Kelly Services, Inc. Annual Report 2001

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FY2001 Annual Report · Kelly Services, Inc.

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999 West Big Beaver Road

Troy, Michigan 48084

248-362-4444

www.kellyservices.com

2001 Annual Report

I N

M E M O R Y

O F

T E R E N C E E . “ T E D ” A D D E R L E Y J R .
1 9 7 9 - 2 0 0 1

The tragic events of September 11, 2001, touched our lives in

a very personal way. Terence E. Adderley Jr. — son of our

Chairman and CEO Terence E. Adderley and grandson of our

company’s founder William Russell Kelly — was among those

lost in the World Trade Center. Ted, a recent graduate of

Vanderbilt University, was working as a securities analyst at

Fred Alger Management. This bright, energetic young man was

making his mark in life and in business. He will be remembered

for his thoughtfulness toward others and generosity of heart.
We are deeply saddened by his death. Ted will be greatly missed.
We are deeply saddened by his death. Ted will be greatly missed.

C O R P O R A T E P R O F I L E

William Russell Kelly founded Kelly Services, Inc. and

the modern temporary help industry in 1946. Today,

Kelly® is a leading global provider of staffing services.

Over the past 55 years, Kelly’s range of staffing

solutions has grown steadily to match the needs of our

global customers. We assign

temporary employees in a

wide variety of disciplines,

including: office services,

finance, engineering,

information technology,

law, science, healthcare,

marketing, call centers,

light industrial, education, and home care.

We have more than 2,300 company-owned and

operated offices in 26 countries. Last year, the company

assigned more than 700,000 employees to work for

200,000 customers. Sales in 2001 were $4.3 billion.

Kelly is headquartered in Troy, Michigan, U.S.A.

C O N T E N T S

Financial Highlights

Letter to Stockholders

Staffing Solutions

U.S. Commercial
Professional and Technical
Staffing Alternatives
International

Staffing the World

Directors and Officers

Financial Contents

6
8
10
11

Financial

I G H T

H I G H L

2001

2000
( In thousands of dollars except per share items)

Change

Sales of services

$4,256,892

$4,487,291

Earnings before income taxes

Income taxes

Net earnings

Basic earnings per share

Diluted earnings per share

Dividends per share

Working capital

Stockholders’ equity

Total assets

27,586

11,037

16,549

.46

.85

322,013

607,155

145,276

58,100

87,176

2.44

2.43

.99

336,240

623,469

1,039,381

1,089,576

(5.1)%

(81.0)%

(81.1)%

(14.1)%

(4.2)%

(2.6)%

(4.6)%

Sales of Services
(Billions of dollars)

$4.3

$4.1

$3.9

$4.5

$4.3

Diluted Earnings Per Share

$2.36 $2.43

$2.23

$2.12

$.46
$.46

Terence E. Adderley, Chairman

and Chief Executive Officer (left);

Carl T. Camden, President and

Chief Operating Officer (right).

T O

O U R

S T O C K H O L D E

The world has changed since we published our last annual report: our lives

have been profoundly affected by the tragic events of September 11, both in

business and on a deeply personal level.

E c o n o m i c I m p a c t o f a R e c e s s i o n

Prior to September, the economy began to slow significantly and our
business felt the impact. After months of speculation and three consecutive
quarters of economic stagnation, economists finally agreed: we were in a
recession.

Contrary to popular myth, the staffing industry does not do well in an
economic downturn. As businesses seek to lower costs by making reductions
in their workforce, the temporary staff budget is often first to be cut. This
proved to be the case in 2001, and our sales and net earnings were
significantly affected.

2 0 0 1 R e s u l t s

Kelly’s sales for the year 2001 totaled nearly $4.3 billion, down 5% from
our record sales of $4.5 billion for the previous year. Net earnings for 2001
were $16.5 million, 81% lower than the $87 million we earned in 2000.
Diluted earnings per share were $.46 compared to $2.43 per share last year.

However, our performance was better than might have been expected,
given the severity of this recession. We put more than 700,000 people to
work, retained existing customers, gained new ones, turned a profit, and
grew market share. In fact, we opened more than 50 branches during 2001,
including Kelly’s first office in Hong Kong, our 26th country.

Over the past 55 years,

Kelly has weathered a

number of recessions,

giving us the experience

to manage through the

current economy.

R e s p o n d i n g t o t h e R e c e s s i o n

Over the past 55 years, our company has weathered a number of
recessions, giving us the experience to manage successfully through the
current economy. Our business objectives in this downturn were clear:
preserve our relationships, maintain our branch network, and gain market
share while controlling expenses and improving our financial position.

Strengthening relationships with our customers and temporary
employees was a critical focus in 2001. As demand began to rapidly
decline, we concentrated on helping our customers adjust their workforce
to match their requirements. We also made a conscious decision not to
retreat from markets or from our business lines. At the same time, special
efforts were made to keep our valued temporary employees actively
assigned. As a result, we were able to grow market share.

Controlling expenses also received our full attention. We implemented

expense reduction initiatives at headquarters and across all our business
segments — U.S. Commercial, Professional, Technical and Staffing
Alternatives, and International. We made judicious reductions in staff, both
in the field and at headquarters, and later in the year suspended the
opening of new branches.

In short, Kelly recommitted to the basics that underpin our business:
selling, recruiting, hiring, assigning employees, strengthening relationships
with our customers and temporary employees, and increasing productivity.
These basics continue to apply in all phases of the economic cycle.

S t r e n g t h e n i n g o u r F i n a n c i a l P o s i t i o n

A strong financial position is vital to success during a recession.

In keeping with Kelly’s long-standing conservative accounting and financial
practices, we continued to maintain a strong balance sheet. The company
has no long-term debt, and the modest amount of short-term debt we
carried was reduced during the year.

To further strengthen our cash position, the board of directors reduced

the quarterly dividend on both Class A and Class B common stock, from
$.25 to $.10 per share. While not an easy decision to make, the reduction
aligned us more closely with current dividend practice and measurements.
It is important to note that this has been the only dividend reduction since
Kelly began paying dividends 39 years ago — an achievement very few
companies share.

B u i l d i n g L e a d e r s h i p

Kelly Services® has changed dramatically during the last decade. To
better manage a complex, multibillion-dollar corporation, we realigned the
company into three business segments, increased our focus on domestic and

global expansion, expanded our breadth of services, and assembled a talented
group of executives to guide the company. Our management team represents
a balanced mix of industry veterans and skilled professionals, which positions
us well for the future.

This year, we took another important management step, promoting
Carl Camden to President of Kelly Services and naming him to our board of
directors, effective December 1, 2001. Over the years, Carl has managed a
number of critical areas including Field Operations, Sales, and Marketing.
Only the fourth president in our history, Carl will continue as Chief
Operating Officer, working closely with Terry Adderley, who led the
company through an unprecedented period of growth and expansion during
his 33-year tenure as Kelly’s President. Terry will continue as Chairman
and Chief Executive Officer of Kelly Services.

We also promoted Michael Morrow to Senior Vice President of
Marketing and Marc Rosenow to Senior Vice President of Service. These
individuals are charged with creating innovative products and services to
support both temporary employees and customers.

In October, Eileen Youds joined Kelly as Senior Vice President and
Chief Information Officer. Eileen is responsible for integrating new and
existing global systems to meet the current and future business strategies of
the company.

P o s i t i o n e d f o r R e c o v e r y

Just as recessions vary in severity and length, recoveries differ as well.
History has shown that the demand for temporary staffing increases quickly
as the economy recovers. This has been true for every recession since Kelly
began. While we expect the pattern will be repeated, there are no guarantees.
For that reason, we continue to maintain conservative financial practices,
while aggressively growing our company.

In closing, we want to thank our full-time and temporary employees for
their dedicated efforts during a difficult year. We are also most appreciative
of our customers, whose loyalty sustains us, our board of directors for their
thoughtful guidance, and you, our stockholders, for the confidence you place
in Kelly Services. We will continue to do our best to earn your support.

In 2001, Kelly

recommitted to the

basics of our business:

selling, recruiting, hiring,

assigning employees,

strengthening

relationships, and

increasing productivity.

Terence E. Adderley
Chairman and Chief Executive Officer

Carl T. Camden
President and Chief Operating Officer

U.S. Commercial

Kelly Services hired its first temporary employee — a secretary — in 1946. Today,

U.S. commercial staffing remains the largest segment of our business — nearly 50% of

sales in 2001.

K E L L Y O F F I C E

S E R V I C E S

For over 55 years, more companies have turned to Kelly for temporary and full-time office

help than any other staffing company. Today, our thoroughly skilled, trained, and tested

employees work as desktop publishers, word processors, data entry clerks, receptionists,

and more.

K E L L Y C O N N E C T ®

We provide the most qualified call center personnel for thousands of call centers,

technical support hotlines, and telemarketing units. Our innovative approach to

call center staffing includes tools for recruiting, assessing, training, and retaining

the best customer contact personnel. The KellyConnect training system uses real-

life simulations and assesses on-the-job success before employees are sent to work.

K E L L Y E D U C A T I O N A L
S T A F F I N G ®

Kelly Educational Staffing is the first nationwide program

dedicated to providing qualified substitute teachers for

grades K-12. Our substitutes meet all local certification

requirements, allowing schools to focus on their top

priority: education.

K E L L Y M A R K E T I N G

S E R V I C E S

We provide centralized coordination and local support for our clients’ projects,

including seminars, trade shows, sales promotions, sampling, and more. Our network

of qualified marketing employees helps to reduce clients’

set-up, tear-down, registration, and distribution costs.

K E L L Y E L E C T R O N I C
A S S E M B L Y

S E R V I C E S

Our assemblers, technicians, and quality control specialists are

preferred employees in industries ranging from automotive and

aerospace to pharmaceutical and consumer products. Kelly

utilizes proprietary evaluation tools such as the Kelly Dexterity Indexer System and

Keltronics® to identify the most qualified electronic assembly workers.

K E L L Y

L I G H T

I N D U S T R I A L

S E R V I C E S

When companies need to keep their factories and warehouses operating at peak

capacity, they often rely on our expertise in facilities maintenance, materials handling,

product assembly, and food service.

K E L L Y S E L E C T ®

KellySelect is a temporary-to-full-time service that gives both our

clients and temporary employees an opportunity to evaluate their

fit before full-time decisions are made. When companies need to

hire a candidate immediately, we also provide direct placement

services. Both options save our clients time and money, and

provide our temporary employees with access to outstanding jobs.

PTSAP R O F E S S I O N A L, T E C H N I C A L A N D S TA F F I N G A LT E R N AT I V E S

In the past decade, Kelly’s PTSA offerings have increased from three service lines to thirteen.

Organized into two groups — Professional & Technical and Staffing Alternatives — this

segment now represents 25% of our sales.

P R O F E S S I O N A L & T E C H N I C A L

K E L L Y

S C I E N T I F I C R E S O U R C E S ®

With experience levels ranging from entry-level to Ph.D., our worldwide

pool of scientific talent supports a variety of industries in biology,

chemistry, geology, biochemistry, physics, and more.

K E L L Y

F I N A N C I A L R E S O U R C E S ®

Our analysts, accountants, auditors, and financial support personnel

meet the needs of corporate finance departments, accounting firms, and

financial institutions.

K E L L Y

L A W R E G I S T R Y ®

Kelly provides legal staffing to more than 1,400 major corporations

and law firms across the U.S. We have attorneys, paralegals, and legal

administrators qualified in every facet of the law.

K E L L Y

I T R E S O U R C E S ®

We provide our clients with information technology specialists who have a full complement

of skills, from database management to website development.

K E L L Y H E A L T H C A R E
R E S O U R C E S ®

With skills ranging from case management to nursing, our

healthcare professionals go to work at hospitals, ambulatory care

centers, insurance companies, and HMOs.

K E L L Y A U T O M O T I V E

S E R V I C E S G R O U P

With our world headquarters in greater Detroit, Kelly has supported the automotive

industry since 1946. We provide staffing for all levels — from customer service and

administrative assistants to systems analysts and

design engineers.

K E L L Y E N G I N E E R I N G
R E S O U R C E S ®

Engineers and technicians around the world

have chosen Kelly Engineering Resources to

manage their careers in fields that include

aerospace, automotive, chemical, electrical,

mechanical, and petrochemical engineering.

K E L L Y H O M E C A R E

S E R V I C E S TM

Elderly, ill, or disabled clients retain their independence in the comfort of their own

homes with the care and companionship of Kelly’s dedicated nurses, home health aides,

and caregivers.

STAFFING ALTERNATIVES
K E L L Y

S T A F F

L E A S I N G ®

Kelly Staff Leasing allows customers to transfer their

employees to us. In turn, we provide those

employees with cost-effective, high-quality benefits and

payroll administration.

K E L L Y M A N A G E M E N T

S E R V I C E S ®

Kelly Management Services, our outsourcing business, provides the operational

management of entire departments or functions, on- or off-site. Customers focus on

their core business, while we manage the areas of our greatest expertise, such as mail

services, reprographics, financial transactions, payroll, and quality management.

K E L L Y G E N E R A L C O N T R A C T O R

S E R V I C E S

This service assembles and manages a network of suppliers to provide our clients

with a complete array of professional, technical, and commercial staffing.

H R F I R S T TM

HR First is our industry-leading recruitment consulting business. We provide the

technologies and processes that decrease costs, reduce cycle times, and utilize best

practices throughout the employment process.

K E L L Y H R C O N S U L T I N G TM

Our HR consultants help clients optimize their investment in people and

improve business performance in the areas of strategic staffing, training, and

compensation and benefits.

International

S P E C I A L T Y

S T A F F I N G

In addition to providing commercial, professional, and technical staffing, our

International division also offers a variety of unique services to address the specific

needs of our global customers.

K E L L Y A S S E S S

KellyAssess provides customized personnel assessment.

Our KellyAssess centers evaluate behaviors required to

successfully perform a particular job and provide targeted

assessment techniques for selection, promotion, and

performance management.

K E L L Y M U L T I H I R E

When companies need to quickly hire a large number of employees, but don’t have the

resources to manage the process, Kelly MultiHire acts as an extension of their human

resources department. Using Kelly MultiHire, clients are able to take advantage of

Kelly’s recruiting resources and experience to secure the best candidates to fit their needs.

K E L L Y A R T W O R K S

Kelly Artworks provides freelance and permanent staff

to creative and multimedia industries and departments.

We assign employees with skills ranging from

production artist to creative director.

K E L L Y M U L T I L I N G U A L

S T A F F I N G

Kelly provides clients with qualified multilingual temporary employees. We also train our

clients on how to best recruit, assess, train, and retain their own multilingual employees.

United Kingdom

Our new U.K.

management team —

in place since late 2000 —

is producing good results.

During 2001, performance

improved steadily

throughout the

organization.

Italy

Aggressive

branch expansion

in Italy doubled our

market coverage

and generated

strong revenue

growth.

United States

Kelly is the leader in providing

substitute teachers in the U.S. This

year, Kelly Educational Staffing assigned

substitute teachers in more than 1,000

schools throughout 34 states.

France

Kelly continued

to expand its specialty

staffing units in 2001,

including engineering,

healthcare, and science.

Australia
Belgium
Canada
Denmark
France
Germany
Hong Kong
India
Indonesia
Ireland
Italy
Luxembourg
Malaysia
Mexico
Netherlands
New Zealand
Norway
Philippines
Puerto Rico
Russia
Singapore
Spain
Sweden
Switzerland
Thailand
United Kingdom
United States

Staffing

T H E W O R L D

Russia

Russia’s economy picked

up in 2001, resulting in

strong growth in temporary

staffing.

Malaysia

In a market

where temporary

staffing is still a new

concept, Kelly has

emerged as the

industry leader in

Malaysia.

Hong Kong

Kelly opened
its first office in
Hong Kong this year,

where we specialize
in executive search,
executive contracting,
and project recruitment.

Kelly’s International segment

provides commercial,

professional, and technical

staffing throughout Europe, the

Asia-Pacific region, and the

Americas. In the past 10 years,

we have expanded from 10 to 26

countries. Our International

segment now comprises 26%

of total revenue.

Global expansion is a key

part of Kelly’s strategy. Half of

our country operations began

through an acquisition. We seek

out companies with strong

leadership, a team-oriented culture,

and shared business values.

Directors

& O F

B O A R D
D I R E C T O R S

O F

Terence E. Adderley
Chairman and
Chief Executive Officer

Carl T. Camden
President and
Chief Operating Officer

Maureen A. Fay, O.P., Ph.D.
President,
University of Detroit Mercy

Cedric V. Fricke
Professor Emeritus,
The University of
Michigan-Dearborn

Verne G. Istock
Retired Chairman/President,
Bank One Corporation

B. Joseph White
Interim President,
The University of Michigan

S E N I O R

O F

I C E R S

James H. Bradley
Senior Vice President,
Administration

Michael S. Morrow
Senior Vice President,

Marketing

Joan M. Brancheau
Senior Vice President and
General Manager,
Strategic Customer Relations

George S. Corona
Senior Vice President and

Division General Manager

Carol J. Johnson
Senior Vice President and

Division General Manager

Rolf E. Kleiner
Senior Vice President,

International

George M. Reardon
Senior Vice President, General

Counsel and Secretary

Marc W. Rosenow
Senior Vice President,

Service

Larry J. Seyfarth
Senior Vice President,

Technical Services Group

James A. Tanchon
Senior Vice President,

Global Sales

Bernard Tommasini
Senior Vice President and
Regional Manager,
Western Europe

Andrew R. Watt
Senior Vice President,

PTSA

Michael S. Webster
Senior Vice President and

Division General Manager

Eileen M. Youds
Senior Vice President and

Chief Information Officer

Terence E. Adderley
Chairman and

Chief Executive Officer

Carl T. Camden
President and

Chief Operating Officer

William K. Gerber
Executive Vice President and
Chief Financial Officer

Michael L. Durik
Executive Vice President,
Human Resources

Arlene G. Grimsley
Executive Vice President,

U.S. Commercial Staffing

O F

I C E R S

Steven S. Armstrong
D. Craig Atkinson
Brian C. Ault
Kent L. Barry
Richard Binier
Paul A. Bordonaro
Alice M. Bowers
Peter F. Brixius
Barry L. Brown
Jane M. Brown
Jeanine E. Burgen
Michael S. Butler
Robert J. Buwalda
Eileen M. Candels
Lorenzo Caporaletti
Mary Ann Carey
Daniel D. Catlin
Cheryl F. Courier
Michael E. Debs
Jacqueline B. Devin
John P. Drew
Sherry A. Drew
John W. Fitter
Shaun M. Fracassi
Sandra W. Galac
Sergio Gomez
Paul M. Hampton
Heidi L. Hanes
Matthew L. Harvill

William L. Heinz
Christine M. Hoebermann
Bonnie D. Huber
Thomas P. Huizenga
Charles G. Jackson
Venson J. Jennings
Catherine J. King
Donald P. Kingston
Gregory S. Kruger
Susan C. Laminack
Nicole M. Lewis
Wilma I. Lopez
Richard J. Lueders
Robert J. Lyons
Thomas H. Manceor
Susan J. Marks
Timothy G. McAward
Timothy T. McClain
Dane D. McSpedon
Jonathan D. Means
W. Edward Meisenheimer
Lisa R. Miller
Teresa A. Moskus
Terrence T. Murphy
Seelin Naidoo
Michael F. Orsini
Carolyn J. Palmer
Deborah L. Perrault
Matthew V. Piwowar

F I N A N C I A L

C O N T E N T S

Eleven Year Financial Summary ........................................................16

Statements of Earnings ......................................................................18

Statements of Cash Flows ..................................................................19

Balance Sheets ....................................................................................20

Statements of Stockholders’ Equity ..................................................22

Notes to Financial Statements ..........................................................23

Financial Review ..................................................................................29

Report of Independent Accountants ................................................33

Selected Quarterly Financial Data ....................................................34

Common Stock Price Information ....................................................35

Stockholders’ Information..................................................................36

Antonina M. Ramsey
Nicholas F. Regaldi
Diane E. Reynolds
Marc J. Riou
Ingrid A. Roberts
Rodger J. Rooney
Lori L. Sakorafis
Virginia A. Scaduto
Aly A. Schambourg
Michelle C. Schorr
Lynn G. Schwartz
Teresa E. Setting
Dhirendra Shantilal
Bradley J. Shaw
Debra S. Sheehan
Mark A. Siegal
Glenn L. Sorrie
Allen J. Sowers
J. Leon Stanek
Richard G. Struble
Michael J. Tilley
Thomas L. Totte
Andrew P. Trestrail
Tami A. Troxell
Josefa Vidal
Dana M. Warren
Barbara A. Wilson
Larry D. Worthen
Leonard Zera

E L E V E N Y E A R F I N A N C I A L S U M M A R Y

Kelly Services, Inc. and Subsidiaries

Operating Results (In millions of dollars)

Sales of services
Cost of services
Gross profit
Selling, general and administrative (5)
Earnings from operations
Interest (expense) income, net
Earnings before taxes
Income taxes
Net earnings
Dividends
Summary of total taxes (3)

Financial Position (In millions of dollars)

Current assets
Current liabilities
Working capital
Net property and equipment
Total assets
Stockholders' equity
Capital expenditures
Depreciation and amortization

Common Stock Data (4)
Earnings per share

Basic
Diluted

Dividends per share: Classes A and B
Stockholders' equity (book value) per share
Stock price per share: Class A at year end

10 Year

Growth Rates (1)
5 Year

1 Year

2001

2000

11.6%
12.3
8.5
9.8
(5.0)
N/A
(7.5)
(6.5)
(8.1)
3.4
10.4

5.1%

14.3
0.2
15.2
8.0
5.5
6.1
15.5

(7.7)%
(7.7)
4.1
6.0
0.0

5.2%
5.8
2.6
6.4
(25.4)
N/A
(25.8)
(26.0)
(25.7)
(0.8)
2.6

0.9%
5.9
(3.2)
16.8
4.4
3.3
3.1
11.2

(24.9)%
(24.8)
0.5
4.5
(4.3)

(5.1)% $ 4,256.9
3,559.0
(3.7)
697.9
(11.9)
669.9
2.2
28.0
(79.6)
(0.4)
(6.8)
27.6
(81.0)
11.0
(81.0)
16.5
(81.0)
30.4
(13.9)
385.3
(13.6)

(7.1)% $
(9.5)
(4.2)
5.4
(4.6)
(2.6)
(21.6)
12.5

670.2
348.2
322.0
212.0
1,039.4
607.2
42.5
44.4

(81.1)% $
(81.1)
(14.1)
(3.0)
(6.6)

.46
.46
.85
16.93
22.06

$ 4,487.3
3,695.0
792.3
655.2
137.1
(0.4)
145.3
58.1
87.2
35.3
445.8

721.1
384.8
336.2
201.1
1,089.6
623.5
54.2
39.5

2.44
2.43
.99
17.45
23.63

Number of common shares outstanding at year end (thousands)
Average number of shares outstanding (thousands)

Basic
Diluted
Stock splits

Financial Ratios (1)
Return on sales
Return on average assets
Return on average stockholders' equity
Effective tax rate

Current assets to current liabilities (current ratio)
Price earnings ratio at year end

35,868

35,739

35,829
35,930
—

35,721
35,843
—

0.4%
1.6%
2.7%
40.0%

1.9
48.0

1.9%
8.2%
14.5%
40.0%

1.9
9.7

(1) Growth rates and financial ratios calculated based on data rounded to thousands.

(2) Fiscal year included 53 weeks.

(3) Consists of payroll taxes and federal, state, and local taxes.

(4) Shares consist of Class A and B common stock adjusted for all stock splits.

(5) For 1999, 1998, and 1997, includes Year 2000 expenses of $11 million, $8 million, and $1 million, respectively.

Note: Certain prior year amounts have been reclassified to conform with the current presentation.

1999

1998 (2)

1997

1996

1995

1994

1993

1992 (2)

1991

$ 4,269.1
3,503.1
766.0
622.1
143.9
(0.2)
143.7
58.6
85.1
34.0
421.1

706.3
361.6
344.7
187.0
1,033.7
582.4
76.7
36.2

2.37
2.36
.95
16.23
25.13

$ 4,092.3
3,361.0
731.3
590.7
140.6
3.0
143.6
58.9
84.7
34.2
416.2

$ 3,852.9
3,171.6
681.3
545.5
135.8
1.2
137.0
56.2
80.8
33.2
388.2

$ 3,302.3
2,689.5
612.8
491.8
121.0
1.9
122.9
49.9
73.0
31.6
339.7

$ 2,689.8
2,148.4
541.4
435.1
106.3
7.0
113.3
43.8
69.5
29.6
283.5

$ 2,362.6
1,899.6
463.0
370.9
92.1
6.4
98.5
37.4
61.1
26.6
246.4

$ 1,954.5
1,573.8
380.7
316.8
63.9
7.0
70.9
26.3
44.6
23.8
202.4

$ 1,712.7
1,372.4
340.3
289.1
51.2
9.8
61.0
21.8
39.2
22.0
173.2

690.9
344.1
346.8
146.4
964.2
537.8
59.1
28.9

2.24
2.23
.91
15.02
31.75

745.8
334.8
411.0
112.7
967.2
559.8
39.7
28.3

2.12
2.12
.87
14.67
29.25

640.4
262.0
378.4
97.7
838.9
516.9
36.5
26.1

1.92
1.91
.83
13.58
27.50

544.9
191.1
353.8
84.4
718.7
476.1
34.0
22.7

1.83
1.83
.78
12.52
27.75

515.1
163.2
351.9
70.2
642.4
431.5
18.4
19.1

1.61
1.61
.70
11.37
27.50

441.3
116.1
325.2
68.3
542.1
386.2
16.1
17.5

1.18
1.18
.63
10.23
27.75

406.1
93.4
312.7
69.3
496.1
367.3
32.4
14.7

1.04
1.04
.58
9.74
35.00

$ 1,424.3
1,115.7
308.6
262.0
46.6
13.6
60.2
21.6
38.6
21.7
143.0

408.4
91.3
317.1
51.5
479.4
355.0
23.5
10.5

1.03
1.02
.57
9.43
22.00

35,874

35,807

38,163

38,059

38,015

37,963

37,755

37,706

37,624

35,854
36,030
—

37,745
37,945
—

38,099
38,191
—

38,043
38,133
—

37,993
38,057
—

37,956
38,005
—

37,728
37,761
5 for 4

37,668
37,711
—

37,616
37,679
—

2.0%
8.5%
15.2%
40.8%

2.0
10.6

2.1%
8.8%
15.4%
41.0%

2.0
14.2

2.1%
8.9%
15.0%
41.0%

2.2
13.8

2.2%
9.4%
14.7%
40.6%

2.4
14.4

2.6%
10.2%
15.3%
38.7%

2.9
15.2

2.6%
10.3%
14.9%
38.0%

3.2
17.1

2.3%
8.6%
11.8%
37.1%

3.8
23.5

2.3%
8.0%
10.9%
35.7%

4.3
33.7

2.7%
8.4%
11.1%
35.9%

4.5
21.6

S T A T E M E N T S O F E A R N I N G S

Kelly Services, Inc. and Subsidiaries

2001

2000

1999

(In thousands of dollars except per share items)

Sales of services

$ 4,256,892

$ 4,487,291

$ 4,269,113

Cost of services

Gross profit

3,559,037

3,694,982

3,503,052

697,855

792,309

766,061

Selling, general and administrative expenses

669,888

655,191

622,110

Earnings from operations

27,967

137,118

143,951

Gain on disposition of property

Interest expense, net

–

(381)

8,567

(409)

–

(241)

Earnings before income taxes

27,586

145,276

143,710

Income taxes

Net earnings

11,037

58,100

58,600

16,549

87,176

85,110

Basic earnings per share

$ .46

$ 2.44

$ 2.37

Diluted earnings per share

$ 2.43

$ 2.36

Dividends per share

$ .85

.99

.95

Average shares outstanding (thousands):

Basic
Diluted

See accompanying Notes to Financial Statements.

35,829
35,930

35,721
35,843

35,854
36,030

2001

2000

1999

(In thousands of dollars)

16,549

87,176

$ 85,110

S T A T E M E N T S O F C A S H F L O W S

Kelly Services, Inc. and Subsidiaries

Cash flows from operating activities

Net earnings

Noncash adjustments:

Depreciation and amortization

Gain on disposition of property

Deferred income taxes

Changes in operating assets and liabilities

Net cash from operating activities

Cash flows from investing activities

Capital expenditures

Acquisition of building

Proceeds from disposition of property

Short-term investments

Decrease (increase) in other assets

Acquisition of companies

44,396

–

(242)

84,092

144,795

(42,525)

(11,783)

–

1,764

3,317

(192)

Net cash from investing activities

(49,419)

Cash flows from financing activities

(Decrease) increase in short-term borrowings

Dividend payments

Exercise of stock options and other

Purchase of treasury stock

(24,900)

(30,408)

139

(64)

Net cash from financing activities

(55,233)

Net change in cash and equivalents

Cash and equivalents at beginning of year

40,143

43,318

39,465

(8,567)

(593)

(28,624)

88,857

36,238

–

(2,678)

(3,206)

115,464

(54,237)

(76,696)

–

10,309

3,624

(8,018)

(20,923)

(69,245)

10,629

(35,303)

(5,737)

(30,326)

(10,714)

54,032

–

6,051

(10,872)

(5,557)

(87,074)

(419)

(34,041)

854

(551)

(34,157)

(5,767)

59,799

Cash and equivalents at end of year

83,461

43,318

$ 54,032

See accompanying Notes to Financial Statements.

B A L A N C E S H E E T S

Kelly Services, Inc. and Subsidiaries

ASSETS

Current Assets

2001

2000

1999

(In thousands of dollars)

Cash and equivalents

83,461

$ 43,318

$ 54,032

Short-term investments

630

2,394

6,018

Accounts receivable, less allowances of
$12,105, $13,614 and $13,575, respectively

539,692

631,771

602,485

Prepaid expenses and other current assets

24,950

24,903

22,801

Deferred taxes

21,469

18,688

20,983

Total current assets

670,202

721,074

706,319

Property and Equipment

Land and buildings

56,639

44,971

49,458

Equipment, furniture and leasehold improvements

275,063

253,666

231,654

Accumulated depreciation

(119,729)

(97,552)

(94,112)

Total property and equipment

211,973

201,085

187,000

Noncurrent Deferred Taxes

31,415

33,521

29,849

Intangibles and Other Assets

125,791

133,896

110,523

Total Assets

$ 1,039,381

$ 1,089,576

$ 1,033,691

S e e a c c o m p a n y i n g N o t e s t o F i n a n c i a l S t a t e m e n t s .

LIABILITIES AND STOCKHOLDERS’ EQUITY

2001

2000

1999

(In thousands of dollars)

Current Liabilities

Short-term borrowings

32,939

57,839

47,210

Accounts payable

Payroll and related taxes

Accrued insurance

Income and other taxes

65,896

177,134

24,071

48,149

69,375

187,803

21,003

48,814

73,516

166,866

25,035

49,005

Total current liabilities

348,189

384,834

361,632

Noncurrent Liabilities

Accrued insurance

Accrued retirement benefits

Total noncurrent liabilities

Stockholders’ Equity

Capital stock, $1.00 par value

39,273

44,764

84,037

34,269

47,004

81,273

40,846

48,840

89,686

Class A common stock, shares issued 36,609,078 at
2001, 36,609,040 at 2000 and 36,602,210 at 1999

36,609

36,602

Class B common stock, shares issued 3,506,788
at 2001, 3,506,826 at 2000 and 3,513,656 at 1999

Treasury stock, at cost

Class A common stock, 4,232,542 shares at 2001,
4,363,578 at 2000 and 4,234,524 at 1999

Class B common stock, 15,675 shares at 2001,
12,817 at 2000 and 7,767 at 1999

Paid-in capital

Earnings invested in the business

Accumulated foreign currency adjustments

Total stockholders’ equity

3,507

3,514

(81,721)

(84,251)

(80,538)

(435)

17,035

661,483

(29,323)

607,155

(371)

16,371

675,388

(23,784)

623,469

(248)

15,761

623,564

(16,282)

582,373

Total Liabilities and Stockholders’ Equity

$ 1,039,381

$ 1,089,576

$ 1,033,691

S T A T E M E N T S O F S T O C K H O L D E R S ’ E Q U I T Y

Kelly Services, Inc. and Subsidiaries

Capital Stock

Class A common stock

Balance at beginning of year
Conversions from Class B
Balance at end of year

Class B common stock

Balance at beginning of year
Conversions to Class A
Balance at end of year

Treasury Stock

Class A common stock

Balance at beginning of year
Exercise of stock options, restricted stock awards,
and other
Treasury stock issued for acquisitions
Purchase of treasury stock
Balance at end of year

Class B common stock

Balance at beginning of year
Purchase of treasury stock
Balance at end of year

Paid-in Capital

Balance at beginning of year
Exercise of stock options, restricted stock awards,

and other

Treasury stock issued for acquisitions
Balance at end of year

Earnings Invested in the Business

Balance at beginning of year
Net earnings
Dividends
Balance at end of year

Accumulated Foreign Currency Adjustments

Balance at beginning of year
Equity adjustment for foreign currency
Balance at end of year

Stockholders’ Equity at end of year

Comprehensive Income

Net earnings
Other comprehensive income - Foreign

currency adjustments
Comprehensive income

S e e a c c o m p a n y i n g N o t e s t o F i n a n c i a l S t a t e m e n t s .

2001

2000

1999

(In thousands of dollars)

36,609
–
36,609

36,602
7
36,609

36,541
61
36,602

3,507
–
3,507

3,514
(7)
3,507

3,575
(61)
3,514

(84,251)

(80,538)

(81,669)

1,609
921
–
(81,721)

(371)
(64)
(435)

16,371

453
211
17,035

675,388
16,549
(30,454)
661,483

(23,784)
(5,539)
(29,323)

607,155

16,549

(5,539)
$ 11,010

1,379
522
(5,614)
(84,251)

(248)
(123)
(371)

15,761

498
112
16,371

623,564
87,176
(35,352)
675,388

(16,282)
(7,502)
(23,784)

1,438
244
(551)
(80,538)

(248)
–
(248)

14,844

808
109
15,761

572,517
85,110
(34,063)
623,564

(7,796)
(8,486)
(16,282)

623,469

582,373

87,176

85,110

(7,502)
79,674

(8,486)
76,624

N O T E S T O F I N A N C I A L S T A T E M E N T S

Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)

1. Summary of Significant Accounting Policies

Fiscal Year The Company’s fiscal year ends on the Sunday
nearest to December 31. The three most recent years, all of
which contained 52 weeks, ended on December 30, 2001
(2001), December 31, 2000 (2000) and January 2, 2000
(1999).

Principles of Consolidation The financial statements
include the accounts and operations of the Company and its
subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been
eliminated.

Acquisitions In 2000, the Company acquired the ProStaff
Group in the U.S. (Wisconsin), the Business Trends Group,
headquartered in Singapore, with offices in six Southeast Asia
countries, and ETT Extra in Spain. In 1999, the Company
completed acquisitions in Australia, Luxembourg, Mexico
and Sweden. All of the acquisitions were accounted for as
purchases and did not have a material effect on the assets,
liabilities, revenues or net earnings of the Company.

Foreign Currency Translation Substantially all of the
Company’s international subsidiaries use their local currency
as their functional currency. Revenue and expense accounts of
foreign subsidiaries are translated to U.S. dollars at average
exchange rates, while assets and liabilities are translated to
U.S. dollars at year-end exchange rates. Resulting translation
adjustments, net of deferred taxes of $600, $1,100 and $700
in 2001, 2000 and 1999, respectively, are reported as
accumulated foreign currency adjustments in stockholders’
equity and are recorded as a component of comprehensive
income.

Revenue Recognition Revenue from sales of services is
recognized as services are provided by the temporary, contract
or leased employees. Revenue from permanent placement
services is recognized at the time the permanent placement
candidate begins full-time employment. Provisions for sales
allowances, based on historical experience, are recognized at
the time the related sale is recognized.

Allowance for Bad Debts The Company records an
allowance for bad debts based on historical bad debt
experience, customer payment patterns and current economic
trends. The Company reviews the adequacy of the allowance
for bad debts on a quarterly basis and, if necessary, increases
or decreases the balance.

Advertising Expenses Advertising expenses, which are
expensed as incurred, were $13,500, $15,800 and $15,000 in
2001, 2000 and 1999, respectively.

Use of Estimates The preparation of financial statements
in conformity with generally accepted accounting principles

requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and
expenses. Actual results could differ from those estimates.

Cash and Equivalents Cash and equivalents are stated at
cost, which approximates market. The Company considers
securities with original maturities of three months or less to
be cash and equivalents.

Property and Equipment Property and equipment are
stated at cost and are depreciated over their estimated useful
lives, principally by the straight-line method. Estimated
useful lives range from 15 to 45 years for land improvements,
buildings and building improvements, 5 years for equipment,
furniture and leasehold improvements and 3 to 12 years for
computer hardware and software. The Company capitalizes
external costs and internal payroll costs incurred in the
development of software for internal use in accordance with
American Institute of Certified Public Accountants Statement
of Position No. 98-1. Capitalized software is included with
equipment, furniture and leasehold improvements on the
balance sheet. Depreciation expense was $41,500 for 2001,
$37,200 for 2000 and $33,900 for 1999.

Intangible Assets Purchased intangible assets, other than
goodwill, are valued at acquisition cost and are amortized
over their respective useful lives (up to 10 years) on a
straight-line basis. Goodwill derived from acquisitions is
capitalized and amortized over periods ranging from 20 to 40
years. The Company periodically assesses the recoverability of
its goodwill based upon projected future cash flows.

In July 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard (SFAS)
No. 142, “Goodwill and Other Intangible Assets,” which
requires the discontinuance of goodwill amortization. SFAS
142 is required to be applied for fiscal years beginning after
December 15, 2001, with certain early adoption permitted.
The Company expects to adopt SFAS 142 in its first fiscal
quarter of 2002, and does not expect the adoption to have a
material effect on its financial condition. The elimination of
goodwill amortization is expected to benefit 2002 earnings
before income taxes by approximately $2,700.

Payroll and Related Taxes Included in payroll and
related taxes are outstanding payroll checks in excess of funds
on deposit. Such amounts totaled $32,200, $29,400 and
$23,200 at year-end 2001, 2000 and 1999, respectively.

Workers' Compensation Expense The Company
establishes accruals for workers' compensation claims utilizing
actuarial methods to estimate the undiscounted future cash
payments that will be made to satisfy the claims. The
estimates are based both on historical experience as well as

N O T E S T O F I N A N C I A L S T A T E M E N T S

( C O N T I N U E D )

Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)

current legal, economic and regulatory factors. The ultimate
cost of these claims may be greater than or less than the
established accrual. However, the Company believes that any
such adjustments will not materially affect its consolidated
financial position.

Reclassifications Certain prior year amounts have been
reclassified to conform with the current presentation.

2. Short-term Investments
Short-term investments are classified as available for sale.
Federal, state and local government obligations included in
short-term investments represented 0%, 40% and 60% of the
total in 2001, 2000 and 1999, respectively. The carrying
amounts approximate market value at December 30, 2001,
December 31, 2000 and January 2, 2000.

Interest income was $2,301, $2,770 and $2,272 for the years
2001, 2000 and 1999, respectively.

3. Land Sale
On October 9, 2000, the Company sold undeveloped land for
$10,309. The Company recognized a pretax gain in 2000 of
$8,567, which is included in gain on disposition of property.
The proceeds from the sale of property were used on January
8, 2001 for the purchase of an office building that will be
utilized by the Company for future expansion. For tax
purposes, the transaction has been treated as an IRS Code
Section 1031 tax-free exchange.

4. Intangibles and Other Assets
Intangibles includes goodwill of $85,400, $86,900 and
$67,900 at year-end 2001, 2000 and 1999, respectively.
Accumulated amortization of goodwill at year-end 2001, 2000
and 1999 was $11,700, $9,500 and $7,900, respectively.
Goodwill and other intangibles amortization expense was
$2,900 in 2001 and $2,300 in 2000 and 1999.

Other assets includes the cash surrender value of certain
company-owned variable universal life insurance policies, as
more fully described in Note 9.

5. Short-term Borrowings
The Company has a committed $100 million, five-year
unsecured multi-currency revolving credit facility used to fund
working capital, acquisitions and for general corporate purposes.
The facility expires in 2003. The interest rate applicable to
borrowings under the line of credit is 20 basis points over
LIBOR and may include additional costs if the funds are drawn
from certain countries. LIBOR rates varied by currency and
ranged from 1.9% to 4.3% at December 30, 2001. Borrowings
under this arrangement were $23,600, $44,300 and $47,200 at
year-end 2001, 2000 and 1999, respectively.

During September 2000, the Company arranged an $8,300
one-year uncommitted credit facility to be used to fund its
Singapore acquisition. During 2001, the amount was
increased to $11,000 and the term extended to March 2002.
The outstanding balance totaled $7,800 and $7,400 at
December 30, 2001 and December 31, 2000, respectively.
The interest rate for this loan was 2.2% at December 30,
2001.

The Company has additional uncommitted one-year credit
facilities in a number of countries which aggregate to $25,000
as of December 30, 2001. Borrowings under these lines
totaled $1,500 and $6,100 at year-end 2001 and 2000,
respectively. Interest rates ranged from 4.0% to 6.5% at
December 30, 2001.

All of the borrowings are foreign currency denominated and
support the Company's international working capital position.
The carrying amounts of the Company's borrowings under
the lines of credit described above approximate their fair
values.

Interest expense, interest payments and weighted average
interest rates related to the short-term borrowings for 2001,
2000 and 1999 were as follows:

Interest expense
Interest payments
Weighted average

interest rate

2001
$ 2,682
2,698

2000
$ 3,179
2,672

1999
$ 2,513
2,567

3.3%

5.5%

4.6%

6. Capitalization
The authorized capital stock of the Company is 100,000,000
shares of Class A common stock and 10,000,000 shares of
Class B common stock. Class A shares have no voting rights
and are not convertible. Class B shares have voting rights and
are convertible into Class A shares on a share-for-share basis at
any time. Both classes of stock have identical rights in the
event of liquidation.

During 2001, the Company repurchased 2,858 shares of its
Class B common stock. The total value of the Class B shares
repurchased was $64. During 2000, the Company
repurchased 227,500 shares of its Class A common stock. The
total value of the Class A shares repurchased was $5,614. The
Company also repurchased 5,050 shares of its Class B
common stock during 2000 at a total cost of $123. During
December 1999, the Company repurchased 22,500 shares of
its Class A common stock. The total value of the Class A
shares repurchased was $551.

7. Earnings Per Share
The reconciliations of earnings per share computations for the
fiscal years 2001, 2000 and 1999 were as follows:
2000
$ 87,176

1999
$ 85,110

2001
$ 16,549

Net earnings

Determination of shares (thousands):
Weighted average common

shares outstanding

35,829

35,721

35,854

Effect of dilutive securities:

Stock of options
Restricted and performance
awards and other

Weighted average common

shares outstanding –
assuming dilution

100

–

122

135

35,930

35,843

36,030

Earnings per share – basic
Earnings per share –
assuming dilution

.46

2.44

2.43

2.37

2.36

Stock options to purchase 2,503,000, 2,309,000 and
1,162,000 shares of common stock at a weighted average price
per share of $27.04, $27.30 and $31.52 were outstanding
during 2001, 2000 and 1999, respectively, but were not
included in the computation of diluted earnings per share. The
exercise prices of these options were greater than the average
market price of the common shares and the options were
therefore anti-dilutive.

8. Supplemental Cash Flow Information
Changes in operating assets and liabilities, as disclosed in the
statements of cash flows, for the years 2001, 2000 and 1999
were as follows:

2001

2000

1999

9. Retirement Benefits
The Company provides a qualified defined contribution plan
covering substantially all full-time employees, except officers
and certain other management employees. Upon approval by
the Board of Directors, a discretionary contribution based on
eligible wages is funded annually. The plan also offers a savings
feature with Company matching contributions. Assets of this
plan are held by an independent trustee for the sole benefit of
participating employees.

A nonqualified deferred compensation plan is provided for
officers and certain other management employees. Upon
approval by the Board of Directors, a discretionary
contribution based on eligible wages is made annually. This
plan also includes provisions for salary deferrals and Company
matching contributions.

The liability for the unqualified plan was $44,800, $47,000
and $48,800 as of year-end 2001, 2000 and 1999, respectively,
and is included in accrued retirement benefits. In connection
with the administration of this plan, the Company has
purchased company-owned variable universal life insurance
policies insuring the lives of certain officers and key employees.
The cash surrender value of these policies, which is based
primarily on investments in publicly traded mutual funds, was
$44,200, $49,200 and $44,100 at year-end 2001, 2000 and
1999, respectively. These investments are included in
intangibles and other assets and are restricted for the use of
funding this plan.

Amounts expensed for retirement benefits totaled $7,700 in
2001, $5,300 in 2000 and $7,600 in 1999.

10. Income Taxes
Pretax income (loss) for the years 2001, 2000 and 1999 was
taxed under the following jurisdictions:

$ 85,470

(31,748)

$ (26,972)

(1,371)

(2,997)

(9,138)

1,184

(5,678)

(3,059)

Domestic
Foreign
Total

2001
$ 38,597
(11,011)
$ 27,586

2000

1999

$ 149,431
(4,155)
$ 145,276

$ 134,572
9,138
$ 143,710

payroll and related taxes

(9,075)

22,208

23,614

8,079

(10,590)

(924)

Current tax expense:

Decreased (increase) in
accounts receivable

Increase in prepaid

expenses and other
current assets

Increase (decrease) in
accounts payable
(Decrease) increase in

Increase (decrease) in
accrued insurance
(Decrease) increase in

income and other taxes

Total

The provision for income taxes was as follows:

2001

2000

1999

U.S. federal
U.S. state and local
Foreign
Total current
Total deferred
Total provision

$ 6,780
2,000
2,499
11,279
(242)
$ 11,037

$ 43,151
10,840
4,702
58,693
(593)
$ 58,100

$ 42,898
11,500
6,880
61,278
(2,678)
$ 58,600

(195)
$ 84,092

181
(28,624)

13,273
(3,206)

Cash flows from short-term investments for 2001, 2000 and
1999 were as follows:

Sales/Maturities
Purchases
Total

2001
$ 2,318
(554)
$ 1,764

2000
8,507
(4,883)
3,624

1999
7,803
(1,752)
$ 6,051

N O T E S T O F I N A N C I A L S T A T E M E N T S

( C O N T I N U E D )

Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)

Deferred tax assets are comprised of the following:

2001

2000

1999

Depreciation and

amortization

Employee compensation

and benefit plans

Workers’ compensation
Translation adjustment
Bad debt allowance
Loss carryforwards
Valuation allowance
Other, net
Total deferred tax assets

$ (14,158)

$ (8,628)

$ (6,420)

26,112
22,154
4,058
3,194
9,350
(3,330)
5,504
$ 52,884

26,055
19,127
3,504
4,237
6,271
(1,581)
3,224
$ 52,209

23,276
22,352
2,417
3,896
4,793
(3,118)
3,636
$ 50,832

The differences between income taxes for financial reporting
purposes and the U.S. statutory rate of 35% are as follows:

Income tax based on

statutory rate

$ 9,655

$ 50,847

$ 50,299

2001

2000

1999

State income taxes,

net of federal benefit
General business credits
Life insurance cash
surrender value

Other, net
Total

1,300
(1,755)

7,046
(2,275)

7,475
(2,275)

2,236
(399)
$ 11,037

(2,538)
5,020
$ 58,100

(125)
3,226
$ 58,600

The Company has loss carryforwards, all related to foreign
operations, at December 30, 2001 totaling $28,113 which
expire as follows:

Year
2002-2004
2005-2007
2008-2011
No expiration
Total

Amount
11
2,837
7,330
17,935
$ 28,113

The Company has established a valuation allowance for loss
carryforwards related to certain foreign operations, which
management believes may not be utilized before expiration.

Provision has not been made for U.S. or additional foreign income
taxes on an estimated $16,750 of undistributed earnings of foreign
subsidiaries, which are permanently reinvested. If such earnings were
to be remitted, management believes that U.S. foreign tax credits
would largely eliminate any such U.S. and foreign income taxes.

The Company paid income taxes of $12,700 in 2001, $58,800 in
2000 and $53,400 in 1999.

11. Performance Incentive Plan
Under the Performance Incentive Plan (the "Plan"), the
Company may grant stock options (both incentive and
nonqualified), stock appreciation rights (SARs), restricted
awards and performance awards to key employees utilizing the

Company's Class A stock. Stock options may not be granted at
prices less than the fair market value on the date of grant, nor
for a term exceeding 10 years. The Plan provides that the
maximum number of shares available for grants is 10 percent
of the outstanding Class A stock, adjusted for Plan activity
over the preceding five years. Shares available for future grants
at year-end 2001, 2000 and 1999 were 1,269,000, 1,283,000
and 946,000, respectively.

The Company applies Accounting Principles Board Opinion
No. 25 and related Interpretations in accounting for the Plan.
Accordingly, no compensation cost has been recognized for
incentive and nonqualified stock options. If compensation cost
had been determined based on the fair value at the grant dates
for awards under the Plan consistent with the method of SFAS
No. 123, "Accounting for Stock-Based Compensation," the
Company's net income would have been reduced by $1,686,
$1,729 and $1,487 for 2001, 2000 and 1999, respectively, and
basic and diluted earnings per share would have been reduced
by $.05 in 2001 and 2000 and $.04 in 1999.

Since stock options generally become exercisable over several
years and additional grants are likely to be made in future
years, the pro forma amounts for compensation cost may not
be indicative of the effects on net income and earnings per
share for future years.

The fair value of each option included in the following tables
is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average
assumptions:

Dividend yield
Risk-free interest rate
Expected volatility
Expected lives

2001
4.0%
5.0%
30.0%
6 yrs

2000
4.0%
5.9%
29.0%
6 yrs

1999
4.0%
5.7%
30.0%
6 yrs

A summary of the status of stock option grants under the Plan
as of December 30, 2001, December 31, 2000 and January 2,
2000, and changes during the years ended on those dates, is
presented as follows:

1999:
Outstanding at beginning of year
Granted
Exercised
Cancelled
Outstanding at end of year

Options
1,330,000
592,000
(32,000)
(298,000)
1,592,000

Weighted Avg.
Exercise Price
$ 30.78
25.05
26.80
30.54
$ 28.77

Options exercisable at year end
Weighted average fair value of

552,000

$ 29.08

options granted during the year

$ 6.30

2000:
Outstanding at beginning of year
Granted
Exercised
Cancelled
Outstanding at end of year

Options

1,592,000
730,000
(2,000)
(197,000)
2,123,000

Weighted Avg.
Exercise Price

$ 28.77
24.01
24.77
27.15
$ 27.29

Options exercisable at year end
Weighted average fair value of

763,000

$ 29.05

options granted during the year

5.98

2001:
Outstanding at beginning of year
Granted
Exercised
Cancelled
Outstanding at end of year

Options
2,123,000
539,000
(4,000)
(288,000)
2,370,000

Weighted Avg.
Exercise Price
$ 27.29
24.36
24.68
27.52
$ 26.60

Options exercisable at year end
Weighted average fair value of

1,022,000

$ 28.25

options granted during the year

5.86

The following table summarizes information about options
outstanding at December 30, 2001:

Options Outstanding

Options Exercisable

Range of
Exercise
Prices

Number
Outstanding
as of
12/30/01

Weighted
Average
Remaining
Life (Years)

Weighted
Average
Exercise
Price

Number
Exercisable
as of
12/30/01

Weighted
Average
Exercise
Price

$21.00-23.00
$23.01-24.00
$24.01-25.00
$25.01-26.00
$26.01-30.00
$30.01-38.50
$21.00-38.50

159,000
550,000
430,000
400,000
409,000
422,000
2,370,000

9.83
8.20
6.77
9.57
5.05
5.52
7.26

$21.18
24.00
24.50
25.60
27.90
33.84
$26.60

3,000
137,000
226,000
2,000
343,000
311,000
1,022,000

$22.75
24.00
24.54
25.54
27.89
33.31
$28.25

Restricted awards are issued to certain key employees and are
subject to forfeiture until the end of an established restriction
period. Restricted awards totaling 166,500, 105,400 and 87,000
shares were granted under the Plan during 2001, 2000 and 1999,
respectively. The weighted average grant date price of such
awards was $26.21, $24.02 and $26.55 for 2001, 2000 and
1999, respectively. Restricted awards outstanding totaled
241,000, 165,000 and 104,000 shares at year-ends 2001, 2000
and 1999, respectively, and have a weighted average remaining
life of 1.9 years at December 30, 2001.

Under the Plan, performance awards may be granted to certain
key employees, the payout of which is determined by the degree
of attainment of objectively determinable performance goals over
the established relevant performance period. No performance
awards were granted during 2001, 2000 or 1999. There were no
unearned performance awards outstanding at December 30, 2001
and December 31, 2000. Unearned performance awards
outstanding at year-end 1999 were 70,000.

Total compensation cost recognized for restricted and
performance awards was $2,200, $2,000 and $1,000 for 2001,
2000 and 1999, respectively. As of December 30, 2001, no SARs
have been granted under the Plan.

12. Lease Commitments
The Company conducts its field operations primarily from leased
facilities. The following is a schedule by fiscal year of future
minimum commitments under operating leases as of
December 30, 2001:

Fiscal year:

2002
2003
2004
2005
2006
Later years

37,600
28,900
20,100
14,700
9,500
17,800

Total

$ 128,600

Lease expense for 2001, 2000 and 1999 amounted to $44,500,
$45,100 and $43,100, respectively.

13. Contingencies
The Company is subject to various legal proceedings, claims and
liabilities which arise in the ordinary course of its business.
Litigation is subject to many uncertainties, the outcome of
individual litigated matters is not predictable with assurance and
it is reasonably possible that some of the foregoing matters could
be decided unfavorably to the Company. Although the amount
of the liability at December 30, 2001 with respect to these
matters cannot be ascertained, the Company believes that any
resulting liability will not be material to the financial statements
of the Company at December 30, 2001.

The Company has no material unrecorded commitments, losses,
contingencies or guarantees associated with any related parties or
unconsolidated entities.

14. Segment Disclosures
The Company's reportable segments are: (1) U.S. Commercial
Staffing, (2) Professional, Technical and Staffing Alternatives
(PTSA) and (3) International. U.S. Commercial Staffing
includes traditional office services, along with education, call
center and light industrial staffing. PTSA includes various
specialty staffing services ranging from finance and engineering to
information and health care, along with the businesses of staff
leasing, outsourcing, consulting, recruitment and general
contractor services. International includes staffing services in the
countries outside the U.S. listed below. The accounting policies
of the segments are the same as those described in the "Summary
of Significant Accounting Policies."

During 2001, international operations were conducted in
Australia, Belgium, Canada, Denmark, France, Germany, Hong
Kong, India, Indonesia, Ireland, Italy, Luxembourg, Malaysia,
Mexico, the Netherlands, New Zealand, Norway, the Philippines,

N O T E S T O F I N A N C I A L S T A T E M E N T S

( C O N T I N U E D )

Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)

Puerto Rico, Russia, Singapore, Spain, Sweden, Switzerland,
Thailand and the United Kingdom.

A summary of long-lived assets information by geographic area
as of the years ended 2001, 2000 and 1999 follows:

The following table presents information about the reported
operating income of the Company for the fiscal years 2001, 2000
and 1999. Segment data presented is net of intersegment
revenues. Asset information by reportable segment is not
reported, since the Company does not produce such information
internally.

Long-Lived Assets:
Domestic
International
Total

2001

2000

1999

$ 218,774 $ 205,945 $ 177,930
74,463
$ 292,371 $ 284,614 $ 252,393

78,669

73,597

Long-lived assets include property and equipment and
intangible assets. No single foreign country's long-lived assets
were material to the consolidated long-lived assets of the
Company.

Foreign revenue is based on the country in which the legal
subsidiary is domiciled. No single foreign country's revenue
was material to the consolidated revenues of the Company.

2001

2000

1999

Sales:
U.S. Commercial Staffing $ 2,097,703 $ 2,328,065 $ 2,244,558
940,264
1,072,190
PTSA
1,084,291
1,086,999
International
$ 4,256,892 $ 4,487,291 $ 4,269,113

1,057,749
1,101,477

Consolidated Total

Earnings from Operations:
U.S. Commercial Staffing $ 115,406 $
PTSA
International
Corporate

47,399
9,414
(144,252)

Consolidated Total

27,967 $

181,900 $
72,534
21,545
(138,861)
137,118 $

190,808
55,111
32,576
(134,544)
143,951

Specified items included in segment earnings for the fiscal
years 2001, 2000 and 1999 were as follows:

Depreciation and Amortization:
U.S. Commercial Staffing
PTSA
International
Corporate

Consolidated Total

2001

2000

1999

5,322 $
2,747
11,723
24,604
44,396 $

5,881 $
2,597
11,137
19,850
39,465 $

5,911
2,395
11,228
16,704
36,238

Interest Income:
U.S. Commercial Staffing $
PTSA
International
Corporate

Consolidated Total

- $ - $
-
417
1,884
2,301 $

107
630
2,033
2,770 $

-
23
615
1,634
2,272

Interest Expense:
U.S. Commercial Staffing $ - $ - $ -
-
PTSA
2,389
International
124
Corporate
2,513

-
2,542
140
2,682 $

-
3,020
159
3,179 $

Consolidated Total

F I N A N C I A L R E V I E W

Kelly Services, Inc. and Subsidiaries

Results of Operations
2001 versus 2000
Sales for 2001 totaled $4.257 billion, a decrease of 5.1%
compared to the $4.487 billion reported in the prior year. The
decrease was a result of a decline in hours worked of 7.7%
partially offset by an increase in average hourly bill rates of
2.0%.

The 2001 gross profit rate averaged 16.4%, a decrease of 1.3
percentage points compared to the 17.7% rate earned in 2000.
This reflected decreases in the gross profit rates of all three of
the Company’s business segments.

Selling, general and administrative expenses expressed as a
percentage of sales were 15.7%, a 1.1 percentage point increase
compared to the 14.6% rate in the prior year. Selling, general
and administrative expenses totaled $669.9 million and grew
2.2% from 2000.

The Company implemented a number of expense reduction
initiatives that increasingly began to show results as the year
progressed. These initiatives included targeted staff and expense
reductions in both field operations and headquarters units.

Earnings from operations totaled $28.0 million, a 79.6%
decrease compared to the $137.1 million reported for 2000.
Earnings were 0.7% of sales as compared to 3.1% for 2000.

Net interest expense was $381 thousand in 2001 and $409
thousand in 2000. Net interest expense for the year was
essentially flat and was attributable to higher average cash levels
and reduced short-term debt balances, both impacted by lower
interest rates.

The effective income tax rate was 40.0% in 2001 and 2000.

Net earnings totaled $16.5 million in 2001, a decrease of 81.0%
compared to the $87.2 million earned in 2000. The rate of
return on sales was 0.4% compared with last year’s 1.9% rate.
Diluted earnings per share for 2001 were $.46, an 81.1%
decrease as compared to diluted earnings per share of $2.43 in
2000.

U.S. Commercial Staffing
Sales in the U.S. Commercial Staffing segment totaled $2.098
billion, a 9.9% decrease compared to the $2.328 billion
reported for 2000. This reflected a decrease in hours worked of
13.6% partially offset by an increase in average hourly bill rates
of 4.4%. Year-over-year sales comparisons were flat in the first
quarter, and declined consistently over the balance of the year
reflecting a 7.7% decrease in the second quarter, a 14.3%
decrease in the third quarter and a 16.6% decrease in the
fourth quarter. The Company expects continued significantly
negative U.S. Commercial Staffing year-over-year sales
comparisons for at least the first and second quarters of 2002.

U.S. Commercial sales represented 49% of total Company sales
in 2001 and 51% of total Company sales in 2000.

U.S. Commercial earnings decreased 36.6% in 2001, as a result
of both the sales decrease and lower gross profit rates. The
decline in gross profit rates reflects an ongoing shift in mix of
sales to larger customers and decreases in fee based income. U.S.
Commercial gross margins may continue to decrease in 2002 as
the Company expects its large corporate and national accounts
will continue to increase as a percentage of total sales.

Professional, Technical and
Staffing Alternatives
Sales in the Professional, Technical and Staffing Alternatives
(PTSA) segment totaled $1.072 billion, an increase of 1.4%
compared to the $1.058 billion reported in 2000. The growth is
due to an increase in average hourly bill rates of 5.3% partially
offset by a decrease in hours worked of 5.2% in the temporary
staffing businesses. In addition, there was an increase in
revenues of 6.0% in the staffing alternatives businesses which
include staff leasing and management services. On a year-over-
year basis, fourth quarter PTSA sales declined 1.0%. This is a
decrease from the 3.1% growth in the first quarter, 3.6%
growth in the second quarter and a 0.2% decrease in the third
quarter.

Results continued to be mixed among the 13 business units that
comprise PTSA. Kelly Healthcare, Kelly Financial and General
Contractor Services were the leading performers during the year,
exhibiting positive sales growth. Kelly Staff Leasing maintained
positive sales growth throughout the year as well. However,
several units within PTSA did experience sales decreases as the
year progressed. In particular, Automotive Services Group and
the Law Registry experienced double-digit sales declines as
compared to 2000. These decreases, however, were consistent
with industry trends in their staffing sectors.

PTSA sales represented 25% of total Company sales in 2001
and 24% of total Company sales in 2000.

PTSA earnings decreased 34.7% from 2000. During the first
nine months of 2001, the Company continued to invest in
those professional and technical businesses which exhibited
stronger growth. The Company opened 13 new branches and
implemented new technology, which caused expenses to be
higher as compared to the prior year. In addition, recruitment
fee income decreased significantly in many PTSA business units,
which negatively impacted the Company’s gross profit rate.

International
Translated U.S. dollar sales in International totaled $1.087
billion, a 1.3% decrease compared to the $1.101 billion
reported in 2000. This decrease resulted from a decline in the
U.S. dollar average hourly bill rates of 3.9% partially offset by
an increase in hours worked of 2.9%.

F I N A N C I A L R E V I E W ( C O N T I N U E D )

Kelly Services, Inc. and Subsidiaries

However, on a same currency basis, international revenue
increased 2.5%. This compared to 9.9% same currency sales
growth in 2000. Year-over-year same currency sales for the
fourth quarter of 2001 decreased 3%. This compared to 6%
same currency sales growth in the first quarter, 4% growth in
the second quarter and 2% growth in the third quarter. Global
slowing in staffing demand worsened over the course of 2001 in
the International segment. The slowdown was initially felt in
Australia, Canada and Puerto Rico. In the fourth quarter, the
decline was most apparent in Continental Europe.

International sales represented 26% of total Company sales in
2001 and 25% of total Company sales in 2000.

International earnings decreased 56.3% from 2000, reflecting
the slowing in staffing demand. In addition, decreases in fee
based income negatively impacted gross profit rates. However,
the Company continued to see significant progress in the U.K.
throughout the year. Expense reduction initiatives allowed the
U.K. to significantly improve profitability in 2001. Finally,
during 2001, the Company expanded geographic coverage to
26 countries with the opening of an office in Hong Kong.

Results of Operations
2000 versus 1999
Sales totaled $4.487 billion in 2000, an increase of 5.1%
compared to the $4.269 billion for 1999. This increase was a
result of an increase of hours worked of 5.3% partially offset by
a decrease in average hourly bill rates of 1.0%.

The 2000 gross profit rate averaged 17.7%, which was 0.2%
lower than the 17.9% rate earned in 1999. This reflected lower
rates in the U.S. Commercial and International segments
partially offset by an increase in the gross profit rate of PTSA.

Selling, general and administrative expenses expressed as a
percentage of sales were 14.6% in 2000 and 1999. The expense
rate in 2000 reflected the elimination of Year 2000 Project costs,
offset in part by increased depreciation expenses associated with
the Company’s technology investments.

Earnings from operations totaled $137.1 million, a 4.7%
decrease from the $144.0 million reported for 1999. Earnings
were 3.1% of sales as compared to 3.4% for 1999.

During October 2000, the Company sold undeveloped land for
$10.3 million and recognized a pretax gain of $8.6 million. The
proceeds from the sale were used in January 2001 for the
purchase of an office building that will be utilized by the
Company for future expansion.

Net interest expense was $409 thousand compared to $241
thousand in 1999. This reflected higher average borrowing
levels and higher interest rates throughout the year.

The effective income tax rate was 40.0% in 2000 as compared
to 40.8% in 1999, reflecting continued reductions in the
Company’s consolidated state and local tax rate.

Net earnings totaled a record $87.2 million in 2000, a 2.4%
increase over 1999. The rate of return on sales was 1.9%,
compared with the 2.0% rate in 1999. Basic earnings per share
were $2.44, a 3.0% increase over 1999. Diluted earnings per
share for 2000 were $2.43, a 3.0% increase compared to $2.36
for 1999.

U.S. Commercial Staffing
Sales in the U.S. Commercial Staffing segment grew by 3.7%
for the full year. This reflected an increase in average hourly bill
rates of 4.0% partially offset by a decrease in hours worked of
0.5%. Sales growth improved consistently from a decrease of
0.4% in the first quarter, to 2.0%, 5.6% and 7.6% growth in
the second, third and fourth quarters, respectively.

U.S. Commercial earnings decreased 4.7% in 2000, due to a
continued shift to larger corporate account business, which
negatively impacted gross profit rates.

Professional, Technical and
Staffing Alternatives
PTSA sales grew in 2000 by 12.5% compared to 1999. The
growth was due to an increase in hours worked of 4.9% and an
increase in the average hourly bill rates of 5.8% in temporary
staffing businesses, as well as an increase in revenues of 15.6%
in the staffing alternatives businesses. Within the PTSA
segment, growth was particularly strong in the science,
healthcare and staff leasing business units.

PTSA earnings increased 31.6% from 1999, reflecting sales
growth of 12.5%, combined with a significant gross profit rate
increase and favorable expense leverage.

International
The strong U.S. dollar significantly weakened translated sales for
the International segment. International sales grew by 1.6% as
compared to 1999. This reflected an increase in hours worked of
18.6% partially offset by a decrease in translated U.S. dollar average
hourly bill rates of 14.5%. The increase in hours was primarily due
to acquisitions made in Mexico in October 1999, Singapore in
September 2000 and Malaysia in October 2000. The decrease in
average hourly bill rates was due to both unfavorable currency
exchange and mix. However, on a constant currency basis,
international sales growth was 9.9%. International sales represented
25% of total Company sales in 2000 and 1999.

International earnings decreased 33.9% from 1999, reflecting the
impact of unfavorable foreign currency translation on
international results. In addition, significantly lower operating
results in the U.K. reflected the slowing economy and the costs
associated with turnover of senior country management positions.

Liquidity and Capital Resources
Cash and short-term investments totaled $84 million at the
end of 2001, an increase of $38 million from the $46 million
balance at year-end 2000.

Accounts receivable totaled $540 million at year end, a
decrease of $92 million from $632 million at year-end 2000,
reflecting lower sales, but also improved days sales outstanding.
The global days sales outstanding for the fourth quarter were
47 days, which is a three-day improvement versus the
Company’s performance in the prior year.

Short-term debt totaled $33 million, which decreased $25
million compared to the $58 million level in the prior year.
All short-term borrowings are foreign currency denominated
and reduce the Company’s exposure to foreign exchange
fluctuations. At year end, debt represented only 5% of total
capital.

The Company’s working capital position was $322 million at
the end of 2001, a decrease of $14 million from 2000 and $23
million from 1999. The current ratio was 1.9 in 2001 and
2000 and 2.0 in 1999.

Capital expenditures for 2001 totaled $43 million, down 22%
from the $54 million spent in 2000. Of the total, over 75%
related to Information Technology investments. The
Company’s capital expenditures peaked in 1999 at $77
million. For 2002, capital expenditures are expected to total
between $40 and $50 million.

During the first quarter of 2001, the Company acquired a
fully leased commercial office building that will be used for
future expansion. This transaction was the second leg of a tax-
free exchange for undeveloped land the Company initiated in
the fourth quarter of 2000. The land was effectively swapped
for the building, but in accordance with generally accepted
accounting principles, it is shown as a cash acquisition for
$11.8 million during 2001. The related $10.3 million cash
proceeds from the sale of property is reflected in the 2000 cash
from investing activities.

Depreciation and amortization for 2001 totaled $44.4 million,
a 12% increase from the $39.5 million for 2000. As a result of
the implementation of Statement of Financial Accounting
Standard (SFAS) No. 142 at the beginning of 2002, the
Company will eliminate approximately $2.7 million of
amortization of goodwill in 2002. For planning purposes, the
Company expects depreciation and amortization of intangible
assets other than goodwill to total approximately $45 to $50
million for 2002, reflecting on-going implementation of major
IT projects.

Assets totaled $1.039 billion in 2001, compared to $1.090
billion in 2000. The decrease in assets is primarily the result of

the decrease in accounts receivable offset by an increase in cash
as discussed above. The return on average assets was 1.6% in
2001, 8.2% in 2000 and 8.5% in 1999.

Stockholders’ equity was $607 million in 2001, which
represents a 2.6% decrease from 2000. The decrease in
stockholders’ equity is primarily the result of dividends paid
exceeding net earnings in 2001. The return on average
stockholders’ equity was 2.7% in 2001, 14.5% in 2000 and
15.2% in 1999.

Dividends paid per common share were $.85 in 2001, a
decrease of 14.1% from 2000 dividends of $.99 per share. The
quarterly dividend was reduced in the fourth quarter of 2001
by 60% to a new rate of $.10 per share per quarter, or $.40
per share annually. The cash saved from this reduction will
total over $21 million per year. Dividends in 1999 were $.95
per share.

The Company’s financial position remains strong. The
Company continues to carry no long-term debt and expects to
meet its growth requirements principally through cash
generated from operations, available cash and short term
investments and committed unused credit facilities totaling
$76 million at December 30, 2001.

The Company has no material unrecorded commitments,
losses, contingencies or guarantees associated with any related
parties or unconsolidated entities.

Market Risk-Sensitive Instruments and Positions
The Company does not hold or invest in derivative contracts.
The Company is exposed to foreign currency risk primarily
due to its net investment in foreign subsidiaries. This risk is
mitigated by the use of the Company’s multi-currency line of
credit. This credit facility is used to borrow in local currencies
which mitigates the exchange rate risk resulting from foreign
currency-denominated net investments fluctuating in relation
to the U.S. dollar. In addition, the Company is exposed to
interest rate risks through its use of the multi-currency line of
credit.

In addition, the Company is exposed to market risk as a result
of its obligation to pay benefits under its nonqualified deferred
compensation plan and its related investments in 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 publicly
traded mutual funds, as part of the company-owned variable
universal life insurance policies, are designed to mitigate this
risk with offsetting gains and losses.

Overall, the Company’s holdings and positions in market risk-
sensitive instruments do not subject the Company to material
risk.

F I N A N C I A L R E V I E W ( C O N T I N U E D )

Kelly Services, Inc. and Subsidiaries

In August 2001, the FASB issued SFAS No. 143, “Accounting
for Asset Retirement Obligations.” SFAS 143 addresses
financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the
associated retirement costs. In October 2001, the FASB issued
SFAS No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets.” SFAS 144 supersedes SFAS 121,
“Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of,” and addresses financial
accounting and reporting for the impairment of long-lived
assets and for long-lived assets to be disposed of. The
Company is in the process of assessing the effect of adopting
SFAS 143 and 144, which will be effective for the Company’s
fiscal 2003 and 2002 respectively.

Adoption of the Euro
A segment of the Company’s information technology
programs was devoted to changes necessary to deal with the
introduction of a European single currency (the euro). The
transition period for implementation was January 1, 1999,
through January 1, 2002.

The introduction and use of the euro has not had a material
effect on the Company’s results of operations. While the
Company will continue to evaluate the impact of the euro
over time, the Company does not believe that the use of the
euro currency will have a material adverse impact on its
consolidated financial condition, cash flows or results of
operations.

Forward-Looking Statements
Except for the historical statements and discussions contained
herein, statements contained in this report relate to future
events that are subject to risks and uncertainties, such as:
competitive market pressures including pricing, changing
market and economic conditions, material changes in demand
from large corporate customers, availability of temporary
workers with appropriate skills required by customers,
increases in wages paid to temporary workers not passed on to
customers, currency fluctuations, changes in laws and
regulations, the Company’s ability to effectively implement
and manage its information technology programs, the ability
of the Company to successfully expand into new markets and
service lines and other factors discussed in the report and in
the Company’s filings with the Securities and Exchange
Commission. Actual results may differ materially from any
projections contained herein.

Critical Accounting Policies
The Company prepared its financial statements in conformity
with accounting principles generally accepted in the United
States of America. In this process, it is necessary for
management to make certain assumptions and related
estimates affecting the amounts reported in the consolidated
financial statements and the attached notes. These estimates
and assumptions have been developed based upon all available
information using the Company’s best estimates. However,
actual results can differ from assumed and estimated amounts.

The significant accounting policies applied in preparing the
Company’s financial statements are described in Note 1 to the
financial statements. Policies which are considered critical are
described below.

Revenue Recognition
Revenue from sales of services is recognized as services are
provided by the temporary, contract or leased employees.
Revenue from permanent placement services is recognized at
the time the permanent placement candidate begins full-time
employment. Provisions for sales allowances, based on
historical experience, are recognized at the time the related sale
is recognized.

Allowance for Bad Debts
The Company records an allowance for bad debts based on
historical bad debt experience, customer payment patterns and
current economic trends. The Company reviews the adequacy
of the allowance for bad debts on a quarterly basis and, if
necessary, increases or decreases the balance.

Workers’ Compensation Expense
The Company establishes accruals for workers’ compensation
claims utilizing actuarial methods to estimate the
undiscounted future cash payments that will be made to
satisfy the claims. The estimates are based both on historical
experience as well as current legal, economic and regulatory
factors. The ultimate cost of these claims may be greater than
or less than the established accrual. However, the Company
believes that any such adjustments will not materially affect its
consolidated financial position.

New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 142, “Goodwill and Other Intangible Assets,”
which requires the discontinuance of goodwill amortization.
SFAS 142 is required to be applied for fiscal years beginning
after December 15, 2001, with certain early adoption permitted.
The Company expects to adopt SFAS 142 in its first fiscal
quarter of 2002, and does not expect the adoption to have a
material effect on its financial condition. The elimination of
goodwill amortization is expected to benefit 2002 earnings
before income taxes by approximately $2.7 million.

R E P O R T O F

I N D E P E N D E N T A C C O U N T A N T S

To the Stockholders and Board of Directors of Kelly Services, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, of cash flows

and of stockholders’ equity, as set forth on pages 18 through 28, present fairly, in all material respects, the financial position of Kelly

Services, Inc., and its subsidiaries at December 30, 2001, December 31, 2000 and January 2, 2000, and the results of their

operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United

States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express

an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with

auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a

test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and

significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits

provide a reasonable basis for our opinion.

Detroit, Michigan

January 22, 2002

S E L E C T E D Q U A R T E R L Y F I N A N C I A L D A T A ( U N A U D I T E D )

Kelly Services, Inc. and Subsidiaries

Sales of services

2001
2000
1999

Cost of services

2001
2000
1999

Selling, general and administrative

2001
2000
1999

Net earnings
2001
2000
1999

Basic earnings per share (1)

2001
2000
1999

Diluted earnings per share (1)

2001
2000
1999

Dividends per share

2001
2000
1999

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year

(In thousands of dollars except per share items)

$1,087,198
1,080,069
1,025,959

$1,066,255
1,106,740
1,066,783

$1,066,380
1,154,480
1,092,002

$1,037,059
1,146,002
1,084,369

$4,256,892
4,487,291
4,269,113

905,824
892,095
846,828

887,936
909,731
876,809

894,659
948,683
893,900

870,618
944,473
885,515

3,559,037
3,694,982
3,503,052

173,199
161,406
153,539

167,448
160,342
154,841

163,975
162,017
155,390

165,266
171,426
158,340

669,888
655,191
622,110

4,800
16,060
15,188

6,460
21,825
20,734

4,566
26,003
25,018

723
23,288
24,170

16,549
87,176
85,110

.13
.45
.42

.25
.24
.23

.18
.61
.58

.25
.25
.24

.13
.73
.70

.13
.73
.69

.25
.25
.24

.02
.65
.67

.10
.25
.24

.46
2.44
2.37

.46
2.43
2.36

.85
.99
.95

(1) Earnings per share amounts for each quarter are required to be computed independently and may not equal the amounts
computed for the total year.

C O M M O N S T O C K P R I C E I N F O R M A T I O N

Kelly Services, Inc. and Subsidiaries

2001
Class A common

High
Low
Final

Class B common

High
Low
Final

2000
Class A common

High
Low
Final

Class B common

High
Low
Final

1999
Class A common

High
Low
Final

Class B common

High
Low
Final

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year

$ 29.25
18.50
23.58

$ 26.00
21.90
24.25

$ 27.09
17.85
20.20

$ 24.70
18.34
22.06

$ 29.25
17.85
22.06

29.00
24.56
27.00

26.25
23.00
23.94

26.75
22.00
23.00

32.50
24.13
26.75

29.38
28.25
29.00

26.00
21.00
22.00

25.00
22.06
23.13

24.13
22.50
24.13

32.50
25.00
31.50

29.75
26.25
28.75

24.00
19.25
21.99

26.88
22.13
23.63

24.81
24.00
24.75

31.63
25.38
27.81

30.88
23.75
28.00

23.00
19.67
21.00

29.00
20.25
23.63

25.50
24.50
24.56

30.75
22.88
25.13

29.88
24.00
24.00

29.00
19.25
21.00

29.00
20.25
23.63

26.75
22.00
24.56

32.50
22.88
25.13

30.88
23.75
24.00

S T O C K H O L D E R S ’

I N F O R M A T I O N

Financial Reports for Stockholders
Stockholders, security analysts, and interested investors
may obtain additional quantities of this annual report,
the Company’s quarterly reports, as well as a copy of the
Company’s annual report to the Securities and Exchange
Commission on Form 10-K, without charge, by
addressing requests to the director of Investor Relations.
Quarterly financial information can also be found at the
Kelly Services website.

Dividend Reinvestment
and Direct Stock Purchase Plan
Registered stockholders can purchase additional shares of
Kelly’s Class A common stock through Kelly’s Dividend
Reinvestment and Direct Stock Purchase Plan. Initial
purchases of Kelly’s Class A common stock can also be
made through this Plan. Participation is voluntary and
allows for automatic reinvestment of cash dividends, direct
cash investments, and safekeeping of stock certificates.
For more information about this service, visit our website:
www.kellyservices.com and select Investor Relations or
contact Investor Relations at Kelly.

Stock Listings
Kelly Services Class A and Class B common stock trade
on the Nasdaq Stock MarketSM under the symbols:
KELYA and KELYB.

Forward-Looking Statements
This report contains forward-looking statements relating
to future events that are subject to risks and
uncertainties more fully described on page 32. Actual
results may differ materially.

Recycled

Recyclable

Kelly Services, Inc.
Corporate Headquarters
999 West Big Beaver Road
Troy, Michigan 48084-4782
(248) 362-4444
www.kellyservices.com

Investor Relations Contact
James M. Polehna
Director, Investor Relations
Kelly Services, Inc.
999 West Big Beaver Road
Troy, Michigan 48084-4782
Telephone: (248) 244-4586

Annual Meeting
The Annual Meeting of Stockholders will be held on
May 14, 2002, at 11:30 a.m. Eastern Daylight Time, at
the Corporate Headquarters of the Company. All
Stockholders are invited to attend.

Stock Transfer Agent & Registrar
Mellon Investor Services, LLC
P.O. Box 3315
South Hackensack, NJ 07606-3315

For assistance with transfers of stock to another name,
lost or destroyed stock certificates, lost dividend checks,
direct deposit of dividends, consolidation of accounts,
or change of addresses, please contact Mellon at:

Toll Free (U.S. and Canada):
TDD for Hearing Impaired:
Foreign Stockholders:
TDD Foreign Stockholders:

(866) 249-2607
(800) 231-5469
(201) 329-8660
(201) 329-8354

You may also visit their website: www.melloninvestor.com,
or contact Kelly’s director of Investor Relations.

Independent Accountants
PricewaterhouseCoopers LLP
400 Renaissance Center
Detroit, Michigan 48243-1507

999 West Big Beaver Road

Troy, Michigan 48084

248-362-4444

www.kellyservices.com

2001 Annual Report