Index to Exhibits on page 27
                                      -1-
               
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
__x__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
      ACT OF 1934 (FEE REQUIRED) 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
                                      29, 2002
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
      EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________________ to _____________________ 
Commission file number 0-1088

            _________________KELLY
KELLY SERVICES, INC._________________
            (ExactINC.
(Exact Name of Registrant as specified in its Charter)

     ________Delaware________                   __________38-1510762________
     (State of Incorporation)                  (IRS Employer Identification
                                                  Number)

     ___999 West Big Beaver Road, Troy, Michigan___            ____48084___
        (Address of Principal Executive Office)                 (Zip Code)

             ___________________(810) 362-4444___________________
             (Registrant's
Delaware
38-1510762
(State of Incorporation)
(IRS Employer Identification Number)
999 West Big Beaver Road, Troy, Michigan
48084
(Address of Principal Executive Office)
(Zip Code)
(248) 362-4444
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
     Title of each class           Name of each exchange on which registered
       Class A Common                             NASDAQ/NMS
       Class B Common                             NASDAQ/NMS

Title of each class
Name of each exchange on which registered
Class A Common
NASDAQ/NMS
Class B Common
NASDAQ/NMS
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  __X__x  No  _____

¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  _____

x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes  x  No  ¨
The aggregate market value of the Class Bvoting and non-voting common stock, par value $1.00, the 
only class of the registrant's securities with voting rights,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 registrant on March 6, 1996, based uponlast business day of the last price on 
that date of $32.00registrant’s most recently completed second fiscal quarter, was $12,163,392, as reported by the Wall 
Street Journal.

approximately $525,827,741.
Registrant had 34,418,20432,051,209 shares of Class A and 3,598,5203,477,243 of Class B common stock, par value $1.00, outstanding as of March 22, 1996.

                      Documents Incorporated by Reference
February 10, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
The proxy statement of the registrant with respect to the 1996its 2003 Annual Meeting of Stockholders is incorporated by reference in Part III.
Dated: March 27, 1996


                                      -2-


                                    February 21, 2003
1
PART I
ITEM 1. DESCRIPTION OF BUSINESS.

     (a)  GeneralBUSINESS.
History and Development of Business.  Registrant,Business
Kelly Services, Inc. (“Kelly” or the “Company”), a successor to the business established by William R. Kelly in 1946, was incorporated under the laws of Delaware on August 27, 1952. Throughout its existence, registrant hasFounded as a temporary staffing company, we have been engaged in providing staffing services to customers in a variety of industries throughout our 56-year history.
Kelly operates 2,400 company-owned offices, both stand-alone and customer on-site, in 26 countries throughout the world. Each office provides a specific mix of services from one or more of our divisions and subsidiaries, according to market demand. We serve a cross-section of customers from industry, commerce, government, and various professions. Our clients include some of the largest corporations in the world and successful niche businesses.
Kelly’s history has been marked by strategic growth and global expansion. This growth into new geographic areas, as well as business and service lines, has been achieved through both internally developed start-up operations and outside acquisitions of existing companies. When considering acquisitions, we seek out companies with strong leadership, a team-based culture and shared business values in locations that demonstrate demand for quality staffing services.
In 2001, Kelly formed BTI Consultants Hong Kong, Ltd., which expanded our staffing services in Asia and the Pacific Rim.
During 2000, we completed three acquisitions, further increasing our domestic and international reach. Extra ETT in Spain, a company that specializes in staffing for the automotive industry, gave Kelly a global automotive presence in three continents; Business Trends Group, including Business Trends Pte Ltd and BTI Consultants Pte Ltd, is headquartered in Singapore, and extended Kelly’s staffing services to six Southeast Asia countries; and ProStaff Group, a leading staffing company based in Milwaukee, Wisconsin, strengthened our Midwest presence.
Over the years, Kelly has developed a number of specialized staffing services in response to our changing global markets, new economies, and advances in workplace technology. We have also designed many assessment, training, placement, and evaluation systems that ensure Kelly’s temporary help service business.  Duringstaff meet the last fiscal 
year, registrant continued toneeds of our diverse client base.
We are headquartered in Troy, Michigan, U.S.A.
Geographic Breadth of Services
We provide temporary help services and other 
staffing and human resources services to a diversified group of customers.

     (b)  Financial Information about Industry Segments.  Registrant operates 
in a single industry segment of providing temporary help services.  The 
financial information concerning registrant is included in Item 8 in Part II of 
this filing.

     (c)  Narrative Description of Business.

          (i)   Principal Services Rendered.  Registrant, and its subsidiaries, 
which are service organizations, provide temporary office clerical, marketing, 
professional, technical, light industrial, home care services (to those who 
need help with their daily living needs and personal care), management services 
and other business services to a diversified group of customers through offices located in major cities throughout North America (the U.S., Canada, Puerto Rico, and Mexico); Europe (Belgium, Denmark, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland, and the United Kingdom); and the Asia-Pacific region (Australia, Hong Kong, India, Indonesia, Malaysia, New Zealand, the Philippines, Singapore, and Thailand).
2
Description of Business Segments
Kelly’s operations are divided into three principal business segments:U.S. Commercial Staffing; Professional, Technical and Staffing Alternatives (PTSA); and International.
U.S. Commercial Staffing
Kelly’sU.S. Commercial Staffing segment includes:Kelly Office Services, offering trained employees who work in word processing and data entry, and as administrative support staff;KellyConnect, providing staff for call centers, technical support hotlines, and telemarketing units;Kelly Educational Staffing, the first nationwide program supplying qualified substitute teachers;Kelly Merchandising Services, including support staff for seminars, sales, and trade shows;Kelly Electronic Assembly Services, providing technicians to serve the automotive, aerospace, and pharmaceutical industries;Kelly Light Industrial Services, placing staff experienced in facilities management, materials handling, food service, and more; andKellySelect, a temporary-to-fulltime service that gives customers and temporary staff an opportunity to try out and evaluate before making a fulltime employment decision.
Professional, Technical and Staffing Alternatives (PTSA)
Our PTSA segment is comprised of the United States, Canada, United Kingdom, Ireland, 
Denmark, France, Luxembourg (acquired subsequentProfessional and Technical Staffing group and the Staffing Alternatives group. Professional and Technical Staffing consists of a number of industry-specific services including:Kelly Scientific Resources, providing entry-level to December 31, 1995)Ph.D. employees to fill positions requiring expertise in biology, chemistry, geology, biochemistry, and physics;Kelly Healthcare Resources, The 
Netherlands, Norway, Switzerland, Australia, New Zealand,providing a variety of professionals to work in hospitals, ambulatory care centers, HMOs, and Mexico. These 
services are generally furnished underother health insurance companies; Kelly Home Care Services, supplying families with nurses, home health aides, and caregivers;Kelly Financial Resources, serving the nameneeds of corporate finance departments, accounting firms, and financial institutions with professional and support personnel;Kelly TemporaryLaw Registry, placing attorneys and paralegals at more than 1,400 major corporations and law firms across the country;Kelly IT Resources, providing information technology specialists, website developers, and other support staff;Kelly Automotive Services Group, supporting the auto industry since 1946, this segment places staff at all levels—from engineers to systems analysts; andKelly Engineering Resources, supplying chemical, electrical, mechanical, aerospace, and petrochemical engineers to industries around the world.
Our Staffing Alternatives group includes:Kelly Staff Leasing, which allows customers to transfer the benefits and payroll administration of employees to us;Kelly Management Services, our outsourcing business that provides operational management of entire departments or business functions; Kelly Vendor Management Solutions, supplying clients with the following specific services provided:  office clerical, marketing,an array of suppliers who provide professional, technical, semi-skilled light industrialor commercial staffing;HRfirst, a recruitment consulting business; and management services. 
Staff leasingKelly HR Consulting, helping clients with strategic staffing, training, compensation, and benefits.
International
In addition to providing commercial, professional, and technical staffing, ourInternational segment meets the specific needs of global customers with these programs:KellyAssess, providing personnel assessment techniques for selection, promotion, and performance management;Kelly MultiHire, our recruiting and human resources services are provided underandKelly Artworks, supplying qualified staff to the namecreative and multimedia industries.
Financial information regarding Kelly’s industry segments is included in Part II, Item 8 of Your Staff, a wholly 
owned subsidiary of the registrant.  Home care services to those who need help 
with their daily living needs and personal care are furnished under the name of 
Kelly Assisted Living Services, Inc., which is a wholly owned subsidiary of 
registrant.  Legalthis filing.
Business Strategy
Kelly’s temporary staffing services are provided under the namedesigned to help our customers meet a variety of The Wallace 
Law Registry,human resource needs in a wholly owned subsidary of the registrant.  Registrant performs 
these services through its temporary employees by assigning themflexible, efficient, cost-effective manner. Typically, customers turn to work on the 
premises of registrant's customers.

     The temporary services furnished by registrant afford economies and 
flexibility in meeting uneven orKelly to staff up during peak work loadsworkloads caused by such predictable factors such as vacations, inventories, month-end activities, special projects, or new promotionsvacations; and such non-predictable factors as illnessesperiods resulting from illness, emergency, or emergencies.  
When work peaks occur which cannot be handled by the customer's normal staff, 
the customer can temporarily supplement regular personnel by the userapidly changing economic conditions.
3
Our services offer customers a number of registrant's services.  The cost and inconvenience to the customer of hiring 
additional employees, includingadvantages. Because we handle advertising, screening, interviewing, screening, testing, and training, clients are eliminated.  Also, recordkeeping is simplifiedspared considerable expense. And, because the 
customer payscustomers pay an hourly rate based on the hours of service furnished by 
registrant.

     Registrant servesof a wide cross-section of customers from industry, 
commerce, the professions, government,specific employee, record keeping and individuals.  During recent years 
approximately 215,000 customers, including the largest corporations in the 
world, use the registrant's services.  There have been no significant 

                                      -3-


changes in the services rendered or in the markets or methods of distribution 
since the beginning of registrant's fiscal year.

     Registrant operates through approximately 1,300 domestic and foreign 
offices located in all 50 states, the District of Columbia and Puerto Rico; and
Canada, United Kingdom, Ireland, Denmark, France, Luxembourg (acquired 
subsequent to December 31, 1995), The Netherlands, Norway, Switzerland, 
Australia, New Zealand, and Mexico.  Each office provides the services of one 
or more of the divisions or subsidiaries. At fiscal year-end 1995 all of the 
offices were operated directly by the registrant, as the remaining licensed 
branches were converted to direct operated branches in February 1995.

     (ii)   New Services.  Thereoverhead are no new industry segments that the 
registrant is planning to enter or new service areas that will require a 
material investment of assets.

     (iii)  Raw Materials.  Registrant is involved in a service business and 
raw materials are nonexistent in the business.

     (iv)   eliminated.
Business Operations
Service Marks.  Registrant is the owner of severalMarks
Kelly owns numerous service marks whichthat are registered with the United States Patent and Trade MarkTrademark Office, the European Union Community Trademark Office, and innumerous individual country trademark offices.
Seasonal Implications
Kelly’s quarterly operating results are affected by the seasonality of our customers’ businesses. Demand for our services historically has been lower during the first and fourth quarters as a numberresult of foreign countries.  The most significant marks are "Kelly"holidays, and "Kelly Girl", which have indeterminable duration.

     (v)    Seasonal Business Implications.  Registrant's business is not 
seasonal.

     (vi)   typically begins to increase during the second and third quarters of the following year.
Working Capital.  Registrant believesCapital
We believe there are no unusual or special working capital requirements in the temporary helpstaffing service industry.

     (vii)  Customers.   The business of registrant and its subsidiaries is
Customers
We are not dependent upon either aon any single customer, or a limited numbersegment of customers. (viii) Backlog.  BacklogOur largest single customer accounted for approximately 6% of orders is not material to the business of 
registrant.

     (ix)   total sales in 2002.
Government Contracts.  Contracts
Although registrantKelly conducts business under various government contracts, that portion of registrant'sour business is not significant.

     (x)    Competition.  Registrant
Competition
The worldwide temporary staffing services industry is very competitive and highly fragmented, with limited barriers for entry into the market. Kelly is considered to be a pioneer in the staffing industry and is one of the largest global suppliers of temporary helpstaffing services, competing in global, national, regional, and local markets.
In the United States.  Several companies which operate 
nationally offer services competitive to those provided by registrant,States, approximately 100 national competitors operate; and a 
large number ofmore than 21,000 smaller organizations operating regionally or locally compete in varying degrees at local levels. Several similar companies—global, national, and local—compete in different localities where registrant operates branch 
offices.  The most significantforeign markets. In 2002, Kelly’s largest competitors were Adecco, S.A., Manpower, Inc., Randstad Holding N.V., Vedior N.V., Spherion Corporation, and CDI Corporation.
Key factors that influence success in our industry include geographic coverage, breadth of service, quality of service, and price.
Geographic presence is of utmost importance, as temporary employees are generally unwilling to travel great distances for assignment, and customers prefer working with companies in their local market. Breadth of service has become more critical as customers seek “one-stop shopping” for all their staffing needs.
Quality of service, another factor, is highly dependent on the availability of qualified, competent temporary employees, and Kelly’s 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, Kelly must balance competitive factors are price and servicepricing pressures with the need to customersretain a qualified workforce.
Price competition in the formstaffing industry is intense—particularly for office clerical and light industrial personnel—and pricing pressure from customers and competitors continues to be significant.
In summary, Kelly expects that the level of timely, efficientcompetition will continue to remain high in the foreseeable future—a factor that could limit our ability to increase or maintain our market share and reliable temporary help.

     (xi)   Research Activities.  Registrant's expenditure for research and the 
number of people involvedprofitability.
4
Environmental Concerns
Because we are not material.

     (xii)  Environmental Matters.  Registrant is involved in a service business, andKelly is not affectedmaterially impacted by federal, state, andor local provisions regulatinglaws that regulate the discharge of materials into the environment.
                                      -4-


     (xiii) Employees.  Registrant and subsidiaries
Employees
We employ on a full time basis 
approximately 1,000 persons1,200 people at itsour corporate headquarters in Troy, Michigan, and approximately 4,600 persons in7,000 staff at company-owned branch offices operated directly by registrant.  
Registrant employed inthroughout the last fiscal year 655,000 men and women forworld. In 2002, we placed nearly 700,000 temporary periods.  As the employer, registrant is responsible for and pays Social 
Security and Medicare taxes, workers' compensation, federal and state 
unemployment compensation taxes, liability insurance and other similar costs, 
and is responsible for payroll deductions of Social Security, Medicare and 
income taxes.  employees.
Although the workour services may be doneprovided in the office of the registrant's 
customer, registrantcustomer’s facilities, Kelly remains the employer of itsour temporary employees, with responsibility for their assignment and reassignment. (d)  As an employer, Kelly is therefore responsible for paying Social Security, Medicare, and disability taxes, workers’ compensation, unemployment compensation taxes and their equivalents outside the United States, as well as administering employee payroll deductions for Social Security, Medicare, and income taxes.
Foreign Operations.  Operations
For information regarding sales, earnings or 
loss from operations, and identifiablelong-lived assets by domestic and foreign operations, reference is madeplease refer to the information presented in the Summary of 
Significant Accounting Policies Segment Disclosuresnote to theour consolidated financial statements, presented in Part II, Item 8 in Part II of this report.
Risk Factors
Highly Competitive Markets
The worldwide staffing services market is highly competitive with limited barriers to entry. Kelly competes in global, national, regional and local markets with full-service and specialized temporary staffing companies. In addition to Kelly, several competitors, including Adecco, Manpower, Randstadt, Vedior, Spherion and CDI have very substantial marketing and financial resources. Price competition in the staffing industry is significant, particularly for the provision of office clerical and light industrial personnel, and pricing pressures from competitors and customers are increasing. Kelly expects that the level of competition will remain high in the future, which could limit Kelly’s ability to maintain or increase its market share or profitability.
Fluctuations in General Economic Conditions
Demand for staffing services is significantly affected by the general level of economic activity and unemployment in the United States. When economic activity increases, temporary employees are often added before full-time employees are hired. However, as economic activity slows, many companies reduce their use of temporary employees before laying off full-time employees. In addition, Kelly may experience more competitive pricing pressure during such periods of economic downturn. Therefore, any significant economic downturn could have a material adverse impact on Kelly’s profitability.
Ability to Attract and Retain Qualified Candidates
Kelly depends upon its ability to attract qualified temporary personnel who possess the skills and experience necessary to meet the staffing requirements of its clients. Kelly must continually evaluate its base of available qualified personnel to keep pace with changing client needs. Competition for individuals with proven professional skills is constant, and demand for such individuals is expected to remain very strong for the foreseeable future. There is always uncertainty whether qualified personnel will continue to be available to Kelly in sufficient numbers and on terms of employment acceptable to Kelly.
5
Liabilities for Client and Employee Actions
Temporary staffing services providers employ and assign people generally in the workplace of other businesses. Attendant risks of such activities include possible claims of discrimination and harassment, employment of illegal aliens, violations of wage and hour requirements, and errors and omissions of its temporary employees, particularly for the actions of professionals (e.g., attorneys, accountants, and scientists). Misuse of client proprietary information, misappropriation of funds, other criminal activity and other similar claims are also attendant risks.
Kelly has policies and guidelines in place to help reduce its exposure to these risks and has purchased insurance policies against certain risks in amounts that it believes to be adequate. Although Kelly historically has not had any material losses resulting from these risks, there can be no assurance that Kelly will not experience such losses in the future or that Kelly’s insurance will remain available on reasonable terms or be sufficient in amount or scope to cover any such liability.
Highly Dependent on Key Management
Kelly is highly dependent on its management. Kelly believes that its success has depended to a significant extent upon the efforts and abilities of its Chairman and Chief Executive Officer, Terence E. Adderley, and certain other key executives. The loss of the services of Mr. Adderley or any of the other key executives could have a material adverse effect upon the Company.
Government Regulations
Government regulations may result in prohibition or restriction of certain types of employment services or the imposition of new or additional benefit, licensing or tax requirements that may reduce Kelly’s future earnings. Such legislative or regulatory changes could include, among others, the prohibition or restriction of certain types of employment services or the imposition of new or additional benefit, licensing or tax requirements with respect to the provision of employment services. There can be no assurance that Kelly will be able to increase the fees charged to its clients in a timely manner and in a sufficient amount to cover increased costs as a result of any of the foregoing.
Foreign Currency Fluctuations
Kelly’s operations are conducted in 25 countries outside the U.S. and Kelly’s local operations are reported in the applicable foreign currencies and then translated into U.S. dollars at the applicable foreign currency exchange rates for inclusion in Kelly’s consolidated financial statements. Exchange rates for currencies of these countries may fluctuate in relation to the U.S. dollar and such fluctuations may have an adverse or favorable effect on Kelly’s operating results when translating foreign currency into U.S. dollars.
Stock Price Fluctuations
Our stock price can fluctuate as a result of a variety of factors, including factors listed in these “Risk Factors,” many of which are beyond our control. These factors 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; and changes in general economic conditions. Because of this, we may fail to meet the expectations of our shareholders or of securities analysts, and our stock price could fluctuate as a result.
Concentration of Ownership
Terence E. Adderley, our Chairman and Chief Executive Officer, and certain trusts with respect to which he acts as trustee or co-trustee, control approximately 92.4% of our outstanding Class B common stock, our only class of stock entitled to voting rights. Mr. Adderley is therefore able to exercise voting control of the Company with respect to matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions.
6
Access to Company Information
Kelly Services electronically files the 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 450 Fifth Street, NW, 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 maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.
Kelly makes available, free of charge, through its website, and by responding to requests addressed to our director of investor relations, the 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 Securities and Exchange Commission. Kelly’s website address is: “http://www.kellyservices.com”. The information contained on our website, or on other websites linked to our website, is not part of this document.
ITEM 2. PROPERTIES.

     RegistrantPROPERTIES.
Kelly Services owns the premisesits headquarters in Troy, Michigan, from which its 
headquarters, subsidiarieswhere corporate, subsidiary, and divisional offices are presently operated.  
Registrantcurrently located. We purchased the original headquarters building in Troy, Michigan, in 
1977 and hashave expanded our operations into an adjacent building that wasadditional buildings purchased in 1991.  1991, 1997, and 2001.
The combined usable floor space for the headquartersin our Troy complex approximates 
206,000is approximately 350,000 square feet, plus leased spaceand an additional 63,000 square feet nearby of 27,000 square feet.  Theis leased. Kelly’s buildings are in good condition and are considered to becurrently adequate for the uses to 
which they are being puttheir intended purpose and are in regular use. In addition, registrantOur company owns vacantundeveloped land in Troy and northernNorthern Oakland County, Michigan, for possible future expansion.  Registrant's branch offices are
Branch office business is conducted fromin leased premises which are 
leased. Aand a majority of theour leases are for fixed terms, from one togenerally five years.  
Registrantyears in the U.S. and 5-10 years outside the U.S. Kelly owns virtually all of its office furniture and the equipment used in itscorporate headquarters building and branch offices.
ITEM 3. LEGAL PROCEEDINGS.
            
     In 1992 the Internal Revenue Service (IRS) proposed the imposition of an 
accumulated earnings tax totaling $49 million for 1988, 1989 and 1990 in 
connection with an audit of the Company's consolidated federal tax liability.  
The proposed amount has been subsequently reduced to $6.5 million.  The Company 
believes there is no factual or legal basis for the imposition of any 
accumulated earnings tax and that the Company is fully justified in making 
provision to meet the present and future needs of its expanding business 
operations.  PROCEEDINGS.
The Company is defendinginvolved in various legal proceedings occurring in the normal course of its position through the IRS appeal 
process and into the courts if necessary.business. In the opinion of the Company, the 
ultimate resolution of this issue will not materially affect its financial 
statements.

Company’s management, adequate provision has been made for losses that are likely to result from these proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     HOLDERS.
There were no matters submitted to a vote of security holders in the fourth quarter of 1995.


                                      -5-


                                    2002.
7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'SREGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

     Kelly Services'
Kelly’s stock is traded over-the-counter inon the NASDAQ National Market System (NMS). The high and low selling prices for the Class A common stock and Class B common stock as quoted by the National Association of Securities Dealers, Inc. and the dividends paid on the common stock for each quarterly period in the last two fiscal years are reported below:

                                    Per share amounts (in dollars)
                         ----------------------------------------------------
                           First      Second     Third      Fourth
                          Quarter    Quarter    Quarter    Quarter     Year
                          -------    -------    -------    -------    -------

1995
- ----
Stock Prices
 Class A common
    High . . . . . . . .  $37        $36 3/4    $31 3/4    $28 1/2    $37
    Low  . . . . . . . .   26 1/2     25 1/4     25 5/8     24 1/2     24 1/2
 Class B common
    High . . . . . . . .   34         34         31 1/2     29         34
    Low  . . . . . . . .   27 1/4     30         31 1/2     28         27 1/4

Dividends. . . . . . . .     .18        .20        .20        .20        .78


1994
- ----
Stock Prices
 Class A common
    High . . . . . . . .  $31 1/4    $29        $32        $30 1/2    $32
    Low  . . . . . . . .   23         23         24         25 3/4     23
 Class B common
    High . . . . . . . .   34         33 1/2     33 1/2     29 1/2     34
    Low  . . . . . . . .   28         28         29         27 1/4     27 1/4

Dividends. . . . . . . .     .16        .18        .18        .18        .70

 
  
Per share amounts (in dollars)
 
  
First Quarter
  
Second Quarter
  
Third Quarter
  
Fourth Quarter
  
Year
2002
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Class A common
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
High
  
$
28.68
  
$
29.50
  
$
27.37
  
$
25.75
  
$
29.50
Low
  
 
21.33
  
 
23.60
  
 
19.80
  
 
17.86
  
 
17.86
Class B common
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
High
  
 
27.00
  
 
28.78
  
 
27.89
  
 
26.99
  
 
28.78
Low
  
 
21.00
  
 
23.50
  
 
20.50
  
 
18.90
  
 
18.90
Dividends
  
 
.10
  
 
.10
  
 
.10
  
 
.10
  
 
.40
2001
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Class A common
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
High
  
$
29.25
  
$
26.00
  
$
27.09
  
$
24.70
  
$
29.25
Low
  
 
18.50
  
 
21.90
  
 
17.85
  
 
18.34
  
 
17.85
Class B common
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
High
  
 
29.00
  
 
26.00
  
 
24.00
  
 
23.00
  
 
29.00
Low
  
 
24.56
  
 
21.00
  
 
19.25
  
 
19.67
  
 
19.25
Dividends
  
 
.25
  
 
.25
  
 
.25
  
 
.10
  
 
.85
The number of holders of record and individual participants of the Class A and Class B common stock par 
value $1.00, of registrantthe Company were 1,2225,284 and 274,563, respectively, as of March 22, 
1996.

                                      -6-
February 10, 2003.
8
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 six fiscal years. This table should be read in conjunction with other financial information of the registrant including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and financial statements included elsewhere herein.
(In millions except per share amounts)
  
2002
  
2001
  
2000
  
1999
  
1998(1)
  
1997
Sales of services
  
$
4,323.5
  
$
4,256.9
  
$
4,487.3
  
$
4,269.1
  
$
4,092.3
  
$
3,852.9
Earnings before taxes (2)
  
 
30.8
  
 
27.6
  
 
145.3
  
 
143.7
  
 
143.6
  
 
137.0
Net earnings
  
 
18.6
  
 
16.5
  
 
87.2
  
 
85.1
  
 
84.7
  
 
80.8
Per share data:
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Basic earnings per share
  
 
0.52
  
 
0.46
  
 
2.44
  
 
2.37
  
 
2.24
  
 
2.12
Diluted earnings per share
  
 
0.52
  
 
0.46
  
 
2.43
  
 
2.36
  
 
2.23
  
 
2.12
Dividends per share
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Classes A and B common
  
 
0.40
  
 
0.85
  
 
0.99
  
 
0.95
  
 
0.91
  
 
0.87
Working capital
  
 
352.2
  
 
322.0
  
 
336.2
  
 
344.7
  
 
346.8
  
 
411.0
Total assets
  
 
1,072.1
  
 
1,039.4
  
 
1,089.6
  
 
1,033.7
  
 
964.2
  
 
967.2


ITEM 6.  SELECTED FINANCIAL DATA.

     The following table summarizes selected financial information of Kelly 
Services, Inc. and its subsidiaries for each of the six fiscal years ended 
December 31, 1995.  This table should be read in conjunction with other 
financial information of the registrant including "Management's Discussion and 
Analysis of Financial Condition and Results of Operations" and financial 
statements included elsewhere herein.


(In millions except                                             
(1)
per share amounts)             1995      1994      1993      1992      1991      1990
- -------------------            ----      ----      ----      ----      ----      ----


Sales of services . . . .    $2,689.8  $2,362.6  $1,954.5  $1,712.7  $1,424.3  $1,456.3
Earnings before taxes . .       113.3      98.5      70.9      61.0      60.2     113.0
Net earnings. . . . . . .        69.5      61.1      44.6      39.2      38.6      71.2


Per share data:
  Earnings  . . . . . . .    $   1.83  $   1.61  $   1.18  $   1.04  $   1.03  $   1.89
  Dividends . . . . . . .
    Class A common. . . .         .78       .70       .63       .58       .57       .53
    Class B common. . . .         .78       .70       .63       .58       .57       .53
    
Working capital . . . . .    $  316.0  $  315.8  $  291.2  $  279.8  $  287.0  $  287.2
Total assets. . . . . . .       718.7     642.4     542.1     496.1     479.4     443.8

(1) 
Fiscal year included 53 weeks.
(2)
As discussed in Note 4 to the financial statements, the Company eliminated goodwill amortization beginning in 2002. Goodwill amortization included in earnings before taxes was $2.7 million in 2001, $2.0 million in 2000, $1.8 million in 1999 and $1.5 million in 1998 and 1997, respectively.
ITEM 7. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OPERATIONS.
Results of Operations

1995
2002 versus 1994

     2001
Sales reached a record level of $2.69for 2002 totaled $4.323 billion, in 1995, an increase of 14%1.6% compared to the $4.257 billion reported in the prior year. The increase was primarily the result of an increase in average hourly bill rates of 1.4%. Hours worked were essentially unchanged year over 1994.year. Sales increases in the U.S. Commercial Staffing and Professional, Technical and Staffing Alternatives (PTSA) segments were partially offset by a slight sales decrease in the International segment.
Gross profit of $692.7 million was 0.7% lower than the gross profit of $697.9 million in 2001. Gross profit as a percentage of sales grew most rapidly, accounting for 19%was 16.0% in 2002, a decrease of 0.4 percentage point compared to the 16.4% rate recorded in the prior year. Gross profit rates of the PTSA and International segments declined while U.S. Commercial Staffing remained relatively unchanged. The decline in gross profit rates was due primarily to a continuing shift in the mix of customers to large corporate and national accounts and a decline in recruitment fee income.
Many of the Company’s large corporate and national account customers have negotiated high volume global service agreements, which tend to result in lower gross profit rates than those earned with the Company’s small and medium size customers. The Company’s strategy is focused on serving and growing these large corporate and national accounts. As customer mix shifts to large corporate and national accounts, the Company’s average gross margins tend to decrease. Offsetting this impact, there are economies of scale and other expense savings associated with servicing these large accounts that tend to mitigate the overall effect on profitability. The Company expects this trend to continue in 2003.
9
Fee based recruitment income, which represents approximately one percent of the Company’s total company sales, up from 15% in 1994.

     Costhas a significant impact on gross profit rates. There are very low direct costs of services representing payroll and related taxes and benefits for 
temporary employees, increased 13%.  Increasesassociated with recruitment income. Therefore, decreases in pay rates, payroll taxes and 
other direct costs accounted for these changes.  Overall, the percentage ofpermanent placement fees can have a disproportionate impact on gross profit rates. As compared to sales increasedlast year, many customers reduced or eliminated the recruiting of full-time employees and the conversions of temporary to 20.1% in 1995 from 19.6% in 1994.

     permanent staff. The Company expects that recruitment fee income will begin to increase when economic growth and job creation resume.
Selling, general and administrative expenses increased 18% over 1994.  As 
a percentageof $662.3 million were 1.1% lower than last year. The expense rate improved to 15.3% of sales expenses increasedin 2002 as compared to 16.2%, up from 15.7% in 1994.2001. The increase principally reflectsdecrease was due primarily to staff reductions and lower telecommunication and recruiting costs, which were the openingresult of new offices,expense reduction initiatives the Company implemented during 2001, and the elimination of goodwill amortization (see discussion to follow in “Critical Accounting Policies”). The staff reductions in both field operations and headquarters units generated savings of approximately $6 million in 2002 as compared with the prior year. The Company did not incur significant termination costs as a result of these staff reductions. The majority of the staff reductions took place during the second and third quarters of 2001. These savings were partially offset by field and headquarters bonus payments, which increased due to the Company’s improved performance, the effect of acquired companies for full yearscurrency rates on international expenses and normal growth.
 
      increased depreciation expense as a result of the Company’s ongoing deployment of information technology programs.
Earnings from operations in 19952002 totaled just over $105$30.4 million, a new 
recordan 8.7% increase compared to the $28.0 million reported for 2001. The increase in earnings from operations was the Company, and an increaseresult of 15% over 1994.  These earningsmany factors discussed above, including the elimination of goodwill amortization of $2.7 million. Earnings were 3.9%0.7% of sales for both 2002 and 2001.
Net interest income for 2002 was $362 thousand, a $743 thousand improvement compared to last year’s net interest expense of $381 thousand. The improvement is primarily attributable to higher cash balances and lower short-term debt levels, offset by the same as in 1994.


                                      -7-


     Interest income increased to $8.2 million in 1995 which was 22% higher 
than the $6.7 million earned in 1994.  The increase resulted from higher ratesimpact of return on investments.

     lower interest rates.
Earnings before income taxes were a record $113.3$30.8 million, an increase of 15%11.5% from 2001. Earnings before taxes averaged 0.7% of sales in 2002 and 0.6% of sales in 2001. The effective income tax rate in 2002 was 39.6%, a 0.4 percentage point improvement compared with last year’s 40.0% rate. The decrease in the overall income tax rate was the result of several factors including the favorable settlement of prior years’ tax audits, offset by an increase in valuation reserves related to the Company’s ability to utilize foreign net operating loss carryforwards.
Net earnings were $18.6 million in 2002, a 12.2% increase compared to the $16.5 million earned in 2001. Basic and diluted earnings per share were $0.52, an increase of 13.0% as compared to basic and diluted earnings per share of $0.46 in 2001.
U.S. Commercial Staffing
Sales in the U.S. Commercial Staffing segment, which represented 49% of total Company sales in 2002 and 2001, totaled $2.105 billion in 2002, a 0.5% increase compared to the $2.095 billion reported for 2001. The increase was primarily the result of an increase in average hourly bill rates of 0.6%, offset by a 0.1% decrease in hours worked. Year-over-year sales comparisons were: down 12.3% in the first quarter, flat in the second quarter, up 6.7% in the third quarter and up 8.9% in the fourth quarter. Sales trends were relatively stable month by month over 1994.  Pre-tax marginsthe course of the fourth quarter.
U.S. Commercial Staffing earnings totaled $118.7 million, an increase of 3.5% in 2002, as a result of the 0.5% sales increase, relatively stable gross profit rates and a 1.8% decrease in expenses. The gross profit rate averaged 15.8% in both 2002 and 2001. Improvements in benefit costs were offset by the impact of an ongoing shift in mix of sales to larger corporate and national accounts. Year-over-year gross profit rate comparisons for U.S. Commercial Staffing were down in the first and second quarters and up in the third and fourth quarters. The increase in gross profit rate in the second half of 2002 reflected improvement in benefits costs relative to last year, including workers’ compensation expense, and increased fee-based income in the fourth quarter. Given relatively high and rising unemployment in the U.S., the Company expects an increase in state unemployment taxes in 2003 which, to the extent not recovered through pricing actions, may decrease the gross profit rate for U.S. Commercial Staffing.
10
U.S. Commercial Staffing expenses were tightly controlled and decreased 1.8% year-over-year primarily due to staff reductions and lower recruiting costs, partially offset by higher field bonus payouts and the impact of the Company’s ongoing deployment of new front office systems.
Professional, Technical and Staffing Alternatives
Professional, Technical and Staffing Alternatives (PTSA) includes the following business units: Kelly Scientific Resources, Kelly Healthcare Resources, Kelly Home Care Services, Kelly Automotive Services Group, Kelly Engineering Resources, Kelly IT Resources, Kelly Law Registry, Kelly Financial Resources, Kelly Management Services, Kelly Staff Leasing, Kelly HR Consulting, HRfirst and Kelly Vendor Management Solutions.
Sales in the PTSA segment totaled $1.137 billion, an increase of 5.7% compared to the $1.075 billion reported in 2001. The growth is due to an increase in average hourly bill rates of 4.8%, partially offset by a decrease in hours worked of 0.1% in the professional and technical businesses. In addition, there was an increase in revenues of 7.4% in the staffing alternatives businesses, which include staff leasing and management services. PTSA sales represented 26% of total Company sales in 2002 and 25% in 2001.
During 2002, Kelly Healthcare Resources and Kelly Financial Resources continued to be the leading performers, exhibiting sales growth of over 25% as compared to 2001. Kelly Staff Leasing, Kelly Engineering Resources, Kelly IT Resources, Kelly Management Services and Kelly Law Registry also maintained positive sales growth in 2002. Kelly Automotive Services Group posted positive growth in the second half of the year, resulting in a slight overall increase year over year. However, Kelly Home Care Services experienced a significant revenue decline during 2002 as compared to 2001. This decrease, however, was consistent with industry trends in its staffing sector.
Although Kelly Staff Leasing experienced positive sales growth in 2002, we are changing their customer mix to better position this business for the long term. As a result, we expect our staff leasing sales to decline by 2% to 3% in the first quarter of 2003. However, with a stronger customer base, we expect there will be a small positive impact to earnings.
PTSA earnings from operations totaled $50.5 million in 2002, an increase of 6.2% from 2001. This was the result of the 5.7% increase in sales, partially offset by a 0.5 percentage point decrease in the gross profit rate and the effect of holding expenses to a 1.1% increase.
The decrease in the gross profit rate was due to changes in business unit mix and rate decreases in certain business units, such as Kelly Automotive Services Group and Kelly IT Resources. The most significant factor impacting the business unit mix was the decline in sales at the Kelly Home Care Services unit, which has a higher than average gross profit rate. These declines were partially offset by a 20.8% year-over-year increase in PTSA fee-based income. As discussed with respect to U.S. Commercial Staffing, the Company expects an increase in state unemployment taxes in 2003 which, to the extent not recovered through pricing actions, may decrease the gross profit rate for PTSA.
PTSA expenses increased 1.1% from the prior year, due to higher field bonus payouts, the impact of the Company’s ongoing deployment of new front office systems, higher liability insurance costs and increased facilities expense associated with the expansion of Kelly Financial Resources and Kelly Healthcare Resources. This was partially offset by the elimination of goodwill amortization and lower recruiting costs. Expenses as a percent of sales decreased to 9.6% in 2002 from 10.0% in 2001.
International
Translated U.S. dollar sales in International totaled $1.082 billion, a 0.5% decrease compared to the $1.087 billion reported in 2001. This decrease resulted primarily from a 19% decrease in recruitment fees and a 0.2% decrease in hours worked. U.S. dollar-average bill rates were essentially unchanged year over year. International sales represented 25% of total Company sales in 2002 and 26% of total Company sales in 2001.
The Americas and Asia-Pacific, the first regions within the International segment to reflect the negative impact of the global economic slowdown, are continuing to show improvement. Year-over-year sales comparisons in continental Europe and the United Kingdom remained negative throughout 2002.
11
During 2002, the U.S. dollar continued to fall in comparison to many foreign currencies, including the Euro and British pound. As a result, Kelly’s U.S. dollar translated sales and expenses were higher than would have otherwise been reported. On a constant currency basis, international revenue decreased 4%. This compared to 3% overall constant currency sales growth in 2001. Year-over-year constant currency sales declined 6% in the first quarter, 2% in the second quarter, 4% in the third quarter and 2% in the fourth quarter. If foreign currency exchange rates remain at their current levels, Kelly’s first and second quarter 2003 sales will be favorably impacted.
International earnings totaled $5.2 million, a decrease of 44.7% from 2001, resulting from the 0.5% decrease in sales and a 0.8 percentage point decline in the gross profit rate, partially offset by a 2.6% reduction in expenses.
The decline in the gross profit rate was primarily due to the 19% decrease in recruitment fee income, with the most significant decrease occurring in the United Kingdom. On a year-over-year basis, translated U.S. dollar expenses in the International segment decreased 2.6%, primarily due to lower wages and recruiting costs and the elimination of goodwill amortization. On a constant currency basis, expenses decreased 7%.
Results of Operations
2001 versus 2000
Sales of services for 2001 totaled $4.257 billion, a decrease of 5.1% compared to the $4.487 billion reported in the prior year. The decrease was a result of a decline in hours worked of 7.6% partially offset by an increase in average hourly bill rates of 1.9%. Sales decreases in the U.S. Commercial Staffing and International segments were partially offset by a sales increase in the PTSA segment.
The 2001 gross profit rate averaged 16.4%, a decrease of 1.3 percentage points compared to the 17.7% rate earned in 2000. This reflected decreases in the gross profit rates of all three of the Company’s business segments. The decline in gross profit rates was due primarily to a continuing shift in the mix of customers to large corporate and national accounts and a decline in recruitment fee income.
Selling, general and administrative expenses expressed as a percentage of sales were 4.2%15.7%, a 1.1 percentage point increase compared to the 14.6% rate in the prior year. Selling, general and administrative expenses totaled $669.9 million and grew 2.2% from 2000.
The Company implemented a number of expense reduction initiatives that increasingly began to show results as the year progressed. These initiatives included targeted staff and expense reductions in both years.  Income taxes increased 17% over 1994 with an effective tax rate of 
38.7% of pre-tax income.field operations and headquarters units. The current tax rate rose primarilyCompany did not incur significant termination costs as a result of these staff reductions. The majority of the staff reductions took place during the second and third quarters of 2001.
Earnings from operations totaled $28.0 million, a 79.6% decrease compared to the $137.1 million reported for 2000. Earnings were 0.7% of sales as compared to 3.1% for 2000.
Net interest expense was $381 thousand in 2001 and $409 thousand in 2000. Net interest expense for the year was essentially flat and was attributable to higher stateaverage cash levels and local taxesreduced short-term debt balances, both impacted by lower interest rates.
The effective income tax rate was 40.0% in 2001 and higher foreign tax rates. 

     2000.
Net earnings were $69.5totaled $16.5 million in 1995, 14% higher than2001, a decrease of 81.0% compared to the 1994 results 
of $61.1 million.$87.2 million earned in 2000. The rate of return on sales was 2.6% in both 1995 and 1994.  
Earnings0.4% compared with last year’s 1.9% rate. Diluted earnings per share for 2001 were $1.83,$.46, an 81.1% decrease as compared to diluted earnings per share of $2.43 in 2000.
U.S. Commercial Staffing
Sales in the U.S. Commercial Staffing segment totaled $2.095 billion in 2001, a 14%10.0% decrease compared to the $2.327 billion reported for 2000. This reflected a decrease in hours worked of 13.6% partially offset by an increase in average hourly bill rates of 4.3%. Year-over-year sales comparisons were flat in the first quarter, and declined consistently over the $1.61 per share earnedbalance of the year reflecting a 7.9% decrease in 1994. 

1994 versus 1993

     the second quarter, a 14.3% decrease in the third quarter and a 16.7% decrease in the fourth quarter. U.S. Commercial Staffing sales represented 49% of total Company sales in 2001 and 52% of total Company sales in 2000.
12
U.S. Commercial Staffing earnings from operations totaled $114.7 million in 2001, a decrease of 36.8% compared to the $181.4 million reported in 2000. The 10.0% sales decrease, combined with a 1.5 percentage point decrease in the gross profit rate, produced the 36.8% earnings decline. The decline in gross profit rates reflects both an ongoing shift in mix of sales to larger corporate and national accounts and decreases in fee-based income. The year-over-year decrease in recruitment fee income for U.S. Commercial Staffing was 33.4%.
Professional, Technical and Staffing Alternatives
Sales reached a record level of $2.36in the PTSA segment totaled $1.075 billion in 1994,2001, an increase of 21% 
over 1993. Increases1.5% compared to the $1.059 billion reported in domestic2000. The growth is due to an increase in average hourly bill rates of 5.5% partially offset by a decrease in hours worked of 5.2% in the professional and technical businesses. In addition, there was an increase in revenues of 6.0% in the staffing alternatives businesses, which include staff leasing and management services. On a year-over-year basis, PTSA sales acquisitions completedgrew 3.6% in the first quarter and 3.9% in the second quarter, but decreased 0.3% in the third quarter and 0.9% in the fourth quarter.
Results were mixed among the 13 business units that comprise PTSA. Kelly Healthcare Resources, Kelly Financial Resources and Kelly Vendor Management Solutions were the leading performers during the year, exhibiting positive sales growth as compared to 2000. Kelly Staff Leasing maintained positive sales growth throughout the year as well. However, several units within PTSA did experience sales decreases as the year progressed. In particular, Kelly Automotive Services Group and Kelly Law Registry experienced double-digit sales declines as compared to 2000. These decreases, however, were consistent with industry trends in their staffing sectors.
PTSA sales represented 25% of total Company sales in 2001 and 24% of total Company sales in 2000.
PTSA earnings for 2001 decreased 34.8% from 2000. During the strengtheningfirst nine months of worldwide economies all contributed2001, the Company continued to thisinvest in those professional and technical businesses, which exhibited stronger growth. Cost of services, representing payrollThe Company opened 13 new branches and related taxes and benefits for 
temporary employees, increased 21%.  Strong sales volume and increasesimplemented new technology, which caused expenses to be higher as compared to the prior year. In addition, recruitment fee income decreased significantly in pay 
rates and payroll taxes accounted for this change.  Gross profit, as a percent 
of sales, rose from 19.5% in 1993 to 19.6% in 1994.  Excludingmany PTSA business units, which negatively impacted the effect of 
our employee leasing business acquired in 1994,Company’s gross profit averaged 20.1%rate.
International
Translated U.S. dollar sales in International totaled $1.087 billion in 2001, a 1.3% decrease compared to the $1.101 billion reported in 2000. This decrease resulted from a decline in the U.S. dollar average hourly bill rates of 4.4% partially offset by an increase in hours worked of 3.3%.
However, on a constant currency basis, international revenue increased 3%. This compared to 10% same currency sales growth in 2000. Year-over-year same currency sales grew 6% in the first quarter, 4% in the second quarter and 2% in the third quarter, but declined 3% in the fourth quarter. Global slowing in staffing demand worsened over the course of 2001. The slowdown was initially felt in Australia, Canada and Puerto Rico. In the fourth quarter, the decline was most apparent in Continental Europe.
International sales represented 26% of total Company sales in 2001 and 25% of total Company sales in 2000.
International earnings from operations were $9.4 million for 2001, a 56.3% decrease compared to the $21.5 million reported in 2000. The decrease in earnings from operations was the result of the 1.3% decrease in sales, a 0.5 percentage point decline in the gross profit rate and a 1.7% increase in expenses.
Decreases in fee-based income, particularly in the United Kingdom, negatively impacted gross profit rates. However, the Company continued to see significant progress in the U.K. throughout the year. Expense reduction initiatives allowed the U.K. to significantly improve profitability in 2001. Finally, during 1994.

     Selling, general and administrative expenses rose 17% during 1994.  This 
increase principally reflected costs added by acquired companies,2001, the Company expanded geographic coverage to 26 countries with the opening of new officesan office in Hong Kong.
13
Liquidity and normal growth.Capital Resources
Historically, Kelly has financed its operations through cash generated by operating activities and revolving credit facilities. As a percenthighlighted in the Statements of sales, expenses declinedCash Flows, the Company’s liquidity and available capital resources are impacted by four key components: current cash and equivalents, operating activities, investing activities and financing activities.
Cash and Equivalents
Cash and equivalents totaled $101 million at the end of 2002, an increase of $18 million from 16.2%the $83 million at year-end 2001.
Operating Activities
In 2002, the Company generated $90 million in cash from operating activities, as compared to 15.7%$145 million in 1994.  Excluding2001 and $89 million in 2000. The most significant reason for the effects of the employee leasing 
business (with its inherently lower cost structure), the expense to sales 
relationship was 16.1%decline in 1994.  Earningscash generated from operations in 19942002 versus 2001, as well as the increase in cash generated from operations in 2001 versus 2000, was a change in accounts receivable. The Company experienced declining revenues in 2001 which caused a decrease in accounts receivable and generated $86 million in cash. During 2002, revenues increased slightly and were improving as the year progressed. As a result, the Company used $9 million of cash to fund accounts receivable.
Accounts receivable totaled approximately $92$568 million at year-end 2002. Global days sales outstanding for the fourth quarter were 46 days, which is a one-day improvement versus the 47 days in the prior year. If the economy recovers in 2003, the Company may experience improving revenue, which may require the Company to fund a resulting increase in accounts receivable.
The Company’s working capital position was $352 million at the end of 2002, an increase of 44% over 1993.

     Interest income$30 million from 2001 and $16 million from 2000. The current ratio was 2.0 at the end of 2002 as compared with 1.9 in 2001 and 2000.
Investing Activities
In 2002, the Company used $37 million on investing activities compared to $49 million in 2001 and $69 million in 2000. The most significant reasons for 1994 was $6.7the continued reductions in cash used for investing activities are decreasing levels of capital expenditures and the one-time purchase of a building in 2001. In addition, the Company spent $21 million on three acquisitions in 2000. No acquisitions were made in 2002 or 2001.
Capital expenditures for 2002 totaled $33 million, down 3.6%23% from the 1993 level$43 million spent in 2001, reflecting the planned delay of $7.0several projects. Of the total $33 million spent in 2002, approximately 75% related to information technology. The Company’s capital expenditures peaked in 1999 at $77 million, decreased in 2000 to $54 million and decreased again in 2001 to $43 million. The reductionCompany plans to return to a more normal capital spending level in 2003, when capital expenditures are expected to total between $40 and $45 million.
During the first quarter of 2001, the Company acquired a fully leased commercial office building that will be used for future expansion. This transaction was the second leg of a tax-free exchange for undeveloped land the Company initiated in the interest rates accountedfourth quarter of 2000. The land was effectively swapped for the slight 
declinebuilding, but in interest incomeaccordance with generally accepted accounting principles, it is shown as a cash acquisition for $11.8 million during 2001. The related $10.3 million cash proceeds from the year.

     Earningssale of property is reflected in the 2000 cash from investing activities.
Financing Activities
In 2002, the Company used $38 million in financing activities compared to $55 million in 2001 and $30 million in 2000. The decrease in 2002 as compared to 2001 was primarily related to lower short-term debt repayments and reduced dividends offset by the purchase of treasury stock. The increase in 2001 as compared to 2000 was primarily related to the net repayment of short-term debt in 2001 as compared to additional borrowing in 2000, as well as reduced dividends.
14
Short-term debt totaled $25 million at year end 2002 compared to $33 million at year end 2001 and $58 at year end 2000. All short-term borrowings are foreign currency denominated and reduce the Company’s exposure to foreign exchange fluctuations. At year end, debt represented less than 4% of total capital.
As of year-end 2002, the Company had $76 million of committed unused credit facilities. The Company’s $100 million five-year, unsecured multi-currency revolving credit facility expires in October of 2003. It is the Company’s intention to complete a new unsecured multi-currency revolving credit facility prior to expiration of the current facility. The Company anticipates no significant change in financial covenants and believes it will have a new credit facility in place before taxesOctober. At year-end, the Company had additional uncommitted one-year credit facilities totaling $51 million, under which the Company had borrowed less than one million dollars.
Dividends paid per common share were $98.5 million, an increase$.40 in 2002, a decrease of 39%.  Pretax 
margins were 4.2%52.9% from 2001 dividends of $.85 per share. The dividend was reduced in 1994, improved from 3.6% in 1993.  Income taxes increased 
42% over 1993, with an effective taxthe fourth quarter of 2001 to a new rate of 38.0%, compared$.10 per share per quarter, or $.40 per share annually. Annual cash savings from this reduction are over $21 million per year. Dividends in 2000 were $.99 per share.
On July 1, 2002, the Company repurchased 500,000 shares of Class A common stock from the William R. Kelly Estate. The total value of the share repurchase was $13.1 million, or $26.28 per share, representing a 2.7% discount to the closing market price of Kelly Class A common stock on June 28, 2002.
Contractual Obligations and Commercial Commitments
Summarized below are the Company’s obligations and commitments to make future payments under lease agreements and debt obligations as of year-end 2002:
 
  
Total
  
Less than 1 Year
  
1-3 Years
  
3-5 Years
  
More than
5 Years
Operating leases
  
$
133,000
  
$
39,600
  
$
52,100
  
$
25,600
  
$
15,700
Short-term borrowings
  
 
24,800
  
 
24,800
  
 
—  
  
 
—  
  
 
—  
 
  
  
  
  
  
Total
  
$
157,800
  
$
64,400
  
$
 52,100
  
$
25,600
  
$
15,700
 
  
  
  
  
  
The Company has no material, unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated entities.
Summary
The Company’s financial position remains strong. The Company continues to carry no long-term debt and expects to meet its cash requirements, including possible increases in accounts receivable as discussed above, principally through cash generated from operations, available cash and equivalents and committed unused credit facilities.
Market Risk-Sensitive Instruments and Positions
Kelly does not hold or invest in derivative contracts. The Company is exposed to foreign currency risk primarily due to its net investment in foreign subsidiaries. This risk is mitigated by the use of the Company’s multi-currency line of credit. This credit facility is used to borrow in local currencies which mitigates the exchange rate risk resulting from foreign currency-denominated net investments fluctuating in relation to the U.S. dollar. In addition, the Company is exposed to interest rate risks through its use of the multi-currency line of credit.
In addition, the Company is exposed to market risk as a 37.1% rateresult of its obligation to pay benefits under its nonqualified deferred compensation plan and its related investments in 1993.company-owned variable universal life insurance policies. The current year tax rate rose primarilyobligation to employees increases and decreases based on movements in the equity and debt markets. The investments in publicly traded mutual funds, as part of the company-owned variable universal life insurance policies, are designed to mitigate this risk with offsetting gains and losses.
15
Overall, the Company’s holdings and positions in market risk-sensitive instruments do not subject the Company to material risk.
Critical Accounting Policies
The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America. In this process, it is necessary for management to make certain assumptions and related estimates affecting the amounts reported in the consolidated financial statements and the attached notes. Actual results can differ from assumed and estimated amounts.
Critical accounting policies are those that management believes require the most difficult, subjective or complex judgments, often as a result of the reductionneed to make estimates about the effect of matters that are inherently uncertain. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Judgments and uncertainties affecting the application of those policies may result in tax exempt interestmaterially different amounts being reported under different conditions or using different assumptions. The Company considers the following policies to be most critical in understanding the judgments involved in preparing its consolidated financial statements.
Allowance for Uncollectible Accounts Receivable
We make ongoing estimates relating to the collectibility of our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the allowance, we consider our historical level of credit losses and apply percentages to certain aged receivable categories. We also make judgments about the creditworthiness of significant customers based on ongoing credit evaluations, and we monitor current economic trends that might impact the level of credit losses in the future. Historically, losses from uncollectible accounts have not exceeded our allowance. Since we cannot predict with certainty future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger allowance may be required. In the event we determined that a smaller or larger allowance was appropriate, we would record a credit or a charge to selling, general and administrative expense in the period in which we made such a determination. As of year-end 2002, 2001 and 2000, the allowance for uncollectible accounts receivable was $12.5 million, $12.1 million and $13.6 million, respectively.
Workers’ Compensation
The Company has a combination of insurance and self-insurance contracts under which the Company effectively bears the first $500,000 of risk per single accident. The Company establishes accruals for workers’ compensation utilizing actuarial methods to estimate the undiscounted future cash payments that will be made to satisfy the claims, including an allowance for incurred-but-not-reported claims. This process includes establishing loss development factors, based on the historical claims experience of the Company and the industry, and applying those factors to current claims information to derive an estimate of the Company’s ultimate claims liability. In preparing the estimates, we also consider the nature and severity of the claims, analyses provided by third party claims administrators, as well as current legal, economic and regulatory factors.
Management evaluates the accrual, and the underlying assumptions, regularly throughout the year and makes adjustments as needed. The ultimate cost of these claims may be greater than or less than the established accrual. While management believes that the recorded amounts are adequate, there can be no assurances that changes to management’s estimates will not occur due to limitations inherent in the estimation process. In the event we determine that a smaller or larger accrual is appropriate, we would record a credit or a charge to cost of services in the period in which we made such a determination. The accrual for workers’ compensation was $73.5 million, $63.3 million and $55.3 million at year-end 2002, 2001 and 2000, respectively.
16
Goodwill
Effective December 31, 2001, the Company adopted Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”), which established a new method of testing goodwill and other intangible assets for impairment using a fair-value based approach. Under the new standard, goodwill is no longer amortized as was previously required. Upon adoption, amortization of goodwill and other intangible assets ceased. Amortization of goodwill would have been $2.7 million for the fiscal year ended December 29, 2002.
SFAS 142 requires that goodwill be tested for impairment annually or if an event occurs or circumstances change that may reduce the fair value of the reporting unit below its book value. Should circumstances change or events occur to indicate that the fair market value of the reporting unit has fallen below its book value, management must then compare the estimated fair value of goodwill to book value. If the book value exceeds the estimated fair value, an impairment loss would be recognized in an amount equal to that excess. Such an impairment loss would be recognized as a non-cash charge to operating income.
We completed our impairment test as of the date of adoption, December 31, 2001 and during the fourth quarter of the year ended December 29, 2002 as required under SFAS 142 and determined that goodwill is not impaired. This test required comparison of our estimated fair value to our book value of goodwill. The estimated fair value was based on a discounted cash flows analysis. Assumptions and estimates about future cash flows and discount rates are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts.
Although we believe the assumptions and estimates we have made are reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results. Different assumptions of the anticipated future benefits from these businesses could result in an impairment charge, which would decrease operating income and result in lower asset values on our balance sheet. At year-end 2002, 2001 and 2000, total goodwill amounted to $80.3 million, $73.6 million and $77.4 million, respectively.
New Accounting Pronouncements
In June 2002, the absenceFinancial Accounting Standards Board (FASB) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which supersedes EITF No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in 1994a Restructuring).” SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred, rather than at the date of a creditcommitment to an exit or disposal plan as was required by EITF No. 94-3. This statement is effective for disposal activities initiated after December 31, 2002, with early application encouraged. SFAS No. 146 is not expected to have a material effect on the Company’s consolidated results of operations or financial position.
In November 2002, the FASB released FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others: an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34.” FIN 45 establishes new disclosure and liability-recognition requirements for direct and indirect debt guarantees with specified characteristics. The initial measurement and recognition requirements of FIN 45 are effective prospectively for guarantees issued or modified after December 31, 2002. However, the disclosure requirements are effective for interim and annual financial-statement periods ending after December 15, 2002. The Company has adopted the disclosure provisions and management does not expect the full adoption of FIN 45 to have a material impact on the Company’s results of operations or financial position.
17
Forward-Looking Statements
Certain statements contained in this document are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements include statements which are predictive in nature; which depend upon or refer to future events or conditions; or which include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or variations or negatives thereof or by similar or comparable words or phrases. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future Company actions that may be provided by management are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about the Company; and economic and market factors in the countries in which the Company does business, among other things. These statements are not guarantees of future performance, and the Company has no specific intention to update these statements.
Actual events and results may differ materially from revaluing deferred taxesthose expressed or forecasted in forward-looking statements due to a number of factors. The principal important risk factors that could cause the 1% increaseCompany’s actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, competitive market pressures including pricing, changing market and economic conditions, material changes in demand from large corporate customers, availability of temporary workers with appropriate skills required by customers, increases in wages paid to temporary workers, liabilities for client and employee actions, foreign currency fluctuations, changes in laws and regulations (including federal, state and international tax laws), the U.S. statutory 
corporate tax rate in 1993.

     Net earnings were $61.1 million in 1994, 37% aboveCompany’s ability to effectively implement and manage its information technology programs, and the 1993 results of 
$44.6 million.  The rate of return on sales was 2.6%, up from the 1993 return 
of 2.3%.  Earnings per share were $1.61 in 1994 and $1.18 in 1993.



                                      -8-


Liquidity and Capital Resources

     During 1995, capital expenditures were made primarily for new office 
equipment, expansionability of the branch office networkCompany to successfully expand into new markets and service lines. Certain risk factors are discussed more fully under “Risk Factors” in the U.S. and Europe, 
business acquisitions and new customer services, including the new "PinPoint" 
software training product. The foregoing capital expenditures, along with cash 
dividends, were financed internally with $29 million from operating activities 
and a reduction in short-term investments. In 1994 and 1993, net cash flows 
from operating activitiesPart I, Item 1 of $69 million and $46 million, respectively, were 
directed primarily toward purchases of equipment, dividend payments and the 
acquisition of businesses.

     The Company's working capital remained unchanged from 1994 at $316 
million.  The current ratio averaged 2.3 in 1995, 2.5 in 1994 and 2.9 in 1993.  
The current ratios have declined over this period due principally to the use 
of current assets to finance continued business expansion including the 
acquistion of businesses and investment in additional computing capability in 
branch offices. 

     Stockholders' equity grew 10% in 1995, following a 12% growth in 1994 and 
a 5% increase in 1993.  The return on average stockholders' equity was 15.3% 
in 1995, 14.9% in 1994 and 11.8% in 1993.  Stockholders' equity per share was 
$12.52, an increase of 10% over 1994.  Dividends paid per share were $.78 in 
1995, an increase of 11% over 1994.

     The Company's financial position continues to be strong. The Company 
believes that this strength, including the absence of any long-term debt, will 
allow it to aggressively pursue growth opportunities.  Capital requirements 
are expected to be financed internally.

filing.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     DATA.
The financial statements and supplementary data required by this Item are set forth in the accompanying index on page 1424 of this filing and are presented in pages 15-26.

25-45.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL 
DISCLOSURE.

     DISCLOSURE.
None.
18
PART III
Information required by Part III with respect to Directors and Executive Officers of the registrant, except as set forth under the title "Executive“Executive Officers of the Registrant"Registrant” which is included on page 9,19, (Item 10), Executive Compensation (Item 11), Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (Item 12), and Certain Relationships and Related Transactions (Item 13) is to be included in a definitive proxy statement filed by the registrantCompany not later than 120 days after the close of its fiscal year and such proxy statement, when filed, is incorporated herein by reference.
                                                -9-


ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT.
Name/Office
  
Age
    
Served as an Officer Since (1)
  
Business Experience
During Last 5 Years
Terence E. Adderley
Chairman and 
  Chief Executive Officer
  
69
    
1961
  
Served as officer of the Company.
Carl T. Camden
President and
Chief Operating Officer
  
48
    
1995
  
Served as officer of the Company.
Michael L. Durik
Executive Vice President
  
54
    
1999
  
Served as officer of the Company since July, 1999. From 1993 was owner of MLD Management, an independent consulting firm.
William K. Gerber
Executive Vice President and
Chief Financial Officer
  
49
    
1998
  
Served as officer of the Company since April, 1998. Prior thereto, served as Vice President of Finance at The Limited, Inc.
Arlene Grimsley
Executive Vice President
  
55
    
1994
  
Served as officer of the Company.
George M. Reardon
Senior Vice President,
General Counsel and Secretary
  
55
    
1998
  
Served as officer of the Company since June, 1998. From 1994, served in private practice in Houston, Texas.


ITEM 10
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------

                                                 Served as an           Business Experience
      Name/Office                Age          Officer Since (2)         During Last 5 Years
- ------------------------   ----------------   -----------------   --------------------------------

William R. Kelly                 90                  1952         Served as officer of registrant.
Chairman of the Board

Terence E. Adderley 
(1)          62                  1961         Served as officer of registrant.
President and Chief
Executive Officer

Christopher A. Arnette           39                  1995         Served as officer of registrant
Senior Vice President                                             since January, 1995.  Prior
                                                                  thereto, served as Vice 
                                                                  President and Chief 
                                                                  Information Officer of 
                                                                  Ameritech Advertising Services
                                                                  since 1992.  Prior thereto, 
                                                                  served as Vice President, 
                                                                  Information Systems of Dun & 
                                                                  Bradstreet Corporation.

Robert G. Barranco               55                  1989         Served as officer of registrant
Executive Vice President                                          or one of its operating 
                                                                  divisions.

Donald A. Bobo                   54                               Served as officer of operating
Senior Vice President                                             division since April, 1992.  
and General Manager,                                              Prior thereto, served as Vice
Kelly Temporary                                                   President of Staff Services at 
Services Division                                                 John Labatt Foods.

Carl T. Camden                   41                  1995         Served as officer of registrant
Senior Vice President                                             since April, 1995.  From 1993
                                                                  served as Senior Vice President
                                                                  at Society Management Company,
                                                                  the parent of Key Bank and
                                                                  Society Bank Groups.  Prior 
                                                                  thereto, served as Co-President
                                                                  of Wyse Advertising.

Carolyn R. Fryar                 53                               Served as officer of operating
Senior Vice President                                             division.
and General Manager,
Kelly Temporary
Services Division


                                               -10-



ITEM 10
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
(continued)

                                                 Served as an           Business Experience
      Name/Office                Age          Officer Since (2)         During Last 5 Years
- ------------------------   ---------------    -----------------   --------------------------------

Paul K. Geiger                   62                  1993         Served as officer of registrant
Senior Vice President                                             since April, 1993.  Prior 
                                                                  thereto, served as 
                                                                  Vice President and Chief 
                                                                  Financial Officer of the 
                                                                  University of Detroit Mercy.

Eugene L. Hartwig                62                  1990         Served as officer of registrant.
Senior Vice President,
General Counsel and
Secretary

Michael J. McGowan               42                               Served as officer of operating
Senior Vice President                                             division since January, 1995.
and General Manager,                                              Prior thereto, served in various
Kelly Temporary                                                   capacities at The MEDSTAT
Services Division                                                 Group since 1992. From 1977 to
                                                                  1992 served in various 
                                                                  capacities at Automated Data
                                                                  Processing.

Robert H. McNabb                 48                               Served as officer of operating
Senior Vice President                                             division since September, 1994.
and General Manager,                                              From 1993, served as President
Kelly Temporary                                                   of Performa Solutions, Inc.
Services Division                                                 Prior thereto, served in a 
                                                                  variety of executive positions 
                                                                  at Talent Tree Personnel 
                                                                  Services, Inc.

Alfredo Maselli                  55                               Served as officer of operating
Senior Vice President                                             division since September, 1995.
and General Manager,                                              Prior thereto, served as
International Division                                            Corporate Vice President,
                                                                  International and in other
                                                                  capacities at Honeywell, 
                                                                  Inc. since 1969.


                                               -11-



ITEM 10
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
(continued)

                                                 Served as an            Business Experience
      Name/Office                Age          Officer Since (2)          During Last 5 Years
- ------------------------   ---------------    -----------------   ---------------------------------

Joanne E. Start                  51                  1989         Served as officer of registrant. 
Senior Vice President

Robert E. Thompson               53                  1982         Served as officer of registrant.
Executive Vice President

Tommi A. White                   45                  1993         Served as officer of registrant
Senior Vice President                                             since November, 1993.  From  
                                                                  1992, served as Vice President
                                                                  of Automated Data Processing.
                                                                  Prior thereto, served as Chief
                                                                  Information Officer at Skandia
                                                                  Direct Operations Corporation.


(1)  Mr. Adderley is Mr. William R. Kelly's son.
(2)  
Each officer serves continuously until removedtermination of employment or removal by the Board of Directors.

                                     -12-


                                    
ITEM 14. CONTROLS AND PROCEDURES.
Based on their evaluation, as of a date within 90 days of the filing date of this Form 10-K, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-14(c) and 15d-14(c) under the Securities and Exchange Act of 1934, as amended) are effective. There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
19
PART IV
ITEM 14.15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  The following documents are filed as part of this report:

  1.8-K.
(a)
The following documents are filed as part of this report:
(1)    Financial statements -
Report of Independent Accountants

      Balance Sheets at December 31, 1995, January 1, 1995 and 
        January 2, 1994

      
Statements of Earnings for the three fiscal years ended December 31, 1995

      29, 2002
Statements of Cash Flows for the three fiscal years ended December 29, 2002
Balance Sheets at December 29, 2002, December 30, 2001 and December 31, 1995

      2000
Statements of Stockholders'Stockholders’ Equity for the three fiscal years ended December 31, 1995

      29, 2002
Notes to Financial Statements

  2.
(2)    Financial Statement Schedule -
For the three fiscal years ended December 31, 1995:

        II - 29, 2002:
Schedule II—Valuation Reserves

  3.
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(3)    The Exhibits are listed in the Index to Exhibits Required by Item 601 of Regulation S-K at Item (c) below and included at           page 2746 which is incorporated herein by reference.

All other schedules are omitted because they are not applicable or the required 
information is shown in the financial statements or notes thereto.

No additional financial information has been provided for the registrant as an individual company since the total amount of net assets of subsidiaries which are restricted as to transfer to the registrant through intercompany loans, advances or cash dividends does not exceed 25 percent of total consolidated net assets at December 31, 1995.
      
(b)  No reports on Form 8-K were filed during the last quarter of the 
       period covered by this report.

(c)  The Index to Exhibits and required Exhibits are included following 
       the Financial Statement Schedule beginning at page 27 of this 
       filing.

(d)  The Index to Financial Statements and Supplemental Schedule is 
       included following the signatures beginning at page 14 of this 
       filing.

                                     -13-


                                  29, 2002.
(b)
A report on Form 8-K dated January 22, 2003 was filed by the Company in January, 2003. The report was filed under Item 5, Other Events.
(c)
The Index to Exhibits and required Exhibits are included following the Financial Statement Schedule beginning at page 46 of this filing.
(d)
The Index to Financial Statements and Supplemental Schedule is included following the signatures beginning at page 24 of this filing.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:  March 27, 1996              KELLY SERVICES, INC.
                                        Registrant

                                   By  /s/ P. K. Geiger                 
                                       ---------------------------------------
                                           P. K. Geiger
                                           Senior Vice President and
                                             Chief Financial Officer

      
Date: February 21, 2003
KELLY SERVICES, INC.
Registrant
By
/s/  W. K. Gerber        
W. K. Gerber
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date:  March 27, 1996                   *  W. R. Kelly
                                       --------------------------------------
                                           W. R. Kelly
                                           
Date: February 21, 2003
*  T. E. Adderley    
T. E. Adderley
Chairman, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: February 21, 2003
*  C. T. Camden
C. T. Camden
President, Chief Operating
Officer and Director
Date: February 21, 2003
*  C. V. Fricke
C. V. Fricke
Director
Date: February 21, 2003
*  M. A. Fay, O.P.
M. A. Fay, O.P.
Director
Date: February 21, 2003
*  V. G. Istock
V. G. Istock
Director
Date: February 21, 2003
*  B. J. White
B. J. White
Director
Date: February 21, 2003
/s/  W. K. Gerber
W. K. Gerber
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: February 21, 2003
*By
/s/  W. K. Gerber
W. K. Gerber
Attorney-in-Fact
21
CERTIFICATIONS
I, Terence E. Adderley, certify that:
1.
I have reviewed this annual report on Form 10-K of Kelly Services, Inc.;
2.
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the Board

registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.
The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 27, 1996                   *  T.February 21, 2003
/s/ Terence E. Adderley
                                       --------------------------------------
                                           T.
Terence E. Adderley
                                           President, 
Chairman and
Chief Executive Officer
22
CERTIFICATIONS
I, William K. Gerber, certify that:
1.
I have reviewed this annual report on Form 10-K of Kelly Services, Inc.;
2.
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and Director
                                           (Principal Executive Officer)

procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.
The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 27, 1996                   *  C. V. Fricke
                                       --------------------------------------
                                           C. V. Fricke
                                           Director

Date:  March 27, 1996                   *  H. E. Guenther
                                       --------------------------------------
                                           H. E. Guenther
                                           Director

Date:  March 27, 1996                   *  V. G. Istock
                                       --------------------------------------
                                           V. G. Istock
                                           Director         

Date:  March 27, 1996                   *  B. J. White
                                       --------------------------------------
                                           B. J. White
                                           Director         

Date:  March 27, 1996                  /s/ P.February 21, 2003
/s/ William K. Geiger
                                       --------------------------------------
                                           P.Gerber
William K. Geiger
                                           SeniorGerber
Executive Vice President and
Chief Financial Officer
                                           (Principal Financial Officer and
                                             Principal Accounting Officer)

Date:  March 27, 1996             *By  /s/ P. K. Geiger
                                       --------------------------------------
                                           P. K. Geiger
                                           Attorney-in-Fact


                                     -14-


                       
23
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULE
Kelly Services, Inc. and Subsidiaries



                                                            Page Reference
                                                             in Report on
                                                               Form 10-K
                                                            --------------

Report of Independent Accountants                                  15

Balance Sheets at December 31, 1995, January 1, 1995 
  and January 2, 1994                                              16

Statements of Earnings for the three fiscal years ended
  December 31, 1995                                                17

Statements of Cash Flows for the three fiscal years ended 
  December 31, 1995                                                18

Statements of Stockholders' Equity for the three fiscal 
  years ended December 31, 1995                                    19

Notes to Financial Statements                                   20 - 25


Financial Statement Schedule -

  Schedule II - Valuation Reserves                                 26


                                     -15-


                       
Page Reference in Report on Form 10-K
Report of Independent Accountants
25
Statements of Earnings for the three fiscal years ended December 29, 2002
26
Statements of Cash Flows for the three fiscal years ended December 29, 2002
27
Balance Sheets at December 29, 2002, December 30, 2001 and December 31, 2000
28
Statements of Stockholders’ Equity for the three fiscal years ended December 29, 2002
29
Notes to Financial Statements
30-44
Financial Statement Schedule—Schedule II—Valuation Reserves
45
24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Kelly Services, Inc.
In our opinion, the accompanying consolidated financial statements as listed in Item 14(a) 1 and 2 of this Form 10-Kthe accompanying index on page 24 present fairly, in all material respects, the financial position of Kelly Services, Inc. and its subsidiaries at December 29, 2002, December 30, 2001 and December 31, 1995, January 1, 1995 and January 2, 1994,2000, and the results of their operations and their cash flows for each of the three years thenin the period ended December 29, 2002 in conformity with accounting principles generally accepted accounting principles.in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index appearing on page 24 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company'sCompany’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted auditing 
standardsin the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Effective in 2002, and as discussed in footnote 4, the opinion expressed above.



/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Detroit, Michigan
January 31, 1996


                                         -16-
Company adopted Financial Accounting Standard No. 142 “Goodwill and Other Intangible Assets”.

                                    BALANCE SHEETS
                        Kelly Services, Inc. and Subsidiaries 

                                                     1995         1994         1993
                                                  ----------   ----------   ----------
                                                      (In thousands of dollars)

ASSETS 
Current Assets
  Cash and equivalents . . . . . . . . . . . .    $  52,811    $  49,207    $  36,020
  Short-term investments . . . . . . . . . . .       74,737      142,723      144,988
  Accounts receivable, less allowances of
    $6,950, $5,660 and $4,735, respectively. .      397,534      307,514      248,161
  Prepaid expenses and other current assets. .       33,520       27,259       17,881
                                                  ----------   ----------   ----------
       Total current assets. . . . . . . . . .      558,602      526,703      447,050
                                                                       
Property and Equipment
  Land and buildings . . . . . . . . . . . . .       35,153       34,044       29,882
  Equipment, furniture and leasehold 
    improvements . . . . . . . . . . . . . . .      113,521       90,868       82,227
  Accumulated depreciation . . . . . . . . . .      (64,286)     (54,731)     (43,827)
                                                  ----------   ----------   ----------
       Total property and equipment. . . . . .       84,388       70,181       68,282


Intangibles and Other Assets . . . . . . . . .       75,697       45,491       26,768
                                                  ----------   ----------   ----------
Total Assets . . . . . . . . . . . . . . . . .    $ 718,687    $ 642,375    $ 542,100
                                                  ==========   ==========   ==========
LIABILITIES AND STOCKHOLDERS' EQUITY 
Current Liabilities
  Accounts payable . . . . . . . . . . . . . .    $  53,013    $  33,752    $  24,621
  Payroll and related taxes  . . . . . . . . .      118,996      102,911       68,451
  Accrued insurance. . . . . . . . . . . . . .       51,309       57,390       51,841
  Income and other taxes . . . . . . . . . . .       19,265       16,806       10,968
                                                  ----------   ----------   ----------
       Total current liabilities . . . . . . .      242,583      210,859      155,881

Stockholders' Equity
  Capital stock, $1.00 par value
    Class A common stock, shares issued 36,512
      in 1995, 36,507 in 1994 and 1993 . . . .       36,512       36,507       36,507
    Class B common stock, shares issued 3,604
      in 1995, 3,609 in 1994 and 1993. . . . .        3,604        3,609        3,609
  Treasury stock, at cost
    Class A common stock, 2,101 shares in
      1995, 2,153 in 1994 and 2,361 in 1993. .       (6,327)      (6,186)      (6,702)
  Paid-in capital. . . . . . . . . . . . . . .        7,215        5,868          679
  Earnings invested in the business. . . . . .      435,100      391,718      352,126
                                                  ----------   ----------   ----------
       Total stockholders' equity. . . . . . .      476,104      431,516      386,219
                                                  ----------   ----------   ----------
Total Liabilities and Stockholders' Equity . .    $ 718,687    $ 642,375    $ 542,100
                                                  ==========   ==========   ========== 

See accompanying Notes to Financial Statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
January 21, 2003

                                               -17-


                                      STATEMENTS OF EARNINGS
                              Kelly Services, Inc. and Subsidiaries 

                                                                                           
                                                        1995            1994            1993
                                                    -------------   -------------   -------------
                                                 (In thousands of dollars except per share items) 


Sales of services. . . . . . . . . . . . . . . .     $ 2,689,799     $ 2,362,561     $ 1,954,534

Cost of services . . . . . . . . . . . . . . . .       2,148,406       1,899,552       1,573,797
                                                     ------------    ------------    ------------
Gross profit . . . . . . . . . . . . . . . . . .         541,393         463,009         380,737

Selling, general and administrative expenses . .         436,308         371,262         316,838
                                                     ------------    ------------    ------------
Earnings from operations . . . . . . . . . . . .         105,085          91,747          63,899

Interest income  . . . . . . . . . . . . . . . .           8,206           6,710           6,960
                                                     ------------    ------------    ------------
Earnings before income taxes . . . . . . . . . .         113,291          98,457          70,859

Income taxes:
  Federal  . . . . . . . . . . . . . . . . . . .          34,645          29,915          20,595
  State and other  . . . . . . . . . . . . . . .           9,155           7,485           5,705
                                                     ------------    ------------    ------------
Total income taxes . . . . . . . . . . . . . . .          43,800          37,400          26,300
                                                     ------------    ------------    ------------
Net earnings . . . . . . . . . . . . . . . . . .     $    69,491     $    61,057     $    44,559
                                                     ============    ============    ============

Earnings per share . . . . . . . . . . . . . . .           $1.83           $1.61           $1.18

Dividends per share  . . . . . . . . . . . . . .           $ .78           $ .70           $ .63

Average shares outstanding (thousands) . . . . .          37,993          37,956          37,728


See accompanying Notes to Financial Statements.

                                           -18-


                                STATEMENTS OF CASH FLOWS
                          Kelly Services, Inc. and Subsidiaries


                                                                                         
                                                        1995           1994           1993           
                                                     ---------      ---------      ---------
                                                           (In thousands of dollars)

Cash flows from operating activities
  Net earnings . . . . . . . . . . . . . . . . . .   $ 69,491       $ 61,057       $ 44,559
  Noncash adjustments:
    Depreciation and amortization. . . . . . . . .     22,685         19,105         17,539
    Changes in certain working capital components.    (62,952)       (11,000)       (16,300)
                                                     ---------      ---------      ---------
      Net cash from operating activities . . . . .     29,224         69,162         45,798
                                                                        

Cash flows from investing activities
  Capital expenditures . . . . . . . . . . . . . .    (33,982)       (18,433)       (16,056)
  Short-term investments . . . . . . . . . . . . .     67,986          2,265          9,614
  Increase in intangibles and other assets . . . .    (31,192)       (13,610)       (10,221)
                                                     ---------      ---------      ---------
      Net cash from investing activities . . . . .      2,812        (29,778)       (16,663)
                                                                        

Cash flows from financing activities
  Dividend payments. . . . . . . . . . . . . . . .    (29,638)       (26,570)       (23,846)
  Exercise of stock options and restricted stock
    awards . . . . . . . . . . . . . . . . . . . .      1,206            373          1,049
  Fractional shares paid . . . . . . . . . . . . .        --             --             (18)
                                                     ---------      ---------      ---------
      Net cash from financing activities . . . . .    (28,432)       (26,197)       (22,815)


Net change in cash and equivalents . . . . . . . .      3,604         13,187          6,320
Cash and equivalents at beginning of year. . . . .     49,207         36,020         29,700
                                                     ---------      ---------      ---------

Cash and equivalents at end of year. . . . . . . .   $ 52,811       $ 49,207       $ 36,020
                                                     =========      =========      =========

See accompanying Notes to Financial Statements.

                                           -19-

                            STATEMENTS OF STOCKHOLDERS' EQUITY
                           Kelly Services, Inc. and Subsidiaries
                                                                               
                                                        1995          1994          1993
                                                     ----------    ----------    ----------
                                                           (In thousands of dollars)

Capital Stock
  Class A common stock
    Balance at beginning of year . . . . . . . .      $ 36,507      $ 36,507      $ 29,195
    Conversions from Class B . . . . . . . . . .             5           --             11
    Five-for-four stock split. . . . . . . . . .           --            --          7,301
                                                      ---------     ---------     ---------
    Balance at end of year . . . . . . . . . . .        36,512        36,507        36,507

  Class B common stock
    Balance at beginning of year . . . . . . . .         3,609         3,609         2,898
    Conversions to Class A   . . . . . . . . . .            (5)          --            (11)
    Five-for-four stock split. . . . . . . . . .           --            --            722
                                                      ---------     ---------     ---------
    Balance at end of year . . . . . . . . . . .         3,604         3,609         3,609

Treasury Stock
    Balance at beginning of year . . . . . . . .        (6,186)       (6,702)       (6,736)
    Exercise of stock options. . . . . . . . . .          (184)          (13)           34
    Restricted stock awards. . . . . . . . . . .            43           --            --
    Treasury stock issued for acquistion . . . .           --            529           --
                                                      ---------     ---------     ---------
    Balance at end of year . . . . . . . . . . .        (6,327)       (6,186)       (6,702)

Paid-in Capital
    Balance at beginning of year . . . . . . . .         5,868           679         3,629
    Exercise of stock options. . . . . . . . . .           977           386         1,015
    Restricted stock awards  . . . . . . . . . .           370           --            --
    Treasury stock issued for acquistion . . . .           --          4,803           --
    Five-for-four stock split. . . . . . . . . .           --            --         (3,965)
                                                      ---------     ---------     ---------
    Balance at end of year . . . . . . . . . . .         7,215         5,868           679

Earnings Invested in the Business
    Balance at beginning of year . . . . . . . .       391,718       352,126       338,273
    Net earnings . . . . . . . . . . . . . . . .        69,491        61,057        44,559
    Cash dividends . . . . . . . . . . . . . . .       (29,638)      (26,570)      (23,846)
    Five-for-four stock split. . . . . . . . . .           --            --         (4,058)
    Fractional shares paid . . . . . . . . . . .           --            --            (18)
    Equity adjustment for foreign currency
      translation; cumulative credit of $2,121
      in 1995; cumulative charge of $1,408 in 
      1994 and $6,513 in 1993  . . . . . . . . .         3,529         5,105        (2,784)
                                                      ---------     ---------     ---------
    Balance at end of year . . . . . . . . . . .       435,100       391,718       352,126

Stockholders' Equity at end of year. . . . . . .      $476,104      $431,516      $386,219
                                                      =========     =========     =========

See accompanying Notes to Financial Statements.

                                     -20-

                         
25
STATEMENTS OF EARNINGS
Kelly Services, Inc. and Subsidiaries
 
 
 
  
2002
  
2001
 
  
2000
 
 
  
(In thousands of dollars except per share items)
 
Sales of services
  
$
4,323,470
  
$
4,256,892
 
  
$
4,487,291
 
Cost of services
  
 
3,630,744
  
 
3,559,037
 
  
 
3,694,982
 
 
  
  
  
Gross profit
  
 
692,726
  
 
697,855
 
  
 
792,309
 
Selling, general and administrative expenses
  
 
662,334
  
 
669,888
 
  
 
655,191
 
 
  
  
  
Earnings from operations
  
 
30,392
  
 
27,967
 
  
 
137,118
 
Gain on disposition of property
  
 
—  
  
 
—  
 
  
 
8,567
 
Interest income (expense), net
  
 
362
  
 
(381
)
  
 
(409
)
 
  
  
  
Earnings before income taxes
  
 
30,754
  
 
27,586
 
  
 
145,276
 
Income taxes
  
 
12,185
  
 
11,037
 
  
 
58,100
 
 
  
  
  
Net earnings
  
$
18,569
  
$
16,549
 
  
$
87,176
 
 
  
  
  
Basic earnings per share
  
$
.52
  
$
.46
 
  
$
2.44
 
Diluted earnings per share
  
$
.52
  
$
.46
 
  
$
2.43
 
Dividends per share
  
$
.40
  
$
.85
 
  
$
.99
 
Average shares outstanding
  
 
 
  
 
 
 
  
 
 
 
(thousands):
  
 
 
  
 
 
 
  
 
 
 
Basic
  
 
35,724
  
 
35,829
 
  
 
35,721
 
Diluted
  
 
35,900
  
 
35,930
 
  
 
35,843
 
See accompanying Notes to Financial Statements.
26
STATEMENTS OF CASH FLOWS
Kelly Services, Inc. and Subsidiaries
 
 
 
  
2002
 
  
2001
 
  
2000
 
 
  
(In thousands of dollars)
 
Cash flows from operating activities
  
 
 
 
  
 
 
 
  
 
 
 
Net earnings
  
$
18,569
 
  
$
16,549
 
  
$
87,176
 
Noncash adjustments:
  
 
 
 
  
 
 
 
  
 
 
 
Depreciation and amortization
  
 
45,428
 
  
 
44,396
 
  
 
39,465
 
Gain on disposition of property
  
 
—  
 
  
 
—  
 
  
 
(8,567
)
Deferred income taxes
  
 
6,590
 
  
 
(242
)
  
 
(593
)
Changes in operating assets and liabilities
  
 
19,019
 
  
 
84,522
 
  
 
(28,104
)
 
  
  
  
Net cash from operating activities
  
 
89,606
 
  
 
145,225
 
  
 
89,377
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Cash flows from investing activities
  
 
 
 
  
 
 
 
  
 
 
 
Capital expenditures
  
 
(33,406
)
  
 
(42,525
)
  
 
(54,237
)
Short-term investments
  
 
31
 
  
 
1,764
 
  
 
3,624
 
(Increase) decrease in other assets
  
 
(3,476
)
  
 
3,645
 
  
 
(7,564
)
Acquisition of building
  
 
—  
 
  
 
(11,783
)
  
 
—  
 
Proceeds from disposition of property
  
 
—  
 
  
 
—  
 
  
 
10,309
 
Acquisition of companies
  
 
—  
 
  
 
(192
)
  
 
(20,923
)
 
  
  
  
Net cash from investing activities
  
 
(36,851
)
  
 
(49,091
)
  
 
(68,791
)
 
  
 
 
 
  
 
 
 
  
 
 
 
Cash flows from financing activities
  
 
 
 
  
 
 
 
  
 
 
 
(Decrease) increase in short-term borrowings
  
 
(11,723
)
  
 
(24,900
)
  
 
10,629
 
Dividend payments
  
 
(14,293
)
  
 
(30,408
)
  
 
(35,303
)
Exercise of stock options and other
  
 
991
 
  
 
139
 
  
 
85
 
Purchase of treasury stock
  
 
(13,216
)
  
 
(64
)
  
 
(5,737
)
 
  
  
  
Net cash from financing activities
  
 
(38,241
)
  
 
(55,233
)
  
 
(30,326
)
 
  
  
  
Effect of exchange rates on cash and equivalents
  
 
2,961
 
  
 
(758
)
  
 
(974
)
 
  
  
  
Net change in cash and equivalents
  
 
17,475
 
  
 
40,143
 
  
 
(10,714
)
Cash and equivalents at beginning of year
  
 
83,461
 
  
 
43,318
 
  
 
54,032
 
 
  
  
  
Cash and equivalents at end of year
  
$
100,936
 
  
$
83,461
 
  
$
43,318
 
 
  
  
  
See accompanying Notes to Financial Statements.
27
BALANCE SHEETS
Kelly Services, Inc. and Subsidiaries
 
 
 
  
2002
 
  
2001
 
  
2000
 
 
  
(In thousands of dollars)
 
ASSETS
  
 
 
 
  
 
 
 
  
 
 
 
Current Assets
  
 
 
 
  
 
 
 
  
 
 
 
Cash and equivalents
  
$
100,936
 
  
$
83,461
 
  
$
43,318
 
Short-term investments
  
 
599
 
  
 
630
 
  
 
2,394
 
Accounts receivable, less allowances of $12,533, $12,105 and $13,614, respectively
  
 
567,517
 
  
 
539,692
 
  
 
631,771
 
Prepaid expenses and other current assets
  
 
26,387
 
  
 
24,950
 
  
 
24,903
 
Deferred taxes
  
 
23,916
 
  
 
21,469
 
  
 
18,688
 
 
  
  
  
Total current assets
  
 
719,355
 
  
 
670,202
 
  
 
721,074
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Property and Equipment
  
 
 
 
  
 
 
 
  
 
 
 
Land and buildings
  
 
57,111
 
  
 
56,639
 
  
 
44,971
 
Equipment, furniture and leasehold improvements
  
 
295,536
 
  
 
275,063
 
  
 
253,666
 
Accumulated depreciation
  
 
(150,315
)
  
 
(119,729
)
  
 
(97,552
)
 
  
  
  
Net property and equipment
  
 
202,332
 
  
 
211,973
 
  
 
201,085
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Noncurrent Deferred Taxes
  
 
21,065
 
  
 
31,415
 
  
 
33,521
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Goodwill, net
  
 
80,260
 
  
 
73,643
 
  
 
77,397
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Other Assets
  
 
49,121
 
  
 
52,148
 
  
 
56,499
 
 
  
  
  
Total Assets
  
$
1,072,133
 
  
$
1,039,381
 
  
$
1,089,576
 
 
  
  
  
LIABILITIES AND STOCKHOLDERS' EQUITY
  
 
 
 
  
 
 
 
  
 
 
 
Current Liabilities
  
 
 
 
  
 
 
 
  
 
 
 
Short-term borrowings
  
$
24,770
 
  
$
32,939
 
  
$
57,839
 
Accounts payable
  
 
85,310
 
  
 
88,217
 
  
 
84,659
 
Payroll and related taxes
  
 
181,585
 
  
 
154,813
 
  
 
172,519
 
Accrued insurance
  
 
27,912
 
  
 
24,071
 
  
 
21,003
 
Income and other taxes
  
 
47,617
 
  
 
48,149
 
  
 
48,814
 
 
  
  
  
Total current liabilities
  
 
367,194
 
  
 
348,189
 
  
 
384,834
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Noncurrent Liabilities
  
 
 
 
  
 
 
 
  
 
 
 
Accrued insurance
  
 
45,540
 
  
 
39,273
 
  
 
34,269
 
Accrued retirement benefits
  
 
40,335
 
  
 
44,764
 
  
 
47,004
 
 
  
  
  
Total noncurrent liabilities
  
 
85,875
 
  
 
84,037
 
  
 
81,273
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Stockholders' Equity
  
 
 
 
  
 
 
 
  
 
 
 
Capital stock, $1.00 par value
  
 
 
 
  
 
 
 
  
 
 
 
Class A common stock, shares issued 36,619,148 at 2002, 36,609,078 at 2001 and 36,609,040 at 2000
  
 
36,619
 
  
 
36,609
 
  
 
36,609
 
Class B common stock, shares issued 3,496,718 at 2002, 3,506,788 at 2001 and 3,506,826 at 2000
  
 
3,497
 
  
 
3,507
 
  
 
3,507
 
Treasury stock, at cost
  
 
 
 
  
 
 
 
  
 
 
 
Class A common stock, 4,567,975 shares at 2002, 4,232,542 at 2001 and 4,363,578 at 2000
  
 
(91,648
)
  
 
(81,721
)
  
 
(84,251
)
Class B common stock, 18,875 shares at 2002, 15,675 at 2001 and 12,817 at 2000
  
 
(511
)
  
 
(435
)
  
 
(371
)
Paid-in capital
  
 
17,902
 
  
 
17,035
 
  
 
16,371
 
Earnings invested in the business
  
 
665,759
 
  
 
661,483
 
  
 
675,388
 
Accumulated foreign currency adjustments
  
 
(12,554
)
  
 
(29,323
)
  
 
(23,784
)
 
  
  
  
Total stockholders' equity
  
 
619,064
 
  
 
607,155
 
  
 
623,469
 
 
  
  
  
Total Liabilities and Stockholders' Equity
  
$
1,072,133
 
  
$
1,039,381
 
  
$
1,089,576
 
 
  
  
  
See accompanying Notes to Financial Statements.
28
STATEMENTS OF STOCKHOLDERS’ EQUITY
Kelly Services, Inc. and Subsidiaries
 
 
 
 
  
2002
 
  
2001
 
  
2000
 
 
  
(In thousands of dollars)
 
Capital Stock
  
 
 
 
  
 
 
 
  
 
 
 
Class A common stock
  
 
 
 
  
 
 
 
  
 
 
 
Balance at beginning of year
  
$
36,609
 
  
$
36,609
 
  
$
36,602
 
Conversions from Class B
  
 
10
 
  
 
—  
 
  
 
7
 
 
  
  
  
Balance at end of year
  
 
36,619
 
  
 
36,609
 
  
 
36,609
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Class B common stock
  
 
 
 
  
 
 
 
  
 
 
 
Balance at beginning of year
  
 
3,507
 
  
 
3,507
 
  
 
3,514
 
Conversions to Class A
  
 
(10
)
  
 
—  
 
  
 
(7
)
 
  
  
  
Balance at end of year
  
 
3,497
 
  
 
3,507
 
  
 
3,507
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Treasury Stock
  
 
 
 
  
 
 
 
  
 
 
 
Class A common stock
  
 
 
 
  
 
 
 
  
 
 
 
Balance at beginning of year
  
 
(81,721
)
  
 
(84,251
)
  
 
(80,538
)
Exercise of stock options, restricted stock awards and other
  
 
2,381
 
  
 
1,609
 
  
 
1,379
 
Treasury stock issued for acquisitions
  
 
832
 
  
 
921
 
  
 
522
 
Purchase of treasury stock
  
 
(13,140
)
  
 
—  
 
  
 
(5,614
)
 
  
  
  
Balance at end of year
  
 
(91,648
)
  
 
(81,721
)
  
 
(84,251
)
 
  
 
 
 
  
 
 
 
  
 
 
 
Class B common stock
  
 
 
 
  
 
 
 
  
 
 
 
Balance at beginning of year
  
 
(435
)
  
 
(371
)
  
 
(248
)
Purchase of treasury stock
  
 
(76
)
  
 
(64
)
  
 
(123
)
 
  
  
  
Balance at end of year
  
 
(511
)
  
 
(435
)
  
 
(371
)
 
  
 
 
 
  
 
 
 
  
 
 
 
Paid-in Capital
  
 
 
 
  
 
 
 
  
 
 
 
Balance at beginning of year
  
 
17,035
 
  
 
16,371
 
  
 
15,761
 
Exercise of stock options, restricted stock awards and other
  
 
699
 
  
 
453
 
  
 
498
 
Treasury stock issued for acquisitions
  
 
168
 
  
 
211
 
  
 
112
 
 
  
  
  
Balance at end of year
  
 
17,902
 
  
 
17,035
 
  
 
16,371
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Earnings Invested in the Business
  
 
 
 
  
 
 
 
  
 
 
 
Balance at beginning of year
  
 
661,483
 
  
 
675,388
 
  
 
623,564
 
Net earnings
  
 
18,569
 
  
 
16,549
 
  
 
87,176
 
Dividends
  
 
(14,293
)
  
 
(30,454
)
  
 
(35,352
)
 
  
  
  
Balance at end of year
  
 
665,759
 
  
 
661,483
 
  
 
675,388
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Accumulated Foreign Currency Adjustments
  
 
 
 
  
 
 
 
  
 
 
 
Balance at beginning of year
  
 
(29,323
)
  
 
(23,784
)
  
 
(16,282
)
Equity adjustment for foreign currency
  
 
16,769
 
  
 
(5,539
)
  
 
(7,502
)
 
  
  
  
Balance at end of year
  
 
(12,554
)
  
 
(29,323
)
  
 
(23,784
)
 
  
  
  
Stockholders’ Equity at end of year
  
$
619,064
 
  
$
607,155
 
  
$
623,469
 
 
  
  
  
Comprehensive Income
  
 
 
 
  
 
 
 
  
 
 
 
Net earnings
  
$
18,569
 
  
$
16,549
 
  
$
87,176
 
Other comprehensive income—Foreign currency adjustments
  
 
16,769
 
  
 
(5,539
)
  
 
(7,502
)
 
  
  
  
Comprehensive Income
  
$
35,338
 
  
$
11,010
 
  
$
79,674
 
 
  
  
  
See accompanying Notes to Financial Statements.
29
NOTES TO FINANCIAL STATEMENTS
Kelly Services, Inc. and Subsidiaries
          (In
(In thousands of dollars except share and per share items)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Summary of Significant Accounting Policies
Nature of Operations Kelly Services, Inc. (the “Company”) is a global temporary staffing leader operating in 26 countries throughout the world.
Fiscal Year The Company'sCompany’s fiscal year ends on the Sunday nearest to December 31. The three most recent years, all of which contained 52 weeks, ended on December 29, 2002 (2002), December 30, 2001 (2001) and December 31, 1995 (1995), January 1, 
1995 (1994) and January 2, 1994 (1993)2000 (2000).

     The Company operates in the single industry segment
Principles of providing 
temporary help services to a diversified group of customers.Consolidation The financial statements consolidateinclude the accounts and operations of the Company and its subsidiaries, all of which are wholly owned, after 
elimination of allowned. All significant intercompany accounts and transactions.  

     Thetransactions have been eliminated.
AcquisitionsIn 2000, the Company acquired the ProStaff Group in the U.S. (Wisconsin), the Business Trends Group, headquartered in Singapore, with offices in six Southeast Asia countries, and ETT Extra in Spain. All of the acquisitions were accounted for as purchases and did not have a material effect on the assets, liabilities, revenues or net earnings of the Company.
Foreign Currency Translation Substantially all of the Company’s international subsidiaries use their local currency as their functional currency. Revenue and expense accounts of the Company's foreign operationssubsidiaries are translated to U.S. dollars at appropriateaverage exchange rates, while assets and liabilities are translated to U.S. dollars at year-end exchange rates. Resulting translation adjustments, net of exchange. Foreign operationsdeferred taxes, where applicable, are conductedreported as accumulated foreign currency adjustments in Canada, 
United Kingdom, Ireland, Denmark, France, Luxembourg (acquired subsequent to 
December 31, 1995), stockholders’ equity and are recorded as a component of comprehensive income.
Revenue Recognition Revenue from sales of services is recognized as services are provided by the temporary, contract or leased employees. Revenue from permanent placement services is recognized at the time the permanent placement candidate begins full-time employment. Provisions for sales allowances, based on historical experience, are recognized at the time the related sale is recognized.
Allowance for Uncollectible Accounts ReceivableThe Netherlands, Norway, Switzerland, Australia, New 
ZealandCompany records an allowance for uncollectible accounts receivable based on historical loss experience, customer payment patterns and Mexico.  Domesticcurrent economic trends. The Company reviews the adequacy of the allowance for uncollectible accounts receivable on a quarterly basis and, foreign sales, earningsif necessary, increases or loss from 
operationsdecreases the balance.
Advertising Expenses Advertising expenses, which are expensed as incurred, were $12,700, $13,500 and identifiable assets were as follows:

                             1995           1994           1993    
                         ------------   ------------    ------------ 
Sales:
 Domestic Operations... $  2,172,100   $  2,005,500   $  1,719,300  
 Foreign Operations....      517,700        357,100        235,200  
                         ------------   ------------    ------------ 
Total................. $   2,689,800   $  2,362,600   $  1,954,500  
                         ============   ============    ============ 
Earnings (loss) from
 operations:
 Domestic Operations... $     96,300   $     87,200   $     66,400  
 Foreign Operations....        8,800          4,500         (2,500) 
                         ------------   ------------    ------------ 
Total.................. $    105,100   $     91,700   $     63,900  
                         ============   ============    ============ 
Identifiable assets:
 Domestic Operations... $    548,300   $    524,800   $    471,200  
 Foreign Operations....      170,400        117,600         70,900  
                         ------------   ------------    ------------ 
Total.................. $    718,700   $    642,400   $    542,100  
                         ============   ============    ============$15,800 in 2002, 2001 and 2000, respectively.
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenuesin the financial statements and expenses.accompanying notes. Estimates are used for, but not limited to, the accounting for the allowance for uncollectible accounts receivable, workers’ compensation and goodwill impairment. Actual results could differ materially from those estimates.
Cash and Equivalents Cash and equivalents are stated at cost, which approximates market. The Company considers securities with original maturities of three months or less to be cash and equivalents.
Property and Equipment Property and equipment are stated at cost and are depreciated over their estimated useful lives, principally by the straight-line method. Estimated useful lives range from 15 to 45 years for land improvements, buildings and building improvements, 5 years for equipment and furniture and 3 to 12 years for computer hardware and software. Leasehold improvements are depreciated over the lesser of the life of the lease or 5 years. The Company capitalizes external costs and internal payroll costs incurred in the development of software for internal use in accordance with American Institute of Certified Public Accountants Statement of Position No. 98-1. Capitalized software is included with equipment, furniture and leasehold improvements on the balance sheet. Depreciation expense was $45,300 for 2002, $41,500 for 2001 and $37,200 for 2000.
30
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
Goodwill and Other Intangible AssetsGoodwill represents the excess of the purchase price over the fair value of net assets. Upon adoption of Statement of Financial Accounting Standard (SFAS) No. 142 “Goodwill and Other Intangible Assets” in the first quarter of 2002, the company discontinued the amortization of goodwill. See Note 4 for the effects of adopting SFAS No. 142. During 2001 and 2000 the Company amortized goodwill on a straight-line basis over periods ranging from 20 to 40 years.
Purchased intangible assets, with definite lives, other than goodwill, are valued at acquisition cost and are amortized over their respective useful lives (up to 10 years) on a straight-line basis.
Impairment of Long-Lived Assets and Intangible AssetsThe Company evaluates long-lived assets and intangible assets with definite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When it is probable that undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value. Assets to be disposed of by sale, if any, are reported at the lower of the carrying amount or fair value less cost to sell.
Goodwill is tested for impairment annually, or if an event occurs or circumstances change that may reduce the fair value of the reporting unit below its book value. If the fair market value of the reporting unit tested has fallen below its book value, we then compare the estimated fair value of goodwill to its book value. If the book value exceeds the estimated fair value, an impairment loss would be recognized in an amount equal to that excess. The Company uses a discounted cash flow methodology to determine fair value.
Accounts Payable and Payroll and Related TaxesIncluded in accounts payable and payroll and related taxes are outstanding checks in excess of funds on deposit. Such amounts totaled $11,156, $14,446 and $15,197 in accounts payable at year-end 2002, 2001 and 2000, respectively, and $21,950, $19,895 and $22,636 in payroll and related taxes at year-end 2002, 2001 and 2000, respectively.
Stock-Based Compensation In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of SFAS No. 123.” This statement amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company continues to account for stock-based compensation using Accounting Principles Board Statement No. 25, “Accounting for Stock Issued to Employees,” and has not adopted the recognition provisions of SFAS No. 123, as amended by SFAS No. 148. However, the Company has adopted the disclosure provisions for the current fiscal year and has included this information in Note 11 to the Company’s financial statements.
Workers’ CompensationThe Company establishes accruals for workers’ compensation claims utilizing actuarial methods to estimate the undiscounted future cash payments that will be made to satisfy the claims. The estimates are based both on historical experience as well as current legal, economic and regulatory factors. The ultimate cost of these claims may be greater than or less than the established accrual. However, the Company believes that any such adjustments will not materially affect its consolidated financial position.
Reclassifications Certain prior year amounts have been reclassified to conform with the current presentation.
                                     -21-

                   
2. Short-term Investments
Short-term investments are classified as available for sale. Federal, state and local government obligations included in short-term investments represented 40% of the balance as of year-end 2000. The Company did not hold federal, state or local government obligations as of year-end 2002 and 2001. The carrying amounts of short-term investments approximate market value.
31
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
          (In
(In thousands of dollars except share and per share items)

CURRENT ASSETS
     Cash
Interest income was $1,531, $2,301 and equivalents are stated at cost,$2,770 for the fiscal years 2002, 2001 and 2000, respectively.
3. Land Sale
On October 9, 2000, the Company sold undeveloped land for $10,309. The Company recognized a pretax gain in 2000 of $8,567, which approximates market.  
Included are highly liquid debt instruments with original maturitiesis included in gain on disposition of three 
months or less.

     Short-term investments are debt instruments having original maturitiesproperty. The proceeds from the sale of more than three months.  Of these investments, federal, stateproperty were used on January 8, 2001 for the purchase of an office building that will be utilized by the Company for future expansion. For tax purposes, the transaction has been treated as an IRS Code Section 1031 tax-free exchange.
4. Goodwill and local 
government obligations comprised approximately 90% in 1995 and 80% in 1994.  
Short-term investments due within one year totaled $67,000 in 1995 and 
$119,000 in 1994. The balance is due within two years and is available for 
sale.  The difference between carrying amounts and market was not material atOther Intangible Assets—Adoption of Statement 142
Effective December 31, 19952001, the Company adopted Statement of Financial Accounting Standards No.142 “Goodwill and January 1, 1995.

     Cash flows from short-term investmentsOther Intangible Assets” (“SFAS 142”), which established a new method of testing goodwill and other intangible assets for 1995, 1994impairment using a fair-value based approach. Under the new standard, goodwill is no longer amortized as was previously required. Upon adoption, amortization of goodwill and 1993 wereother intangible assets ceased. Amortization of goodwill would have been $2.7 million for fiscal year 2002.
SFAS 142 requires that goodwill be tested for impairment annually or if an event occurs or circumstances change that may reduce the fair value of the reporting unit below its book value. Should circumstances change or events occur to indicate that the fair market value of the reporting unit has fallen below its book value, management must then compare the estimated fair value of goodwill to book value. If the book value exceeds the estimated fair value, an impairment loss would be recognized in an amount equal to that excess. Such an impairment loss would be recognized as follows:
                        1995           1994          1993  
                     ---------     -----------     ---------
Sales/Maturities. . $ 951,817     $ 1,279,383     $ 927,805 
Purchases . . . . .  (883,831)     (1,277,118)     (918,191)
                     ---------     -----------     ---------
Total . . . . . . . $  67,986     $     2,265     $   9,614 
                     =========     ===========     =========


CHANGES IN CERTAIN WORKING CAPITAL COMPONENTS
     Changes in certain working capital components,a non-cash charge to operating income. We completed our impairment test as disclosed inof the statementsdate of cash flows,adoption, December 31, 2001 and during the fourth quarter of the year ended December 29, 2002, as required under SFAS 142 and determined that goodwill is not impaired.
The following table presents net earnings and basic and diluted earnings per share for the fiscal years 1995, 1994,2002, 2001 and 1993 are2000, respectively, as follows:

                               1995             1994           1993 
                             --------         --------       --------
Increase in accounts
  receivable . . . . . . .  $(86,512)        $(54,571)      $(41,136)
Increase in prepaid 
  expenses and other
  current assets . . . . .    (5,522)          (8,350)        (3,212)
Increase in accounts
  payable. . . . . . . . .    18,304            8,076         11,874
Increase in payroll and
  related taxes. . . . . .    15,030           33,008         14,910
Increase (decrease) in
  accrued insurance. . . .    (6,101)           5,512          3,004
Increase (decrease) in
  income and other taxes .     1,849            5,325         (1,740)
                             --------         --------       --------
Total. . . . . . . . . . .  $(62,952)        $(11,000)      $(16,300)
                             ========         ========       ========

PROPERTY AND EQUIPMENT
     Properties are stated at cost and include expendituresadjusted for additions and 
major improvements.  Fully depreciated assets are eliminated from the accounts.  For financial reporting purposes, assets are depreciated over 
their estimated useful lives, principally by the straight-line method.


                                     -22-

                   non-amortization provisions of SFAS No. 142.
 
  
2002
  
2001
  
2000
Reported net earnings
  
$
18,569
  
$
16,549
  
$
87,176
Add back: Goodwill amortization, net of tax
  
 
—  
  
 
2,011
  
 
1,560
 
  
  
  
Adjusted net earnings
  
$
18,569
  
$
18,560
  
$
88,736
 
  
  
  
Basic earnings per share:
  
 
 
  
 
 
  
 
 
Reported net earnings
  
$
0.52
  
$
0.46
  
$
2.44
Goodwill amortization, net of tax
  
 
—  
  
 
0.06
  
 
0.04
 
  
  
  
Adjusted net earnings
  
$
0.52
  
$
0.52
  
$
2.48
 
  
  
  
Diluted earnings per share:
  
 
 
  
 
 
  
 
 
Reported net earnings
  
$
0.52
  
$
0.46
  
$
2.43
Goodwill amortization, net of tax
  
 
—  
  
 
0.06
  
 
0.05
 
  
  
  
Adjusted net earnings
  
$
0.52
  
$
0.52
  
$
2.48
 
  
  
  
32
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
          (In
(In thousands of dollars except share and per share items)
The changes in the net carrying amount of goodwill for the year ended December 29, 2002 are as follows:
 
  
U.S.
Commercial
  
PTSA
  
International
  
Total
Balance as of December 30, 2001
  
$
4,719
  
$
24,899
  
$
44,025
  
$
73,643
Reclassification from intangibles
  
 
34
  
 
34
  
 
232
  
 
300
Translation adjustment
  
 
—  
  
 
—  
  
 
6,317
  
 
6,317
 
  
  
  
  
Balance as of December 29, 2002
  
$
4,753
  
$
24,933
  
$
50,574
  
$
80,260
 
  
  
  
  
5. Short-term Borrowings
The Company conducts its field operations primarilyhas a committed $100 million, five-year unsecured multi-currency revolving credit facility used to fund working capital, acquisitions and for general corporate purposes. The interest rate applicable to borrowings under the line of credit is 20 basis points over LIBOR and may include additional costs if the funds are drawn from leased 
facilities.  certain countries. Singapore was added to the list of countries borrowing under this facility in 2002. LIBOR rates varied by currency and ranged from 1.6% to 3.2% at December 29, 2002. Borrowings under this arrangement were $24,300, $23,600 and $44,300 at year-end 2002, 2001 and 2000, respectively.
The following are future minimum lease commitments forCompany’s $100 million five-year unsecured multi-currency revolving credit facility expires in October of 2003. It is the five-year period commencing in 1996:  $29,700, $23,800, $17,400, $11,900 and 
$8,800.  Lease expense for 1995, 1994 and 1993 amountedCompany’s intention to $29,800, $26,700 
and $24,900, respectively.

INTANGIBLES AND OTHER ASSETS
     Intangibles and other assets include goodwillcomplete a new unsecured multi-currency revolving credit facility prior to the expiration of $55,400, $32,000 and 
$14,400  at year-ends 1995, 1994 and 1993, respectively.  Goodwill, which 
represents the excess of cost over net assets of businesses acquired, is 
amortized on a straight-line basis over periods not exceeding 40 years.  
Accumulated amortization at 1995, 1994 and 1993 was $3,100, $1,900 and 
$1,200, respectively.current facility. The Company periodically reviewsanticipates no significant change in financial covenants and believes there is very little risk to having a new credit facility in place before October.
During September 2000, the specificCompany arranged an $8,300 one-year uncommitted credit facility to fund its Singapore acquisition. During 2001, the amount was increased to $11,000 and the term extended to March 2002. During 2002, all borrowings under this credit facility were repaid. The outstanding balance totaled $7,800 and $7,400 at year-end 2001 and 2000, respectively.
The Company has additional uncommitted one-year credit facilities that aggregate to $51 million as of December 29, 2002. Borrowings under these lines totaled $500, $1,500 and $6,100 at year-end 2002, 2001, and 2000, respectively. Interest rates ranged from 3.3% to 7.6% at year-end 2002.
All of the Company’s borrowings are foreign currency denominated and support the Company’s international working capital position. The carrying amounts of goodwillthe Company’s borrowings under the lines of credit described above approximate their fair values.
Interest expense, interest payments and has determined that no impairments have occurred.  Such reviews 
are based on various analyses including profitability projectionsweighted average interest rates related to the short-term borrowings for 2002, 2001 and management's judgment2000 were as follows:
 
  
2002
 
  
2001
 
  
2000
 
Interest expense
  
$
1,169
 
  
$
2,682
 
  
$
3,179
 
Interest payments
  
 
1,183
 
  
 
2,698
 
  
 
2,672
 
Weighted average interest rate
  
 
3.3
%
  
 
4.6
%
  
 
5.5
%
33
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of the related business' ability to achieve sufficient 
profitability. 

     Other assets include depositsdollars except share and cash values of life insurance on the 
lives of officers and key employees.

CAPITALIZATION AND STOCK SPLITS
     per share items)
6. Capitalization
The authorized capital stock of the Company is 100,000,000 shares of Class A common stock and 10,000,000 shares of Class B common stock. Class A shares have no voting rights and are not convertible. Class B shares have voting rights and are convertible into Class A shares on a share-for-share basis at any time. Both classes of stock have identical rights in the event of liquidation.

     In May 1993,
During 2002, the BoardCompany repurchased 500,000 shares of Directors declared a five-for-four splitits Class A common stock from the William R. Kelly Estate. The total cost of the share repurchase was $13,140 or $26.28 per share, representing a 2.7% discount to the closing market price of Kelly Class A andcommon stock on the business day prior to the purchase. In addition, the Company purchased 3,200 shares of its Class B common stock.  Atstock at a total cost of $76. During 2001, the same time, the stockholders 
approved an increase in the numberCompany repurchased 2,858 shares of authorized Class A shares to 
100,000,000, from 50,000,000.  All per share and share data in the 
accompanying financial statements and notes have been restated to give effect 
to stock splits.

     Earnings per share are based on the average number of Class A andits Class B common stock at a total cost of $64. During 2000, the Company repurchased 227,500 shares of its Class A common stock at a total cost of $5,614 and repurchased 5,050 shares of its Class B common stock at a total cost of $123.
7. Earnings Per Share
The reconciliations of earnings per share computations for the fiscal years 2002, 2001 and 2000 were as follows:
 
  
2002
  
2001
  
2000
Net earnings
  
$
18,569
  
$
16,549
  
$
87,176
 
  
  
  
Determination of shares (thousands):
  
 
 
  
 
 
  
 
 
Weighted average common shares outstanding
  
 
35,724
  
 
35,829
  
 
35,721
Effect of dilutive securities:
  
 
 
  
 
 
  
 
 
Stock options
  
 
52
  
 
1
  
 
—  
Restricted and performance awards and other
  
 
124
  
 
100
  
 
122
 
  
  
  
Weighted average common shares outstanding—assuming dilution
  
 
35,900
  
 
35,930
  
 
35,843
 
  
  
  
Earnings per share—basic
  
$
.52
  
$
.46
  
$
2.44
Earnings per share—assuming dilution
  
$
.52
  
$
.46
  
$
2.43
Stock options to purchase 1,291,000, 2,503,000 and 2,309,000 shares of common stock at a weighted average price per share of $27.95, $27.04 and $27.30 were outstanding during 2002, 2001 and 2000, respectively, but were not included in the year.

PERFORMANCE INCENTIVE PLAN
     In May 1992, the stockholders approved the Performance Incentive Plan 
(the "Plan") to replace the Incentive Stock Option Plan which expired earlier 
that year.  Under the Plan, stockcomputation of diluted earnings per share. The exercise prices of these options (both incentive and nonqualified),  
Stock Appreciation Rights (SARs), restricted awards, and performance awards 
may be granted to key employees, utilizing the Company's Class A stock.  
Stock options may not be granted at prices lesswere greater than the fairaverage market value on 
the date of grant, nor for a term to exceed 10 years.

     The Plan provides that the maximum number of shares available for grants 
is five percentprice of the outstanding Class A stock, adjusted for Plan activity 
overcommon shares and the preceding five years.


                                     -23-

                   options were therefore anti-dilutive.
34
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
          (In
(In thousands of dollars except share and per share items)

     As of December 31, 1995, no SARs or performance awards have been granted 
under the Plan.  Restricted awards totaling 66,800
8. Supplemental Cash Flow Information
Changes in operating assets and 53,000 shares were 
granted under the Plan during 1995 and 1994, respectively.

     The combined activity under the plans identified above isliabilities, as follows:

                                           Number of           Exercise
                                            Class A           Price Range
                Activity                    Shares             Per Share
     -----------------------------         ---------        ---------------

     Outstanding at
       January 3, 1993 . . . . . .          158,040         $21.60 - $33.80
     Granted . . . . . . . . . . .          367,271         $24.75 - $33.60
     Exercised . . . . . . . . . .          (53,653)        $21.60 - $22.60
     Cancelled . . . . . . . . . .          (16,300)        $21.60 - $29.20
     Outstanding at                         --------
       January 2, 1994 . . . . . .          455,358         $21.92 - $33.80
     Granted . . . . . . . . . . .          307,929         $24.50 - $30.25
     Exercised . . . . . . . . . .          (19,150)        $21.92 - $24.80
     Cancelled . . . . . . . . . .          (46,123)        $24.75 - $33.80
     Outstanding at                         --------
       January 1, 1995 . . . . . .          698,014         $22.60 - $33.80
     Granted . . . . . . . . . . .          244,900         $26.25 - $30.50
     Exercised . . . . . . . . . .          (63,903)        $22.60 - $30.25
     Cancelled . . . . . . . . . .          (84,210)        $22.60 - $33.80
     Outstanding at                         --------
       December 31, 1995 . . . . .          794,801         $24.50 - $33.80
                                            ========

     At the end of 1995, there were 910,674 shares available for future 
grants.

     During 1995, the Financial Accounting Standards Board issued SFAS No. 
123, Accounting for Stock-Based Compensation.  This statement sets forth 
standards for accounting for stock-based compensation or allows companies to 
continue to account for stock-based compensation under the requirements of 
Accounting Principles Board (APB) Opinion No. 25 and make additional 
disclosuredisclosed in the notes tostatements of cash flows, for the financial statements.  It is the Company's 
intention to continue to accountfiscal years 2002, 2001 and 2000 were as follows:
 
  
2002
 
  
2001
 
  
2000
 
(Increase) decrease in accounts receivable
  
$
(9,420
)
  
$
86,491
 
  
$
(30,158
)
Decrease (increase) in prepaid expenses and other current assets
  
 
7,162
 
  
 
(1,166
)
  
 
(2,750
)
(Decrease) increase in accounts payable
  
 
(4,040
)
  
 
830
 
  
 
(6,288
)
Increase (decrease) in payroll and related taxes
  
 
17,522
 
  
 
(9,377
)
  
 
21,742
 
Increase (decrease) in accrued insurance
  
 
10,090
 
  
 
8,078
 
  
 
(10,594
)
Decrease in income and other taxes
  
 
(2,295
)
  
 
(334
)
  
 
(56
)
 
  
  
  
Total changes in operating assets and liabilities
  
$
19,019
 
  
$
84,522
 
  
$
(28,104
)
 
  
  
  
Cash flows from short-term investments for stock-based compensation in accordance 
with APB Opinion No. 252002, 2001 and provide additional disclosure in the notes to the 
financial statements beginning in 1996.

RETIREMENT BENEFITS
     2000 were as follows:
 
  
2002
 
  
2001
 
  
2000
 
Sales/Maturities
  
$
4,428
 
  
$
2,318
 
  
$
8,507
 
Purchases
  
 
(4,397
)
  
 
(554
)
  
 
(4,883
)
 
  
  
  
Total
  
$
31
 
  
$
1,764
 
  
$
3,624
 
 
  
  
  
9. Retirement Benefits
The Company provides a qualified defined contribution plan covering substantially all full-time employees, except officers and certain other management employees. Upon approval by the Board of Directors, a discretionary contribution based on eligible wages is funded annually. The plan also offers a savings feature with Company matching contributions. Assets of this plan are held by an independent trustee for the sole benefit of participating employees.
                                     -24-

                   NOTES TO FINANCIAL STATEMENTS (continued)
                     Kelly Services, Inc. and Subsidiaries
          (In thousands of dollars except share and per share items)

     
A nonqualified defined contributiondeferred compensation plan is provided for officers and certain other management employees. Upon approval by the Board of Directors, a discretionary contribution based on eligible wages is set asidemade annually. This plan also includes provisions for salary deferrals and Company matching contributions.
The total amounts providedliability for the unqualified plan was $40,300, $44,800 and $47,000 as of year-end 2002, 2001 and 2000, respectively, and is included in accrued retirement benefits. In connection with the administration of this plan, the Company has purchased company-owned variable universal life insurance policies insuring the lives of certain officers and key employees. The cash surrender value of these policies, which is based primarily on investments in publicly traded mutual funds, was $40,600, $44,200 and $49,200 at year-end 2002, 2001 and 2000, respectively. These investments are included in other assets and are restricted for the use of funding this plan.
Amounts expensed for retirement benefits amounted to $4,440totaled $6,500 in 1995, $3,9162002, $7,700 in 19942001 and $3,430$5,300 in 1993.

INCOME TAXES
     2000.
35
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
10. Income Taxes
Pretax income (loss) for the years 2002, 2001 and 2000 was taxed under the following jurisdictions:
 
  
2002
 
  
2001
 
  
2000
 
Domestic
  
$
42,649
 
  
$
38,597
 
  
$
149,431
 
Foreign
  
 
(11,895
)
  
 
(11,011
)
  
 
(4,155
)
 
  
  
  
Total
  
$
30,754
 
  
$
27,586
 
  
$
145,276
 
 
  
  
  
The following summarizesprovision for income taxes was as follows:
 
  
2002
  
2001
 
  
2000
 
Current tax expense:
  
 
 
  
 
 
 
  
 
 
 
U.S. federal
  
$
968
  
$
6,780
 
  
$
43,151
 
U.S. state and local
  
 
2,300
  
 
2,000
 
  
 
10,840
 
Foreign
  
 
2,327
  
 
2,499
 
  
 
4,702
 
 
  
  
  
Total current
  
 
5,595
  
 
11,279
 
  
 
58,693
 
Total deferred
  
 
6,590
  
 
(242
)
  
 
(593
)
 
  
  
  
Total provision
  
$
12,185
  
$
11,037
 
  
$
58,100
 
 
  
  
  
Deferred tax assets are comprised of the following:
 
  
2002
 
  
2001
 
  
2000
 
Depreciation and amortization
  
$
(24,374
)
  
$
(14,158
)
  
$
(8,628
)
Employee compensation and benefit plans
  
 
25,944
 
  
 
26,112
 
  
 
26,055
 
Workers’ compensation
  
 
25,538
 
  
 
22,154
 
  
 
19,127
 
Translation adjustment
  
 
3,037
 
  
 
4,058
 
  
 
3,504
 
Bad debt allowance
  
 
4,215
 
  
 
3,194
 
  
 
4,237
 
Loss carryforwards
  
 
15,532
 
  
 
9,467
 
  
 
6,271
 
Other, net
  
 
6,177
 
  
 
5,504
 
  
 
3,224
 
 
  
  
  
Subtotal
  
 
56,069
 
  
 
56,331
 
  
 
53,790
 
Valuation allowance
  
 
(11,088
)
  
 
(3,447
)
  
 
(1,581
)
 
  
  
  
Net deferred tax assets
  
 
44,981
 
  
 
52,884
 
  
 
52,209
 
Net deferred tax liabilities
  
 
(328
)
  
 
(620
)
  
 
(741
)
 
  
  
  
Net deferred taxes
  
$
44,653
 
  
$
52,264
 
  
$
51,468
 
 
  
  
  
36
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
The differences between income taxes for financial reporting purposes and the United StatesU.S. statutory tax rate for the 
years 1995, 1994 and 1993.

                                                 1995      1994      1993
                                                 ----      ----      ----

     Statutory rate . . . . . . . . . . . .      35.0%     35.0%     35.0%
     State and local taxes, net of federal benefit. . . . . . . . . . .       5.3       4.9       5.2
     Tax exempt income and other tax
       credits. . . . . . . . . . . . . . .      (2.6)     (2.2)     (2.6)
     Other. . . . . . . . . . . . . . . . .       1.0       0.3      (0.5)
                                                 -----     -----     -----

     Effective tax rate . . . . . . . . . .      38.7%     38.0%     37.1%
                                                 =====     =====     =====

     Deferred taxes35% are related to the effect of temporary differences between 
financial and tax reporting.  These differences are related principally to 
depreciation, benefit plan costs, provisions for workers' compensation claims, 
full-time and temporary employee vacation costs and provisions for doubtful 
accounts.

     as follows:
 
  
2002
 
  
2001
 
  
2000
 
Income tax based on statutory rate
  
$
10,764
 
  
$
9,655
 
  
$
50,847
 
State income taxes, net of federal benefit
  
 
1,495
 
  
 
1,300
 
  
 
7,046
 
General business credits
  
 
(2,925
)
  
 
(1,755
)
  
 
(2,275
)
Life insurance cash surrender value
  
 
2,394
 
  
 
2,236
 
  
 
(2,538
)
Valuation allowance
  
 
7,641
 
  
 
1,866
 
  
 
(1,537
)
Foreign items
  
 
(2,260
)
  
 
(2,342
)
  
 
3,605
 
Settlement of prior years’ audit issues
  
 
(5,270
)
  
 
(414
)
  
 
2,401
 
Other, net
  
 
346
 
  
 
491
 
  
 
551
 
 
  
  
  
Total
  
$
12,185
 
  
$
11,037
 
  
$
58,100
 
 
  
  
  
In 19922002, the Internal Revenue Service (IRS) proposed the imposition of an 
accumulated earnings tax totaling $49 million for 1988, 1989 and 1990 in 
connection with an auditcompleted its examination of the Company's consolidatedCompany’s federal income tax liability.  
The proposed amount has been subsequently reduced to $6.5 million.returns through 1999. The Company believes there is no factual or legal basisthat adequate tax accruals have been provided for the impositionall years.
The net tax effect of any 
accumulated earnings tax and that the Company is fully justified in making 
provision to meet the present and future needs of its expanding business 
operations.  foreign loss carryforwards at December 29, 2002 totaled $15,532 which expire as follows:
Year
  
Amount
2004-2005
  
$
408
2006-2008
  
 
2,205
2009-2012
  
 
3,299
No expiration
  
 
9,620
 
  
Total
  
$
15,532
 
  
The Company is defending its position through the IRS appeal 
processhas established a valuation allowance for loss carryforwards related to certain foreign operations, which management believes may not be utilized.
Provision has not been made for U.S. or additional foreign income taxes on an estimated $21,146 of undistributed earnings of foreign subsidiaries, which are permanently reinvested. If such earnings were to be remitted, management believes that U.S. foreign tax credits would largely eliminate any such U.S. and into the courts if necessary.  In the opinion of the Company, the 
ultimate resolution of this issue will not materially affect its financial 
statements.

     foreign income taxes.
The Company paid income taxes of $52,900$10,300 in 1995, $43,3002002, $12,700 in 19942001 and $34,800$58,800 in 1993.

                                             -25-
2000. Deferred income taxes recorded in foreign currency translation adjustments were a charge of $1,000 in 2002 and a credit of $600 and $1,100 in 2001 and 2000, respectively.
11. Performance Incentive Plan
Under the Performance Incentive Plan (the “Plan”), the Company may grant stock options (both incentive and nonqualified), stock appreciation rights (SARs), restricted awards and performance awards to key employees utilizing the Company’s Class A stock. Stock options may not be granted at prices less than the fair market value on the date of grant, nor for a term exceeding 10 years. The Plan provides that the maximum number of shares available for grants is 10 percent of the outstanding Class A stock, adjusted for Plan activity over the preceding five years. Shares available for future grants at year-end 2002, 2001 and 2000 were 1,133,000, 1,269,000 and 1,283,000, respectively.
37
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
The Company applies APB No. 25 and related Interpretations in accounting for the Plan. Accordingly, no compensation cost has been recognized for incentive and nonqualified stock options. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.
 
  
2002
 
  
2001
 
  
2000
 
Net earnings, as reported
  
$
18,569
 
  
$
16,549
 
  
$
87,176
 
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects
  
 
(2,314
)
  
 
(1,686
)
  
 
(1,729
)
 
  
  
  
Pro forma net earnings
  
$
16,255
 
  
$
14,863
 
  
$
85,447
 
 
  
  
  
Earnings per share:
  
 
 
 
  
 
 
 
  
 
 
 
Basic—as reported
  
$
.52
 
  
$
.46
 
  
$
2.44
 
Basic—pro forma
  
$
.46
 
  
$
.41
 
  
$
2.39
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Diluted—as reported
  
$
.52
 
  
$
.46
 
  
$
2.43
 
Diluted—proforma
  
$
.45
 
  
$
.41
 
  
$
2.38
 
Since stock options generally become exercisable over several years and additional grants are likely to be made in future years, the pro forma amounts for compensation cost may not be indicative of the effects on net income and earnings per share for future years.
The fair value of each option included is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
 
  
2002
  
2001
  
2000
Dividend yield
  
2.0%
  
4.0%
  
4.0%
Risk-free interest rate
  
4.0%
  
5.0%
  
5.9%
Expected volatility
  
31.0%
  
30.0%
  
29.0%
Expected lives
  
5 yrs
  
6 yrs
  
6 yrs
38
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
A summary of the status of stock option grants under the Plan as of December 29, 2002, December 30, 2001 and December 31, 2000, and changes during the years ended on those dates, is presented as follows:
 
  
Options
 
    
Weighted Avg.
Exercise Price
 
  
    
2000:
  
 
 
 
    
 
 
Outstanding at beginning of year
  
 
1,592,000
 
    
$
28.77
Granted
  
 
730,000
 
    
 
24.01
Exercised
  
 
(2,000
)
    
 
24.77
Cancelled
  
 
(197,000
)
    
 
27.15
 
  
    
Outstanding at end of year
  
 
2,123,000
 
    
$
27.29
 
  
    
Options exercisable at year end
  
 
763,000
 
    
$
29.05
Weighted average fair value of options granted during the year
  
$
5.98
 
    
 
 
 
  
 
 
 
    
 
 
2001:
  
 
 
 
    
 
 
Outstanding at beginning of year
  
 
2,123,000
 
    
$
27.29
Granted
  
 
539,000
 
    
 
24.36
Exercised
  
 
(4,000
)
    
 
24.68
Cancelled
  
 
(288,000
)
    
 
27.52
 
  
    
Outstanding at end of year
  
 
2,370,000
 
    
$
26.60
 
  
    
Options exercisable at year end
  
 
1,022,000
 
    
$
28.25
Weighted average fair value of options granted during the year
  
$
5.86
 
    
 
 
 
  
 
 
 
    
 
 
2002:
  
 
 
 
    
 
 
Outstanding at beginning of year
  
 
2,370,000
 
    
$
26.60
Granted
  
 
466,000
 
    
 
22.69
Exercised
  
 
(40,000
)
    
 
23.83
Cancelled
  
 
(123,000
)
    
 
24.77
 
  
    
Outstanding at end of year
  
 
2,673,000
 
    
$
26.04
 
  
    
Options exercisable at year end
  
 
1,454,000
 
    
$
27.55
Weighted average fair value of options granted during the year
  
$
6.30
 
    
 
 
39
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
The following table summarizes information about options outstanding at year-end 2002:
 
  
Options Outstanding
  
Options Exercisable
       Range of        
        Exercise    
          Prices        
  
Number
Outstanding
as of 12/29/02
    
Weighted
Average
Remaining
Life (Years)
  
Weighted
Average
Exercise
Price
  
Number
Exercisable
as of 12/29/02
  
Weighted
Average
Exercise
Price
$20.00-22.00
  
120,000
    
8.94
  
$
21.00
  
40,000
  
$
21.00
$22.01-24.00
  
934,000
    
8.06
  
 
23.28
  
257,000
  
 
23.97
$24.01-26.00
  
793,000
    
7.29
  
 
25.01
  
417,000
  
 
24.85
$26.01-28.00
  
159,000
    
3.89
  
 
27.11
  
151,000
  
 
27.12
$28.01-32.00
  
389,000
    
4.08
  
 
29.22
  
365,000
  
 
29.27
$32.01-38.50
  
278,000
    
5.26
  
 
35.36
  
224,000
  
 
35.37
 
  
    
  
  
  
$20.00-38.50
  
2,673,000
    
6.74
  
$
26.04
  
1,454,000
  
$
27.55
 
  
    
  
  
  
Restricted awards are issued to certain key employees and are subject to forfeiture until the end of an established restriction period. Restricted awards totaling 101,800, 166,500 and 105,400 shares were granted under the Plan during 2002, 2001 and 2000, respectively. The weighted average grant date price of such awards was $22.72, $26.21 and $24.02 for 2002, 2001 and 2000, respectively. Restricted awards outstanding totaled 228,000, 241,000 and 165,000 shares at year-ends 2002, 2001 and 2000, respectively, and have a weighted average remaining life of 1.5 years at December 29, 2002.
Total compensation cost recognized for restricted awards was $3,000, $2,200 and $2,000 for 2002, 2001 and 2000, respectively. As of December 29, 2002, no SARs have been granted under the Plan.
12. Lease Commitments
The Company conducts its field operations primarily from leased facilities. The following is a schedule by fiscal year of future minimum commitments under operating leases as of December 29, 2002:
Fiscal year:
  
 
2003
  
$
39,600
2004
  
 
29,200
2005
  
 
22,900
2006
  
 
15,900
2007
  
 
9,700
Later years
  
 
15,700
 
  
Total
  
$
133,000
 
  
Lease expense for fiscal 2002, 2001 and 2000 amounted to $46,800, $44,500 and $45,100, respectively.
40
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
13. Contingencies
The Company is subject to various legal proceedings, claims and liabilities which arise in the ordinary course of its business. Litigation is subject to many uncertainties, the outcome of individual litigated matters is not predictable with assurance and it is reasonably possible that some of the foregoing matters could be decided unfavorably to the Company. Although the amount of the liability at year-end 2002 with respect to these matters cannot be ascertained, the Company believes that any resulting liability will not be material to the financial statements of the Company at year-end 2002.
The Company has no material unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated entities.
14. Segment Disclosures
The Company’s reportable segments are: (1) U.S. Commercial Staffing, (2) Professional, Technical and Staffing Alternatives (PTSA) and (3) International. U.S. Commercial Staffing includes traditional office services, along with education, call center and light industrial staffing. PTSA includes various specialty staffing services ranging from finance and engineering to information and health care, along with the businesses of staff leasing, outsourcing, consulting, recruitment and general contractor services. International includes staffing services in the countries outside the U.S. listed below. The accounting policies of the segments are the same as those described in the “Summary of Significant Accounting Policies.”
During 2002, international operations were conducted in Australia, Belgium, Canada, Denmark, France, Germany, Hong Kong, India, Indonesia, Ireland, Italy, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, the Philippines, Puerto Rico, Russia, Singapore, Spain, Sweden, Switzerland, Thailand and the United Kingdom.
The following table presents information about the reported operating income of the Company for the fiscal years 2002, 2001 and 2000. Segment data presented is net of intersegment revenues. Asset information by reportable segment is not reported, since the Company does not produce such information internally.
 
  
2002
 
  
2001
 
  
2000
 
Sales:
  
 
 
 
  
 
 
 
  
 
 
 
U.S. Commercial Staffing
  
$
2,104,622
 
  
$
2,094,798
 
  
$
2,327,004
 
PTSA
  
 
1,136,895
 
  
 
1,075,095
 
  
 
1,058,810
 
International
  
 
1,081,953
 
  
 
1,086,999
 
  
 
1,101,477
 
 
  
  
  
Consolidated Total
  
$
4,323,470
 
  
$
4,256,892
 
  
$
4,487,291
 
 
  
  
  
Earnings from Operations:
  
 
 
 
  
 
 
 
  
 
 
 
U.S. Commercial Staffing
  
$
118,656
 
  
$
114,688
 
  
$
181,387
 
PTSA
  
 
50,468
 
  
 
47,506
 
  
 
72,819
 
International
  
 
5,205
 
  
 
9,414
 
  
 
21,545
 
Corporate
  
 
(143,937
)
  
 
(143,641
)
  
 
(138,633
)
 
  
  
  
Consolidated Total
  
$
30,392
 
  
$
27,967
 
  
$
137,118
 
 
  
  
  
41
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
Specified items included in segment earnings for the fiscal years 2002, 2001 and 2000 were as follows:
 
  
2002
  
2001
  
2000
Depreciation and Amortization:
  
 
 
  
 
 
  
 
 
U.S. Commercial Staffing
  
$
5,480
  
$
5,322
  
$
5,881
PTSA
  
 
1,923
  
 
2,747
  
 
2,597
International
  
 
8,828
  
 
11,723
  
 
11,137
Corporate
  
 
29,197
  
 
24,604
  
 
19,850
 
  
  
  
Consolidated Total
  
$
45,428
  
$
44,396
  
$
39,465
 
  
  
  
Interest Income:
  
 
 
  
 
 
  
 
 
U.S. Commercial Staffing
  
$
—  
  
$
—  
  
$
—  
PTSA
  
 
—  
  
 
—  
  
 
107
International
  
 
616
  
 
417
  
 
630
Corporate
  
 
915
  
 
1,884
  
 
2,033
 
  
  
  
Consolidated Total
  
$
1,531
  
$
2,301
  
$
2,770
 
  
  
  
Interest Expense:
  
 
 
  
 
 
  
 
 
U.S. Commercial Staffing
  
$
—  
  
$
—  
  
$
—  
PTSA
  
 
—  
  
 
—  
  
 
—  
International
  
 
1,056
  
 
2,542
  
 
3,020
Corporate
  
 
113
  
 
140
  
 
159
 
  
  
  
Consolidated Total
  
$
1,169
  
$
2,682
  
$
3,179
 
  
  
  
A summary of long-lived assets information by geographic area as of the years ended 2002, 2001 and 2000 follows:
 
  
2002
  
2001
  
2000
Long-Lived Assets:
  
 
 
  
 
 
  
 
 
Domestic
  
$
211,312
  
$
218,774
  
$
205,945
International
  
 
78,771
  
 
73,597
  
 
78,669
 
  
  
  
Total
  
$
290,083
  
$
292,371
  
$
284,614
 
  
  
  
Long-lived assets include property and equipment and intangible assets. No single foreign country’s long-lived assets were material to the consolidated long-lived assets of the Company.
Foreign revenue is based on the country in which the legal subsidiary is domiciled. No single foreign country’s revenue was material to the consolidated revenues of the Company.
15. New Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which supercedes EITF No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred, rather than at the date of a commitment to an exit or disposal plan as was required by EITF No. 94-3. This statement is effective for disposal activities initiated after December 31, 2002, with early application encouraged. SFAS No. 146 is not expected to have a material effect on the Company’s consolidated results of operations or financial position.
42
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
(In thousands of dollars except share and per share items)
In November 2002, the FASB released FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others: an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34.” FIN 45 establishes new disclosure and liability-recognition requirements for direct and indirect debt guarantees with specified characteristics. The initial measurement and recognition requirements of FIN 45 are effective prospectively for guarantees issued or modified after December 31, 2002. However, the disclosure requirements are effective for interim and annual financial-statement periods ending after December 15, 2002. The Company has adopted the disclosure provisions and management does not expect the full adoption of FIN 45 to have a material impact on the Company’s results of operations or financial position.
43
NOTES TO FINANCIAL STATEMENTS (continued)
Kelly Services, Inc. and Subsidiaries
SELECTED QUARTERLY FINANCIAL DATA (unaudited)
 
  
First
Quarter
  
Second Quarter
  
Third
Quarter
  
Fourth Quarter
  
Year
 
  
(In thousands of dollars except per share items)
Sales of services
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
2002
  
$
1,000,040
  
$
1,076,969
  
$
1,122,715
  
$
1,123,746
  
$
4,323,470
2001
  
 
1,087,198
  
 
1,066,255
  
 
1,066,380
  
 
1,037,059
  
 
4,256,892
2000
  
 
1,080,069
  
 
1,106,740
  
 
1,154,480
  
 
1,146,002
  
 
4,487,291
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Cost of services
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
2002
  
 
841,080
  
 
906,753
  
 
940,453
  
 
942,458
  
 
3,630,744
2001
  
 
905,824
  
 
887,936
  
 
894,659
  
 
870,618
  
 
3,559,037
2000
  
 
892,095
  
 
909,731
  
 
948,683
  
 
944,473
  
 
3,694,982
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Selling, general and administrative
  
 
 
  
 
 
  
 
 
  
 
 
2002
  
 
157,774
  
 
163,741
  
 
171,547
  
 
169,272
  
 
662,334
2001
  
 
173,199
  
 
167,448
  
 
163,975
  
 
165,266
  
 
669,888
2000
  
 
161,406
  
 
160,342
  
 
162,017
  
 
171,426
  
 
655,191
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Net earnings
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
2002
  
 
796
  
 
3,935
  
 
6,505
  
 
7,333
  
 
18,569
2001
  
 
4,800
  
 
6,460
  
 
4,566
  
 
723
  
 
16,549
2000
  
 
16,060
  
 
21,825
  
 
26,003
  
 
23,288
  
 
87,176
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Basic earnings per share(1)
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
2002
  
 
.02
  
 
.11
  
 
.18
  
 
.21
  
 
.52
2001
  
 
.13
  
 
.18
  
 
.13
  
 
.02
  
 
.46
2000
  
 
.45
  
 
.61
  
 
.73
  
 
.65
  
 
2.44
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Diluted earnings per share(1)
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
2002
  
 
.02
  
 
.11
  
 
.18
  
 
.21
  
 
.52
2001
  
 
.13
  
 
.18
  
 
.13
  
 
.02
  
 
.46
2000
  
 
.45
  
 
.61
  
 
.73
  
 
.65
  
 
2.43
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Dividends per share
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
2002
  
 
.10
  
 
.10
  
 
.10
  
 
.10
  
 
.40
2001
  
 
.25
  
 
.25
  
 
.25
  
 
.10
  
 
.85
2000
  
 
.24
  
 
.25
  
 
.25
  
 
.25
  
 
.99


                           NOTES TO FINANCIAL STATEMENTS (continued)
                             Kelly Services, Inc. and Subsidiaries

SELECTED QUARTERLY FINANCIAL DATA (unaudited)


                               First         Second        Third         Fourth      
                              Quarter       Quarter       Quarter       Quarter         Year  
                              -------       -------       -------       -------      ----------
                                    (In thousands of dollars except per share items)

Sales of services
  1995 . . . . . . . . .     $620,685      $652,417      $698,453      $718,244      $2,689,799
  1994 . . . . . . . . .      530,191       570,813       630,196       631,361       2,362,561
  1993 . . . . . . . . .      450,654       482,034       517,585       504,261       1,954,534

Cost of services
  1995 . . . . . . . . .      498,667       519,739       555,968       574,032       2,148,406
  1994 . . . . . . . . .      428,374       461,093       505,668       504,417       1,899,552
  1993 . . . . . . . . .      364,724       388,906       416,904       403,263       1,573,797

Selling, general and 
 administrative
  1995 . . . . . . . . .      104,305       107,789       111,125       113,089         436,308
  1994 . . . . . . . . .       88,424        88,111        95,070        99,657         371,262
  1993 . . . . . . . . .       77,196        79,178        79,541        80,923         316,838 

Net earnings
  1995 . . . . . . . . .       12,262        16,660        20,373        20,196          69,491
  1994 . . . . . . . . .        9,233        14,420        19,289        18,115          61,057
  1993 . . . . . . . . .        6,879        10,009        14,028        13,643          44,559

(1)
Earnings per share 1995 . . . . . . . . .          .32           .44           .54           .53            1.83
  1994 . . . . . . . . .          .24           .38           .51           .48            1.61
  1993 . . . . . . . . .          .18           .27           .37           .36            1.18

Dividends per share
  1995 . . . . . . . . .         .180          .200          .200          .200            .780
  1994 . . . . . . . . .         .160          .180          .180          .180            .700
  1993 . . . . . . . . .         .152          .160          .160          .160            .632



                                                       -26-



                                         SCHEDULE II - VALUATION RESERVES
                                       Kelly Services, Inc.amounts for each quarter are required to be computed independently and Subsidiaries
                                                 DECEMBER 31, 1995
                                             (In thousands of dollars)    


                                                                  Additions
                                                          ------------------------

                                            Balance at    Charged to    Charged to    Deductions -     Balance at
                                            beginning     costs and       other       uncollectible       end
                                             of year      expenses       accounts*      accounts         of year 
                                            ----------    ----------    ----------    -------------    ----------

Description
- -----------

Fifty-two weeks ended December 31, 1995:

  Reserve deducted inmay not equal the balance sheet
   from the assets to which it applies -

     Allowance for doubtful accounts           $5,660        $4,240         --           $2,950           $6,950
                                               ======        ======                      ======           ======
Fifty-two weeks ended January 1, 1995:

  Reserve deducted in the balance sheet
   from the assets to which it applies -

     Allowance for doubtful accounts           $4,735        $4,005        $280          $3,360           $5,660
                                               ======        ======        ====          ======           ======

Fifty-two weeks ended January 2, 1994:

  Reserve deducted in the balance sheet
   from the assets to which it applies -
   
     Allowance for doubtful accounts           $3,325        $4,345         --           $2,935           $4,735
                                               ======        ======                      ======           ======

 *   Allowance of companies acquired.


                                           -27-


                                     INDEX TO EXHIBITS
                                   REQUIRED BY ITEM 601,
                                      REGULATION S-K    


Exhibit
  No.                                 Description                                    Page
- -------                               -----------                                    ----

   3.1    Certificate of Incorporation.  (Reference is made to Exhibit 3.2 
          to the Form 10-Qamounts computed for the quarterly period ended October 3, 1993, 
          filed with the Commission in November, 1993, which is incorporated 
          herein by reference).

   3.2    By-laws.  (Reference is made to Exhibit 3.3 to the Form 10-Q for 
          the quarterly period ended October 3, 1993, filed with the 
          Commission in November, 1993, which is incorporated herein by 
          reference).

   4      Rights of security holders are defined in Articles Fourth, Fifth,
          Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth, Thirteenth, 
          Fourteenth and Fifteenth of the Certificate of Incorporation.  
          (Reference is made to Exhibit 3.2 to the Form 10-Q for the 
          quarterly period ended October 3, 1993, filed with the Commission 
          in November, 1993, which is incorporated herein by reference).

    10.1    Short-Term Incentive Plan.  (Reference is made to Exhibit 10.3 to
            the Form 10-K for the fiscal year ended January 3, 1993, filed 
            with the Commission in March, 1993, which is incorporated herein
            by reference.)

    10.2    Kelly Services, Inc. 1982 Incentive Stock Option Plan.  (Reference
            is made to Exhibit 10.3 to the Form 10-K for the fiscal year 
            ended January 2, 1994, filed with the Commission in March, 1994,
            which is incorporated herein by reference.)

    10.3    Kelly Services, Inc. Performance Incentive Plan.  (Reference is 
            made to Appendix to the Definitive Proxy for the fiscal year ended 
            December 30, 1991, filed with the Commission in April, 1992, which 
            is incorporated herein by reference).

    10.4    Kelly Services, Inc. Non-employee Director Stock Award Plan. (Reference
            is made to Exhibit A to the Definitive Proxy for the fiscal year ended
            January 1, 1995, filed with the Commission in April, 1995, which is 
            incorporated herein by reference).

    11      Additional Earnings Per Share Information.                               1
                                                                               (Document 2)

    21      Subsidiaries of Registrant.                                              1
                                                                               (Document 3)

    23      Consent of Independent Accountants.                                      1
                                                                               (Document 4)

    24      Powers of Attorney.                                                      1
                                                                               (Document 5)

    27      Financial Data Schedule                                                  1
                                                                               (Document 6)

total year.