Kelly ServiceS
2 0 0 7 A n n uAl R e p oR
t
Staffing the World
Staffing the World
36 Countries and territories
staffing solutions
Mexico
Netherlands
New Zealand
Norway
Philippines
Poland
Puerto Rico
Russia
Singapore
Spain
Sweden
Switzerland
Thailand
Turkey
Ukraine
United Kingdom
United States
Australia
Austria
Belgium
Canada
China
Czech Republic
Denmark
Finland
France
Germany
Hong Kong
Hungary
India
Indonesia
Ireland
Italy
Japan
Luxembourg
Malaysia
Commercial
KellyConnect®
KellyDirect®
Kelly Educational Staffing®
Kelly Law Registry®
Kelly Scientific Resources®
CGR/seven
P-Serv
Kelly Electronic Assembly Services
Talents Technology
Kelly Light Industrial Services
Kelly Marketing Services
Kelly Office Services
KellySelect®
Outsourcing & Consulting
Kelly HR Consulting®
Kelly® HRfirst®
Kelly Management Services®
Professional & Technical
Kelly Vendor Management Solutions
Kelly Automotive Services Group®
access AG
Kelly Engineering Resources®
The Ayers Group
Kelly® FedSecure®
Kelly Financial Resources®
Kelly Healthcare Resources®
Kelly IT Resources®
Corporate Profile
S t a f f i n g t h e W o r l d
Kelly Services, Inc. was established in
1946 by William Russell Kelly, founder
of the modern temporary help industry.
Today, Kelly® is a world leader in human
resources solutions.
Kelly’s HR, staffing, placement, outsourcing, and consulting
services have grown steadily over the years to provide the
comprehensive global talent management our customers need.
Kelly employees work in a variety of professional, technical,
and traditional office disciplines including finance, creative
services, healthcare, science, engineering, law, education,
contact centers, office services, and light industrial.
Last year, the company assigned more than 750,000 employees
in 36 countries and territories. Revenue in 2007 totaled $5.7
billion. Kelly is headquartered in Troy, Michigan, U.S.A.
Financial HigHligHts
revenue from ServiceS
diluted earningS
$5.7
$5.5
$1.75
$1.67
$5.2
$4.9
$4.2
s
r
a
l
l
o
d
f
o
s
n
o
i
l
l
i
b
$1.09
$.60
e
r
a
h
s
r
e
p
$.14
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
2007
2006
change
(in thousands of dollars, except per share items)
Revenue From Services
$ 5,667,589
$ 5,546,778
Earnings From Continuing Operations
Before Taxes
Income Taxes
Earnings From Continuing Operations
Earnings From Discontinued Operations,
Net of Tax
Net Earnings
Diluted Earnings Per Share
Earnings From Continuing Operations
Earnings From Discontinued Operations
Net Earnings
Dividends Per Share
Working Capital
Stockholders’ Equity
Total Assets
83,291
29,567
53,724
7,292
61,016
1.47
.20
1.67
.52
79,512
22,727
56,785
6,706
63,491
1.56
.18
1.75
.45
478,587
788,229
1,573,997
463,256
758,557
1,469,424
2.2%
4.8%
30.1%
(5.4)%
8.7%
(3.9)%
(5.8)%
11.1%
(4.6)%
15.6%
3.3%
3.9%
7.1%
Letter to StockholderS
This has been a year of strategic action and significant accomplishment for
Kelly Services. I’m pleased to report on our success and provide you with
this update of our activities.
2007 brought unexpected challenges. What began as a promising year
unfolded quite differently. The U.S. economy slowed dramatically to
end the year at near-recession levels. Economic uncertainty softened
demand for temporary employees here in the States and impacted our
Company’s performance.
In spite of those conditions, Kelly made progress.
Positive Gains
For the year, our net earnings declined slightly to $1.67 per share.
However, we set a new sales record of $5.7 billion. Fee income increased
and we continued to see year-over-year improvement in our operating
margins.
Results from our highly skilled professional and technical staffing and
outsourcing and consulting services—both here in the Americas and
abroad—were very good. But the true driver of 2007 performance was
our International business, where revenue increased by nearly 20%, fee
income grew by almost 50%, and earnings increased over ten fold.
There can be no doubt our earnings would have been stronger had the
U.S. economy strengthened. But our performance affirms that we’re on
the right track. The strategic plan we’ve undertaken is playing out well
and proving its value.
Tactical Steps
It’s increasingly clear that our future success will depend more and more
on our capacity to compete on the world stage. As we move from a
company dominated by U.S. sales to one with a broad global profile,
we will become even more diversified and able to thrive in changing
global economies.
Kelly Services was built
on a strong foundation
of core values. Integrity,
trust, respect, and
professional excellence
continue to guide us.
Our mission—to serve
customers, employees,
stockholders, and society
by providing a broad range
of talent management
solutions—has helped
us become one of the
largest global staffing
companies today.
••• 1
Letter to StockholderS
Specifically, we are committed to position Kelly for long-term growth through a deliberate, four-point plan:
• Diversify geographically;
• Invest in high-growth, high-margin businesses;
• Accelerate the globalization of professional and technical staffing services; and
• Improve operating margins.
Significant Accomplishments
Let me share with you some of the initiatives we undertook during
the year to help us reach those goals.
Global Growth
We expanded Kelly’s global reach by purchasing the remaining
51% of Tempstaff Kelly, Inc., our joint venture in the Asia-Pacific
region. Kelly entered four additional international markets through
acquisitions in China, Austria, Poland, and the Czech Republic;
and we added two new countries—the Ukraine and Finland—by
growing relationships with existing customers.
PTSA Expansion
In addition to acquiring several higher-margin, specialty staffing
firms, we built on healthy worldwide demand for professional and
technically skilled workers by opening more than 50 new PTSA
branches internationally during the year.
Kelly’s success increasingly
depends on our capacity
to compete globally. We’re
committed to diversify
geographically, lessen
dependence on U.S. markets
and grow our high-margin
businesses around the world.
Realigned Business Structure
To facilitate our international growth, we implemented a new business structure designed around three
regions: the Americas, Asia-Pacific, and EMEA (Europe, Middle East, Africa). Our business leadership,
sales, and marketing teams have also been realigned to support this new structure and accelerate
worldwide expansion.
Streamlined Operations
To become more efficient, we divested a non-core business, Kelly Home Care. We restructured
our UK operations by closing 22 branches there and consolidating our headquarters operations.
In the Americas, we closed or consolidated nearly 60 branch offices and centralized our
payroll processing.
2 •••
Tightened Costs
During the year, we began allocating additional headquarters’ costs to appropriate business segments,
which resulted in better expense control and margin improvement. Also, we remained focused on
managing workers’ compensation and unemployment costs. As a result, excluding restructuring charges,
we improved our operating margin by 20 basis points during the year.
Enhanced Value
Finally, we took several steps to broaden our investor base and increase value to our shareholders—
completing a successful secondary offering of more than 5 million shares, authorizing a $50 million stock
repurchase plan, and raising our quarterly dividend by 8%. 2007 marked our 46th consecutive year of
paying a dividend.
Going Forward
Taken together, these actions move us closer to our strategic goals. We remain committed to lessening
our dependence on U.S. markets, strengthening our global presence, and expanding our specialty staffing
throughout the world.
Doing so can only sharpen our competitive edge and accelerate our growth.
Today’s diverse markets are more open than ever before to flexible staffing. Government restrictions
are lifting, technology has erased boundaries, temporary assignments are gaining greater acceptance,
employees have become more adaptable, and the very nature of work is continually changing.
The staffing industry is full of opportunity. Kelly is ready. We’ve set our sights, advanced our strategic
plan, and are building momentum. And you—our stockholders, directors, and employees—fuel our
determination to raise the bar and meet our goals. Thank you for your continued support and belief in
our future.
Carl T. Camden
President and Chief Executive Officer
F e b r u a r y 2 0 0 8
••• 3
Directors & officerS
BO A R D
O F DI ReC T O R S
Terence e. Adderley
Chairman
Carl T. Camden
President and
Chief Executive Officer
Jane e. Dutton
William Russell Kelly Professor
of Business Administration
University of Michigan
S eN I O R
OF F I CeR S
Carl T. Camden
President and
Chief Executive Officer
George S. Corona
Executive Vice President and
General Manager,
Americas
Michael L. Durik
Executive Vice President and
Chief Administrative Officer
Michael S. Webster
Executive Vice President,
Global-Sales, Service, and
Marketing
Leif Agnéus
Senior Vice President and
General Manager,
EMEA
Steven S. Armstrong
Senior Vice President,
Technical Services Group
Pamela M. Berklich
Senior Vice President,
Americas Sales
4 •••
Maureen A. Fay,
O.P., Ph.D.
President Emeritus
University of Detroit Mercy
Verne G. Istock
Lead Director
Retired Chairman
and President
Bank One Corporation
James H. Bradley
Senior Vice President
Administrative Systems
Teresa Carroll
Senior Vice President,
Global Service
Michael e. Debs
Senior Vice President,
Corporate Controller,
Chief Accounting Officer, and
Interim Chief Financial Officer
Allison M. everett
Senior Vice President and
Chief Information Officer
Shaun M. Fracassi
Senior Vice President,
U.S. Commercial
Rolf E. Kleiner
Senior Vice President and General Manager,
Outsourcing & Consulting Group
Daniel T. Lis
Senior Vice President,
General Counsel, and
Corporate Secretary
Donald R. Parfet
Managing Director
Apjohn Group, LLC
B. Joseph White
President
University of Illinois
Leslie A. Murphy, CPA
President and Chief Executive Officer
Murphy Consulting, Inc.
(Elected to the Board in February 2008)
Jonathan D. Means
Senior Vice President,
Central Operations and Businesses
W. edward Meisenheimer
Senior Vice President,
U.S. Commercial
Michael S. Morrow
Senior Vice President,
Global Marketing
Peter W. Quigley
Senior Vice President,
Strategic Customer Relationships
Antonina M. Ramsey
Senior Vice President
Global Human Resources
Dhirendra Shantilal
Senior Vice President and
General Manager,
APAC
Bernard Tommasini
Senior Vice President,
Outsourcing & Consulting Group
EMEA
Kelly Services 2007 form 10-k
Index to Kelly Services 2007 form 10-k
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 12.
Business ..........................................................................................................................................................3
Risk Factors .....................................................................................................................................................6
Unresolved Staff Comments .........................................................................................................................11
Properties ......................................................................................................................................................11
Legal Proceedings .........................................................................................................................................11
Submission of Matters to a Vote of Security Holders ....................................................................................11
Market for the Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of
Equity Securities ...........................................................................................................................................12
Selected Financial Data .................................................................................................................................15
Management’s Discussion and Analysis of Financial
Condition and Results of Operations .............................................................................................................16
Quantitative and Qualitative Disclosures About
Market Risk ...................................................................................................................................................32
Financial Statements and Supplementary Data............................................................................................33
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ............................................................................................................33
Controls and Procedures ...............................................................................................................................33
Other Information .........................................................................................................................................33
Executive Officers of the Registrant ..............................................................................................................34
Securities Authorized for Issuance under Equity
Compensation Plans .....................................................................................................................................35
PART IV
Exhibits, Financial Statement Schedules ......................................................................................................36
Item 15.
Signatures
......................................................................................................................................................................37
Index to Financial Statements and Supplemental Schedule ..............................................................................................38
Index to Exhibits .................................................................................................................................................................72
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission file number 0-1088
KELLY SERVICES, INC.
-----------------------------------------------------------------------
(Exact Name of Registrant as specified in its Charter)
Delaware 38-1510762
------------------------------- -------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
999 West Big Beaver Road, Troy, Michigan 48084
---------------------------------------------------------------- ----------------
(Address of Principal Executive Office) (Zip Code)
(248) 362-4444
--------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class A Common NASDAQ Global Market
Class B Common NASDAQ Global Market
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)
of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer [X]
Accelerated filer [ ]
Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes [ ] No [X]
1
The aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or the average bid
and asked price of such common equity, as of the last business day of the registrant’s most
recently completed second fiscal quarter, was approximately $817,021,764.
Registrant had 31,417,388 shares of Class A and 3,459,385 of Class B common stock, par value
$1.00, outstanding as of February 5, 2008.
Documents Incorporated by Reference
The proxy statement of the registrant with respect to its 2008 Annual Meeting of Stockholders is
incorporated by reference in Part III.
2
PART I
Unless the context otherwise requires, throughout this Annual Report on Form 10-K the words “Kelly,” “Kelly
Services,” “the Company,” “we,” “us” and “our” refer to Kelly Services, Inc. and its consolidated subsidiaries.
ITEM 1. BUSINESS.
History and Development of Business
Founded by William R. Kelly in 1946, we have provided staffing solutions to customers in a variety of industries
throughout our 61-year history. Our range of staffing solutions and geographic coverage has grown steadily over the
years to match the needs of our customers.
We have evolved from a United States-based company concentrating primarily on traditional office services into a
global staffing leader with a breadth of specialty businesses. We assign professional and technical employees in the
fields of finance and accounting, creative services, education, engineering, information technology, legal, science,
and health care.
We are one of the world’s largest scientific staffing providers, and we rank among the leaders in information
technology, engineering, and financial staffing. These specialty service lines complement our traditional expertise in
office services, contact center, light industrial, and electronic assembly staffing. We also offer innovative staffing
alternative solutions for our customers, including outsourcing, consulting, recruitment, career transition, and vendor
management services.
Geographic Breadth of Services
Headquartered in Troy, Michigan, we serve customers in 36 countries and territories. We provide temporary
employment for more than 750,000 employees annually to a variety of customers around the globe —including more
than 90 percent of the Fortune 500 companies.
We offer staffing solutions to a diversified group of customers through offices in the Americas (United States,
Canada, Puerto Rico, and Mexico); Europe (Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany,
Hungary, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Russia, Spain, Sweden, Switzerland, Turkey,
Ukraine and the United Kingdom); and the Asia-Pacific region (Australia, China, Hong Kong, India, Indonesia, Japan,
Malaysia, New Zealand, the Philippines, Singapore, and Thailand).
Description of Business Segments
Our operations are divided into four principal business segments: Americas - Commercial; Americas -
Professional, Technical and Staffing Alternatives (“Americas – PTSA”); International - Commercial; and
International - Professional, Technical and Staffing Alternatives (“International – PTSA”).
Americas - Commercial
Our Americas - Commercial segment includes: Kelly Office Services, offering trained employees who work in word
processing and data entry and as administrative support staff; KellyConnect, providing staff for contact centers,
technical support hotlines and telemarketing units; Kelly Educational Staffing, the first nationwide program supplying
qualified substitute teachers; Kelly Marketing Services, including support staff for seminars, sales and trade shows;
Kelly Electronic Assembly Services, providing technicians to serve the technology, aerospace and pharmaceutical
industries; Kelly Light Industrial Services, placing maintenance workers, material handlers, assemblers and more;
KellySelect, a temporary to full-time service that provides both customers and temporary staff the opportunity to
evaluate the relationship before making a full-time employment decision; and KellyDirect, a permanent placement
service used across all business units.
3
Americas - PTSA
The Americas - PTSA segment includes a number of industry-specific services including: CGR/seven, placing
employees in creative services positions; Kelly Automotive Services Group, placing employees in a variety of
technical, non-technical and administrative positions in major automotive manufacturers and their suppliers; Kelly
Engineering Resources, supplying engineering professionals across all disciplines including aeronautical, chemical,
civil/structural, electrical/instrumentation, environmental, industrial, mechanical, petroleum, pharmaceutical, quality
and telecommunications; Kelly FedSecure, placing professionals across all skills in jobs requiring security clearances;
Kelly Financial Resources, serving the needs of corporate finance departments, accounting firms and financial
institutions with professional personnel; Kelly Healthcare Resources, providing all levels of healthcare specialists and
professionals to work in hospitals, ambulatory care centers, HMOs and other health insurance companies; Kelly IT
Resources, placing information technology specialists across all IT disciplines; Kelly Law Registry, placing legal
professionals including attorneys, paralegals, contract administrators, compliance specialists and legal
administrators; and Kelly Scientific Resources, providing entry-level to Ph.D. professionals to a broad spectrum of
scientific and clinical research industries.
Also included in the PTSA segment are: Kelly HRfirst, specializing in recruitment process outsourcing programs; Kelly
HR Consulting, providing strategic human capital consulting services and solutions; Kelly Management Services,
specializing in outsourcing solutions that provide operational management of entire departments or business
functions; Kelly Vendor Management Solutions, streamlining the supplier base and delivering contract talent in a
vendor-neutral environment; and The Ayers Group, offering outplacement services and organizational effectiveness
consulting.
International - Commercial
Our International - Commercial segment provides the full range of commercial staffing services that are offered in the
Americas.
International - PTSA
Our International - PTSA segment provides engineering, financial, health care, IT, legal and scientific staffing.
Recruitment process outsourcing, consulting, outsourcing and vendor management are also included in this segment.
Kelly is also placing increased emphasis on cross-border recruitment opportunities.
Financial information regarding our industry segments is included in Part II, Item 8 of this report.
Business Objectives
Our staffing solutions are designed to help customers meet a variety of human resources needs in a flexible, efficient
and cost-effective manner. We offer our customers high standards of quality in the staffing industry. This strong
emphasis on quality is evident throughout our business objectives, including the selection of new customers,
employees and service lines.
We believe we are well equipped to understand, anticipate and respond to our customers’ evolving staffing needs.
We are constantly developing and optimizing innovative staffing solutions to help customers weather economic
fluctuations, control costs and improve productivity.
In every facet of global operations, we are committed to the acquisition and use of technology to streamline ordering,
time-keeping, reporting and other processes. Technology solutions such as Kelly eOrder, Kelly Web Time and Kelly
e-Reporting are available when and where customers need them.
It has been our mission to stay ahead of our customers’ staffing and human resources challenges by defining and
solving specific staffing needs, thereby allowing companies the time and freedom to do what they do best – focus on
their core businesses.
4
Service Marks
Business Operations
We own numerous service marks that are registered with the United States Patent and Trademark
Office, the European Union Community Trademark Office and numerous individual country trademark offices.
Seasonality
Our quarterly operating results are affected by the seasonality of our customers’ businesses. Demand for staffing
services historically has been lower during the first and fourth quarters, in part, as a result of holidays, and typically
increases during the second and third quarters of the year.
Working Capital
We believe there are no unusual or special working capital requirements in the staffing services industry.
Customers
We are not dependent on any single customer, or a limited segment of customers. Our largest single customer
accounted for approximately four percent of total revenue in 2007.
Government Contracts
Although we conduct business under various federal, state, and local government contracts, they do not account for a
significant portion of our business.
Competition
The worldwide temporary staffing industry is competitive and highly fragmented. In the United States, approximately
100 competitors operate nationally, and approximately 10,000 smaller companies compete in varying degrees at local
levels. Additionally, several similar staffing companies compete globally. In 2007, our largest competitors were
Adecco, S.A., Manpower, Inc., Randstad Holding N.V., Vedior N.V., Spherion Corporation, Allegis Group and Robert
Half International, Inc.
Key factors that influence our success are geographic coverage, breadth of service, quality of service, and price.
Geographic presence is of utmost importance, as temporary employees are generally unwilling to travel great
distances for assignment, and customers prefer working with companies in their local market. Breadth of service has
become more critical as customers seek “one-stop shopping” for all their staffing needs.
Quality of service is highly dependent on the availability of qualified, competent temporary employees, and our ability
to recruit, screen, train, retain, and manage a pool of employees who match the skills required by particular
customers. Conversely, during an economic downturn, we must balance competitive pricing pressures with the need
to retain a qualified workforce. Price competition in the staffing industry is intense—particularly for office clerical and
light industrial personnel—and pricing pressure from customers and competitors continues to be significant.
Environmental Concerns
Because we are involved in a service business, federal, state or local laws that regulate the discharge of materials
into the environment do not materially impact us.
Employees
We employ approximately 1,400 people at our corporate headquarters in Troy, Michigan, and approximately 8,600
staff members in our international network of company-owned branch offices. In 2007, we assigned more than
750,000 temporary employees with a variety of customers around the globe.
While services may be provided inside the facilities of customers, we remain the employer of record for our temporary
employees. We retain responsibility for employee assignments, the employer’s share of all applicable payroll taxes
and the administration of the employee’s share of these taxes.
5
Foreign Operations
For information regarding sales, earnings from operations and long-lived assets by domestic and foreign operations,
please refer to the information presented in the Segment Disclosures note to our consolidated financial statements,
presented in Part II, Item 8 of this report.
Access to Company Information
We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and all amendments to those reports with the Securities and Exchange Commission (“SEC”). The public may read
and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 100 F. Street, NE,
Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website at www.sec.gov that contains reports,
proxy and information statements and other information regarding issuers that file electronically.
We make available, free of charge, through our Internet website, and by responding to requests addressed to our
director of investor relations, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to those reports. These reports are available as soon as reasonably practicable after
such material is electronically filed with or furnished to the SEC. Our website address is: www.kellyservices.com.
The information contained on our website, or on other websites linked to our website, is not part of this report.
ITEM 1A. RISK FACTORS.
We operate in a highly competitive industry with low barriers to entry, and may be unable to compete
successfully against existing or new competitors.
The worldwide staffing services market is highly competitive with limited barriers to entry. We compete in global,
national, regional and local markets with full-service and specialized temporary staffing companies. While the
majority of our competitors are significantly smaller than us, several competitors, including Adecco S.A., Manpower
Inc., Randstad Holding N.V., Vedior N.V., Spherion Corporation, Allegis Group and Robert Half International, Inc.,
have substantial marketing and financial resources. In particular, Adecco S.A. and Manpower Inc. are considerably
larger than we are and, thus, have significantly more marketing and financial resources than we do. Price
competition in the staffing industry is intense, particularly for the provision of office clerical and light industrial
personnel. We expect that the level of competition will remain high, which could limit our ability to maintain or
increase our market share or profitability.
There has been a significant increase in the number of customers consolidating their staffing services purchases with
a single provider or small group of providers. The trend to consolidate purchases has in some cases made it more
difficult for us to obtain or retain customers. We also face the risk that our current or prospective customers may
decide to provide similar services internally. As a result, there can be no assurance that we will not encounter
increased competition in the future.
Our business is significantly affected by fluctuations in general economic conditions.
Demand for staffing services is significantly affected by the general level of economic activity and unemployment in
the United States and the other countries in which we operate. When economic activity increases, temporary
employees are often added before full-time employees are hired. As economic activity slows, however, many
companies reduce their use of temporary employees before laying off full-time employees. We may also experience
more competitive pricing pressure during periods of economic downturn. A substantial portion of our revenues and
earnings are generated by our business operations in the United States. Any significant economic downturn in the
United States or the other countries in which we operate could have a material adverse effect on our business,
financial condition and results of operations.
6
Our loss of major customers or the deterioration of their financial condition or prospects could have a
material adverse effect on our business.
Our business strategy is increasingly focused on serving large corporate customers through high volume global
service agreements. While our strategy is intended to enable us to increase our revenues and earnings from our
major corporate customers, the strategy also exposes us to increased risks arising from the possible loss of major
customer accounts. In addition, some of our customers are in industries, such as the automotive and manufacturing
industries, that have experienced adverse business and financial conditions in recent years. The deterioration of the
financial condition or business prospects of these customers could reduce their need for temporary employment
services, and result in a significant decrease in the revenues and earnings we derive from these customers.
Our customer contracts contain termination provisions that could decrease our revenues and earnings.
Most of our customer contracts can be terminated by the customer on short notice without penalty. Our customers
are, therefore, not contractually obligated to continue to do business with us in the future. This creates uncertainty
with respect to the revenues and earnings we may recognize with respect to our customer contracts.
We depend on our ability to attract and retain qualified temporary personnel.
We depend on our ability to attract qualified temporary personnel who possess the skills and experience necessary to
meet the staffing requirements of our customers. We must continually evaluate our base of available qualified
personnel to keep pace with changing customer needs. Competition for individuals with proven professional skills is
intense, and demand for these individuals is expected to remain strong for the foreseeable future. There can be no
assurance that qualified personnel will continue to be available in sufficient numbers and on terms of employment
acceptable to us. Our success is substantially dependent on our ability to recruit and retain qualified temporary
personnel.
We may be exposed to employment-related claims and losses that could have a material adverse effect on
our business.
Temporary staffing services providers employ and assign personnel in the workplaces of other businesses. The risks
of these activities include possible claims relating to:
•
•
•
•
•
discrimination and harassment;
employment of illegal aliens;
violations of wage and hour requirements;
retroactive entitlement to employee benefits; and
errors and omissions by our temporary employees, particularly for the actions of professionals such as
attorneys, accountants and scientists.
We are also subject to potential risks relating to misuse of customer proprietary information, misappropriation of
funds, damage to customer facilities due to negligence of temporary employees, criminal activity and other similar
claims. We may incur fines and other losses or negative publicity with respect to these problems. In addition, these
claims may give rise to litigation, which could be time-consuming and expensive. There can be no assurance that the
corporate policies we have in place to help reduce our exposure to these risks will be effective or that we will not
experience losses as a result of these risks. There can also be no assurance that the insurance policies we have
purchased to insure against certain risks will be adequate or that insurance coverage will remain available on
reasonable terms or be sufficient in amount or scope of coverage.
Damage to our key data centers could affect our ability to sustain critical business applications.
Many business processes critical to the Company’s continued operation are housed in the Company’s data center
situated within the corporate headquarters complex as well as regional data centers in Asia-Pacific and Europe.
Those processes include, but are not limited to, payroll, customer reporting and order management. The loss of a
data center creates a substantial risk of business interruption; however, steps have been taken to protect the
Company’s operations, principally through redundant back-up processes.
7
Our investment in the PeopleSoft payroll, billing and accounts receivable project may not yield its intended
results.
In the fourth quarter of 2004, we commenced the PeopleSoft project to replace our payroll, billing and accounts
receivable information systems in the United States, Canada, Puerto Rico, the United Kingdom and Ireland. We
anticipate spending approximately $90 to $94 million on the PeopleSoft project by the end of 2009. Although this
technology initiative is intended to increase productivity and operating efficiencies, the PeopleSoft project may not
yield its intended results. Any delays in completing, or an inability to successfully complete, this technology initiative
or an inability to achieve the anticipated efficiencies could adversely affect our operations, liquidity and financial
condition.
We are highly dependent on our senior management and the continued performance and productivity of our
local management and field personnel.
We are highly dependent on the continued efforts of the members of our senior management. We are also highly
dependent on the performance and productivity of our local management and field personnel. The loss of any of the
members of our senior management may cause a significant disruption in our business. In addition, the loss of any of
our local managers or field personnel may jeopardize existing customer relationships with businesses that use our
services based on relationships with these individuals. The loss of the services of members of our senior
management could have a material adverse effect on our business.
Our business is subject to extensive government regulation, which may restrict the types of employment
services we are permitted to offer or result in additional tax or other costs that reduce our revenues and
earnings.
The temporary employment industry is heavily regulated in many of the countries in which we operate. Changes in
laws or government regulations may result in prohibition or restriction of certain types of employment services we are
permitted to offer or the imposition of new or additional benefit, licensing or tax requirements that could reduce our
revenues and earnings. There can be no assurance that we will be able to increase the fees charged to our
customers in a timely manner and in a sufficient amount to cover increased costs as a result of any changes in laws
or government regulations. Any future changes in laws or government regulations may make it more difficult or
expensive for us to provide staffing services and could have a material adverse effect on our business, financial
condition and results of operations.
We conduct a significant portion of our operations outside of the United States and we are subject to risks
relating to our international business activities, including fluctuations in currency exchange rates.
We conduct our business in 36 countries and territories including the United States. Our operations outside the
United States are subject to risks inherent in international business activities, including:
•
•
•
•
•
•
•
fluctuations in currency exchange rates;
varying economic and political conditions;
differences in cultures and business practices;
differences in tax laws and regulations;
differences in accounting and reporting requirements;
changing and, in some cases, complex or ambiguous laws and regulations; and
litigation and claims.
Our operations outside the United States are reported in the applicable local currencies and then translated into U.S.
dollars at the applicable currency exchange rates for inclusion in our consolidated financial statements. Exchange
rates for currencies of these countries may fluctuate in relation to the U.S. dollar and these fluctuations may have an
adverse or favorable effect on our operating results when translating foreign currencies into U.S. dollars.
8
If we fail to maintain effective internal control over our financial reporting, we may cause investors to lose
confidence in our reported financial information, which could have a negative effect on the trading price of
our stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act, our management is required to include in our Annual Report on
Form 10-K a report that assesses the effectiveness of our internal control over financial reporting, as defined in Rule
13a-15(f) under the Securities Exchange Act. Our Annual Report on Form 10-K is also required to include an
attestation report of our independent registered public accounting firm on the effectiveness of our internal controls.
Our efforts to comply with Section 404 have resulted in, and are likely to continue to result in, significant costs, the
commitment of time and operational resources and the diversion of management’s attention. If our management
identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert
that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is
effective, or if our independent auditors are unable to attest that our management’s report is fairly stated or they are
unable to express an opinion on the effectiveness of our internal controls, our business may be harmed. Market
perception of our financial condition and the trading price of our stock may also be adversely affected and customer
perception of our business may suffer.
Our controlling stockholder exercises voting control over our company and has the ability to elect or remove
from office all of our directors.
Terence E. Adderley, the Chairman of our board of directors, and certain trusts with respect to which he acts as
trustee or co-trustee, control approximately 92.9% of the outstanding shares of Kelly Class B common stock, which is
the only class of our common stock entitled to voting rights. Mr. Adderley is therefore able to exercise voting control
with respect to all matters requiring stockholder approval, including the election or removal from office of all of our
directors.
We are not subject to most of the listing standards that normally apply to companies whose shares are
quoted on the NASDAQ Global Market.
Our Class A and Class B common stock are quoted on the NASDAQ Global Market. Under the listing standards of
the NASDAQ Global Market, we are deemed to be a “controlled company” by virtue of the fact that Terence E.
Adderley, the Chairman of our board of directors, and certain trusts of which he acts as trustee or co-trustee have
voting power with respect to more than fifty percent of our outstanding voting stock. A controlled company is not
required to have a majority of its board of directors comprised of independent directors. Director nominees are not
required to be selected or recommended for the board’s selection by a majority of independent directors or a
nominations committee comprised solely of independent directors, nor do the NASDAQ Global Market listing
standards require a controlled company to certify the adoption of a formal written charter or board resolution, as
applicable, addressing the nominations process. A controlled company is also exempt from NASDAQ Global
Market’s requirements regarding the determination of officer compensation by a majority of independent directors or a
compensation committee comprised solely of independent directors. A controlled company is required to have an
audit committee composed of at least three directors, who are independent as defined under the rules of both the
Securities and Exchange Commission and the NASDAQ Global Market. The NASDAQ Global Market further
requires that all members of the audit committee have the ability to read and understand fundamental financial
statements and that at least one member of the audit committee possess financial sophistication. The independent
directors must also meet at least twice a year in meetings at which only they are present.
We currently comply with certain of the listing standards of the NASDAQ Global Market that do not apply to controlled
companies. Our compliance is voluntary, however, and there can be no assurance that we will continue to comply
with these standards in the future.
9
Provisions in our certificate of incorporation and bylaws and Delaware law may delay or prevent an
acquisition of our company.
Our certificate of incorporation and bylaws contain provisions that could make it harder for a third party to acquire us
without the consent of our board of directors. For example, our certificate of incorporation establishes a classified or
“staggered” board of directors, which means that only approximately one third of our directors are required to stand
for election at each annual meeting of our stockholders. In addition, if a potential acquirer were to make a hostile bid
for us, the acquirer would not be able to call a special meeting of stockholders to remove our board of directors or act
by written consent without a meeting. The acquirer would also be required to provide advance notice of its proposal
to replace directors at any annual meeting, and would not be able to cumulate votes at a meeting, which would
require the acquirer to hold more shares to gain representation on the board of directors than if cumulative voting
were permitted. In addition, our certificate of incorporation requires the approval of the holders of at least 75% of our
Class B common stock for certain transactions involving our company, including a merger, consolidation or sale of all
or substantially all of our assets that has not been approved by our board of directors.
Our board of directors also has the ability to issue additional shares of common stock that could significantly dilute
the ownership of a hostile acquirer. In addition, Section 203 of the Delaware General Corporation Law limits mergers
and other business combination transactions involving 15 percent or greater stockholders of Delaware corporations
unless certain board or stockholder approval requirements are satisfied. These provisions and other similar
provisions make it more difficult for a third party to acquire us without negotiation.
Our board of directors could choose not to negotiate with an acquirer that it did not believe was in our strategic
interests. If an acquirer is discouraged from offering to acquire us or prevented from successfully completing a hostile
acquisition by these or other measures, you could lose the opportunity to sell your shares at a favorable price.
The holders of shares of our Class A common stock are not entitled to voting rights.
Under our certificate of incorporation, the holders of shares of our Class A common stock are not entitled to voting
rights, except as otherwise required by Delaware law. As a result, Class A common stock holders do not have the
right to vote for the election of directors or in connection with most other matters submitted for the vote of our
stockholders.
Our stock price may be subject to significant volatility and could suffer a decline in value.
The market price of our common stock may be subject to significant volatility. We believe that many factors, including
several which are beyond our control, have a significant effect on the market price of our common stock. These
include:
•
•
•
•
•
•
•
•
actual or anticipated variations in our quarterly operating results;
announcements of new services by us or our competitors;
announcements relating to strategic relationships or acquisitions;
changes in financial estimates by securities analysts;
changes in general economic conditions;
actual or anticipated changes in laws and government regulations;
changes in industry trends or conditions; and
sales of significant amounts of our common stock or other securities in the market.
In addition, the stock market in general, and the NASDAQ Global Market in particular, have experienced significant
price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of
listed companies. These broad market and industry factors may seriously harm the market price of our common
stock, regardless of our operating performance. In the past, securities class action litigation has often been instituted
following periods of volatility in the market price of a company’s securities. A securities class action suit against us
could result in substantial costs, potential liabilities and the diversion of our management’s attention and resources.
Further, our operating results may be below the expectations of securities analysts or investors. In such event, the
price of our common stock may decline.
10
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
We own our headquarters in Troy, Michigan, where corporate, subsidiary and divisional offices are currently located.
The original headquarters building was purchased in 1977. Headquarters operations were expanded into additional
buildings purchased in 1991, 1997 and 2001.
The combined usable floor space in the headquarters complex is approximately 350,000 square feet, and an
additional 26,000 square feet is leased nearby. Our buildings are in good condition and are currently adequate for
their intended purpose and use. We also own undeveloped land in Troy and Northern Oakland County, Michigan, for
possible future expansion.
Branch office business is conducted in leased premises with the majority of leases being fixed for terms of generally
five years in the United States and 5 to 10 years outside the United States. We own virtually all of the office furniture
and the equipment used in our corporate headquarters and branch offices.
ITEM 3. LEGAL PROCEEDINGS.
In November 2003, an action was commenced in the United States Bankruptcy Court for the Southern District of New
York, Enron Corp. (“Enron”) v. J.P. Morgan Securities, Inc., et al., against approximately 100 defendants, including
Kelly Properties, Inc., a wholly-owned subsidiary of Kelly Services, Inc., who invested in Enron's commercial paper.
The Complaint alleges that Enron's October 2001 buyback of its commercial paper is a voidable preference under the
bankruptcy laws, constitutes a fraudulent conveyance, and that we received prepayment of approximately $10 million,
$5 million of which is related to Enron commercial paper purchased by us from Lehman Brothers or its affiliate,
Lehman Commercial Paper, Inc. (“Lehman”), and $5 million of which was purchased by us from Goldman Sachs &
Co. Solely to avoid the cost of continued litigation, we have reached a confidential settlement with Enron, Lehman
and certain other defendants of all claims arising from our purchase of Enron commercial paper from Lehman. The
settlement, which involves a payment by us in an amount not material to our results of operations or financial
position, was approved on July 27, 2007 by the Bankruptcy Court presiding over the matter. The settlement became
final on August 7, 2007. The terms of the settlement did not have a material adverse effect on our results of
operations or financial position. We intend to continue to vigorously defend the remaining claims arising from the
purchase of Enron commercial paper from Goldman Sachs & Co., and believe we have meritorious defenses to these
remaining claims but are unable to predict the outcome of the proceedings.
We are the subject of a class action lawsuit brought on behalf of employees working in the State of California. The
claims in the lawsuit relate to alleged misclassification of personal attendants as exempt and not entitled to overtime
compensation under state law and alleged technical violations of a state law governing the content of employee pay
stubs. On April 30, 2007, the Court certified two sub-classes that correspond to the claims in the case. We are
currently preparing motions for summary judgment on both certified claims and will continue to vigorously defend the
lawsuit. We believe that we have meritorious defenses to the claims but are unable to predict the outcome of the
proceedings.
We are also involved in various legal proceedings occurring in the normal course of our business. In the opinion of
management, adequate provision has been made for losses that are likely to result from these proceedings.
Disclosure of Certain IRS Penalties
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders in the fourth quarter of 2007.
11
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
PART II
Market Information and Dividends
Our Class A and Class B common stock is traded on the NASDAQ Global Market under the symbols “KELYA” and
“KELYB,” respectively. The high and low selling prices for our Class A common stock and Class B common stock as
quoted by the NASDAQ Global Market and the dividends paid on the common stock for each quarterly period in the
last two fiscal years are reported below:
Per share amounts (in dollars)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year
2007
Class A common
High
Low
Class B common
High
Low
$
32.82
28.04
$
33.97
26.73
$
28.14
19.47
$
24.39
18.20
$
33.97
18.20
32.10
26.05
36.89
28.00
31.00
20.00
34.90
21.00
36.89
20.00
Dividends
.125
.125
.135
.135
.52
2006
Class A common
High
Low
Class B common
High
Low
Dividends
Holders
$
28.07
25.55
$
28.75
25.71
$
30.00
25.75
$
30.39
26.99
$
30.39
25.55
28.78
25.15
.10
30.35
25.12
27.85
26.00
32.71
27.35
32.71
25.12
.10
.125
.125
.45
The number of holders of record of our Class A and Class B common stock were 5,394 and 417, respectively, as of
February 5, 2008.
Recent Sales of Unregistered Securities
None.
12
Issuer Purchases of Equity Securities
Total Number
of Shares
(or Units)
Purchased
Average
Price Paid
per Share
(or Unit)
Total Number
of Shares (or
Units) Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
That May Yet Be
Purchased Under the
Plans or Programs
85,833
$
20.43
85,503
$
35,754
554,426
20.13
554,426
$
24,595
484,482
19.22
483,811
$
15,297
Period
October 1, 2007 through
November 4, 2007
November 5, 2007 through
December 2, 2007
December 3, 2007 through
December 30, 2007
Total
1,124,741
$
19.76
1,123,740
On August 8, 2007, the board of directors authorized the repurchase of up to $50 million of the Company’s
outstanding Class A common shares. The Company intends to repurchase shares under the program, from time to
time, in the open market. The repurchase program has a term of 24 months. We may also reacquire shares outside
the program in connection with the surrender of shares to cover taxes due upon the vesting of restricted stock held by
employees. 1,001 shares were reacquired in transactions outside the repurchase program during the Company’s
fourth quarter.
13
Performance Graph
The following graph compares the cumulative total return of our Class A common stock with that of the S&P MidCap
400 Index and the S&P 1500 Human Resources and Employment Services Index for the five years ended December
31, 2007. The graph assumes an investment of $100 on December 31, 2002 and that all dividends were reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Assumes Initial Investment of $100
December 31, 2002 – December 31, 2007
300.00
250.00
200.00
150.00
100.00
50.00
2002
2003
2004
2005
2006
2007
KELLY SVCS A
S&P 400 MidCap Index - Total Return
S&P 1500 Human Resources and Employment Services Index
Kelly Services, Inc.
S&P MidCap 400 Index
S&P 1500 Human Resources and
Employment Services Index
2002
2003
2004
2005
2006
2007
$100.00
$117.39
$125.88
$110.90
$124.43
$81.96
$100.00
$135.64
$158.01
$177.85
$196.19
$211.79
$100.00
$150.20
$180.80
$208.27
$249.08
$190.10
14
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes selected financial information of Kelly Services, Inc. and its subsidiaries for each of
the most recent five fiscal years. This table should be read in conjunction with the other financial information,
including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and financial
statements included elsewhere in this report.
(In millions except per share amounts)
2007
2006
2005
2004 (1)
Revenue from services
Earnings from continuing operations
Earnings from discontinued operations, net of tax (3)
Net earnings
$
$
5,667.6
53.7
7.3
61.0
$
5,546.8
56.8
6.7
63.5
$
5,186.4
37.7
1.6
39.3
$
4,863.4
22.2
(1.0)
21.2
2003
4,199.2
2.9
2.0
4.9
0.08
0.06
0.14
0.08
0.06
0.14
1.48
0.20
1.68
1.47
0.20
1.67
1.58
0.19
1.76
1.56
0.18
1.75
1.06
0.04
1.10
1.05
0.04
1.09
0.63
(0.03)
0.60
0.63
(0.03)
0.60
0.52
0.45
0.40
0.40
0.40
478.6
1,574.0
200.5
463.3
1,469.4
142.6
428.0
1,312.9
119.9
413.1
1,249.8
115.8
380.2
1,139.2
111.7
Basic earnings per share:
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Diluted earnings per share:
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Dividends per share
Classes A and B common
Working capital (2)
Total assets
Total noncurrent liabilities
(1) Fiscal year included 53 weeks.
(2) Beginning in 2005, restricted stock was reclassified from accrued payroll and related taxes to additional paid-in capital,
long-term deferred rent was reclassified from accounts payable to other long-term liabilities and long-term accrued disability
was reclassified from accrued payroll and related taxes to other long-term liabilities. Prior periods were reclassified for
comparability. The effect of these reclassifications was to increase working capital by $7.9 million in 2004 and $6.9 million
in 2003.
(3) As discussed in Note 3 to the financial statements, Kelly Home Care ("KHC"), a business unit of the Americas - PTSA
segment, was sold effective March 31, 2007 for an after-tax gain of $6.2 million. Additionally, Kelly Staff Leasing ("KSL"),
previously a business unit of the Americas - PTSA segment, was sold effective December 31, 2006 for an after-tax
gain of $2.3 million. In accordance with the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," the gains on the sales as well as KHC's and KSL's results of operations for the current
and prior periods have been reported as discontinued operations in the Company's statements of earnings.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Executive Overview
During 2007, we made good progress on our strategic plan to diversify geographically, invest in high-growth, high-
margin businesses, accelerate globalization of our professional and technical staffing services and improve operating
margins. Our key strategic accomplishments included:
•
•
•
•
•
•
Divesting Kelly Home Care Services, a non-core business.
Closing and/or consolidating 58 branches in the Americas.
Restructuring our UK operations, closing 22 branches and consolidating three headquarters locations.
Expanding our global presence by entering six new international markets, four through acquisitions and two by
growing existing global customer relationships.
Purchasing the remaining 51% of our joint venture, Kelly Tempstaff, extending our services in the Asia-Pacific
market.
And opening more than 50 new Professional, Technical and Staffing Alternatives branches around the world to
meet growing demand for technically skilled, professional workers.
Additionally, to tighten expense controls, increase accountability and boost operating margins, we consolidated
several US payroll centers. That move served to streamline costs and improved efficiencies, while allowing us to
better manage unemployment and workers’ compensation costs in the US. To increase value to shareholders, we
authorized a $50 million stock repurchase plan in August and increased our quarterly dividend by 8% during the third
quarter.
Our greatest challenge as we enter 2008 remains the US staffing market, where we do nearly two-thirds of our
business. While nonfarm payroll growth continued in 2007, temporary employment fell, dropping the temporary
employment penetration rate for much of 2007.
Despite the soft labor market in the US, global demand for highly skilled, credentialed temporary workers continues.
In Europe, we believe deregulation will support new opportunities for temporary staffing. In Asia, expansion
continues, as the need for professional and technical workers is ongoing and acceptance of temporary workers
grows.
As we look ahead, our sights remain focused on investing and expanding globally, reducing our US dependency,
gaining greater scale internationally, increasing our fee-based and higher-margin staffing services, continuing to
improve operating margins and positioning Kelly for long-term growth.
Results of Operations
2007 versus 2006
Revenue from services for 2007 totaled $5.7 billion, an increase of 2.2% from 2006. This was the result of an
increase in average hourly bill rates of 4.6%, partially offset by a decrease in hours worked of 2.8%. Fee based
income, which is included in revenue from services, totaled $136.3 million, or 2.4% of total revenue for 2007, an
increase of 31.8% as compared to $103.4 million in 2006. Reflecting the economic slowdown in the U.S. market,
revenue from services decreased from 2006 in the Americas – Commercial and Americas – PTSA business
segments. Revenue from services increased from 2006 in both the International – Commercial and International –
PTSA business segments.
16
Compared to 2006, the U.S. dollar was weaker against many foreign currencies, including the euro, the British pound
and the Canadian dollar. As a result, our U.S. dollar translated revenue from services was slightly higher than would
have otherwise been reported. On a constant currency basis, 2007 revenue from services decreased 0.6% as
compared with the prior year. When we use the term “constant currency,” it means that we have translated financial
data for 2007 into U.S. dollars using the same foreign currency exchange rates that we used to translate financial
data for 2006. We believe that constant currency measurements are an important analytical tool to aid in
understanding underlying operating trends without distortion due to currency fluctuations. The table below
summarizes the impact of foreign exchange adjustments on revenue from services for 2007:
Revenue from Services - Constant Currency:
Americas - Commercial
Americas - PTSA
Total Americas - Constant Currency
International - Commercial
International - PTSA
Total International - Constant Currency
Total Revenue from Services - Constant Currency
Foreign Currency Impact
Revenue from Services
Revenue from Services
2007
2006
% Change
(In millions of dollars)
$
2,745.7 $
1,104.9
3,850.6
1,480.0
182.8
1,662.7
5,513.3
154.3
2,916.1
1,108.3
4,024.4
1,378.5
143.8
1,522.4
5,546.8
-
(5.8) %
(0.3)
(4.3)
7.4
27.1
9.2
(0.6)
$
5,667.6 $
5,546.8
2.2 %
Gross profit of $989.1 million was 9.1% higher than 2006. Gross profit as a percentage of revenues was 17.5% in
2007 and increased 1.2 percentage points compared to the 16.3% rate recorded in the prior year. Compared to the
prior year, the gross profit rate increased in all four business segments.
During the first quarter of 2007, the Company realigned its operations into four reporting segments – Americas –
Commercial, Americas – PTSA, International – Commercial and International – PTSA. The Americas include the
U.S. operations, as well as Canada, Mexico and Puerto Rico, which were previously included in International. In
addition, corporate expenses that directly support the operating units have been allocated to all four segments. Prior
periods were reclassified to conform to the current presentation.
The improvement in the gross profit rate is due to lower payroll tax rates and workers’ compensation costs measured
as a percentage of direct wages and higher fee based income. Fee based income has a significant impact on gross
profit rates. There are very low direct costs of services associated with fee based recruitment income. Therefore,
increases or decreases can have a disproportionate impact on gross profit rates. The gross profit rate also includes
the effect of the French payroll tax credits noted below.
During the second quarter of 2007, the French government changed the method of calculating payroll tax credits,
retroactive to the beginning of 2006 and on a go-forward basis until October 1, 2007. As a result, Kelly recognized a
total credit of $5.0 million in 2007, of which $2.6 million related to 2006.
As more fully described in Critical Accounting Estimates, we regularly update our estimates of the ultimate cost of
open workers’ compensation claims. As a result, during 2007, we reduced the estimated cost of prior year workers’
compensation claims by $11.6 million. This compares to a similar adjustment reducing prior year workers’
compensation claims by $7.7 million in 2006.
Selling, general and administrative expenses of $909.0 million were 9.7% higher than last year. Selling, general and
administrative expenses expressed as a percentage of revenues (“expense rate as a percentage of revenues”) were
16.0% in 2007, a 1.1 percentage point increase compared to the 14.9% rate in 2006.
17
Included in selling, general and administrative expenses are $8.9 million of expenses related to the Americas and UK
restructuring actions. See the “Restructuring – UK Operations” and “Restructuring – Americas Operations” sections
for further discussion. The remaining increase in selling, general and administrative expenses is due primarily to
growth in compensation-related costs.
Other income, net for 2007 was income of $3.2 million, compared to $1.5 million in 2006. The improvement is
primarily attributable to an increase in interest income related to higher U.S. interest rates earned on higher average
cash balances compared to last year.
The effective income tax rate on continuing operations for 2007 was 35.5%, higher than last year’s rate of 28.6%.
The majority of the increase in the effective tax rate is a result of an increase in losses in certain international
locations, particularly the UK, for which no income tax benefit is provided, and, in the US, the expiration of work
opportunity tax credits related to Hurricane Katrina.
Earnings from continuing operations were $53.7 million in 2007, compared to $56.8 million in 2006. Included in
earnings from continuing operations are $7.8 million of expenses, net of tax, related to the UK and Americas
restructuring actions and $3.3 million of French payroll tax credits, net of tax.
During the first quarter of 2007, we sold the Kelly Home Care (“KHC”) business unit. Accordingly, 2006 results of
operations were revised to remove KHC’s operating results from continuing operations. Earnings from discontinued
operations, which include KHC’s and Kelly Staff Leasing’s (“KSL’s”) operating results, totaled $7.3 million for 2007
and include the $6.2 million gain, net of tax, on the sale of KHC. Earnings from discontinued operations for 2006
totaled $6.7 million and include the $2.3 million gain, net of tax, on the sale of KSL.
Net earnings in 2007 were $61.0 million, or a 3.9% decrease compared to 2006. Diluted earnings per share in 2007
were $1.67, as compared to diluted earnings per share of $1.75 in 2006.
Americas – Commercial
Revenue from Services
Earnings from Operations
2007
2006
Change
(In millions of dollars)
$ 2,759.4 $ 2,916.1
102.9
88.1
(5.4) %
(14.5)
Gross profit rate
Expense rates:
% of revenue
% of gross profit
Operating margin
15.9 %
15.4 %
0.5 %
12.7
79.9
3.2
11.8
77.0
3.5
0.9
2.9
(0.3)
Reflecting the soft labor market in the US, revenue from services in the Americas - Commercial segment, which
totaled $2.8 billion for 2007, decreased 5.4% compared to the $2.9 billion reported for 2006. This was the result of a
9.0% decrease in hours worked, partially offset by a 4.0% increase in average hourly bill rates. Fee based income
totaled $18.9 million in 2007, compared to $19.4 million in 2006, a decrease of 3.0%. Year-over-year revenue
comparisons reflect decreases of 4.3% in the first quarter, 5.7% in the second quarter and 5.7% in the third quarter,
and 5.9% in the fourth quarter. Americas - Commercial revenue from services represented 48.7% of total Company
revenue from services for 2007 and 52.5% for 2006.
Americas - Commercial earnings from operations totaled $88.1 million for 2007, compared to earnings of $102.9
million last year, a decrease of 14.5%. The 0.3 percentage point decrease in the operating margin reflected a 0.9
percentage point increase in the expense rate as a percentage of revenues, partially offset by a 0.5 percentage point
increase in the gross profit rate.
18
The 0.5 percentage point increase in the gross profit rate was principally due to lower workers’ compensation costs
and reduced payroll taxes. As noted above, we revised our estimate of the cost of outstanding workers’
compensation claims and, accordingly, reduced expense in 2007. Of the total $11.6 million expense reduction in
2007, $10.4 million was credited to Americas - Commercial. This compares to a similar adjustment reducing expense
by $7.0 million in 2006.
Selling, general and administrative expenses increased by 1.4% as compared to the prior year and, as a percentage
of revenues, were 12.7% for 2007 and 11.8% for 2006. Included in Americas – Commercial selling, general and
administrative expenses for 2007 is $3.0 million related to the branch restructuring. The remaining increase in
selling, general and administrative expenses was due primarily to the growth in compensation costs.
Americas - PTSA
Revenue from Services
Earnings from Operations
2007
2006
Change
(In millions of dollars)
$ 1,105.8 $ 1,108.3
58.1
59.2
(0.2) %
1.8
Gross profit rate
Expense rates:
% of revenue
% of gross profit
Operating margin
18.7 %
17.1 %
1.6 %
13.3
71.4
5.4
11.8
69.3
5.2
1.5
2.1
0.2
Revenue from services in the Americas - PTSA segment totaled $1.1 billion in both 2007 and 2006. This reflected a
decrease in hours worked of 6.0%, partially offset by an increase in average billing rates of 6.7% for the professional
and technical staffing businesses. Fee based income totaled $30.5 million in 2007 and $24.3 million in 2006. On a
year-over-year basis, revenue decreased 6.2% in the first quarter and 1.9% in the second quarter, and increased
1.6% in the third quarter and 5.6% in the fourth quarter. Americas - PTSA revenue represented 19.5% of total
Company revenue in 2007 and 20.0% in 2006.
Kelly Health Care, Kelly Management Services, HRfirst and Kelly Vendor Management were the leading performers
in revenue growth in 2007, with each business unit reporting double digit revenue growth. Kelly IT Resources, Kelly
Scientific Resources, Kelly Engineering Resources and Automotive Services Group reported year-over-year revenue
declines during 2007.
Americas - PTSA earnings from operations for 2007 totaled $59.2 million, an increase of 1.8% from 2006. The 0.2
percentage point increase in the operating margin reflected a 1.6 percentage point increase in the gross profit rate,
partially offset by a 1.5 percentage point increase in the expense rate as a percentage of revenues.
The Americas - PTSA gross profit rate increased primarily due to growth in fee based income, reduced payroll taxes
and workers’ compensation costs and the benefit of a full year impact of the higher margin Ayers’ outplacement
business, acquired in the second quarter of 2006, and CGR/seven, a creative services staffing firm acquired in the
first quarter of 2007. Americas - PTSA’s share of the reduction in workers’ compensation expense in 2007 was
approximately $1.2 million, compared to a similar adjustment in 2006 of approximately $0.7 million.
Selling, general and administrative expenses increased by 12.6% as compared to the prior year and, as a percentage
of revenues, were 13.3% for 2007 and 11.8% for 2006. The increase in selling, general and administrative expenses
was due to increased compensation related costs, including a full year impact of the Ayers’ outplacement business,
nine months’ impact of CGR/seven, and increased staffing costs related to adding permanent placement recruiters.
19
International - Commercial
Revenue from Services
Earnings from Operations
2007
2006
Change
(In millions of dollars)
$ 1,604.0 $ 1,378.5
0.6
10.1
16.4 %
NM
Gross profit rate
Expense rates:
% of revenue
% of gross profit
Operating margin
17.6 %
16.9 %
0.7 %
17.0
96.4
0.6
16.9
99.8
0.0
0.1
(3.4)
0.6
Translated U.S. dollar revenue from services in International – Commercial for 2007 totaled $1.6 billion, a 16.4%
increase compared to the $1.4 billion reported in 2006. This resulted from a 21.8% increase in fee based income, an
increase in hours worked of 12.0% and an increase in the translated U.S. dollar average hourly bill rates of 3.2%.
Fee based income totaled $53.2 million in 2007 and $43.6 million in 2006. International – Commercial revenue
represented 28.3% of total Company revenue in 2007 and 24.9% in 2006.
On a constant currency basis, revenue increased by 7.4%, fee based income increased 11.6% and average hourly
bill rates decreased 4.8% from 2006. The constant currency change in average hourly bill rates was impacted by
significant growth in lower average wage rate countries, such as India and Malaysia. Constant currency year-over-
year revenue comparisons reflect increases of: 7.3% in the first quarter, 8.8% in the second quarter, 5.8% in the third
quarter and 8.0% in the fourth quarter. Acquisitions in 2007 have contributed approximately 2% to International –
Commercial’s constant currency revenue growth.
International - Commercial earnings from operations in 2007 totaled $10.1 million, a significant increase compared to
net earnings of $0.6 million last year. Earnings from operations for 2007 includes a $5.9 million charge related to the
restructuring of the UK operations and a $5.0 million benefit related to French payroll tax credits.
The 0.6 percentage point increase in the operating margin reflected a 0.7 percentage point increase in the gross
profit rate, partially offset by a 0.1 percentage point increase in the expense rate as a percentage of revenues. The
increase in the International – Commercial gross profit rate primarily reflects the effect of the French payroll tax
credits.
Selling, general and administrative expenses increased by 17.0% as compared to the prior year and, as a percentage
of revenues, were 17.0% for 2007 and 16.9% for 2006. The increase in US dollar reported expenses was due
primarily to the growth in compensation related costs and the $5.9 million UK restructuring charge.
International - PTSA
Revenue from Services
Earnings from Operations
$
Gross profit rate
Expense rates:
% of revenue
% of gross profit
Operating margin
2007
2006
Change
(In millions of dollars)
143.8
$
0.6
198.5
2.7
38.0 %
323.9
31.2 %
25.2 %
6.0 %
29.8
95.6
1.4
24.7
98.2
0.4
5.1
(2.6)
1.0
20
Translated U.S. dollar revenue from services in International - PTSA for 2007 totaled $198.5 million, a 38.0%
increase compared to the $143.8 million reported for 2006. This resulted from a 110.9% increase in fee based
income and an increase in hours worked of 16.7%, combined with an increase in the translated U.S. dollar average
hourly bill rates of 15.1%. Fee based income totaled $33.7 million for 2007 and $16.0 million for 2006. International -
PTSA revenue represented 3.5% of total Company revenue in 2007 and 2.6% for 2006.
On a constant currency basis, revenue increased by 27.1%, fee based income increased 96.6% and average hourly
bill rates increased 4.2% from 2006. Constant currency year-over-year revenue comparisons reflect increases of:
29.4% in the first quarter, 33.8% in the second quarter, 30.3% in the third quarter and 17.2% in the fourth quarter.
Acquisitions in 2007 have contributed approximately 2% to International – PTSA’s constant currency revenue growth.
Operating results for International - PTSA were earnings of $2.7 million for the 2007, compared to $0.6 million in
2006. The 1.0 percentage point increase in the operating margin reflected a 6.0 percentage point increase in the
gross profit rate, partially offset by a 5.1 percentage point increase in the expense rate as a percentage of revenues.
The increase in the International - PTSA gross profit rate for 2007 was primarily due to increases in fee based
income.
Selling, general and administrative expenses increased by 66.2% as compared to the prior year and, as a percentage
of revenues, were 29.8% for 2007 and 24.7% for 2006. The increase in U.S. dollar reported expenses was due
primarily to the growth in compensation related costs and costs associated with new branches.
Results of Operations
2006 versus 2005
Revenue from services for 2006 totaled $5.5 billion, an increase of 6.9% from 2006. This was the result of an
increase in hours worked of 5.8% and an increase in average hourly bill rates of 0.8%. Fee based income, which is
included in revenue from services, totaled $103.4 million, or 1.9% of total revenue for 2006, an increase of 22.9% as
compared to $84.2 million in 2005. Revenue from services increased in all of our four business segments: Americas
- Commercial, Americas – PTSA, International – Commercial and International - PTSA.
Compared to 2005, the U.S. dollar was weaker against many foreign currencies, including the euro, the British pound
and the Australian dollar. As a result, our U.S. dollar translated revenue from services was slightly higher than would
have otherwise been reported. On a constant currency basis, 2006 revenue from services increased 6.3% as
compared with 2005. The table below summarizes the impact of foreign exchange adjustments on revenue from
services for 2006:
Revenue from Services - Constant Currency:
Americas - Commercial
Americas - PTSA
Total Americas - Constant Currency
International - Commercial
International - PTSA
Total International - Constant Currency
Total Revenue from Services - Constant Currency
Foreign Currency Impact
Revenue from Services
Revenue from Services
2006
2005
% Change
(In millions of dollars)
$
2,899.8 $
1,107.5
4,007.3
1,365.4
142.5
1,507.9
5,515.2
31.6
2,810.7
1,051.5
3,862.2
1,213.9
110.3
1,324.2
5,186.4
-
3.2 %
5.3
3.8
12.5
29.2
13.9
6.3
$
5,546.8 $
5,186.4
6.9 %
We believe that constant currency measurements are an important analytical tool to aid in understanding underlying
operating trends without distortion due to currency fluctuations. Constant currency results are calculated by
translating the current year results at prior year average exchange rates.
21
Gross profit of $906.7 million was 9.2% higher than 2005. Gross profit as a percentage of revenues was 16.3% in
2006 and increased 0.3 percentage point compared to the 16.0% rate recorded in 2005. This reflected increases in
the gross profit rates of the Americas – Commercial, Americas – PTSA and International - PTSA segments, partially
offset by a decrease in the International – Commercial segment gross profit rate.
The improvement in the gross profit rate in the Americas - Commercial Staffing and Americas - PTSA segments was
due, in part, to higher fee based income and lower workers’ compensation costs. The improvement in workers’
compensation costs resulted from both better experience on new claims in 2006 as compared to 2005, as well as
adjustments to open claims from prior years. We regularly update our estimates of the ultimate cost of open workers’
compensation claims. As a result, during 2006, we reduced the estimated cost of prior year workers’ compensation
claims by $7.7 million. This compares to a similar adjustment reducing prior year workers’ compensation claims by
$1.7 million in 2005.
Selling, general and administrative expenses of $828.7 million were 6.8% higher than 2005. Selling, general and
administrative expenses expressed as a percentage of revenues were 14.9% in 2006, a 0.1 percentage point
decrease compared to the 15.0% rate in 2005. As measured on a constant currency basis, selling, general and
administrative expenses increased 6.2% compared to 2005.
The increase in selling, general and administrative expenses is due primarily to growth in compensation-related
costs. In addition, information technology costs increased, reflecting the ongoing design and implementation of the
PeopleSoft project, which will replace our current payroll, billing and accounts receivable systems.
Other income, net for 2006 was income of $1.5 million, compared to expense of $0.2 million in 2005. The
improvement is primarily attributable to an increase in interest income related to higher U.S. interest rates earned on
higher cash balances compared to 2005, combined with dividends received on our investment in Tempstaff during
2006.
The effective income tax rate on continuing operations for 2006 was 28.6%, slightly lower than the 29.6% rate in
2005.
Earnings from continuing operations were $56.8 million in 2006, compared to $37.7 million in 2005. As noted above,
during the fourth quarter of 2006, we sold KSL and during the first quarter of 2007, we sold KHC. Accordingly, 2006
and 2005 results of operations were revised to remove KSL’s and KHC’s operating results from continuing
operations. Earnings from discontinued operations, which include KSL’s and KHC’s operating results, as well as the
gain on the sale of KSL, net of tax, totaled $6.7 million for 2006, compared to $1.6 million in 2005.
Net earnings in 2006 were $63.5 million, or a 61.7% increase compared to 2005. Diluted earnings per share in 2006
were $1.75, as compared to diluted earnings per share of $1.09 in 2005.
22
Americas - Commercial
Revenue from Services
Earnings from Operations
2006
2005
Change
(In millions of dollars)
$ 2,916.1 $ 2,810.7
88.1
102.9
3.7 %
16.8
Gross profit rate
Expense rates:
% of revenue
% of gross profit
Operating margin
15.4 %
14.9 %
0.5 %
11.8
77.0
3.5
11.8
79.0
3.1
0.0
(2.0)
0.4
Revenue from services in the Americas - Commercial segment totaled $2.9 billion for 2006, a 3.7% increase
compared to the $2.8 billion reported for 2005. This reflected a 3.4% increase in average hourly bill rates and a 0.2%
increase in hours worked. Fee based income totaled $19.4 million in 2006, compared to $14.9 million in 2005, an
increase of 30.1%. Year-over-year revenue comparisons reflect increases of 8.6% in the first quarter, 6.7% in the
second quarter and 1.3% in the third quarter, and a decrease of 1.0% in the fourth quarter. Americas – Commercial
revenue from services represented 52.5% of total Company revenue from services for 2006 and 54.2% for 2005.
Americas - Commercial earnings from operations totaled $102.9 million for 2006 compared to earnings of $88.1
million in 2005, an increase of 16.8%. The increase in earnings from operations was primarily attributable to the
3.7% increase in revenue and a 0.5 percentage point increase in the gross profit rate. The increase in the gross
profit rate was principally due to reduced workers’ compensation costs and increased fee based income.
As noted above, we revised our estimate of the cost of outstanding workers’ compensation claims and, accordingly,
reduced expense in 2006. Of the total $7.7 million expense reduction in 2006, $7.0 million was credited to Americas -
Commercial. This compares to a similar adjustment reducing expense by $1.5 million in 2005.
Selling, general and administrative expenses increased by 4.2% as compared to 2005 and, as a percentage of
revenues, were 11.8% for 2006 and 2005. The increase in selling, general and administrative expenses was due
primarily to the growth in salaries and related costs.
Americas - PTSA
Revenue from Services
Earnings from Operations
2006
2005
Change
(In millions of dollars)
$ 1,108.3 $ 1,051.5
48.8
58.1
5.4 %
19.0
Gross profit rate
Expense rates:
% of revenue
% of gross profit
Operating margin
17.1 %
16.3 %
0.8 %
11.8
69.3
5.2
11.6
71.5
4.6
0.2
(2.2)
0.6
23
Revenue from services in the Americas – PTSA segment for 2006 totaled $1.1 billion, an increase of 5.4% compared
to 2005. This reflected an increase in hours worked of 4.2% and an increase in average billing rates of 5.9% for the
professional and technical staffing businesses. Fee based income totaled $24.3 million in 2006 and $20.9 million in
2005. On a year-over-year basis, revenue increased 11.8% in the first quarter, 6.1% in the second quarter, 2.8% in
the third quarter and 1.4% in the fourth quarter. Americas - PTSA revenue represented 20.0% of total Company
revenue in 2006 and 20.3% in 2005. Americas - PTSA’s results for 2006 and 2005 have been revised to reflect the
dispositions of KHC and KSL.
Kelly Engineering Resources, Kelly Management Services, Kelly HRfirst, HR Consulting and Kelly Law Registry were
the leading performers in 2006, with each business unit reporting double digit revenue growth. The Automotive
Services Group, Kelly IT Resources and Kelly Scientific Resources all reported year-over-year revenue declines in
2006.
Americas - PTSA earnings from operations for 2006 totaled $58.1 million, an increase of 19.0% from 2005 and a 0.6
percentage point improvement in the operating margin. This was the result of the 5.4% increase in revenue and a 0.8
percentage point improvement in the gross profit rate, partially offset by a 6.9% increase in selling, general and
administrative expenses.
The Americas - PTSA gross profit rate increased primarily due to growth in fee based income, changes in business
mix and the impact of the higher margin Ayers’ outplacement business, the New York-based career management
business acquired in the second quarter of 2006. Excluding the Ayers’ outplacement business, Americas - PTSA
revenue would have increased 5.0% and the Americas - PTSA gross profit rate would have increased 0.5 percentage
point for 2006. Americas - PTSA also benefited from the reduction in workers’ compensation expense during 2006.
Americas - PTSA’s share of the reduction in expense in 2006 was approximately $0.7 million, compared to a similar
adjustment in 2005 of approximately $0.2 million.
The increase in selling, general and administrative expenses was due to the impact of the Ayers’ outplacement
business and increased staffing costs related to adding permanent recruiters.
International - Commercial
Revenue from Services
Earnings from Operations
2006
2005
Change
(In millions of dollars)
$ 1,378.5 $ 1,213.9
(4.2)
0.6
13.6 %
113.6
Gross profit rate
Expense rates:
% of revenue
% of gross profit
Operating margin
16.9 %
17.5 %
(0.6) %
16.9
99.8
0.0
17.9
102.0
(0.3)
(1.0)
(2.2)
0.3
Translated U.S. dollar revenue from services in International - Commercial for 2006 totaled $1.4 billion, a 13.6%
increase compared to the $1.2 billion reported in 2005. This resulted from a 15.5% increase in fee based income and
an increase in hours worked of 23.4%, partially offset by a decrease in the translated U.S. dollar average hourly bill
rates of 8.0%. The decrease in average hourly bill rates is due to significant growth in countries with lower wage
levels, such as India and Malaysia. Fee based income totaled $43.6 million in 2006 and $37.8 million in 2005.
International - Commercial revenue represented 24.9% of total Company revenue in 2006 and 23.4% in 2005.
On a constant currency basis, revenue increased by 12.5%, fee based income increased 14.8% and average hourly
bill rates decreased 8.8% from 2005. Constant currency year-over-year revenue comparisons reflect increases of:
15.6% in the first quarter, 12.9% in the second quarter, 12.5% in the third quarter and 9.2% in the fourth quarter.
24
Year-over-year constant currency revenue growth for International – Commercial was positive in all regions. Asia
Pacific increased by 15.5% and Europe increased by 11.9%. The growth in Asia Pacific revenue was fueled by the
Company’s operations in Australia, India and Malaysia. Branch openings and new accounts contributed to the sales
growth in India. Sales in continental Europe remained strong, excluding U.K./Ireland, which experienced a 0.6%
decrease on a constant currency basis.
International – Commercial earnings from operations in 2006 totaled $0.6 million, an increase of 113.6% compared to
a net loss of $4.2 million in 2005 and a 0.3 percentage point improvement in the operating margin. The 13.6%
increase in revenue was partially offset by a 7.3% increase in selling, general and administrative expenses, as
measured in U.S. dollars.
The International – Commercial gross profit rate for 2006 decreased 0.6 percentage point from 2005. The decrease
was due to growth in pan-European corporate account business, which carries a lower gross profit rate, principally in
the United Kingdom, partially offset by growth in fee based income. The increase in U.S. dollar reported expenses
was due primarily to the growth in compensation related costs.
Many of the Company’s large corporate accounts and pan-European customers have negotiated high volume global
service agreements, which tend to result in lower gross profit rates than those earned with the Company’s small and
medium size customers. However, these accounts typically also have lower administrative costs due to economies of
scale, and can yield an operating margin similar to that realized with small or medium size customers. The
Company’s strategy is focused on serving and growing large corporate and local accounts. As customer mix shifts to
larger accounts, the Company’s average gross margins tend to decrease.
International – PTSA
Revenue from Services
Earnings from Operations
$
Gross profit rate
Expense rates:
% of revenue
% of gross profit
Operating margin
2006
2005
Change
(In millions of dollars)
110.3
(0.9)
143.8 $
0.6
30.4 %
169.6
25.2 %
24.0 %
1.2 %
24.7
98.2
0.4
24.9
103.5
(0.8)
(0.2)
(5.3)
1.2
Translated U.S. dollar revenue from services in International - PTSA for 2006 totaled $143.8 million, a 30.4%
increase compared to the $110.3 million reported for 2005. This resulted from a 51.1% increase in fee based income
and an increase in the translated U.S. dollar average hourly bill rates of 27.3%, combined with an increase in hours
worked of 0.7%. Fee based income totaled $16.0 million for 2006 and $10.6 million for 2005. International - PTSA
revenue represented 2.6% of total Company revenue for 2006 and 2.1% for 2005.
On a constant currency basis, revenue increased by 29.2%, fee based income increased 48.5% and average hourly
bill rates increased 26.4% from 2005. Constant currency year-over-year revenue comparisons reflect increases of:
32.9% in the first quarter, 27.2% in the second quarter, 29.2% in the third quarter and 27.9% in the fourth quarter.
Operating results for International - PTSA were earnings of $0.6 million for 2006, compared a net loss of $0.9 million
in 2005. The 30.4% increase in revenue was partially offset by a 29.7% increase in selling, general and
administrative expenses. The International - PTSA gross profit rate for 2006 increased 1.2 percentage points from
2005, primarily due to growth in fee based income and improvements in sales mix, partially offset by the effects of
growth in pan-European corporate account business. The increase in U.S. dollar reported expenses was due
primarily to the growth in compensation related costs.
25
Restructuring – UK Operations
On January 24, 2007, the Chief Executive Officer of Kelly Services, Inc. authorized a restructuring plan for our United
Kingdom operations (“Kelly UK”). The plan was the result of management’s strategic review of the operations of Kelly
UK which identified under-performing branch locations and the opportunity for additional operational cost savings.
As of December 30, 2007, Kelly UK completed its restructuring actions and closed each of the 22 branches
scheduled for closure, reached settlements with landlords for the UK headquarters locations and incurred $4.8 million
of restructuring charges associated with these actions for year ended December 30, 2007. These expenses were
reported as a component of selling, general and administrative expenses in the International - Commercial segment.
For the year ended December 30, 2007, the $4.8 million charge included $4.2 million for facility exit costs and $0.6
million for accelerated depreciation. The Company did not incur any significant severance costs in connection with
the restructuring.
In addition, the Company incurred moving, fit out and lease origination fees related to the headquarters consolidation
of $1.1 million for the year ended December 30, 2007. Total costs of the UK project were $5.9 million. The Company
anticipates a future annual net savings of approximately $4 million from the UK restructuring.
Restructuring – Americas Operations
On July 23, 2007, the Chief Executive Officer of Kelly Services, Inc. authorized a restructuring plan for our Americas
– Commercial branch operations. The plan was the result of management’s strategic review of operations in the U.S.
which identified under-performing branch locations. The plan resulted in the closure of 58 branch locations.
As of December 30, 2007, Americas – Commercial completed its restructuring actions and incurred $3.0 million of
restructuring charges associated with these actions. These expenses were reported as a component of selling,
general and administrative expenses in the Americas - Commercial segment. For the year ended December 30,
2007, the $3.0 million charge included $2.7 million for facility exit costs and $0.2 million for accelerated depreciation
of leasehold improvements and personal property. The Company did not incur any significant severance costs in
connection with the restructuring. The Company anticipates a future annual net savings from the Americas
restructuring of approximately $2 million.
Results of Operations
Financial Condition
Historically, we have financed our operations through cash generated by operating activities and available from
revolving credit facilities. As highlighted in the Statements of Cash Flows, our liquidity and available capital resources
are impacted by four key components: cash and equivalents, operating activities, investing activities and financing
activities.
Cash and Equivalents
Cash and equivalents totaled $93 million at the end of 2007, a decrease of $25 million from the $118 million at year-
end 2006. As further described below, during 2007, we generated $73 million of cash from operating activities, used
$82 million of cash in investing activities and used $22 million in financing activities.
Operating Activities
In 2007, we generated $73 million in cash from our operating activities, as compared to $116 million in 2006 and $21
million in 2005. The decrease from 2006 was due primarily to growth in accounts receivable. The increase from
2005 was due to both higher net earnings and lower growth of accounts receivable.
Trade accounts receivable totaled $888 million at the end of 2007. Global days sales outstanding for the fourth
quarter were 55 days for 2007, compared to 54 days for 2006. The increase in global days sales outstanding
primarily reflects the growth in international business mix.
Our working capital position was $479 million at the end of 2007, an increase of $15 million from year-end 2006. The
current ratio was 1.8 at year-end 2007 and 2006.
26
Investing Activities
In 2007, we used $82 million for investing activities, compared to $65 million in 2006 and $52 million in 2005. Capital
expenditures totaled $46 million in 2007 and 2006 and increased 61% from the $29 million spent in 2005. Capital
expenditures for 2007 primarily related to our information technology programs and branch openings, refurbishments
and relocations. We expect capital spending in 2008 to total approximately $45 million. This level reflects continued
spending associated with implementation of the PeopleSoft payroll, billing and accounts receivable project.
The total cost related to the PeopleSoft project, which commenced in the fourth quarter of 2004, is expected to be
approximately $66 to $68 million in capital expenditures and approximately $24 to $26 million in selling, general and
administrative expenses. In 2007, costs related to the project amounted to $22 million in capital expenditures and $7
million in selling, general and administrative expenses. Future capital expenditures for the PeopleSoft project by year
are expected to be approximately $12 to $13 million in 2008 and approximately $8 to $9 million in 2009. Selling,
general and administrative expenses for the PeopleSoft project are expected to be approximately $7 to $8 million in
2008 and approximately $2 to $3 million in 2009. The PeopleSoft implementation is expected to cover U.S., Canada,
Puerto Rico, U.K. and Ireland operations.
During the first quarter of 2007, we sold the KHC business for cash proceeds of $12.5 million. During the fourth
quarter of 2006, we sold the KSL business for cash proceeds of $6.5 million.
During the first quarter of 2007, we acquired the net operating assets of Talents Technology, a permanent placement
and executive search firm with operations in the Czech Republic and Poland, for $3 million in cash. The transaction
also includes additional contingent earnout payments of up to approximately $1.6 million over the next three years,
based primarily on the achievement of certain earnings targets. Talents Technology is included in the International -
PTSA business segment as of April 1, 2007.
During the first quarter of 2007, we also acquired the net operating assets of CGR/seven LLC, a creative staffing
services firm that specializes in providing creative talent, for $12 million in cash at the date of acquisition and $1
million payable in each of the years 2008 and 2009, and possible additional earnout payments of up to $2 million
payable in each of the years 2008 and 2009, based primarily on the achievement of certain earnings targets.
CGR/seven is included in the Americas - PTSA business segment as of April 1, 2007.
During the second quarter of 2007, we acquired P-Serv, a company specializing in temporary staffing, permanent
staffing, outsourcing and executive search with operations in China, Hong Kong and Singapore, for $8 million in cash.
The transaction also includes additional contingent earnout payments of up to approximately $2.6 million in total
payable in 2009 and 2010, based primarily on the achievement of certain earnings targets. P-Serv is included as a
business unit in the International – Commercial business segment of the Company from the date of acquisition.
In November, 2007, we acquired the net assets of access AG, a specialized recruitment services company
headquartered in Germany and with operations in Austria, for $21 million in cash. The transaction includes additional
contingent payments of up to approximately $10.3 million, payable over two years, based on the achievement of
certain earnings targets. access AG is included as a business unit in the International – PTSA business segment.
During the second quarter of 2006, we acquired the net assets of The Ayers Group, a New York-based career
management firm specializing in customized career transition, consulting services and information technology
staffing, for $4.6 million. The transaction includes additional contingent payments of up to $1.3 million, payable over
two years, primarily based on the achievement of certain earnings targets. The Ayers Group is included as a
business unit in the Americas - PTSA business segment.
During the fourth quarter of 2006, we purchased an additional 1.6% interest in Tempstaff for $16 million, bringing the
total investment to 4.9%. During the first quarter of 2005, the Company made an $18 million investment to acquire an
initial 3.3% interest in Tempstaff.
Also during the fourth quarter of 2006, we purchased Sony Corporation’s 40% interest in Tempstaff Kelly for $5
million. With the purchase of Sony Corporation’s ownership share, we increased our ownership interest to 49%.
Accordingly, earnings from continuing operations for 2006 include our equity earnings in Tempstaff Kelly, Inc. from
the date of acquisition. During the third quarter of 2005, we invested $1 million for an initial 9% interest in Tempstaff
Kelly.
27
Effective March 30, 2007, we purchased the remaining shares of Tempstaff Kelly, Inc., a joint venture originally
created with Sony Corporation and Tempstaff, one of the largest staffing companies in Japan, for $2 million, net of
cash received. With the purchase of the remaining 51% interest in Tempstaff Kelly, Tempstaff Kelly became a wholly
owned, consolidated subsidiary of Kelly Services, Inc. as of April 1, 2007. Tempstaff Kelly is included in the
International - Commercial business segment subsequent to April 1, 2007.
Financing Activities
In 2007, we used $22 million from financing activities, as compared to generating $1 million in 2006 and $20 million in
2005. Debt totaled $98 million at year-end 2007, compared to $69 million at year-end 2006. At the end of 2007, debt
represented approximately 11.1% of total capital.
During 2007, we repurchased 1.7 million Class A shares for $34.7 million. As of December 30, 2007, a total of $15.3
million remained available under the $50 million share repurchase program authorized by the Company’s board of
directors in August, 2007.
In the first quarter of 2007, we obtained short-term financing utilizing an $8.2 million yen-denominated credit facility to
purchase the additional 51% interest in Tempstaff Kelly, as well as to fund local working capital.
In connection with the additional investment in Tempstaff in the fourth quarter of 2006, we obtained short-term
financing utilizing a $16 million yen-denominated credit facility. During the third quarter of 2006, we obtained short-
term financing utilizing a $5 million yen-denominated credit facility to purchase the additional 40% interest in
Tempstaff Kelly, Inc.
In connection with the investment in Tempstaff in the first quarter of 2005, we obtained short-term financing utilizing
an $18 million yen-denominated credit facility. In connection with the investment in Tempstaff Kelly, Inc. in the third
quarter of 2005, we obtained short-term financing utilizing a $1 million yen-denominated credit facility.
In the fourth quarter of 2007, we refinanced $49.1 million of the short-term yen denominated borrowings with a five-
year term loan. The loan bears interest at LIBOR plus a negotiated spread over LIBOR. Interest-only payments are
required for periods of three, six, nine or 12 months. The loan agreement contains requirements for a maximum
leverage ratio and a minimum interest coverage ratio, both of which were met at December 30, 2007.
As of year-end 2007, we had $100 million of committed unused credit facilities. In November, 2005, we entered into
a $150 million five-year, unsecured multi-currency revolving credit facility which may be used to fund working capital,
acquisitions and for general corporate purposes. The interest rate applicable to borrowings under this facility is 40
basis points over local LIBOR. This credit facility contains requirements for a maximum leverage ratio and a
minimum leverage ratio, both of which were met at December 30, 2007. At year-end 2007, we had additional
uncommitted one-year credit facilities totaling $11 million, under which we had borrowed less than $0.1 million.
We intend to continue our expansion program, adding additional countries or service lines through organic growth
and small strategic acquisitions. To fund future acquisitions, Kelly may use free cash flow, bank borrowings, public or
private bonds or other sources appropriate to the size and nature of the acquisition.
Dividends paid per common share were $0.52 in 2007, $0.45 in 2006 and $0.40 in 2005.
28
Contractual Obligations and Commercial Commitments
Summarized below are our obligations and commitments to make future payments as of year-end 2007:
Total
Less than
1 year
1-3 Years
(In $000s)
3-5 Years
More than
5 years
Operating leases
Short-term borrowings
Accrued insurance
Accrued retirement benefits
Long-term debt
Payments related to acquisitions
Other long-term liabilities
FIN 48 income tax, interest and penalties
Purchase obligations
$
164,800 $
49,700
84,100
86,900
48,400
25,100
5,100
4,400
30,200
51,500 $
49,700
23,700
8,500
-
6,900
600
2,000
16,300
67,900 $
29,900 $
-
29,400
17,500
-
18,200
1,300
700
13,900
-
12,600
17,400
48,400
-
1,300
500
-
15,500
-
18,400
43,500
-
-
1,900
1,200
-
Total
$
498,700 $
159,200 $
148,900 $
110,100 $
80,500
We have no material, unrecorded commitments, losses, contingencies or guarantees associated with any related
parties or unconsolidated entities.
Summary
We expect to meet our cash requirements principally through cash generated from operations, available cash and
equivalents and committed unused credit facilities.
Critical Accounting Estimates
We prepare our financial statements in conformity with accounting principles generally accepted in the United States.
In this process, it is necessary for us to make certain assumptions and related estimates affecting the amounts
reported in the consolidated financial statements and the attached notes. Actual results can differ from assumed and
estimated amounts.
Critical accounting estimates are those that we believe require the most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our
estimates on historical experience and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Judgments and uncertainties affecting the application of
those estimates may result in materially different amounts being reported under different conditions or using different
assumptions. We consider the following estimates to be most critical in understanding the judgments involved in
preparing our consolidated financial statements.
29
Allowance for Uncollectible Accounts Receivable
We make ongoing estimates relating to the collectibility of our accounts receivable and maintain an allowance for
estimated losses resulting from the inability of our customers to make required payments. In determining the amount
of the allowance, we consider our historical level of credit losses and apply percentages to certain aged receivable
categories. We also make judgments about the creditworthiness of significant customers based on ongoing credit
evaluations, and we monitor current economic trends that might impact the level of credit losses in the future.
Historically, losses from uncollectible accounts have not exceeded our allowance. Since we cannot predict with
certainty future changes in the financial stability of our customers, actual future losses from uncollectible accounts
may differ from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability
to make payments, a larger allowance may be required. In the event we determined that a smaller or larger
allowance was appropriate, we would record a credit or a charge to selling, general and administrative expense in the
period in which we made such a determination. In addition, we also include a provision for sales allowances, based
on our historical experience, in our allowance for uncollectible accounts receivable. If sales allowances vary from our
historical experience, an adjustment to the allowance may be required. As of year-end 2007 and 2006, the allowance
for uncollectible accounts receivable was $18.2 million and $16.8 million, respectively.
Workers’ Compensation
We have a combination of insurance and self-insurance contracts under which we effectively bear the first $500,000
of risk per single accident, except in the state of California, where we bear the first $750,000 of risk per single
accident. We establish accruals for workers’ compensation utilizing actuarial methods to estimate the undiscounted
future cash payments that will be made to satisfy the claims, including an allowance for incurred-but-not-reported
claims. This process includes establishing loss development factors, based on our historical claims experience, as
well as industry experience, and applying those factors to current claims information to derive an estimate of our
ultimate claims liability. In preparing the estimates, we also consider the nature and severity of the claims, analyses
provided by third party claims administrators, as well as current legal, economic and regulatory factors.
We evaluate the accrual, and the underlying assumptions, regularly throughout the year and make adjustments as
needed. The ultimate cost of these claims may be greater than or less than the established accrual. While we
believe that the recorded amounts are adequate, there can be no assurances that changes to our estimates will not
occur due to limitations inherent in the estimation process. In the event we determine that a smaller or larger accrual
is appropriate, we would record a credit or a charge to cost of services in the period in which we made such a
determination. The accrual for workers’ compensation was $84.1 million and $81.5 million at year-end 2007 and
2006, respectively.
Goodwill
Goodwill is tested for impairment annually or if an event occurs or circumstances change that may reduce the fair
value of the reporting unit below its book value. Should circumstances change or events occur to indicate that the fair
value of the reporting unit has fallen below its book value, we must then compare the estimated fair value of goodwill
to book value. If the book value exceeds the estimated fair value, an impairment loss would be recognized in an
amount equal to that excess. Such an impairment loss would be recognized as a non-cash charge to operating
income.
We completed our impairment tests during the fourth quarter of the 2007 and 2006 fiscal years and determined that
goodwill is not impaired. This test required comparison of our estimated fair value to our book value of goodwill. The
estimated fair value was based on a discounted cash flows analysis. Assumptions and estimates about future cash
flows and discount rates are complex and often subjective. They can be affected by a variety of factors, including
external factors such as industry and economic trends, and internal factors such as changes in our business strategy
and our internal forecasts.
Although we believe the assumptions and estimates we have made are reasonable and appropriate, different
assumptions and estimates could materially impact our reported financial results. Different assumptions of the
anticipated future benefits from these businesses could result in an impairment charge, which would decrease
operating income and result in lower asset values on our balance sheet. At year-end 2007 and 2006, total goodwill
amounted to $147.2 million and $96.5 million, respectively.
30
Income Taxes
Income tax expense is based on expected income and statutory tax rates in the various jurisdictions in which we
operate. Judgment is required in determining our income tax expense. We establish accruals for uncertain tax
positions under FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB
Statement No. 109” (“FIN 48”). FIN 48 requires that a position taken or expected to be taken in a tax return be
recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that
the position would be sustained upon examination by tax authorities that have full knowledge of all relevant
information. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty
percent likely of being realized upon ultimate settlement. Our effective tax rate includes the impact of accrual
provisions and changes to accruals that we consider appropriate, as well as related interest and penalties. A number
of years may elapse before a particular matter, for which we have or have not established an accrual, is audited and
finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax
matter, we believe that our accruals are appropriate under FIN 48. Favorable or unfavorable adjustment of the
accrual for any particular issue would be recognized as an increase or decrease to our income tax expense in the
period of a change in facts and circumstances. Our short-term tax accruals are presented in the balance sheet within
income and other taxes and long-term tax accruals are presented in the balance sheet within other long-term
liabilities.
Tax laws require items to be included in the tax return at different times than the items are reflected in the financial
statements. As a result, the income tax expense reflected in our financial statements is different than the liability
reported in our tax return. Some of these differences are permanent, such as expenses which are not deductible on
our tax return, and some are temporary differences, such as depreciation expense. Temporary differences create
deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction
or credit in our tax return in future years for which we have already recorded the tax benefit in our income statement.
We establish valuation allowances for our deferred tax assets when the amount of expected future taxable income is
not likely to support the use of the deduction or credit. Deferred tax liabilities generally represent items for which we
have already taken a deduction on our tax return, but have not yet recognized as expense in our financial statements.
New Accounting Pronouncements
See Note 18 to our consolidated financial statements presented in Part II, Item 8 of this report for a description of new
accounting pronouncements.
31
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements include statements which are predictive in
nature, which depend upon or refer to future events or conditions, or which include words such as "expects,”
"anticipates,” "intends,” “plans,” "believes,” “estimates,” or variations or negatives thereof or by similar or comparable
words or phrases. In addition, any statements concerning future financial performance (including future revenues,
earnings or growth rates), ongoing business strategies or prospects, and possible future actions by us that may be
provided by management are also forward-looking statements. Forward-looking statements are based on current
expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our
company and economic and market factors in the countries in which we do business, among other things. These
statements are not guarantees of future performance, and we have no specific intention to update these statements.
Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due
to a number of factors. The principal important risk factors that could cause our actual performance and future events
and actions to differ materially from such forward-looking statements include, but are not limited to, competitive
market pressures including pricing, 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), our ability to effectively implement and
manage our information technology programs, and our ability to successfully expand into new markets and service
lines. Certain risk factors are discussed more fully under “Risk Factors” in Part I, Item 1A of this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not hold or invest in derivative contracts. We are exposed to foreign currency risk primarily due to our net
investment in foreign subsidiaries, which conduct business in their local currencies. These risks are mitigated by the
use of local currency borrowings, which mitigate the exchange rate risk resulting from foreign currency-denominated
net investments fluctuating in relation to the U.S. dollar.
In addition, we are exposed to interest rate risks through our use of the multi-currency line of credit and other
borrowings. A hypothetical fluctuation of 10% in market interest rates would not have a material impact on 2007
earnings.
We are exposed to market risk as a result of our obligation to pay benefits under our nonqualified deferred
compensation plan and our related investments in company-owned variable universal life insurance policies. The
obligation to employees increases and decreases based on movements in the equity and debt markets. The
investments in mutual funds, as part of the company-owned variable universal life insurance policies, are designed to
mitigate this risk with offsetting gains and losses.
Overall, our holdings and positions in market risk-sensitive instruments do not subject us to material risk.
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this Item are set forth in the accompanying index on
page 38 of this filing and are presented in pages 39-71.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer and Interim
Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934 are effective.
Management’s Report on Internal Control Over Financial Reporting
Management’s report on internal control over financial reporting is presented preceding the financial statements on
page 39 of this report.
Attestation Report of Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, independent registered public accounting firm, has audited the effectiveness of our
internal control over financial reporting as of December 30, 2007 as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting
During the fourth quarter of 2007, the Company converted the U.K. and Ireland business to the PeopleSoft payroll,
billing and accounts receivable systems. Management has reviewed the internal controls impacted by the
implementation of the above PeopleSoft systems, and has made changes to these internal controls as appropriate.
There were no other changes in our internal control over financial reporting that occurred during our fourth fiscal
quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
33
PART III
Information required by Part III with respect to Directors, Executive Officers and Corporate Governance (Item 10),
Executive Compensation (Item 11), Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters (Item 12), Certain Relationships and Related Transactions, and Director Independence (Item 13)
and Principal Accounting Fees and Services (Item 14), except as set forth under the titles "Executive Officers of the
Registrant" and “Code of Business Conduct and Ethics,” which are included on page 34, (Item 10), and except as set
forth under the title “Equity Compensation Plan Information,” which is included on page 35, (Item 12), is to be
included in a definitive proxy statement filed not later than 120 days after the close of our fiscal year and the proxy
statement, when filed, is incorporated in this report by reference.
ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT.
Name/Office
-------------------------------- ------- ---------------------- --------------------------------------------
Served as an Business Experience
Age Officer Since During Last 5 Years
Terence E. Adderley
Chairman (1)
74
1961 Served as officer of the Company.
Carl T. Camden
President and
Chief Executive Officer (2)
53
1995 Served as officer of the Company.
Michael L. Durik 59
Executive Vice President and
Chief Administrative Officer (3)
Michael E. Debs
Senior Vice President and
Interim Chief Financial Officer (4)
50
1999
Served as officer of the Company.
2000 Served as officer of the Company.
Daniel T. Lis
Senior Vice President,
General Counsel and
Corporate Secretary
61
2003
Served as General Counsel of
Bank One, Michigan and predecessors
from 1987-2000.
(1) Mr. Adderley served as Chief Executive Officer of our Company during the years 1987-2006. He was elected
Chairman of our Board of Directors, a non-officer position, on May 10, 2006. Mr. Adderley continues to be an
employee.
(2) Mr. Camden was elected Acting Chief Executive Officer on February 9, 2006 and was elected Chief Executive
Officer on February 27, 2006.
(3) Mr. Durik was elected Chief Administrative Officer on May 19, 2004.
(4) Mr. Debs was appointed Interim Chief Financial Officer effective December 31, 2007.
CODE OF BUSINESS CONDUCT AND ETHICS.
We have adopted a Code of Business Conduct and Ethics that applies to our directors, officers and employees,
including our principal executive officer, principal financial officer, principal accounting officer or controller or persons
performing similar functions. The Code of Business Conduct and Ethics is included as Exhibit 14 in the Index to
Exhibits on page 73. We have posted our Code of Business Conduct and Ethics on our website at
www.kellyservices.com. We intend to post any changes in or waivers from our Code of Business Conduct and Ethics
applicable to any of these officers on our website.
34
ITEM 12. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Equity Compensation Plan Information
The following table shows the number of shares of our common stock that may be issued upon the exercise of
outstanding options, warrants and rights, the weighted-average exercise price of outstanding options, warrants and
rights, and the number of securities remaining available for future issuance under our equity compensation plans as
of the fiscal year end for 2007.
Number of securities
to be issued upon
exercise of outstanding
options, warrants
and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in the first
column) (2)
1,370,000
$
26.80
2,898,000
Equity compensation plans
approved by security
holders (1)
Equity compensation plans
not approved by security
holders (3)
Total
1,370,000
$
-
-
26.80
-
2,898,000
(1) The equity compensation plans approved by our stockholders include our Equity Incentive Plan, Non-Employee
Director Stock Option Plan and Non-Employee Director Stock Award Plan.
The number of shares to be issued upon exercise of outstanding options, warrants and rights excludes
559,000 of restricted stock awards granted to employees and not yet vested at December 30, 2007.
(2) The Equity Incentive Plan provides that the maximum number of shares available for grants, including
stock options and restricted stock awards, is 10 percent of the outstanding Class A common stock, adjusted for
plan activity over the preceding five years.
The Non-Employee Director Stock Option Plan provides that the maximum number of shares available for
settlement of options is 250,000 shares of Class A common stock.
The Non-Employee Director Stock Award Plan provides that the maximum number of shares available for
awards is one-quarter of one percent of the outstanding Class A common stock.
(3) We have no equity compensation plans that have not been approved by our stockholders.
35
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as part of this report:
(1) Financial statements:
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Statements of Earnings for the three fiscal years ended December 30, 2007
Statements of Cash Flows for the three fiscal years ended December 30, 2007
Balance Sheets at December 30, 2007 and December 31, 2006
Statements of Stockholders' Equity for the three fiscal years ended December 30, 2007
Notes to Financial Statements
(2) Financial Statement Schedule -
For the three fiscal years ended December 30, 2007:
Schedule II - Valuation Reserves
All other schedules are omitted because they are not applicable or the required information is shown in the
financial statements or notes thereto.
(3) The Exhibits are listed in the Index to Exhibits Required by Item 601 of Regulation S-K at Item (c)
below and included beginning at page 72 which is incorporated herein by reference.
(b) The Index to Exhibits and required Exhibits are included following the Financial Statement Schedule beginning at
page 72 of this filing.
(c) None.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 13, 2008
KELLY SERVICES, INC.
Registrant
By
/s/ M. E. Debs
---------------------------------------------------------------------
M. E. Debs
Senior Vice President and
Interim Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: February 13, 2008
* T. E. Adderley
T. E. Adderley
Chairman and Director
Date: February 13, 2008
* C. T. Camden
C. T. Camden
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: February 13, 2008
* J. E. Dutton
J. E. Dutton
Director
Date: February 13, 2008
* M. A. Fay, O.P.
Date: February 13, 2008
Date: February 13, 2008
M. A. Fay, O.P.
Director
* V. G. Istock
V. G. Istock
Director
* L. A. Murphy
L. A. Murphy
Director
Date: February 13, 2008
* D. R. Parfet
Director
D. R. Parfet
Date: February 13, 2008
* B. J. White
B. J. White
Director
Date: February 13, 2008
/s/ M. E. Debs
---------------------------------------------------------------------
M. E. Debs
Senior Vice President and
Interim Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: February 13, 2008
*By
/s/ M. E. Debs
---------------------------------------------------------------------
M. E. Debs
Attorney-in-Fact
37
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULE
Kelly Services, Inc. and Subsidiaries
Page Reference
in Report on
Form 10-K
------------------------
Management’s Report on Internal Control Over Financial Reporting
39
Report of Independent Registered Public Accounting Firm
40
Statements of Earnings for the three fiscal years ended December 30, 2007
41
Statements of Cash Flows for the three fiscal years ended December 30, 2007
42
Balance Sheets at December 30, 2007 and December 31, 2006
43
Statements of Stockholders' Equity for the three fiscal years ended December 30, 2007
44
Notes to Financial Statements
45 - 70
Financial Statement Schedule - Schedule II - Valuation Reserves
71
38
Management’s Report on Internal Control Over Financial Reporting
The management of Kelly Services, Inc. (the “Company”), is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-
15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of,
the Company’s principal executive and principal financial officers and effected by the Company’s board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and directors of the
Company;
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
change.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting
as of December 30, 2007. In making this assessment, the Company’s management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework.
Based on our assessment, management determined that, as of December 30, 2007, the Company’s internal control
over financial reporting was effective based on those criteria.
The effectiveness of the Company’s internal control over financial reporting as of December 30, 2007 has been
audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report
which appears on page 40.
39
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Kelly Services, Inc.:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of Kelly Services, Inc. and its subsidiaries at December 30, 2007 and
December 31, 2006, and the results of their operations and their cash flows for each of the three years in the period
ended December 30, 2007 in conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in the accompanying index appearing
under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 30, 2007, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company's management is responsible for these financial statements and financial
statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Company's internal control over financial reporting based
on our integrated audits which were integrated audits in 2007 and 2006. We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included 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. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, MI
February 12, 2008
40
STATEMENTS OF EARNINGS
Kelly Services, Inc. and Subsidiaries
2007
2006
(In thousands of dollars except per share items)
2005
Revenue from services
$
5,667,589 $
5,546,778 $
5,186,358
Cost of services
Gross profit
Selling, general and
administrative expenses
4,678,500
4,640,052
4,356,349
989,089
906,726
830,009
909,009
828,685
776,256
Earnings from operations
80,080
78,041
53,753
Other income (expense), net
3,211
1,471
(187)
Earnings from continuing operations before taxes
83,291
79,512
53,566
Income taxes
Earnings from continuing operations
Earnings from discontinued operations, net of tax
29,567
53,724
7,292
22,727
15,867
56,785
37,699
6,706
1,564
Net earnings
$
61,016 $
63,491 $
39,263
1.48 $
.20
1.68 $
1.47 $
.20
1.67 $
1.58 $
.19
1.76 $
1.56 $
.18
1.75 $
.52 $
.45 $
1.06
.04
1.10
1.05
.04
1.09
.40
36,357
36,495
35,999
36,314
35,667
35,949
Basic earnings per share
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Diluted earnings per share
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Dividends per share
Average shares outstanding
(thousands):
Basic
Diluted
See accompanying Notes to Financial Statements.
$
$
$
$
$
41
STATEMENTS OF CASH FLOWS
Kelly Services, Inc. and Subsidiaries
Cash flows from operating activities
Net earnings
Noncash adjustments:
Depreciation and amortization
Provision for bad debts
Stock-based compensation
Deferred income taxes
Gain on sale of discontinued operations
Other, net
Changes in operating assets and liabilities
2007
2006
(In thousands of dollars)
2005
$
61,016
$
63,491 $
39,263
42,601
6,654
3,941
(5,298)
(6,166)
(573)
(28,831)
41,730
5,178
5,286
(9,159)
(2,254)
(405)
12,398
42,215
6,159
3,418
(1,006)
-
525
(69,810)
Net cash from operating activities
73,344
116,265
20,764
Cash flows from investing activities
Capital expenditures
Proceeds from sale of discontinued operations
Acquisition of companies, net of cash received
Other investing activities
Investment in unconsolidated affiliates
(45,975)
12,500
(48,417)
(532)
-
(45,526)
6,500
(4,663)
(550)
(20,729)
(28,527)
-
-
(4,208)
(19,681)
Net cash from investing activities
(82,424)
(64,968)
(52,416)
Cash flows from financing activities
Net increase (decrease) in revolving line of credit
Proceeds from debt
Repayment of debt
Dividend payments
Purchase of treasury stock
Stock options and other stock sales
Other financing activities
17,500
57,277
(49,054)
(19,114)
(34,703)
5,781
(165)
(11,022)
20,729
-
(16,420)
-
10,973
(2,873)
6,833
19,681
-
(14,269)
-
5,786
1,949
Net cash from financing activities
(22,478)
1,387
19,980
Effect of exchange rates on cash and equivalents
5,947
2,045
(3,977)
Net change in cash and equivalents
Cash and equivalents at beginning of year
(25,611)
118,428
54,729
63,699
(15,649)
79,348
Cash and equivalents at end of year
$
92,817
$
118,428 $
63,699
See accompanying Notes to Financial Statements.
42
BALANCE SHEETS
Kelly Services, Inc. and Subsidiaries
ASSETS
Current Assets
Cash and equivalents
Trade accounts receivable, less allowances of
$18,172 and $16,818, respectively
Prepaid expenses and other current assets
Deferred taxes
Total current assets
Property and Equipment
Land and buildings
Computer hardware and software, equipment,
furniture and leasehold improvements
Accumulated depreciation
Net property and equipment
Noncurrent Deferred Taxes
Goodwill, net
Other Assets
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings
Accounts payable
Accrued payroll and related taxes
Accrued insurance
Income and other taxes
Total current liabilities
Noncurrent Liabilities
Long-term debt
Accrued insurance
Accrued retirement benefits
Other long-term liabilities
Total noncurrent liabilities
Stockholders' Equity
Capital stock, $1.00 par value
Class A common stock, shares issued 36,633,906
at 2007 and 36,632,768 at 2006
Class B common stock, shares issued 3,481,960
at 2007 and 3,483,098 at 2006
Treasury stock, at cost
Class A common stock, 5,036,085 shares at 2007
and 3,698,781 at 2006
Class B common stock, 22,575 shares at 2007 and
2006
Paid-in capital
Earnings invested in the business
Accumulated other comprehensive income
Total stockholders' equity
2007
2006
(In thousands of dollars)
$
92,817 $
118,428
888,334
53,392
29,294
1,063,837
838,246
45,316
29,543
1,031,533
62,707
61,410
326,314
(211,002)
178,019
311,244
(202,366)
170,288
43,436
35,437
147,168
96,504
141,537
135,662
$ 1,573,997 $ 1,469,424
$
49,729 $
171,471
270,575
23,696
69,779
585,250
48,394
60,404
78,382
13,338
200,518
68,928
132,819
274,284
24,191
68,055
568,277
-
57,277
71,990
13,323
142,590
36,634
36,633
3,482
3,483
(105,712)
(78,241)
(600)
34,500
777,338
42,587
(600)
32,048
735,104
30,130
788,229
758,557
Total Liabilities and Stockholders' Equity
$ 1,573,997 $ 1,469,424
See accompanying Notes to Financial Statements.
43
STATEMENTS OF STOCKHOLDERS' EQUITY
Kelly Services, Inc. and Subsidiaries
2007
2006
(In thousands of dollars)
2005
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
Purchase of treasury stock
Balance at end of year
Class B common stock
Balance at beginning of year
Exercise of stock options, restricted stock awards and other
Balance at end of year
Paid-in Capital
Balance at beginning of year
Exercise of stock options, restricted stock awards and other
Balance at end of year
Earnings Invested in the Business
Balance at beginning of year
Adoption of FIN 48
Net earnings
Dividends
Balance at end of year
Accumulated Other Comprehensive Income
Balance at beginning of year
Foreign currency translation adjustments, net of tax
Unrealized (losses) gains on investments, net of tax
Pension liability adjustments, net of tax
Balance at end of year
Stockholders' Equity at end of year
Comprehensive Income
Net earnings
Foreign currency translation adjustments, net of tax
Unrealized (losses) gains on investments, net of tax
Pension liability adjustments, net of tax
Reclassification adjustments included in net earnings
Comprehensive Income
See accompanying Notes to Financial Statements.
44
$
36,633 $
1
36,634
36,620 $
13
36,633
3,483
(1)
3,482
3,496
(13)
3,483
(78,241)
7,232
(34,703)
(105,712)
(600)
-
(600)
32,048
2,452
34,500
735,104
332
61,016
(19,114)
777,338
30,130
18,115
(6,441)
783
42,587
(90,319)
12,078
-
(78,241)
(600)
-
(600)
27,015
5,033
32,048
688,033
-
63,491
(16,420)
735,104
7,798
16,895
6,301
(864)
30,130
36,620
-
36,620
3,496
-
3,496
(97,067)
6,748
-
(90,319)
(626)
26
(600)
24,045
2,970
27,015
663,039
-
39,263
(14,269)
688,033
24,544
(16,488)
(258)
-
7,798
$
$
$
788,229 $
758,557 $
672,043
61,016 $
18,115
(6,441)
851
(68)
73,473 $
63,491 $
16,895
6,301
-
-
86,687 $
39,263
(16,488)
42
-
(300)
22,517
NOTES TO FINANCIAL STATEMENTS
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
1. Summary of Significant Accounting Policies
Nature of Operations Kelly Services, Inc. is a global temporary staffing provider operating in 36 countries and
territories throughout the world.
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, 2007 (2007), December 31, 2006 (2006) and January 1,
2006 (2005). Period costs included in selling, general and administrative expenses are recorded on a calendar-year
basis.
Principles of Consolidation The financial statements include the accounts and operations of the Company and its
wholly owned subsidiaries. In addition, the consolidated financial statements include, from the date of acquisition, the
Company’s majority-owned subsidiaries in China acquired during the second quarter of 2007. The Company
consolidates the Chinese companies and records an adjustment in other income, net in the Company’s statement of
earnings to reflect the portion of the earnings, net of tax, attributable to the minority shareholders. The accumulated
minority interest from the date of acquisition is included in other long-term liabilities on the Company’s balance sheet.
All significant intercompany accounts and transactions have been eliminated.
The cost method of accounting is used for investments in equity securities that do not have a readily determined
market value and when the Company does not have the ability to exercise significant influence. These investments
are carried at cost and are adjusted only for other-than-temporary declines in fair value. The carrying value of these
investments is included with other assets in the balance sheet.
Available-for-sale securities are carried at fair value with the unrealized gains or losses, net of tax, included as a
component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses
and declines in value judged to be other-than-temporary on available-for-sale securities are included in other income
(expense), net. The fair values for marketable equity securities are based on quoted market prices.
The Company uses the equity method of accounting for its investments in and earnings or losses of affiliates that it
does not control, but over which it does exert significant influence. Accordingly, the Company’s proportionate share
of the earnings and losses of these companies are included in other income (expense), net, in the accompanying
statements of earnings.
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, where applicable, are reported as accumulated foreign
currency adjustments in stockholders’ equity and are recorded as a component of accumulated other comprehensive
income.
Revenue Recognition Revenue from 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 as a reduction in revenue from services.
Allowance for Uncollectible Accounts Receivable The Company records an allowance for uncollectible accounts
receivable based on historical loss experience, customer payment patterns and current economic trends. The
reserve for sales allowances, as discussed above, is also included in the allowance for uncollectible accounts
receivable. The Company reviews the adequacy of the allowance for uncollectible accounts receivable on a quarterly
basis and, if necessary, increases or decreases the balance.
45
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
Cost of Services Cost of services are those costs directly associated with the earning of revenue. The primary
examples of these types of costs are temporary employee wages, along with associated payroll taxes, temporary
employee benefits, such as vacation and holiday pay, and workers’ compensation costs. These costs differ
fundamentally from selling, general and administrative expenses in that they arise specifically from the action of
providing our services to customers whereas selling, general and administrative costs are incurred regardless of
whether or not we place temporary employees with our customers.
Advertising Expenses Advertising expenses from continuing operations, which are expensed as incurred, were
$11,115, $12,289 and $10,802 in 2007, 2006 and 2005, 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 in the financial
statements and accompanying notes. Estimates are used for, but not limited to, the accounting for the allowance for
uncollectible accounts receivable, workers’ compensation, goodwill and long-lived asset impairment and income
taxes. Actual results could differ materially 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 of property and equipment by function are
as follows:
Category
2007
2006
Land
Work in process
Buildings and improvements
Computer hardware and software
Equipment, furniture and fixtures
Leasehold improvements
$
3,818 $
22,344
58,889
205,574
43,429
54,967
3,818
19,471
57,592
197,984
42,290
51,499
Life
-
-
15 to 45 years
3 to 12 years
5 years
The lesser of the life of the
lease or 5 years.
Total property and equipment
$
389,021 $
372,654
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,
“Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” Work in process
represents capitalized costs for internal use software not yet in service and is included with computer hardware and
software, equipment, furniture and leasehold improvements on the balance sheet. Depreciation expense from
continuing operations was $40,475 for 2007, $39,934 for 2006 and $40,143 for 2005.
Operating Leases The Company recognizes rent expense on a straight-line basis over the lease term. This
includes the impact of both scheduled rent increases and free or reduced rents (commonly referred to as “rent
holidays”). The Company records allowances provided by landlords for leasehold improvements as deferred rent in
the balance sheet and as operating cash flows in the statement of cash flows.
46
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the fair value of
net assets acquired. Purchased intangible assets with definite lives are valued at fair value at the date of acquisition
and are amortized over their respective useful lives (from 3 to 12 years) on an accelerated basis commensurate with
the related cash flows.
Impairment of Long-Lived Assets and Intangible Assets The Company evaluates long-lived assets and
intangible assets with definite lives for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. When it is probable that undiscounted future cash flows will not
be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value. Assets to be disposed
of by sale, if any, are reported at the lower of the carrying amount or fair value less cost to sell.
Goodwill is tested for impairment annually, or if an event occurs or circumstances change that may reduce the fair
value of the reporting unit below its book value. If the fair value of the reporting unit tested has fallen below its book
value, we then compare the estimated fair value of goodwill to its book value. If the book value exceeds the estimated
fair value, an impairment loss would be recognized in an amount equal to that excess. The Company uses a
discounted cash flow methodology to determine fair value, and has determined its reporting units to be the same as
its operating segments and reportable segments.
Accounts Payable Included in accounts payable are outstanding checks in excess of funds on deposit. Such
amounts totaled $15,589 and $11,744 at year-end 2007 and 2006, respectively.
Accrued Payroll and Related Taxes Included in accrued payroll and related taxes are outstanding checks in
excess of funds on deposit. Such amounts totaled $12,928 and $17,325 at year-end 2007 and 2006, respectively.
Payroll taxes are recognized proportionately to direct wages for interim periods based on expected full-year amounts.
Income Taxes The Company accounts for income taxes using the liability method. Under this method, deferred tax
assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax
bases of assets and liabilities and their reported amounts. Valuation allowances are provided against deferred tax
assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.
Uncertain tax positions are accounted for under FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 requires that a position taken or expected
to be taken in a tax return be recognized in the financial statements when it is more likely than not (i.e., a likelihood of
more than fifty percent) that the position would be sustained upon examination by tax authorities that have full
knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit
that is greater than fifty percent likely of being realized upon ultimate settlement.
Interest and penalties related to income taxes are accounted for as income tax expense.
Stock-Based Compensation On January 2, 2006, the first day of the 2006 fiscal year, the Company adopted
Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”) which
requires the measurement and recognition of compensation expense for all share-based payment awards made to
employees and directors based on estimated fair values. SFAS 123R supersedes the Company’s previous
accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB
25”) beginning in fiscal 2006. The Company adopted SFAS 123R using the modified prospective transition method.
Accordingly, the Company’s consolidated financial statements for prior fiscal years have not been restated to reflect
the impact of SFAS 123R.
SFAS 123R requires companies to estimate the fair value of stock option awards on the date of grant using an
option-pricing model. The value of awards that are ultimately expected to vest is recognized as expense over the
requisite service periods in the Company’s Statements of Earnings. Prior to the adoption of SFAS 123R, the
Company accounted for incentive and nonqualified stock options awarded to employees and directors using the
intrinsic value method in accordance with APB 25 as allowed under SFAS 123. Under the intrinsic value method, no
compensation expense had been recognized by the Company because the exercise prices of those stock options
equaled the fair market value of the underlying stock at the date of grant.
47
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
Stock-Based Compensation (continued)
Because stock-based compensation expense recognized in the Statement of Earnings for fiscal 2007 and 2006 is
based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123R requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. In the Company’s pro forma information required under SFAS 123 for the periods prior to
fiscal 2006, the Company accounted for forfeitures as they occurred.
Workers’ Compensation 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 Company
regularly updates its estimates and 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. During 2007, the Company revised its estimate of the cost of outstanding workers’ compensation
claims and, accordingly, reduced expense by $11,600. This compares to similar adjustments reducing prior year
workers’ compensation claims by $7,700 in 2006 and $1,700 in 2005.
Reclassifications Certain prior year amounts have been reclassified to conform with the current presentation. The
results of operations related to the 2007 disposition of Kelly Home Care and 2006 disposition of Kelly Staff Leasing
have been reclassified and separately stated in the accompanying consolidated statements of earnings for 2007,
2006 and 2005. The assets and liabilities of these discontinued operations have not been reclassified in the
accompanying consolidated balance sheets and related notes. In the Company’s consolidated statements of cash
flows, the cash flows from discontinued operations are not separately classified.
2. Acquisitions
As part of the Company’s strategy to diversify and expand its global operations, Kelly completed five acquisitions
during 2007. Effective March 23, 2007, the Company acquired Talents Czech s.r.o. and Talents Polska Spolka
z o.o., (“Talents Technology”), permanent placement and executive search firms with operations in the Czech
Republic and Poland, for $3,058 in cash. The transaction also includes additional contingent earnout payments of up
to approximately $1,600 over the next three years, based primarily on the achievement of certain earnings targets.
Talents Technology is included as a business unit in the International – Professional, Technical and Staffing Solutions
(“International – PTSA”) business segment of the Company from the date of acquisition.
Effective March 30, 2007, the Company paid $6,492 for the remaining shares of Tempstaff Kelly, Inc. (“Tempstaff
Kelly”), a joint venture originally created with Sony Corporation and Tempstaff, one of the largest Japanese staffing
companies. With the purchase of the remaining 51% ownership interest, Kelly increased its ownership interest to
100% and began directing all Tempstaff Kelly operations effective April 1, 2007. As a result, the assets and liabilities
of Tempstaff Kelly, now a wholly owned subsidiary of the Company, were included in the Company’s financial
statements on a fully consolidated basis as of April 1, 2007. Tempstaff Kelly’s operational results are included in the
International - Commercial business segment subsequent to April 1, 2007. Previously, the Company accounted for
the investment under the equity method of accounting, where a proportionate share of Tempstaff Kelly’s net income
was recorded in other income, net in Kelly’s statement of earnings. (See Note 12.)
Effective March 31, 2007, the Company acquired CGR/seven LLC, a creative services staffing firm located in New
York, for $12,000 in cash at the date of acquisition and $1,000 payable in each of the years 2008 and 2009, and
possible additional earnout payments of up to $2,000 payable in each of the years 2008 and 2009, based primarily on
the achievement of certain earnings targets. CGR/seven specializes in providing creative talent and placing
professionals with design, publishing, marketing, fashion and media companies in the New York, New Jersey and
Connecticut markets, and is included in the Company’s Americas – Professional, Technical and Staffing Solutions
(“Americas – PTSA”) business segment.
48
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
2. Acquisitions (continued)
Effective May 30, 2007, the Company acquired P-Serv Pte Ltd (“P-Serv”), a company specializing in temporary
staffing, permanent staffing, outsourcing and executive search, with operations in China, Hong Kong and Singapore,
for $8,057 in cash. As part of this transaction, Kelly acquired a 70% ownership interest in two permanent placement
staffing joint ventures in China. Shanghai Changning Personnel Co., Ltd. and Nanchang Personnel Co., Ltd.
maintain 30% minority interests in the two joint ventures. The transaction also includes additional contingent earnout
payments of up to approximately $2,612 in total, payable in 2009 and 2010, based primarily on the achievement of
certain earnings targets. P-Serv is included as a business unit in the International – Commercial business segment
of the Company from the date of acquisition.
Effective November 20, 2007, the Company acquired the net assets of access AG, a specialized recruitment services
company headquartered in Germany and with operations in Austria, for $21,200 in cash. The transaction includes
additional contingent payments of up to approximately $10,300, payable over two years, based on the achievement
of certain earnings targets. access AG is included as a business unit in the International – PTSA business segment
from the date of acquisition. The purchase price allocation for this acquisition is preliminary and could change,
subject to the completion of the asset valuation, which is ongoing as of the date of this filing. Although the Company
has not completed its valuation of the access AG acquisition as of the date of this filing, it does not believe that the
amortization of intangible assets would be material to its results of operations for the year ended December 30, 2007.
Proforma financial information related to the above acquisitions is not presented due to immateriality. The following
table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the above
acquisitions. The purchase price also reflects the cost of the 49% interest in Tempstaff Kelly acquired in prior
periods.
Current assets
Goodwill
Identified intangibles
Other noncurrent assets
Current liabilities
Noncurrent liabilities
$
15,126
51,542
9,434
871
(9,519)
(90)
Total purchase price
$
67,364
Included in the assets purchased was $8,354 of intangible assets associated with customer lists. These assets will
be amortized over 12 years based on expected cash flows and will have no residual value. All contingent earnout
payments related to acquisitions will be recorded as additional goodwill. Goodwill associated with the CGR/seven
LLC transaction is expected to be deductible for tax purposes.
49
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
2. Acquisitions (continued)
During the second quarter of 2006, the Company acquired the net operating assets of The Ayers Group, a New York-
based career management firm specializing in customized career transition, consulting services and information
technology staffing for $4,600 in cash. The transaction includes additional contingent earn-out payments of up to
$1,333, payable over two years, based primarily on the achievement of certain earnings targets. The Ayers Group is
included as a business unit in the Americas - PTSA business segment of the Company from the date of acquisition.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date
of acquisition.
Current assets
Goodwill
Identified intangibles
Other noncurrent assets
Current liabilities
$
1,532
3,007
1,846
943
(2,665)
Total purchase price, net of cash received $
4,663
Included in the assets purchased was $987 of intangible assets associated with customer lists. These assets will be
amortized over 10 years based on expected cash flows and will have no residual value. Goodwill associated with the
Ayers’ transaction is expected to be deductible for tax purposes.
3. Discontinued Operations
Effective March 31, 2007, the Company sold its Kelly Home Care (“KHC”) business unit, part of the Americas - PTSA
segment, to ResCare, Inc. for $12,500 and recognized a pre-tax gain on sale of $10,153 ($6,166 net of tax).
Effective December 31, 2006, the Company sold its Kelly Staff Leasing business unit (“KSL”), part of the Americas -
PTSA segment, to Oasis Outsourcing Holdings, Inc. for $6,500 and recognized a pre-tax gain on sale of $3,731
($2,254 net of tax). The sales of KHC and KSL were an important part of the Company’s strategy of reviewing
existing operations, selectively divesting non-core assets and reinvesting the proceeds in strategic growth initiatives.
In accordance with the provisions of SFAS No. 144, “Accounting for the impairment or Disposal of Long-lived Assets”,
the gains recognized in conjunction with the sales of KHC and KSL, as well as their results of operations for the
current and prior periods, have been reported as discontinued operations in the Company’s Statements of Earnings.
The components of earnings from discontinued operations, net of tax are as follows:
Revenue from services
2007
14,777
$
Operating income from discontinued operations $
Less: Income taxes
Earnings from discontinued operations, net of tax
Gain on sale of discontinued operations
Less: Income taxes
Gain on sale of discontinued operations, net of tax
1,454
328
1,126
10,153
3,987
6,166
$
$
$
$
2006
92,247
7,248
2,796
4,452
3,731
1,477
2,254
2005
103,467
2,399
835
1,564
-
-
-
Discontinued operations, net of tax
$
7,292
$
6,706
$
1,564
In connection with these transactions, $878 of goodwill was allocated to KHC and $450 of goodwill was allocated to
KSL.
50
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
4. Restructuring
UK Operations
On January 24, 2007, the Chief Executive Officer of Kelly Services, Inc. authorized a restructuring plan for our United
Kingdom operations (“Kelly UK”). The plan was the result of management’s strategic review of the operations of Kelly
UK which identified under-performing branch locations and the opportunity for additional operational cost savings.
As of December 30, 2007, Kelly UK completed its restructuring actions and closed each of the 22 branches
scheduled for closure, reached settlements with landlords for the UK headquarters locations and incurred $4,829 of
restructuring charges associated with these actions for year ended December 30, 2007. These expenses were
reported as a component of selling, general and administrative expenses in the International - Commercial segment.
For the year ended December 30, 2007, the $4,829 charge included $4,216 for facility exit costs and $613 for
accelerated depreciation. The Company did not incur any significant severance costs in connection with the
restructuring.
In addition, the Company incurred moving, fit out and lease origination fees related to the headquarters consolidation
of $1,107 for the year ended December 30, 2007. Total costs of the UK project were $5,936.
Americas Operations
On July 23, 2007, the Chief Executive Officer of Kelly Services, Inc. authorized a restructuring plan for our Americas
– Commercial branch operations. The plan was the result of management’s strategic review of operations in the U.S.
which identified under-performing branch locations. The plan resulted in the closure of 58 branch locations.
As of December 30, 2007, Americas – Commercial completed its restructuring actions and incurred $2,953 of
restructuring charges associated with these actions. These expenses were reported as a component of selling,
general and administrative expenses in the Americas - Commercial segment. For the year ended December 30,
2007, the $2,953 charge included $2,713 for facility exit costs and $240 for accelerated depreciation of leasehold
improvements and personal property. The Company did not incur any significant severance costs in connection with
the restructuring.
Following is a summary of our balance sheet accrual related to the facility exit costs:
UK
Americas
Total
Balance at beginning of year
$
$
-
$
-
-
Additions charged to operations
Reductions for cash payments
4,216
(4,176)
2,713
(2,359)
6,929
(6,535)
Balance at end of year
$
40
$
354 $
394
51
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
5. Goodwill
We completed our impairment test during the fourth quarter of the years ended December 30, 2007 and December
31, 2006 as required under SFAS 142 and determined that goodwill is not impaired. The changes in the net carrying
amount of goodwill for the fiscal years 2006 and 2007 are as follows:
Americas -
Commercial
Americas -
PTSA
International -
Commercial
International -
PTSA
Total
Balance as of January 1, 2006
$
16,443
$
26,428
$
17,414
$
27,932 $
88,217
Acquisition of company (See Note 2)
Divestiture of company (See Note 3)
Translation adjustment (See Note 17)
Balance as of December 31, 2006
Acquisition of companies (See Note 2)
Divestiture of company (See Note 3)
-
-
(26)
16,417
-
-
3,007
(450)
-
28,985
11,996
(878)
-
-
2,210
19,624
12,973
-
-
-
3,546
31,478
26,573
-
3,007
(450)
5,730
96,504
51,542
(878)
Balance as of December 30, 2007
$
16,417 $
40,103 $
32,597 $
58,051
$
147,168
6. Other Assets
Included in other assets are the following:
2007
2006
Deferred compensation plan (See Note 8)
$
84,334
$
Available-for-Sale Investment
Equity Investment
Other
33,026
-
24,177
73,441
42,351
6,346
13,524
Other assets
$
141,537
$
135,662
52
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
6. Other Assets (continued)
Available-for-Sale Investment
During the first quarter of 2005, the Company made an $18,500 investment to acquire an initial 3.3% interest in
Tempstaff Co., Ltd., (“Tempstaff”) a Japanese staffing company. During the fourth quarter of 2006, the Company
purchased an additional 1.6% interest in Tempstaff for $15,600, bringing the total investment to 4.9%.
Tempstaff became a public company on the Tokyo stock exchange during the first quarter of 2006. Accordingly, the
investment, which is classified as an available-for-sale security and included in other assets on the balance sheet, is
recorded at the fair market value of $33,026 and $42,351 at December 30, 2007 and December 31, 2006,
respectively. The unrealized loss of $240 ($140 net of tax) for the year ended December 30, 2007 and unrealized
gain of $10,864 ($6,301 net of tax) for the year ended December 31, 2006 was recorded in other comprehensive
income, a component of stockholders’ equity.
Equity Investment
During the third quarter of 2005, the Company invested $1,200 for a 9% interest in Tempstaff Kelly, Inc. (“Tempstaff
Kelly”), a joint venture with Tempstaff and the Sony Corporation. During the fourth quarter of 2006, the Company
purchased Sony Corporation’s interest in Tempstaff Kelly for $5,100. With the purchase of Sony Corporation’s 40%
ownership share, Kelly increased its ownership interest to 49%.
The Company accounted for this investment under the equity method of accounting. Under this method, a
proportionate share of Tempstaff Kelly’s net income was recorded in the Statement of Earnings. The Company’s
proportionate share of Tempstaff Kelly’s earnings from the date of acquisition totaled $148 during 2006 and was
recorded in other income (expense), net. During 2007, the Company’s proportionate share of Tempstaff Kelly’s loss
totaled $13 and was recorded in other income (expense), net. Effective March 30, 2007, the Company purchased the
remaining 51% ownership interest in Tempstaff Kelly, which became a wholly owned subsidiary of the Company.
7. Debt
The Company has a committed $150,000, unsecured multi-currency revolving credit facility used to fund working
capital, acquisitions and for general corporate purposes. This credit facility expires in November 2010. The interest
rate applicable to borrowings under the line of credit is 40 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 3.1% to 5.4% at
December 30, 2007. Borrowings under this arrangement were $49,700 and $31,300 at year-end 2007 and 2006,
respectively. The carrying amounts of the Company’s borrowings under the lines of credit described above
approximate their fair values. This credit facility contains requirements for a maximum leverage ratio and minimum
interest coverage ratio, both of which were met at December 30, 2007.
During February 2006, in connection with the initial investments in Tempstaff and Tempstaff Kelly, Inc., the Company
refinanced previous yen-denominated committed short-term credit facilities with a single yen-denominated committed
credit facility, containing substantially the same terms as the previous credit facilities. At December 31, 2006,
balance totaled $17,400 at a weighted average interest rate of 0.6%.
During November 2006, in connection with the additional investment in Tempstaff, the Company obtained short-term
financing utilizing a $15,600 yen-denominated committed credit facility. In September 2006, in connection with the
purchase of the additional 40% interest in Tempstaff Kelly, Inc., the Company obtained additional short-term financing
utilizing a $5,100 yen-denominated committed credit facility. At December 31, 2006, the outstanding balances of
these credit facilities totaled $15,200 and $5,000, respectively, at a weighted average interest rate of 1.1% and 0.9%,
respectively.
During March, 2007, in connection with the purchase of the remaining 51% interest in Tempstaff Kelly, as well as to
fund local working capital, the Company obtained short-term financing utilizing an $8,200 yen-denominated credit
facility.
53
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
7. Debt (continued)
In November, 2007, the Company entered into a five-year yen-denominated loan agreement, the proceeds of which
were used to repay all of the Company’s outstanding short-term yen-denominated borrowings. The loan agreement,
which matures on November 13, 2012, bears interest at LIBOR plus a negotiated spread over LIBOR. The weighted
average interest rate on the amount outstanding under the loan agreement during 2007 was 1.43%. Interest-only
payments are required for periods of three, six, nine or 12 months. At December 30, 2007, the amount outstanding
under this loan agreement totaled approximately $48,400. This loan agreement contains requirements for a
maximum leverage ratio and minimum interest coverage ratio, both of which were met at December 30, 2007. No
principal payments are due in 2008-2011. The entire loan balance is due in 2012.
Weighted average interest rates related to short-term borrowings for 2007 and 2006 were 2.4% and 2.6%,
respectively.
The Company has additional uncommitted one-year local credit facilities that total $11,300 as of December 30, 2007.
Borrowings under these lines totaled less than $100 at year-end 2007 and 2006. The interest rate for these
borrowings was 7.0% at year-end 2007 and 2006.
8. 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 nonqualified plan was $85,200 and $76,000 as of year-end 2007 and 2006, respectively, and is
included in current accrued payroll and related taxes and noncurrent accrued retirement benefits. Participants’
earnings on this liability which were charged to selling, general and administrative expenses were $5,900 in 2007,
$7,600 in 2006 and $3,700 in 2005. 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 mutual funds and can only be
used for payment of the participants’ obligations related to the non-qualified deferred compensation plan noted
above, was $84,300 and $73,400 at year-end 2007 and 2006, respectively. These investments are included in other
assets and are restricted for the use of funding this plan. Earnings on these assets, which were included in selling,
general and administrative expenses, were $7,300 in 2007, $8,400 in 2006 and $4,000 in 2005.
The net expense from continuing operations for retirement benefits, including employer contributions for both the
qualified and nonqualified deferred compensation plans, totaled $4,700 in 2007, $7,500 in 2006 and $7,600 in 2005.
In addition, the Company also has several defined benefit pension plans in locations outside of the United States.
The total projected benefit obligation, assets and unfunded liability for these plans, as of December 30, 2007, were
$5,600, $4,000 and $1,600, respectively. The total projected benefit obligation, assets and unfunded liability for these
plans, as of December 31, 2006, were $4,800, $2,700 and $2,100, respectively. The unfunded liability is primarily
included in other long-term liabilities and was increased by $900 during 2006 as a result of adopting Statement of
Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans.” Total pension expense for these plans was $700, $900 and $400 in 2007, 2006 and 2005,
respectively. Pension contributions and the amount of accumulated other comprehensive income expected to be
recognized in 2008 are not significant.
54
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
9. Stockholders’ Equity
Common Stock
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.
Class A shares and Class B shares are both entitled to receive dividends, subject to the limitation that no cash
dividend on the Class B shares may be declared unless the Board of Directors declares an equal or larger cash
dividend on the Class A shares. As a result, a cash dividend may be declared on the Class A shares without
declaring a cash dividend on the Class B shares.
On August 8, 2007, the board of directors authorized the repurchase of up to $50 million of the Company’s
outstanding Class A common shares. The Company intends to repurchase shares under the program, from time to
time, in the open market. The repurchase program has a term of 24 months. During 2007, the Company
repurchased 1,679,873 Class A shares for $34,703. A total of $15,297 remains available under the share repurchase
program at December 30, 2007.
Subsequent to December 30, 2007 through February 8, 2008, the Company repurchased an additional 261,697
Class A shares for $4,674. At February 8, 2008, a total of $10,622 remains available under the share repurchase
program.
Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income at year-end 2007, 2006 and 2005 were as follows:
Cumulative translation adjustments, net of taxes of
$657 in 2007, $420 in 2006 and tax benefit
of $282 in 2005
Unrealized (loss) gain on marketable securities, net
of tax benefit of $101 in 2007 and taxes of $4,563
in 2006
Pension liability, net of tax benefit of
$77 in 2007 and $46 in 2006
2007
2006
2005
$
42,808 $
24,693 $
7,798
(140)
6,301
(81)
(864)
-
-
$
42,587 $
30,130 $
7,798
The pension liability adjustment of $864 in 2006 represents the adjustment, net of tax, to initially apply FASB
Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.”
55
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
10. Earnings Per Share
The reconciliations of earnings per share computations for the fiscal years 2007, 2006 and 2005 were as follows:
2007
2006
2005
Earnings from continuing operations
Earnings from discontinued operations, net of tax
Net earnings
$
$
53,724
7,292
61,016
$
$
56,785
6,706
63,491
$
$
37,699
1,564
39,263
Determination of shares (thousands):
Weighted average common shares outstanding
Effect of dilutive securities:
Stock options
Restricted awards and other
Weighted average common shares outstanding -
36,357
35,999
35,667
49
89
171
144
190
92
assuming dilution
36,495
36,314
35,949
Basic earnings per share
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Diluted earnings per share
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
$
$
$
$
1.48
.20
1.68
1.47
.20
1.67
$
$
$
$
1.58
.19
1.76
1.56
.18
1.75
$
$
$
$
1.06
.04
1.10
1.05
.04
1.09
Stock options to purchase 549,000, 751,000 and 441,000 shares of common stock at a weighted average price per
share of $30.93, $30.48 and $33.03 were outstanding during 2007, 2006 and 2005, respectively, but were not
included in the computation of diluted earnings per share due to their anti-dilutive effect.
We have presented earnings per share for our two classes of common stock on a combined basis. This presentation
is consistent with the earnings per share computations that result for each class of common stock utilizing the two-
class method as described in SFAS No. 128, “Earnings Per Share (as amended)” (“SFAS 128”). The two-class
method is an earnings allocation formula which determines earnings per share for each class of common stock
according to the dividends declared (or accumulated) and participation rights in the undistributed earnings.
In applying the two class method, we have determined that the undistributed earnings should be allocated to each
class on a pro rata basis after consideration of all of the participation rights of the Class B shares (including voting
and conversion rights) and our history of paying dividends equally to each class of common stock on a per share
basis.
56
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
10. Earnings Per Share (continued)
The Company’s Restated Certificate of Incorporation allows the Board of Directors to declare a cash dividend to
Class A shares without declaring equal dividends to the Class B shares. Class B shares’ voting and conversion
rights, however, effectively allow the Class B shares to participate in dividends equally with Class A shares on a per
share basis.
The Class B shares are the only shares with voting rights. The Class B shareholders are therefore able to exercise
voting control with respect to all matters requiring stockholder approval, including the election of or removal of
directors. The Board of Directors has historically declared and the Company historically has paid equal per share
dividends on both the Class A and Class B shares. Each class has participated equally in all dividends declared
since 1987.
In addition, Class B shares are convertible, at the option of the holder, into Class A shares on a one for one basis. As
a result, Class B shares can participate equally in any dividends declared on the Class A shares by exercising their
conversion rights.
11. Stock-Based Compensation
Under the Equity Incentive Plan (the “Plan”), which became effective in May 2005, the Company may grant stock
options (both incentive and nonqualified), stock appreciation rights (SARs), restricted stock awards and performance
awards to key employees utilizing the Company’s Class A stock. 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. This plan replaced the Performance Incentive Plan, which was terminated upon approval of the
Equity Incentive Plan by the Board of Directors. Shares available for future grants at December 30, 2007 under the
Equity Incentive Plan were 2,657,000. The Company issues shares out of treasury stock to satisfy stock-based
awards. The Company has no intent to repurchase additional shares for the purpose of satisfying stock-based
awards.
On January 2, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
“Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation
expense for all share-based payment awards made to employees and directors, including employee stock options,
based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in
fiscal 2006.
The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application
of the accounting standard as of January 2, 2006, the first day of the Company’s 2006 fiscal year. The Company’s
consolidated financial statements as of and for the year ended December 30, 2007 and December 31, 2006 reflect
the impact of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s
consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of
SFAS 123(R). The adjustment in 2006 for the cumulative effect of change in accounting principle associated with the
adoption of FAS 123(R) was less than $10 and was recorded in selling, general and administrative expenses in the
first quarter of 2006.
In 2007, 2006 and 2005, the Company recognized stock-based compensation cost of $5,559, $6,745 and $4,499,
respectively, as well as related tax benefits of $1,927, $2,195 and $1,710, respectively. As a result of the adoption of
SFAS 123(R) effective January 2, 2006, the Company’s earnings from continuing operations before income taxes
and net earnings for the year ended December 31, 2006, were $1,195 and $1,032 lower, respectively, than if the
Company had continued to account for the stock-based compensation programs under APB 25. Accordingly, the
reported basic and diluted earnings per share for the year ended December 31, 2006 were $0.03 lower than would
have been reported had the Company not adopted FAS 123(R) effective January 2, 2006.
57
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
11. Stock-Based Compensation (continued)
SFAS 123(R) requires the disclosure of pro-forma information for periods prior to the adoption. The following table
illustrates the effect on net income and earnings per share for prior years as if the Company had applied the fair value
recognition provisions of SFAS 123(R) to stock-based employee compensation:
Net earnings, as reported
Add: Stock-based employee compensation expense
2005
$
39,263
included in reported net earnings, net of related tax effects
2,789
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
Pro forma net earnings
Earnings per share:
Basic-as reported
Basic-pro forma
Diluted-as reported
Diluted-pro forma
(4,105)
37,947
1.10
1.06
1.09
1.06
$
$
$
$
$
Stock Options
Under the terms of the Plan, 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, and typically vest over 3 years. The Company expenses the fair value of
stock option grants on a straight-line basis over the vesting period. The Company used a binomial option pricing
model to estimate the fair value of stock options granted in 2006. No stock options were granted in 2007. The inputs
for expected volatility, post-vest termination activity and exercise factor of the options were primarily based on
historical information. The following weighted average assumptions were used to estimate the fair values of options
granted during the year ended December 31, 2006:
Grant price
Risk-free interest rate
Dividend yield
Expected volatility
Post-vest termination activity
Exercise factor
$
27.24
5.0 %
1.4 %
21.3 %
2.7 %
1.21
58
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
11. Stock-Based Compensation (continued)
The Company used a Black-Scholes option pricing model to estimate the fair value of stock options granted prior to
January 2, 2006. The inputs for expected volatility and expected term of the options were primarily based on
historical information. The following weighted average assumptions were used to estimate the fair values of options
granted in 2005:
Risk-free interest rate
Dividend yield
Expected volatility
Expected lives
4.0 %
1.4 %
27.0 %
5 yrs
A summary of the status of stock option grants under the Plan as of the year ended December 30, 2007 and changes
during this period is presented as follows:
Weighted
Weighted
Average
Average
Remaining
Aggregate
Exercise
Contractual
Options
Price
Term (Years)
Intrinsic
Value
Outstanding at December 31, 2006
1,630,000
$
26.72
Granted
Exercised
Forfeited
Expired
Outstanding at December 30, 2007
Options exercisable at December 30, 2007
-
(206,000)
(5,000)
(49,000)
1,370,000
1,352,000
Options expected to vest at December 30, 2007
18,000
-
25.46
28.17
29.62
26.80
26.80
27.28
$
$
$
3.62
3.56
7.87
$
$
$
-
-
-
The table above includes 90,000 of non-employee director shares outstanding at December 30, 2007.
As of December 30, 2007, unrecognized compensation cost related to unvested stock options totaled $25. The
weighted average period over which this cost is expected to be recognized is less than 1 year. The weighted
average grant date fair value of options granted during 2006 and 2005 was $5.36 and $7.38, respectively. The total
intrinsic value of options exercised during 2007, 2006 and 2005 was $1,186, $1,500 and $1,271, respectively.
Restricted Stock Awards
Restricted stock awards, which typically vest over a period of 3 to 5 years, are issued to certain key employees and
are subject to forfeiture until the end of an established restriction period. The Company utilizes the market price on
the date of grant as the fair market value of restricted stock awards and expenses the fair value on a straight-line
basis over the vesting period.
59
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
11. Stock-Based Compensation (continued)
A summary of the status of nonvested restricted stock awards under the Plan as of the year ended December 30,
2007 and changes during this period is presented as follows:
Nonvested at December 31, 2006
Granted
Vested
Forfeited
Nonvested at December 30, 2007
Weighted
Average
Grant Date
Fair Value
28.36
28.41
28.22
28.78
28.39
$
$
Restricted
Stock
551,000
236,000
(179,000)
(49,000)
559,000
As of December 30, 2007, unrecognized compensation cost related to unvested restricted shares totaled $11,339.
The weighted average period over which this cost is expected to be recognized is approximately two years. The total
fair market value of restricted shares vested during 2007, 2006 and 2005 was $5,240, $4,724 and $3,037,
respectively.
Windfall tax benefits arising from the vesting of restricted shares and exercise of stock options in 2007 and 2006
totaled $387 and $257, respectively and are included in the “Other financing activities” component of net cash from
financing activities in the Statement of Cash Flows.
12. Other Income (Expense), Net
Included in other income (expense), net are the following:
$
Interest income
Interest expense
Dividend income
Minority interest loss
Net (loss) earnings in equity investment
Other income
2007
2006
2005
$
4,756
(2,425)
718
175
(13)
-
$
3,203
(2,316)
416
-
148
20
1,543
(1,759)
18
-
-
11
Other income (expense), net
$
3,211 $
1,471 $
(187)
Dividend income includes dividends earned on the Company’s investment in Tempstaff, while net (loss) earnings in
equity investment represents the Company’s share of the net (loss) earnings from Tempstaff Kelly. (See Note 2).
Minority interest loss represents the portion of the loss, net of tax, attributable to minority shareholders.
60
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
13. Income Taxes
Earnings from continuing operations before taxes for the years 2007, 2006 and 2005 were taxed under the following
jurisdictions:
Domestic
Foreign
Total
$
$
2007
63,029
20,262
83,291
$
$
2006
68,602
10,910
79,512
$
$
2005
50,282
3,284
53,566
The provision for income taxes from continuing operations was as follows:
Current tax expense:
U.S. federal
U.S. state and local
Foreign
Total current
Deferred tax expense:
U.S. federal
U.S. state and local
Foreign
Total deferred
Total provision
2007
2006
2005
$
$
14,700
6,528
14,170
35,398
(5,652)
(1,512)
1,333
(5,831)
29,567
$
$
20,877
5,847
6,582
33,306
(5,784)
(2,023)
(2,772)
(10,579)
22,727
$
$
10,659
2,712
4,939
18,310
(1,818)
(314)
(311)
(2,443)
15,867
Deferred tax assets are comprised of the following:
Depreciation and amortization
Employee compensation and benefit plans
Workers' compensation
Other comprehensive income
Bad debt allowance
Loss carryforwards
Tax credit carryforwards
Other, net
Valuation allowance
Net deferred tax assets
Other comprehensive income
Other deferred tax liabilities
Net deferred taxes
$
$
2007
(18,133)
53,356
33,262
(479)
5,398
29,062
-
(999)
(28,737)
72,730
-
-
72,730
$
$
2006
(23,997)
50,019
27,600
(374)
6,314
28,738
1,361
3,432
(28,113)
64,980
(4,563)
(425)
59,992
61
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
13. Income Taxes (continued)
The differences between income taxes from continuing operations for financial reporting purposes and the U.S.
statutory rate of 35% are as follows:
Income tax based on statutory rate
$
State income taxes, net of federal benefit
General business credits
Life insurance cash surrender value
Foreign items
Other, net
Total
2007
2006
2005
$
29,152
3,260
(8,938)
(2,310)
7,515
888
$
27,829
2,529
(9,493)
(2,740)
3,959
643
18,749
1,560
(5,980)
(1,241)
2,780
(1)
$
29,567
$
22,727
$
15,867
The net tax effect of foreign loss carryforwards at December 30, 2007 expire as follows:
Year
2008-2010
2010-2013
2014-2018
2019-2022
No expiration
Total
Amount
121
1,527
3,672
660
23,082
29,062
$
$
The Company has established a valuation allowance for loss carryforwards and future deductible items in certain
foreign jurisdictions. The valuation allowance is determined in accordance with the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), “Accounting for Income Taxes,” which requires an assessment
of both negative and positive evidence when measuring the need for a valuation allowance. The Company’s foreign
losses in recent periods in these jurisdictions represented sufficient negative evidence to require a valuation
allowance under SFAS 109. The Company intends to maintain a valuation allowance until sufficient positive
evidence exists to support realization of the foreign deferred tax assets.
Provision has not been made for U.S. or additional foreign income taxes on an estimated $53,874 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 $46,000 in 2007, $24,200 in 2006 and $21,200 in 2005. Deferred income taxes
recorded in other comprehensive income as a result of foreign currency translation adjustments were a charge of
$237 in 2007 and $702 in 2006, and a benefit of $701 in 2005. Deferred income taxes recorded in other
comprehensive income as a result of unrealized gains on marketable securities classified as available-for-sale were a
benefit of $4,922 in 2007, a charge of $4,563 in 2006, and a benefit of $172 in 2005. Deferred income taxes
recorded in other comprehensive income as a result of the adoption of FAS 158 were a benefit of $25 in 2007 and
$46 in 2006.
62
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
13. Income Taxes (continued)
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48), on January 1, 2007. Upon adoption of FIN 48, the Company recognized a $332 increase in its retained
earnings balance. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at January 1, 2007
$
6,159
Additions based on tax positions related to the current year
Additions for prior years' tax positions
Reductions for prior years' tax positions
Reductions for settlements
Reductions for expiration of statutes
460
606
(466)
(2,685)
(324)
Balance at December 30, 2007
$
3,750
If the $3,750 of unrecognized tax benefits were recognized, they would have a favorable effect of $2,793 on the
effective tax rate.
The Company recognizes both interest and penalties as part of the income tax provision. During the year ended
December 30, 2007, the Company recognized approximately $155 in interest and penalties. As of December 30,
2007, accrued interest and penalties were $1,654.
The Company files income tax returns in the U.S. and in various states and foreign countries. In the major
jurisdictions where the Company operates, it is generally no longer subject to income tax examinations by tax
authorities for years before 2001.
The Company has appealed the IRS’s denial of a 2001 refund claim for additional work opportunity tax credits. The
IRS has also contacted the Company for examination of its 2005 income tax return. The Company and its
subsidiaries have various other income tax returns in the process of examination, administrative appeals or litigation.
The unrecognized tax benefit and related interest and penalty balances at December 30, 2007 include approximately
$2,000 related to tax positions which are reasonably possible to change within the next twelve months due to income
tax audits, settlements and statute expirations.
14. Supplemental Cash Flow Information
Changes in operating assets and liabilities, net of acquisitions, as disclosed in the statements of cash flows, for the
fiscal years 2007, 2006 and 2005, respectively, were as follows:
2007
2006
2005
Increase in trade accounts receivable
$
(14,163)
$
(11,817)
$
(104,039)
(Increase) decrease in prepaid expenses and other current assets
Increase in accounts payable
(Decrease) increase in accrued payroll and related taxes
Increase (decrease) in accrued insurance
(Decrease) increase in income and other taxes
(16,691)
18,678
(12,984)
2,577
(6,248)
413
16,411
9,093
(7,148)
5,446
(5,261)
15,978
32,980
(3,101)
(6,367)
Total changes in operating assets and liabilities
$
(28,831)
$
12,398
$
(69,810)
Total interest paid was $2,065, $1,882 and $1,602 in 2007, 2006 and 2005, respectively.
63
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
15. 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, 2007:
Fiscal year:
2008
2009
2010
2011
2012
Later years
$
51,500
39,400
28,500
18,600
11,300
15,500
Total
$
164,800
Lease expense from continuing operations for fiscal 2007, 2006 and 2005 amounted to $65,000, $53,200 and
$50,700, respectively.
16. Contingencies
In November 2003, an action was commenced in the United States Bankruptcy Court for the Southern District of New
York, Enron Corp. (“Enron”) v. J.P. Morgan Securities, Inc., et al., against approximately 100 defendants, including
Kelly Properties, Inc., a wholly-owned subsidiary of Kelly Services, Inc., who invested in Enron's commercial paper.
The Complaint alleges that Enron's October 2001 buyback of its commercial paper is a voidable preference under the
bankruptcy laws, constitutes a fraudulent conveyance, and that the Company received prepayment of approximately
$10,000, $5,000 of which is related to Enron commercial paper purchased by the Company from Lehman Brothers or
its affiliate, Lehman Commercial Paper, Inc. (“Lehman”), and $5,000 of which was purchased by the Company from
Goldman Sachs & Co. Solely to avoid the cost of continued litigation, the Company has reached a confidential
settlement with Enron, Lehman and certain other defendants of all claims arising from the Company's purchase of
Enron commercial paper from Lehman. The settlement, which involves a payment by the Company in an amount not
material to our results of operations or financial position, was approved on July 27, 2007 by the Bankruptcy Court
presiding over the matter. The settlement became final on August 7, 2007. The terms of the settlement did not have
a material adverse effect on our results of operations or financial position. The Company intends to continue to
vigorously defend the remaining claims arising from the purchase of Enron commercial paper from Goldman Sachs &
Co., and the Company believes it has meritorious defenses to these remaining claims but is unable to predict the
outcome of the proceedings.
The Company is the subject of a class action lawsuit brought on behalf of employees working in the State of
California. The claims in the lawsuit relate to alleged misclassification of personal attendants as exempt and not
entitled to overtime compensation under state law and alleged technical violations of a state law governing the
content of employee pay stubs. On April 30, 2007, the Court certified two sub-classes that correspond to the claims
in the case. Kelly is currently preparing motions for summary judgment on both certified claims and will continue to
vigorously defend the lawsuit. The Company believes that it has meritorious defenses to the claims but is unable to
predict the outcome of the proceedings.
64
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
16. Contingencies (continued)
The Company is also 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 ultimate liability at year-end 2007 with respect to these matters cannot be
ascertained, the Company believes that any resulting liability will not be material to the financial position of the
Company at year-end 2007.
In addition to operating lease agreements, the Company has entered into unconditional purchase obligations totaling
$30,200. These obligations relate primarily to voice and data communications services which the Company expects
to utilize generally within the next fiscal year, in the ordinary course of business. The Company has no material
unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated
entities.
17. Segment Disclosures
The Company’s segments are based on the organizational structure for which financial results are regularly evaluated
by the Company’s chief operating decision maker to determine resource allocation and assess performance. Each
reportable segment is managed by its own management team and reports to executive management. Effective with
the first quarter of 2007, the Company realigned its operations into four reporting segments – (1) Americas -
Commercial, (2) Americas - PTSA, (3) International - Commercial and (4) International - PTSA. The Americas
include the U.S. operations, as well as Canada, Mexico and Puerto Rico, which were previously included in
International. Corporate expenses that directly support the operating units have been allocated to the four segments.
Additionally, goodwill was reallocated among the segments and is now denominated in the Company’s reporting
currency.
During 2007, international operations were conducted in Australia, Austria, Belgium, Canada, China, Czech Republic,
Denmark, Finland, France, Germany, Hong Kong, Hungary, India, Indonesia, Ireland, Italy, Japan, Luxembourg,
Malaysia, Mexico, the Netherlands, New Zealand, Norway, the Philippines, Poland, Puerto Rico, Russia, Singapore,
Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine and the United Kingdom.
65
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
17. Segment Disclosures (continued)
The following table presents information about the reported operating income of the Company for the fiscal years
2007, 2006 and 2005. 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.
Revenue from Services:
Americas - Commercial
Americas - PTSA
Total Americas
International - Commercial
International - PTSA
Total International
2007
2006
2005
$
$
2,759,398
1,105,752
3,865,150
$
2,916,079
1,108,329
4,024,408
2,810,743
1,051,463
3,862,206
1,603,958
198,481
1,802,439
1,378,540
143,830
1,522,370
1,213,868
110,284
1,324,152
Consolidated Total
$
5,667,589
$
5,546,778
$
5,186,358
Earnings from Operations:
Americas - Commercial
Americas - PTSA
Total Americas
International - Commercial
International - PTSA
Total International
$
$
88,054
59,161
147,215
$
102,935
58,090
161,025
88,113
48,817
136,930
10,064
2,717
12,781
567
641
1,208
(4,162)
(921)
(5,083)
Corporate Expense
(79,916)
(84,192)
(78,094)
Consolidated Total
$
80,080
$
78,041
$
53,753
66
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
17. Segment Disclosures (continued)
Specified items included in segment earnings for the fiscal years 2007, 2006 and 2005 were as follows:
2007
2006
2005
Depreciation and Amortization
from continuing operations:
Americas - Commercial
$
7,603
$
7,075
$
Americas - PTSA
Total Americas
International - Commercial
International - PTSA
Total International
Corporate
Consolidated Total
Interest Income:
Americas - Commercial
Americas - PTSA
Total Americas
International - Commercial
International - PTSA
Total International
Corporate
Consolidated Total
Interest Expense:
Americas - Commercial
Americas - PTSA
Total Americas
International - Commercial
International - PTSA
Total International
$
$
$
$
3,365
10,968
8,614
727
9,341
1,736
8,811
6,304
378
6,682
22,108
24,297
42,417
$
39,790
$
25,357
39,860
437
$
517
$
-
437
1,362
332
1,694
-
517
746
-
746
425
38
463
396
-
396
2,625
1,940
4,756
$
3,203
$
684
1,543
2
-
2
1,045
14
1,059
$
32
$
-
32
1,086
-
1,086
6,728
1,070
7,798
6,403
302
6,705
53
-
53
609
-
609
1,097
1,759
Corporate
1,364
1,198
Consolidated Total
$
2,425
$
2,316
$
67
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
17. Segment Disclosures (continued)
A summary of revenue from services by geographic area for 2007, 2006 and 2005 follows:
2007
2006
2005
Revenue From Services:
Domestic
International
$
3,454,922
$
3,603,284
$
3,461,940
2,212,667
1,943,494
1,724,418
Total
$
5,667,589
$
5,546,778
$
5,186,358
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.
A summary of long-lived assets information by geographic area as of the years ended 2007 and 2006 follows:
2007
2006
Long-Lived Assets:
Domestic
International
$
196,390
$
181,246
151,605
97,683
Total
$
347,995
$
278,929
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.
68
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
18. New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a
framework for measuring fair value in accordance with generally accepted accounting principles and expands
disclosures about fair value measurements. This statement is effective for fiscal years beginning after November 15,
2007 and interim periods within those years. However, on November 14, 2007, the FASB provided a one-year
deferral of the implementation for other nonfinancial assets and liabilities. The standard is not expected to have a
material impact on the Company’s consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities—including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to elect
to measure eligible financial instruments at fair value. An entity shall report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent reporting date, and recognize upfront
costs and fees related to those items in earnings as incurred and not deferred. This statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007. The provisions of this standard will
be effective for the Company’s 2008 fiscal year. The standard is not expected to have a material impact on the
Company’s consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”). SFAS
141(R) expands the definition of transactions and events that qualify as business combinations; requires that the
acquired assets and liabilities, including contingencies, be recorded at the fair value determined on the acquisition
date and changes thereafter reflected earnings, not goodwill; changes the recognition timing for restructuring costs;
and requires acquisition costs to be expensed as incurred. Adoption of SFAS 141(R) is required for combinations
occurring in fiscal years beginning after December 15, 2008. Early adoption and retroactive application of SFAS
141(R) to fiscal years preceding the effective date are not permitted.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements”
(“SFAS 160”). SFAS 160 re-characterizes minority interests in consolidated subsidiaries as non-controlling interests
and requires the classification of minority interests as a component of equity. Under SFAS 160, a change in control
will be measured at fair value, with any gain or loss recognized in earnings. The effective date for SFAS 160 is for
annual periods beginning on or after December 15, 2008. Early adoption and retroactive application of SFAS 160 to
fiscal years preceding the effective date are not permitted. We currently do not have significant minority interests in
our consolidated subsidiaries.(cid:3)
69
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Revenue from services
Gross profit
Selling, general and administrative
expenses (2)
Earnings from continuing operations (3)
Earnings from discontinued operations,
net of tax
Net earnings (3)
Basic earnings per share (1)
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Diluted earnings per share (1)
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Dividends per share
Revenue from services
Gross profit
Selling, general and administrative
expenses
Earnings from continuing operations
Earnings from discontinued operations,
net of tax
Net earnings
Basic earnings per share (1)
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Diluted earnings per share (1)
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Dividends per share
First Quarter
Second Quarter
Fiscal Year 2007
Third Quarter
Fourth Quarter
Year
$
1,350,858 $
229,208
1,415,674 $
247,566
1,425,298 $
246,879
1,475,759 $
265,436
5,667,589
989,089
218,715
5,258
6,657
11,915
0.14
0.18
0.33
0.14
0.18
0.32
0.125
225,300
15,311
18
15,329
0.42
-
0.42
0.41
-
0.41
0.125
226,099
14,682
459
15,141
0.40
0.01
0.41
0.40
0.01
0.41
0.135
238,895
18,473
158
18,631
0.52
-
0.52
0.52
-
0.52
0.135
909,009
53,724
7,292
61,016
1.48
0.20
1.68
1.47
0.20
1.67
0.52
First Quarter
Second Quarter
Fiscal Year 2006
Third Quarter
Fourth Quarter
Year
$
1,335,605 $
213,036
1,392,886 $
223,348
1,396,911 $
230,850
1,421,376 $
239,492
5,546,778
906,726
200,240
8,172
386
8,558
0.23
0.01
0.24
0.23
0.01
0.24
0.10
203,384
11,850
823
12,673
0.33
0.02
0.35
0.33
0.02
0.35
0.10
207,870
16,435
1,383
17,818
0.46
0.04
0.49
0.45
0.04
0.49
0.125
217,191
20,328
4,114
24,442
0.56
0.11
0.68
0.56
0.11
0.67
0.125
828,685
56,785
6,706
63,491
1.58
0.19
1.76
1.56
0.18
1.75
0.45
(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.
(2) Included are restructuring costs for the UK and Americas operations as follows: $2,634 in the first quarter, $2,448 in the
second quarter, $2,464 in the third quarter, $1,343 in the fourth quarter, and $8,889 for the full year.
(3) Included are restructuring costs, net of tax, for the UK and Americas operations as follows: $2,634 in the first quarter,
$2,448 in the second quarter, $1,882 in the third quarter, $802 in the fourth quarter and $7,766 for the full year.
Certain amounts for prior periods were reclassified to conform with current period presentation. Reclassifications include
the presentation of discontinued operations.
70
SCHEDULE II - VALUATION RESERVES
Kelly Services, Inc. and Subsidiaries
December 30, 2007
(In thousands of dollars)
Additions
Balance at
beginning
of year
Charged to
costs and
expenses
Charged to
other
accounts *
Currency
exchange
effects
Deductions
from
reserves
Balance
at end
of year
Description
Fifty-two weeks ended December 30, 2007:
Reserve deducted in the balance sheet
from the assets to which it applies -
Allowance for doubtful accounts
$
16,818
6,654
133
648
(6,081) $
18,172
Deferred tax assets valuation allowance $
28,113
9,443
-
1,568
(10,387)
$
28,737
Fifty-two weeks ended December 31, 2006:
Reserve deducted in the balance sheet
from the assets to which it applies -
Allowance for doubtful accounts
$
16,648
5,178
200
458
(5,666) $
16,818
Deferred tax assets valuation allowance $
26,625
5,739
Fifty-two weeks ended January 1, 2006:
Reserve deducted in the balance sheet
from the assets to which it applies -
Allowance for doubtful accounts
$
16,228
6,159
Deferred tax assets valuation allowance $
25,975
4,802
-
-
-
1,165
(5,416)
$
28,113
(499)
(5,240) $
16,648
(2,037)
(2,115)
$
26,625
* Allowance of companies acquired.
71
INDEX TO EXHIBITS
REQUIRED BY ITEM 601,
REGULATION S-K
Exhibit No.
Description
Page
3.1
Restated Certificate of Incorporation (Reference is made to Exhibit 3.1 to
the Form 10-K for the year ended December 28, 2003, filed with the
Commission on February 18, 2004, which is incorporated herein by reference).
3.2
By-laws, as amended August 8, 2007 (Reference is made to Exhibit 3.2
to the Form 8-K filed with the Commission on August 13, 2007, which is
incorporated herein by reference).
4 Rights of security holders are defined in Articles Fourth, Fifth, Seventh, Eighth,
Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth and Fifteenth of the
Restated Certificate of Incorporation (Reference is made to Exhibit 4 to
the Form 10-K for the year ended December 28, 2003, filed with the
Commission on February 18, 2004, which is incorporated herein by reference).
10.1
Short-Term Incentive Plan, as amended and restated on March 23, 1998 and
further amended on February 6, 2003 and November 8, 2007 (Reference is
made to Exhibit 10.1 to the Form 8-K dated November 8, 2007, filed with the
Commission on November 14, 2007, which is incorporated herein by reference).
Kelly Services, Inc. Equity Incentive Plan (Reference is made to Exhibit 99 to
10.2
the Form S-8 filed with the Commission on May 20, 2005, which is incorporated
herein by reference).
10.3
Kelly Services, Inc. Executive Severance Plan, as amended November 8, 2007
(Reference is made to Exhibit 10.3 to the Form 8-K dated November 8, 2007,
filed with the Commission on November 14, 2007,which is incorporated herein
by reference).
10.4 Kelly Services, Inc. 1999 Non-Employee Directors Stock Option Plan (Reference
is made to Appendix B to the Definitive Proxy Statement furnished in connection with
the solicitation of proxies on behalf of the Board of Directors for use at the
Annual Meeting of Stockholders of the Company held on May 10, 2006 filed
with the Commission on April 10, 2006, which is incorporated herein by reference).
10.5 Kelly Services, Inc. Non-Employee Director Stock Award Plan (Reference
is made to Exhibit 99.2 to the Form S-8 filed with the Commission on April 26, 2004,
which is incorporated herein by reference).
10.6 Loan Agreement dated as of November 30, 2005 (Reference is made to Exhibit 10.1
to the Form 8-K dated November 30, 2005, filed with the Commission on December 5,
2005, which is incorporated herein by reference).
10.7
Kelly Services, Inc. Performance Incentive Plan, as amended and restated on
March 29, 1996 and April 14, 2000 (Reference is made to Exhibit 10 to the Form 10-Q
for the quarterly period ended April 1, 2001, filed with the Commission on May 14, 2001,
which is incorporated herein by reference).
10.8
Form of Amendment to Performance Incentive Plan (Reference is made to Exhibit 10.1
to the Form 8-K filed with the Commission on November 9, 2006, which is incorporated
herein by reference).
10.9
Form of Amendments to Equity Incentive Plan (Reference is made to Exhibit 10.2
to the Form 8-K filed with the Commission on November 9, 2006, which is incorporated
herein by reference).
72
INDEX TO EXHIBITS
REQUIRED BY ITEM 601,
REGULATION S-K (continued)
Exhibit No.
Description
Page
10.10
Form of Amendments to 1999 Non-Employee Directors Stock Option Plan
(Reference is made to Exhibit 10.4 to the Form 8-K filed with the Commission on
November 9, 2006, which is incorporated herein by reference).
10.11
Form of Amendment to 1999 Non-Employee Director Stock Award Plan
(Reference is made to Exhibit 10.3 to the Form 8-K filed with the Commission on
November 9, 2006, which is incorporated herein by reference).
10.12 2008 Management Retirement Plan (Reference is made to Exhibit 10.12 to the
Form 8-K dated November 8, 2007 filed with the Commission on
November 14, 2007, which is incorporated herein by reference).
14 Code of Business Conduct and Ethics, adopted February 9, 2004, as amended
on February 7, 2005 (Reference is made to Exhibit 14 to the Form 10-K/A, filed
with the Commission on May 13, 2005, which is incorporated herein by reference).
21 Subsidiaries of Registrant.
23 Consent of Independent Registered Public Accounting Firm.
24
Power of Attorney.
31.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a).
31.2 Certification Pursuant to Rule 13a-14(a)/15d-14(a).
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
74
77
78
79
80
81
82
73
SUBSIDIARIES OF REGISTRANT Exhibit 21
Kelly Services, Inc.
Subsidiary
-----------------------------------------------------
State/Jurisdiction
of Incorporation
--------------------------
Business Name
-----------------------------------------
Kelly Services (Canada), Ltd.
Kelly Properties, Inc
Kelly Receivables Services, LLC
(a subsidiary of Kelly Properties, Inc.)
Kelly Services (Ireland), Ltd.
(a subsidiary of Kelly Properties, Inc.)
Kelly Services (UK) Ltd.
(a subsidiary of Kelly Properties, Inc.)
Kelly Payroll Services Limited
(a subsidiary of Kelly Properties, Inc.)
Kelly Services (Australia), Ltd.
Kelly Services (New Zealand), Ltd.
Kelly Services of Denmark, Inc.
Canada
Michigan
Delaware
Kelly Services
Kelly Properties
Kelly Receivables Services
Delaware
Kelly Services
United Kingdom
Kelly Services, Ltd.
United Kingdom
Kelly Services, Ltd.
Delaware
Delaware
Delaware
Kelly Services
Kelly Services
Kelly Services
Kelly Services (Nederland), B.V.
Netherlands
Kelly Services
Kelly Administratiekantoor, B.V.
(a subsidiary of Kelly Services (Nederland) B.V.)
Kelly Managed Services (Nederland) B.V.
(a subsidiary of Kelly Services (Nederland) B.V.)
Kelly Services Norge AS
Kelly Services Management AS
(a subsidiary of Kelly Services Norge AS)
Kelly Services Finland AB
(a subsidiary of Kelly Services Norge AS)
Kelly Services Mexico, S.A. de C. V.
Outsourcing de Servicios y Manufactura, S.A.
(a subsidiary of Kelly Services Mexico, S.A. de C.V.
and Kelly Properties, Inc.)
QSM, S.A. de C.V.
(a subsidiary of Kelly Services Mexico, S.A. de C.V.
and Kelly Properties, Inc.)
Netherlands
Kelly Services
Netherlands
Kelly Services
Norway
Norway
Kelly Services
Kelly Services
Finland
Kelly Services
Mexico
Mexico
Kelly Services
Kelly Services
Mexico
Kelly Services
Kelly Services (Suisse), SA
Switzerland
Kelly Services
Kelly Services France, S.A.S.
France
Kelly Services
74
SUBSIDIARIES OF REGISTRANT Exhibit 21
Kelly Services, Inc.
Subsidiary
-----------------------------------------------------
State/Jurisdiction
of Incorporation
------------------------
Business Name
-----------------------------------------
Kelly Services Interim, S.A.S.
(a subsidiary of Kelly Services France, S.A.S.)
Competences RH, S.a.r.l.
(a subsidiary of Kelly Services France, S.A.S.)
France
France
Kelly Services
Competences RH
Kelly Services Luxembourg, S.a.r.l.
Luxembourg
Kelly Services
Kelly Outsourcing & Consulting Group, S.a.r.l.
(a subsidiary of Kelly Services Luxembourg, S.a.r.l.)
Luxembourg
Kelly Services
Kelly Services S.p.A.
Kelly Management Services, S.r.l.
Kelly Services Seleccion y Formacion, S.L.
Kelly Services Empleo Empresa de Trabajo Temporal, S.L.
(a subsidiary of Kelly Services Seleccion y Formacion, S.L.)
Kelly Services CIS, Inc.
OOO Kelly Services CIS
Kelly Services Deutschland GmbH
Kelly Services Consulting GmbH
Kelly Services GmbH & Co. OHG
(subsidiary of Kelly Services Consulting GmbH)
Italy
Italy
Spain
Spain
Delaware
Russia
Germany
Germany
Germany
Kelly Services
Kelly Management Services
Kelly Services
Kelly Services
Kelly Services
Kelly Services
Kelly Services
Kelly Services
Kelly Services
access AG
(a subsidiary of Kelly Services Deutschland GmbH)
Germany
access
access Recruiting Services
(a subsidiary of access AG)
Kelly Services Interim (Belgium) S.A., N.V.
Kelly Services Select (Belgium) S.A., N.V.
Kelly Services Sverige AB
Kelly Services AB
(a subsidiary of Kelly Services Sverige AB)
Kelly Services (Singapore) Pte. Ltd.
BTI Consultants Pte. Ltd.
(a subsidiary of Kelly Services (Singapore) Pte. Ltd.)
Austria
access
Belgium
Belgium
Sweden
Sweden
Singapore
Singapore
Kelly Services
Kelly Services
Kelly Services
Kelly Services
Kelly Services
BTI Consultants
P-Serv Pte. Ltd.
(a subsidiary of Kelly Services (Singapore) Pte. Ltd.)
Singapore
P-Serv
75
SUBSIDIARIES OF REGISTRANT Exhibit 21
Kelly Services, Inc.
Subsidiary
-----------------------------------------------------
State/Jurisdiction
of Incorporation
------------------------
Business Name
-----------------------------------------
Shanghai P-Serv Human Resource Co., Ltd.
(a subsidiary of P-Serv Pte. Ltd.)
P-Serv (Hong Kong) Ltd.
(a subsidiary of P-Serv Pte. Ltd.)
Nanchang P-Serv Human Resource Co., Ltd.
(a subsidiary of P-Serv (Hong Kong) Ltd.)
Eradekad SDN. BHD.
Kelly Services (Malaysia), SDN. BHD.
(a subsidiary of Eradekad SDN. BHD. and
Kelly Services, Inc.)
Agensi Perkerjaan BTI Consultants SDN. BHD.
(a subsidiary of Eradekad SDN. BHD. and
Kelly Services, Inc.)
BTI Consultants (India) Private Limited
Kelly Services (India) Pvt. Ltd.
(a subsidiary of BTI Consultants (India) Pvt. Ltd.)
China
P-Serv
Hong Kong
Kelly Services
China
P-Serv
Malaysia
Malaysia
Kelly Services
Kelly Services
Malaysia
BTI Consultants
India
India
BTI Consultants
Kelly Services
BTI Consultants Hong Kong Limited
Hong Kong
BTI Consultants
Kelly Services Hong Kong Limited
Hong Kong
Kelly Services
Kelly Services Holding (Thailand) Co. Ltd.
BTI Executive Placement (Thailand) Co. Ltd.
Kelly Services Staffing (Thailand) Co., Ltd.
Thailand
Thailand
Thailand
Kelly Services
BTI Consultants
Kelly Services
PT Kelly Services Indonesia Ltd.
Indonesia
BTI Consultants
Kelly Services Hungary Staffing, LLC
Kelly Services Japan, Inc.
Hungary
Japan
Kelly Services International Yonetim ve Danismanlik Ltd. Sti.
Turkey
Kelly Services Insan Kaynaklari ve Danismanlik Ltd., Sti.
(a subsidiary of Kelly Services International Yonetim ve
Danismanlik Ltd. Sti.)
Turkey
Kelly Services
Kelly Services
Kelly Services
Kelly Services
LLC Kelly Services Ukraine
Ukraine
Kelly Services
Talents Czech, s.r.o.
Talents Polska Sp.z.o.o.
Czech Republic
Poland
Talents
Talents
76
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (Nos. 33-
48782, 33-51239, 333-114837 and 333-125901) and Forms S-3 (Nos. 333-79329 and 333-140196) of Kelly
Services, Inc. of our report dated February 12, 2008 relating to the financial statements, financial statement
schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
--------------------------------------------
PricewaterhouseCoopers LLP
Detroit, Michigan
February 12, 2008
77
POWER OF ATTORNEY
Exhibit 24
Each of the undersigned directors of Kelly Services, Inc. does hereby appoint Michael E. Debs and
Daniel T. Lis, signing singly, his or her true and lawful attorneys, to execute for and on behalf of the
undersigned Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ending December 30, 2007, to be filed with the Securities and Exchange
Commission in Washington, D.C. under the provisions of the Securities Exchange Act of 1934, as amended,
and any and all amendments to said Form 10-K whether said amendments add to, delete from, or otherwise
alter the Form 10-K, or add to or withdraw any exhibit or exhibits, schedule or schedules to be filed
therewith, and any and all instruments necessary or incidental in connection therewith, hereby granting unto
said attorneys and each of them full power and authority to do and perform in the name and on behalf of
each of the undersigned, and in any and all capacities, every act and thing whatsoever required or
necessary to be done in the exercise of any of the rights and powers herein granted, as fully and to all
intents and purposes as each of the undersigned might or could do in person, hereby ratifying and approving
the acts of said attorneys and each of them.
IN WITNESS WHEREOF the undersigned have caused this Power of Attorney to be executed as of
this 12th day of February, 2008.
/s/ Terence E. Adderley
--------------------------------
Terence E. Adderley
/s/ Carl T. Camden
--------------------------------
Carl T. Camden
/s/ Jane E. Dutton
--------------------------------
Jane E. Dutton
/s/ Maureen A. Fay, O.P.
--------------------------------
Maureen A. Fay, O.P.
/s/ Verne G. Istock
--------------------------------
Verne G. Istock
/s/ Leslie A. Murphy
--------------------------------
Leslie A. Murphy
/s/ Donald R. Parfet
--------------------------------
Donald R. Parfet
/s/ B. Joseph White
--------------------------------
B. Joseph White
78
Exhibit 31.1
I, Carl T. Camden, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Kelly Services, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's ability
to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 13, 2008
/s/ Carl T. Camden
Carl T. Camden
Chief Executive Officer
79
Exhibit 31.2
I, Michael E. Debs, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Kelly Services, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's ability
to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 13, 2008
/s/ Michael E. Debs
Michael E. Debs
Senior Vice President and
Interim Chief Financial Officer
80
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Kelly Services, Inc. (the “Company”) on Form 10-K for the
period ended December 30, 2007 as filed with the Securities and Exchange Commission on the
date hereof (the “Report”), I, Carl T. Camden, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: February 13, 2008
/s/ Carl T. Camden
Carl T. Camden
Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to Kelly
Services, Inc. and will be retained by Kelly Services, Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.
81
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Kelly Services, Inc. (the “Company”) on Form 10-K for the
period ended December 30, 2007 as filed with the Securities and Exchange Commission on the
date hereof (the “Report”), I, Michael E. Debs, Interim Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: February 13, 2008
/s/ Michael E. Debs
Michael E. Debs
Senior Vice President and
Interim Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Kelly
Services, Inc. and will be retained by Kelly Services, Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.
82
Stockholders’ information
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
The Annual Meeting of Stockholders will be held on May 6, 2008,
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
BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
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 BNY Mellon at:
Toll Free (U.S. and Canada)
TDD for Hearing Impaired
Foreign Stockholders
TDD Foreign Stockholders
(866) 249-2607
(800) 231-5469
(201) 680-6578
(201) 680-6610
You may also visit their Web site,
www.bnymellon.com/shareowner/isd, or contact
Kelly’s director of Investor Relations.
Independent Registered
Public Accounting Firm
PricewaterhouseCoopers LLP
1900 St. Antoine Street
Detroit, Michigan 48226
Financial Reports for Stockholders
Stockholders, security analysts, and interested investors may
obtain additional copies of this 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 Web site.
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 Web site:
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 Global MarketSM under the symbols: KELYA and KELYB.
Recycled Recyclable
© 2008 Kelly Services, Inc.
999 West Big Beaver Road
Troy, Michigan 48084-4782
(248) 362-4444
www.kellyservices.com