KELLY SERVICES INC - Annual Report: 2011 (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		(IRS Employer Identification Number)
incorporation or organization)
999 West Big Beaver Road, Troy, Michigan		48084
(Address of Principal Executive Office)		(Zip Code)

(248) 362-4444

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 $390,606,685.

Registrant had 33,252,100 shares of Class A and 3,459,885 of Class B common stock, par value $1.00, outstanding as of February 7, 2011.

The proxy statement of the registrant with respect to its 2011 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 developed innovative workforce solutions for customers in a variety of industries throughout our 64-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 provide temporary employment for approximately 530,000 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; Payroll Process Outsourcing (“PPO”), providing centralized payroll processing solutions globally for our customers; Business Process Outsourcing (“BPO”), offering full staffing and operational management of non-core functions or departments; 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 Disclosures 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 opportunities.

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 three percent of total revenue in 2010.

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 2010, our largest competitors were Allegis Group, Adecco S.A, Manpower Inc., Robert Half International, Inc., Randstad Holding N.V. and SFN Group, Inc.

Key factors that influence our success are geographic coverage, breadth of service, quality of service, and price.

Geographic presence is important, 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. 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 6,900 staff members in our international network of branch offices. In 2010, we assigned approximately 530,000 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 vice president 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 Allegis Group, Adecco S.A, Manpower Inc., Robert Half International, Inc., Randstad Holding N.V. and SFN Group, Inc., 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.

The number of customers consolidating their staffing services purchases with a single provider or small group of providers continues to increase which, in some cases, may make 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 worsened as the year progressed. The weakened global economy significantly affected our earnings performance in 2009. While our earnings performance improved during 2010, we cannot be certain that the global economy will continue to recover and that the conditions affecting the temporary staffing industry will continue to improve. We also cannot ensure that the actions we have taken or may take in the future in response to these challenges will continue to be successful or that our business, financial condition or results of operations will not continue to be adversely impacted by these conditions.

We may not achieve the intended effects of our business strategy.

Our business strategy focuses on improving profitability through scale and specialization, particularly with our professional and technical and OCG businesses. We have implemented steps to increase our presence in the commercial staffing markets, grow our higher margin specialty staffing and grow our outsourcing and consulting business. We plan to implement cost-efficient service delivery models to enable local teams to focus on profit-generating activities and relationships. If we are not successful in achieving these objectives, our revenues, costs and overall profitability could be negatively affected. If we are unable to execute our business strategy effectively, our productivity and cost competitiveness could be negatively affected.

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 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.

Impairment charges relating to our goodwill and long-lived assets could adversely affect our results of operations.

We regularly monitor our goodwill and long-lived assets for impairment indicators. In conducting our goodwill impairment testing, we compare the fair value of each of our reporting units to the related net book value. In conducting our impairment analysis of long-lived assets, we compare the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. Changes in economic or operating conditions impacting our estimates and assumptions could result in the impairment of our goodwill or long-lived assets. In the event that we determine that our goodwill or long-lived assets are impaired, we may be required to record a significant charge to earnings that could adversely affect our results of operations.

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, which 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, or credit market events beyond our control, could adversely restrict our financial and operating flexibility and subject us to other risks, including inadequate access to liquidity.

Our Bank Credit Facilities contain covenants that require us to maintain specified financial ratios and satisfy other financial conditions. During 2010, we met all of the covenant requirements. Our ability to continue to meet these financial covenants, particularly with respect to interest coverage (see Debt note in the footnotes to the consolidated financial statements), may not be assured. If we default under this or any other 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. Events beyond our control could result in the failure of one or more of our banks, reducing our access to liquidity and potentially resulting in reduced financial and operating flexibility. If broader credit markets were to experience dislocation, our potential access to other funding sources would be limited.

Damage to our key data centers could affect our ability to sustain critical business applications.

Many business processes critical to our continued operation are housed in our 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 these operations, the loss of a data center would create a substantial risk of business interruption.

Our investment in our PeopleSoft payroll, billing and accounts receivable project may not yield its intended results.

In the fourth quarter of 2004, we commenced our 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 in all locations, payroll in Canada, payroll and billing in the United Kingdom and Ireland and general ledger in the U.S., Puerto Rico and Canada. We anticipate spending approximately $25 to $30 million from 2011 through 2014 to complete the PeopleSoft project. Although the technology is intended to increase productivity and operating efficiencies, the PeopleSoft project may not yield its intended results. Any delays in completing, or an inability to successfully complete, this technology initiative or an inability to achieve the anticipated efficiencies could adversely affect our operations, liquidity and financial condition. There is also 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 $5.5 million capitalized cost of the in-process modules as of January 2, 2011 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. In particular, we are subject to state unemployment taxes in the U.S. which typically increase during periods of increased levels of unemployment. 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, or interpretations thereof, 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.

The net financial impact of recent U.S. healthcare legislation on our results of operations could be significant.

In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Acts”) were signed into U.S. law. The Acts represent comprehensive healthcare reform legislation that, in addition to other provisions, will require that we provide healthcare coverage to our temporary employees in the United States or incur penalties. Although we intend to bill these costs to our customers, there can be no assurance that we will be able to increase the fees charged to our customers in a sufficient amount to cover the increased costs. Additionally, since significant provisions of the Acts will not become effective until 2014, possible future changes to the Acts could significantly impact any estimates we develop during that period. While we are unable at this time to estimate the net impact of the Acts, we believe the net financial impact on our results of operations could be significant.

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 93% 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.

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 Canada and 5 to 10 years outside the United States and Canada. We own virtually all of the office furniture and the equipment used in our corporate headquarters and branch offices.

ITEM 3.		LEGAL PROCEEDINGS.

The Company is the subject of two pending class action lawsuits. The two lawsuits, Fuller v. Kelly Services, Inc. and Kelly Home Care Services, Inc., pending in the Superior Court of California, Los Angeles, and Sullivan v. Kelly Services, Inc., pending in the U.S. District Court Southern District of California, both involve claims for monetary damages by current and former temporary employees working in the State of California.

The Fuller matter involves claims relating 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 in the Fuller case certified both plaintiff classes involved in the suit. 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 review on April 3, 2009 requesting the decertification ruling be overturned. Plaintiffs’ request was granted on May 17, 2010 and the suit was recertified as a class action. The Sullivan matter relates to claims by temporary workers for compensation while interviewing for assignments. On April 27, 2010, the Court in the Sullivan matter certified the lawsuit as a class action. The Company believes it has meritorious defenses in both lawsuits and will continue to vigorously defend itself during the litigation process.

The Company is also involved in a number of other lawsuits arising in the ordinary course of its business, typically employment discrimination and wage and hour matters. While management does not expect any of these other matters to have a material adverse effect on the Company’s results of operations, financial position or cash flows, litigation is subject to inherent uncertainties and the Company is not at this time able to predict the outcome of these matters. It is reasonably possible that some matters could be decided unfavorably to the Company and, if so, could have a material adverse impact on our consolidated financial statements. During 2010 and 2009, the Company reassessed its potential exposure from pending litigation and established additional reserves of $3.5 million and $4.4 million, respectively.

Disclosure of Certain IRS Penalties

None.

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
2010
Class A common
High		$	18.02			$	18.93			$	16.28			$	20.29			$	20.29
Low			11.80				12.80				10.07				11.70				10.07
Class B common
High			17.56				18.54				14.40				20.90				20.90
Low			10.66				13.16				10.45				10.51				10.45
Dividends			—				—				—				—				—
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			—				—				—				—				—

Holders

The number of holders of record of our Class A and Class B common stock were 5,400 and 410, respectively, as of February 7, 2011.

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)
October 4, 2010 through November 7, 2010			276			$	14.24				—			$	—
November 8, 2010 through December 5, 2010			—				—				—				—
December 6, 2010 through January 2, 2011			6,961				18.80				—				—
Total			7,237			$	18.63				—

We may reacquire shares to cover taxes due upon the vesting of restricted stock held by employees. Accordingly, 7,237 shares were reacquired 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 600 SmallCap Index and the S&P 1500 Human Resources and Employment Services Index for the five years ended December 31, 2010. The graph assumes an investment of $100 on December 31, 2005 and that all dividends were reinvested.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Assumes Initial Investment of $100
December 31, 2005 — December 31, 2010

		2005				2006				2007				2008				2009				2010
Kelly Services, Inc.		$	100.00			$	112.20			$	73.91			$	53.20			$	48.78			$	76.87
S&P SmallCap 600 Index		$	100.00			$	115.11			$	114.77			$	79.10			$	99.32			$	125.45
S&P 1500 Human Resources and Employment Services Index		$	100.00			$	119.59			$	91.28			$	58.72			$	81.15			$	93.87

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)		2010 (2)				2009 (1,2)				2008 (2)				2007				2006
Revenue from services		$	4,950.3			$	4,314.8			$	5,517.3			$	5,667.6			$	5,546.8
Earnings (loss) from continuing operations			26.1				(105.1	)			(81.7	)			53.7				56.8
Earnings (loss) from discontinued operations, net of tax (3)			—				0.6				(0.5	)			7.3				6.7
Net earnings (loss)			26.1				(104.5	)			(82.2	)			61.0				63.5
Basic earnings (loss) per share:
Earnings (loss) from continuing operations			0.71				(3.01	)			(2.35	)			1.46				1.56
Earnings (loss) from discontinued operations			—				0.02				(0.02	)			0.20				0.18
Net earnings (loss)			0.71				(3.00	)			(2.37	)			1.65				1.74
Diluted earnings (loss) per share:
Earnings (loss) from continuing operations			0.71				(3.01	)			(2.35	)			1.45				1.55
Earnings (loss) from discontinued operations			—				0.02				(0.02	)			0.20				0.18
Net earnings (loss)			0.71				(3.00	)			(2.37	)			1.65				1.73
Dividends per share
Classes A and B common			—				—				0.54				0.52				0.45
Working capital			367.6				357.6				427.4				478.6				463.3
Total assets			1,368.4				1,312.5				1,457.3				1,574.0				1,469.4
Total noncurrent liabilities			153.6				205.3				203.8				200.5				142.6

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

Executive Overview

The U.S. and global economies exhibited signs of slowly strengthening throughout 2010. Economic growth, coupled with the emergence of positive labor market trends, was favorable to the staffing industry. In the U.S., the temporary employment penetration rate increased for the 15^th consecutive month in December to 1.7%, the highest level in over 2 ¹/2 years. More than 300,000 temporary jobs were added in the U.S. during 2010, a growth of nearly 30% since the low point in September, 2009. While still short of pre-recession levels, the current environment is encouraging for the staffing industry as employers seek more flexible labor models. However, it will likely take several years for the overall labor market to fully recover.

For Kelly, the strengthening economic trends are reflected in our 2010 fiscal year results. We reported net earnings from continuing operations of $0.71 per diluted share, compared to a net loss of $3.01 per diluted share in 2009. Revenue, which declined significantly in 2009, increased by 15% during 2010, and our expense base continues to reflect the benefit from restructuring initiatives we undertook in 2009. However, our gross profit rate declined to 16.0% in 2010 from 16.3% in the prior year, reflecting changing business mix and related pressure on temporary margins.

While the continued pace of the global economic recovery is expected to remain slow, we believe that the strategic and restructuring actions we have taken will enable us to leverage our experience and expertise as we help our customers adapt to the changing marketplace. We remain focused on emphasizing higher-margin specialty-staffing, expanding fee-based business and delivering customer-focused workforce solutions, from traditional staffing to professional and technical offerings and outsourcing and consulting services.

Results of Operations
2010 versus 2009

Revenue from services for 2010 totaled $5.0 billion, an increase of 14.7% from 2009. This was the result of an increase in hours worked of 16.8%, partially offset by a decrease in average hourly bill rates of 2.7% on a constant currency basis. Fee-based income, which is included in revenue from services, totaled $99.0 million, or 2.0% of total revenue, for 2010, an increase of 15.0% (12.6% on a constant currency basis) as compared to $86.1 million for 2009. On a constant currency basis, revenue for 2010 increased in all seven business segments, with the exception of EMEA Commercial.

Compared to 2009, the U.S. dollar was weaker against many foreign currencies, including the Australian dollar and Canadian dollar, and stronger against the euro. As a result, on a net basis, our consolidated U.S. dollar translated revenue was higher than would have otherwise been reported. On a constant currency basis, revenue for 2010 increased 13.7% as compared with the prior year. When we use the term “constant currency,” it means that we have translated financial data for 2010 into U.S. dollars using the same foreign currency exchange rates that we used to translate financial data for 2009. We believe that constant currency measurements are an important analytical tool to aid in understanding underlying operating trends without distortion due to currency fluctuations. The table below summarizes the impact of foreign exchange adjustments on revenue from services for 2010 on a 53-week reported basis for 2009:

		Revenue from Services
		2010				2009
		(52 Weeks)				(53 Weeks)				% Change
		(In millions of dollars)
Revenue from Services — Constant Currency:
Americas Commercial		$	2,404.0			$	1,980.3				21.4	%
Americas PT			887.3				792.6				12.0
Total Americas Commercial and PT — Constant Currency			3,291.3				2,772.9				18.7
EMEA Commercial			886.9				895.2				(0.9	)
EMEA PT			151.4				141.9				6.7
Total EMEA Commercial and PT — Constant Currency			1,038.3				1,037.1				0.1
APAC Commercial			321.7				284.9				12.9
APAC PT			29.6				25.4				16.8
Total APAC Commercial and PT — Constant Currency			351.3				310.3				13.2
OCG — Constant Currency			254.2				219.9				15.6
Less: Intersegment revenue			(29.0	)			(25.4	)			14.2
Total Revenue from Services — Constant Currency			4,906.1				4,314.8				13.7
Foreign Currency Impact			44.2
Revenue from Services		$	4,950.3			$	4,314.8				14.7	%

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 $794.5 million was 13.2% higher than the gross profit of $701.7 million for the prior year. The gross profit rate for 2010 was 16.0%, versus 16.3% for 2009. Compared to the prior year, the gross profit rate decreased or remained flat in all business segments, with the exception of EMEA Commercial and APAC PT. The decrease in the gross profit rate was caused by a reduction in our temporary margins, primarily within the Americas and OCG businesses. Our average temporary margin continues to be impacted by shifts to a higher proportion of light industrial business compared to clerical, to large corporate customers compared to retail and, within OCG, to a higher proportion of the lower-margin PPO business. In addition, our temporary margins were impacted by higher state unemployment taxes in the Americas to the extent not recovered through pricing. All of these items negatively impacting the gross profit rate were partially offset by the favorable impact from the HIRE Act. The Hiring Incentives to Restore Employment (“HIRE”) Act, which allows employers to receive tax incentives to hire and retain previously unemployed individuals, resulted in a benefit of $21 million in 2010. The HIRE Act expired at the end of 2010.

Selling, general and administrative (“SG&A”) expenses totaled $754.4 million and decreased year over year by $40.3 million, or 5.1% (5.9% on a constant currency basis), due to the impact of expense reduction initiatives implemented in 2009 and lower restructuring costs, partially offset by an increase in incentive compensation. Included in SG&A expenses are pretax charges for restructuring costs of $7.2 million in 2010 and $29.9 million in 2009.

Restructuring costs in 2010 relate primarily to severance and lease termination costs for branches in the EMEA Commercial and APAC Commercial segments that were in the process of closure at the end of 2009, as well as severance costs related to the corporate headquarters. Restructuring costs in 2009 relate primarily to global severance, lease terminations, asset write-offs and other miscellaneous costs incurred in connection with the reduction in the number of permanent employees and the consolidation, sale or closure of branch locations.

We recorded asset impairment charges of $2.0 million in 2010 and $53.1 million in 2009. Asset impairment charges in 2010 represent the write-off of incomplete software projects in Europe and the U.S. Asset impairment charges in 2009 represent goodwill impairment losses related to Americas Commercial, EMEA PT and APAC Commercial, and impairment of long-lived assets and intangible assets in Japan and Europe.

As a result of the above, we reported earnings from operations for 2010 totaling $38.1 million, compared to a loss of $146.1 million reported for 2009.

We recorded income tax expense for 2010 at an effective rate of 20.2%, compared to an income tax benefit at an effective rate of 29.1% in 2009. The 2010 rate was positively impacted by nontaxable income from the cash surrender value of life insurance policies used to fund the Company’s deferred compensation plan, and by work opportunity tax credits. The 2009 rate was positively impacted by these items, but was also negatively impacted by non-deductible asset impairment charges and valuation allowances on operating losses and restructuring charges in certain foreign countries. See the Income Taxes footnote in the notes to consolidated financial statements.

Earnings from continuing operations were $26.1 million in 2010, compared to a loss of $105.1 million in 2009. Included in earnings from continuing operations for 2010 was $5.4 million, net of tax, of restructuring charges and $1.5 million, net of tax, of asset impairment charges. Included in loss from continuing operations in 2009 were $24.0 million, net of tax, of restructuring charges and $50.0 million, net of tax, of asset impairment charges.

Net earnings for 2010 totaled $26.1 million, compared to a loss of $104.5 million in 2009. Diluted earnings from continuing operations per share for 2010 was $0.71, as compared to diluted loss from continuing operations per share of $3.01 for 2009.

Americas Commercial

														Constant
		2010				2009								Currency
		(52 Weeks)				(53 Weeks)				Change				Change
		(In millions of dollars)
Revenue from Services		$	2,428.2			$	1,980.3				22.6	%			21.4	%
Fee-based income			8.8				6.6				31.8				29.0
Gross profit			354.9				290.7				22.0				21.0
SG&A expenses excluding restructuring charges			275.3				273.2				0.7
Restructuring charges			0.3				7.2				(95.0	)
Total SG&A expenses			275.6				280.4				(1.7	)			(2.6	)
Earnings from Operations			79.3				10.3			NM
Gross profit rate			14.6	%			14.7	%		(0.1		)pts.
Expense rates (excluding restructuring charges):
% of revenue			11.3				13.8				(2.5	)
% of gross profit			77.5				93.9				(16.4	)
Operating margin			3.3				0.5				2.8

The change in Americas Commercial revenue from services reflected an increase in hours worked of 22%. Americas Commercial represented 49.1% of total Company revenue for 2010 and 45.9% for 2009.

The decrease in the gross profit rate was primarily due to an increase in the proportion of lower-margin light industrial business to higher-margin clerical business and higher state unemployment taxes to the extent not recovered through pricing, partially offset by the impact of HIRE Act benefits. The HIRE Act benefits impacted the gross profit rate by 60 basis points. SG&A expenses excluding restructuring were essentially flat as lower facilities costs, depreciation and corporate allocation offset higher performance-based compensation.

Americas PT

														Constant
		2010				2009								Currency
		(52 Weeks)				(53 Weeks)				Change				Change
		(In millions of dollars)
Revenue from Services		$	889.0			$	792.6				12.2	%			12.0	%
Fee-based income			9.0				9.4				(4.5	)			(4.9	)
Gross profit			140.0				125.1				12.0				11.8
SG&A expenses excluding restructuring charges			93.7				100.9				(7.0	)
Restructuring charges			—				1.0				(100.0	)
Total SG&A expenses			93.7				101.9				(8.0	)			(8.2	)
Earnings from Operations			46.3				23.2				100.1
Gross profit rate			15.8	%			15.8	%		—		pts.
Expense rates (excluding restructuring charges):
% of revenue			10.5				12.7				(2.2	)
% of gross profit			67.0				80.7				(13.7	)
Operating margin			5.2				2.9				2.3

The change in Americas PT revenue from services reflected an increase in hours worked of 8.7%, combined with an increase in average billing rates of 3.2% on a constant currency basis. Americas PT revenue represented 18.0% of total Company revenue in 2010 and 18.4% in 2009.

The Americas PT gross profit rate was unchanged, as higher state unemployment taxes to the extent not recovered through pricing were offset by the impact of HIRE Act benefits. The HIRE Act benefits impacted the gross profit rate by 60 basis points. The decrease in SG&A expenses was primarily due to lower salary expense related to reductions in personnel.

EMEA Commercial

														Constant
		2010				2009								Currency
		(52 Weeks)				(53 Weeks)				Change				Change
		(In millions of dollars)
Revenue from Services		$	872.0			$	895.2				(2.6	)%			(0.9	)%
Fee-based income			19.1				16.6				15.9				16.0
Gross profit			141.0				140.2				0.6				2.3
SG&A expenses excluding restructuring charges			130.5				150.3				(13.2	)
Restructuring charges			2.7				15.6				(82.8	)
Total SG&A expenses			133.2				165.9				(19.7	)			(18.9	)
Asset impairments			1.5				—			NM
Earnings from Operations			6.3				(25.7	)		NM
Gross profit rate			16.2	%			15.7	%		0.5		pts.
Expense rates (excluding restructuring charges):
% of revenue			15.0				16.8				(1.8	)
% of gross profit			92.6				107.2				(14.6	)
Operating margin			0.7				(2.9	)			3.6

The change in revenue from services in EMEA Commercial resulted from a decrease in average hourly bill rates of 5.8% on a constant currency basis, partially offset by a 4.8% increase in hours worked. The decrease in the constant currency average hourly bill rates for EMEA Commercial was due to a change in the mix from countries with higher average bill rates to those with lower average bill rates, such as Russia and Portugal. During 2009, EMEA Commercial completed a significant restructuring within the United Kingdom and exited the staffing business in Spain, Turkey, Ukraine and Finland, and in 2010 exited the staffing business in the Czech Republic. Exiting these locations accounted for approximately 4 percentage points of the 2010 constant currency decline. EMEA Commercial revenue represented 17.6% of total Company revenue in 2010 and 20.7% in 2009.

The change in the gross profit rate is due to higher fee-based income, as well as higher temporary margins as a result of business and customer mix. Fee-based income has a significant impact on gross profit rates. There are very low direct costs of services associated with fee-based recruitment income. Therefore, increases or decreases can have a disproportionate impact on gross profit rates. The restructuring actions and other continuing cost-savings initiatives, partially offset by higher incentive-based compensation, resulted in the decrease in SG&A expenses.

EMEA PT

														Constant
		2010				2009								Currency
		(52 Weeks)				(53 Weeks)				Change				Change
		(In millions of dollars)
Revenue from Services		$	147.6			$	141.9				4.0	%			6.7	%
Fee-based income			15.0				15.7				(4.3	)			(4.1	)
Gross profit			38.7				37.8				2.9				4.8
SG&A expenses			36.9				40.6				(9.3	)			(8.2	)
Earnings from Operations			1.8				(2.8	)		NM
Gross profit rate			26.3	%			26.6	%		(0.3		)pts.
Expense rates:
% of revenue			25.0				28.6				(3.6	)
% of gross profit			94.8				107.6				(12.8	)
Operating margin			1.4				(2.0	)			3.4

The change in revenue from services in EMEA PT resulted from a 7% increase in hours worked. EMEA PT revenue represented 3.0% of total Company revenue in 2010 and 3.3% in 2009.

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.

APAC Commercial

														Constant
		2010				2009								Currency
		(52 Weeks)				(53 Weeks)				Change				Change
		(In millions of dollars)
Revenue from Services		$	355.3			$	284.9				24.7	%			12.9	%
Fee-based income			11.4				9.7				16.6				5.6
Gross profit			48.4				41.6				16.2				4.6
SG&A expenses excluding restructuring charges			45.1				44.6				1.3
Restructuring charges			0.5				1.6				(66.5	)
Total SG&A expenses			45.6				46.2				(1.0	)			(10.7	)
Earnings from Operations			2.8				(4.6	)		NM
Gross profit rate			13.6	%			14.6	%		(1.0		)pts.
Expense rates (excluding restructuring charges):
% of revenue			12.7				15.6				(2.9	)
% of gross profit			93.3				107.0				(13.7	)
Operating margin			0.8				(1.6	)			2.4

The change in revenue from services in APAC Commercial resulted from an increase in hours worked of 18.5%, partially offset by a decrease in average hourly bill rates of 4.5% on a constant currency basis. The decrease in the constant currency average hourly bill rates for APAC Commercial was primarily due to the decision to exit the staffing market in Japan. Excluding Japan, the average bill rate increased by 0.6% on a constant currency basis. APAC Commercial revenue represented 7.2% of total Company revenue in 2010 and 6.6% in 2009.

The decrease in the APAC Commercial gross profit rate was due to a decrease in temporary gross profit rates due to growth in lower margin business, primarily in Australia and Malaysia, as well as our decision to exit the staffing business in Japan. The decision to exit the staffing business in Japan impacted constant currency revenue and SG&A expense comparisons by approximately 8 percentage points and 11 percentage points, respectively.

APAC PT

														Constant
		2010				2009								Currency
		(52 Weeks)				(53 Weeks)				Change				Change
		(In millions of dollars)
Revenue from Services		$	32.5			$	25.4				28.2	%			16.8	%
Fee-based income			10.5				3.8				172.1				156.3
Gross profit			13.9				7.7				81.3				68.3
SG&A expenses			17.0				9.2				85.1				72.0
Earnings from Operations			(3.1	)			(1.5	)			(104.5	)
Gross profit rate			42.7	%			30.2	%		12.5		pts.
Expense rates:
% of revenue			52.2				36.2				16.0
% of gross profit			122.3				119.8				2.5
Operating margin			(9.5	)			(6.0	)			(3.5	)

The change in revenue from services in APAC PT resulted from an increase in fee-based income and an increase in hours worked of 5.8%, partially offset by a decrease in average hourly bill rates of 13.0% on a constant currency basis. The decrease in the constant currency 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, as well as the decision to exit the staffing market in Japan. APAC PT revenue represented 0.7% of total Company revenue in 2010 and 0.6% in 2009.

The change in the APAC PT gross profit rate was due primarily to increases in fee-based income. SG&A expenses increased, due primarily to hiring of permanent placement recruiters.

OCG

														Constant
		2010				2009								Currency
		(52 Weeks)				(53 Weeks)				Change				Change
		(In millions of dollars)
Revenue from Services		$	254.8			$	219.9				15.8	%			15.6	%
Fee-based income			25.6				24.4				4.9				3.9
Gross profit			60.0				59.7				0.2				(0.1	)
SG&A expenses excluding restructuring charges			77.5				69.6				11.3
Restructuring charges			0.1				1.9				(96.0	)
Total SG&A expenses			77.6				71.5				8.5				8.1
Earnings from Operations			(17.6	)			(11.8	)			(50.8	)
Gross profit rate			23.5	%			27.2	%		(3.7		)pts.
Expense rates (excluding restructuring charges):
% of revenue			30.4				31.7				(1.3	)
% of gross profit			129.5				116.6				12.9
Operating margin			(7.0	)			(5.3	)			(1.7	)

Revenue from services in the OCG segment for 2010 increased in the Americas, EMEA and APAC regions, due primarily to growth in our PPO and RPO practices. OCG revenue represented 5.1% of total Company revenue in 2010 and 2009.

The OCG gross profit rate decreased primarily due to the growth in our lower-margin PPO practice and training costs associated with our BPO Kellyconnect unit. The decline was mitigated somewhat from increased revenues in our higher margin RPO, CWO and executive placement practice areas during 2010. SG&A expenses increased, due to increased investments in implementation and travel costs for new customer business, as well as higher technology costs in our CWO practice area.

During 2010, OCG had positive growth in our PPO, RPO and CWO practice areas. However, earnings from operations were negatively impacted by decreased operating earnings in our outplacement business unit, as well as the aforementioned investments for new customer programs and the upfront Kellyconnect BPO training costs, where the revenue stream tends to lag our investment.

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 2008. 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	)%

Gross profit of $701.7 million for 2009 was 28.2% lower than the gross profit of $977.6 million for 2008. The gross profit rate for 2009 was 16.3%, versus 17.7% for 2008. Compared to 2008, the gross profit rate decreased in all business segments, with the exception of APAC PT. The decrease in the gross profit rate was 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 was impacted by shifts to a higher proportion of light industrial business compared to clerical, and to large corporate customers compared to retail.

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.

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 2009. 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 were 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 acquisitions and investments in 2008. Structural changes represented the restructuring actions we took around the world since June 2008 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 were still in process at year-end 2009. Compensation and other discretionary savings represented the impact of expense-reduction initiatives implemented during the first quarter of 2009, 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, $22.0 million related to the EMEA PT segment and $12.1 million related to the APAC Commercial 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 Co., Ltd. (“Temp Holdings”), a leading integrated human resources services company in Japan.

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.

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, which was sold in 2007 and Kelly Staff Leasing, 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 were adjusted retrospectively to conform to 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 was reflected in the results of Americas Commercial. This compares to an adjustment of $10.5 million in 2008.

The decrease in SG&A expenses reflected reduced salaries and incentive compensation related to expense control initiatives. Restructuring charges in 2009 and 2008 included 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.

Restructuring actions taken during 2009 resulted in the closure of approximately 85 branches and reduction of approximately 525 permanent employees for EMEA Commercial. 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	)