Annual Report (Form 10-K), fiscal year 1994

ITEM 1. DESCRIPTION OF BUSINESS.
(a) General Development of Business. Registrant, a successor to the business established by William R. Kelly in 1946, was incorporated under the laws of Delaware on August 27, 1952. Throughout its existence, registrant has been engaged in the temporary help service business. During the last fiscal year, registrant continued to provide temporary help services and other staffing and human resources services to a diversified group of customers.
(b) Financial Information about Industry Segments. Registrant operates in a single industry segment of providing temporary help services. The financial information concerning registrant is included in Item 8 in Part II of this filing.
(c) Narrative Description of Business.
(i) Principal Services Rendered. Registrant, and its subsidiaries, which are service organizations, provide temporary office clerical, marketing, technical, light industrial, home care services to those who need help with their daily living needs and personal care, managed services, testing and training and other business services to a diversified group of customers through offices located in major cities of the United States, Australia, Canada, Mexico, England, France, Ireland, The Netherlands, Denmark, New Zealand, Norway, Scotland, and Wales. Although registrant operates in a single industry segment, these services are generally furnished under the name of Kelly Temporary Services, with the following specific services provided: office clerical, marketing, technical, semi-skilled light industrial, managed services, skills testing and computer-based training. Staff leasing services are provided in California through Your Staff, a subsidiary of the registrant. Home care services to those who need help with their daily living needs and personal care are furnished under the name of Kelly Assisted Living Services, Inc., which is a wholly owned subsidiary of registrant. Registrant performs these services through its temporary employees by assigning them to work on the premises of registrant's customers.
The temporary services furnished by registrant afford economies and flexibility in meeting uneven or peak work loads caused by such predictable factors as vacations, inventories, month-end activities, special projects or new promotions and such non-predictable factors as illnesses or emergencies. When work peaks occur which cannot be handled by the customer's normal staff, the customer can temporarily supplement regular personnel by the use of registrant's services. The cost and inconvenience to the customer of hiring additional employees, including advertising, interviewing, screening, testing and training are eliminated. Also, recordkeeping is simplified because the customer pays only one flat rate, based on hours of service furnished by registrant.
Registrant serves a wide cross-section of customers from industry, commerce, the professions, government, and individuals. During recent years over 185,000 customers, including the largest industrial corporations in the world, have used registrant's services. There have been no significant changes in the services rendered or in the markets or methods of distribution since the beginning of registrant's fiscal year.
Registrant operates through approximately 900 offices located in all 50 states, the District of Columbia, Puerto Rico, Australia, Mexico, Canada, England, France, Ireland, The Netherlands, Denmark, New Zealand, Norway, Scotland, and Wales. These offices may be classified as offices operated directly by registrant (or one of its wholly owned subsidiaries) and offices operated by licensees. Each office provides the services of one or more of the divisions or subsidiaries. Approximately ninety-nine percent of the offices are operated directly by registrant (or one of its wholly owned subsidiaries). The remaining offices are operated by 10 licensees.
(ii) New Services. There are no new industry segments that the registrant is planning to enter or new service areas that will require a material investment of assets.
(iii) Raw Materials. Registrant is involved in a service business and raw materials are nonexistent in the business.
(iv) Service Marks. Registrant is the owner of several service marks, which are registered with the United States Patent and Trade Mark Office and in a number of foreign countries. The most significant mark is "Kelly Girl", which has indeterminable duration.
(v) Seasonal Business Implications. Registrant's business is not seasonal.
(vi) Working Capital. Registrant believes there are no unusual or special working capital requirements in the temporary help industry.
(vii) Customers. The business of registrant and its subsidiaries is not dependent upon either a single customer or a limited number of customers.
(viii) Backlog. Backlog of orders is not material to the business of registrant.
(ix) Government Contracts. Although registrant conducts business under various government contracts, that portion of registrant's business is not significant.
(x) Competition. Registrant is one of the largest suppliers of temporary help services in the United States. Several companies which operate nationally offer services competitive to those provided by registrant, and a large number of organizations operating regionally or locally compete in varying degrees in different localities where registrant operates branch offices. The most significant competitive factors are price and service to customers in the form of timely, efficient and reliable temporary help.
(xi) Research Activities. Registrant's expenditure for research and the number of people involved are not material.
(xii) Environmental Matters. Registrant is involved in a service business and is not affected by federal, state and local provisions regulating the discharge of materials into the environment.
(xiii) Employees. Registrant and subsidiaries employ on a full time basis approximately 800 persons at its headquarters in Troy, Michigan, and approximately 3,500 persons in branch offices operated directly by registrant. Registrant employed in the last fiscal year 630,000 men and women for temporary periods. As the employer, registrant is responsible for and pays Social Security taxes, workers' compensation, federal and state unemployment compensation taxes, liability insurance and other similar costs, and is responsible for payroll deductions of Social Security and income taxes. Although the work may be done in the office of the registrant's customer, registrant retains the right of control over its employees, including their assignment and reassignment.
(d) Foreign Operations. Registrant operates in major cities in Australia, Canada, Mexico, England, France, Ireland, The Netherlands, Denmark, New Zealand, Norway, Scotland, and Wales; sales for these operations totalled $235,000,000 in 1993, $225,000,000 in 1992 and $189,000,000 in 1991; operating losses totalled $2,500,000 in 1993, $5,600,000 in 1992 and $4,100,000 in 1991. Identifiable assets of these foreign operations were $70,900,000, $69,300,000 and $65,700,000 at the end of 1993, 1992 and 1991, respectively.
ITEM 2.



ITEM 2. PROPERTIES.
Registrant owns the premises in Troy, Michigan, from which its headquarters, subsidiaries and divisional offices are presently operated. Registrant purchased the original headquarters building in Troy, Michigan, in 1977 and has expanded operations into an adjacent building that was purchased in 1991. The combined floor space for the headquarters complex approximates 175,000 square feet. The buildings are in good condition, are considered to be adequate for the uses to which they are being put and are in regular use. In addition, registrant owns vacant land in Troy and northern Oakland County, Michigan, for future expansion. Registrant's direct operated branches are conducted from premises which are leased. A majority of the leases are for fixed terms, from one to five years. Registrant owns virtually all office furniture and equipment used in its headquarters building and branch offices.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
The Internal Revenue Service (IRS) has proposed the imposition of an accumulated earnings tax totalling $49 million for 1988, 1989 and 1990 in connection with an audit of the Company's consolidated federal tax liability. The Company believes that there is no factual or legal basis for the imposition of any accumulated earnings tax and that the Company is fully justified in making provision to meet the needs of Kelly's expanding business operations. Moreover, tax counsel has advised that a substantial portion of the IRS proposal results from computational and clerical errors in the calculation of the tax. The Company is defending its position through the IRS appeal process and into the courts if necessary. In the opinion of the Company, the ultimate resolution of this issue will not materially affect its financial statements.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders in the fourth quarter of 1993.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
Kelly Services' stock is traded over-the-counter in the NASDAQ National Market System (NMS). The high and low selling prices for the Class A common stock and Class B common stock as quoted by the National Association of Securities Dealers, Inc. and the dividends paid on the common stock for each quarterly period in the last two fiscal years are reported below:
Per share amounts (in dollars)* ---------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- -------
- ---- Stock Prices Class A common High . . . . . . . . $36 5/8 $32 5/8 $33 1/2 $29 1/2 $36 5/8 Low . . . . . . . . 30 5/8 24 1/4 23 22 22 Class B common High . . . . . . . . 34 1/4 32 7/8 33 31 34 1/4 Low . . . . . . . . 31 5/8 27 27 27 27
Dividends. . . . . . . . .152 .160 .160 .160 .632
- ---- Stock Prices Class A common High . . . . . . . . 30 3/8 29 3/4 27 3/8 35 35 Low . . . . . . . . 22 1/4 22 3/4 22 1/4 26 1/4 22 1/4 Class B common High . . . . . . . . 29 5/8 28 27 5/8 34 3/8 34 3/8 Low . . . . . . . . 24 26 24 3/8 25 5/8 24
Dividends. . . . . . . . .144 .144 .144 .152 .584
* Adjusted for the 5-for-4 stock split of May, 1993.
The approximate number of holders of record of the Class A and Class B common stock, par value $1.00, of registrant were 1,323 and 320, respectively, as of March 1, 1994.
ITEM 7.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
1993 versus 1992
Sales of services reached a record level of nearly $2 billion in 1993, an increase of 14% over sales of $1.7 billion in 1992 (a 53-week year). Excluding the 53rd week from the previous year, the 1993 sales were 16% over 1992. This improvement was attributable principally to increases in domestic sales volume. International sales also reflected a strong increase; however, the strengthening of the U.S. dollar moderated those results.
Cost of services, representing payroll and related taxes and benefits for temporary employees, increased 15% over 1992. Strong sales volume and increases in pay rates and payroll taxes accounted for this change. Competitive pressures during 1993 were reflected in margins as gross profit rates declined from 19.9% in 1992 to 19.5% in 1993. The trend in margins during the last half of 1993 was positive, however.
Selling, general and administrative expenses rose 10% during 1993. As a percent of sales, administrative expenses declined from 16.9% to 16.2% in 1993, the lowest rate in the Company's history. Branch automation has proven to be an effective tool in achieving this productivity.
Earnings from operations this year totalled $63.9 million, an increase of 25% over 1992. The 1993 results, after restating the 1992 results to exclude the 53rd week, were 31% over last year.
Interest income for 1993 was $7 million, down 29% from the 1992 level of $9.8 million. The combination of a smaller investment portfolio and a reduction in the interest rates accounted for the decline in interest income during the year.
Earnings before taxes were $70.9 million, an increase of 16%. Pretax margins were 3.6% for both 1993 and 1992. Income taxes increased 21% over 1992, with an effective tax rate of 37.1%, compared to a 35.7% rate in 1992. The current year tax rate rose as a result of the federal statutory rate increase and a reduction in tax exempt interest income.
Net earnings were $44.6 million for 1993, 14% above the 1992 results of $39.2 million. The rate of return on sales was 2.3% in both years. Earnings per share were $1.18 in 1993 and $1.04 in 1992. The 53rd week added $.04 to earnings per share in 1992. The per share amounts have been adjusted for the five-for-four stock split in 1993.
1992 versus 1991
Sales of services increased 20% in 1992, reflecting improved business conditions. Cost of services increased 23% in 1992, reflecting greater sales volume and increases in pay rates and benefits. Competitive market pressures precluded these additional costs from being fully recovered by price increases. As a result, gross profit margins were 1.8 percentage points below the previous year. Selling, general and administrative expenses rose 10% in 1992. Expenses as a percentage of sales were 16.9% in 1992, compared to 18.4% in 1991. Interest income for 1992 totaled $9.8 million, down 28% from 1991 results. Lower interest rates, along with a decline in funds available for investment, accounted for the reduction in interest income.
Earnings before taxes were $61 million, an increase of 1.3% over 1991. Pretax margins were 3.6% in 1992 and 4.2% in 1991. The effective income tax rate on pretax earnings was 35.7%, compared to 35.9% in 1991.
Net earnings were $39.2 million in 1992, an increase of 1.6% over 1991 earnings of $38.6 million. Earnings per common share were $1.04 in 1992 versus $1.03 per share in 1991. The per share amounts have been adjusted for the five-for-four stock split in 1993.
Liquidity and Capital Resources
Cash flow from operations for 1993 was $44.9 million. Funds were used for additional working capital needs, cash dividends, the purchase of capital equipment and investments in acquisitions and other business expansion. Cash provided from operations totaled $12.2 million in 1992 and $58.5 million in 1991. The Company has used most of these funds in its operations and payments of dividends.
The Company's working capital of $291 million increased 4% during the year, after a 2.5% decline in 1992 and no change in 1991. The current ratios were 2.9, 3.2 and 3.3 in 1993, 1992 and 1991, respectively.
Stockholders' equity grew 5% in 1993, which was higher than the 3% increase reported in 1992 and equal to the 5% increase of 1991. The return on average stockholders' equity was 11.8% this year, an improvement over the previous two years' rates of 10.9% in 1992 and 11.1% in 1991. A five-for-four stock split was approved by the Board of Directors in May, 1993. Equity per share at year-end was $10.23 at 1993, $9.74 at 1992 and $9.43 at 1991. Dividends per share over the past three years were $.63 in 1993, $.58 in 1992 and $.57 in 1991. The Company believes that its strong financial position, including the absence of any long-term debt, will allow it to meet new capital requirements as well as to aggressively pursue growth opportunities.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this Item are set in the accompanying index on page 13 of this filing and are presented in pages 14-25.
ITEM 9.

ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
Information required by Part III with respect to Directors and Executive Officers of the registrant, except as set forth under the title "Executive Officers of the Registrant" which is included on page 9, (Item 10), Executive Compensation (Item 11), Security Ownership of Certain Beneficial Owners and Management (Item 12), and Certain Relationships and Related Transactions (Item 13) is to be included in a definitive proxy statement filed by the registrant not later than 120 days after the close of its fiscal year and such proxy statement, when filed, is incorporated herein by reference.
PART IV
ITEM 14.







ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial statements -
Report of Independent Accountants
Balance Sheets at January 2, 1994, January 3, 1993 and December 29, 1991
Statements of Earnings for the three fiscal years ended January 2, 1994
Statements of Cash Flows for the three fiscal years ended January 2, 1994
Statements of Stockholders' Equity for the three fiscal years ended January 2, 1994
Notes to Financial Statements
2. Financial Statement Schedules -
As of January 2, 1994:
I - Marketable Securities -- Other Investments
For the three fiscal years ended January 2, 1994:
VIII - Valuation Reserves
3. The Exhibits are listed in the Index to Exhibits Required by Item 601 of Regulation S-K at Item (c) below and included at page 26 which is incorporated herein by reference.
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
No additional financial information has been provided for the registrant as an individual company since the total amount of net assets of subsidiaries which are restricted as to transfer to the registrant through intercompany loans, advances or cash dividends does not exceed 25 percent of total consolidated net assets at January 2, 1994.
(b) No reports on Form 8-K were filed during the last quarter of the period covered by this report.
(c) The Index to Exhibits and required Exhibits are included following the Financial Statement Schedules beginning at page 26 of this filing.
(d) The Index to Financial Statements and Supplemental Schedules are included following the signatures beginning at page 13 of this filing.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 11, 1994 KELLY SERVICES, INC. Registrant
By /s/ R. F. Stoner --------------------------------------- R. F. Stoner Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 11, 1994 * W. R. Kelly -------------------------------------- W. R. Kelly Chairman of the Board
Date: March 11, 1994 * T. E. Adderley -------------------------------------- T. E. Adderley President, Chief Executive Officer and Director (Principal Executive Officer)
Date: March 11, 1994 * C. V. Fricke -------------------------------------- C. V. Fricke Director
Date: March 11, 1994 * H. E. Guenther -------------------------------------- H. E. Guenther Director
Date: March 11, 1994 * V. G. Istock -------------------------------------- V. G. Istock Director
Date: March 11, 1994 /s/ R. F. Stoner -------------------------------------- R. F. Stoner Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
Date: March 11, 1994 *By /s/ R. F. Stoner -------------------------------------- R. F. Stoner Attorney-in-Fact
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
Kelly Services, Inc. and Subsidiaries
Page Reference in Report on Form 10-K --------------
Report of Independent Accountants 14
Balance Sheets at January 2, 1994, January 3, 1993 and December 29, 1991 15
Statements of Earnings for the three fiscal years ended January 2, 1994 16
Statements of Cash Flows for the three fiscal years ended January 2, 1994 17
Statements of Stockholders' Equity for the three fiscal years ended January 2, 1994 18
Notes to Financial Statements 19 - 23
Financial Statement Schedules -
Schedule I - Marketable Securities-- Other Investments 24
Schedule VIII - Valuation Reserves 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors, Kelly Services, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Kelly Services, Inc. and its subsidiaries at January 2, 1994, January 3, 1993 and December 29, 1991, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse - -------------------- Price Waterhouse Detroit, Michigan February 3, 1994
NOTES TO FINANCIAL STATEMENTS Kelly Services, Inc. and Subsidiaries (In thousands of dollars except share and per share items)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's fiscal year ends on the Sunday nearest to December 31. The three most recent years ended at January 2, 1994 (1993), January 3, 1993 (1992) and December 29, 1991. The current fiscal year is a 52-week period, while 1992 was a 53-week period and 1991 included 52 weeks.
The Company operates in the single industry segment of providing temporary help services to a diversified group of customers.
The financial statements consolidate the accounts and operations of the Company and its subsidiaries, all of which are wholly owned, after elimination of all intercompany accounts and transactions. The accounts of the Company's international operations are translated at appropriate rates of exchange. The Company's international operations are conducted in Canada, Europe, Australia, New Zealand and Mexico. Sales for these operations totalled $235,000 in 1993, $225,000 in 1992 and $189,000 in 1991; operating losses totalled $2,500 in 1993, $5,600 in 1992, and $4,100 in 1991. Identifiable assets are $70,900, $69,300 and $65,700 at the end of 1993, 1992 and 1991, respectively.
Cash and equivalents include highly liquid debt instruments purchased with original maturities of three months or less. Short-term investments include debt instruments having an original maturity of more than three months and are stated at cost and accrued interest, which approximates market.
Properties are stated at cost and include expenditures for additions and major improvements. Fully depreciated assets are eliminated from the accounts. For financial reporting purposes, assets are depreciated over their estimated useful lives, principally by the straight-line method.
Earnings per share are based on the average number of Class A and Class B common shares outstanding during the year. All per share and share data in the accompanying financial statements and notes have been restated to give effect to stock splits.
Certain prior year amounts have been reclassified to conform with the current presentation.
OTHER ASSETS
Other assets include $17,900, $12,100 and $12,700 of intangible assets at January 2, 1994, January 3, 1993 and December 29, 1991, respectively, representing primarily the cost over net assets of businesses acquired. These intangible assets are being amortized over periods not exceeding 40 years. Other balances in this account include deposits and cash values of company owned life insurances.
NOTES TO FINANCIAL STATEMENTS (In thousands of dollars except share and per share items) (continued)
CAPITALIZATION AND STOCK SPLITS
The authorized capital stock of the Company is 100,000,000 shares of Class A common stock and 10,000,000 shares of Class B common stock. Class A shares have no voting rights and are not convertible. Class B shares have voting rights and are convertible into Class A shares on a share-for-share basis at any time. Both classes of stock have identical rights in the event of liquidation.
In May 1993, the Board of Directors declared a five-for-four split of the Class A and Class B common stock. At the same time the Board increased the number of authorized Class A shares to 100,000,000, from 50,000,000.
RETIREMENT BENEFITS
The Company provides a qualified defined contribution plan covering substantially all full-time employees, excepting officers and certain other management employees. Upon approval by the Board of Directors, a contribution based on eligible wages is funded annually. The plan offers a savings feature and Company matching contributions. Assets of this plan are held in trust for the sole benefit of employees.
For officers and certain other management employees, the Company provides a nonqualified defined contribution plan. Upon approval by the Board of Directors, a contribution based on eligible wages is set aside annually. This plan also includes provisions for salary deferrals and Company matching contributions.
The cost of retirement benefits totalled $3,430 in 1993, $3,365 in 1992 and $3,092 in 1991.
LEASE COMMITMENTS
The Company conducts its field operations primarily in leased facilities. The following are future minimum lease commitments for the five-year period commencing 1994: $23,800, $17,700, $12,100, $8,100 and $5,300. Lease expenses for the fiscal years 1993, 1992, and 1991 were $24,900, $24,400 and $24,400, respectively.
NOTES TO FINANCIAL STATEMENTS (In thousands of dollars except share and per share items) (continued)
PERFORMANCE INCENTIVE PLAN
In May 1992, the stockholders approved the Performance Incentive Plan (the "Plan") to replace the Incentive Stock Option Plan which expired earlier that year. Under the Plan, stock options (both incentive and nonqualified), Stock Appreciation Rights (SARs), restricted awards, and performance awards may be granted to key employees, utilizing the Company's Class A stock. Stock options may not be granted at prices less than the fair market value on the date of grant, nor for a term to exceed 10 years.
The Plan provides that the maximum number of shares available for grants is 5 percent of the outstanding Class A stock, adjusted for Plan activity over the preceding 5 years.
As of January 2, 1994, no SARs, restricted awards, or performance awards have been granted under the Plan.
The combined 1993 activity under the two plans identified above is as follows:
Number of Exercise Class A Price Range Option Activity Shares Per Share ----------------------------- --------- ---------------
Outstanding at beginning of year . . . . . . . . . . 158,040 $21.60 - $33.80 Granted . . . . . . . . . . . 367,271 $24.75 - $33.60 Exercised . . . . . . . . . . (53,653) $21.60 - $22.60 Cancelled . . . . . . . . . . (16,300) $21.60 - $29.20 -------- Outstanding at end of year. . 455,358 $21.92 - $33.80 ========
At the end of 1993, there were 1,319,609 shares available for future grants.
NOTES TO FINANCIAL STATEMENTS (In thousands of dollars except share and per share items) (continued)
INCOME TAXES
In January 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. Previously the Company used SFAS 96. Financial statements for prior years have not been restated and the cumulative effect of the accounting change was not material.
The following summarizes the differences between income taxes for financial reporting purposes and the United States statutory tax rate for the years 1993, 1992 and 1991.
1993 1992 1991 ---- ---- ----
Statutory rate . . . . . . . . . . . . 35.0% 34.0% 34.0% State and local taxes, net of federal benefit. . . . . . . . . . . 5.2 5.4 5.5 Tax exempt income and other tax credits. . . . . . . . . . . . . . . (2.6) (4.1) (4.2) Other. . . . . . . . . . . . . . . . . (0.5) 0.4 0.6 ----- ----- -----
Effective tax rate . . . . . . . . . . 37.1% 35.7% 35.9% ===== ===== =====
Deferred taxes are provided for the effect of temporary differences between financial and tax reporting. These differences are related principally to depreciation, benefit plan expenses and provision for workers compensation claims.
In August 1993, the Omnibus Budget Reconciliation Act of 1993 was signed into law. The Act increased the U.S. corporate statutory tax rate from 34% to 35% for years beginning after December 31, 1992, changed the deductibility of certain expenses and extended certain tax credits. The effect of this retroactive increase in the statutory tax rate was partially offset by a gain from the revaluation of net deferred tax assets.
The Internal Revenue Service (IRS) has proposed the imposition of an accumulated earnings tax totalling $49 million for 1988, 1989 and 1990 in connection with an audit of the Company's consolidated federal tax liability. The Company believes that there is no factual or legal basis for the imposition of any accumulated earnings tax and that the Company is fully justified in making provision to meet the needs of Kelly's expanding business operations. Moreover, tax counsel has advised that a substantial portion of the IRS proposal results from computational and clerical errors in the calculation of the tax. The Company is defending its position through the IRS appeal process and into the courts if necessary. In the opinion of the Company, the ultimate resolution of this issue will not materially affect its financial statements.
The Company paid income taxes of $34,800 in 1993, $21,402 in 1992 and $24,017 in 1991.