Quarter-End 2014

 
   

Goodwill,

Gross

   

Accumulated Impairment Losses

   

Adjustments

to Goodwill

   

Goodwill,

Gross

   

Accumulated Impairment Losses

   

Goodwill,

Net

 
   

(In millions of dollars)

 

Americas

                                               

Americas Commercial

  $ 40.0     $ (16.4 )   $ -     $ 40.0     $ (16.4 )   $ 23.6  

Americas PT

    39.2       -       (1.3 )     37.9       -       37.9  

Total Americas

    79.2       (16.4 )     (1.3 )     77.9       (16.4 )     61.5  
                                                 

EMEA

                                               

EMEA Commercial

    50.4       (50.4 )     -       50.4       (50.4 )     -  

EMEA PT

    22.0       (22.0 )     -       22.0       (22.0 )     -  

Total EMEA

    72.4       (72.4 )     -       72.4       (72.4 )     -  
                                                 

APAC

                                               

APAC Commercial

    12.1       (12.1 )     -       12.1       (12.1 )     -  

APAC PT

    1.4       -       -       1.4       -       1.4  

Total APAC

    13.5       (12.1 )     -       13.5       (12.1 )     1.4  
                                                 

OCG

    26.1       -       1.3       27.4       -       27.4  

Consolidated Total

  $ 191.2     $ (100.9 )   $ -     $ 191.2     $ (100.9 )   $ 90.3  

 

 
10

 

 

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

 

4.   Accumulated Other Comprehensive Income

 

The changes in accumulated other comprehensive income by component, net of tax, during the 13 weeks ended 2014 and 2013 are included in the table below. Amounts in parentheses indicate debits. Reclassification adjustments out of accumulated other comprehensive income during the 13 weeks ended 2014 and 2013 were not significant.

 

   

13 Weeks Ended 2014

 
   

Foreign

Currency

Translation Adjustments

   

Unrealized

Gains and

Losses on Investment

   

Pension

Liability Adjustments

   

Total

 
   

(In millions of dollars)

 
                                 

Beginning balance

  $ 18.1     $ 44.8     $ (1.5 )   $ 61.4  

Other comprehensive income (loss)

    0.4       (0.1 )     -       0.3  
                                 

Ending balance

  $ 18.5     $ 44.7     $ (1.5 )   $ 61.7  

 

   

13 Weeks Ended 2013

 
   

Foreign

Currency

Translation Adjustments

   

Unrealized

Gains and

Losses on Investment

   

Pension

Liability Adjustments

   

Total

 
   

(In millions of dollars)

 
                                 

Beginning balance

  $ 24.9     $ 13.6     $ (3.1 )   $ 35.4  

Other comprehensive income (loss)

    (7.0 )     12.3       -       5.3  
                                 

Ending balance

  $ 17.9     $ 25.9     $ (3.1 )   $ 40.7  

 

 
11

 

 

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

 

5.  Earnings Per Share

 

The reconciliation of basic and diluted earnings per share on common stock for the 13 weeks ended 2014 and 2013 follows (in millions of dollars except per share data):

 

   

13 Weeks Ended

 
   

2014

   

2013

 
                 

Net Earnings

  $ 2.5     $ 12.9  

Less: Earnings allocated to participating securities

    (0.1 )     (0.3 )

Net Earnings available to common shareholders

  $ 2.4     $ 12.6  
                 

Basic earnings per share on common stock

  $ 0.07     $ 0.34  

Diluted earnings per share on common stock

  $ 0.07     $ 0.34  
                 

Average common shares outstanding (millions)

               

Basic

    37.4       37.2  

Diluted

    37.4       37.2  

 

Stock options representing 0.2 million and 0.4 million shares, respectively, for the 13 weeks ended 2014 and 2013, were excluded from the computation of diluted earnings per share due to their anti-dilutive effect.

 

6.   Other Expense, Net

 

Included in other expense, net for the 13 weeks ended 2014 and 2013 are the following:

 

   

13 Weeks Ended

 
   

2014

   

2013

 
   

(In millions of dollars)

 

Interest income

  $ 0.1     $ 0.1  

Interest expense

    (0.6 )     (0.7 )

Foreign exchange losses

    (0.8 )     (0.1 )

Net loss on equity investment

    (0.4 )     (0.3 )
                 

Other expense, net

  $ (1.7 )   $ (1.0 )

 

 
12

 

 

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

 

7.  Contingencies

 

During the fourth quarter of 2013, a Louisiana jury rendered an award of $4.4 million, pursuant to litigation brought by Robert and Margaret Ward against the Jefferson Parish School Board and Kelly Services. Under the verdict, Kelly’s share of the liability consists of $2.7 million plus a portion of pre- and post-judgment interest. During April 2014, Kelly reached an agreement with the plaintiffs pursuant to which Kelly and the primary insurer agreed to pay $1.0 million to the plaintiffs to satisfy the judgment against the primary insurer and Kelly. In April 2014, Kelly paid $0.25 million of this amount and our primary insurer paid $0.75 million. Kelly’s umbrella/excess insurer, which has elected to continue to appeal the decision, is responsible for the remaining verdict amount, if any, that may be owed at the conclusion of the appellate process plus related costs and interest. Kelly will remain a nominal defendant on appeal in order to preserve its rights to insurance coverage. Plaintiffs have agreed that they must first exhaust all legal remedies to collect from our umbrella/excess insurer and its surety before pursuing Kelly for any remaining verdict amount that may be owed at the conclusion of the appellate process.

 

The Company is continuously engaged in litigation arising in the ordinary course of its business, typically matters alleging employment discrimination, alleging wage and hour violations or enforcing the restrictive covenants in the Company’s employment agreements.  While there is no expectation that any of these matters will have a material adverse effect on the Company’s results of operations, financial position or cash flows, litigation is always subject to inherent uncertainty and the Company is not able to reasonably predict if any matter will be resolved in a manner that is materially adverse to the Company.

 

8.  Segment Disclosures

 

The Company’s segments are based on the organizational structure for which financial results are regularly evaluated by the Company’s chief operating decision maker to determine resource allocation and assess performance. The Company’s seven reporting segments are: (1) Americas Commercial, (2) Americas Professional and Technical (“Americas PT”), (3) Europe, Middle East and Africa Commercial (“EMEA Commercial”), (4) Europe, Middle East and Africa Professional and Technical (“EMEA PT”), (5) Asia Pacific Commercial (“APAC Commercial”), (6) Asia Pacific Professional and Technical (“APAC PT”) and (7) Outsourcing and Consulting Group (“OCG”).

 

The Commercial business segments within the Americas, EMEA and APAC regions represent traditional office services, contact-center staffing, marketing, electronic assembly, light industrial and, in the Americas, substitute teachers. The PT segments encompass a wide range of highly skilled temporary employees, including scientists, financial professionals, attorneys, engineers, IT specialists and healthcare workers. OCG includes recruitment process outsourcing (“RPO”), contingent workforce outsourcing (“CWO”), business process outsourcing (“BPO”), payroll process outsourcing (“PPO”), executive placement and career transition/outplacement services. Corporate expenses that directly support the operating units have been allocated to the Americas, EMEA and APAC regions and OCG based on a work effort, volume or, in the absence of a readily available measurement process, proportionately based on revenue from services.

 

 
13

 

 

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

 

8.  Segment Disclosures (continued)

 

The following tables present information about the reported revenue from services and gross profit of the Company by segment, along with a reconciliation to consolidated earnings before taxes, for the 13 weeks ended 2014 and 2013. Asset information by reportable segment is not presented, since the Company does not produce such information internally nor does it use such data to manage its business. Effective with the first quarter of 2014, the project-based legal services business in the Americas PT segment was reclassified to the OCG segment and the prior period was revised to conform to the current presentation.

 

   

13 Weeks Ended

 
   

2014

   

2013

 
   

(In millions of dollars)

 

Revenue from Services:

               

Americas Commercial

  $ 613.2     $ 638.3  

Americas PT

    236.4       242.6  

Total Americas Commercial and PT

    849.6       880.9  
                 

EMEA Commercial

    221.9       201.0  

EMEA PT

    47.7       43.5  

Total EMEA Commercial and PT

    269.6       244.5  
                 

APAC Commercial

    83.0       81.5  

APAC PT

    8.6       10.2  

Total APAC Commercial and PT

    91.6       91.7  
                 

OCG

    134.4       107.4  
                 

Less: Intersegment revenue

    (14.4 )     (9.7 )
                 

 Consolidated Total

  $ 1,330.8     $ 1,314.8  

 

 
14

 

 

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

 

8.  Segment Disclosures (continued)

 

   

13 Weeks Ended

 
   

2014

   

2013

 
   

(In millions of dollars)

 

Earnings from Operations:

               

Americas Commercial gross profit

  $ 91.8     $ 93.5  

Americas PT gross profit

    39.8       38.3  

Americas Region gross profit

    131.6       131.8  

Americas Region SG&A expenses

    (109.5 )     (107.9 )

Americas Region Earnings from Operations

    22.1       23.9  
                 

EMEA Commercial gross profit

    32.9       31.1  

EMEA PT gross profit

    11.1       10.7  

EMEA Region gross profit

    44.0       41.8  

EMEA Region SG&A expenses

    (41.9 )     (42.0 )

EMEA Region Earnings (Loss) from Operations

    2.1       (0.2 )
                 

APAC Commercial gross profit

    12.3       11.6  

APAC PT gross profit

    2.8       3.3  

APAC Region gross profit

    15.1       14.9  

APAC Region SG&A expenses

    (14.3 )     (15.8 )

APAC Region Earnings (Loss) from Operations

    0.8       (0.9 )
                 

OCG gross profit

    32.6       29.2  

OCG SG&A expenses

    (31.4 )     (26.7 )

OCG Earnings from Operations

    1.2       2.5  
                 

Less: Intersegment gross profit

    (1.0 )     (0.8 )

Less: Intersegment SG&A expenses

    1.0       0.8  

Net Intersegment Activity

    0.0       0.0  
                 

Corporate

    (19.9 )     (18.2 )

Consolidated Total

    6.3       7.1  

Other Expense, Net

    1.7       1.0  
                 

Earnings Before Taxes

  $ 4.6     $ 6.1  

 

9.  New Accounting Pronouncement

 

In April 2014, the Financial Accounting Standards Board issued an accounting standard update that changes the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on operations and financial results. The amendments are effective prospectively for fiscal periods (and interim reporting periods within those years) beginning on or after December 15, 2014 (early adoption is permitted). The adoption of this guidance is not expected to have a material effect on our results of operations, financial position or liquidity.

   

 
15

 

 

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

 

Executive Overview

 

The Workforce Solutions Industry

 

The staffing industry has changed dramatically over the last decade – transformed by globalization and competitive consolidation.  The industry has also continued to evolve in terms of service line expansion and evolution from commercial into professional/technical and outsourced solutions. The broader workforce solutions industry has continued to transform to meet businesses’ growing demand for total workforce or talent supply chain management (“TSCM”) solutions. Global employment trends are reshaping and redefining traditional employment models, sourcing strategies and human resource capability requirements. Clients’ workforce solutions strategies are moving up the maturity model as they take the full spectrum of talent into consideration.  The TSCM concept seeks to manage all categories of talent (temporary, project-based, outsourced and full-time) and represents significant market potential.

  

The global workforce solutions market is forecast to grow in 2014, as the economy gradually recovers and clients continue to place greater emphasis on labor flexibility and cost discipline. The global staffing market will be helped by strengthening conditions in Europe, while adoption of the TSCM concept and improving permanent placement conditions are supporting a stronger outlook for outsourced solutions.  Industry performance in 2014 will be led by accelerating demand for professional/technical workers, a return of commercial sector growth in EMEA and continued client adoption of managed services such as Contingent Workforce Outsourcing (“CWO”) and Recruitment Process Outsourcing (“RPO”). 

 

Professional/Technical staffing is projected to increase as a percent of the global market as a result of cyclical and structural shifts towards higher skilled talent.   Demand for professional/technical staffing is projected to outperform commercial.  

 

Our Business

 

Kelly Services is a global workforce solutions company, serving customers of all sizes in variety of industries. Our staffing operations are divided into three regions, Americas, EMEA and APAC, with commercial, professional and technical staffing businesses in each region. As the human capital arena has become more complex, we have also developed a suite of innovative solutions within our global OCG business. OCG delivers integrated talent management solutions to meet customer needs across the entire spectrum of talent categories. Using talent supply chain strategies, we help customers manage their full-time and contingent labor spend, and gain access to service providers and quality talent at competitive rates with minimized risk.

 

We earn revenues from the hourly sales of services by our temporary employees to customers, as a result of recruiting permanent employees for our customers, and through our outsourcing and consulting activities. Our working capital requirements are primarily generated from temporary employee payroll and customer accounts receivable. The nature of our business is such that trade accounts receivable are our most significant financial asset. Average days sales outstanding varies within and outside the U.S., but is 57 days on a global basis. Since receipts from customers generally lag temporary employee payroll, working capital requirements increase substantially in periods of growth.

 

Our Strategy and Outlook 

 

Our long-term strategic objective is to create shareholder value by delivering a competitive profit from the best workforce solutions and talent in the industry. To achieve this, we are focused on the following key areas:

 

 

Maintain our core strengths in commercial staffing in key markets;

 

 

Grow our professional and technical solutions;

 

 

Transform our OCG segment into a market-leading provider of talent supply chain management;

 

 

Capture permanent placement growth in selected specialties; and

 

 

Lower our costs through deployment of efficient service delivery models.

 

 
16

 

 

Although our objectives remain clear, tepid global economic growth and job creation continues to impact our business. Kelly’s first quarter revenue for 2014 was up 1% year over year. Though modest job growth is occurring, we are not experiencing the corresponding across-the-board uplift in our industry that was typical in previous recoveries. Instead, the improvement in temporary employment in the U.S. as reported by the Bureau of Labor Statistics has primarily been driven by hiring in the construction, retail and hospitality sectors -- areas in which Kelly is not generally engaged.

 

However, even with these underlying influences, we delivered solid operational performance in two key areas. During the first quarter of 2014:

 

 

In our OCG segment, we increased revenue by 25% year over year, confirming that our direction aligns with increased market demand for outsourced solutions. Growth was particularly strong in the core elements of our talent supply chain management model, which continues to be a key driver of our strategic and financial progress.

 

 

While making additional investments, including significant investments in OCG, we continued to practice effective expense control. Total company expenses increased by 3% in comparison to the prior year, underscoring our commitment to balancing fiscal discipline with targeted long-term growth.

 

At 0.5% for the first quarter of 2014, our return on sales is still well below our long-term goal of 4.0%. To make significant progress against our ROS goal and better leverage our business, we will need to see continued economic growth coupled with stronger demand for full-time and temporary labor in the sectors that Kelly supports. In the meantime, we remain focused on what we can control: executing a well-formed strategy with increased speed and precision, and making the necessary investments to advance that strategy.

 

During the first quarter of 2014, we began to make targeted investments to adjust our operating models and increase our resources responsible for driving growth in higher margin specialties – in Americas PT and also within our growing OCG segment. Specifically, our investments will expand a centralized approach to PT recruiting for our local markets, as well as develop additional capabilities within OCG to meet the increasing demand for our solutions, such as in talent supply chain analytics. These investments are intended to drive double-digit sales growth in 2015 in both OCG and our Americas PT segment, assuming continued growth in portions of the economy that rely on these services. We will also continue to invest in driving efficiencies throughout the Company as we build out our centralized service delivery model for large accounts and create operational efficiencies that remove administrative burdens from client-facing teams. We expect that revenue growth will lag these investments and, consequently, that our overall earnings will be down on a year-over-year basis.

 

Meeting the provisions of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Acts”) remains a challenge for us. The Acts represent comprehensive U.S. healthcare reform legislation that, in addition to other provisions, will subject us to potential penalties unless we offer to our employees minimum essential healthcare coverage that is affordable and provides minimum value. During the first quarter of 2014, final regulations were issued, specifically impacting staffing companies. We are currently assessing the impact of these regulations on our business. In order to comply with the Acts, Kelly intends to begin offering health care coverage in 2015 to all temporary employees eligible for coverage under the Acts. In 2014, we will continue to incur costs related to implementing the Acts in advance of future pricing designed to pass related costs on to our customers. Further, there can be no assurance that we will be able to increase pricing to our customers in a sufficient amount to cover all the increased costs, or that they will be recovered in the period in which costs are incurred, and the net financial impact on our results of operations could be significant.

 

For the balance of the year, we anticipate steady improvement in the U.S. and global economies, and we are already seeing increased confidence among our largest customers – t hough it remains to be seen whether that confidence will translate into more meaningful job growth in 2014. Longer-term, we believe the trends in the staffing industry are positive: companies are becoming more comfortable with the use of flexible staffing models; there is increasing acceptance of free agents and contractual employment by companies and candidates alike; and companies are seeking more comprehensive workforce management solutions that lend themselves to Kelly’s talent supply chain management approach. This shift in demand for contingent labor and strategic solutions plays to our strengths and experience -- particularly serving large companies.

 

 
17

 

 

Financial Measures – Operating Margin and Constant Currency

 

Return on sales (earnings from operations divided by revenue from services) in the following tables is a ratio used to measure the Company’s pricing strategy and operating efficiency. Constant currency (“CC”) change amounts are non-GAAP measures. The CC change amounts in the following tables refer to the year-over-year percentage changes resulting from translating 2014 financial data into U.S. dollars using the same foreign currency exchange rates used to translate financial data for 2013. We believe that CC measurements are an important analytical tool to aid in understanding underlying operating trends without distortion due to currency fluctuations.

 

Realignment of Segments

 

Beginning in the first quarter of 2014, we realigned the project-based legal services business in our Americas PT segment to the OCG segment and revised the prior year amounts to conform to the current presentation.

 

Staffing Fee-Based Income

 

Staffing fee-based income, which is included in revenue from services in the following tables, has a significant impact on gross profit rates. There are very low direct costs of services associated with staffing fee-based income. Therefore, increases or decreases in staffing fee-based income can have a disproportionate impact on gross profit rates.

 

Results of Operations

Total Company - First Quarter

(Dollars in millions)

   

2014

   

2013

   

Change

   

CC

Change

 

Revenue from Services

  $ 1,330.8     $ 1,314.8       1.2

%

    2.2

%

Staffing fee-based income

 

20.4

      22.1       (7.1 )     (4.1 )

Gross profit

    222.3       216.9       2.5       3.5  

Total SG&A expenses

    216.0       209.8       3.0       3.9  

Earnings from Operations

    6.3       7.1       (11.8 )        
                                 

Gross profit rate

    16.7

%

    16.5

%

    0.2

pts.

       

Expense rates:

                               

% of revenue

    16.2       16.0       0.2          

% of gross profit

    97.2       96.7       0.5          

Return on sales

    0.5       0.5       0.0          

 

Total Company revenue from services for the first quarter of 2014 was up 1% in comparison to the prior year. This reflected primarily an increase in average bill rates in the Americas.

 

Compared to the first quarter of 2013, the gross profit rate was up 20 basis points. This increase was primarily due to an improvement in the gross profit rate in the Americas region, as more fully described in the Total Americas discussion below.

 

Selling, general and administrative (“SG&A”) expenses increased year over year as a result of investments in our PT and OCG businesses, partially offset by a $3.0 million unclaimed property settlement which was included in the first quarter of 2013.

 

 
18

 

 

Income tax expense for the first quarter of 2014 was $2.1 million, compared to a benefit of $6.8 million for the first quarter of 2013. The tax rate was significantly impacted by the U.S. work opportunity credit, which is a temporary income tax incentive. The credit, along with several other temporary income tax incentives, has previously expired and later been retroactively reinstated in what is commonly referred to as “extenders” legislation. The first quarter of 2013 benefitted from recognition of 2012 work opportunity credits that were unavailable in 2012 due to expiration at the end of 2011. These credits later became available upon retroactive reinstatement in the first quarter of 2013. The work opportunity credit again expired at the end of 2013, making credits unavailable for employees hired in 2014. While extenders legislation has been introduced in Congress that would retroactively reinstate the work opportunity credit, if or when such action would be taken is unknown. If such extenders legislation is enacted, the retroactive reinstatement of the work opportunity credit would result in a significant benefit to income tax expense.

 

Diluted earnings per share for the first quarter of 2014 were $0.07, as compared to $0.34 for the first quarter of 2013.

 

Total Americas - First Quarter

(Dollars in millions)

   

2014

   

2013

   

Change

   

CC

Change

 

Revenue from Services

  $ 849.6     $ 880.9       (3.6

) %

    (2.6

) %

Staffing fee-based income

    7.8       7.8       0.6       1.9  

Gross profit

    131.6       131.8       (0.2 )     0.7  

Total SG&A expenses

    109.5       107.9       1.5       2.4  

Earnings from Operations

    22.1       23.9       (7.6 )        
                                 

Gross profit rate

    15.5

%

    15.0

%

    0.5

pts.

       

Expense rates:

                               

% of revenue

    12.9       12.3       0.6          

% of gross profit

    83.3       81.9       1.4          

Return on sales

    2.6       2.7       (0.1 )        

 

The change in Americas revenue from services represents a 4% decrease in hours worked, partially offset by a 2% increase in average bill rates on a CC basis. Americas represented 64% of total Company revenue in the first quarter of 2014 and 67% in the first quarter of 2013.

 

Revenue in our Commercial segment was down 4% and our PT revenue was down 3% in comparison to the prior year. The decrease in revenue in Commercial was due to revenue decreases in our office clerical, light industrial and electronic assembly products, partially offset by increased revenue in our educational staffing business due to new customer wins. In the PT segment, we continued to see declines in revenue in our IT and finance products, partially offset by growth in revenue in our engineering and science products.

 

The increase in the gross profit rate was due to a combination of improved pricing markups as well as lower payroll taxes and lower employee benefit costs.

 

SG&A expenses were up 1.5% in comparison to the prior year. However, in 2013 we had a $3.0 million charge to income for settlement of an unclaimed property claim. Excluding this charge, the SG&A expenses in the first quarter of 2014 were up 4.4%. This increase is attributable to annual merit increases and additional full-time employees to support our targeted PT growth.

 

 
19

 

 

Total EMEA - First Quarter

(Dollars in millions)

   

2014

   

2013

   

Change

   

CC

Change

 

Revenue from Services

  $ 269.6     $ 244.5       10.3

%

    9.1

%

Staffing fee-based income

    8.7       9.5       (8.2 )     (6.2 )

Gross profit

    44.0       41.8       5.4       4.4  

SG&A expenses excluding restructuring charges

    41.9       42.2       (0.6 )        

Restructuring charges

    -       (0.2 )     (100.0 )        

Total SG&A expenses

    41.9       42.0       (0.2 )     (1.4 )

Earnings from Operations

    2.1       (0.2 )  

NM

         
                                 

Gross profit rate

    16.3

%

    17.1

%

    (0.8

) pts.

       

Expense rates (excluding restructuring charges):

                               

% of revenue

    15.5       17.2       (1.7 )        

% of gross profit

    95.1       100.8       (5.7 )        

Return on sales

    0.8       (0.1 )     0.9          

 

The change in EMEA revenue from services reflected a 10% increase in hours worked, partially offset by a 1% decrease in average bill rates on a CC basis. The increase in hours was due primarily to Portugal, Russia and Switzerland, reflecting the improving economic environment in Europe. EMEA represented 20% of total Company revenue in the first quarter of 2014 and 19% in the first quarter of 2013.

 

The EMEA gross profit rate decreased primarily due to the decline in staffing fee-based income, which negatively impacted the gross profit rate by approximately 60 basis points.

 

The decrease in SG&A expenses was primarily due to a reduction in headquarters costs throughout the EMEA region. Restructuring costs recorded in the first quarter of 2013 reflect favorable adjustments to prior restructuring costs in the U.K., France and Italy.

 

 
20

 

 

Total APAC - First Quarter

(Dollars in millions)

   

2014

   

2013

   

Change

   

CC

Change

 

Revenue from Services

  $ 91.6     $ 91.7       (0.1

) %

    7.5

%

Staffing fee-based income

    3.9       4.7       (17.8 )     (10.0 )

Gross profit

    15.1       14.9       1.4       9.2  

SG&A expenses excluding restructuring charges

    14.3       15.6       (7.8 )        

Restructuring charges

    -       0.2       (100.0 )        

Total SG&A expenses

    14.3       15.8       (9.0 )     (1.1 )

Earnings from Operations

    0.8       (0.9 )  

NM

         
                                 

Gross profit rate

    16.5

%

    16.2

%

    0.3

pts.

       

Expense rates (excluding restructuring charges):

                               

% of revenue

    15.7       17.0       (1.3 )        

% of gross profit

    95.1       104.7       (9.6 )        

Return on sales

    0.8       (1.0 )     1.8          

 

The change in total APAC revenue from services reflected a 14% increase in hours worked, partially offset by a 4% decrease in average bill rates on a CC basis. The increase in hours worked was due to higher hours for larger accounts in New Zealand, Singapore and India. APAC revenue represented 7% of total Company revenue in both the first quarter of 2014 and 2013.

 

The increase in the gross profit rate was due to the effect of a $1.4 million wage credit in Singapore, which was recorded in cost of services. This amount, which represents additional credits received for 2013, added approximately 140 basis points to the APAC region gross profit rate in the first quarter of 2014. This increase was partially offset by decreases in staffing fee-based income and temporary margins, which reduced the gross profit rate by 80 basis points and 30 basis points, respectively. Staffing fee-based income decreased by 22% in Singapore, due to high staff turnover, and by 14% in Australia, due to the weaker economic climate.

 

SG&A expenses declined 1% on a CC basis. This change was the result of consolidating the Australia and New Zealand management in the prior year and lower country headquarters costs across the region, partially offset by additional hiring in Singapore and Malaysia.

 

 
21

 

 

OCG - First Quarter

(Dollars in millions)

   

2014

   

2013

   

Change

   

CC

Change

 

Revenue from Services

  $ 134.4     $ 107.4       25.1

%

    25.9

%

Gross profit

    32.6       29.2       11.8       12.3  

Total SG&A expenses

    31.4       26.7       17.9       18.4  

Earnings from Operations

    1.2       2.5       (52.6 )        
                                 

Gross profit rate

    24.3

%

    27.2

%

    (2.9

) pts.

       

Expense rates:

                               

% of revenue

    23.4       24.8       (1.4 )        

% of gross profit

    96.3       91.4       4.9          

Return on sales

    0.9       2.3       (1.4 )        

 

Revenue from services in the OCG segment increased during the first quarter of 2014 due primarily to growth in the BPO and CWO practice areas. Revenue in BPO grew by 21% year over year and revenue in CWO, which includes PPO, grew by 35%. The revenue growth in BPO and CWO was due to expansion of programs with existing customers and new customers. OCG revenue represented 10% of total Company revenue in the first quarter of 2014 and 8% in the first quarter of 2013.

 

The OCG gross profit rate decreased primarily due to practice area mix with higher growth in our lower margin businesses, such as PPO. The increase in SG&A expenses is primarily a result of support costs associated with increased volume with existing customers and implementation costs of new customers in our BPO and CWO practice areas.

 

Financial Condition

 

Historically, we have financed our operations through cash generated by operating activities and access to credit markets. Our working capital requirements are primarily generated from temporary employee payroll and customer accounts receivable. Since receipts from customers generally lag payroll to temporary employees, working capital requirements increase substantially in periods of growth. Conversely, when economic activity slows, working capital requirements may substantially decrease. As highlighted in the consolidated statements of cash flows, our liquidity and available capital resources are impacted by four key components: cash and equivalents, operating activities, investing activities and financing activities.

 

Cash and Equivalents

 

Cash and equivalents totaled $57.9 million at the end of the first quarter of 2014 and $125.7 million at year-end 2013. As further described below, we used $90.8 million of cash for operating activities, used $3.8 million of cash for investing activities and generated $24.6 million of cash from financing activities. The cash and equivalents balance at the end of the first quarter of 2014 was negatively impacted by $20.0 million related to payments we received at year-end 2013 from our OCG customers, most of which we paid out to suppliers during the first quarter of 2014.

 

Operating Activities

 

In the first quarter of 2014 we used $90.8 million of net cash for operating activities, as compared to generating $5.9 million in the first quarter of 2013. This change was primarily due to year-to-date growth in trade accounts receivable, along with the negative impact of the $20.0 million related to the timing of payments to suppliers noted above. Changes in operating assets and liabilities and net cash from operating activities for the first quarter of 2013 are both overstated by $2.2 million, due to an error from prior periods which was not corrected until the third quarter of 2013.

 

 
22

 

 

Trade accounts receivable totaled $1.1 billion at the end of the first quarter of 2014. Global days sales outstanding were 57 days at the end of the first quarter of 2014 and 54 days at the end of the first quarter of 2013. The increase in DSO is primarily due to the timing of our month-end cut-off as well as extended terms and invoicing complexities for certain large customers.

 

Our working capital position was $467.3 million at the end of the first quarter of 2014, a decrease of $7.2 million from year-end 2013. The current ratio (total current assets divided by total current liabilities) was 1.6% at the end of the first quarter of 2014 and at year-end 2013.

 

Investing Activities

 

In the first three months of 2014, we used $3.8 million of cash for investing activities, compared to using $2.6 million in the first three months of 2013. Capital expenditures in both years relate primarily to the Company’s technology programs.

 

Financing Activities

 

In the first three months of 2014, we generated $24.6 million of cash from financing activities, compared to using $15.6 million in the first three months of 2013. Debt totaled $54.8 million at the end of the first quarter of 2014 and $28.3 million at year-end 2013. Debt-to-total capital (total debt reported on the balance sheet divided by total debt plus stockholders’ equity) is a common ratio to measure the relative capital structure and leverage of the Company. Our ratio of debt-to-total capital was 6.2% at the end of the first quarter of 2014 and 3.3% at year-end 2013.

 

The net change in short-term borrowings in the first three months of 2014 was primarily due to additional borrowings on our securitization facility, used to fund our everyday operations. The net change in short-term borrowings in the three months of 2013 was primarily due to payments on our securitization facility.

 

We made dividend payments of $1.9 million in the first three months of both 2014 and 2013.

 

New Accounting Pronouncement

 

See New Accounting Pronouncement footnote in the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q for a description of a new accounting pronouncement.

 

Contractual Obligations and Commercial Commitments

 

There are no material changes in our obligations and commitments to make future payments from those included in the Company’s Annual Report on Form 10-K filed February 13, 2014. We have no material, unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated entities .

 

Liquidity

 

We expect to meet our ongoing short and long-term cash requirements principally through cash generated from operations, available cash and equivalents, securitization of customer receivables and committed unused credit facilities. Additional funding sources could include public or private bonds, asset-based lending, additional bank facilities, issuance of equity or other sources.

 

We utilize intercompany loans, dividends, capital contributions and redemptions to effectively manage our cash on a global basis. We periodically review our foreign subsidiaries’ cash balances and projected cash needs. As part of those reviews, we may identify cash that we feel should be repatriated to optimize the Company’s overall capital structure. At the present time, these reviews have not resulted in any specific plans to repatriate a majority of our international cash balances. We expect much of our international cash will be needed to fund working capital growth in our local operations. The majority of our international cash is concentrated in a cash pooling arrangement (the “Cash Pool”) and is available to fund general corporate needs internationally. The Cash Pool is a set of cash accounts maintained with a single bank that must, as a whole, maintain at least a zero balance; individual accounts may be positive or negative. This allows countries with excess cash to invest and countries with cash needs to utilize the excess cash.

 

 
23

 

 

We manage our cash and debt very closely to optimize our capital structure. As our cash balances build, we tend to pay down debt as appropriate. Conversely, when working capital needs grow, we tend to use corporate cash and cash available in the Cash Pool first, and then access our borrowing facilities.

 

As of the 2014 first quarter end, we had $200.0 million of available capacity on our $200.0 million revolving credit facility and $42.0 million of available capacity on our $150.0 million securitization facility. The securitization facility carried $53.0 million of short-term borrowings and $55.0 million of standby letters of credit related to workers’ compensation. Together, the revolving credit and securitization facilities provide the Company with committed funding capacity that may be used for general corporate purposes. While we believe these facilities will cover our working capital needs over the short term, if economic conditions or operating results change significantly, we may need to seek additional sources of funds. As of the 2014 first quarter end, we met the debt covenants related to our revolving credit facility and securitization facility.

 

We monitor the credit ratings of our major banking partners on a regular basis. We also have regular discussions with them. Based on our reviews and communications, we believe the risk of one or more of our banks not being able to honor commitments is insignificant. We also review the ratings and holdings of our money market funds and other investment vehicles regularly to ensure high credit quality and access to our invested cash.

 

 

Forward-Looking Statements

 

Certain statements contained in this report are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as "expects,” "anticipates,” "intends,” “plans,” "believes,” “estimates,” or variations or negatives thereof or by similar or comparable words or phrases. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future actions by us that may be provided by management, including oral statements or other written materials released to the public, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our company and economic and market factors in the countries in which we do business, among other things. These statements are not guarantees of future performance, and we have no specific intention to update these statements.

 

Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, competitive market pressures including pricing and technology introductions, changing market and economic conditions, our ability to achieve our business strategy, our ability to retain the services of our senior management, local management and field personnel, our ability to adequately protect our intellectual property rights, including our brand, our ability to successfully develop new service offerings, our exposure to risks associated with services outside traditional staffing, including business process outsourcing, the risks associated with past and future acquisitions, exposure to risks associated with investments in equity affiliates, material changes in demand from or loss of large corporate customers, risks associated with conducting business in foreign countries, including foreign currency fluctuations, availability of temporary workers with appropriate skills required by customers, liabilities for employment-related claims and losses, including class action lawsuits and collective actions, liability for improper disclosure of sensitive or private employee information, our ability to sustain critical business applications through our key data centers, our ability to effectively implement and manage our information technology programs, our ability to maintain adequate financial and management processes and controls, impairment charges triggered by adverse industry or market developments, unexpected changes in claim trends on workers’ compensation, disability and medical benefit plans, the net financial impact of the Patient Protection and Affordable Care Act on our business, the impact of changes in laws and regulations (including federal, state and international tax laws and the expiration and/or reinstatement of the U.S. work opportunity credit program), the risk of additional tax or unclaimed property liabilities in excess of our estimates, our ability to maintain specified financial covenants in our bank facilities, our ability to access credit markets and continued availability of financing for funding working capital. Certain risk factors are discussed more fully under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K.

 

 
24

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

We are exposed to foreign currency risk primarily due to our net investment in foreign subsidiaries, which conduct business in their local currencies. We may also utilize local currency-denominated borrowings.

 

In addition, we are exposed to interest rate risks through our use of the multi-currency line of credit and other borrowings. A hypothetical fluctuation of 10% of market interest rates would not have had a material impact on 2014 first quarter earnings.

 

Marketable equity investments, representing our investment in Temp Holdings, are stated at fair value and marked to market through stockholders’ equity, net of tax. Impairments in value below historical cost, if any, deemed to be other than temporary, would be expensed in the consolidated statement of earnings. See the Fair Value Measurements footnote in the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q for further discussion.

 

We are exposed to market risk as a result of our obligation to pay benefits under our nonqualified deferred compensation plan and our related investments in company-owned variable universal life insurance policies. The obligation to employees increases and decreases based on movements in the equity and debt markets. The investments in mutual funds, as part of the company-owned variable universal life insurance policies, are designed to mitigate, but not eliminate, this risk with offsetting gains and losses.

 

Overall, our holdings and positions in market risk-sensitive instruments do not subject us to material risk.

 

 

Item 4.  Controls and Procedures.

 

Based on their evaluation as of the end of the period covered by this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective.

 

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

Item 1.  Legal Proceedings.

 

During the fourth quarter of 2013, a Louisiana jury rendered an award of $4.4 million, pursuant to litigation brought by Robert and Margaret Ward against the Jefferson Parish School Board and Kelly Services. Under the verdict, Kelly’s share of the liability consists of $2.7 million plus a portion of pre- and post-judgment interest. During April 2014, Kelly reached an agreement with the plaintiffs pursuant to which Kelly and the primary insurer agreed to pay $1.0 million to the plaintiffs to satisfy the judgment against the primary insurer and Kelly. In April 2014, Kelly paid $0.25 million of this amount and our primary insurer paid $0.75 million. Kelly’s umbrella/excess insurer, which has elected to continue to appeal the decision, is responsible for the remaining verdict amount, if any, that may be owed at the conclusion of the appellate process plus related costs and interest. Kelly will remain a nominal defendant on appeal in order to preserve its rights to insurance coverage. Plaintiffs have agreed that they must first exhaust all legal remedies to collect from our umbrella/excess insurer and its surety before pursuing Kelly for any remaining verdict amount that may be owed at the conclusion of the appellate process.

   

The Company is continuously engaged in litigation arising in the ordinary course of its business, typically matters alleging employment discrimination, alleging wage and hour violations or enforcing the restrictive covenants in the Company’s employment agreements.  While there is no expectation that any of these matters will have a material adverse effect on the Company’s results of operations, financial position or cash flows, litigation is always subject to inherent uncertainty and the Company is not able to reasonably predict if any matter will be resolved in a manner that is materially adverse to the Company.

 

 
25

 

 

Item 1A.   Risk Factors.

 

There have been no material changes in the Company’s risk factors disclosed in Part I, Item 1A of the Company’s Annual Report filed on Form 10-K for year ended December 29, 2013.

 

 

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

 

(a) Sales of Equity Securities Not Registered Under the Securities Exchange Act of 1933

 

None.

 

(c) Issuer Repurchases of Equity Securities

 

During the first quarter of 2014, we reacquired shares of our Class A common stock as follows:

 

Period

 

Total Number

of Shares

(or Units)

Purchased

   

Average

Price Paid

per Share

(or Unit)

   

Total Number

of Shares (or

Units) Purchased

as Part of Publicly

Announced Plans

or Programs

   

Maximum Number

(or Approximate

Dollar Value) of

Shares (or Units)

That May Yet Be

Purchased Under the

Plans or Programs

(in millions of dollars)

 
                                 

December 30, 2013 through February 2, 2014

    4,288     $ 24.66       -     $ -  
                                 

February 3, 2014 through March 2, 2014

    418       23.93       -     $ -  
                                 

March 3, 2014 through March 30, 2014

    -       -       -     $ -  
                                 

Total

    4,706     $ 24.60       -          

 

We may reacquire shares sold to cover taxes due upon the vesting of restricted stock held by employees. Accordingly, 4,706 shares were reacquired in transactions during the quarter.

 

 

Item 4.     Mine Safety Disclosures.

 

Not applicable.

 

 

Item 6.     Exhibits.

 

See Index to Exhibits required by Item 601, Regulation S-K, set forth on page 28 of this filing.

 

 
26

 

 

SIGNATURES

 

 

 

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

KELLY SERVICES, INC.

   
   
   

Date: May 7, 2014

 
   
   
 

/s/ Patricia Little

 

Patricia Little

   
 

Executive Vice President and

 

Chief Financial Officer

 

(Principal Financial Officer)

 

 

 

 

 

 

Date: May 7, 2014

 
   
   
 

/s/ Michael E. Debs

 

Michael E. Debs

   
 

Senior Vice President and

 

Chief Accounting Officer

 

(Principal Accounting Officer)

 

 
27

 

 

INDEX TO EXHIBITS

REQUIRED BY ITEM 601,

REGULATION S-K

 

Exhibit No.

Description

       

3.1

   

Certificate of Incorporation.

       
3.2     By-Laws.
       

31.1

   

Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended.

       

31.2

   

Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended.

       

32.1

   

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

       

32.2

   

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

       

101.INS

 

XBRL Instance Document

     

101.SCH

 

XBRL Taxonomy Extension Schema Document

     

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

     

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

     

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

     

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

28

 

Exhibit 3.1

 

 

 

RESTATED CERTIFICATE OF INCORPORATION OF

KELLY SERVICES, INC.

 

* * * * *

 

Kelly Services, Inc., a corporation organized and existing under the laws of Delaware, certifies as follows:

 

1. The name of the Corporation is KELLY SERVICES, INC.

 

2. The original certificate of incorporation was filed with the Secretary of State of Delaware on August 27, 1952 under the name of PERSONNEL SERVICE, INC.

 

3. This Restated Certificate of Incorporation amends and restates the certificate of incorporation of the corporation heretofore in effect. This Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware by the directors and stockholders of the corporation.

 

4. The Restated Certificate of Incorporation so adopted reads in full as follows:

 

FIRST : The name of this corporation is Kelly Services, Inc.

 

SECOND : Its principal office in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its resident agent at such address is The Corporation Trust Company.

 

THIRD : The nature of the business, or objects or purposes to be transacted, promoted or carried on are:

 

To furnish office, clerical, supervisory and consultant services.

 

To manufacture, purchase or otherwise acquire, invest in, own, mortgage, pledge, sell, assign and transfer or otherwise dispose of, trade, deal in and deal with goods, wares and merchandise and personal property of every class and description.

 

To acquire, and pay for in cash, stock or bonds of this corporation or otherwise, the good will, rights, assets and property, and to undertake or assume the whole or any part of the obligations or liabilities of any person, firm, association or corporation.

 

To acquire, hold, use, sell, assign, lease, grant licenses in respect of, mortgage or otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses and privileges, inventions, improvements and processes, copyrights, trade-marks and trade names, relating to or useful in connection with any business of this corporation.

 

To acquire by purchase, subscription or otherwise, and to receive, hold, own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or otherwise dispose of or deal in and with any of the shares of the capital stock, or any voting trust certificates in respect of the shares of capital stock, scrip, warrants, rights, bonds, debentures, notes, trust receipts, and other securities, obligations, choses in action and evidences of indebtedness or interest issued or created by any corporations, joint stock companies, syndicates, associations, firms, trusts or persons, public or private, or by the government of the United States of America, or by any foreign government, or by any state, territory, province, municipality or other political subdivision or by any governmental agency, and as owner thereof to possess and exercise all the rights, powers and privileges of ownership, including the right to execute consents and vote thereon, and to do any and all acts and things necessary or advisable for the preservation, protection, improvement and enhancement in value thereof.

 

To enter into, make and perform contracts of every kind and description with any person, firm, association, corporation, municipality, county, state, body politic or government or colony or dependency thereof.

 

To borrow or raise moneys for any of the purposes of the corporation and, from time to time, without limit as to amount to draw, make, accept, endorse, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment of any thereof and of the interest thereon by mortgage upon or pledge, conveyance or assignment in trust of the whole or any part of the property of the corporation, whether at the time owned or thereafter acquired, and to sell, pledge or otherwise dispose of such bonds or other obligations of the corporation for its corporate purposes.

 

 

 

 

To loan to any person, firm or corporation any of its surplus funds, either with or without security.

 

To purchase, hold, sell and transfer the shares of its own capital stock; provided it shall not use its funds or property for the purchase of its own shares of capital stock when such use would cause any impairment of its capital except as otherwise permitted by law, and provided further that shares of its own capital stock belonging to it shall not be voted upon directly or indirectly.

 

To operate a private trade school and business school in the State of Michigan after obtaining the necessary license for such operation for the instruction of students in various office skills, including, but not by way of limitation, instruction in the use of various office equipment and machines.

 

To have one or more offices, to carry on all or any of its operations and business and without restriction or limit as to amount to purchase or otherwise acquire, hold, own, mortgage, sell, convey, or otherwise dispose of real and personal property of every class and description in any of the States, Districts, Territories or Colonies of the United States, and in any and all foreign countries, subject to the laws of such State, District, Territory, Colony or Country.

 

In general, to carry on any other business in connection with the foregoing, and to have and exercise all the powers conferred by the laws of Delaware upon corporations formed under the General Corporation Law of the State of Delaware, and to do any or all of the things hereinbefore set forth to the same extent as natural persons might or could do.

 

The objects and purposes specified in the foregoing clauses shall, except where otherwise expressed, be in nowise limited or restricted by reference to, or inference from, the terms of any other clause in this certificate of incorporation, but the objects and purposes specified in each of the foregoing clauses of this article shall be regarded as independent objects and purposes.

 

FOURTH:  

 

Division A

 

The total number of shares of stock which the corporation shall have authority to issue is 110,000,000 shares, the par value of each of the shares is $1.00, amounting in the aggregate to $110,000,000, and the shares are divided into two classes consisting of 100,000,000 shares of Class A Common Stock and 10,000,000 shares of Class B Common Stock.

 

Division B

 

The designations, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions in respect of the shares of each class are as follows:

 

(a)  Dividends . Holders of the Class A Common Stock and the Class B Common Stock shall be entitled to receive dividends, out of funds legally available therefor, when and as declared by the Board of Directors, subject only to the limitations that (1) no cash dividend payable on the shares of the Class B Common Stock shall be declared unless the Board of Directors shall concurrently declare a cash dividend on the shares of the Class A Common Stock at a rate which is not less than the rate of the cash dividend payable on the shares of the Class B Common Stock (but a cash dividend may be declared on the Class A Common Stock without declaring a cash dividend on the Class B Common Stock), and (2) no dividend payable in shares of the Class B Common Stock shall be declared on the Class A Common Stock (but a dividend payable in shares of Class A Common Stock may be declared on the Class A Common Stock or the Class B Common Stock and a dividend payable in shares of Class B Common Stock may be declared on the Class B Common Stock). 

 

(b)  Voting Rights . Except on matters where their vote is required by Delaware law, the holders of the Class A Common Stock shall not be entitled to vote on any matter coming before any meeting of stockholders. The holders of the Class B Common Stock shall be entitled to one vote per share upon each matter coming before any meeting of stockholders.

 

(c)  Conversion of Class B Common Stock .

 

1. Shares of Class B Common Stock shall be convertible, at the option of the respective holders thereof, at any time, into fully paid and non-assessable shares of Class A Common Stock on the basis of one share of Class A Common Stock for each share of Class B Common Stock.

 

 
2

 

 

2. No payment or adjustment with respect to dividends on shares of the Class A Common Stock or on the Class B Common Stock shall be made in connection with any conversion of shares of Class B Common Stock into shares of Class A Common Stock.

 

3. The holders of a certificate or certificates for Class B Common Stock, in order to effect the conversion of shares represented thereby, shall surrender the certificate or certificates to the corporation or to the Transfer Agent for the shares of the Class B Common Stock, with request for conversion. If the shares of the Class A Common Stock issuable upon conversion are to be issued in a name other than that in which the shares of the Class B Common Stock to be converted are registered, the certificate or certificates shall be duly endorsed for transfer or accompanied by a duly executed stock transfer power, and shall also be accompanied by the necessary stock transfer stamps or equivalent funds.

 

Upon surrender of the certificate or certificates, the corporation shall issue and deliver or cause to be issued and delivered to the person entitled thereto a certificate or certificates for the number of full shares of the Class A Common Stock issuable upon conversion. The corporation shall pay all original issue taxes, if any, payable upon the issue of shares of the Class A Common Stock issued upon any conversion.

 

The conversion shall be deemed to have been effected on the date of the surrender of the certificate or certificates of shares of the Class B Common Stock, and the person in whose name the certificate or certificates of the shares of the Class A Common Stock issuable upon conversion are to be issued shall be deemed to be the holder of record of the shares as of that date.

 

4. If there should be any capital reorganization or any reclassification of the Class A Common Stock, the shares of the Class B Common Stock shall thereafter have the right to be converted into the number of shares of stock or other securities or property of the corporation to which outstanding shares of the Class A Common Stock would have been entitled upon the effective date of the reorganization or reclassification. The Board of Directors shall make an appropriate adjustment in the application of the provisions of this paragraph (c) with respect to the conversion rights of the holders of the shares of the Class B Common Stock after the reorganization or reclassification, to the end that the provisions shall be applicable, as nearly as reasonably may be, in respect to any shares or other securities or property thereafter issuable or deliverable upon the conversion of shares of the Class B Common Stock. The provisions of this sub-paragraph shall not apply to a reorganization or reclassification involving merely a subdivision or combination of outstanding shares of the Class A Common Stock.

 

5. In case the corporation shall be consolidated with or merged into any other corporation or shall sell or transfer its property and business as or substantially as an entirety, then the stock or other securities or other property, including cash, issuable or deliverable in connection with such consolidation, merger or sale in respect of each share of the Class A Common Stock then outstanding, shall thereafter, for the purposes of the conversion rights of the Class B Common Stock, be deemed the equivalent of one share of Class A Common Stock. Upon the exercise of conversion rights, holders of Class B Common Stock shall be entitled to receive on an equivalent basis and at the same rate and on the other terms and conditions set forth in this paragraph (c), the stock or other securities or property, including cash, deemed to be the equivalent of Class A Common Stock. Lawful provisions to this effect shall be made a part of and condition to the consolidation, merger or sale.

 

6. In case the corporation shall propose (i) to effect any reclassification of the Class A Common Stock or any capital reorganization involving a change in the Class A Common Stock, other than a reclassification or reorganization involving merely a subdivision or combination of outstanding shares of the Class A Common Stock, or (ii) to consolidate with or merge into another corporation, or to sell or transfer its property and business as or substantially as an entirety, then, in each such case, the corporation shall file with each Transfer Agent for the shares of the Class B Common Stock and shall mail to the holders of record of the shares at their respective addresses then appearing on the records of the corporation a statement, signed by an officer of the corporation, with respect to the proposed action, the statement to be so filed and mailed at least 30 days prior to the record date for holders of the Class A Common Stock for the purposes thereof. The statement shall set forth such facts with respect to the proposed action as shall be reasonably necessary to inform each Transfer Agent for the shares of the Class B Common Stock and the holders of those shares as to the effect of the action upon the conversion rights of the holders.

 

7. The corporation shall at all times have authorized but unissued, or in its treasury, a number of shares of the Class A Common Stock sufficient for the conversion of all shares of the Class B Common Stock from time to time outstanding.

 

8. In case the shares of the Class A Common Stock or the Class B Common Stock at any time outstanding shall, by reclassification or otherwise, be subdivided into a greater number of shares or combined into a lesser number of shares, the shares of Class B Common Stock or Class A Common Stock, respectively, then outstanding shall, at the same time, be subdivided or combined, as the case may be, on the same basis.

 

(d)  Preemptive Rights . Holders of the Class A Common Stock shall have no preemptive right to subscribe to any securities issued by the corporation. Holders of the Class B Common Stock shall have the preemptive right to subscribe to additional shares of Class B Common Stock, or any other voting stock or any security convertible into Class B Common Stock or other voting stock, hereafter issued by the corporation.

 

 
3

 

 

(e)  Liquidation Preferences .

 

1. In the event of dissolution, liquidation or winding up of the corporation, whether voluntary or involuntary, holders of the Class A Common Stock and of the Class B Common Stock shall be entitled to payment out of the assets of the corporation ratably in accordance with the number of shares held by them respectively.

 

2. Neither a consolidation nor a merger of the corporation with or into any other corporation, nor a merger of any other corporation into the corporation, nor the purchase or other acquisition by the corporation of all or a part of the outstanding shares of any class or classes of its stock, nor the sale or transfer of the property and business of the corporation, as or substantially as an entirety, shall be considered a dissolution, liquidation or winding up of the corporation within the meaning of the foregoing provisions.

 

FIFTH : The business, property and affairs of this corporation shall be managed by a Board of Directors consisting of no fewer than five (5) and no more than eleven (11) members, the exact number to be determined from time to time by resolution of the Board of Directors. Effective at each annual meeting of the stockholders of the corporation from and after the annual meeting to be held in 2010, all director nominees shall stand for election to terms expiring at the next succeeding annual meeting, with each director to hold office until his successor is duly elected and qualified, subject, however, to prior death, resignation, retirement, disqualification or removal from office. The term of each director serving as of and immediately prior to the annual meeting of the stockholders of the corporation to be held in 2010 shall expire as of the date of such annual meeting, notwithstanding that such director may have been elected for a term that extended beyond the date of such annual meeting. The Board of Directors may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by the by-laws directed or required to be exercised or done by the stockholders.

 

Newly created directorships resulting from any increase in the authorized number of directors and vacancies in the Board of Directors from death, resignation, retirement, disqualification, removal from office or other cause, shall be filled by a majority vote of the directors then in office, and directors so chosen shall hold office for a term expiring at the next annual meeting of the stockholders of the corporation and until their successors are duly elected and qualified, subject, however, to prior death, resignation, retirement, disqualification or removal from office. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

 

Any director, or the entire Board of Directors, may be removed at any time, with or without cause. The affirmative vote of the holders of a majority of the voting power of all of the stock of this corporation entitled to vote in elections of directors shall be required to remove a director from office. The stockholders of the corporation are expressly prohibited from cumulating their votes in any election of directors of the corporation.

 

SIXTH : The names and places of residence of the incorporators were as follows:

 

Names

Residences

L. E. Gray

Wilmington, Delaware

S. M. Brown

Wilmington, Delaware

A. D. Atwell

Townsend, Delaware

 

SEVENTH : By-laws of the corporation may be adopted, amended or repealed by the affirmative vote of a majority of the total number of directors or by the affirmative vote of the holders of a majority of the voting power of all of the stock of this corporation entitled to vote in elections of directors. The by-laws may contain any provision for the regulation and management of the affairs of the corporation and the rights or powers of its stockholders, directors, officers, or employees not inconsistent with the laws of the State of Delaware.

 

EIGHTH :

 

In furtherance, and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized:

 

To fix the amount to be reserved as working capital over and above its capital stock paid in, to authorize and cause to be executed mortgages and liens upon the real and personal property of this corporation.

 

From time to time to determine whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of this corporation (other than the stock ledger), or any of them, shall be open to inspection of stockholders; and no stockholder shall have any right of inspecting any account, book or document of this corporation except as conferred by statute, unless authorized by a resolution of the stockholders or directors.

 

 
4

 

 

By resolution or resolutions, passed by a majority of the whole board to designate one or more committees, each committee to consist of two or more of the directors of the corporation, which, to the extent provided in said resolution or resolutions, or in the by-laws of this corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of this corporation, and may have power to authorize the seal of this corporation to be affixed to all papers which may require it. The committee or committees shall have the name or names as may be stated in the by-laws of this corporation or as may be determined from time to time by resolution adopted by the Board of Directors.

 

This corporation may in its by-laws confer powers upon its directors in addition to the foregoing, and in addition to the powers and authorities expressly conferred upon them by the statute.

 

Both stockholders and directors shall have power, if the by-laws so provide, to hold their meetings, and to have one or more offices within or without the State of Delaware, and to keep the books of this corporation (subject to the provisions of the statutes), outside of the State of Delaware at such places as may be from time to time designated by the Board of Directors.

 

NINTH : Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said Court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the Court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation.

 

TENTH : The Board of Directors of this corporation, when evaluating any offer of another party to (a) make a tender or exchange offer for any equity security of this corporation; (b) merge or consolidate this corporation with another corporation; or (c) purchase or otherwise acquire all or substantially all of the properties and assets of this corporation, shall, in connection with the exercise of its judgment in determining what is in the best interest of this corporation and its stockholders, give due consideration to such factors as the Board of Directors determines to be relevant, including without limitation, the social, legal and economic effects of the proposed transaction upon employees, customers, suppliers, and other affected persons, firms and corporations and on the communities in which this corporation and its subsidiaries operate or are located.

 

ELEVENTH : No action required or permitted to be taken at any annual or special meeting of the stockholders of this corporation may be taken without a meeting and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied.

 

TWELFTH : No director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty by such director as a director; provided, however, that this Article TWELFTH shall not eliminate or limit liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment or repeal of this Article TWELFTH shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

 

THIRTEENTH : Special meetings of the stockholders of this corporation for any purpose or purposes may be called at any time by the Board of Directors or by a committee of the Board of Directors which has been duly designated by the Board of Directors and whose powers and authority, as provided in a resolution of the Board of Directors or in the by-laws of this corporation, include the power to call such meetings, but such special meetings may not be called by any other person or persons.

 

FOURTEENTH : This corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

 

 
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IN WITNESS WHEREOF, Kelly Services, Inc. has caused this Restated Certificate of Incorporation to be signed by Daniel T. Lis, its Senior Vice President and Corporate Secretary this 5 th day of May, 2009.

 

 

KELLY SERVICES, INC.

 

 

 

 

 

 

By:

/s/  Daniel T. Lis