KELLY SERVICES INC - Quarter Report: 2009 June (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-1088

KELLY SERVICES, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		38-1510762
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

(Address of principal executive offices)

(Zip Code)

(248) 362-4444

No Change

if changed since last report.)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

At July 24, 2009, 31,479,908 shares of Class A and 3,459,785 shares of Class B common stock of the Registrant were outstanding.

 

 

KELLY SERVICES, INC. AND SUBSIDIARIES

		Page
		Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Earnings			3
Consolidated Balance Sheets			4
Consolidated Statements of Stockholders’ Equity			5
Consolidated Statements of Cash Flows			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. Controls and Procedures			36
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			36
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 4. Submission of Matters to a Vote of Security Holders			37
Item 6. Exhibits			37
SIGNATURES			38
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KELLY SERVICES, INC. AND SUBSIDIARIES

(UNAUDITED)

(In millions of dollars except per share data)

		13 Weeks Ended								26 Weeks Ended
		June 28, 2009				June 29, 2008				June 28, 2009				June 29, 2008
Revenue from services		$	1,028.9			$	1,452.0			$	2,071.5			$	2,840.4
Cost of services			857.2				1,194.6				1,724.3				2,333.1
Gross profit			171.7				257.4				347.2				507.3
Selling, general and administrative expenses			193.6				242.4				399.7				479.4
Asset impairments			52.6				—				52.6				—
(Loss) earnings from operations			(74.5	)			15.0				(105.1	)			27.9
Other (expense) income, net			(1.0	)			0.1				0.3				0.1
(Loss) earnings from continuing operations before taxes			(75.5	)			15.1				(104.8	)			28.0
Income taxes			(9.5	)			4.7				(22.7	)			9.6
(Loss) earnings from continuing operations			(66.0	)			10.4				(82.1	)			18.4
Earnings from discontinued operations, net of tax			—				0.1				0.6				0.3
Net (loss) earnings		$	(66.0	)		$	10.5			$	(81.5	)		$	18.7
Basic (loss) earnings per share:
(Loss) earnings from continuing operations		$	(1.89	)		$	0.30			$	(2.36	)		$	0.52
Earnings from discontinued operations		$	—			$	—			$	0.02			$	0.01
Net (loss) earnings		$	(1.89	)		$	0.30			$	(2.34	)		$	0.53
Diluted (loss) earnings per share:
(Loss) earnings from continuing operations		$	(1.89	)		$	0.30			$	(2.36	)		$	0.52
Earnings from discontinued operations		$	—			$	—			$	0.02			$	0.01
Net (loss) earnings		$	(1.89	)		$	0.30			$	(2.34	)		$	0.53
Dividends per share		$	—			$	.135			$	—			$	.27
Average shares outstanding (millions):
Basic			34.8				34.7				34.8				34.8
Diluted			34.8				34.7				34.8				34.8

See accompanying Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In millions)

		June 28, 2009				December 28, 2008
ASSETS
CURRENT ASSETS:
Cash and equivalents		$	115.2			$	118.3
Trade accounts receivable, less allowances of $15.4 and $17.0, respectively			681.0				815.8
Prepaid expenses and other current assets			57.2				62.0
Deferred taxes			29.7				31.9
Total current assets			883.1				1,028.0
PROPERTY AND EQUIPMENT:
Land and buildings			59.1				59.2
Computer hardware and software, equipment, furniture and leasehold improvements			302.5				302.6
Accumulated depreciation			(223.9	)			(210.5	)
Net property and equipment			137.7				151.3
NONCURRENT DEFERRED TAXES			40.2				40.0
GOODWILL, NET			67.3				117.8
OTHER ASSETS			125.3				120.2
TOTAL ASSETS		$	1,253.6			$	1,457.3
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term borrowings		$	—			$	35.2
Accounts payable and accrued liabilities			205.2				244.1
Accrued payroll and related taxes			217.4				243.2
Accrued insurance			25.2				26.3
Income and other taxes			18.1				51.8
Current portion of long-term debt			77.6				—
Total current liabilities			543.5				600.6
NONCURRENT LIABILITIES:
Long-term debt			—				80.0
Accrued insurance			44.6				46.9
Accrued retirement benefits			66.4				61.6
Other long-term liabilities			14.9				15.3
Total noncurrent liabilities			125.9				203.8
STOCKHOLDERS’ EQUITY:
Capital stock, $1.00 par value
Class A common stock, shares issued 36.6 at 2009 and 2008			36.6				36.6
Class B common stock, shares issued 3.5 at 2009 and 2008			3.5				3.5
Treasury stock, at cost
Class A common stock, 5.2 shares at 2009 and 5.3 at 2008			(107.2	)			(110.6	)
Class B common stock			(0.6	)			(0.6	)
Paid-in capital			34.7				35.8
Earnings invested in the business			594.5				676.0
Accumulated other comprehensive income			22.7				12.2
Total stockholders’ equity			584.2				652.9
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,253.6			$	1,457.3

See accompanying Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In millions of dollars)

		13 Weeks Ended								26 Weeks Ended
		June 28, 2009				June 29, 2008				June 28, 2009				June 29, 2008
Capital Stock
Class A common stock
Balance at beginning of period		$	36.6			$	36.6			$	36.6			$	36.6
Conversions from Class B			—				—				—				—
Balance at end of period			36.6				36.6				36.6				36.6
Class B common stock
Balance at beginning of period			3.5				3.5				3.5				3.5
Conversions to Class A			—				—				—				—
Balance at end of period			3.5				3.5				3.5				3.5
Treasury Stock
Class A common stock
Balance at beginning of period			(109.9	)			(112.8	)			(110.6	)			(105.7	)
Exercise of stock options, restricted stock awards and other			2.7				2.0				3.4				2.9
Purchase of treasury stock			—				—				—				(8.0	)
Balance at end of period			(107.2	)			(110.8	)			(107.2	)			(110.8	)
Class B common stock
Balance at beginning of period			(0.6	)			(0.6	)			(0.6	)			(0.6	)
Exercise of stock options, restricted stock awards and other			—				—				—				—
Balance at end of period			(0.6	)			(0.6	)			(0.6	)			(0.6	)
Paid-in Capital
Balance at beginning of period			36.3				34.5				35.8				34.5
Exercise of stock options, restricted stock awards and other			(1.6	)			(1.2	)			(1.1	)			(1.2	)
Balance at end of period			34.7				33.3				34.7				33.3
Earnings Invested in the Business
Balance at beginning of period			660.5				780.8				676.0				777.3
Net (loss) earnings			(66.0	)			10.5				(81.5	)			18.7
Dividends			—				(4.7	)			—				(9.4	)
Balance at end of period			594.5				786.6				594.5				786.6
Accumulated Other Comprehensive Income
Balance at beginning of period			2.2				51.6				12.2				42.6
Foreign currency translation adjustments, net of tax			11.7				—				6.5				7.8
Unrealized gains (losses) on investments, net of tax			8.8				(6.2	)			4.0				(5.0	)
Balance at end of period			22.7				45.4				22.7				45.4
Stockholders’ Equity at end of period		$	584.2			$	794.0			$	584.2			$	794.0
Comprehensive (Loss) Income
Net (loss) earnings		$	(66.0	)		$	10.5			$	(81.5	)		$	18.7
Foreign currency translation adjustments, net of tax			11.7				—				6.5				7.8
Unrealized gains (losses) on investments, net of tax			8.8				(6.2	)			4.0				(5.0	)
Comprehensive (Loss) Income		$	(45.5	)		$	4.3			$	(71.0	)		$	21.5

See accompanying Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In millions of dollars)

		26 Weeks Ended
		June 28, 2009				June 29, 2008
Cash flows from operating activities:
Net (loss) earnings		$	(81.5	)		$	18.7
Noncash adjustments:
Impairment of assets			52.6				—
Depreciation and amortization			21.0				22.5
Provision for bad debts			1.3				2.0
Stock-based compensation			2.2				1.6
Other, net			(1.5	)			1.8
Changes in operating assets and liabilities			75.8				(5.3	)
Net cash from operating activities			69.9				41.3
Cash flows from investing activities:
Capital expenditures			(5.0	)			(15.6	)
Acquisition of companies, net of cash received			(7.5	)			(10.6	)
Other investing activities			(3.0	)			(0.4	)
Net cash from investing activities			(15.5	)			(26.6	)
Cash flows from financing activities:
Net change in revolving line of credit			(13.1	)			(7.4	)
Repayment of debt			(22.9	)			—
Dividend payments			—				(9.5	)
Purchase of treasury stock			—				(8.0	)
Stock options and other stock sales			—				0.1
Other financing activities			(23.6	)			(0.7	)
Net cash from financing activities			(59.6	)			(25.5	)
Effect of exchange rates on cash and equivalents			2.1				3.4
Net change in cash and equivalents			(3.1	)			(7.4	)
Cash and equivalents at beginning of period			118.3				92.8
Cash and equivalents at end of period		$	115.2			$	85.4

See accompanying Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Kelly Services, Inc. (the “Company,” “Kelly,” “we” or “us”) have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and notes required by generally accepted accounting principles for complete financial statements. All adjustments, including normal recurring adjustments, have been made which, in the opinion of management, are necessary for a fair statement of the results of the interim periods. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year. The unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended December 28, 2008, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 11, 2009 (the 2008 consolidated financial statements).

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform with the current presentation.

We have evaluated the financial statements for subsequent events through the date of the filing of this Form 10-Q.

2. Fair Value Measurements

Assets Measured at Fair Value on a Recurring Basis

The carrying value of cash and equivalents, accounts receivable, accounts payable, accrued liabilities and short-term borrowings approximate their fair values due to the short-term maturities of these assets and liabilities. As of June 28, 2009, the carrying value of long-term debt, which was reclassified to short-term debt (see Note 6), approximates the fair value. The following tables present assets measured at fair value on a recurring basis as of June 28, 2009 and December 28, 2008 on the consolidated balance sheet by fair value hierarchy level, as described below.

		Fair Value Measurements on a Recurring Basis
		As of June 28, 2009
Description		Total				Level 1				Level 2				Level 3
		(In millions of dollars)
Money market funds		$	26.5			$	26.5			$	—			$	—
Available-for-sale investment			25.3				25.3				—				—
Total assets at fair value		$	51.8			$	51.8			$	—			$	—

		Fair Value Measurements on a Recurring Basis
		As of December 28, 2008
Description		Total				Level 1				Level 2				Level 3
		(In millions of dollars)
Money market funds		$	28.6			$	28.6			$	—			$	—
Available-for sale investment			22.5				22.5				—				—
Total assets at fair value		$	51.1			$	51.1			$	—			$	—

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

2. Fair Value Measurements (continued)

Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities. Level 2 measurements include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3 measurements include significant unobservable inputs.

Money market funds as of June 28, 2009 represent investments in money market accounts, of which $25.5 million is included in cash and equivalents and $1.0 million of restricted cash is included in prepaid expenses and other current assets on the consolidated balance sheet. Money market funds as of December 28, 2008 represent investments in money market accounts, of which $27.3 million is included in cash and equivalents and $1.3 million of restricted cash is included in prepaid expenses and other current assets on the consolidated balance sheet. The valuations were based on quoted market prices of those accounts as of the respective period end.

Available-for-sale investment represents the Company’s investment in Temp Holdings Co., Ltd. (“Temp Holdings”) and is included in other assets on the consolidated balance sheet. The valuation is based on the quoted market price of Temp Holdings stock on the Tokyo Stock Exchange as of the period end. During the fourth quarter of 2008, the Company recorded in the consolidated statement of earnings an other-than-temporary impairment of $18.7 million related to the investment in Temp Holdings. The unrealized gain of $8.8 million pretax and net of tax for the quarter ended June 28, 2009 and loss of $10.6 million ($6.2 million net of tax) for the quarter ended June 29, 2008 was recorded in other comprehensive income, a component of stockholders’ equity. The unrealized gain of $4.0 million pretax and net of tax for the 26 weeks ended June 28, 2009 and loss of $8.5 million ($5.0 million net of tax) for the 26 weeks ended June 29, 2008 was recorded in other comprehensive income.

Assets Measured at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis, such as when there is evidence of impairment. The following table presents assets carried on the consolidated balance sheet by fair value hierarchy level described above as of June 28, 2009, for which a nonrecurring change in fair value has been recorded during the second quarter of 2009.

		Fair Value Measurements on a Nonrecurring Basis																Total
		As of June 28, 2009																Gains
Description		Total				Level 1				Level 2				Level 3				(Losses)
		(In millions of dollars)
Goodwill		$	67.3			$	—			$	—			$	67.3			$	(50.5	)
Long-lived assets and intangible assets			153.3				—				—				153.3				(2.1	)

Due to significantly worse than anticipated economic conditions and the impacts to our business in the second quarter of 2009, we revised our internal forecasts for all of our segments, which we deemed to be a triggering event for purposes of assessing goodwill for impairment. Accordingly, goodwill at all of our reporting units was tested for impairment in the second quarter of 2009. The Company’s reporting units are the same as its reportable segments.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

2. Fair Value Measurements (continued)

The Company primarily used a discounted cash flow methodology to determine the estimated fair value of its reporting units. We also considered other valuation techniques, such as the market approach. We determined that the estimated fair value of our Americas Commercial, APAC Commercial and EMEA PT reporting units were less than their carrying value. As a result, we performed additional impairment testing to determine the implied fair value of goodwill for these reporting units. The implied fair value of the goodwill was less than the carrying value of the goodwill in each of those reporting units. As a result, we recorded a goodwill impairment loss of $50.5 million, of which $16.4 million is related to the Americas Commercial reporting unit, $12.1 million is related to the APAC Commercial reporting unit and $22.0 million is related to the EMEA PT reporting unit. (See Note 5.) This expense has been recorded in the asset impairments line on the consolidated statement of earnings. The estimated fair value of all other reporting units exceeded carrying value.

Our analysis uses significant assumptions by segment, including: expected future revenue and expense growth rates, profit margins, cost of capital, discount rate and forecasted capital expenditures. Our projections assume revenue remains relatively flat in the near term, followed by a recovery and long-term modest growth. Assumptions and estimates about future cash flows and discount rates are complex and 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 results and growth from these businesses could result in an impairment charge of our remaining goodwill balance of $67.3 million. Such a charge would decrease operating income and result in lower asset values on our consolidated balance sheet. For example, a continued worsening of the economy or assumed growth rate reduced by half for the next two years could result in the estimated fair value of the OCG segment falling below its book value.

Additionally, we evaluate long-lived assets, including intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When estimated undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value, determined by estimated future discounted cash flows. The Company’s estimates as of June 28, 2009 resulted in a $2.1 million reduction in the carrying value of long-lived assets and intangible assets in Japan.

3. Acquisitions

During the first six months of 2009, the Company made payments as follows: $5.7 million earnout payment related to the 2007 acquisition of access AG, $1.0 million related to the 2007 acquisition of CGR/seven LLC, $0.6 million earnout payment related to the 2006 acquisition of The Ayers Group and $0.2 million earnout payment related to the 2008 acquisition of Toner Graham. All of the above payments were accrued in the previous year.

During the first six months of 2008, $7.6 million was paid related primarily to the acquisition of access AG and a $2.0 earnout payment and $1.0 million acquisition payment were made related to the acquisition of CGR/seven LLC.

KELLY SERVICES, INC. AND SUBSIDIARIES

(UNAUDITED)

4. Restructuring

On January 21, 2009, the Chief Executive Officer of Kelly Services, Inc. authorized a restructuring plan for our United Kingdom (“Kelly U.K.”) operations. The plan was the result of management’s strategic review of the U.K. operations which identified under-performing branch locations and the opportunity for additional operational cost savings.

On March 13, 2009, the Company sold 31, or nearly half, of the commercial staffing branches scheduled for closure in the U.K. to Hexagon Staffing Solutions Limited, trading as Interaction Recruitment (“Interaction Recruitment”). As part of this transaction, we incurred $3.1 million in related expenses.

As of June 28, 2009, Kelly U.K. has closed 10 of the remaining 16 branches scheduled for closure. Total restructuring charges associated with these actions for the 13 and 26 weeks ended June 28, 2009 were $2.4 million and $7.8 million, respectively, including the $3.1 million related to the Interaction Recruitment transaction. These charges were reported as a component of selling, general and administrative expenses in the EMEA Commercial segment. Cash expenditures related to the restructuring program totaled $1.9 million and $4.7 million, respectively, for the 13 and 26 weeks ended June 28, 2009. We expect to incur approximately $1 to $2 million of additional facility and other exit costs in the second half of 2009. Total pre-tax charges related to the U.K. restructuring program, which include facility exit costs, the payment to Interaction Recruitment and employee termination costs, are expected to total approximately $10 to $11 million.

Following is a summary of the Company’s balance sheet accrual related to the facility exit costs:

		(In millions
		of dollars)
Balance at beginning of year		$	1.5
Additions charged to operations			5.4
Reductions for cash payments			(2.8	)
Balance at March 29, 2009			4.1
Additions charged to operations			2.4
Reductions for cash payments			(1.9	)
Translation adjustment			0.7
Balance at June 28, 2009		$	5.3

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

5. Goodwill

The changes in the net carrying amount of goodwill for the 26 weeks ended June 28, 2009 were as follows:

						Impairment
		Beginning				Adjustments				Ending
		Balance				(Note 2)				Balance
		(In millions of dollars)
Americas
Americas Commercial		$	16.4			$	(16.4	)		$	—
Americas PT			39.2				—				39.2
Total Americas			55.6				(16.4	)			39.2
EMEA
EMEA Commercial			—				—				—
EMEA PT			22.0				(22.0	)			—
Total EMEA			22.0				(22.0	)			—
APAC
APAC Commercial			12.1				(12.1	)			—
APAC PT			1.8				—				1.8
Total APAC			13.9				(12.1	)			1.8
OCG			26.3				—				26.3
Consolidated Total		$	117.8			$	(50.5	)		$	67.3

6. Debt

As of June 28, 2009, the Company had the following credit facilities, all of which were unsecured:

				Balance at
Type of Facility		Lender		June 28, 2009
				(In millions of dollars)
Short-Term Borrowings:
$150 million committed revolving credit facility		Various		$	—
$10 million committed revolving credit facility		Bayerische Hypo-Und Vereinsbank AG			—
				$	—
Current Portion of Long-Term Debt:
JPY 5.5 billion amortizing term loan facility		Bank of Tokyo-Mitsubishi UFJ, Ltd.		$	56.9
EUR 9.0 million and GBP 5.0 million term loan facility		Various			20.7
				$	77.6

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

6. Debt (continued)

All of the facilities listed above, except for $10 million committed revolving credit facility, contain certain financial covenants that are detailed below:

•

The Company must maintain a minimum level of earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $5 million for the last twelve months ending June 28, 2009 and $2 million for the third quarter of 2009.

•

The Company must maintain a ratio of EBITDA to interest expense (“Interest Coverage Ratio”) per the following requirements: as of fourth quarter 2009, 3.5 to 1.0; as of the first and second quarters of 2010, 4.0 to 1.0; and thereafter, 5.0 to 1.0.

•

The ratio of total indebtedness to the sum of net worth and total indebtedness (“Leverage Ratio”) must be at least 0.5 to 1.0 as of the last day of each fiscal quarter.

The $10 million committed revolving credit facility contains a requirement for the Leverage Ratio to be at least 0.5 to 1.0 and for the Interest Coverage Ratio to be 5.0 to 1.0 or greater as of the last day of each fiscal quarter.

As of June 28, 2009, we did not meet the requirement for cumulative EBITDA of $5 million for the last twelve months. Also, we did not meet the requirement for the Interest Coverage Ratio on the $10 million facility listed above. The Company’s lenders have approved temporary waivers of these requirements. The waivers are effective until September 16, 2009. The waiver on the $150 million facility places a cap of $75 million on new borrowing under the revolver. We expect that we will not meet the covenant requirements for the third quarter of 2009. Accordingly, we classified all of the long-term debt to short-term debt on the consolidated balance sheet as of June 28, 2009.

Prior to September 16, 2009, the Company will be in negotiations with its lenders to amend or replace its existing credit facilities.

7. Earnings Per Share

In June 2008, the Financial Accounting Standards Board (“FASB”) issued guidance which clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities and, therefore, included in the calculation of earnings per share using the two-class method. This guidance was effective beginning with the first quarter of 2009, and all prior period earnings per share data presented was adjusted retrospectively to conform with the provisions of this guidance. The impact of adopting the provisions of this guidance was to lower basic and diluted earnings per share on income from continuing operations and net earnings for the 26 weeks ended June 29, 2008 by $0.01.

The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. Under this method, earnings from continuing operations (or net earnings) is reduced by the amount of dividends declared, and the remaining undistributed earnings is allocated to common stock and participating securities based on the proportion of each class’s weighted average shares outstanding to the total weighted average shares outstanding. The calculation of diluted earnings per share includes the effect of potential common shares outstanding in the average weighted shares outstanding.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

7. Earnings Per Share (continued)

The reconciliation of basic earnings per share on common stock for the 13 and 26 weeks ended June 29, 2008 was as follows:

		13 Weeks				26 Weeks
		Ended 2008				Ended 2008
		(In millions of dollars
		except per share data)
Net earnings from continuing operations		$	10.4			$	18.4
Less: Earnings allocated to participating securities			(0.1	)			(0.2	)
Net earnings from continuing operations available to common shareholders		$	10.3			$	18.2
Net earnings from discontinued operations		$	0.1			$	0.3
Less: Earnings allocated to participating securities			—				—
Net earnings from discontinued operations available to common shareholders		$	0.1			$	0.3
Net earnings		$	10.5			$	18.7
Less: Earnings allocated to participating securities			(0.1	)			(0.2	)
Net earnings available to common shareholders		$	10.4			$	18.5
Basic earnings per share on common stock:
Earnings on continuing operations		$	0.30			$	0.52
Earnings on discontinued operations		$	—			$	0.01
Net earnings		$	0.30			$	0.53
Average common shares outstanding (millions)			34.7				34.8

Due to the fact that there were no potentially dilutive common shares outstanding during the period, the computations of basic and diluted earnings per share on common stock are the same for both 13-week and 26-week periods ended June 28, 2009 and June 29, 2008. Stock options representing 0.9 million and 1.0 million shares, respectively, for the 13 weeks ended June 28, 2009 and June 29, 2008 and 0.9 million and 1.1 million shares, respectively, for the 26 weeks ended June 28, 2009 and June 29, 2008 were excluded from the computation of diluted (loss) earnings per share due to their anti-dilutive effect.

In connection with the $50.0 million Class A share repurchase program authorized by the board of directors in August, 2007, the Company repurchased 0.4 million shares for $8.0 million during the first quarter of 2008. No shares were repurchased during the first six months of 2009 or second quarter of 2008. A total of $7.3 million remains available under the share repurchase program. The Company does not intend to make further share repurchases under the share repurchase program, which expires in August, 2009.

KELLY SERVICES, INC. AND SUBSIDIARIES

(UNAUDITED)

8. Other (Expense) Income, Net

Included in Other (expense) income, net are the following:

		13 Weeks Ended								26 Weeks Ended
		2009				2008				2009				2008
		(In millions of dollars)								(In millions of dollars)
Interest income		$	0.4			$	0.8			$	0.9			$	1.9
Interest expense			(0.8	)			(1.0	)			(1.4	)			(2.0	)
Dividend income			0.3				0.3				0.3				0.3
Foreign exchange (losses) gains			(1.0	)			—				0.3				—
Other			0.1				—				0.2				(0.1	)
Other (expense) income, net		$	(1.0	)		$	0.1			$	0.3			$	0.1

9. Contingencies

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 to alleged technical violations of a state law governing the content of employee pay stubs. On April 30, 2007, the Court certified two classes that correspond to the claims in the cases. In the third quarter of 2008, Kelly was granted a hearing date for its motions related to summary judgment on both certified claims. On March 13, 2009, the Court granted Kelly’s motion for decertification of the classes. Plaintiffs filed a Petition for Writ of Review on April 3, 2009. The Company believes it has meritorious defenses to the claims and will continue to vigorously defend itself during the appeal process.

On February 5, 2003, an action was commenced in the Federal District Court for the Eastern District of California by Lynn Noyes against the Company, alleging religious discrimination. In August 2004, Kelly’s Motion for Summary Judgment was granted dismissing the complaint. Noyes appealed and the case was remanded for trial. On April 4, 2008, a jury returned a verdict, finding the Company liable for religious discrimination. The verdict was comprised of: $0.2 million for economic damages, $0.5 million for emotional distress damages and $5.9 million in punitive damages. The Company pursued post trial motions which resulted in the reduction of punitive damages to $0.7 million. The Company continues to believe there is no basis for finding religious discrimination and has filed an appeal with the United States Court of Appeals for the 9^th Circuit.

The Company is also subject to various legal proceedings and claims which arise in the ordinary course of its business, typically employment discrimination and wage and hour matters. These legal proceedings and claims are subject to many uncertainties, the outcome of which is not predictable. It is reasonably possible that some matters could be decided unfavorably to the Company. The Company’s exposure is most significant in matters involving alleged violations of state wage and hour laws. Certain legal proceedings seek class action status; these matters individually and in the aggregate seek compensatory, statutory and/or punitive damages.

During the third quarter of 2008, several of these matters reached a stage in the litigation process that caused the Company to reassess its litigation risk and establish additional reserves which, in the aggregate, resulted in a charge of $23.5 million. The Company continues to vigorously defend against these claims and has reached negotiated settlements in the two most significant of these cases. These settlements must receive final court approval and, if approved, we expect settlement payments will occur during the third or fourth quarter of 2009. Disclosure of the most likely outcomes of individual cases and significant assumptions made in estimating related reserves are likely to have adverse consequences to the Company including, by way of example, the possibility that the disclosures themselves constitute admissible evidence in a trial and the potential to set a floor in settlement negotiations. The Company did not make significant changes to its litigation reserves during the second quarter of 2009 and believes the reserves are adequate.

KELLY SERVICES, INC. AND SUBSIDIARIES

(UNAUDITED)

10. 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. The Company’s seven reporting segments are: (1) Americas Commercial, (2) Americas Professional and Technical (“Americas PT”), (3) Europe, Middle East and Africa Commercial (“EMEA Commercial”), (4) Europe, Middle East and Africa Professional and Technical (“EMEA PT”), (5) Asia Pacific Commercial (“APAC Commercial”), (6) Asia Pacific Professional and Technical (“APAC PT”) and (7) Outsourcing and Consulting Group (“OCG”).

The Commercial business segments within the Americas, EMEA and APAC regions represent traditional office services, contact-center staffing, marketing, electronic assembly, light industrial and substitute teachers. The PT segments encompass a wide range of highly skilled temporary employees, including scientists, financial professionals, attorneys, engineers, IT specialists and healthcare workers. OCG includes recruitment process outsourcing, contingent workforce outsourcing, business process outsourcing, executive placement and career transition/outplacement services. Corporate expenses that directly support the operating units have been allocated to the seven segments. Included in corporate expenses in the 13 and 26 weeks ended June 28, 2009 is $52.6 million related to asset impairment charges (See Notes 2 and 5).

The following table presents information about the reported revenue from services and earnings from operations of the Company for the 13 and 26 weeks ended June 28, 2009 and June 29, 2008. Effective with the first quarter of 2009, segment data has been revised to include the effect of intersegment revenues. Prior periods have been reclassified to conform with the current presentation. Asset information by reportable segment is not presented, since the Company does not produce such information internally, nor does it use such data to manage its business.

KELLY SERVICES, INC. AND SUBSIDIARIES

(UNAUDITED)

10. Segment Disclosures (continued)

		13 Weeks Ended								26 Weeks Ended
		2009				2008				2009				2008
		(In millions of dollars)								(In millions of dollars)
Revenue from Services:
Americas Commercial		$	473.0			$	656.8			$	955.4			$	1,299.5
Americas PT			194.8				245.5				392.2				484.1
Total Americas Commercial and PT			667.8				902.3				1,347.6				1,783.6
EMEA Commercial			211.7				351.7				428.3				673.6
EMEA PT			33.1				46.3				65.9				90.1
Total EMEA Commercial and PT			244.8				398.0				494.2				763.7
APAC Commercial			66.3				90.9				130.7				177.6
APAC PT			5.5				9.4				11.7				17.9
Total APAC Commercial and PT			71.8				100.3				142.4				195.5
OCG			50.1				57.2				98.8				109.0
Less: Intersegment revenue			(5.6	)			(5.8	)			(11.5	)			(11.4	)
Consolidated Total		$	1,028.9			$	1,452.0			$	2,071.5			$	2,840.4
(Loss) Earnings from Operations:
Americas Commercial		$	2.0			$	19.7			$	2.5			$	41.9
Americas PT			6.6				14.4				11.9				28.5
Total Americas Commercial and PT			8.6				34.1				14.4				70.4
EMEA Commercial			(5.3	)			1.3				(17.4	)			(0.3	)
EMEA PT			(1.3	)			1.4				(1.9	)			2.4
Total EMEA Commercial and PT			(6.6	)			2.7				(19.3	)			2.1
APAC Commercial			(1.2	)			0.5				(2.5	)			0.5
APAC PT			(0.4	)			(0.1	)			(0.7	)			(0.3	)
Total APAC Commercial and PT			(1.6	)			0.4				(3.2	)			0.2
OCG			(3.2	)			0.6				(4.4	)			2.5
Corporate Expense			(71.7	)			(22.8	)			(92.6	)			(47.3	)
Consolidated Total		$	(74.5	)		$	15.0			$	(105.1	)		$	27.9

KELLY SERVICES, INC. AND SUBSIDIARIES

(UNAUDITED)

11. New Accounting Pronouncements

In May 2009, the FASB issued Statement of Financial Accounting Standard No. 165, “Subsequent Events.” This standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It is effective for interim or annual periods ending after June 15, 2009. Adopting this standard, which was effective for the quarter ended June 28, 2009, had no significant effect on the Company’s consolidated financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standard No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FAS No. 162,” which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States (the GAAP hierarchy). This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this standard will change how we reference various elements of GAAP when preparing our financial statement disclosures, but will have no impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This staff position requires disclosures about the fair value of financial instruments whenever a public company issues financial information for interim reporting periods. This staff position is effective for interim reporting periods ending after June 15, 2009. We adopted this staff position upon its issuance, and it had no material impact on the Company’s consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

The deterioration of the global labor markets and widespread economic slowdown experienced during 2008 and the first quarter of 2009 persisted into the second quarter of 2009. In the U.S., 3.4 million jobs were lost during the first six months of 2009. The staffing industry remained one of the hardest hit sectors with job growth for temporary employees still in decline. Temporary employment now represents only 1.32% of the total U.S. workforce — the lowest level in 16 years. As the effects of the global recession intensified outside the U.S., demand for temporary staffing quickly declined across virtually all geographies, negatively impacting Kelly’s quarterly financial performance.

For the second quarter of 2009, Kelly reported a net loss from continuing operations of $1.89 per diluted share, compared to net earnings of $0.30 per diluted share in the second quarter of 2008. Included in the 2009 results are impairment charges of $1.41 per diluted share.

In spite of these challenges, we’ve made significant progress in reducing operating costs, while pursuing our strategic plan aimed at building long-term value for our stakeholders. As a result, during the second quarter we:

•

Posted positive earnings in our Americas Commercial and PT segments,

•

Effectively controlled expenses; year-over-year selling, general and administrative expenses are down almost $50 million for the second quarter and $80 million year to date,

•

Continued to maintain a strong balance sheet and cash position.

We remain committed to protecting our ability to service our customers. Maintaining geographic diversity, coupled with a broad array of staffing, consulting, placement and other talent-management services, will allow us to provide our customers with the tools and talent they need to compete in the current marketplace and support our long-term growth.

Results of Operations
Second Quarter

Revenue from services in the second quarter of 2009 totaled $1.0 billion, a decrease of 29.1% from the same period in 2008. This was the result of a decrease in hours worked of 24.8% combined with a decrease in average hourly bill rates of 7.2% (a decrease of 0.5% on a constant currency basis). Fee-based income, which is included in revenue from services, totaled $20.6 million, or 2.0% of total revenue, for the second quarter of 2009, a decrease of 51.5% as compared to $42.3 million in the second quarter of 2008. Revenue for the quarter decreased in all seven business segments, reflecting the global economic slowdown.

Compared to the second quarter of 2008, the U.S. dollar was stronger against many foreign currencies, including the euro, British pound, Australian dollar and Canadian dollar. As a result, our consolidated U.S. dollar translated revenue was lower than would have otherwise been reported. On a constant currency basis, second quarter revenue decreased 24.4% as compared with the prior year. When we use the term “constant currency,” it means that we have translated financial data for 2009 into U.S. dollars using the same foreign currency exchange rates that we used to translate financial data for 2008. Management believes 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 second quarter revenue:

		Second Quarter Revenue
		2009				2008				% Change
		(In millions of dollars)
Revenue from Services — Constant Currency:
Americas Commercial		$	483.5			$	656.8				(26.4	)%
Americas PT			195.3				245.5				(20.5	)
Total Americas Commercial and PT — Constant Currency			678.8				902.3				(24.8	)
EMEA Commercial			251.9				351.7				(28.4	)
EMEA PT			39.1				46.3				(15.6	)
Total EMEA Commercial and PT — Constant Currency			291.0				398.0				(26.9	)
APAC Commercial			76.0				90.9				(16.4	)
APAC PT			6.2				9.4				(33.9	)
Total APAC Commercial and PT — Constant Currency			82.2				100.3				(18.0	)
OCG — Constant Currency			51.3				57.2				(10.3	)
Less: Intersegment revenue			(5.6	)			(5.8	)			(2.8	)
Total Revenue from Services — Constant Currency			1,097.7				1,452.0				(24.4	)
Foreign Currency Impact			(68.8	)
Revenue from Services		$	1,028.9			$	1,452.0				(29.1	)%

Gross profit of $171.7 million was 33.3% lower than the gross profit of $257.4 million for the same period of the prior year. The gross profit rate for the second quarter of 2009 was 16.7%, versus 17.7% for the second quarter of 2008. Compared to the prior year, the gross profit rate decreased in all business segments, with the exception of APAC PT. The decrease in the gross profit rate is primarily due to decreases in fee-based income.

Selling, general and administrative expenses totaled $193.6 million, a year-over-year decrease of $48.8 million, or 20.2% (14.7% on a constant currency basis). Selling, general and administrative expenses expressed as a percentage of gross profit were 112.7% in the second quarter of 2009, an 18.5 percentage point increase compared to the 94.2% rate in the second quarter of 2008. Details of the decrease of selling, general and administrative expenses in the second quarter are approximately as follows (in millions of dollars):

Structural changes		$	28
Compensation changes			9
Other discretionary savings			6
Foreign currency effect			13
Severance / lease terminations			(2	)
Acquisitions / investments			(3	)
U.K. restructuring			(2	)
Total expense decrease		$	49

Structural changes represent actions we have taken around the world during the last 12 months to reduce expenses, including a reduction of more than 1,300 full-time employees and the closing, sale or consolidation of approximately 100 branches. Compensation and other discretionary savings represent the impact of expense-reduction initiatives implemented during the first quarter, including suspension of headquarters and field-based incentive compensation and retirement matching contribution, along with a reduction in discretionary spending on travel and general expenses. These savings were partially offset by severance and lease termination costs, expenses related to restructuring actions in the U.K. (see Restructuring Note 4) and incremental costs related to prior year’s acquisitions and investments.

On January 21, 2009, the Chief Executive Officer of Kelly Services, Inc. authorized a restructuring plan for our United Kingdom (“Kelly U.K.”) operations. The plan was the result of management’s strategic review of Kelly U.K. operations which identified under-performing branch locations and the opportunity for additional operational cost savings.

During the second quarter of 2009, Kelly U.K. incurred $2.4 million of restructuring charges associated with these actions, which were reported as a component of SG&A expenses in the EMEA Commercial segment. We expect to incur approximately $1 to $2 million of additional facility and other exit costs in the second half of 2009, bringing total pre-tax charges related to the U.K. restructuring program to approximately $10 to $11 million. We expect that the U.K. restructuring plan will result in improved operating results by lowering selling, general and administrative expenses through reduced facilities and related expenses.

During the second quarter of 2009, asset impairment charges of $52.6 million were also recorded. Due to significantly worse than anticipated economic conditions and the impacts to our business in the second quarter of 2009, we revised our internal forecasts for all of our segments, which we deemed to be a triggering event for purposes of assessing goodwill for impairment. Accordingly, goodwill at all of our reporting units was tested for impairment in the second quarter of 2009. This resulted in the recognition of a goodwill impairment loss of $50.5 million in total, of which $16.4 million related to the Americas Commercial segment, $12.1 million related to the APAC Commercial segment and $22.0 million related to the EMEA PT segment.

Additionally, we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When estimated undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value, determined by estimated future discounted cash flows. The Company’s estimates as of June 28, 2009 resulted in a $2.1 million reduction in the carrying value of long-lived assets and intangible assets in Japan.

As a result of the above, we reported a loss from operations in the second quarter of 2009 totaling $74.5 million, compared to earnings from operations of $15.0 million reported for the second quarter of 2008.

Income tax benefit on continuing operations for the second quarter of 2009 was $9.5 million, compared to expense of $4.7 million for the second quarter of 2008. Our tax benefit for the second quarter of 2009 is reduced by the non-deductibility of asset impairment and restructuring charges. In the second quarter of 2008, we determined it was more likely than not that we would realize the deferred tax assets of our Italian subsidiaries. As a result, we reversed the valuation allowance recorded against those deferred tax assets, resulting in a benefit of $1.4 million.

Loss from continuing operations was $66.0 million in the second quarter of 2009, compared to earnings of $10.4 million in the second quarter of 2008. Included in loss from continuing operations in 2009 were asset impairment charges, net of tax, of $49.2 million and $2.4 million, net of tax, related to the U.K. restructuring actions.

Discontinued operations, which include the operating results of Kelly Home Care and Kelly Staff Leasing, business units which were sold in previous years, totaled $0.1 million in the second quarter of 2008. These amounts represent adjustments to assets and liabilities retained as part of the sale agreements. No adjustments to discontinued operations were recorded in the second quarter of 2009.

Second quarter net loss for 2009 totaled $66.0 million, compared to net earnings of $10.5 million last year. Diluted loss from continuing operations per share for the second quarter of 2009 was $1.89, as compared to diluted earnings from continuing operations per share of $0.30 for the second quarter of 2008. Included in second quarter 2009 diluted loss per share from continuing operations was the $1.41 per share cost of the asset impairments and $0.07 per share cost of the U.K. restructuring.

Effective with the first quarter of 2009, we adopted the provisions of Financial Accounting Standards Board guidance which clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities and, therefore, included in the calculation of earnings per shares using the two-class method under generally accepted accounting principles. Accordingly, all prior period earnings per share data presented was adjusted retrospectively to conform with the provisions of this guidance. Adopting these provisions had no effect on previously reported basic or diluted earnings per share for the quarter ended June 29, 2008.

Americas Commercial

		Second Quarter
														Constant
														Currency
		2009				2008				Change				Change
		(In millions of dollars)
Revenue from Services		$	473.0			$	656.8				(28.0	)%			(26.4	)%
Fee-based income			1.6				4.4				(65.1	)			(63.7	)
Gross profit			70.6				102.5				(31.1	)			(29.8	)
SG&A expenses			68.6				82.8				(17.2	)			(15.6	)
Earnings from Operations			2.0				19.7				(89.8	)
Gross profit rate			14.9	%			15.6	%		(0.7		) pts.
Expense rates:
% of revenue			14.5				12.6				1.9
% of gross profit			97.1				80.8				16.3
Operating margin			0.4				3.0				(2.6	)

The change in Americas Commercial revenue from services reflected a decrease in hours worked of 26.7%, combined with a decrease in average hourly bill rates of 1.4% (an increase of 0.8% on a constant currency basis). On a year-over-year basis, revenue decreased 28.7% in April, 25.9% in May and 29.1% in June. Americas Commercial represented 46.0% of total Company revenue in the second quarter of 2009 and 45.2% in the second quarter of 2008.

The decrease in the gross profit rate was primarily due to a decrease in fee-based income, along with a decline in temporary margins due to pricing pressure from customers seeking cost savings opportunities. Fee-based income has a significant impact on gross profit rates. There are very low direct costs of services associated with fee-based income. Therefore, increases or decreases in fee-based income can have a disproportionate impact on gross profit rates.

As noted above, the decrease in selling, general and administrative expenses from the prior year reflected the impact of structural changes of approximately $7 million and compensation and other discretionary savings of approximately $4 million for Americas Commercial. Selling, general and administrative expenses were higher as a percentage of revenue and gross profit due to lost sales leverage.

Americas PT

		Second Quarter
														Constant
														Currency
		2009				2008				Change				Change
		(In millions of dollars)
Revenue from Services		$	194.8			$	245.5				(20.7	)%			(20.5	)%
Fee-based income			2.3				5.4				(57.7	)			(57.6	)
Gross profit			32.2				42.8				(24.7	)			(24.5	)
SG&A expenses			25.6				28.4				(10.1	)			(9.7	)
Earnings from Operations			6.6				14.4				(53.6	)
Gross profit rate			16.5	%			17.4	%		(0.9		) pts.
Expense rates:
% of revenue			13.1				11.6				1.5
% of gross profit			79.2				66.3				12.9
Operating margin			3.4				5.9				(2.5	)

The change in Americas PT revenue from services reflected a decrease in hours worked of 20.2%, partially offset by an increase in average billing rates of 0.5%. The minimal increase in the average billing rate was due to a shift in business unit mix. On a year-over-year basis, revenue decreased 22.5% in April, 20.3% in May and 18.7% in June. Americas PT revenue represented 18.9% of total Company revenue in the second quarter of 2009 and 16.9% in the second quarter of 2008.

The Americas PT gross profit rate decreased due to decreases in fee-based income, as well as a change in business mix to lower-margin business units.

Selling, general and administrative expenses decreased from the prior year, but were higher as a percent of revenue and gross profit due to lost sales leverage. The decrease in expenses was primarily due to lower incentive compensation, combined with reduced recruiting and retention, travel and other costs as a result of lower volume and cost-savings initiatives.

EMEA Commercial

		Second Quarter
														Constant
														Currency
		2009				2008				Change				Change
		(In millions of dollars)
Revenue from Services		$	211.7			$	351.7				(39.8	)%			(28.4	)%
Fee-based income			3.9				11.1				(65.2	)			(58.0	)
Gross profit			34.4				61.1				(43.8	)			(33.4	)
SG&A expenses			39.7				59.8				(33.6	)			(21.5	)
Earnings from Operations			(5.3	)			1.3			NM
Gross profit rate			16.2	%			17.4	%		(1.2		) pts.
Expense rates:
% of revenue			18.8				17.0				1.8
% of gross profit			115.6				97.8				17.8
Operating margin			(2.5	)			0.4				(2.9	)

The change in translated U.S. dollar revenue from services in EMEA Commercial resulted from a 33.3% decrease in hours worked and a decrease in fee-based income, combined with a decrease in the translated U.S. dollar average hourly bill rates of 14.2% (an increase of 2.3% on a constant currency basis). EMEA Commercial revenue represented 20.6% of total Company revenue in the second quarter of 2009 and 24.2% in the second quarter of 2008.

On a year-over-year basis, constant currency revenue decreased 29.8% in April, 27.9% in May and 27.1% in June. The U.K. restructuring accounted for approximately 5 percentage points of the decline in constant currency revenue for the second quarter of 2009, partially offset by the effect of the Portugal acquisition in the third quarter of 2008, which contributed approximately 4 percentage points to the change in constant currency revenue.

The decrease in the gross profit rate was due primarily to decreases in fee-based income. As noted above, the decrease in selling, general and administrative expenses from the prior year reflected the impact of structural changes of approximately $17 million and compensation and other discretionary savings of approximately $2 million for EMEA Commercial. Included in 2009 second quarter selling, general and administrative expenses was the effect of $2.4 million in U.K. restructuring costs, which contributed 4 percentage points to the year-over-year change in expenses.

EMEA PT

		Second Quarter
														Constant
														Currency
		2009				2008				Change				Change
		(In millions of dollars)
Revenue from Services		$	33.1			$	46.3				(28.6	)%			(15.6	)%
Fee-based income			3.8				7.7				(50.8	)			(40.5	)
Gross profit			8.8				14.1				(37.5	)			(25.8	)
SG&A expenses			10.1				12.7				(20.3	)			(5.0	)
Earnings from Operations			(1.3	)			1.4				(196.6	)
Gross profit rate			26.6	%			30.4	%		(3.8		) pts.
Expense rates:
% of revenue			30.6				27.4				3.2
% of gross profit			115.1				90.3				24.8
Operating margin			(4.0	)			3.0				(7.0	)