KELYA Kelly Services Inc

TROY, Mich., Oct. 24 /PRNewswire-FirstCall/ -- Kelly Services, Inc., a global provider of staffing services, today announced record revenue and a 41% increase in net earnings for the third quarter ended October 1, 2006. (Logo: http://www.newscom.com/cgi-bin/prnh/19991208/KELLYLOGO ) Carl T. Camden, President and Chief Executive Officer, announced revenue for the third quarter of 2006 totaled $1.419 billion, a 5.5% increase compared to the $1.345 billion for the corresponding quarter in 2005. Revenue for the nine-month period totaled $4.195 billion, a 7.4% increase compared to the $3.906 billion for the first nine months of 2005. Net earnings for the third quarter of 2006 totaled $17.8 million, a 40.6% increase compared to $12.7 million reported for the third quarter of 2005. Net earnings for the first nine months of 2006 totaled $39.0 million, a 50.5% increase compared to the $25.9 million earned in the comparable period of 2005. Diluted earnings per share in the third quarter of 2006 were $0.49, an increase of 40.0% as compared to third quarter 2005 earnings of $0.35 per share. Diluted earnings per share for the first nine months of 2006 were $1.08, a 50.0% increase compared to the $0.72 per share earned last year. Commenting on the results, Camden said, "We're pleased that we delivered solid earnings performance despite a slowdown in the U.S. economy. Our PTSA and International segments delivered particularly strong profit increases. "Our earnings before taxes grew by nearly 48% during the third quarter. However, our net earnings after taxes increased at a lower rate of 41%, because our tax rate was higher than last year. This was primarily due to the fact that legislation to retroactively extend Work Opportunity Credits for 2006 was not passed in the third quarter, as was originally expected. It is not unusual for the credits to be delayed, and we still believe that this legislation will be passed before year end. "Revenue in our U.S. Commercial segment, which accounted for 44% of total sales, increased 1.0% year over year in the third quarter. Operating earnings totaled $32.5 million, an increase of 5.4% compared to last year. "Revenue in our Professional, Technical, and Staffing Alternatives (PTSA) segment, which accounted for 20% of total sales, increased 0.9% year over year in the third quarter. Operating earnings totaled $20.8 million and increased 25.0% on a year over year basis. "Revenue in our International segment, which accounted for 36% of total sales, increased 14.9% year over year in the third quarter. Operating earnings totaled $10.4 million, and increased 77.9% compared to last year. "On a constant currency basis, International segment revenue increased 10.8% year over year in the third quarter. On a constant currency basis, total company revenue increased 4.2% year over year in the third quarter. "Corporate expenses totaled $38.5 million and increased 6.8% compared to last year. Operating earnings totaled $25.3 million, and increased 45.7% on a year over year basis." Mr. Camden concluded, "We expect fourth quarter 2006 earnings to be in the range of $0.46 to $0.51 per share, as compared to $0.37 per share in the fourth quarter of 2005. This guidance includes a tax rate of approximately 24%, which assumes legislation to retroactively extend Work Opportunity Credits to the beginning of 2006 will be signed during the fourth quarter. For the full year, we now forecast earnings between $1.54 and $1.59 per share." In conjunction with its third quarter earnings release, Kelly Services, Inc. will host a conference call at 9:00 a.m. (ET) on October 24, 2006 to review the results and answer questions. The call may be accessed in one of the following ways: Via the Telephone: U.S. 1-866-269-9613 International 1-651-291-0900 The pass code is Kelly Services Via the Internet: The call is also available via the internet through the Kelly Services website: http://www.kellyservices.com/ This release contains statements that are forward looking in nature and accordingly, are subject to risks and uncertainties. These factors include: competition, changing market and economic conditions, currency fluctuations, changes in laws and regulations, including tax laws, and other factors discussed in this release and in the company's filings with the Securities and Exchange Commission. Actual results may differ materially from any projections contained herein. Kelly Services, Inc. (NASDAQ:KELYANASDAQ:KELYB) is a Fortune 500 company headquartered in Troy, Mich., offering staffing solutions that include temporary staffing services, staff leasing, outsourcing, vendor on-site and full-time placement. Kelly operates in 30 countries and territories. Kelly provides employment to more than 700,000 employees annually, with skills including office services, accounting, engineering, information technology, law, science, marketing, light industrial, education, health care, and home care. Revenue in 2005 was $5.3 billion. Visit http://www.kellyservices.com/ . KELLY SERVICES, INC. AND SUBSIDIARIES STATEMENTS OF EARNINGS FOR THE 13 WEEKS ENDED OCTOBER 1, 2006 AND OCTOBER 2, 2005 (UNAUDITED) (In thousands of dollars except per share data) 2006 2005 Change % Change Revenue from services $1,418,804 $1,344,644 $74,160 5.5% Cost of services 1,180,207 1,126,466 53,741 4.8 Gross profit 238,597 218,178 20,419 9.4 Selling, general and administrative expenses 213,345 200,849 12,496 6.2 Earnings from operations 25,252 17,329 7,923 45.7 Other income, net 348 10 338 NM Earnings before taxes 25,600 17,339 8,261 47.6 Income taxes 7,782 4,664 3,118 66.9 Net earnings $17,818 $12,675 $5,143 40.6% Basic earnings per share $0.49 $0.35 $0.14 40.0% Diluted earnings per share $0.49 $0.35 $0.14 40.0% STATISTICS: Gross profit rate 16.8% 16.2% 0.6% Expenses as a % of revenue 15.0 14.9 0.1 % Return - Earnings from operations 1.8 1.3 0.5 Earnings before taxes 1.8 1.3 0.5 Net earnings 1.3 0.9 0.4 Effective income tax rate 30.4% 26.9% 3.5% Average number of shares outstanding (thousands): Basic 35,997 35,725 Diluted 36,225 36,006 KELLY SERVICES, INC. AND SUBSIDIARIES STATEMENTS OF EARNINGS FOR THE 39 WEEKS ENDED OCTOBER 1, 2006 AND OCTOBER 2, 2005 (UNAUDITED) (In thousands of dollars except per share data) 2006 2005 Change % Change Revenue from services $4,195,302 $3,905,883 $289,419 7.4% Cost of services 3,507,120 3,269,519 237,601 7.3 Gross profit 688,182 636,364 51,818 8.1 Selling, general and administrative expenses 628,167 599,332 28,835 4.8 Earnings from operations 60,015 37,032 22,983 62.1 Other income (expense), net 853 (177) 1,030 NM Earnings before taxes 60,868 36,855 24,013 65.2 Income taxes 21,819 10,909 10,910 100.0 Net earnings $39,049 $25,946 $13,103 50.5% Basic earnings per share $1.09 $0.73 $0.36 49.3% Diluted earnings per share $1.08 $0.72 $0.36 50.0% STATISTICS: Gross profit rate 16.4% 16.3% 0.1% Expenses as a % of revenue 15.0 15.3 (0.3) % Return - Earnings from operations 1.4 0.9 0.5 Earnings before taxes 1.5 0.9 0.6 Net earnings 0.9 0.7 0.2 Effective income tax rate 35.8% 29.6% 6.2% Average number of shares outstanding (thousands): Basic 35,937 35,619 Diluted 36,226 35,903 KELLY SERVICES, INC. AND SUBSIDIARIES RESULTS OF OPERATIONS BY SEGMENT (UNAUDITED) (In thousands of dollars) Third Quarter 2006 2005 Change % Change Revenue from Services: U.S. Commercial Staffing $625,241 $619,324 $5,917 1.0% PTSA 287,592 284,889 2,703 0.9 International 505,971 440,431 65,540 14.9 Consolidated Total $1,418,804 $1,344,644 $74,160 5.5% Earnings from Operations: U.S. Commercial Staffing $32,531 $30,866 $1,665 5.4% PTSA 20,821 16,659 4,162 25.0 International 10,390 5,842 4,548 77.9 Corporate Expense (38,490) (36,038) (2,452) (6.8) Consolidated Total $25,252 $17,329 $7,923 45.7% September Year to Date 2006 2005 Change % Change Revenue from Services: U.S. Commercial Staffing $1,883,297 $1,787,263 $96,034 5.4% PTSA 879,190 838,275 40,915 4.9 International 1,432,815 1,280,345 152,470 11.9 Consolidated Total $4,195,302 $3,905,883 $289,419 7.4% Earnings from Operations: U.S. Commercial Staffing $95,619 $85,144 $10,475 12.3% PTSA 58,644 47,467 11,177 23.5 International 18,889 9,819 9,070 92.4 Corporate Expense (113,137) (105,398) (7,739) (7.3) Consolidated Total $60,015 $37,032 $22,983 62.1% Note: Earnings from Operations for 2005 were reclassified to reflect the chargeback of payroll, billing and accounts receivable costs previously included in Corporate Expense to the U.S. Commercial, PTSA and International segments. This change did not affect Consolidated Total Earnings from Operations. KELLY SERVICES, INC. AND SUBSIDIARIES RECONCILIATION OF CONSTANT CURRENCY REVENUE FROM SERVICES TO REPORTED REVENUE FROM SERVICES (UNAUDITED) (In thousands of dollars) Third Quarter 2006 2005 Change % Change U.S. Commercial $625,241 $619,324 $5,917 1.0% PTSA 287,592 284,889 2,703 0.9 International - constant currency* 487,977 440,431 47,546 10.8 Revenue from services - constant currency 1,400,810 1,344,644 56,166 4.2% Foreign currency impact 17,994 17,994 Revenue from services $1,418,804 $1,344,644 $74,160 5.5% September Year to Date 2006 2005 Change % Change U.S. Commercial $1,883,297 $1,787,263 $96,034 5.4% PTSA 879,190 838,275 40,915 4.9 International - constant currency* 1,430,407 1,280,345 150,062 11.7 Revenue from services - constant currency 4,192,894 3,905,883 287,011 7.3% Foreign currency impact 2,408 2,408 Revenue from services $4,195,302 $3,905,883 $289,419 7.4% * Information on constant currencies is provided to allow investors to separate the impact of foreign currency translations on reported results. Constant currency results are calculated by translating the current year results at prior year average exchange rates. KELLY SERVICES, INC. AND SUBSIDIARIES BALANCE SHEETS (UNAUDITED) (In thousands of dollars) October 1, January 1, October 2, 2006 2006 2005 Current Assets Cash and equivalents $77,493 $63,699 $59,286 Short-term investments 227 154 221 Trade accounts receivable, less allowances of $17,840, $16,648 and $17,320, respectively 878,336 803,812 811,583 Prepaid expenses and other current assets 44,849 47,434 47,032 Deferred taxes 34,693 33,805 37,702 Total current assets 1,035,598 948,904 955,824 Property and Equipment, Net 162,791 165,757 165,947 Noncurrent Deferred Taxes 23,128 22,088 18,353 Goodwill, Net 94,592 88,217 88,723 Other Assets 113,599 87,891 87,082 Total Assets $1,429,708 $1,312,857 $1,315,929 Current Liabilities Short-term borrowings $58,375 $56,644 $47,991 Accounts payable 125,213 110,411 111,246 Accrued payroll and related taxes 293,223 263,112 270,672 Accrued insurance 32,728 34,097 33,683 Income and other taxes 63,559 56,651 64,561 Total current liabilities 573,098 520,915 528,153 Noncurrent Liabilities Accrued insurance 53,294 54,517 59,883 Accrued retirement benefits 63,641 57,443 56,024 Other long-term liabilities 15,238 7,939 8,236 Total noncurrent liabilities 132,173 119,899 124,143 Stockholders' Equity Common stock 40,116 40,116 40,116 Treasury stock (86,665) (90,919) (91,666) Paid-in capital 28,955 27,015 26,320 Earnings invested in the business 715,249 688,033 678,298 Accumulated other comprehensive income 26,782 7,798 10,565 Total stockholders' equity 724,437 672,043 663,633 Total Liabilities and Stockholders' Equity $1,429,708 $1,312,857 $1,315,929 STATISTICS: Working Capital $462,500 $427,989 $427,671 Current Ratio 1.8 1.8 1.8 Debt-to-capital % 7.5% 7.8% 6.7% Global Days Sales Outstanding Quarter 56 53 55 Year-to-date 57 55 57 KELLY SERVICES, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE 39 WEEKS ENDED OCTOBER 1, 2006 AND OCTOBER 2, 2005 (UNAUDITED) (In thousands of dollars) 2006 2005 Cash flows from operating activities Net earnings $39,049 $25,946 Noncash adjustments: Depreciation and amortization 30,949 31,709 Stock-based compensation 3,913 2,448 Increase in trade accounts receivable, net (56,252) (103,981) Changes in other operating assets and liabilities 41,455 58,784 Net cash from operating activities 59,114 14,906 Cash flows from investing activities Capital expenditures (26,111) (17,899) (Increase) decrease in short-term investments (73) 1,135 Increase in other assets (468) (8,422) Acquisition of company, net of cash received (4,531) - Investment in unconsolidated affiliates - (19,681) Net cash from investing activities (31,183) (44,867) Cash flows from financing activities Net (decrease) increase in short- term borrowings (289) 16,973 Dividend payments (11,833) (10,687) Stock options and other stock sales 1,683 5,031 Other financing activities (4,504) 1,168 Net cash from financing activities (14,943) 12,485 Effect of exchange rates on cash and equivalents 806 (2,586) Net change in cash and equivalents 13,794 (20,062) Cash and equivalents at beginning of period 63,699 79,348 Cash and equivalents at end of period $77,493 $59,286 http://www.newscom.com/cgi-bin/prnh/19991208/KELLYLOGO DATASOURCE: Kelly Services, Inc. CONTACT: ANALYST CONTACT: James Polehna, +1-248-244-4586, , or MEDIA CONTACT: Renee Walker, +1-248-244-5362, , both of Kelly Services, Inc. Web site: http://www.kellyservices.com/

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