KELLY SERVICES 2003 SUMMARY ANNUAL REPORT S T A F F I N G T H E W O R L D s e c i v r e S y l l e K C O R P O R A T E P R O F I L E Kelly Services, Inc., was founded in 1946 by William Russell Kelly, the pioneer of the modern temporary help industry. Today, Kelly® is a leading global provider of staffing services. Over the past 57 years, Kelly’s range of staffing solutions has grown steadily to match the needs of our global customers. Kelly temporary employees work in a wide variety of businesses and disciplines, including office services, finance, engineering, law, science, healthcare, information technology, marketing, call centers, light industrial, homecare, and education. Last year, the company operated 2,500 offices and assigned nearly 700,000 employees in 26 countries. Sales in 2003 totaled $4.3 billion. Kelly Services is headquartered in Troy, Michigan, U.S.A. S U M M A R Y A N N U A L R E P O R T This is a summary annual report. Complete financial statements, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Notes to Financial Statements, are contained in Kelly Services’ Annual Report on Form 10-K, available on our Company’s website, www.kellyservices.com, or through our Investor Relations office. A copy of our Code of Business Conduct and Ethics is also available. Please see page 28 for contact information. Kelly Services 2003 Summary Annual Report C O N T E N T S Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Letter to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 4 Corporate Ethics: A Fair Share for SUTA . . . . . . . . . . 8 Staffing the World . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 Directors & Officers . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 Summary Financials . . . . . . . . . . . . . . . . . . . . . . . . 1 5 Stockholders’ Information . . . . . . . . . . . . . . . . . . . . 2 8 O U R V I S I O N To be the world’s best staffing services company and to be recognized as the best. O U R M I S S I O N To serve our customers, employees, shareholders, and society by providing a broad range of staffing services and products. To achieve our Mission: • We will develop innovative staffing services which meet the needs of our customers and contribute to their success. • We will foster an environment which stimulates professional excellence and encourages contribution by all employees. • We will provide our shareholders a fair return on their investment. • We will demonstrate good corporate citizenship through the ethical conduct of our business. Kelly’s commitment to quality service, customer satisfaction, and O U R S H A R E D V A L U E S exemplary conduct has become a benchmark for the staffing industry. • Integrity, Honesty, and Ethical Behavior • Commitment to Quality and Customer Satisfaction • Dedication to Service and Personal Responsiveness • Professional Excellence and High Performance • Innovation, Creativity, and Open-Mindedness • Employee Participation, Contribution, and Teamwork • Diversity, Individual Dignity, and Mutual Respect • Growth, Profitability, and Industry Leadership O U R Q U A L I T Y P O L I C Y We are committed to quality and to the processes, measurement, and continuous improvement which are the foundations of quality management. Quality is a basic business principle for Kelly Services®. Quality means providing our internal and external customers innovative services and products that meet or exceed their expectations. Quality improvement is the job of every Kelly Services employee. 2 K E L L Y S E R V I C E S s 4.5 e c i v 3.6 r e S m 2.7 o r F e 1.8 u n e 0.9 v e R 0.0 s r a l l o d f o s n o i l l i b $4.3 $4.1 $4.3 $4.0 $4.1 2.5 $2.36 $2.43 2.0 s g n i 1.5 n r a E 1.0 d e t u 0.5 l i D e r a h s r e p $.52 $.46 $.14 99 00 01 02 03 0.0 99 00 01 02 03 (In thousands of dollars, except per share items) 2003 2002 Change Revenue From Services Earnings Before Income Taxes Income Taxes Net Earnings Basic Earnings Per Share Diluted Earnings Per Share Dividends Per Share Working Capital Stockholders’ Equity Total Assets $ 4,325,155 $ 4,056,945 8,660 3,550 5,110 .14 .14 .40 374,355 613,633 30,754 12,185 18,569 .52 .52 .40 352,161 619,064 1,137,737 1,072,133 6.6% (71.8%) (70.9%) (72.5%) (73.1%) (73.1%) 0.0% 6.3% (0.9%) 6.1% 2 0 0 3 S U M M A R Y A N N U A L R E P O R T 3 Terence E. Adderley Chairman and Chief Executive Officer (right) Carl T. Camden President and Chief Operating Officer (left) 2003 was a transitional year for the staffing industry. Sporadic economic conditions and a weak labor market marked the first half of the year. Finally, well into the third quarter, the recovery began to take hold and the labor market started to pick up. Concurrent with this, demand for our services began to show real strength. 2003 Results earnings per share were $.14 compared Kelly’s sales during 2003 totaled $4.325 with $.52 achieved during the prior year. billion, a 6.6 percent increase over 2002. Net earnings were $5.1 million, a Escalating workers’ compensation claims 72.5 percent decrease from the $18.6 and higher state unemployment taxes million we earned in 2002. Diluted were primary contributors to our 4 K E L L Y S E R V I C E S Demand for temporary employees typically accelerates early in a recovery, and Kelly is ready to meet that demand. We see a bright, long-term future for temporary staffing, and for Kelly Services. T . E . A D D E R L E Y earnings decline during the year. These product line-up are intact. We do not issues are quite typical coming out of a need to rebuild to meet the expected recession and should have only a short- increased demand for temporary staff. term effect. The actions we have taken give us a head start in this recovery. Positioned for the Recovery Kelly Services emerges from the Long-Term Optimism recession well-positioned for growth. We see a bright, long-term future for We own and operate 2,500 offices in temporary staffing, and for Kelly 26 countries. We employ nearly Services. 700,000 skilled, capable employees to fill positions at a variety of companies Our focus on serving large customers around the world—including more and market-dominant companies than 90 percent of the Fortune 500. allows us to expand quickly to new geographic areas in concert with their We are ready to meet the accelerated needs. Over the remainder of this increase in demand for temporary decade, one of our goals is to fill out staffing that is common early in a our existing branch networks in several recovery. Companies, still wary of the countries and expand into new economy, often add temporary countries through limited acquisitions employees to gear up. As confidence and startups. We also have many builds and those same companies opportunities to further globalize our assemble a permanent workforce, we Professional, Technical and Staffing can expect to see temporary-to- Alternatives businesses. Demand for permanent fees increase along with these specialty services is accelerating continuing solid increases in demand around the world. for temporary labor. The temporary staffing concept During the recession, we sacrificed continues to expand rapidly into short-term earnings in order to secure exciting new areas. For example, in long-term growth. We preserved our 2003 Kelly began offering a new service strong balance sheet and capital called Kelly FedSecure™ to help structure, and closely managed customers meet the growing demand expenses. Our branch network and for employees with security clearance. 2 0 0 3 S U M M A R Y A N N U A L R E P O R T 5 Our focus on serving large customers and market-dominant companies allows us to expand quickly to new geographic areas in concert with their needs. And we continued to expand Kelly increasing. Technology continues to Educational Staffing®, our substitute reshape work. And, to stay competitive, teacher and educational staffing companies will need a larger component business that now serves more than of their workforce to be flexible. 1,600 schools in 39 states and the District of Columbia. Kelly Services is at the intersection of these two trends. Temporary employees Demographic and workplace trends also allow our customers to quickly adjust bode well for our industry. Looking for staffing levels and skill sets to match the balance between work and leisure, changing demand for their services and controllable schedules, and variety in products. With our variety of service their jobs, employees are seeking more offerings and exceptional programs, flexible arrangements. In the 1990’s, Kelly is both a trusted manager and an the percentage of temporary employees experienced supplier of human resource in the U.S. workforce increased from solutions for today’s innovative 1.3 percent to 2.3 percent. While it employers and employees. declined slightly during the recession, we expect it to increase to 3.3 percent The Kelly Difference by the end of the decade. Business ethics and credibility continue to be issues of concern, even as new At the same time, job life cycles—the regulations address the ways in which length of time a job can be expected to companies conduct and report exist—are shortening. Project work is corporate activities. 6 K E L L Y S E R V I C E S At Kelly, we embrace the tried and true Recognizing Leadership values of our founder, and our standards This year, we were pleased to promote are clearly expressed in the Company’s Allison M. Everett to Senior Vice Vision, Mission, Shared Values, and President of Information Technology Quality Policy. We will continue to and Chief Information Officer, and operate as a company grounded in Dana M. Warren to Senior Vice strong principles as we pursue innovative President of Service. staffing solutions, growth, and opportunity. In early 2004, we welcomed Jane E. Dutton to our board of directors. Following this letter, you will find an Dr. Dutton is the William Russell Kelly essay about “SUTA Dumping”—an professor of business administration at unethical scheme used by some the University of Michigan Business companies to avoid paying their fair School, and her expertise will be a share of unemployment taxes. Although valuable addition to our board. adhering to the spirit of the law has caused Kelly’s unemployment taxes to We wish to thank our customers for increase significantly, our Company has their confidence and loyalty, our nearly not engaged in this unprincipled 700,000 full-time and temporary practice. In fact, we worked throughout employees who are the heart of Kelly 2003 to bring this issue to the forefront Services, our stockholders for their faith by talking to federal and state legislative and continuing support, and our board groups about the hardships that SUTA of directors for their ongoing Dumping inflicts on all legitimate commitment to our company and their businesses. guidance during the past year. Terence E. Adderley Chairman and Chief Executive Officer Carl T. Camden President and Chief Operating Officer 2 0 0 3 S U M M A R Y A N N U A L R E P O R T 7 A F a i r S h a r e f o r S U T A Comments from Carl T. Camden, President and COO OOur nation’s unemployment insurance system is under silent siege. The State Unemployment Tax Act (SUTA), which was created under the Social Security Act in 1935 to provide a safety net for jobless Americans and benefit the economy, is being manipulated by companies seeking to avoid paying their fair share of unemployment compensation insurance taxes. In November 2003, Kelly COO Carl Camden appeared before the U.S. House Ways and Means Committee to urge passage of HR 3463, the SUTA Dumping Prevention Act. If passed, the act would close loopholes and strengthen the underpinning of our nation’s unemployment insurance system. The recession may be over, but its to avoid paying their share of unemployment lingering effects can still be felt in the form of compensation taxes. This corporate tax high unemployment taxes. scheme depletes state coffers, encourages Under federal law, states are required to government borrowing, and increases taxes. enact and administer unemployment The urgency of this issue was highlighted compensation programs commonly known as last November with introduction of the State Unemployment Tax Acts, or SUTA. SUTA Dumping Prevention Act, federal These state programs provide temporary legislation that would help end the practice of financial assistance to eligible employees who avoiding unemployment taxes in a uniform are out of work through no fault of their own. fashion and create a nationwide level playing In most states, unemployment benefits are field. based on a tax imposed on employers—and According to Congressional testimony, the rate of tax is determined by the number of some accounting, law, and consulting firms claims made by former employees. Employers are actually encouraging companies to use with high unemployment activity—and thus a SUTA dumping to disguise their true higher “experience rating”—are assigned unemployment claims experience and avoid higher unemployment tax rates. Employers unemployment taxes. with lower activity and a lower experience SUTA dumping involves companies rating pay less. creating related shell organizations populated The problem? Many companies are with few employees at first to make it engaging in questionable and unethical efforts “legitimate.” An earlier version of this essay appeared in the Detroit Free Press in 2003. 8 K E L L Y S E R V I C E S SUTA dumping undermines the integrity of state unemployment insurance systems, harming both workers and employers who play by the rules. What’s more, it depletes state coffers, encourages government borrowing, and increases taxes. Via this new entity, a company is able to SUTA dumping schemes are most manipulate its unemployment claims pervasive in businesses such as staffing, experience to obtain very low—or even zero hospitality, and construction—but they can —SUTA rates. The company later transfers be found wherever payroll taxes are a large a large population of workers into the shell portion of a company’s total tax burden. firm to significantly reduce its tax And the period following an economic obligations. Although this is the most slowdown—such as now—is exactly the time common SUTA dumping scheme, other when the temptation and payoff of SUTA tactics include the use of mergers, dumping is greatest. Thus, it’s an opportune acquisitions, and reorganizations as time for legislators to act. loopholes to dodge paying a fair share of The law should be revised to require the unemployment taxes. mandatory transfer of unemployment SUTA dumping undermines the experience for mergers, acquisitions, and integrity of state unemployment insurance transfers of trade or business, regardless of systems, harming both workers and the reason for the transaction. The employers who play by the rules. Department of Labor should be directed to Workers are hurt because this develop tools and provide funding to train questionable practice depletes state trust state agencies in the detection of SUTA funds. Because companies escape the dumping. In those states where laws already financial harm that comes with laying off exist, enforcement should be tightened. employees, it eliminates their incentive to If state and federal governments fail to keep people working. Ethical employers are address this critical issue, they will send a hurt because they must pay more to make tacit message to employers that SUTA up for the taxes that other companies avoid. dumping is acceptable—even expected. The Department of Labor suggests Doing nothing will threaten the SUTA dumping could be costing states competitiveness of those companies that billions of dollars in lost unemployment refuse to engage in SUTA dumping schemes. funds. While more study is needed, it’s In fact, inaction is a slap in the face of those already clear that increased unemployment companies that adhere to higher standards of over the last two years has negatively ethics. impacted the solvency of unemployment The recent lessons of corporate trust funds in most states. misconduct must not be forgotten so soon. 2 0 0 3 S U M M A R Y A N N U A L R E P O R T 9 United States Kelly Educational Staffing added five states to its coverage. We now assign substitute teachers to more than 1,600 schools in 39 states and the District of Columbia. Denmark In 2003, Kelly Scientific Resources was launched in Copenhagen. Now operating in 13 countries, KSR is the world’s largest supplier of scientific staffing. Canada Kelly continued to expand its specialty staffing units in 2003, including the launch of Kelly Healthcare Resources. 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 10 K E L L Y S E R V I C E S Belgium In response to increasing demand, we launched Kelly Financial Resources in Belgium. Germany Despite a challenging economy, Kelly took advantage of the growing demand for professional staffing in Germany with the introduction of Kelly Engineering Resources. Singapore With the largest market share in Singapore, Kelly has emerged as the industry leader in providing temporary staffing to the banking industry. U.S. COMMERCIAL Kelly Office Services Kelly Marketing Services Kelly Light Industrial Services Kelly Electronic Assembly Services Kelly Educational Staffing® KellyConnect® KellyDirect® KellySelect® PROFESSIONAL, TECHNICAL & STAFFING ALTERNATIVES Professional & Technical Kelly Scientific Resources® Kelly Healthcare Resources® Kelly Home Care Services™ Kelly Automotive Services Group™ Kelly Engineering Resources® Kelly IT Resources® Kelly Law Registry® Kelly Financial Resources® Kelly FedSecure™ Staffing Alternatives Kelly Management Services® Kelly Staff Leasing® Kelly HR Consulting® Kelly HRfirst® Kelly Vendor Management Solutions™ INTERNATIONAL KellyAssess Kelly MultiHire 2 0 0 3 S U M M A R Y A N N U A L R E P O R T 11 B o a r d o f D i r e c t o r s Verne G. Istock Retired Chairman/ President Bank One Corporation Maureen A. Fay, O.P., Ph.D. President University of Detroit Mercy Terence E. Adderley Chairman and Chief Executive Officer Carl T. Camden President and Chief Operating Officer B. Joseph White Professor of Business Administration University of Michigan Cedric V. Fricke Professor Emeritus University of Michigan- Dearborn N e w D i r e c t o r A p p o i n t e d In February 2004, we welcomed Jane E. Dutton, professor of business administration at the University of Michigan, to our board of directors. Dr. Dutton is also a professor of psychology at Michigan, where her research focuses on how the quality of interpersonal connection in the workplace affects employee and organizational success. A native of Hartford, Connecticut, Dutton holds a Ph.D. and Masters degree in organizational behavior from Northwestern University, and a B.A. from Colby College. Jane E. Dutton William Russell Kelly Professor of Business Administration University of Michigan 12 K E L L Y S E R V I C E S S e n i o r O f f i c e r s Terence E. Adderley Chairman and Chief Executive Officer Carl T. Camden President and Chief Operating Officer Michael L. Durik Executive Vice President, Human Resources William K. Gerber Executive Vice President and Chief Financial Officer Arlene G. Grimsley Executive Vice President, U.S. Commercial Staffing James H. Bradley Senior Vice President, Administration Joan M. Brancheau Senior Vice President and General Manager, Strategic Customer Relations George S. Corona Senior Vice President and Division General Manager Allison M. Everett Senior Vice President, Information Technology Carol J. Johnson Senior Vice President, Global Sales Rolf E. Kleiner Senior Vice President, International Michael S. Morrow Senior Vice President, Marketing George M. Reardon Senior Vice President and General Counsel Marc W. Rosenow Senior Vice President, Field Support Larry J. Seyfarth Senior Vice President, Technical Services Group James A. Tanchon Senior Vice President, Solutions Support Group Bernard Tommasini Senior Vice President and Regional General Manager, Western Europe Dana M. Warren Senior Vice President, Service Andrew R. Watt Senior Vice President, PTSA Michael S. Webster Senior Vice President and Division General Manager 2 0 0 3 S U M M A R Y A N N U A L R E P O R T 13 O f f i c e r s Leif Agnéus Steven S. Armstrong D. Craig Atkinson Brian C. Ault Christopher Bell Thomas A. Bennett Richard Binier Paul A. Bordonaro Alice M. Bowers Barry L. Brown Jane M. Brown Jeanine E. Burgen Eileen M. Candels MaryAnn Carey Thomas J. Catalano David A. Charlip Cheryl F. Courier Michael E. Debs Jacqueline B. Devin John P. Drew Sherry A. Drew Shaun M. Fracassi Sandra W. Galac Jean-Claude Gallois Sergio Gomez Heidi L. Hanes Matthew L. Harvill Matthew W. Igel Charles G. Jackson Venson J. Jennings Christopher Kelly Catherine J. King Donald P. Kingston Gregory J. Kohl Gregory S. Kruger Susan C. Laminack Stig Lauvsland Nicole M. Lewis John W. Lichtenberg Daniel T. Lis Wilma I. Lopez Robert J. Lyons Thomas H. Manceor Timothy G. McAward Timothy T. McClain James D. McIntire Jody M. McLeod Dane D. McSpedon Jonathan D. Means Richard A. Piske Matthew V. Piwowar Antonina M. Ramsey Nicholas F. Regaldi Diane E. Reynolds Marc J. Riou Ingrid A. Roberts Rodger J. Rooney Diane E. Rubin-White Lori L. Sakorafis Virginia A. Scaduto Aly A. Schambourg Michelle C. Schorr Lynn G. Schwartz Teresa E. Setting Dhirendra Shantilal Debra S. Sheehan Mark A. Siegal Glenn L. Sorrie Allen J. Sowers J. Leon Stanek Richard G. Struble W. Edward Meisenheimer Kristin W. Supancich Lisa R. Miller Terrence T. Murphy John J. O’Connor Michael F. Orsini Michael J. Tilley Thomas L. Totte Andrew P. Trestrail Tami A. Troxell Josefa Vidal Barbara A. Wilson Larry D. Worthen Christine M. Hoebermann Carolyn J. Palmer Bonnie D. Huber Thomas P. Huizenga Deborah L. Perrault Carla A. Perrotta 14 K E L L Y S E R V I C E S S U M M A R Y F I N A N C I A L S 2 0 0 3 S U M M A R Y A N N U A L R E P O R T 15 S u m m a r y F i n a n c i a l C o n t e n t s Eleven Year Financial Summary . . . . . . . . . . . . . . . . . . . . 1 8 Summary Statements of Earnings . . . . . . . . . . . . . . . . . . 2 0 Summary Statements of Cash Flows. . . . . . . . . . . . . . . . 2 1 Summary Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . 2 2 Summary Statements of Stockholders’ Equity. . . . . . . . . 2 4 Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . 2 5 Selected Quarterly Financial Data (Unaudited) . . . . . . . . . 2 6 Common Stock Price Information . . . . . . . . . . . . . . . . . . 2 7 S u m m a r y A n n u a l R e p o r t This is a summary annual report. Complete financial statements, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Notes to Financial Statements, are contained in Kelly Services’ Annual Report on Form 10-K, available on our Company’s website, www.kellyservices.com, or through our Investor Relations office. A copy of our Code of Business Conduct and Ethics is also available. Please see page 28 for contact information. 16 K E L L Y S E R V I C E S F o r w a r d - L o o k i n g S t a t e m e n t s Certain statements contained in this Summary Annual Report are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements include statements that are predictive in nature; depend upon or refer to future events or conditions; or include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or variations or negatives thereof, or by similar or comparable words or phrases. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future Company actions, that may be provided by management are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about the Company; and economic and market factors in the countries in which the Company does business, among other things. These statements are not guarantees of future performance, and the Company has no specific intention to update these statements. Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal important risk factors that could cause the Company’s actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, competitive market pressures including pricing, 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, liabilities for client and employee actions, foreign currency fluctuations, changes in laws and regulations (including federal, state, and international tax laws), the Company’s ability to effectively implement and manage its information technology programs, and the ability of the Company to successfully expand into new markets and service lines. Certain risk factors are discussed more fully in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. 2 0 0 3 S U M M A R Y A N N U A L R E P O R T 17 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) Revenue from services Cost of services Gross profit Selling, general and administrative expenses(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 Goodwill amortization (6) 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 Compound Annual Growth Rates (1) 10 Year 5 Year 1 Year 2003 2002 8.3% 8.7 6.2 8.1 (18.0) N/A (19.0) (18.1) (19.5) (5.1) 7.7 6.0% 13.6 1.4 10.7 7.7 4.7 6.5 10.5 N/A (19.2)% (19.2) (4.4) 5.6 (0.1) 2.2% 2.9 (1.0) 3.1 (42.6) N/A (43.0) (43.0) (43.0) (16.2) 0.4 2.8% 3.9 1.5 5.1 3.4 2.7 (12.5) 10.6 N/A 6.6% 7.9 0.6 3.9 (71.3) N/A (71.8) (70.9) (72.5) (1.0) 7.9 10.1% 13.7 6.3 (7.0) 6.1 (0.9) (9.5) 5.2 N/A $ 4,325.2 3,628.5 696.6 687.9 8.7 (0.1) 8.7 3.6 5.1 14.1 423.8 $ 791.7 417.3 374.4 188.1 1,137.7 613.6 30.2 47.8 0.0 (42.6)% (42.5) (15.2) 3.3 (2.8) (73.1)% $ (73.1) 0.0 1.3 11.3 .14 .14 .40 17.65 27.52 $ 4,056.9 3,364.2 692.7 662.3 30.4 0.4 30.8 12.2 18.6 14.3 392.7 $ $ 719.4 367.2 352.2 202.3 1,072.1 619.1 33.4 45.4 0.0 .52 .52 .40 17.42 24.72 Number of common shares outstanding at year end (thousands) Average number of shares outstanding (thousands) Basic Diluted Stock splits Financial Ratios (1) Return on revenues 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 34,772 35,529 35,289 35,355 — 35,724 35,900 — 0.1% 0.5% 0.8% 41.0% 1.9 196.6 0.5% 1.8% 3.0% 39.6% 2.0 47.5 (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. (6) Goodwill amortization amounts are also included in the depreciation and amortization line item above. Note: Certain prior year amounts have been reclassified to conform with the current presentation. 18 K E L L Y S E R V I C E S 2001 2000 1999 (2) 1998 1997 1996 1995 1994 1993 $ 4,005.9 3,308.0 697.9 669.9 28.0 (0.4) 27.6 11.0 16.5 30.4 385.3 $ $ 670.2 348.2 322.0 212.0 1,039.4 607.2 42.5 44.4 2.7 .46 .46 .85 16.93 22.06 $ 4,250.7 3,458.4 792.3 655.2 137.1 (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 2.0 2.44 2.43 .99 17.45 23.63 $ 4,076.3 3,310.3 766.0 622.1 143.9 (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 1.8 2.37 2.36 .95 16.23 25.13 $ 3,882.0 3,150.7 731.3 590.7 140.6 3.0 143.6 58.9 84.7 34.2 416.2 $ 3,625.2 2,943.8 681.3 545.5 135.8 1.2 137.0 56.2 80.8 33.2 388.2 $ 3,115.4 2,502.6 612.8 491.8 121.0 1.9 122.9 49.9 73.0 31.6 339.7 $ 2,586.7 2,045.3 541.4 435.1 106.3 7.0 113.3 43.8 69.5 29.6 283.5 $ 2,273.3 1,810.3 463.0 370.9 92.1 6.4 98.5 37.4 61.1 26.6 246.4 $ $ 690.9 344.1 346.8 146.4 964.2 537.8 59.1 28.9 1.5 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 1.5 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 1.1 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 0.9 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 0.7 1.61 1.61 .70 11.37 27.50 $ 1,954.5 1,573.8 380.7 316.8 63.9 7.0 70.9 26.3 44.6 23.8 202.4 $ $ 441.3 116.1 325.2 68.3 542.1 386.2 16.1 17.5 0.4 1.18 1.18 .63 10.23 27.75 35,868 35,739 35,874 35,807 38,163 38,059 38,015 37,963 37,755 35,829 35,930 — 35,721 35,843 — 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 0.4% 1.6% 2.7% 40.0% 1.9 48.0 2.1% 8.2% 14.5% 40.0% 1.9 9.7 2.1% 8.5% 15.2% 40.8% 2.0 10.6 2.2% 8.8% 15.4% 41.0% 2.0 14.2 2.2% 8.9% 15.0% 41.0% 2.2 13.8 2.3% 9.4% 14.7% 40.6% 2.4 14.4 2.7% 10.2% 15.3% 38.7% 2.9 15.2 2.7% 10.3% 14.9% 38.0% 3.2 17.1 2.3% 8.6% 11.8% 37.1% 3.8 23.5 2 0 0 3 S U M M A R Y A N N U A L R E P O R T 19 S u m m a r y 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 2003 2002 2001 (In thousands of dollars except per share items) Revenue from services $ 4,325,155 $ 4,056,945 $ 4,005,878 Cost of services Gross profit Selling, general and administrative expenses Earnings from operations Interest (expense) income, net Earnings before taxes Income taxes Net earnings 3,628,524 3,364,219 3,308,023 696,631 687,894 8,737 (77) 8,660 3,550 692,726 697,855 662,334 669,888 30,392 27,967 362 30,754 12,185 (381) 27,586 11,037 $ 5,110 $ 18,569 $ 16,549 Basic earnings per share $ .14 $ .52 $ .46 Diluted earnings per share $ .14 $ .52 $ .46 Dividends per share $ .40 $ .40 $ .85 Average shares outstanding (thousands): Basic Diluted 35,289 35,355 35,724 35,900 35,829 35,930 Notes to Financial Statements can be found in the Company’s 2003 Form 10-K. Effective in 2002, the Company adopted Statement of Financial Accounting Standards No.142 “Goodwill and Other Intangible Assets” and, accordingly, eliminated the amortization of goodwill. Goodwill amortization was $2.7 million in 2001, and is included in selling, general and administrative expenses. Net income, adjusted for the elimination of goodwill amortization, would have been $18.6 million in 2001. 20 K E L L Y S E R V I C E S S u m m a r y 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 Deferred income taxes Changes in operating assets and liabilities Net cash from operating activities Cash flows from investing activities Capital expenditures Short-term investments (Increase) decrease in other assets Acquisition of building Acquisition of companies 2003 2002 2001 (In thousands of dollars) $ 5,110 $ 18,569 $ 16,549 47,795 2,936 (25,248) 30,593 (30,222) 142 (2,487) –– –– 45,428 6,590 19,019 89,606 (33,406) 31 (3,476) –– –– 44,396 (242) 84,522 145,225 (42,525) 1,764 3,645 (11,783) (192) Net cash from investing activities (32,567) (36,851) (49,091) Cash flows from financing activities Increase (decrease) in short-term borrowings Dividend payments Exercise of stock options and other Purchase of treasury stock Net cash from financing activities Effect of exchange rates on cash and equivalents Net change in cash and equivalents Cash and equivalents at beginning of year 10,280 (14,143) 3,865 (26,149) (26,147) 3,563 (24,558) 100,936 (11,723) (14,293) 991 (13,216) (38,241) 2,961 17,475 83,461 (24,900) (30,408) 139 (64) (55,233) (758) 40,143 43,318 Cash and equivalents at end of year $ 76,378 $ 100,936 $ 83,461 Notes to Financial Statements can be found in the Company’s 2003 Form 10-K. 2 0 0 3 S U M M A R Y A N N U A L R E P O R T 21 S u m m a r y B a l a n c e S h e e t s Kelly Services, Inc. and Subsidiaries ASSETS Current Assets 2003 2002 2001 (In thousands of dollars) Cash and equivalents $ 76,378 $ 100,936 $ 83,461 Short-term investments 457 599 630 Accounts receivable, less allowances of $14,983, $12,533 and $12,105 respectively 658,090 567,517 539,692 Prepaid expenses and other current assets Deferred taxes 31,784 24,962 26,387 24,950 23,916 21,469 Total current assets 791,671 719,355 670,202 Property and Equipment Land and buildings 57,543 57,111 56,639 Equipment, furniture and leasehold improvements 302,938 295,536 275,063 Accumulated depreciation (172,359) (150,315) (119,729) Net property and equipment 188,122 202,332 211,973 Noncurrent Deferred Taxes Goodwill, Net Other Assets Total Assets 14,606 85,788 57,550 21,065 31,415 80,260 73,643 49,121 52,148 $ 1,137,737 $ 1,072,133 $ 1,039,381 Notes to Financial Statements can be found in the Company’s 2003 Form 10-K. 22 K E L L Y S E R V I C E S LIABILITIES AND STOCKHOLDERS’ EQUITY 2003 2002 2001 (In thousands of dollars) Current Liabilities Short-term borrowings $ 39,190 $ 24,770 $ 32,939 Accounts payable Payroll and related taxes Accrued insurance Income and other taxes Total current liabilities Noncurrent Liabilities Accrued insurance Accrued retirement benefits Total noncurrent liabilities Stockholders’ Equity Capital stock, $1.00 par value Class A common stock, shares issued 36,619,148 at 2003, 36,619,148 at 2002 and 36,609,078 at 2001 Class B common stock, shares issued 3,496,718 at 2003, 3,496,718 at 2002 and 3,506,788 at 2001 Treasury stock, at cost Class A common stock, 5,319,995 shares at 2003, 4,567,975 shares at 2002 and 4,232,542 at 2001 Class B common stock, 23,475 shares at 2003, 18,875 shares at 2002 and 15,675 at 2001 Paid-in capital Earnings invested in the business Accumulated foreign currency adjustments Total stockholders’ equity 92,265 200,503 36,016 49,342 417,316 58,763 48,025 106,788 36,619 3,497 85,310 181,585 27,912 47,617 88,217 154,813 24,071 48,149 367,194 348,189 45,540 40,335 85,875 39,273 44,764 84,037 36,619 36,609 3,497 3,507 (112,535) (91,648) (81,721) (623) 19,096 656,726 10,853 613,633 (511) 17,902 665,759 (12,554) 619,064 (435) 17,035 661,483 (29,323) 607,155 Total Liabilities and Stockholders’ Equity $ 1,137,737 $ 1,072,133 $ 1,039,381 2 0 0 3 S U M M A R Y A N N U A L R E P O R T 23 S u m m a r y 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 2003 2002 2001 (In thousands of dollars) 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 $ $ $ $ 36,619 — 36,619 3,497 — 3,497 (91,648) 5,150 — (26,037) (112,535) (511) (112) (623) 17,902 1,194 — 19,096 665,759 5,110 (14,143) 656,726 (12,554) 23,407 10,853 613,633 5,110 23,407 28,517 $ 36,609 10 36,619 $ 3,507 (10) 3,497 36,609 — 36,609 3,507 — 3,507 (81,721) (84,251) 2,381 832 (13,140) (91,648) (435) (76) (511) 17,035 699 168 17,902 661,483 18,569 (14,293) 665,759 (29,323) 16,769 (12,554) 619,064 18,569 $ $ 16,769 $ 35,338 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 $ $ $ Notes to Financial Statements can be found in the Company’s 2003 Form 10-K. 24 K E L L Y S E R V I C E S R e p o r t o f I n d e p e n d e n t A u d i t o r s To the Stockholders and Board of Directors of Kelly Services, Inc. We have audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheets of Kelly Services, Inc. and its subsidiaries as of December 28, 2003, December 29, 2002 and December 30, 2001, and the related consolidated statements of earnings, cash flows and stockholders’ equity for each of the three years then ended (not presented herein) appearing in the Company’s Annual Report on Form 10-K; and in our report dated January 20, 2004, we expressed an unqualified opinion on those consolidated financial statements. In this report, reference was made to the Company’s change in the manner in which it accounts for goodwill and other intangible assets as of December 31, 2001. In our opinion, the information set forth in the accompanying summary consolidated financial statements is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. PricewaterhouseCoopers LLP Detroit, Michigan January 20, 2004 2 0 0 3 S U M M A R Y A N N U A L R E P O R T 25 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 Revenue from services (1) 2003 2002 2001 Cost of services (1) 2003 2002 2001 Selling, general and administrative expenses 2003 2002 2001 Net earnings 2003 2002 2001 Basic earnings per share (2) 2003 2002 2001 Diluted earnings per share (2) 2003 2002 2001 Dividends per share 2003 2002 2001 First Quarter Second Quarter Third Quarter Fourth Quarter Year (In thousands of dollars except per share items) $ 1,003,397 $ 1,059,517 $ 1,097,268 $ 1,164,973 $ 4,325,155 936,613 1,030,328 1,014,841 1,006,418 1,057,290 1,000,476 1,048,201 968,656 4,056,945 4,005,878 837,845 777,653 848,954 887,113 844,625 828,099 924,661 875,028 828,755 978,905 866,913 802,215 3,628,524 3,364,219 3,308,023 165,162 157,774 173,199 169,955 163,741 167,448 169,898 171,547 163,975 182,879 169,272 165,266 687,894 662,334 669,888 310 796 4,800 1,484 3,935 6,460 1,504 6,505 4,566 1,812 7,333 723 5,110 18,569 16,549 .01 .02 .13 .01 .02 .13 .10 .10 .25 .04 .11 .18 .04 .11 .18 .10 .10 .25 .04 .18 .13 .04 .18 .13 .10 .10 .25 .05 .21 .02 .05 .21 .02 .10 .10 .10 .14 .52 .46 .14 .52 .46 .40 .40 .85 (1) As discussed in Note 1 to the financial statements, the Company changed its method of reporting revenue for Kelly Staff Leasing. This change did not impact gross profit or net earnings. Revenue from services and cost of services adjustments for the first, second, third and fourth quarters of 2002 were $63.4 million, $62.1 million, $65.4 million and $75.6 million, respectively. Revenue from services and cost of services adjustments for the first, second, third and fourth quarters of 2001 were $56.9 million, $59.8 million, $65.9 million and $68.4 million, respectively. Notes to Financial Statements can be found in the Company’s 2003 Form 10-K. (2) Earnings per share amounts for each quarter are required to be computed independently and may not equal the amounts computed for the total year. 26 K E L L Y S E R V I C E S 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 First Quarter Second Quarter Third Quarter Fourth Quarter Year 2003 Class A common High Low Final Class B common High Low Final 2002 Class A common High Low Final Class B common High Low Final 2001 Class A common High Low Final Class B common High Low Final $ 25.64 19.01 22.00 $ 25.90 21.31 24.60 $ 27.26 23.30 25.27 $ 29.70 24.20 27.52 $ 29.70 19.01 27.52 26.41 19.68 22.48 28.68 21.33 28.23 27.00 21.00 27.00 29.25 18.50 23.58 29.00 24.56 27.00 26.35 21.87 25.01 29.50 23.60 27.01 28.78 23.50 23.50 26.00 21.90 24.25 26.00 21.00 22.00 27.49 24.04 26.31 27.37 19.80 21.84 27.89 20.50 20.70 27.09 17.85 20.20 24.00 19.25 21.99 29.63 25.75 27.92 25.75 17.86 24.72 26.99 18.90 25.75 24.70 18.34 22.06 23.00 19.67 21.00 29.63 19.68 27.92 29.50 17.86 24.72 28.78 18.90 25.75 29.25 17.85 22.06 29.00 19.25 21.00 2 0 0 3 S U M M A R Y A N N U A L R E P O R T 27 Kelly Services, Inc. Corporate Headquarters 999 West Big Beaver Road Troy, Michigan 48084-4782 U.S.A. (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 U.S.A. (248) 244-4586 Annual Meeting The Annual Meeting of Stockholders will be held on April 27, 2004, at 11:00 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 changes of address, 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 Independent Accountants PricewaterhouseCoopers LLP 400 Renaissance Center Detroit, Michigan 48243-1507 Financial Reports for Stockholders Stockholders, security analysts, and interested investors may obtain additional copies of this summary annual report, the Company’s quarterly reports, the Company’s Annual Report to the Securities and Exchange Commission on Form 10-K, and copies of the Company’s Code of Business Conduct and Ethics, without charge, by addressing requests to the director of Investor Relations. This 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. You may also visit their website, www.melloninvestor.com, or contact Kelly’s director of Investor Relations. Recycled Recyclable © 2004 Kelly Services, Inc. 28 K E L L Y S E R V I C E S 999 West Big Beaver Road Troy, Michigan 48084-4782 (248) 362-4444 www.kellyservices.com