UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 30, 200728, 2008

OR

For the transition period from            to            

Commission file number 0-1088

KELLY SERVICES, INC.

(Exact Name of Registrant as specified in its Charter)

(248) 362-4444

(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

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

Large accelerated filer  x                    Accelerated filer  ¨                    Non-accelerated filer  ¨

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $817,021,764.$551,245,963.

Registrant had 31,417,38831,315,575 shares of Class A and 3,459,3853,459,785 of Class B common stock, par value $1.00, outstanding as of February 5, 2008.2, 2009.

Documents Incorporated by Reference

The proxy statement of the registrant with respect to its 20082009 Annual Meeting of Stockholders is incorporated by reference in Part III.

PART I

Unless the context otherwise requires, throughout this Annual Report on Form 10-K the words “Kelly,” “Kelly Services,” “the Company,” “we,” “us” and “our” refer to Kelly Services, Inc. and its consolidated subsidiaries.

ITEM 1. BUSINESS.

History and Development of Business

Founded by William R. Kelly in 1946, we have provided staffingKelly Services has delivered pioneering workforce solutions to customers in a variety of industries throughout our 61-year62-year history. Our range of staffing solutions and geographic coverage has grown steadily over the years to match the expanding needs of our customers.

We have evolved from a United States-based company concentrating primarily on traditional office servicesstaffing into a global staffingworkforce solutions leader with a breadth of specialty businesses. We currently assign professional and technical employees in the fields of finance and accounting, creative services, education, engineering, information technology, legal, science, and health care.

We arecare—while ranking as one of the world’s largest scientific staffing providers, and we rank among the leaders in information technology, engineering, and financial staffing. These specialty service lines complement our traditional expertise in office services, contact center, light industrial, and electronic assembly staffing. We also offer innovative staffing alternativetalent management solutions for our customers including outsourcing, consulting, recruitment, career transition, and vendor management services.

Geographic Breadth of Services

Headquartered in Troy, Michigan, we serve customers in 36 countries and territories.all major staffing markets throughout the world. We provide temporary employment for more than 750,000approximately 650,000 employees annually to a variety of customers around the globe —includingglobe—including more than 90 percent of theFortune500 companies.

We offer staffingworkforce solutions to a diversified group of customers through offices in three regions: theAmericas, Europe, the Americas (United States, Canada, Puerto Rico,Middle East, and Mexico); Europe (Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Russia, Spain, Sweden, Switzerland, Turkey, Ukraine Africa (“EMEA”)and the United Kingdom); and the Asia-Pacific region (Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, and Thailand)Asia Pacific (“APAC”).

Description of Business Segments

Our operations are divided into fourseven principal business segments:Americas - Commercial; Commercial,Americas - Professional Technical and Staffing AlternativesTechnical(“Americas PT”), EMEA Commercial,EMEA Professional and Technical(“EMEA PT”),APAC Commercial,APAC Professional and Technical (“Americas – PTSA”APAC PT”); International - Commercial; and International - Professional, TechnicalOutsourcing and Staffing AlternativesConsulting Group (“International – PTSA”OCG”).

Americas - Commercial

Our Americas - Commercial segment includes:Kelly Office Services, offering trained employees who work in word processing, and data entry, and as administrative support staff;KellyConnect, providing staff on-site and remotely for contact centers, technical support hotlines, and telemarketing units;Kelly Educational Staffing, the first nationwide program supplying qualified substitute teachers;Kelly Marketing Services, including support staff for seminars, sales, and trade shows;Kelly Electronic Assembly Services, providing technicians to serve the technology, aerospace, and pharmaceutical industries;Kelly Light Industrial Services, placing maintenance workers, material handlers, assemblers, and more;KellySelect, a temporary to full-time service that provides both customers and temporary staff the opportunity to evaluate thetheir relationship before making a full-time employment decision; andKellyDirect, a permanent placement service used across all staffing business units.

Americas - PTSAPT

TheOur Americas - PTSAPT segment includes a number of industry-specific services including:services:CGR/seven, placing employees in creative services positions;Kelly Automotive Services Group, placing employees in a variety of technical, non-technical, and administrative positions inwith major automotive manufacturers and their suppliers;Kelly Engineering Resources, supplying engineering professionals across all disciplines including aeronautical, chemical, civil/structural, electrical/instrumentation, environmental, industrial, mechanical, petroleum, pharmaceutical, quality, and telecommunications;Kelly FedSecure, placing professionals across all skills in jobs requiring security clearances;Kelly Financial Resources, serving the needs of corporate finance departments, accounting firms, and financial institutions with professional personnel;Kelly Government Solutions, providing a full spectrum of talent management solutions to the US federal government;Kelly Healthcare Resources, providing all levels of healthcare specialists and professionals tofor work in hospitals, ambulatory care centers, HMOs and other health insurance companies; Kelly IT Resources, placing information technology specialists across all IT disciplines;Kelly Law Registry, placing legal professionals including attorneys, paralegals, contract administrators, compliance specialists, and legal administrators; andKelly Scientific Resources, providing entry-level to Ph.D. professionals to a broad spectrum of scientific and clinical research industries.

Also included Our temporary-to-hire service,KellySelect, and permanent placement service,KellyDirect, are also offered in the PTSA segment are:Kelly HRfirst, specializing in recruitment process outsourcing programs;Kelly HR Consulting, providing strategic human capital consulting services and solutions;Kelly Management Services, specializing in outsourcing solutions that provide operational management of entire departments or business functions; Kelly Vendor Management Solutions, streamlining the supplier base and delivering contract talent in a vendor-neutral environment; andThe Ayers Group, offering outplacement services and organizational effectiveness consulting.this segment.

International -EMEA Commercial

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

International - PTSAEMEA PT

Our International - PTSAEMEA PT segment provides engineering, financial, health care,many of the same services as described for our Americas PT segment above, including:Kelly Engineering Resources, Kelly Financial Resources, Kelly Healthcare Resources, Kelly IT legal Resources, Kelly Scientific Resourcesand scientific staffing. Recruitment process outsourcing, consulting, outsourcing and vendor management are also included in this segment.KellySelect. Kelly is also placing increased emphasis on cross-border recruitment opportunities.for professional and technical opportunities across this region through ourKelly International Recruitment service line.

APAC Commercial

Our APAC Commercial segment provides many of the same commercial staffing services as described for our Americas and EMEA Commercial segments above, including:Kelly Office Services,KellyConnect,Kelly Marketing Services,Kelly Light Industrial Services,Kelly Hospitality, KellySelect, andKellyDirect. An additional service area includesKelly Exhibition & Promotions,which focuses on providing staffing solutions for trade shows and exhibitions.

APAC PT

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

OCG

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

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

Business Objectives

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

For most of our customers, navigating the human capital arena has never been more complex. As the use of contingent labor, consultants, and independent contractors becomes more prevalent and critical to the ongoing success of our customer base—our core competencies are refined to help customers meet a varietythem realize their respective business objectives. Whether providing traditional staffing services, streamlined technology, or our integrated suite of human resources needs in a flexible, efficient and cost-effective manner. We offertalent management solutions—Kelly will continue to deliver the strategic expertise our customers high standards of quality in the staffing industry. This strong emphasis on quality is evident throughout our business objectives, including the selection of new customers, employees and service lines.

We believe we are well equippedneed to understand, anticipate and respond to our customers’ evolving staffing needs. We are constantly developing and optimizing innovative staffing solutions to help customers weather economic fluctuations, control costs and improve productivity.

In every facet of global operations, we are committed to the acquisition and use of technology to streamline ordering, time-keeping, reporting and other processes. Technology solutions such asKelly eOrder,Kelly Web Time andKelly e-Reporting are available when and where customers need them.

It has been our mission to stay ahead of our customers’ staffing and human resourcestransform their workforce management challenges by defining and solving specific staffing needs, thereby allowing companies the time and freedom to do what they do best – focus on their core businesses.into opportunity.

Business Operations

Service Marks

We own numerous service marks that are registered with the United States Patent and Trademark Office, the European Union Community Trademark Office and numerous individual country trademark offices.

Seasonality

Our quarterly operating results are affected by the seasonality of our customers’ businesses. Demand for staffing services historically has been lower during the first and fourth quarters, in part as a result of holidays, and typically increases during the second and third quarters of the year.

Working Capital

We believe there are no unusual or special working capital requirements in the staffing services industry.

Customers

We are not dependent on any single customer, or a limited segment of customers. Our largest single customer accounted for approximately four percent of total revenue in 2007.2008.

Government Contracts

Although we conduct business under various federal, state, and local government contracts, they do not account for a significant portion of our business.

Competition

The worldwide temporary staffing industry is competitive and highly fragmented. In the United States, approximately 100 competitors operate nationally, and approximately 10,000 smaller companies compete in varying degrees at local levels. Additionally, several similar staffing companies compete globally. In 2007,2008, our largest competitors were Adecco, S.A., Manpower, Inc., Randstad Holding N.V., Vedior N.V., Spherion Corporation, Allegis Group and Robert Half International, Inc.

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

Geographic presence is of utmost importance, as temporary employees are generally unwilling to travel great distances for assignment, and customers prefer working with companies in their local market. Breadth of service has become more critical as customers seek “one-stop shopping” for all their staffing needs.

Quality of service is highly dependent on the availability of qualified, competent temporary employees, and our ability to recruit, screen, train, retain, and manage a pool of employees who match the skills required by particular customers. Conversely, during an economic downturn, we must balance competitive pricing pressures with the need to retain a qualified workforce. Price competition in the staffing industry is intense—particularly for office clerical and light industrial personnel—and pricing pressure from customers and competitors continues to be significant.

Environmental Concerns

Because we are involved in a service business, federal, state or local laws that regulate the discharge of materials into the environment do not materially impact us.

Employees

We employ approximately 1,4001,200 people at our corporate headquarters in Troy, Michigan, and approximately 8,6008,900 staff members in our international network of company-owned branch offices. In 2007,2008, we assigned more than 750,000approximately 650,000 temporary employees with a variety of customers around the globe.

While services may be provided inside the facilities of customers, we remain the employer of record for our temporary employees. We retain responsibility for employee assignments, the employer’s share of all applicable payroll taxes and the administration of the employee’s share of these taxes.

Foreign Operations

For information regarding sales, earnings from operations and long-lived assets by domestic and foreign operations, please refer to the information presented in the Segment Disclosures note to our consolidated financial statements, presented in Part II, Item 8 of this report.

Access to Company Information

We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission (“SEC”). The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.

We make available, free of charge, through our Internet website, and by responding to requests addressed to our director of investor relations, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports. These reports are available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Our website address is: www.kellyservices.com. The information contained on our website, or on other websites linked to our website, is not part of this report.

ITEM 1A. RISK FACTORS.

We operate in a highly competitive industry with low barriers to entry, and may be unable to compete successfully against existing or new competitors.

The worldwide staffing services market is highly competitive with limited barriers to entry. We compete in global, national, regional and local markets with full-service and specialized temporary staffing companies. While the majority of our competitors are significantly smaller than us, several competitors, including Adecco S.A., Manpower Inc., Randstad Holding N.V., Vedior N.V., Spherion Corporation, Allegis Group and Robert Half International, Inc.,have substantial marketing and financial resources. In particular, Adecco S.A., Manpower Inc., and Manpower Inc.Randstad Holding N.V. are considerably larger than we are and, thus have significantly more marketing and financial resources than we do. Price competition in the staffing industry is intense, particularly for the provision of office clerical and light industrial personnel. We expect that the level of competition will remain high, which could limit our ability to maintain or increase our market share or profitability.

There has been a significant increase in the number of customers consolidating their staffing services purchases with a single provider or small group of providers. The trend to consolidate purchases has in some cases made it more difficult for us to obtain or retain customers. We also face the risk that our current or prospective customers may decide to provide similar services internally. As a result, there can be no assurance that we will not encounter increased competition in the future.

Our business is significantly affected by fluctuations in general economic conditions.

Demand for staffing services is significantly affected by the general level of economic activity and unemployment in the United States and the other countries in which we operate. When economic activity increases, temporary employees are often added before full-time employees are hired. As economic activity slows, however, many companies reduce their use of temporary employees before laying off full-time employees. We may also experience more competitive pricing pressure during periods of economic downturn. A substantial portion of our revenues and earnings are generated by our business operations in the United States. Any significant economic downturn in the United States or thecertain other countries in which we operate could havehas a material adverse effect on our business, financial condition and results of operations.

Our loss of major customers or the deterioration of their financial condition or prospects could have a material adverse effect on our business.

Our business strategy is increasingly focused on serving large corporate customers through high volume global service agreements. While our strategy is intended to enable us to increase our revenues and earnings from our major corporate customers, the strategy also exposes us to increased risks arising from the possible loss of major customer accounts. In addition, some of our customers are in industries, such as the automotive and manufacturing industries, that have experienced adverse business and financial conditions in recent years. The deterioration of the financial condition or business prospects of these customers could reduce their need for temporary employment services, and result in a significant decrease in the revenues and earnings we derive from these customers.

Our customer contracts contain termination provisions that could decrease our future revenues and earnings.

Most of our customer contracts can be terminated by the customer on short notice without penalty. Our customers are, therefore, not contractually obligated to continue to do business with us in the future. This creates uncertainty with respect to the revenues and earnings we may recognize with respect to our customer contracts.

We depend on our ability to attract and retain qualified temporary personnel.

We depend on our ability to attract qualified temporary personnel who possess the skills and experience necessary to meet the staffing requirements of our customers. We must continually evaluate our base of available qualified personnel to keep pace with changing customer needs. Competition for individuals with proven professional skills is intense, and demand for these individuals is expected to remain strong for the foreseeable future. There can be no assurance that qualified personnel will continue to be available in sufficient numbers and on terms of employment acceptable to us. Our success is substantially dependent on our ability to recruit and retain qualified temporary personnel.

We may be exposed to employment-related claims and losses, including class action lawsuits, that could have a material adverse effect on our business.

Temporary staffing services providers employ and assign personnel in the workplaces of other businesses. The risks of these activities include possible claims relating to:

We are also subject to potential risks relating to misuse of customer proprietary information, misappropriation of funds, damage to customer facilities due to negligence of temporary employees, criminal activity and other similar claims. We may incur fines and other losses or negative publicity with respect to these problems. In addition, these claims may give rise to litigation, which could be time-consuming and expensive. In the U.S. and certain other countries in which we operate, new employment and labor laws and regulations have been proposed or adopted that may increase the potential exposure of employers to employment-related claims and litigation. There can be no assurance that the corporate policies we have in place to help reduce our exposure to these risks will be effective or that we will not experience losses as a result of these risks. There can also be no assurance that the insurance policies we have purchased to insure against certain risks will be adequate or that insurance coverage will remain available on reasonable terms or be sufficient in amount or scope of coverage.

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

We self-insure, or otherwise bear financial responsibility for, a significant portion of expected losses under our workers’ compensation program and medical benefits claims. Unexpected changes in claim trends, including the severity and frequency of claims, actuarial estimates and medical cost inflation could result in costs that are significantly different than initially reported. If future claims-related liabilities increase due to unforeseen circumstances, our costs could increase significantly. There can be no assurance that we will be able to increase the fees charged to our customers in a timely manner and in a sufficient amount to cover increased costs as a result of any changes in claims-related liabilities.

Failure to maintain specified financial ratios in the Company’s bank credit facility could adversely restrict our financial and operating flexibility and subject us to other risks, including access to capital markets.

The Company’s Bank Credit Facility contains covenants that require the Company to maintain specified financial ratios and satisfy other financial conditions. The ability of the Company to meet these financial covenants may be affected by events beyond its control. If the Company defaults under any of these requirements, the lenders could declare all outstanding borrowings, accrued interest and fees to be due and payable or significantly increase the cost of the facility. Our Bank Credit Facility matures in November, 2010. If we are unable to extend or refinance our Bank Credit Facility or the terms applicable to any extension or refinancing are unfavorable to us, our financial condition and results of operations may be materially adversely affected. In these circumstances, there can be no assurance that the Company would have sufficient liquidity to repay or refinance this indebtedness at favorable rates or at all.

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

Many business processes critical to the Company’s continued operation are housed in the Company’s data center situated within the corporate headquarters complex as well as regional data centers in Asia-Pacific and Europe. Those processes include, but are not limited to, payroll, customer reporting and order management. TheWhile we have taken steps to protect the Company’s operations, the loss of a data center createswould create a substantial risk of business interruption; however, steps have been taken to protect the Company’s operations, principally through redundant back-up processes.

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

In the fourth quarter of 2004, we commenced the PeopleSoft project to replace our payroll, billing and accounts receivable information systems in the United States, Canada, Puerto Rico, the United Kingdom and Ireland. To date we have several modules in production including accounts receivable, payroll in Canada and payroll and billing in the United Kingdom and Ireland. We anticipate spending approximately $90are delaying implementation of the remaining components, including payroll and billing in the United States and billing in Canada, until at least 2010 and do not have an estimate of the cost for completion. There is a risk that if the remaining modules are not completed or the cost of completion is prohibitive, an impairment charge relating to $94all or a portion of the $6.1 million oncapitalized cost of the PeopleSoft project by the end of 2009. Although this technology initiative is intended to increase productivity and operating efficiencies, the PeopleSoft project may not yield its intended results. Any delays in completing, or an inability to successfully complete, this technology initiative or an inability to achieve the anticipated efficienciesin-process modules could adversely affect our operations, liquidity and financial condition.be required.

We are highly dependent on our senior management and the continued performance and productivity of our local management and field personnel.

We are highly dependent on the continued efforts of the members of our senior management. We are also highly dependent on the performance and productivity of our local management and field personnel. The loss of any of the members of our senior management may cause a significant disruption in our business. In addition, the loss of any of our local managers or field personnel may jeopardize existing customer relationships with businesses that use our services based on relationships with these individuals. The loss of the services of members of our senior management could have a material adverse effect on our business.

Our business is subject to extensive government regulation, which may restrict the types of employment services we are permitted to offer or result in additional or increased tax or other costs that reduce our revenues and earnings.

The temporary employment industry is heavily regulated in many of the countries in which we operate. Changes in laws or government regulations may result in prohibition or restriction of certain types of employment services we are permitted to offer or the imposition of new or additional benefit, licensing or tax requirements that could reduce our revenues and earnings. There can be no assurance that we will be able to increase the fees charged to our customers in a timely manner and in a sufficient amount to cover increased costs as a result of any changes in laws or government regulations. Any future changes in laws or government regulations may make it more difficult or expensive for us to provide staffing services and could have a material adverse effect on our business, financial condition and results of operations.

We conduct a significant portion of our operations outside of the United States and we are subject to risks relating to our international business activities, including fluctuations in currency exchange rates.

We conduct our business in 36 countries and territories includingall major staffing markets throughout the United States.world. Our operations outside the United States are subject to risks inherent in international business activities, including:

Our operations outside the United States are reported in the applicable local currencies and then translated into U.S. dollars at the applicable currency exchange rates for inclusion in our consolidated financial statements. Exchange rates for currencies of these countries may fluctuate in relation to the U.S. dollar and these fluctuations may have an adverse or favorable effect on our operating results when translating foreign currencies into U.S. dollars.

If we fail to maintain effective internal control over our financial reporting, we may cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

Pursuant to Section 404 of the Sarbanes-Oxley Act, our management is required to include in our Annual Report on Form 10-K a report that assesses the effectiveness of our internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act. Our Annual Report on Form 10-K is also required to include an attestation report of our independent registered public accounting firm on the effectiveness of our internal controls.

Our efforts to comply with Section 404 have resulted in, and are likely to continue to result in, significant costs, the commitment of time and operational resources and the diversion of management’smanagement attention. If our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our independent auditors are unable to attest that our management’s report is fairly stated or they are unable to express an opinion on the effectiveness of our internal controls, our business may be harmed. Market perception of our financial condition and the trading price of our stock may also be adversely affected and customer perception of our business may suffer.

Our controlling stockholder exercises voting control over our company and has the ability to elect or remove from office all of our directors.

Terence E. Adderley, the Chairman of our board of directors, and certain trusts with respect to which he acts as trustee or co-trustee, control approximately 92.9% of the outstanding shares of Kelly Class B common stock, which is the only class of our common stock entitled to voting rights. Mr. Adderley is therefore able to exercise voting control with respect to all matters requiring stockholder approval, including the election or removal from office of all of our directors.

We are not subject to most of the listing standards that normally apply to companies whose shares are quoted on the NASDAQ Global Market.

Our Class A and Class B common stock are quoted on the NASDAQ Global Market. Under the listing standards of the NASDAQ Global Market, we are deemed to be a “controlled company” by virtue of the fact that Terence E. Adderley, the Chairman of our board of directors, and certain trusts of which he acts as trustee or co-trustee have voting power with respect to more than fifty percent of our outstanding voting stock. A controlled company is not required to have a majority of its board of directors comprised of independent directors. Director nominees are not required to be selected or recommended for the board’s selection by a majority of independent directors or a nominations committee comprised solely of independent directors, nor do the NASDAQ Global Market listing standards require a controlled company to certify the adoption of a formal written charter or board resolution, as applicable, addressing the nominations process. A controlled company is also exempt from NASDAQ Global Market’s requirements regarding the determination of officer compensation by a majority of independent directors or a compensation committee comprised solely of independent directors. A controlled company is required to have an audit committee composed of at least three directors, who are independent as defined under the rules of both the Securities and Exchange Commission and the NASDAQ Global Market. The NASDAQ Global Market further requires that all members of the audit committee have the ability to read and understand fundamental financial statements and that at least one member of the audit committee possess financial sophistication. The independent directors must also meet at least twice a year in meetings at which only they are present.

We currently comply with certain of the listing standards of the NASDAQ Global Market that do not apply to controlled companies. Our compliance is voluntary, however, and there can be no assurance that we will continue to comply with these standards in the future.

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

Our certificate of incorporation and bylaws contain provisions that could make it harder for a third party to acquire us without the consent of our board of directors. For example, our certificate of incorporation establishes a classified or “staggered” board of directors, which means that only approximately one third of our directors are required to stand for election at each annual meeting of our stockholders. In addition, if a potential acquirer were to make a hostile bid for us, the acquirer would not be able to call a special meeting of stockholders to remove our board of directors or act by written consent without a meeting. The acquirer would also be required to provide advance notice of its proposal to replace directors at any annual meeting, and would not be able to cumulate votes at a meeting, which would require the acquirer to hold more shares to gain representation on the board of directors than if cumulative voting were permitted. In addition, our certificate of incorporation requires the approval of the holders of at least 75% of our Class B common stock for certain transactions involving our company, including a merger, consolidation or sale of all or substantially all of our assets that has not been approved by our board of directors.

Our board of directors also has the ability to issue additional shares of common stock that could significantly dilute the ownership of a hostile acquirer. In addition, Section 203 of the Delaware General Corporation Law limits mergers and other business combination transactions involving 15 percent or greater stockholders of Delaware corporations unless certain board or stockholder approval requirements are satisfied. These provisions and other similar provisions make it more difficult for a third party to acquire us without negotiation.

Our board of directors could choose not to negotiate with an acquirer that it did not believe was in our strategic interests. If an acquirer is discouraged from offering to acquire us or prevented from successfully completing a hostile acquisition by these or other measures, youour shareholders could lose the opportunity to sell yourtheir shares at a favorable price.

The holders of shares of our Class A common stock are not entitled to voting rights.

Under our certificate of incorporation, the holders of shares of our Class A common stock are not entitled to voting rights, except as otherwise required by Delaware law. As a result, Class A common stock holders do not have the right to vote for the election of directors or in connection with most other matters submitted for the vote of our stockholders.

Our stock price may be subject to significant volatility and could suffer a decline in value.

The market price of our common stock may be subject to significant volatility. We believe that many factors, including several which are beyond our control, have a significant effect on the market price of our common stock. These include:

In addition, the stock market in general, and the NASDAQ Global Market in particular, have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of listed companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, securities class action litigation has often been instituted following periods of volatility in the market price of a company’s securities. A securities class action suit against us could result in substantial costs, potential liabilities and the diversion of our management’s attention and resources. Further, our operating results may be below the expectations of securities analysts or investors. In such event, the price of our common stock may decline.

ITEM 1B.  UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.  PROPERTIES.

We own our headquarters in Troy, Michigan, where corporate, subsidiary and divisional offices are currently located. The original headquarters building was purchased in 1977. Headquarters operations were expanded into additional buildings purchased in 1991, 1997 and 2001.

The combined usable floor space in the headquarters complex is approximately 350,000 square feet, and an additional 26,00029,000 square feet, commencing on January 1, 2009, is being leased nearby. Our buildings are in good condition and are currently adequate for their intended purpose and use. We also own undeveloped land in Troy and Northernnorthern Oakland County, Michigan, for possible future expansion.

Branch office business is conducted in leased premises with the majority of leases being fixed for terms of generally five years in the United States and 5 to 10 years outside the United States. We own virtually all of the office furniture and the equipment used in our corporate headquarters and branch offices.

ITEM 3.  LEGAL PROCEEDINGS.

In November 2003, an action was commencedSee Note 17, Contingencies, in the United States Bankruptcy CourtNotes to Consolidated Financial Statements of this Annual Report on Form 10-K for the Southern Districta discussion of New York, Enron Corp. (“Enron”) v. J.P. Morgan Securities, Inc., et al., against approximately 100 defendants, including Kelly Properties, Inc., a wholly-owned subsidiary of Kelly Services, Inc., who invested in Enron’s commercial paper. The Complaint alleges that Enron’s October 2001 buyback of its commercial paper is a voidable preference under the bankruptcy laws, constitutes a fraudulent conveyance, and that we received prepayment of approximately $10 million, $5 million of which is related to Enron commercial paper purchased by us from Lehman Brothers or its affiliate, Lehman Commercial Paper, Inc. (“Lehman”), and $5 million of which was purchased by us from Goldman Sachs & Co. Solely to avoid the cost of continued litigation, we have reached a confidential settlement with Enron, Lehman and certain other defendants of all claims arising from our purchase of Enron commercial paper from Lehman. The settlement, which involves a payment by us in an amount not material to our results of operations or financial position, was approved on July 27, 2007 by the Bankruptcy Court presiding over the matter. The settlement became final on August 7, 2007. The terms of the settlement did not have a material adverse effect on our results of operations or financial position. We intend to continue to vigorously defend the remaining claims arising from the purchase of Enron commercial paper from Goldman Sachs & Co., and believe we have meritorious defenses to these remaining claims but are unable to predict the outcome of the proceedings.

We are the subject of a class action lawsuit brought on behalf of employees working in the State of California. The claims in the lawsuit relate to alleged misclassification of personal attendants as exempt and not entitled to overtime compensation under state law and alleged technical violations of a state law governing the content of employee pay stubs. On April 30, 2007, the Court certified two sub-classes that correspond to the claims in the case. We are currently preparing motions for summary judgment on both certified claims and will continue to vigorously defend the lawsuit. We believe that we have meritorious defenses to the claims but are unable to predict the outcome of the proceedings.

We are also involved in variouscurrent legal proceedings occurring in the normal course of our business. In the opinion of management, adequate provision has been made for losses that are likely to result from these proceedings.

Disclosure of Certain IRS Penalties

None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters submitted to a vote of security holders in the fourth quarter of 2007.2008.

PART II

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

Market Information and Dividends

Our Class A and Class B common stock is traded on the NASDAQ Global Market under the symbols “KELYA” and “KELYB,” respectively. The high and low selling prices for our Class A common stock and Class B common stock as quoted by the NASDAQ Global Market and the dividends paid on the common stock for each quarterly period in the last two fiscal years are reported below:

Holders

The number of holders of record of our Class A and Class B common stock were 5,3945,430 and 417, respectively, as of February 5, 2008.2, 2009.

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

On August 8, 2007, the board of directors authorized the repurchase of up to $50 million of the Company’s outstanding Class A common shares. The Company intends to repurchasehas repurchased $42.7 million of shares under the program, from time to time, in the open market. It has the ability to repurchase additional shares for up to $7.3 million. The repurchase program has a term of 24 months. The Company does not intend to make further share repurchases under the plan. We may also reacquire shares outside the program in connection with the surrender of shares to cover taxes due upon the vesting of restricted stock held by employees. 1,001167 shares were reacquired in transactions outside the repurchase program during the Company’s fourth quarter.

Performance Graph

The following graph compares the cumulative total return of our Class A common stock with that of the S&P MidCap 400 Index and the S&P 1500 Human Resources and Employment Services Index for the five years ended December 31, 2007.2008. The graph assumes an investment of $100 on December 31, 20022003 and that all dividends were reinvested.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN

Assumes Initial Investment of $100

December 31, 20022003 – December 31, 20072008

ITEM 6.  SELECTED FINANCIAL DATA.

The following table summarizes selected financial information of Kelly Services, Inc. and its subsidiaries for each of the most recent five fiscal years. This table should be read in conjunction with the other financial information, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and financial statements included elsewhere in this report.

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

Executive Overview

During 2007,2008 was a very difficult year. The already-weak economic conditions and employment trends in the U.S., present at the start of 2008, continued to worsen as the year progressed. The most notable deterioration occurred in the fourth quarter as the economic slowdown became more evident outside the U.S. and anxiety over the global financial crisis intensified.

According to the U.S. Bureau of Labor Statistics, during the year, the U.S. economy lost 2.6 million jobs, compared with 2.1 million jobs created in 2006 and 1.1 million in 2007. Temporary staffing was impacted especially hard, posting 21 consecutive months of year-over-year declines. In fact, the rate of temporary job losses accelerated throughout the year, with December’s drop being the highest in this cycle. Outside of the U.S., the effects of a global recession quickly spread, resulting in almost immediate deterioration of employment markets and temporary staffing.

The weakened global economy significantly affected our earnings performance in 2008. For the year, we made good progress onrecorded a net loss of $2.37 per diluted share, compared to net earnings of $1.67 per diluted share in 2007. Included in those 2008 results are impairment charges of $2.22 per diluted share. Our efforts to implement our strategic plan to diversify business offerings, expand geographically, invest in high-growth, high-margin businesses, accelerate globalizationreduce costs, consolidate facilities and close unprofitable branches helped to mitigate the negative impact of our professional and technical staffing services and improve operating margins. Our keythis economic environment.

In spite of these challenges, we did make measurable strategic accomplishments included:progress during the year. For example, we:

Additionally,

We expect to continue the focus on our strategic plan; however, until we witness sustained temporary staffing job creation and signs of a strengthening global economy, we will continue to take decisive actions to minimize short-term risks. We remain committed to prudent cost actions and diligent management of the Company’s balance sheet without impairing our ability to compete and meet the future staffing needs of our customers.

Results of Operations

2008 versus 2007

Revenue from services for 2008 totaled $5.5 billion, a decrease of 2.7% from 2007. This was the result of a decrease in hours worked of 8.3%, partially offset by an increase accountabilityin average hourly bill rates of 4.1% (3.0% on a constant currency basis). Fee-based income, which is included in revenue from services, totaled $151.4 million, or 2.7% of total revenue for 2008, an increase of 11.1% as compared to $136.3 million in 2007. Revenue decreased in the Americas Commercial and boostAmericas PT business segments and increased in each of the five other business segments. Reflecting the accelerating slowdown in the global economy, the trend in revenue growth during 2008 was negative in all business units, with the largest decline occurring in the fourth quarter.

Compared to 2007, the U.S. dollar was weaker against certain foreign currencies, including the euro and the Swiss franc. As a result, our consolidated U.S. dollar translated revenue was higher than would have otherwise been reported. On a constant currency basis, 2008 revenue from services decreased 3.7% as compared with the prior year. When we use the term “constant currency,” it means that we have translated financial data for 2008 into U.S. dollars using the same foreign currency exchange rates that we used to translate financial data for 2007. We believe that constant currency measurements are an important analytical tool to aid in understanding underlying operating margins,trends without distortion due to currency fluctuations. The table below summarizes the impact of foreign exchange adjustments on revenue from services for 2008:

Gross profit of $977.7 million was 1.2% lower than in 2007. Gross profit as a percentage of revenues was 17.7% in 2008 and increased 0.2 percentage points compared to the 17.5% rate in the prior year. Compared to the prior year, the gross profit rate increased in the EMEA PT and OCG segments, and was flat in the Americas Commercial business segment. The gross profit rate decreased in all other business segments.

The improvement in the gross profit rate is primarily due to growth in fee-based income. Fee-based income has a significant impact on gross profit rates. There are very low direct costs of services associated with fee-based recruitment income. Therefore, increases or decreases can have a disproportionate impact on gross profit rates.

The gross profit rate for 2008 and 2007 also included the effect of French payroll tax credits. During 2007, the French government changed the method of calculating payroll tax credits, retroactive to the beginning of 2006 and on a go-forward basis until October 1, 2007. During 2008, the French government extended eligibility to claim payroll tax credits to 2005. In connection with these changes, $2.4 million of French payroll tax credits were recognized in 2008 and $4.8 million were recognized in 2007.

As more fully described in Critical Accounting Estimates, we consolidatedregularly update our estimates of the ultimate cost of open workers’ compensation claims. As a result, during 2008, we reduced the estimated cost of prior year workers’ compensation claims by $12.7 million. This compares to an adjustment reducing prior year workers’ compensation claims by $11.6 million in 2007.

Selling, general and administrative expenses totaled $967.4 million, a year-over-year increase of 6.4% (5.2% on a constant currency basis). Selling, general and administrative expenses expressed as a percentage of gross profit were 99.0% in 2008, a 7.1 percentage point increase compared to the 91.9% rate in 2007. Included in selling, general and administrative expenses for 2008 are $22.5 million of litigation costs for several US payroll centers. That move servedpending lawsuits. (See Note 17, Contingencies, in the Notes to streamlineConsolidated Financial Statements for further discussion.)

On January 21, 2009, the Chief Executive Officer of Kelly Services, Inc. authorized a restructuring plan for our United Kingdom operations (“Kelly U.K.”). The plan is the result of management’s strategic review of the operations of Kelly U.K. which identified the opportunity for additional operational cost savings. We have not yet identified specific branches or employees affected, but expect that the plan will result in the elimination or consolidation of certain operations and may involve approximately 350 staff reductions. We expect that the plan will be completed by the end of 2009.

We currently estimate that we will incur total pre-tax charges associated with these actions of approximately $11 million to $14 million, including approximately $9 million to $11 million in facility exit costs and improved efficiencies, while allowing usapproximately $2 million to better manage unemployment and workers’ compensation$3 million in severance expenses. We recorded $1.5 million of severance costs in the US. To increase valuefourth quarter of 2008 and expect the remainder to shareholders, we authorized a $50be recorded in 2009. We expect all of the expense will result in future cash expenditures.

Included in selling, general and administrative expenses for 2007 were $8.9 million stock repurchase planof expenses related to 2007 Americas and U.K. restructuring actions. The Americas restructuring costs totaled $3.0 million, of which $2.7 million related to facility exit costs and $0.2 million related to accelerated depreciation. The U.K. restructuring costs totaled $5.9 million, of which $4.2 million related to facility exit costs, $0.6 million related to accelerated depreciation and $1.1 million related to moving, fit out and lease origination fees related to the headquarters consolidation. We did not incur any significant severance costs in August and increasedconnection with the restructuring actions.

During the fourth quarter of 2008, impairment charges of $80.5 million were also recorded. We completed our quarterly dividend by 8%goodwill impairment test during the third quarter.fourth quarter and, due to worsening economic conditions, the Company’s discounted cash flow forecast for future years was revised. This resulted in the recognition of a goodwill impairment loss of $50.4 million in the EMEA Commercial segment in 2008. At December 28, 2008, the Company also determined that its available-for-sale investment in Temp Holdings Co. Ltd. (“Temp Holdings,” formerly Tempstaff), a Japanese staffing company, was impaired and an other-than-temporary impairment of $18.7 million was recorded. While Temp Holdings’ performance remains strong, its value has been affected by global market movements. The length of time (approximately nine months as of December 28, 2008) and extent to which the market value of the investment has been less than cost resulted in the Company’s determination that the impairment was other-than-temporary. Additionally, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When estimated undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value, determined by estimated future discounted cash flows. Due to a history of losses in the U.K. and uncertainty around future financial projections, the Company’s evaluation as of December 28, 2008 resulted in an $11.4 million reduction in the carrying value of long-lived assets in the U.K.

Our greatest challenge as we enterAs a result of the above, the Company reported losses from operations for 2008 remainsof $70.3 million, compared to earnings from operations of $80.1 million reported in 2007.

Other (expense) income was expense of $3.5 million in 2008, compared to income of $3.2 million in 2007. Included in other expense for 2008 is $3.7 million of foreign exchange losses booked primarily in the US staffing market,fourth quarter, related to yen-denominated net debt for the Temp Holdings investment and ruble-denominated intercompany balances in Russia. Foreign exchange losses were not significant in 2007.

Income tax expense on continuing operations for 2008 was $8.0 million, compared to last year’s expense of $29.6 million. Most of the impairment and restructuring charges are not tax deductible. In foreign countries where we do nearly two-thirdsfuture tax deductions are possible, a valuation allowance was recorded against the deferred tax assets created by the charges. The valuation allowances related to impairment and restructuring charges equaled $2.2 million in Germany, $7.9 million in Japan and $1.1 million in the United Kingdom. The 2008 income tax expense was also impacted by nondeductible losses in the cash surrender value of our business. While nonfarmlife insurance policies used to fund the Company’s deferred compensation plans, and by losses in foreign countries which are not currently deductible.

Losses from continuing operations were $81.7 million in 2008, compared to earnings of $53.7 million in 2007. Included in losses from continuing operations in 2008 were $77.2 million, net of tax, of impairment charges, $13.9 million, net of tax, of litigation expenses, $1.5 million, net of tax, of U.K. restructuring costs and $1.6 million of French payroll growth continuedtax credits, net of tax. Included in earnings from continuing operations in 2007 temporary employment fell, droppingare $7.8 million of expenses, net of tax, related to the temporary employment penetration rateU.K. and Americas restructuring actions and $3.2 million of French payroll tax credits, net of tax.

Discontinued operations include the operating results of Kelly Home Care (“KHC”), which was sold in 2007 and Kelly Staff Leasing (“KSL”), which was sold in 2006. Losses from discontinued operations totaled $0.5 million for much2008, compared to earnings of $7.3 million for 2007. Discontinued operations for 2008 represent adjustments to assets and liabilities retained as part of the sale agreements. Discontinued operations for 2007 included the $6.2 million gain, net of tax, on the sale of KHC.

Net losses in 2008 were $82.2 million, compared to earnings of $61.0 million in 2007. Diluted loss per share from continuing operations for 2008 was $2.35, as compared to diluted earnings per share from continuing operations of $1.47 in 2007. Diluted loss per share from continuing operations for 2008 include the $2.22 per share cost of impairments, $0.40 per share cost of litigation expenses, $0.04 per share cost of the U.K. restructuring and a $0.05 per share benefit related to French payroll tax credits. Diluted earnings per share from continuing operations for 2007 include $0.21 per share of restructuring costs and a $0.09 per share benefit related to French payroll tax credits.

During the first quarter of 2008, the Company realigned its operations into seven reporting segments – Americas Commercial, Americas PT, EMEA Commercial, EMEA PT, APAC Commercial, APAC PT and OCG. Corporate expenses that directly support the operating units have been allocated to all seven segments. The segment operating results exclude the asset impairment charges discussed above. Prior periods were reclassified to conform with the current presentation.

Americas Commercial

The change in revenue from services in the Americas Commercial segment reflected the decrease in fee-based income, a decrease in hours worked of 12.4%, partially offset by an increase in average hourly bill rates of 3.7% (3.6% on a constant currency basis). Year-over-year revenue comparisons reflect decreases of 6.4% in the first quarter, 6.1% in the second quarter, 9.4% in the third quarter, and 14.9% in the fourth quarter. Americas Commercial represented 45.4% of total Company revenue for 2008 and 48.6% for 2007.

DespiteAs noted above, the soft labor marketCompany revised its estimate of the cost of outstanding workers’ compensation claims and, accordingly, reduced expense in 2008. Of the total $12.7 million adjustment booked in 2008, $10.5 million is reflected in the US, global demandresults of Americas Commercial. This compares to an adjustment of $10.0 million in 2007. Selling, general and administrative expenses decreased by 4.0 % compared to the prior year, but were higher as a percentage of revenue due to lower revenue from services.

Americas PT

The change in revenue from services in Americas PT reflected the decrease in fee-based income, a decrease in hours worked of 4.2%, partially offset by an increase in average billing rates of 2.5%. On a year-over-year basis, revenue increased 2.0% in the first quarter and 0.9% in the second quarter, and decreased 3.1% in the third quarter and 7.3% in the fourth quarter. Americas PT revenue represented 16.5% of total Company revenue for highly skilled, credentialed2008 and 16.4% for 2007.

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

EMEA Commercial

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

EMEA Commercial earnings from operations for 2008 includes a $2.4 million benefit related to French payroll tax credits and a $1.5 million charge related to the restructuring of the U.K. operations. The prior year included a $5.9 million charge related to the restructuring of the U.K. operations and a $4.8 million benefit related to French payroll tax credits.

The change in the gross profit rate was due to lower French payroll tax credits recognized in 2008 as compared to 2007, and lower temporary workers continues. Ingross profits rates primarily in the U.K. On a constant currency basis, selling, general and administrative expenses increased 2.0% from the prior year. Excluding the effect of restructuring and the Portugal acquisition in 2008, constant currency expenses were about flat with 2007. Included in expenses for 2007 was the effect of $5.9 million in U.K. restructuring costs.

EMEA PT

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

The increase in the EMEA PT gross profit rate was primarily due to growth in fee-based income. On a constant currency basis, selling, general and administrative expenses increased 10.4% from the prior year, due to costs associated with branch openings during the second half of last year. Excluding the effect of the Toner Graham acquisition, constant currency expenses increased approximately 6.5% from the prior year.

APAC Commercial

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

On a constant currency basis, selling, general and administrative expenses increased 10.1%, due to significant investments in this region, through acquisitions made in the prior year and costs associated with new branches.

APAC PT

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

The decrease in the APAC PT gross profit rate in 2008 was due to a higher mix of traditional temporary-based revenue as compared to fee-based income. On a constant currency basis, selling, general and administrative expenses increased by 17.7%, due primarily to significant investments in this region, including costs associated with new branches.

OCG

Revenue from services in the OCG segment for 2008 increased in all three regions – Americas, Europe we believe deregulation will support new opportunitiesand Asia-Pacific. Constant currency year-over-year revenue comparisons reflect increases of 42.2% in the first quarter, 56.9% in the second quarter, 30.5% in the third quarter and 6.3% in the fourth quarter. OCG revenue represented 4.5% of total Company revenue in 2008 and 3.4% for temporary staffing. In Asia, expansion continues,2007. Acquisitions completed in the fourth quarter of last year contributed approximately 8 percentage points to OCG year-over-year constant currency revenue growth.

The OCG gross profit rate increased primarily due to improved margins in the recruitment processing outsourcing unit, coupled with revenue growth in fee-based business units, such as contingent workforce outsourcing (“CWO”). Constant currency selling, general and administrative expenses increased 64.6% from the need for professionalprior year, due to investments to build out implementation and technical workers is ongoing and acceptance of temporary workers grows.operations infrastructure.

As we look ahead, our sights remain focused on investing and expanding globally, reducing our US dependency, gaining greater scale internationally, increasing our fee-based and higher-margin staffing services, continuing to improve operating margins and positioning Kelly for long-term growth.

Results of Operations

2007 versus 2006

Revenue from services for 2007 totaled $5.7 billion, an increase of 2.2% from 2006. This was the result of an increase in average hourly bill rates of 4.6%4.1%, partially offset by a decrease in hours worked of 2.8%2.9%. Fee basedFee-based income, which is included in revenue from services, totaled $136.3 million, or 2.4% of total revenue for 2007, an increase of 31.8% as compared to $103.4 million in 2006. Reflecting the economic slowdown in the U.S. market, revenue from services decreased from 2006 in the Americas – Commercial and Americas – PTSAPT business segments. Revenue from services increased from 2006 in botheach of the International – Commercial and International – PTSAother five business segments.

Compared to 2006, the U.S. dollar was weaker against many foreign currencies, including the euro, the British pound and the Canadian dollar. As a result, our U.S. dollar translated revenue from services was slightly higher than would have otherwise been reported. On a constant currency basis, 2007 revenue from services decreased 0.6% as compared with the prior year.2006. When we use the term “constant currency,” it means that we have translated financial data for 2007 into U.S. dollars using the same foreign currency exchange rates that we used to translate financial data for 2006. We believe that constant currency measurements are an important analytical tool to aid in understanding underlying operating trends without distortion due to currency fluctuations. The table below summarizes the impact of foreign exchange adjustments on revenue from services for 2007:

Gross profit of $989.1 million was 9.1% higher than 2006. Gross profit as a percentage of revenues was 17.5% in 2007 and increased 1.2 percentage points compared to the 16.3% rate recorded in the prior year.2006. Compared to the prior year,2006, the gross profit rate increased in all four business segments.

During the first quarter of 2007, the Company realigned its operations into four reporting segments, – Americas – Commercial, Americas – PTSA, International – Commercial and International – PTSA. The Americas include the U.S. operations, as well as Canada, Mexico and Puerto Rico, which were previously included in International. In addition, corporate expenses that directly support the operating units have been allocated to all four segments. Prior periods were reclassified to conform to the current presentation.except for APAC Commercial.

The improvement in the gross profit rate is due to lower payroll tax rates and workers’ compensation costs measured as a percentage of direct wages and higher fee basedfee-based income. Fee based income has a significant impact on gross profit rates. There are very low direct costs of services associated with fee based recruitment income. Therefore, increases or decreases can have a disproportionate impact on gross profit rates. The gross profit rate also includes the effect of the French payroll tax credits noted below.

During the second quarter of 2007, the French government changed the method of calculating payroll tax credits, retroactive to the beginning of 2006 and on a go-forward basis until October 1, 2007. As a result, Kelly recognized a total credit of $5.0$4.8 million in 2007, of which $2.6 million related to 2006.

As more fully described in Critical Accounting Estimates, wea result of regularly updateupdating our estimates of the ultimate cost of open workers’ compensation claims. As a result, during 2007,claims, we reduced the estimated cost of prior year workers’ compensation claims by $11.6 million.million during 2007. This compares to a similaran adjustment reducing prior year workers’ compensation claims by $7.7 million in 2006.

Selling, general and administrative expenses of $909.0 million were 9.7% higher than last year.2006. Selling, general and administrative expenses expressed as a percentage of revenues (“expense rate as a percentage of revenues”) were 16.0% in 2007, a 1.1 percentage point increase compared to the 14.9% rate in 2006.

IncludedAs discussed above, included in selling, general and administrative expenses arein 2007 were $8.9 million of expenses related to the Americas and UKU.K. restructuring actions. See the “Restructuring – UK Operations” and “Restructuring – Americas Operations” sections for further discussion. The remaining increase in selling, general and administrative expenses is due primarily to growth in compensation-related costs.

Other income net for 2007 was income of $3.2 million, compared to $1.5 million in 2006. The improvement is primarily attributable to an increase in interest income related to higher U.S. interest rates earned on higher average cash balances compared to last year.

The effective income tax rate on continuing operations for 2007 was 35.5%, higher than last year’sthe 2006 rate of 28.6%. The majority of the increase in the effective tax rate is a result of an increase in losses in certain international locations, particularly the UK,U.K., for which no income tax benefit is provided, and, in the US,U.S., the expiration of work opportunity tax credits related to Hurricane Katrina.

Earnings from continuing operations were $53.7 million in 2007, compared to $56.8 million in 2006. Included in earnings from continuing operations are $7.8 million of expenses, net of tax, related to the UKU.K. and Americas restructuring actions and $3.3$3.2 million of French payroll tax credits, net of tax.

During the first quarter of 2007, we sold the Kelly Home Care (“KHC”) business unit. Accordingly, 2006 results of operations were revised to remove KHC’s operating results from continuing operations. Earnings from discontinued operations, which include KHC’s and Kelly Staff Leasing’s (“KSL’s”)KSL’s operating results, totaled $7.3 million for 2007 and include the $6.2 million gain, net of tax, on the sale of KHC. Earnings from discontinued operations for 2006 totaled $6.7 million and include the $2.3 million gain, net of tax, on the sale of KSL.

Net earnings in 2007 were $61.0 million, or a 3.9% decrease compared to 2006. Diluted earnings per share from continuing operations in 2007 were $1.67,$1.47, as compared to diluted earnings per share from continuing operations of $1.75$1.56 in 2006.

Americas – Commercial

Reflecting the soft labor market in the US,U.S., revenue from services in the Americas - Commercial segment which totaled $2.8 billion for 2007, decreased 5.4% compared to the $2.9 billion reported forfrom 2006. This was the result of a 9.0%an 8.8% decrease in hours worked, partially offset by a 4.0%3.8% increase in average hourly bill rates. Fee based income totaled $18.9 million in 2007, compared to $19.4 million in 2006, a decrease of 3.0%. Year-over-year revenue comparisons reflect decreases of 4.3% in the first quarter, 5.7% in both the second quarter and 5.7% in the third quarter, and 5.9% in the fourth quarter. Americas - Commercial revenue from services represented 48.7%48.6% of total Company revenue from services for 2007 and 52.5%52.6% for 2006.

Americas - Commercial earnings from operations totaled $88.1 million for 2007, compared to earnings of $102.9 million last year, a decrease of 14.5%. The 0.3 percentage point decrease in the operating margin reflected a 0.9 percentage point increase in the expense rate as a percentage of revenues, partially offset by a 0.5 percentage point increase in the gross profit rate.

The 0.5 percentage point increase in the gross profit rate was principally due to lower workers’ compensation costs and reduced payroll taxes. As noted above, we revised our estimate of the cost of outstanding workers’ compensation claims and, accordingly, reduced expense in 2007. Of the total $11.6 million expense reduction in 2007, $10.4$10.0 million was credited to Americas - Commercial. This compares to a similaran adjustment reducing expense by $7.0 million in 2006.

Selling, general and administrative expenses increased by 1.4%1.8% as compared to the prior year and, as a percentage of revenues, were 12.7% for 2007 and 11.8% for 2006. Included in Americas – Commercial selling, general and administrative expenses for 2007 is $3.0 million related to the branch restructuring. The remaining increase in selling, general and administrative expenses was due primarily to the growth in compensation costs.

Americas - PTSAPT

Revenue from services in the Americas - PTSAPT segment totaled $1.1 billion in both 2007 and 2006. This reflected a decrease in hours worked of 6.0%7.0%, partially offset by an increase in average billing rates of 6.7%2.8% for the professional and technical staffing businesses. Fee based income totaled $30.5 million in 2007 and $24.3 million in 2006. On a year-over-year basis, revenue decreased 6.2%9.1% in the first quarter, 3.2% in the second quarter and 1.9% in the secondthird quarter, and increased 1.6% in the third quarter and 5.6%1.1% in the fourth quarter. Americas - PTSAPT revenue represented 19.5%16.4% of total Company revenue in 2007 and 20.0%17.3% in 2006.

Kelly Health Care, Kelly Management Services, HRfirst and Kelly Vendor Management were the leading performers in revenue growth in 2007, with each business unit reporting double digit revenue growth. Kelly IT Resources, Kelly Scientific Resources, Kelly Engineering Resources and Automotive Services Group reported year-over-year revenue declines during 2007.

Americas - PTSA earnings from operations for 2007 totaled $59.2 million, an increase of 1.8% from 2006. The 0.2 percentage point increase in the operating margin reflected a 1.6 percentage point increase in the gross profit rate, partially offset by a 1.5 percentage point increase in the expense rate as a percentage of revenues.

The Americas - PTSAPT gross profit rate increased primarily due to growth in fee basedfee-based income and reduced payroll taxes and workers’ compensation costs and the benefit of a full year impact of the higher margin Ayers’ outplacement business, acquired in the second quarter of 2006, and CGR/seven, a creative services staffing firm acquired in the first quarter of 2007.costs. Americas - PTSA’sPT’s share of the reduction in workers’ compensation expense in 2007 was approximately $1.2$1.0 million, compared to a similaran adjustment in 2006 of approximately $0.7$0.5 million.

Selling, general and administrative expenses increased by 12.6%10.5% as compared to the prior year and, as a percentage of revenues, were 13.3% for 2007 and 11.8% for 2006. The increase in selling, general and administrative expenses was due to increased compensation related costs including a full year impact of the Ayers’ outplacement business, nine months’ impact of CGR/seven, and increased staffing costs related to adding permanent placement recruiters.

International -EMEA Commercial

Translated

The change in translated U.S. dollar revenue from services in International –EMEA Commercial for 2007 totaled $1.6 billion, a 16.4% increase compared to the $1.4 billion reported in 2006. This resulted from a 21.8%the increase in fee basedfee-based income, an increase in average hourly bill rates of 10.2% (1.8% on a constant currency basis) and an increase in hours worked of 12.0% and an increase in the translated U.S. dollar average hourly bill rates of 3.2%1.9%. Fee based income totaled $53.2 million in 2007 and $43.6 million in 2006. International –EMEA Commercial revenue represented 28.3%22.8% of total Company revenue in 2007 and 24.9%20.6% in 2006.

OnConstant currency year-over-year revenue comparisons reflect increases of 6.5% in the first quarter, 5.8% in the second quarter, 2.9% in the third quarter and 2.0% in the fourth quarter.

EMEA Commercial earnings from operations for 2007 include a constant currency basis, revenue$5.9 million charge related to the restructuring of the U.K. operations and a $4.8 million benefit related to French payroll tax credits. The increase in the gross profit rate primarily reflects the effect of the French payroll tax credits.

Selling, general and administrative expenses increased by 7.4%, fee based14.5% as compared to 2006. The increase in U.S. dollar reported expenses was due primarily to the growth in compensation related costs and the $5.9 million U.K. restructuring charge.

EMEA PT

The change in translated U.S. dollar revenue from services in EMEA PT resulted from the increase in fee-based income increased 11.6% and an increase in average hourly bill rates decreased 4.8%of 17.6% (8.4% on a constant currency basis), combined with an increase in hours worked of 8.3%. EMEA PT revenue represented 2.8% of total Company revenue in 2007 and 2.2% for 2006.

Constant currency year-over-year revenue comparisons reflect increases of 26.1% in the first quarter, 28.9% in the second quarter, 19.7% in the third quarter and 16.3% in the fourth quarter.

The increase in the EMEA PT gross profit rate for 2007 was primarily due to increases in fee-based income. Selling, general and administrative expenses increased by 47.9% as compared to 2006. The increase in U.S. dollar reported expenses was due primarily to the growth in compensation related costs and costs associated with new branches.

APAC Commercial

The change in translated U.S. dollar revenue from 2006.services in APAC Commercial resulted from an increase in hours worked of 28.3%, combined with an increase in average hourly bill rates of 5.1% (a decrease of 3.3% on a constant currency basis). The constant currency change in average hourly bill rates was impacted by significant growth in lower average wage rate countries, such as India and Malaysia. Malaysia.APAC Commercial revenue represented 5.5% of total Company revenue in 2007 and 4.2% for 2006.

Constant currency year-over-year revenue comparisons reflect increases of: 7.3%of 12.0% in the first quarter, 8.8%25.5% in the second quarter, 5.8%23.0% in the third quarter and 8.0%29.1% in the fourth quarter. Acquisitions in 2007 have contributed approximately 2%15 percentage points to International – Commercial’sAPAC Commercial constant currency revenue growth.

International - Commercial earnings from operations in 2007 totaled $10.1 million, a significant increase compared to net earnings of $0.6 million last year. Earnings from operations for 2007 includes a $5.9 million charge related to the restructuring of the UK operations and a $5.0 million benefit related to French payroll tax credits.

The 0.6 percentage point increasedecrease in the operating margin reflected a 0.7 percentage point increase in the gross profit rate, partially offset by a 0.1 percentage point increase in the expense rate as a percentage of revenues. The increase in the International –APAC Commercial gross profit rate primarily reflects the effect of the French payroll tax credits.

Selling, general and administrative expenses increased by 17.0% as compared to the prior year and, as a percentage of revenues, were 17.0% for 2007 and 16.9% for 2006. The increase in US dollar reported expenses was due primarily to the growth in compensation related costs and the $5.9 million UK restructuring charge.

International - PTSA

Translated U.S. dollar revenue from services in International - PTSA for 2007 totaled $198.5 million, a 38.0% increase compared to the $143.8 million reported for 2006. This resulted from a 110.9% increase in fee based income and an increase in hours worked of 16.7%, combined with an increase in the translated U.S. dollar average hourly bill rates of 15.1%. Fee based income totaled $33.7 million for 2007 and $16.0 million for 2006. International - PTSA revenue represented 3.5% of total Company revenue in 2007 and 2.6% for 2006.

On a constant currency basis, revenue increased by 27.1%, fee based income increased 96.6% and average hourly bill rates increased 4.2% from 2006. Constant currency year-over-year revenue comparisons reflect increases of: 29.4% in the first quarter, 33.8% in the second quarter, 30.3% in the third quarter and 17.2% in the fourth quarter. Acquisitions in 2007 have contributed approximately 2% to International – PTSA’s constant currency revenue growth.

Operating results for International - PTSA were earnings of $2.7 million for the 2007, compared to $0.6 million in 2006. The 1.0 percentage point increase in the operating margin reflected a 6.0 percentage point increase in the gross profit rate, partially offset by a 5.1 percentage point increase in the expense rate as a percentage of revenues. The increase in the International - PTSA gross profit rate for 2007 was primarily due to increases in fee based income.

a higher mix of traditional temporary-based revenue. Selling, general and administrative expenses increased by 66.2%28.6% as compared to the prior year and, as a percentage of revenues, were 29.8% for 2007 and 24.7% for 2006. The increase in U.S. dollar reported expenses was due primarily to the growthsignificant investments in compensation related coststhis region, through acquisitions and costs associated with new branches.

Results of OperationsAPAC PT

2006 versus 2005

RevenueThe change in translated U.S. dollar revenue from services for 2006 totaled $5.5 billion, anin APAC PT resulted from the increase of 6.9% from 2006. This was the result ofin fee-based income and an increase in hours worked of 5.8% and44.4%, combined with an increase in average hourly bill rates of 0.8%. Fee based income, which is included in revenue from services, totaled $103.4 million, or 1.9% of total revenue for 2006, an increase of 22.9% as compared to $84.2 million in 2005. Revenue from services increased in all of our four business segments: Americas - Commercial, Americas – PTSA, International – Commercial and International - PTSA.

Compared to 2005, the U.S. dollar was weaker against many foreign currencies, including the euro, the British pound and the Australian dollar. As a result, our U.S. dollar translated revenue from services was slightly higher than would have otherwise been reported. On a constant currency basis, 2006 revenue from services increased 6.3% as compared with 2005. The table below summarizes the impact of foreign exchange adjustments on revenue from services for 2006:

We believe that constant currency measurements are an important analytical tool to aid in understanding underlying operating trends without distortion due to currency fluctuations. Constant currency results are calculated by translating the current year results at prior year average exchange rates.

Gross profit of $906.7 million was 9.2% higher than 2005. Gross profit as a percentage of revenues was 16.3% in 2006 and increased 0.3 percentage point compared to the 16.0% rate recorded in 2005. This reflected increases in the gross profit rates of the Americas – Commercial, Americas – PTSA and International - PTSA segments, partially offset by a decrease in the International – Commercial segment gross profit rate.

The improvement in the gross profit rate in the Americas - Commercial Staffing and Americas - PTSA segments was due, in part, to higher fee based income and lower workers’ compensation costs. The improvement in workers’ compensation costs resulted from both better experience on new claims in 2006 as compared to 2005, as well as adjustments to open claims from prior years. We regularly update our estimates of the ultimate cost of open workers’ compensation claims. As a result, during 2006, we reduced the estimated cost of prior year workers’ compensation claims by $7.7 million. This compares to a similar adjustment reducing prior year workers’ compensation claims by $1.7 million in 2005.

Selling, general and administrative expenses of $828.7 million were 6.8% higher than 2005. Selling, general and administrative expenses expressed as a percentage of revenues were 14.9% in 2006, a 0.1 percentage point decrease compared to the 15.0% rate in 2005. As measured18.3% (9.8% on a constant currency basis, selling, generalbasis). APAC PT revenue represented 0.5% of total Company revenue in 2007 and administrative expenses increased 6.2% compared to 2005.

The increase in selling, general and administrative expenses is due primarily to growth in compensation-related costs. In addition, information technology costs increased, reflecting the ongoing design and implementation of the PeopleSoft project, which will replace our current payroll, billing and accounts receivable systems.

Other income, net0.3% for 2006 was income of $1.5 million, compared to expense of $0.2 million in 2005. The improvement is primarily attributable to an increase in interest income related to higher U.S. interest rates earned on higher cash balances compared to 2005, combined with dividends received on our investment in Tempstaff during 2006.

The effective income tax rate on continuing operations for 2006 was 28.6%, slightly lower than the 29.6% rate in 2005.

Earnings from continuing operations were $56.8 million in 2006, compared to $37.7 million in 2005. As noted above, during the fourth quarter of 2006, we sold KSL and during the first quarter of 2007, we sold KHC. Accordingly, 2006 and 2005 results of operations were revised to remove KSL’s and KHC’s operating results from continuing operations. Earnings from discontinued operations, which include KSL’s and KHC’s operating results, as well as the gain on the sale of KSL, net of tax, totaled $6.7 million for 2006, compared to $1.6 million in 2005.

Net earnings in 2006 were $63.5 million, or a 61.7% increase compared to 2005. Diluted earnings per share in 2006 were $1.75, as compared to diluted earnings per share of $1.09 in 2005.

Americas - Commercial

Revenue from services in the Americas - Commercial segment totaled $2.9 billion for 2006, a 3.7% increase compared to the $2.8 billion reported for 2005. This reflected a 3.4% increase in average hourly bill rates and a 0.2% increase in hours worked. Fee based income totaled $19.4 million in 2006, compared to $14.9 million in 2005, an increase of 30.1%. Year-over-year Constant currency year-over-year revenue comparisons reflect increases of 8.6%11.8% in the first quarter, 6.7%28.0% in the second quarter, and 1.3%79.1% in the third quarter and a decrease of 1.0%83.1% in the fourth quarter. Americas – Commercial revenue from services represented 52.5% of total Company revenue from services for 2006 and 54.2% for 2005.

Americas - Commercial earnings from operations totaled $102.9 million for 2006 compared to earnings of $88.1 million in 2005, an increase of 16.8%. The increase in earnings from operations was primarily attributable to the 3.7% increase in revenue and a 0.5 percentage point increase in the gross profit rate.

The increase in the APAC PT gross profit rate for 2007 was principallyprimarily due to reduced workers’ compensation costs and increased fee basedgrowth in fee-based income.

As noted above, we revised our estimate of the cost of outstanding workers’ compensation claims and, accordingly, reduced expense in 2006. Of the total $7.7 million expense reduction in 2006, $7.0 million was credited to Americas - Commercial. This compares to a similar adjustment reducing expense by $1.5 million in 2005.

Selling, general and administrative expenses increased by 4.2%63.8% as compared to 2005 and, as a percentage of revenues, were 11.8% for 2006 and 2005. The increase in selling, general and administrative expenses was due primarily to the growth in salaries and related costs.

Americas - PTSA

Revenue from services in the Americas – PTSA segment for 2006 totaled $1.1 billion, an increase of 5.4% compared to 2005. This reflected an increase in hours worked of 4.2% and an increase in average billing rates of 5.9% for the professional and technical staffing businesses. Fee based income totaled $24.3 million in 2006 and $20.9 million in 2005. On a year-over-year basis, revenue increased 11.8% in the first quarter, 6.1% in the second quarter, 2.8% in the third quarter and 1.4% in the fourth quarter. Americas - PTSA revenue represented 20.0% of total Company revenue in 2006 and 20.3% in 2005. Americas - PTSA’s results for 2006 and 2005 have been revised to reflect the dispositions of KHC and KSL.

Kelly Engineering Resources, Kelly Management Services, Kelly HRfirst, HR Consulting and Kelly Law Registry were the leading performers in 2006, with each business unit reporting double digit revenue growth. The Automotive Services Group, Kelly IT Resources and Kelly Scientific Resources all reported year-over-year revenue declines in 2006.

Americas - PTSA earnings from operations for 2006 totaled $58.1 million, an increase of 19.0% from 2005 and a 0.6 percentage point improvement in the operating margin. This was the result of the 5.4% increase in revenue and a 0.8 percentage point improvement in the gross profit rate, partially offset by a 6.9% increase in selling, general and administrative expenses.

The Americas - PTSA gross profit rate increased primarily due to growth in fee based income, changes in business mix and the impact of the higher margin Ayers’ outplacement business, the New York-based career management business acquired in the second quarter of 2006. Excluding the Ayers’ outplacement business, Americas - PTSA revenue would have increased 5.0% and the Americas - PTSA gross profit rate would have increased 0.5 percentage point for 2006. Americas - PTSA also benefited from the reduction in workers’ compensation expense during 2006. Americas - PTSA’s share of the reduction in expense in 2006 was approximately $0.7 million, compared to a similar adjustment in 2005 of approximately $0.2 million.

The increase in selling, general and administrative expenses was due to the impact of the Ayers’ outplacement business and increased staffing costs related to adding permanent recruiters.

International - Commercial

Translated U.S. dollar revenue from services in International - Commercial for 2006 totaled $1.4 billion, a 13.6% increase compared to the $1.2 billion reported in 2005. This resulted from a 15.5% increase in fee based income and an increase in hours worked of 23.4%, partially offset by a decrease in the translated U.S. dollar average hourly bill rates of 8.0%. The decrease in average hourly bill rates is due to significant growth in countries with lower wage levels, such as India and Malaysia. Fee based income totaled $43.6 million in 2006 and $37.8 million in 2005. International - Commercial revenue represented 24.9% of total Company revenue in 2006 and 23.4% in 2005.

On a constant currency basis, revenue increased by 12.5%, fee based income increased 14.8% and average hourly bill rates decreased 8.8% from 2005. Constant currency year-over-year revenue comparisons reflect increases of: 15.6% in the first quarter, 12.9% in the second quarter, 12.5% in the third quarter and 9.2% in the fourth quarter.

Year-over-year constant currency revenue growth for International – Commercial was positive in all regions. Asia Pacific increased by 15.5% and Europe increased by 11.9%. The growth in Asia Pacific revenue was fueled by the Company’s operations in Australia, India and Malaysia. Branch openings and new accounts contributed to the sales growth in India. Sales in continental Europe remained strong, excluding U.K./Ireland, which experienced a 0.6% decrease on a constant currency basis.

International – Commercial earnings from operations in 2006 totaled $0.6 million, an increase of 113.6% compared to a net loss of $4.2 million in 2005 and a 0.3 percentage point improvement in the operating margin. The 13.6% increase in revenue was partially offset by a 7.3% increase in selling, general and administrative expenses, as measured in U.S. dollars.

The International – Commercial gross profit rate for 2006 decreased 0.6 percentage point from 2005. The decrease was due to growth in pan-European corporate account business, which carries a lower gross profit rate, principally in the United Kingdom, partially offset by growth in fee based income. The increase in U.S. dollar reported expenses was due primarily to the growthsignificant investments in compensation related costs.

Many of the Company’s large corporate accounts and pan-European customers have negotiated high volume global service agreements, which tend to result in lower gross profit rates than those earnedthis region, including costs associated with the Company’s small and medium size customers. However, these accounts typically also have lower administrative costs due to economies of scale, and can yield an operating margin similar to that realized with small or medium size customers. The Company’s strategy is focused on serving and growing large corporate and local accounts. As customer mix shifts to larger accounts, the Company’s average gross margins tend to decrease.new branches.

International – PTSAOCG