KELLY SERVICES INC - Annual Report: 2010 (Form 10-K)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ		ANNUAL 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 of incorporation or organization)		(IRS Employer Identification Number)

999 West Big Beaver Road, Troy, Michigan		48084
(Address of Principal Executive Office)		(Zip Code)

(248) 362-4444

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 o No þ

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 o No þ

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 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. þ

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 “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

 

 

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 $320,177,595.

Registrant had 31,522,711 shares of Class A and 3,459,785 of Class B common stock, par value $1.00, outstanding as of February 8, 2010.

The proxy statement of the registrant with respect to its 2010 Annual Meeting of Stockholders is incorporated by reference in Part III.

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, Kelly Services has delivered pioneering workforce solutions to customers in a variety of industries throughout our 63-year history. Our range of solutions and geographic coverage has grown steadily over the years to match the expanding needs of our customers.

We have evolved from a United States-based company concentrating primarily on traditional office staffing into a global workforce solutions leader with a breadth of specialty businesses. We currently assign professional and technical employees in the fields of creative services, education, legal and health care—while ranking as one of the world’s largest scientific staffing providers, and among the leaders in information technology, engineering and financial staffing. These specialty service lines complement our expertise in office services, contact center, light industrial and electronic assembly staffing. In addition to staffing, we offer innovative talent management 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 all major markets throughout the world. We provide temporary employment for approximately 480,000 employees annually to a variety of customers around the globe — including more than 90 percent of the Fortune 500 companies.

Kelly’s workforce solutions are provided to a diversified group of customers through offices in three regions: the Americas, Europe, the Middle East, and Africa (“EMEA”) and Asia Pacific (“APAC”).

Description of Business Segments

Our operations are divided into seven principal business segments: Americas Commercial, Americas Professional and Technical (“Americas PT”), EMEA Commercial, EMEA Professional and Technical (“EMEA PT”), APAC Commercial, APAC Professional and Technical (“APAC PT”) and the Outsourcing and Consulting Group (“OCG”).

Americas Commercial

Our Americas Commercial segment includes: Kelly Office Services, offering trained employees who work in word processing, 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 and assemblers; KellySelect, a temporary to full-time service that provides both customers and temporary staff the opportunity to evaluate their relationship before making a full-time employment decision; and KellyDirect, a permanent placement service used across all staffing business units.

Americas PT

Our Americas PT segment includes a number of industry-specific services: CGR/seven, placing employees in creative services positions; 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 Financial Resources, serving the needs of corporate finance departments, accounting firms and financial institutions with professional personnel; Kelly Government Solutions, providing a full spectrum of talent management solutions to the U.S. federal government; Kelly Healthcare Resources, providing all levels of healthcare specialists and professionals for 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. Our temporary-to-hire service, KellySelect, and permanent placement service, KellyDirect, are also offered in this segment.

EMEA Commercial

Our EMEA Commercial segment provides a similar range of commercial staffing services as described for our Americas Commercial segment above, including: Kelly Office Services, KellyConnect, Kelly Educational Staffing, Kelly Light Industrial Services and KellySelect. Additional service areas of focus include Kelly Catering and Hospitality, providing chefs, porters and hospitality representatives; and Kelly Industrial, supplying manual workers to semi-skilled professionals in a variety of trade, non-trade and operational positions.

EMEA PT

Our EMEA PT segment provides many of the same services as described for our Americas PT segment, including: Kelly Engineering Resources, Kelly Financial Resources, Kelly Healthcare Resources, Kelly IT Resources and Kelly Scientific Resources.

APAC Commercial

Our APAC Commercial segment offers a similar range of commercial staffing services as described for our Americas and EMEA Commercial segments above, through staffing solutions that include permanent placement, temporary staffing, temporary to full-time staffing and vendor on-site.

APAC PT

Our APAC PT segment provides many of the same services as described for our Americas and EMEA PT segments, including: Kelly Engineering Resources, Kelly IT Resources and Kelly Scientific Resources. Additional service areas include Kelly Selection and Kelly Executive (Australia and New Zealand only) which offer mid- to senior-level search and selection to identify leaders who help organizations grow, in core practice areas such as HR, Sales and Marketing, Finance, Procurement and General Management.

OCG

Our Outsourcing and Consulting Group segment delivers integrated talent management solutions configured to satisfy our customers’ needs across multiple regions, skill sets and the entire spectrum of human resources. Services in this segment include: Recruitment Process Outsourcing (“RPO”), offering end-to-end talent acquisition solutions, including customized recruitment projects; Contingent Workforce Outsourcing (“CWO”), providing globally managed service solutions that integrate supplier and vendor management technology partners to optimize contingent workforce spend; Independent Contractor Solutions, delivering evaluation, classification and risk management services that enable safe access to this critical talent pool; Business Process Outsourcing (“BPO”), offering full staffing and operational management of non-core functions or departments; HR Consulting, providing human capital solutions from consulting resources and services, to global mobility and strategic workforce planning; Career Transition & Organizational Effectiveness, offering a range of custom solutions to maintain effective operations and maximize employee motivation and performance in the wake of corporate restructurings; and Executive Search, providing leadership in executive placement worldwide.

Financial information regarding our industry segments is included in the Segment Disclosure note to our consolidated financial statements presented in Part II, Item 8 of this report.

Business Objectives

Kelly’s philosophy is rooted in our conviction that we can and do make a difference on a daily basis— for our customers, in the lives of our employees, in the local communities we serve and in our industry. Our vision is “To provide the world’s best workforce solutions.” We aspire to be a strategic business partner to our customers, and strive to assist them in running efficient, profitable organizations. Our consultative approach to customer relationships leverages a collective expertise spanning more than 60 years of thought leadership, while Kelly solutions are customizable to benefit them on any scope or scale required.

For most of our customers, navigating the human capital arena has never been more complex. As the use of contingent labor, consultants, and independent contractors becomes more prevalent and critical to the ongoing success of our customer base—our core competencies are refined to help them realize their respective business objectives. Kelly offers a comprehensive array of outsourcing and consulting services, as well as world-class staffing on a temporary, temp-to-hire and permanent placement basis. Kelly will continue to deliver the strategic expertise our customers need to transform their workforce management challenges into opportunity.

Business Operations

Service Marks

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

Our working capital requirements are primarily generated from temporary employee payroll and customer accounts receivable. Since receipts from customers generally lag payroll to temporary employees, working capital requirements increase substantially in periods of growth.

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 2009.

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 2009, our largest competitors were Adecco S.A, Manpower Inc., Randstad Holding N.V., Allegis Group, Robert Half International, Inc. and Spherion Corporation.

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, or ability to manage staffing suppliers, 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 1,100 people at our corporate headquarters in Troy, Michigan, and approximately 6,800 staff members in our international network of branch offices. In 2009, we assigned approximately 480,000 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.

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., Allegis Group, Robert Half International, Inc. and Spherion Corporation, have substantial marketing and financial resources. In particular, Adecco S.A., Manpower Inc., and Randstad Holding N.V. 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 employment 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 certain other countries in which we operate has a material adverse effect on our business, financial condition and results of operations. In 2009, the already-weak economic conditions and employment trends present at the start of the year, continued to worsen as the year progressed. The weakened global economy significantly affected our earnings performance in 2009. We cannot predict when the global economy will begin to recover or when and to what extent conditions affecting the temporary staffing industry will improve. We also cannot ensure that the actions we have taken or may take in the future in response to these challenges will be successful or that our business, financial condition or results of operations will not continue to be adversely impacted by these conditions.

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 future 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 (employed directly by us or through a third-party supplier).

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, including class action lawsuits, 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;

•

wrongful termination or denial of employment;

•

violations of employment rights related to employment screening or privacy issues;

•

classification of employees including independent contractors;

•

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. In the U.S. and certain other countries in which we operate, new employment and labor laws and regulations have been proposed or adopted that may increase the potential exposure of employers to employment-related claims and litigation. 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.

Unexpected changes in claim trends on our workers’ compensation and benefit plans may negatively impact our financial condition.

We self-insure, or otherwise bear financial responsibility for, a significant portion of expected losses under our workers’ compensation program and medical benefits claims. Unexpected changes in claim trends, including the severity and frequency of claims, actuarial estimates and medical cost inflation could result in costs that are significantly different than initially reported. If future claims-related liabilities increase due to unforeseen circumstances, our costs could increase significantly. 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 claims-related liabilities.

Failure to maintain specified financial covenants in our bank credit facilities could adversely restrict our financial and operating flexibility and subject us to other risks, including access to capital markets.

Our Bank Credit Facilities contain covenants that require us to maintain specified financial ratios and satisfy other financial conditions. In the past year, we did not meet certain of the covenant requirements, received temporary waivers of those requirements and subsequently renegotiated our Bank Credit Facilities. Our ability to continue to meet these financial covenants, particularly with respect to EBITDA coverage (see Debt Note 8 in the footnotes to the consolidated financial statements), may not be assured. If we default under any of these requirements, the lenders could declare all outstanding borrowings, accrued interest and fees to be due and payable or significantly increase the cost of the facility. In these circumstances, there can be no assurance that we would have sufficient liquidity to repay or refinance this indebtedness at favorable rates or at all.

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. While we have taken steps to protect the Company’s operations, the loss of a data center would create a substantial risk of business interruption.

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. To date we have several modules in production including accounts receivable and payroll in Canada and payroll and billing in the United Kingdom and Ireland. We are delaying implementation of the remaining components, including payroll and billing in the United States and billing in Canada, until at least 2011 and do not have an estimate of the cost for completion. There is a risk that if the remaining modules are not completed or the cost of completion is prohibitive, an impairment charge relating to all or a portion of the $6.2 million capitalized cost of the in-process modules could be required.

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 or increased taxes, including payroll taxes, 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 all major staffing markets throughout the world. 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.

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.

Provisions in our certificate of incorporation and bylaws and Delaware law may delay or prevent an acquisition of our company.

Our restated 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, 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.

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, our shareholders could lose the opportunity to sell their 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.

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. 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.

See Note 17, Contingencies, in the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for a discussion of current legal 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 2009.

PART II

ITEM 5.		MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

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 in the table below. Payments of dividends are restricted by the financial covenants contained in our short- and long-term debt facilities, as described in the Debt footnote to the consolidated financial statements.

		Per share amounts (in dollars)
		First				Second				Third				Fourth
		Quarter				Quarter				Quarter				Quarter				Year
2009
Class A common
High		$	14.13			$	12.99			$	14.10			$	13.69			$	14.13
Low			6.11				7.68				10.39				10.01				6.11
Class B common
High			14.50				11.65				14.12				14.99				14.99
Low			9.21				10.00				10.74				11.18				9.21
Dividends			—				—				—				—				—
2008
Class A common
High		$	21.38			$	23.20			$	21.53			$	19.68			$	23.20
Low			15.01				19.38				16.50				9.47				9.47
Class B common
High			25.99				22.01				20.00				22.92				25.99
Low			19.55				19.75				17.00				10.99				10.99
Dividends			.135				.135				.135				.135				.54

Holders

The number of holders of record of our Class A and Class B common stock were 5,715 and 415, respectively, as of February 8, 2010.

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

														Maximum Number
										Total Number				(or Approximate
										of Shares (or				Dollar Value) of
		Total Number				Average				Units) Purchased				Shares (or Units)
		of Shares				Price Paid				as Part of Publicly				That May Yet Be
		(or Units)				per Share				Announced Plans				Purchased Under the
Period		Purchased				(or Unit)				or Programs				Plans or Programs
														(in millions of dollars)
September 28, 2009 through November 1, 2009			575			$	12.47				—			$	—
November 2, 2009 through November 29, 2009			—				—				—				—
November 30, 2009 through January 3, 2010			7,608				11.93				—				—
Total			8,183			$	11.97				—

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. In connection with this program, which expired in August, 2009, the Company repurchased $42.7 million of shares in the open market. We may 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. Accordingly, 8,183 shares were reacquired in transactions outside the repurchase program during the Company’s fourth quarter.

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, the S&P 600 SmallCap Index and the S&P 1500 Human Resources and Employment Services Index for the five years ended December 31, 2009. The graph assumes an investment of $100 on December 31, 2004 and that all dividends were reinvested. Standard & Poor’s often makes S&P index changes for the S&P MidCap 400 and the S&P SmallCap 600 at the end of the year. As a result of these changes Kelly Services moved from the S&P MidCap 400 to the S&P SmallCap 600 Index. We have included both indices in the Total Return Performance Graph below.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Assumes Initial Investment of $100
December 31, 2004 – December 31, 2009

		2004				2005				2006				2007				2008				2009
Kelly Services, Inc.		$	100.00			$	88.10			$	98.85			$	65.11			$	46.86			$	42.98
S&P MidCap 400 Index		$	100.00			$	112.55			$	124.16			$	134.06			$	85.51			$	117.49
S&P SmallCap 600 Index		$	100.00			$	107.68			$	123.96			$	123.59			$	85.19			$	106.98
S&P 1500 Human Resources and Employment Services Index		$	100.00			$	115.19			$	137.77			$	105.14			$	67.65			$	93.50

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 the consolidated financial statements included elsewhere in this report.

(In millions except per share amounts)		2009 (1,2)				2008 (2)				2007				2006				2005
Revenue from services		$	4,314.8			$	5,517.3			$	5,667.6			$	5,546.8			$	5,186.4
(Loss) earnings from continuing operations			(105.1	)			(81.7	)			53.7				56.8				37.7
Earnings (loss) from discontinued operations, net of tax (3)			0.6				(0.5	)			7.3				6.7				1.6
Net (loss) earnings			(104.5	)			(82.2	)			61.0				63.5				39.3
Basic (loss) earnings per share (4):
(Loss) earnings from continuing operations			(3.01	)			(2.35	)			1.46				1.56				1.05
Earnings (loss) from discontinued operations			0.02				(0.02	)			0.20				0.18				0.05
Net (loss) earnings			(3.00	)			(2.37	)			1.65				1.74				1.09
Diluted (loss) earnings per share (4):
(Loss) earnings from continuing operations			(3.01	)			(2.35	)			1.45				1.55				1.04
Earnings (loss) from discontinued operations			0.02				(0.02	)			0.20				0.18				0.05
Net (loss) earnings			(3.00	)			(2.37	)			1.65				1.73				1.09
Dividends per share
Classes A and B common			—				0.54				0.52				0.45				0.40
Working capital			360.8				427.4				478.6				463.3				428.0
Total assets			1,301.7				1,457.3				1,574.0				1,469.4				1,312.9
Total noncurrent liabilities			197.7				203.8				200.5				142.6				119.9

ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Executive Overview

Fiscal 2009 was one of the most challenging in Kelly’s 63-year history. Global economic conditions had a profound and unprecedented impact on our financial performance, and fundamental changes in the staffing market emerged, as larger companies increased their focus on developing comprehensive solutions for managing their workforce going forward. For the fiscal year, we reported a net loss from continuing operations of $3.01 per diluted share, compared to a net loss of $2.35 per share in 2008. Our gross profit rate for the year declined to 16.3% from 17.7% in 2008, primarily due to changing business mix and declining fee-based income.

During this period, we took the opportunity to reassess our operations and adjust our strategy — reshaping Kelly to become leaner, more agile and more customer-focused. Amidst a deep and prolonged global recession, we moved aggressively to restructure our operations by closing and consolidating branches, eliminating unprofitable staffing operations in certain countries, reducing workforce, controlling costs and becoming more efficient in our service delivery to our customers.

As a result of our actions, we incurred $30 million of global restructuring costs in 2009, representing primarily severance, lease terminations and asset write-offs. The discretionary and structural cost-containment initiatives we implemented in late 2008 more than offset the effects of this additional spending. As a result, total expenses for 2009, including restructuring costs, were $173 million below 2008.

We intend to remain vigilant in controlling costs and leveraging our lower expense base to focus on profitability in the year ahead. We have adjusted our strategy to meet the changes in the marketplace and remain committed to achieving profitability in each operation, accelerating growth of higher-margin services such as our professional and technical disciplines, increasing our focus on customer acquisition and partnering with our valued customers to effectively manage their workforce needs through our Outsourcing and Consulting Group.

Results of Operations
2009 versus 2008

Revenue from services for 2009 totaled $4.31 billion, a decrease of 21.8% from 2008. This was the result of a decrease in hours worked of 18.7% combined with a decrease in average hourly bill rates of 5.0% (1.2% on a constant currency basis). Fee-based income, which is included in revenue from services, totaled $86.1 million, or 2.0% of total revenue, for 2009, a decrease of 43.1% as compared to $151.3 million for 2008. Revenue for 2009 decreased in all seven business segments, reflecting the global economic slowdown.

Compared to 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, revenue for 2009 decreased 19.2% 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. 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 for 2009 on a 53-week reported basis:

		Revenue from Services
		2009				2008
		(53 Weeks)				(52 Weeks)				% Change
		(In millions of dollars)
Revenue from Services — Constant Currency:
Americas Commercial		$	2,006.1			$	2,516.7				(20.3	)%
Americas PT			793.4				938.2				(15.4	)
Total Americas Commercial and PT — Constant Currency			2,799.5				3,454.9				(19.0	)
EMEA Commercial			984.3				1,310.5				(24.9	)
EMEA PT			154.0				172.5				(10.7	)
Total EMEA Commercial and PT — Constant Currency			1,138.3				1,483.0				(23.2	)
APAC Commercial			299.2				336.0				(11.0	)
APAC PT			26.0				34.3				(24.3	)
Total APAC Commercial and PT — Constant Currency			325.2				370.3				(12.2	)
OCG — Constant Currency			222.3				233.3				(4.7	)
Less: Intersegment revenue			(25.3	)			(24.2	)			5.0
Total Revenue from Services — Constant Currency			4,460.0				5,517.3				(19.2	)
Foreign Currency Impact			(145.2	)
Revenue from Services		$	4,314.8			$	5,517.3				(21.8	)%

In addition, the 2009 fiscal year included a 53^rd week. This fiscal leap year occurs every five or six years and is necessary to align the fiscal and calendar periods. The 53^rd week added approximately 1% to 2009 revenue.

Gross profit of $701.7 million was 28.2% lower than the gross profit of $977.6 million for the prior year. The gross profit rate for 2009 was 16.3%, versus 17.7% for 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, lower margins as a result of business and customer mix and a lower level of favorable workers’ compensation adjustments in the Americas. Our average mark-up has been impacted by shifts to a higher proportion of light industrial business compared to clerical, and to large corporate customers compared to retail.

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.

As more fully described in Critical Accounting Estimates, we regularly update our estimates of the ultimate costs of open workers’ compensation claims. As a result, we reduced the estimated cost of prior year workers’ compensation claims by $2.8 million for 2009. This compares to an adjustment reducing prior year workers’ compensation claims by $12.7 million for 2008.

Selling, general and administrative (“SG&A”) expenses totaled $794.7 million, a year-over-year decrease of $172.7 million, or 17.9% (14.8% on a constant currency basis). Included in SG&A expenses for 2009 are litigation costs of $5.3 million and restructuring charges of $29.9 million, of which $14.4 million related to severance, $7.9 million related to lease termination costs and $7.6 million related to asset write-offs and other costs. Included in SG&A expenses for 2008 are litigation costs of $22.5 million and restructuring costs of $6.5 million.

Starting in the third quarter of 2008, we began taking selected cost savings actions, including employee headcount reductions and branch closings. In January, 2009, we initiated a more significant restructuring plan for our U.K. operations, and completed it during the year. Throughout 2009, we continued to expand our focus to achieve further cost savings and related efficiencies by assessing the scale of our global branch network, along with permanent employee headcount levels. By the 2009 year end, our restructuring actions encompassed a global reach beyond that originally anticipated. Accordingly, we included all related costs, including severance and lease terminations, in connection with these actions taken around the world, in our reported restructuring charges for 2009 and 2008. Refer to the segment discussions for more detail of the restructuring actions.

The largest components of the $172.7 million year-over-year decrease in SG&A expenses are approximately $110 million of structural changes, $55 million of compensation and other discretionary savings and the $17 million decrease in year-over-year litigation costs, partially offset by restructuring charges and incremental costs related to prior year’s acquisitions and investments. Structural changes represent the restructuring actions we have taken around the world during the last 18 months to reduce expenses, including a reduction of approximately 1,900 full-time employees and the closing, sale or consolidation of approximately 240 branches, some of which are still in process. 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.

During 2009, asset impairment charges of $53.1 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. The Company’s estimates as of September 27, 2009 resulted in a $0.5 million reduction in the carrying value of long-lived assets and intangible assets in Europe.

During 2008, we recorded goodwill impairment charges of $50.4 million related to the EMEA Commercial segment, long-lived asset impairment charges of $11.4 million related to U.K. and an other-than-temporary impairment of $18.7 million related to our investment in Temp Holdings.

As a result of the above, we reported a loss from operations for 2009 totaling $146.1 million, compared to $70.3 million reported for 2008.

Income tax benefit on continuing operations for 2009 was $43.2 million, compared to expense of $8.0 million for 2008. Income taxes were negatively impacted in 2009 and 2008 by non-deductible impairment charges and valuation allowances on operating losses and restructuring charges in certain foreign countries, offset by work opportunity tax credits in the U.S. 2009 income taxes also benefited from investments in life insurance policies used to fund the Company’s deferred compensation plan, which generated non-taxable income in 2009, and non-deductible losses in 2008. The Company incurred tax losses in 2009 in the United States and a number of foreign countries. Continued tax losses in these jurisdictions could result in recording an additional valuation allowance against the Company’s deferred tax assets. See Note 14, Income Taxes, in the Notes to Consolidated Financial Statements.

Loss from continuing operations was $105.1 million in 2009, compared to $81.7 million in 2008. Included in loss from continuing operations in 2009 were $50.0 million, net of tax, of asset impairment charges, $24.0 million, net of tax, of restructuring charges and $3.3 million, net of tax, related to litigation expenses. Included in loss from continuing operations in 2008 were $77.2 million, net of tax, of impairment charges, $13.9 million, net of tax, of litigation expenses and $5.3 million, net of tax, of restructuring charges.

Discontinued operations include the operating results of Kelly Home Care (“KHC”), which was sold in 2007 and Kelly Staff Leasing (“KSL”), which was sold in 2006. Earnings from discontinued operations totaled $0.6 million for 2009, compared to a loss of $0.5 million for 2008. These amounts represent adjustments to assets and liabilities retained as part of the sale agreements.

Net loss for 2009 totaled $104.5 million, compared to $82.2 million in 2008. Diluted loss from continuing operations per share for 2009 was $3.01, as compared to diluted loss from continuing operations per share of $2.35 for 2008.

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 share using the two-class method in accordance with 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 year ended December 28, 2008.

Americas Commercial

														Constant
		2009				2008								Currency
		(53 Weeks)				(52 Weeks)				Change				Change
		(In millions of dollars)
Revenue from Services		$	1,980.3			$	2,516.7				(21.3	)%			(20.3	)%
Fee-based income			6.6				15.7				(58.4	)			(56.8	)
Gross profit			290.7				399.0				(27.1	)			(26.3	)
SG&A expenses excluding restructuring charges			273.2				328.2				(16.7	)
Restructuring charges			7.2				0.9			NM
Total SG&A expenses			280.4				329.1				(14.8	)			(13.8	)
Earnings from Operations			10.3				69.9				(85.1	)
Gross profit rate			14.7	%			15.9	%		(1.2		) pts.
Expense rates (excluding restructuring charges):
% of revenue			13.8				13.0				0.8
% of gross profit			93.9				82.2				11.7
Operating margin			0.5				2.8				(2.3	)

The change in Americas Commercial revenue from services reflected a decrease in hours worked of 20.3%, combined with a decrease in average hourly bill rates of 0.9% (an increase of 0.3% on a constant currency basis). Americas Commercial represented 45.9% of total Company revenue for 2009 and 45.6% for 2008.

The decrease in the gross profit rate was due to lower fee-based income, an increase in the proportion of lower-margin light industrial business to higher-margin clerical business, as well as the impact of lower favorable workers’ compensation adjustments from prior years. Of the total $2.8 million adjustment in 2009 noted above, $2.4 million is reflected in the results of Americas Commercial. This compares to an adjustment of $10.5 million in 2008.

The decrease in SG&A expenses reflects reduced salaries and incentive compensation related to expense control initiatives. Restructuring charges in 2009 and 2008 include severance, lease termination and other costs to close or consolidate approximately 115 branches.

Americas PT

														Constant
		2009				2008								Currency
		(53 Weeks)				(52 Weeks)				Change				Change
		(In millions of dollars)
Revenue from Services		$	792.6			$	938.2				(15.5	)%			(15.4	)%
Fee-based income			9.4				19.4				(51.5	)			(51.4	)
Gross profit			125.1				161.7				(22.6	)			(22.5	)
SG&A expenses excluding restructuring charges			100.9				113.3				(10.9	)
Restructuring charges			1.0				—			NM
Total SG&A expenses			101.9				113.3				(10.0	)			(9.8	)
Earnings from Operations			23.2				48.4				(52.2	)
Gross profit rate			15.8	%			17.2	%		(1.4		) pts.
Expense rates (excluding restructuring charges):
% of revenue			12.7				12.1				0.6
% of gross profit			80.7				70.1				10.6
Operating margin			2.9				5.2				(2.3	)

The change in Americas PT revenue from services reflected a decrease in hours worked of 15.3%, partially offset by an increase in average billing rates of 0.7% (0.8% on a constant currency basis). Americas PT revenue represented 18.4% of total Company revenue for 2009 and 17.0% for 2008.

The Americas PT gross profit rate decreased, due primarily to lower fee-based income, changes in customer mix and higher growth in certain lower-margin customer accounts.

The decrease in SG&A 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

														Constant
		2009				2008								Currency
		(53 Weeks)				(52 Weeks)				Change				Change
		(In millions of dollars)
Revenue from Services		$	895.2			$	1,310.5				(31.7	)%			(24.9	)%
Fee-based income			16.6				39.5				(58.0	)			(52.6	)
Gross profit			140.2				227.3				(38.4	)			(32.5	)
SG&A expenses excluding restructuring charges			150.3				226.5				(33.7	)
Restructuring charges			15.6				3.9				301.4
Total SG&A expenses			165.9				230.4				(28.0	)			(20.2	)
Earnings from Operations			(25.7	)			(3.1	)		NM
Gross profit rate			15.7	%			17.4	%		(1.7		) pts.
Expense rates (excluding restructuring charges):
% of revenue			16.8				17.3				(0.5	)
% of gross profit			107.2				99.6				7.6
Operating margin			(2.9	)			(0.2	)			(2.7	)

The change in revenue from services in EMEA Commercial resulted from a 28.8% decrease in hours worked and a decrease in fee-based income, combined with a decrease in average hourly bill rates of 7.6% (an increase of 1.9% on a constant currency basis). EMEA Commercial revenue represented 20.7% of total Company revenue for 2009 and 23.8% for 2008.

The decrease in the gross profit rate was due primarily to decreases in fee-based income, a decline in temporary margins due to pricing pressure and shift in customer mix to corporate accounts, along with the effect of French payroll tax credits recorded in 2008, which contributed approximately 30 basis points to the EMEA Commercial gross profit rate.

During 2009, EMEA Commercial completed a significant restructuring within the United Kingdom and exited the staffing business in Spain, Turkey, Ukraine and Finland. These restructuring actions resulted in the closure of approximately 85 branches and reduction of approximately 525 permanent employees during 2009. Total restructuring costs for EMEA Commercial in 2009 included $5.0 million of severance, $4.4 million of lease termination costs and $6.2 million of asset write-offs and other costs. These actions and other cost-savings initiatives resulted in the decrease in SG&A expenses.

EMEA PT

														Constant
		2009				2008								Currency
		(53 Weeks)				(52 Weeks)				Change				Change
		(In millions of dollars)
Revenue from Services		$	141.9			$	172.5				(17.8	)%			(10.7	)%
Fee-based income			15.7				26.8				(41.2	)			(33.2	)
Gross profit			37.8				51.2				(26.2	)			(18.8	)
SG&A expenses			40.6				48.9				(16.9	)			(8.5	)
Earnings from Operations			(2.8	)			2.3			NM
Gross profit rate			26.6	%			29.7	%		(3.1		) pts.
Expense rates:
% of revenue			28.6				28.3				0.3
% of gross profit			107.6				95.5				12.1
Operating margin			(2.0	)			1.3				(3.3	)

The change in revenue from services in EMEA PT resulted from the decrease in fee-based income, a decrease in hours worked of 10.7%, combined with a 3.7% decrease in average hourly bill rates (an increase of 3.9% on a constant currency basis). EMEA PT revenue represented 3.3% of total Company revenue for 2009 and 3.1% for 2008.

The decrease in the EMEA PT gross profit rate was primarily due to decreases in fee-based income. SG&A expenses declined, due to reductions in personnel and incentive compensation.

APAC Commercial

														Constant
		2009				2008								Currency
		(53 Weeks)				(52 Weeks)				Change				Change
		(In millions of dollars)
Revenue from Services		$	284.9			$	336.0				(15.2	)%			(11.0	)%
Fee-based income			9.7				17.0				(43.0	)			(40.6	)
Gross profit			41.6				56.3				(26.1	)			(22.6	)
SG&A expenses excluding restructuring charges			44.6				56.6				(21.3	)
Restructuring charges			1.6				—			NM
Total SG&A expenses			46.2				56.6				(18.5	)			(14.8	)
Earnings from Operations			(4.6	)			(0.3	)		NM
Gross profit rate			14.6	%			16.8	%		(2.2		) pts.
Expense rates (excluding restructuring charges):
% of revenue			15.6				16.8				(1.2	)
% of gross profit			107.0				100.5				6.5
Operating margin			(1.6	)			(0.1	)			(1.5	)

The change in revenue from services in APAC Commercial resulted from a decrease in average hourly bill rates of 11.6% (7.1% on a constant currency basis), combined with the decrease in fee-based income and a decrease in hours worked of 2.6%. The decrease in the average hourly bill rates for APAC Commercial was due to a change in mix from countries with higher average bill rates to those with lower average bill rates, such as India and Malaysia. APAC Commercial revenue represented 6.6% of total Company revenue for 2009 and 6.1% for 2008.

The decrease in the APAC Commercial gross profit rate was primarily due to decreases in fee-based income. SG&A expenses declined, due to reductions in personnel and incentive compensation.

APAC PT

														Constant
		2009				2008								Currency
		(53 Weeks)				(52 Weeks)				Change				Change
		(In millions of dollars)
Revenue from Services		$	25.4			$	34.3				(26.0	)%			(24.3	)%
Fee-based income			3.8				5.1				(25.0	)			(21.0	)
Gross profit			7.7				10.2				(25.1	)			(22.6	)
SG&A expenses			9.2				10.7				(14.2	)			(9.9	)
Earnings from Operations			(1.5	)			(0.5	)			(224.9	)
Gross profit rate			30.2	%			29.8	%		0.4		pts.
Expense rates:
% of revenue			36.2				31.2				5.0
% of gross profit			119.8				104.6				15.2
Operating margin			(6.0	)			(1.4	)			(4.6	)

The change in translated U.S. dollar revenue from services in APAC PT resulted from a decrease in the translated U.S. dollar average hourly bill rates of 13.4% (11.8% on a constant currency basis), combined with a decrease in hours worked of 14.8% and the decrease in fee-based income. The decrease in the average hourly bill rates for APAC PT was due to a change in mix from countries with higher average bill rates to those with lower average bill rates, such as India. APAC PT revenue represented 0.6% of total Company revenue for 2009 and 2008.

SG&A expenses declined, due to reductions in personnel and incentive compensation.

OCG

														Constant
		2009				2008								Currency
		(53 Weeks)				(52 Weeks)				Change				Change
		(In millions of dollars)
Revenue from Services		$	219.9			$	233.3				(5.7	)%			(4.7	)%
Fee-based income			24.4				27.8				(12.3	)			(9.4	)
Gross profit			59.7				72.9				(18.0	)			(16.1	)
SG&A expenses excluding restructuring charges			69.6				69.5				0.0
Restructuring charges			1.9				0.5				328.4
Total SG&A expenses			71.5				70.0				2.0				4.3
Earnings from Operations			(11.8	)			2.9			NM
Gross profit rate			27.2	%			31.2	%		(4.0		) pts.
Expense rates (excluding restructuring charges):
% of revenue			31.7				29.8				1.9
% of gross profit			116.6				95.6				21.0
Operating margin			(5.3	)			1.2				(6.5	)

Revenue from services in the OCG segment for 2009 decreased in all three regions — Americas, Europe and Asia-Pacific. OCG revenue represented 5.1% of total Company revenue for 2009 and 4.2% for 2008.

The OCG gross profit rate decreased primarily due to a shift in revenue mix among the OCG business units. Revenue in the higher-margin recruitment process outsourcing (“RPO”) and contingent workforce outsourcing (“CWO”) units declined, while revenue in our lower-margin business process outsourcing (“BPO”) unit grew modestly during 2009. This change in business mix, coupled with a decrease in the gross profit rates in our RPO practice as compared to 2008, resulted in the overall gross profit decline.

Total SG&A expenses were relatively unchanged from the prior year. Continuing costs related to investments to build out implementation and operations infrastructure from the second and third quarters of 2008, and continued investment in new initiatives, were partially offset by a reduction in salary costs in our RPO and executive placement business units, as well as an overall decrease in discretionary spending on business travel and general staffing expenses.

Results of Operations
2008 versus 2007

Revenue from services for 2008 totaled $5.5 billion, a decrease of 2.7% from 2007. This was the result of a decrease in hours worked of 8.3%, partially offset by an increase in average hourly bill rates of 4.1% (3.0% on a constant currency basis). Fee-based income, which is included in revenue from services, totaled $151.3 million, or 2.7% of total revenue for 2008, an increase of 11.1% as compared to $136.3 million in 2007. Revenue decreased in the Americas Commercial and Americas PT business segments and increased in each of the five other business segments. Reflecting the accelerating slowdown in the global economy, the trend in revenue growth during 2008 was negative in all business units, with the largest decline occurring in the fourth quarter.

Compared to 2007, the U.S. dollar was weaker against certain foreign currencies, including the euro and the Swiss franc. As a result, our consolidated U.S. dollar translated revenue was higher than would have otherwise been reported. On a constant currency basis, 2008 revenue from services decreased 3.7% as compared with 2007. The table below summarizes the impact of foreign exchange adjustments on revenue from services for 2008:

		Revenue from Services
		2008				2007				% Change
		(In millions of dollars)
Revenue from Services — Constant Currency:
Americas Commercial		$	2,514.9			$	2,772.5				(9.3	)%
Americas PT			938.2				950.3				(1.3	)
Total Americas Commercial and PT — Constant Currency			3,453.1				3,722.8				(7.2	)
EMEA Commercial			1,271.3				1,292.3				(1.6	)
EMEA PT			166.1				158.8				4.6
Total EMEA Commercial and PT — Constant Currency			1,437.4				1,451.1				(1.0	)
APAC Commercial			326.9				310.6				5.2
APAC PT			32.7				26.7				22.4
Total APAC Commercial and PT — Constant Currency			359.6				337.3				6.6
OCG — Constant Currency			231.7				180.0				28.8
Less: Intersegment revenue			(24.2	)			(23.6	)			(2.4	)
Total Revenue from Services — Constant Currency			5,457.6				5,667.6				(3.7	)
Foreign Currency Impact			59.7
Revenue from Services		$	5,517.3			$	5,667.6				(2.7	)%

Gross profit of $977.6 million was 1.2% lower than in 2007. Gross profit as a percentage of revenues was 17.7% in 2008 and increased 0.2 percentage points compared to the 17.5% rate in 2007. Compared to 2007, the gross profit rate increased in the EMEA PT and OCG segments, and was relatively flat in the Americas Commercial business segment. The gross profit rate decreased in all other business segments. The improvement in the gross profit rate was primarily due to growth in fee-based income.

The gross profit rate for 2008 and 2007 also included the effect of French payroll tax credits. During 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. During 2008, the French government extended eligibility to claim payroll tax credits to 2005. In connection with these changes, $2.4 million of French payroll tax credits were recognized in 2008 and $4.8 million were recognized in 2007.

As a result of regularly updating our estimates of the ultimate cost of open workers’ compensation claims, we reduced the estimated cost of 2008 workers’ compensation claims by $12.7 million. This compares to an adjustment reducing prior year workers’ compensation claims by $11.6 million in 2007.

SG&A expenses totaled $967.4 million, an increase of 6.4% (5.2% on a constant currency basis) from 2007. SG&A expenses expressed as a percentage of gross profit were 99.0% in 2008, a 7.1 percentage point increase compared to the 91.9% rate in 2007. Included in SG&A expenses for 2008 are $22.5 million of litigation costs for several pending lawsuits. (See Note 17, Contingencies, in the Notes to Consolidated Financial Statements for further discussion.) Also included in SG&A expenses for 2008 was $6.5 million of costs related to global restructuring charges. Included in SG&A expenses for 2007 were $8.9 million of expenses related to 2007 Americas and U.K. restructuring actions.

During the fourth quarter of 2008, impairment charges of $80.5 million were also recorded. We completed our goodwill impairment test during the fourth quarter of 2008 and, due to worsening economic conditions, the Company’s discounted cash flow forecast for future years was revised. This resulted in the recognition of a goodwill impairment loss of $50.4 million in the EMEA Commercial segment in 2008. At December 28, 2008, the Company also determined that its available-for-sale investment in Temp Holdings Co. Ltd. (“Temp Holdings,” formerly Tempstaff), a Japanese staffing company, was impaired and an other-than-temporary impairment of $18.7 million was recorded. While Temp Holdings’ performance was strong, its value was affected by global market movements. The Company’s determination that the impairment was other-than-temporary was based on the length of time (approximately nine months as of December 28, 2008) and extent to which the market value of the investment had been less than cost.

Additionally, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount 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 evaluation as of December 28, 2008, which included consideration of a history of losses in the U.K. and uncertainty around future financial projections, resulted in an $11.4 million reduction in the carrying value of long-lived assets in the U.K.

As a result of the above, the Company reported losses from operations for 2008 of $70.3 million, compared to earnings from operations of $80.1 million reported in 2007.

Other expense was $3.4 million in 2008, compared to income of $3.2 million in 2007. Included in other expense for 2008 was $3.7 million of foreign exchange losses booked primarily in the fourth quarter, related to yen-denominated net debt for the Temp Holdings investment and ruble-denominated intercompany balances in Russia. Foreign exchange losses were not significant in 2007.

Income tax expense on continuing operations for 2008 was $8.0 million, compared to expense of $29.6 million in 2007. Most of the impairment and restructuring charges were not tax deductible. In foreign countries where future tax deductions are possible, a valuation allowance was recorded against the deferred tax assets created by the charges. The valuation allowances related to impairment and restructuring charges equaled $2.2 million in Germany, $7.9 million in Japan and $1.3 million in the United Kingdom. The 2008 income tax expense was also impacted by nondeductible losses in the cash surrender value of life insurance policies used to fund the Company’s deferred compensation plans, and by losses in foreign countries which were not currently deductible.

Loss from continuing operations was $81.7 million in 2008, compared to earnings of $53.7 million in 2007. Included in loss from continuing operations in 2008 were $77.2 million, net of tax, of impairment charges, $13.9 million, net of tax, of litigation expenses, $5.3 million, net of tax, of restructuring costs and $1.6 million of French payroll tax credits, net of tax. Included in earnings from continuing operations in 2007 were $7.8 million of expenses, net of tax, related to the U.K. and Americas restructuring actions and $3.2 million of French payroll tax credits, net of tax.

Loss from discontinued operations, which includes KHC’s and KSL’s operating results, totaled $0.5 million for 2008, compared to earnings of $7.3 million for 2007. Discontinued operations for 2008 represent adjustments to assets and liabilities retained as part of the sale agreements. Discontinued operations for 2007 included the $6.2 million gain, net of tax, on the sale of KHC.

Net loss in 2008 was $82.2 million, compared to earnings of $61.0 million in 2007. Diluted loss per share from continuing operations for 2008 was $2.35, as compared to diluted earnings per share from continuing operations of $1.45 in 2007. Diluted loss per share from continuing operations for 2008 included the $2.22 per share cost of impairments, $0.40 per share cost of litigation expenses, $0.15 per share cost of restructuring costs and a $0.05 per share benefit related to French payroll tax credits. Diluted earnings per share from continuing operations for 2007 included $0.21 per share of restructuring costs and a $0.09 per share benefit related to French payroll tax credits.

The impact of including share-based payment awards in the calculation of earnings per share using the two-class method in accordance with generally accepted accounting principles effective with the first quarter of 2009 was to lower previously reported earnings per share amounts for the year ended December 30, 2007 as follows: basic and diluted earnings per share from continuing operations by $0.02, basic earnings per share on net earnings by $0.03 and diluted earnings per share on net earnings by $0.02.

Americas Commercial

														Constant
														Currency
		2008				2007				Change				Change
		(In millions of dollars)
Revenue from Services		$	2,516.7			$	2,772.5				(9.2	)%			(9.3	)%
Fee-based income			15.7				18.9				(15.9	)			(16.2	)
Gross profit			399.0				438.3				(9.0	)			(9.0	)
SG&A expenses			329.1				342.7				(4.0	)			(4.0	)
Earnings from Operations			69.9				95.6				(26.8	)
Gross profit rate			15.9	%			15.8	%		0.1		pts.
Expense rates:
% of revenue			13.1				12.4				0.7
% of gross profit			82.5				78.2				4.3
Operating margin			2.8				3.4				(0.6	)

The change in revenue from services in the Americas Commercial segment reflected the decrease in fee-based income, a decrease in hours worked of 12.4%, partially offset by an increase in average hourly bill rates of 3.7% (3.6% on a constant currency basis). Year-over-year revenue comparisons reflect decreases of 6.5% in the first quarter, 6.1% in the second quarter, 9.4% in the third quarter, and 14.9% in the fourth quarter. Americas Commercial represented 45.6% of total Company revenue for 2008 and 48.9% for 2007.

As noted above, the Company revised its estimate of the cost of outstanding workers’ compensation claims and, accordingly, reduced expense in 2008. Of the total $12.7 million adjustment recorded in 2008, $10.5 million is reflected in the results of Americas Commercial. This compares to an adjustment of $10.0 million in 2007. SG&A expenses decreased compared to 2007, but were higher as a percentage of revenue due to lower revenue from services.

Americas PT

														Constant
														Currency
		2008				2007				Change				Change
		(In millions of dollars)
Revenue from Services		$	938.2			$	950.3				(1.3	)%			(1.3	)%
Fee-based income			19.4				20.6				(5.8	)			(6.0	)
Gross profit			161.7				166.4				(2.9	)			(2.9	)
SG&A expenses			113.3				112.4				0.8				0.7
Earnings from Operations			48.4				54.0				(10.4	)
Gross profit rate			17.2	%			17.5	%		(0.3		) pts.
Expense rates:
% of revenue			12.1				11.8				0.3
% of gross profit			70.1				67.6				2.5
Operating margin			5.2				5.7				(0.5	)

The change in revenue from services in Americas PT reflected the decrease in fee-based income, a decrease in hours worked of 4.2%, partially offset by an increase in average billing rates of 2.5%. On a year-over-year basis, revenue increased 2.8% in the first quarter and 1.7% in the second quarter, and decreased 2.5% in the third quarter and 7.0% in the fourth quarter. Americas PT revenue represented 17.0% of total Company revenue for 2008 and 16.8% for 2007.

Americas PT’s share of the reduction in workers’ compensation expense was $1.4 million in 2008 and $1.0 million in 2007. SG&A expenses were flat compared to 2007, but were higher as a percentage of revenue due to lower revenue from services.

EMEA Commercial

														Constant
														Currency
		2008				2007				Change				Change
		(In millions of dollars)
Revenue from Services		$	1,310.5			$	1,292.3				1.4	%			(1.6	)%
Fee-based income			39.5				38.1				3.5				0.0
Gross profit			227.3				229.0				(0.7	)			(4.8	)
SG&A expenses			230.4				220.1				4.6				2.1
Earnings from Operations			(3.1	)			8.9				(133.5	)
Gross profit rate			17.4	%			17.7	%		(0.3		) pts.
Expense rates:
% of revenue			17.6				17.0				0.6
% of gross profit			101.3				96.1				5.2
Operating margin			(0.2	)			0.7				(0.9	)

The change in translated U.S. dollar revenue from services in EMEA Commercial resulted from the increase in fee-based income and an increase in average hourly bill rates of 4.0% (an increase of 0.7% on a constant currency basis), partially offset by a decrease in hours worked of 4.7%. Constant currency year-over-year revenue comparisons reflect decreases of 1.6% in the first quarter and 1.1% in the second quarter, an increase of 1.3% in the third quarter and decrease of 5.0% in the fourth quarter. EMEA Commercial revenue represented 23.8% of total Company revenue for 2008 and 22.8% for 2007. Acquisitions contributed approximately 2 percentage points to EMEA Commercial year-over-year constant currency revenue growth.

The change in the gross profit rate was due to lower French payroll tax credits recognized in 2008 as compared to 2007, and lower temporary gross profit rates primarily in the U.K. Included in SG&A expenses was the effect of $3.9 million of restructuring costs in 2008 and $5.9 million in U.K. restructuring costs in 2007.

EMEA Commercial earnings from operations for 2008 included $3.9 million of restructuring charges and a $2.4 million benefit related to French payroll tax credits. Earnings from operations for 2007 included a $5.9 million charge related to the restructuring of the U.K. operations and a $4.8 million benefit related to French payroll tax credits.

EMEA PT

														Constant
														Currency
		2008				2007				Change				Change
		(In millions of dollars)
Revenue from Services		$	172.5			$	158.8				8.7	%			4.6	%
Fee-based income			26.8				21.9				22.4				15.8
Gross profit			51.2				44.8				14.3				8.3
SG&A expenses			48.9				42.4				15.4				10.7
Earnings from Operations			2.3				2.4				(5.7	)
Gross profit rate			29.7	%			28.2	%		1.5		pts.
Expense rates:
% of revenue			28.3				26.7				1.6
% of gross profit			95.5				94.6				0.9
Operating margin			1.3				1.5				(0.2	)

The change in translated U.S. dollar revenue from services in EMEA PT resulted from an increase in fee-based income, a 4.7% increase in average hourly bill rates (1.0% on a constant currency basis), and an increase in hours worked of 1.2%. Constant currency year-over-year revenue comparisons reflect increases of 9.3% in the first quarter, 5.6% in the second quarter, 2.7% in the third quarter and 1.6% in the fourth quarter. EMEA PT revenue represented 3.1% of total Company revenue for 2008 and 2.8% for 2007. Acquisitions contributed approximately 2 percentage points to EMEA PT year-over-year constant currency revenue growth.

The increase in the EMEA PT gross profit rate was primarily due to growth in fee-based income. SG&A expenses increased from 2007, due to costs associated with branch openings during the second half of 2007. Excluding the effect of acquisitions, constant currency SG&A expenses increased approximately 7% from 2007.

APAC Commercial

														Constant
														Currency
		2008				2007				Change				Change
		(In millions of dollars)
Revenue from Services		$	336.0			$	310.6				8.2	%			5.2	%
Fee-based income			17.0				15.0				13.2				9.1
Gross profit			56.3				53.0				6.1				2.8
SG&A expenses			56.6				49.9				13.6				10.2
Earnings from Operations			(0.3	)			3.1				(109.1	)
Gross profit rate			16.8	%			17.1	%		(0.3		) pts.
Expense rates:
% of revenue			16.8				16.0				0.8
% of gross profit			100.5				93.9				6.6
Operating margin			(0.1	)			1.0				(1.1	)

The change in translated U.S. dollar revenue from services in APAC Commercial resulted from the increase in fee-based income and an increase in average hourly bill rates of 6.1% (3.3% on a constant currency basis), combined with an increase in hours worked of 1.6%. Constant currency year-over-year revenue comparisons reflect increases of 23.4% in the first quarter, 6.5% in the second quarter, 1.7% in the third quarter and a decrease of 5.5% in the fourth quarter. APAC Commercial revenue represented 6.1% of total Company revenue in 2008 and 5.5% in 2007. Acquisitions in 2007 contributed approximately 4 percentage points to APAC Commercial year-over-year constant currency revenue growth.

On a constant currency basis, SG&A expenses increased, due to significant investments in this region, through acquisitions made in 2007 and costs associated with new branches.

APAC PT

														Constant
														Currency
		2008				2007				Change				Change
		(In millions of dollars)
Revenue from Services		$	34.3			$	26.7				28.3	%			22.4	%
Fee-based income			5.1				5.1				0.9				(4.3	)
Gross profit			10.2				8.9				16.0				10.3
SG&A expenses			10.7				8.7				22.9				18.1
Earnings from Operations			(0.5	)			0.2				(491.6	)
Gross profit rate			29.8	%			33.0	%		(3.2		) pts.
Expense rates:
% of revenue			31.2				32.6				(1.4	)
% of gross profit			104.6				98.6				6.0
Operating margin			(1.4	)			0.4				(1.8	)

The change in translated U.S. dollar revenue from services in APAC PT resulted from an increase in hours worked of 27.6%, combined with an increase in average hourly bill rates of 0.1% (a decrease of 4.4% on a constant currency basis). The constant currency change in average hourly bill rates was impacted by a change in mix to lower average wage rate countries, such as Malaysia and India. Constant currency year-over-year revenue comparisons reflect increases of 63.5% in the first quarter, 42.4% in the second quarter, 9.5% in the third quarter and a decrease of 2.4% in the fourth quarter. APAC PT revenue represented 0.6% of total Company revenue for 2008 and 0.5% for 2007.

The decrease in the APAC PT gross profit rate in 2008 was due to a higher mix of traditional temporary-based revenue as compared to fee-based income. On a constant currency basis, SG&A expenses increased, due primarily to significant investments in this region, including costs associated with new branches.

OCG

														Constant
														Currency
		2008				2007				Change				Change
		(In millions of dollars)
Revenue from Services		$	233.3			$	180.0				29.6	%			28.8	%
Fee-based income			27.8				16.7				66.6				65.1
Gross profit			72.9				49.6				46.7				44.7
SG&A expenses			70.0				42.1				66.3				64.8
Earnings from Operations			2.9				7.5				(63.3	)
Gross profit rate			31.2	%			27.6	%		3.6		pts.
Expense rates:
% of revenue			30.0				23.4				6.6
% of gross profit			96.2				84.9				11.3
Operating margin			1.2				4.2				(3.0	)