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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended July 3, 2005

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

Commission File Number 0-1088

KELLY SERVICES, INC.

(Exact name of Registrant as specified in its charter)

DELAWARE

38-1510762

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)


999 WEST BIG BEAVER ROAD, TROY, MICHIGAN		48084
(Address of principal executive offices)		(Zip Code)

(248) 362-4444

(Registrant’s telephone number, including area code)

No Change

(Former name, former address and former fiscal year, if changed since last report.)

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

At July 25, 2005, 32,180,154 shares of Class A and 3,473,598 shares of Class B common stock of the Registrant were outstanding.

KELLY SERVICES, INC. AND SUBSIDIARIES


				Page Number
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Statements of Earnings				3

Balance Sheets				4

Statements of Stockholders’ Equity				5

Statements of Cash Flows				6

Notes to Financial Statements				7

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition				13

Item 3. Quantitative and Qualitative Disclosures About Market Risk				19

Item 4. Controls and Procedures				19

PART II. OTHER INFORMATION AND SIGNATURES

Item 1. Legal Proceedings				20

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds				20

Item 4. Submission of Matters to a Vote of Security Holders				21

Item 6. Exhibits				21

Signatures				22

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF EARNINGS

(UNAUDITED)

(In thousands of dollars except per share data)


	13 Weeks Ended						26 Weeks Ended
	July 3, 2005			June 27, 2004 (As restated, see Note 2)			July 3, 2005			June 27, 2004 (As restated, see Note 2)
Revenue from services	$	1,311,904		$	1,224,464		$	2,561,239		$	2,383,275
Cost of services		1,097,802			1,026,382			2,143,053			2,001,837

Gross profit		214,102			198,082			418,186			381,438
Selling, general and administrative expenses		200,494			189,494			398,483			370,976

Earnings from operations		13,608			8,588			19,703			10,462
Interest expense, net		(152	)		(283	)		(187	)		(522	)

Earnings before income taxes		13,456			8,305			19,516			9,940
Income taxes		4,123			3,429			6,245			4,773

Net earnings	$	9,333		$	4,876		$	13,271		$	5,167

Earnings per share:
Basic	$	.26		$	.14		$	.37		$	.15
Diluted		.26			.14			.37			.15
Average shares outstanding (thousands):
Basic		35,597			35,057			35,566			34,969
Diluted		35,841			35,431			35,957			35,369
Dividends per share	$	.10		$	.10		$	.20		$	.20

See accompanying Notes to Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

BALANCE SHEETS

(In thousands of dollars)


	July 3, 2005			January 2, 2005
	(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and equivalents	$	69,504		$	82,554
Short-term investments		214			6,288
Trade accounts receivable, less allowances of $16,724 and $16,228, respectively		756,951			727,366
Prepaid expenses and other current assets		42,027			40,736
Deferred taxes		39,987			36,055

Total current assets		908,683			892,999
PROPERTY AND EQUIPMENT:
Land and buildings		58,270			58,236
Equipment, furniture and leasehold improvements		305,259			303,213
Accumulated depreciation		(192,368	)		(180,363	)

Net property and equipment		171,161			181,086
NONCURRENT DEFERRED TAXES		19,662			17,960
GOODWILL, NET		88,431			94,652
OTHER ASSETS		83,794			63,059

TOTAL ASSETS	$	1,271,731		$	1,249,756

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term borrowings	$	56,449		$	34,289
Accounts payable		111,076			105,685
Accrued payroll and related taxes		241,095			246,802
Accrued insurance		33,537			33,165
Income and other taxes		69,779			67,839

Total current liabilities		511,936			487,780
NONCURRENT LIABILITIES:
Accrued insurance		59,451			58,548
Accrued retirement benefits		53,988			50,892

Total noncurrent liabilities		113,439			109,440
STOCKHOLDERS’ EQUITY:
Capital stock, $1.00 par value
Class A common stock, shares issued 36,619,693 at 2005 and 2004		36,620			36,620
Class B common stock, shares issued 3,496,173 at 2005 and 2004		3,496			3,496
Treasury stock, at cost
Class A common stock, 4,452,715 shares at 2005 and 4,588,739 at 2004		(94,189	)		(97,067	)
Class B common stock, 22,575 shares at 2005 and 23,575 at 2004		(600	)		(626	)
Paid-in capital		23,137			22,530
Earnings invested in the business		669,198			663,039
Accumulated other comprehensive income		8,694			24,544

Total stockholders’ equity		646,356			652,536

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,271,731		$	1,249,756

See accompanying Notes to Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands of dollars)


	13 Weeks Ended						26 Weeks Ended
	July 3, 2005			June 27, 2004 (As restated, see Note 2)			July 3, 2005			June 27, 2004 (As restated, see Note 2)
Capital Stock
Class A common stock
Balance at beginning of period	$	36,620		$	36,620		$	36,620		$	36,619
Conversions from Class B		—			—			—			1

Balance at end of period		36,620			36,620			36,620			36,620
Class B common stock
Balance at beginning of period		3,496			3,496			3,496			3,497
Conversions to Class A		—			—			—			(1	)

Balance at end of period		3,496			3,496			3,496			3,496
Treasury Stock
Class A common stock
Balance at beginning of period		(95,702	)		(107,397	)		(97,067	)		(112,535	)
Exercise of stock options, restricted stock awards and other		1,513			2,874			2,878			8,012

Balance at end of period		(94,189	)		(104,523	)		(94,189	)		(104,523	)
Class B common stock
Balance at beginning of period		(626	)		(626	)		(626	)		(623	)
Exercise of stock options, restricted stock awards and other		26			—			26			—
Purchase of treasury stock		—			—			—			(3	)

Balance at end of period		(600	)		(626	)		(600	)		(626	)
Paid-in Capital
Balance at beginning of period		22,787			19,651			22,530			19,096
Exercise of stock options, restricted stock awards and other		350			391			607			946

Balance at end of period		23,137			20,042			23,137			20,042
Earnings Invested in the Business
Balance at beginning of period		663,423			652,671			663,039			655,871
Net earnings		9,333			4,876			13,271			5,167
Dividends		(3,558	)		(3,506	)		(7,112	)		(6,997	)

Balance at end of period		669,198			654,041			669,198			654,041
Accumulated Other Comprehensive Income
Balance at beginning of period		18,252			9,675			24,544			10,976
Foreign currency translation adjustments, net of tax		(9,558	)		(501	)		(15,592	)		(1,825	)
Unrealized gains on investments, net of tax		—			16			(258	)		39

Balance at end of period		8,694			9,190			8,694			9,190

Stockholders’ Equity at end of period	$	646,356		$	618,240		$	646,356		$	618,240

Comprehensive (Loss) Income
Net earnings	$	9,333		$	4,876		$	13,271		$	5,167
Foreign currency translation adjustments, net of tax		(9,558	)		(501	)		(15,592	)		(1,825	)
Unrealized gains on investments, net of tax		—			16			42			39
Reclassification adjustment for gains included in net earnings		—			—			(300	)		—

Comprehensive (Loss) Income	$	(225	)	$	4,391		$	(2,579	)	$	3,381

See accompanying Notes to Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands of dollars)


	26 Weeks Ended
	July 3, 2005			June 27, 2004 (As restated, see Note 2)
Cash flows from operating activities:
Net earnings	$	13,271		$	5,167
Noncash adjustments:
Depreciation and amortization		21,128			22,501
Increase in trade accounts receivable, net		(53,222	)		(72,036	)
Changes in other operating assets and liabilities		28,753			50,992

Net cash from operating activities		9,930			6,624

Cash flows from investing activities:
Capital expenditures		(12,726	)		(13,398	)
Proceeds from sales and maturities of short-term investments		1,242			330
Purchases of short-term investments		(100	)		(325	)
Investment in unconsolidated affiliate		(18,450	)		—
Increase in other assets		(8,503	)		(731	)

Net cash from investing activities		(38,537	)		(14,124	)

Cash flows from financing activities:
Increase (decrease) in short-term borrowings		7,161			(899	)
Financing to fund long-term investment in unconsolidated affiliate		18,450			—
Dividend payments		(7,112	)		(6,997	)
Stock options and other stock sales		1,745			6,944
Other financing activities		(2,428	)		(2,710	)
Purchase of treasury stock		—			(3	)

Net cash from financing activities		17,816			(3,665	)

Effect of exchange rates on cash and equivalents		(2,259	)		(207	)

Net change in cash and equivalents		(13,050	)		(11,372	)
Cash and equivalents at beginning of period		82,554			76,378

Cash and equivalents at end of period	$	69,504		$	65,006

See accompanying Notes to Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

(In thousands of dollars except share and per share items)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and notes required by generally accepted accounting principles for complete financial statements. All adjustments, including normal recurring adjustments, have been made which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year. The unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended January 2, 2005, included in the Company’s Amendment to Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on May 13, 2005 (the 2004 consolidated financial statements). Certain prior year amounts have been reclassified to conform with the current presentation.

2. Restatement and Reclassifications of Prior Year Financial Statements

The Company has corrected its accounting for operating leases to recognize scheduled rent increases on a straight-line basis over the lease term. Previously, the Company recorded rent expense as incurred. In addition, the Company has recorded allowances provided by landlords for leasehold improvements as an operating cash flow in the statement of cash flows. Previously, these amounts had been recorded as reductions of capital expenditures in the statement of cash flows.

The impact of the restatement for scheduled rent increases is a decrease in net earnings of $56 for the second quarter of 2004 and $143 for first six months of 2004. The impact on the cash flow statement, as a result of the adjustments for landlord allowances, was to increase operating cash flows and increase capital expenditures by $632 in the first six months of 2004. This adjustment did not impact net earnings, as the amortization period for leasehold improvements and the lease term were essentially the same. In addition, the Company has corrected its accounting for the intra-period allocation of income taxes. As a result, income tax expense increased by $115 for the second quarter of 2004 and $802 for the first six months of 2004. This change did not have any impact on the 2004 full year.

The restatements did not have any impact on the Company’s previously reported revenue from services or on the Company’s compliance with any financial covenant under the Company’s line of credit facility or other debt instruments.

The following is a summary of the impact of the restatement on the statement of earnings and statement of cash flows for the 13-weeks and 26-weeks ended June 27, 2004:

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (continued)

(UNAUDITED)

(In thousands of dollars except share and per share items)


	For the 13 weeks ended June 27, 2004
	As Previously Reported			Adjustments			As Restated
Statement of Earnings
Selling, general and administrative expenses	$	189,404		$	90		$	189,494
Earnings from operations		8,678			(90	)		8,588
Earnings before income taxes		8,395			(90	)		8,305
Income taxes		3,348			81			3,429
Net earnings		5,047			(171	)		4,876
Earnings per share:
Basic		0.14			0.00			0.14
Diluted		0.14			0.00			0.14

	For the 26 weeks ended June 27, 2004
	As Previously Reported			Adjustments			As Restated
Statement of Earnings
Selling, general and administrative expenses	$	370,746		$	230		$	370,976
Earnings from operations		10,692			(230	)		10,462
Earnings before income taxes		10,170			(230	)		9,940
Income taxes		4,058			715			4,773
Net earnings		6,112			(945	)		5,167
Earnings per share:
Basic		0.17			(0.02	)		0.15
Diluted		0.17			(0.02	)		0.15

Statement of Cash Flows
Net earnings		6,112			(945	)		5,167
Depreciation and amortization		22,410			91			22,501
Changes in other operating assets and liabilities		49,506			1,486			50,992
Net cash from operating activities		5,992			632			6,624
Capital expenditures		(12,766	)		(632	)		(13,398	)
Net cash from investing activities		(13,492	)		(632	)		(14,124	)

Notes 3, 5 and 7 to the Financial Statements were impacted by the restatement.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (continued)

(UNAUDITED)

(In thousands of dollars except share and per share items)

3. Segment Disclosures

The Company’s reportable segments, which are based on the Company’s method of internal reporting, are: (1) U.S. Commercial Staffing, (2) Professional, Technical and Staffing Alternatives (PTSA) and (3) International. The following table presents information about the reported revenue from services and earnings from operations of the Company for the 13-week and 26-week periods ended July 3, 2005 and June 27, 2004. Segment data presented are net of intersegment revenues. Asset information by reportable segment is not presented, since the Company does not produce such information internally.


	13 Weeks Ended						26 Weeks Ended
	2005			2004 (As restated)			2005			2004 (As restated)
Revenue from Services:
U.S. Commercial Staffing	$	602,425		$	581,364		$	1,167,939		$	1,130,694
PTSA		280,964			256,573			553,386			495,363
International		428,515			386,527			839,914			757,218

Consolidated Total	$	1,311,904		$	1,224,464		$	2,561,239		$	2,383,275

Earnings from Operations:
U.S. Commercial Staffing	$	32,772		$	29,513		$	61,959		$	53,742
PTSA		17,145			16,224			32,529			30,230
International		4,430			1,967			4,967			1,026
Corporate Expense		(40,739	)		(39,116	)		(79,752	)		(74,536	)

Consolidated Total	$	13,608		$	8,588		$	19,703		$	10,462

4. Contingencies

In November, 2003, an action was commenced in the United States Bankruptcy Court for the Southern District of New York, Enron Corp. 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 prepayment of its commercial paper is a voidable preference under the bankruptcy laws, constitutes a fraudulent conveyance and that the Company received prepayment of approximately $10 million. In June 2005, defendants’ motion to dismiss was denied. The Company intends to vigorously defend against these claims. The Company believes it has meritorious defenses to the asserted claims but it is unable to predict the outcome of the proceedings.

The Company is also subject to various legal proceedings and claims which arise in the ordinary course of its business. These legal proceedings and claims are subject to many uncertainties, the outcome of which is not predictable with assurance and it is reasonably possible that some matters could be decided unfavorably to the Company. Although the amount of the liability at July 3, 2005 with respect to these matters cannot be ascertained, the Company believes that any resulting liability will not be material to the financial condition of the Company at July 3, 2005.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (continued)

(UNAUDITED)

(In thousands of dollars except share and per share items)

5. Earnings Per Share

The reconciliations of earnings per share computations for the 13-week and 26-week periods ended July 3, 2005 and June 27, 2004 were as follows:


	13 Weeks Ended				26 Weeks Ended
	2005		2004 (As restated)		2005		2004 (As restated)
Net earnings	$	9,333	$	4,876	$	13,271	$	5,167

Determination of shares (thousands):
Weighted average common shares outstanding		35,597		35,057		35,566		34,969
Effect of dilutive securities:
Stock options		162		281		200		298
Restricted awards and other		82		93		191		102

Weighted average common shares outstanding - assuming dilution		35,841		35,431		35,957		35,369

Earnings per share - basic	$	.26	$	.14	$	.37	$	.15
Earnings per share - assuming dilution	$	.26	$	.14	$	.37	$	.15

Stock options representing 835,000 and 449,000 shares, respectively, for the quarters ended July 3, 2005 and June 27, 2004, and 396,000 and 449,000 shares, respectively, for the six months ended July 3, 2005 and June 27, 2004 were excluded from the computation of diluted earnings per share. The exercise prices of these options were greater than the average market price of the common shares and the options were therefore anti-dilutive.

6. Investment

During the first quarter of 2005, the Company made an $18 million investment to obtain a less than 5 percent interest in Tempstaff, the second largest staffing company in Japan. In connection with this investment, the Company obtained short-term financing utilizing an $18 million Yen-denominated credit facility from the Bank of Tokyo.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (continued)

(UNAUDITED)

(In thousands of dollars except share and per share items)

7. Stock-Based Compensation

The Company has an Equity Incentive Plan for key employees and accounts for this plan under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company has not recognized any expense related to employee stock options, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share for the 13-week and 26-week periods ended July 3, 2005 and June 27, 2004 if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.


	13 Weeks Ended						26 Weeks Ended
	2005			2004 (As restated)			2005			2004 (As restated)
Net earnings, as reported	$	9,333		$	4,876		$	13,271		$	5,167
Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects		676			372			1,210			835
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(1,006	)		(818	)		(1,905	)		(1,842	)

Pro forma net earnings	$	9,003		$	4,430		$	12,576		$	4,160

Earnings per share:
Basic-as reported	$	.26		$	.14		$	.37		$	.15
Basic-pro forma	$	.25		$	.13		$	.35		$	.12
Diluted-as reported	$	.26		$	.14		$	.37		$	.15
Diluted-pro forma	$	.25		$	.13		$	.35		$	.12

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (continued)

(UNAUDITED)

(In thousands of dollars except share and per share items)

8. New Accounting Pronouncement

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. Under SFAS 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption alternatives. Under the retroactive alternatives, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. According to the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin No. 107, SFAS No. 123 (revised 2004) is effective for the Company’s fiscal year 2006. We are evaluating the requirements of SFAS 123R and have not yet determined the method of adoption or the effect of adopting SFAS 123R, and we have not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123.

Item 2.

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

Executive Overview

Sales for the second quarter of 2005 grew by over $87 million, or 7 percent when compared to the prior year, representing record second quarter sales for Kelly. The U.S. economy continues to grow at a good pace, with expected growth of around 3.5% this year, based on recent projections by the chairman of the Council of Economic Advisors. Overall job growth in the U.S. remains solid. However, a greater proportion of those jobs were permanent positions, and, as a result, we saw strong growth in our fees for temporary-to-permanent conversions and permanent placements. While the increase in permanent hiring is producing significant increases in Kelly’s fee based income, it has slowed somewhat the growth of temporary staffing sales. Management believes this is normal for this phase of the business cycle.

The Bureau of Labor Statistics (“BLS”) data support this trend. Of the more than two million new jobs created in the U.S last year, temporary staffing companies accounted for over 8% of the total. During the second quarter of 2005, the BLS estimates that 542,000 new jobs were created in the U.S., but temporary staffing accounted for only approximately 4% of the total. This slowing in the rate of growth of temporary staffing is not unusual. Based on historical trends, temporary staffing typically produces larger percentage gains at the beginning of a recovery, before settling back to more normal rates of growth as the recovery matures.

Results of Operations

Second Quarter

Revenue from services in the second quarter of 2005 totaled $1.312 billion, an increase of 7.1% from the same period in 2004. This was the result of an increase in hours worked of 2.4% and an increase in average hourly bill rates of 4.9%. Revenue for the quarter increased in all three business segments: U.S. Commercial Staffing, Professional, Technical and Staffing Alternatives (PTSA) and International.

Since the beginning of 2005, the U.S. dollar strengthened in comparison to many foreign currencies, including the euro and British pound. However, the average dollar exchange rate continued to be lower compared to the comparable quarter last year. As a result, Kelly’s U.S. dollar translated revenue was higher than would have otherwise been reported. On a constant currency basis, second quarter revenue increased 5.7% as compared with the prior year. When we use the term “constant currency,” it means that we have translated financial data for 2005 into U.S. dollars using the same foreign currency exchange rates that we used to translate financial data for 2004. Management believes constant currency measurements are an important analytical tool to aid in understanding underlying operating trends without distortion due to currency fluctuations. The table below summarizes the impact of foreign exchange adjustments on second quarter revenue:


	Second Quarter Revenue
	2005		2004		% Change
	(In millions of dollars)
U.S. Commercial Staffing	$	602.4	$	581.4	3.6	%
PTSA		281.0		256.6	9.5
International - Constant Currency		411.0		386.5	6.3

Revenue from Services - Constant Currency		1,294.3		1,224.5	5.7
Foreign Currency Impact		17.5		—

Revenue from Services	$	1,311.9	$	1,224.5	7.1	%

Gross profit of $214.1 million was 8.1% higher than the gross profit of $198.1 million for the same period of the prior year. The gross profit rate for the second quarter of 2005 was 16.3%, an increase of 0.1 percentage point compared to the 16.2% rate earned for the same period in 2004. Compared to the prior year, the gross profit rates increased in the U.S. Commercial and International segments and decreased in the PTSA segment. The increase in the gross profit rate was primarily due to lower workers’ compensation costs in U.S. Commercial and higher fee based income, particularly in the International segment, partially offset by changes in business unit mix and rates in the PTSA segment.

Fee based recruitment income, which represents approximately two percent of the Company’s total revenue, 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.

Selling, general and administrative expenses totaled $200.5 million, an increase of 5.8% year over year. Selling, general and administrative expenses expressed as a percentage of revenue were 15.3% in the second quarter of 2005, a 0.2 percentage point decrease compared to the 15.5% rate in the second quarter of 2004. As measured on a constant currency basis, selling, general and administrative expenses increased by 4.3%. The increase in selling, general and administrative expenses is due primarily to the growth in compensation-related costs. In addition, information technology costs increased, reflecting the start of work on the implementation of the PeopleSoft payroll and billing project.

Earnings from operations in the second quarter of 2005 totaled $13.6 million, a 58.5% increase compared to earnings from operations of $8.6 million reported for the second quarter of 2004.

Net interest expense in the second quarter of 2005 was $152 thousand, compared to last year’s net interest expense of $283 thousand. The change is primarily attributable to higher average cash balances and higher U.S. interest rates compared to last year.

The effective income tax rate in the second quarter of 2005 was 30.6%, a reduction from last year’s rate of 41.3% for the second quarter. The lower effective tax rate is due to the passage of legislation in the fourth quarter of 2004, extending Work Opportunity Credits for two years. Although the full-year 2004 tax rate of 36% did reflect the credits, the second quarter 2004 rate of 41.3% did not, because the law was not passed until the fourth quarter of 2004. In addition, two state tax audits were successfully closed in the second quarter of 2005, which also reduced the effective tax rate. The full year effective income tax rate is expected to be approximately 37%.

Second quarter net earnings totaled $9.3 million, an increase of 91.4% as compared to last year. Diluted earnings per share for the second quarter of 2005 were $0.26, as compared to diluted earnings per share of $0.14 for the second quarter of 2004.

U.S. Commercial Staffing

Revenue from services in the U.S. Commercial Staffing segment totaled $602.4 million in the second quarter of 2005, a 3.6% increase compared to the $581.4 million reported for the same period in 2004. This reflected an increase in average hourly bill rates of 3.9%, partially offset by a decrease in hours worked of 0.4%. On a year-over-year basis, adjusted for the shift in the Easter, Memorial Day and Fourth of July holidays, revenue increased 3% in April, 4% in May and 4% in June.

U.S. Commercial Staffing revenue represented 46% of total Company revenue in the second quarter of 2005 and 47% of total Company revenue in the second quarter of 2004.

U.S. Commercial Staffing earnings from operations totaled $32.8 million in the second quarter of 2005, an increase of 11.0% compared to second quarter earnings of $29.5 million last year. This was the result of the 3.6% increase in revenue and a 0.4 percentage point increase in the gross profit rate, partially offset by a 4.0% increase in expenses. The increase in the gross profit rate was due to improved pricing related to state unemployment tax recovery, lower workers’ compensation costs and increased fee based income. The increase in selling, general and administrative expenses was primarily due to the growth in compensation-related costs. Selling, general and administrative expenses as a percentage of revenue were 9.6% in the second quarters of both 2005 and 2004.

Professional, Technical and Staffing Alternatives

Revenue from services in the Professional, Technical and Staffing Alternatives (“PTSA”) segment for the second quarter of 2005 totaled $281.0 million, an increase of 9.5% compared to the $256.6 million reported in the second quarter of 2004. This reflected an increase in hours worked of 7.2% and an increase in average billing rates of 5.3% for the professional and technical staffing businesses. However, revenues in the staffing alternatives businesses, which include staff leasing and management services, decreased by 9.4%. On a year-over-year basis adjusted for the shift in the second quarter holidays, PTSA revenue increased 10% in April, 9% in May and 9% in June. PTSA revenue represented 21% of total Company revenue in the second quarters of 2005 and 2004.

Over half of the 14 business units that make up PTSA experienced double-digit revenue growth on a year-over-year basis. Kelly Scientific Resources and Kelly Engineering Resources were the leading Professional and Technical Staffing performers in the second quarter. Kelly HRfirst continued to be the leading Staffing Alternatives unit. However, the Automotive Services Group, Kelly Law Registry, Kelly Staff Leasing and Kelly Home Care experienced revenue declines during the second quarter of 2005 as compared to the prior year. The year-over-year decline in Kelly Law Registry revenue was attributable to the completion of major projects that were on-going in 2004. The decline in Kelly Staff Leasing revenue reflected the exiting of customers with high workers’ compensation risk.

PTSA earnings from operations for the second quarter of 2005 totaled $17.1 million, an increase of 5.7% from the same period in 2004. This was the result of the 9.5% increase in revenue, partially offset by a 0.8 percentage point decrease in the gross profit rate and a 3.5% increase in selling, general and administrative expenses. The decrease in the gross profit rate was due to changes in business unit mix and rates, partially offset by growth in fee based income. The increase in selling, general and administrative expenses was due to increased salaries related to volume growth and new branch openings. Selling, general and administrative expenses as a percent of revenue were 11.3% in the second quarter of 2005 and 11.9% in the second quarter of 2004.

International

Translated U.S. dollar revenue from services in International for the second quarter of 2005 totaled $428.5 million, a 10.9% increase compared to the $386.5 million reported in the second quarter of 2004. This resulted from an increase in hours worked of 5.2%, an increase in the translated U.S. dollar average hourly bill rates of 4.9% and an increase in fee based income. On a year-over-year basis adjusted for the international holiday shifts, U.S. dollar revenue growth by month was 9% in April, 11% in May and 10% in June. International revenue represented 33% of total Company revenue in the second quarter of 2005 and 32% in the second quarter of 2004.

On a constant currency basis, revenue increased by 6.3% and average hourly bill rates increased 0.6%. The 6.3% constant currency increase in revenue reflected relatively consistent trends from the first quarter, when year-over-year constant currency revenue was up 6.8%.

Year-over-year constant currency revenue growth was positive in most regions. The Americas increased by 2%, Asia Pacific increased by 11%, and Europe increased by 7%. Within Europe, United Kingdom/Ireland revenue decreased 2% on a constant currency basis.

International earnings from operations for the second quarter of 2005 totaled $4.4 million, an improvement of $2.5 million as compared to earnings of $2.0 million for the same period in 2004. The 10.9% increase in revenue, combined with a 0.3 percentage point increase in the gross profit rate, was partially offset by a 9.5% increase in selling, general and administrative expenses, as measured in U.S. dollars.

The increase in the International gross profit rate is primarily due to increased fee based income. Fee based income showed an increase of 25.2%, as measured in constant currency. The increase in U.S. dollar reported expenses was impacted by currency rates. On a constant currency basis, second quarter expenses increased by 5.2% as compared to the prior year. Selling, general and administrative expenses as a percent of revenue were 16.4% in the second quarter of 2005, compared to 16.6% in the second quarter of 2004.

Results of Operations

Year to Date

Revenue from services totaled $2.561 billion during the first six months of 2005, an increase of 7.5% from the same period in 2004. This was the result of an increase in hours worked of 2.6% and an increase in average hourly bill rates of 5.1%. Revenue increased in each of the Company’s three business segments: U.S. Commercial Staffing, PTSA and International. On a constant currency basis, revenue from services increased by 6.1%. The table below summarizes the impact of foreign exchange adjustments on revenue for the first six months of 2005:


	June Year-to-Date Revenue
	2005		2004		% Change
	(In millions of dollars)
U.S. Commercial Staffing	$	1,167.9	$	1,130.7	3.3	%
PTSA		553.4		495.4	11.7
International - Constant Currency		806.7		757.2	6.5

Revenue from Services - Constant Currency		2,528.1		2,383.3	6.1
Foreign Currency Impact		33.2		—

Revenue from Services	$	2,561.2	$	2,383.3	7.5	%

Gross profit of $418.2 million was 9.6% higher than the first six months of 2004. Gross profit as a percentage of revenue was 16.3% in the first six months of 2005, an increase of 0.3 percentage point compared to the 16.0% rate recorded in the prior year. This reflected increases in the gross profit rates of U.S. Commercial and International, partially offset by a decrease in the gross profit rate of PTSA. The increase in the gross profit rate was due to lower workers’ compensation costs in the U.S. Commercial segment and higher fee based income, particularly in the International segment, partially offset by changes in business unit mix and rates in the PTSA segment.

Selling, general and administrative expenses of $398.5 million were 7.4% higher than last year. Selling, general and administrative expenses expressed as a percentage of revenue were 15.6% in the first six months of both 2005 and 2004. As measured on a constant currency basis, selling, general and administrative expenses increased 5.9%. The increase in selling, general and administrative expenses is due primarily to growth in compensation-related costs.

Earnings from operations were $19.7 million in the first six months of 2005, an 88.3% increase compared to earnings from operations of $10.5 million for the first six months of 2004.

Net interest expense for the first six months of 2005 was $187 thousand, compared to last year’s net interest expense of $522 thousand. The change is primarily attributable to higher average cash balances and higher U.S. interest rates compared to last year.

The effective income tax rate for the first six months of 2005 was 32.0%, as compared to last year’s 48.0% rate. The lower effective tax rate is due to the passage of legislation in the fourth quarter of 2004, extending Work Opportunity Credits for two years. Although the full-year 2004 tax rate of 36% did reflect the credits, the rate for the first six months of 2004 of 48.0% did not, because the law was not passed until the fourth quarter of 2004. In addition, we successfully resolved several tax audits in the first six months of 2005, which also reduced the effective tax rate.

Net earnings were $13.3 million, or a 156.8% increase compared to the first six months of 2004. Basic and diluted earnings per share were $0.37, an increase of 146.7% as compared to basic and diluted earnings per share of $0.15 in the first six months of 2004.

U.S. Commercial Staffing

Revenue from services in the U.S. Commercial Staffing segment totaled $1.168 billion for the first six months of 2005, a 3.3% increase compared to the $1.131 billion reported for the same period in 2004. This reflected a 3.8% increase in average hourly bill rates, partially offset by a 0.6% decrease in hours worked. U.S. Commercial Staffing revenue represented 46% of total Company revenue for the first six months of 2005 and 47% for the first six months of 2004.

U.S. Commercial Staffing earnings from operations totaled $62.0 million for the first six months of 2005, compared to earnings of $53.7 million last year, an increase of 15.3%. This was the result of the 3.3% increase in revenue and a 0.6 percentage point improvement in the gross profit rate, partially offset by a 4.4% increase in selling, general and administrative expenses. The increase in the gross profit rate was principally due to improved pricing and lower workers’ compensation costs. The increase in selling, general and administrative expenses was primarily due to the growth in salaries. Selling, general and administrative expenses as a percentage of revenue were 9.8% for the first six months of 2005 and 9.7% for the first six months of 2004.

Professional, Technical and Staffing Alternatives

Revenue from services in the PTSA segment for the first six months of 2005 totaled $553.4 million, an increase of 11.7% compared to the $495.4 million reported for the first six months of 2004. This reflected an 8.9% increase in hours worked and a 6.3% increase in average hourly bill rates in the professional and technical businesses. Revenues in the staffing alternatives businesses, which include the staff leasing and management services business units, decreased by 23.8% compared to the first six months of 2004. PTSA revenue represented 21% of total Company revenue for the first six months of 2005 and 2004.

For the first six months of 2005, nearly all PTSA business units exhibited revenue growth as compared to the same period in 2004. Kelly Scientific Resources and Kelly Engineering Resources were the leading Professional and Technical Staffing performers in the first six months of 2005. Kelly HRfirst continued to be the leading Staffing Alternatives unit. However, Automotive Services Group, Kelly Law Registry and Kelly Home Care experienced revenue declines during the first six months of 2005 as compared to the prior year. Kelly Staff Leasing revenue also declined, reflecting the exiting of customers with high workers’ compensation risk.

PTSA earnings from operations for the first six months of 2005 totaled $32.5 million and increased 7.6% from the same period in 2004. This was the result of the 11.7% increase in revenue, partially offset by a 0.5% decrease in the gross profit rate and an 8.8% increase in selling, general and administrative expenses. The decrease in the gross profit rate was primarily due to changes in business unit mix and rates, partially offset by growth in fee based income. The 8.8% increase in selling, general and administrative expenses was primarily due to increased salaries. Selling, general and administrative expenses as a percent of revenue were 11.5% for the first six months of 2005 and 11.8% for the first six months of 2004.

International

Translated U.S. dollar revenue from services in the International segment for the first six months of 2005 totaled $839.9 million, a 10.9% increase compared to the $757.2 million reported in the first six months of 2004. This resulted from an increase in hours worked of 5.5%, a 4.4% increase in the translated U.S. dollar average hourly bill rates and an increase in fee based income. International revenue represented 33% of total Company revenue in the first six months of 2005 and 32% in the first six months of 2004.

On a constant currency basis, revenue increased by 6.5% and average hourly bill rates increased by 0.3%. International earnings from operations totaled $5.0 million for the first six months of 2005, compared to earnings of $1.0 million for the same period in 2004, an improvement of $3.9 million. The 10.9% increase in revenue, combined with a 0.2 percentage point increase in the gross profit rate, partially offset a 9.6% increase in selling, general and administrative expenses, as measured in U.S. dollars.

The increase in the International gross profit rate is due primarily to increased fee-based income. The increase in U.S. dollar reported expenses is due primarily to increased salaries. On a constant currency basis, expenses increased by 5.4%. Selling, general and administrative expenses as a percent of revenue were 16.7% in the first six months of 2005, an improvement compared to 16.9% in the first six months of 2004.

Financial Condition

Kelly has financed its operations through cash generated by operating activities and available from revolving credit facilities. As highlighted in the Statements of Cash Flows, the Company’s liquidity and available capital resources are impacted by four key components: cash and equivalents, operating activities, investing activities and financing activities.

Cash and Equivalents

Cash and equivalents totaled $70 million at the end of second quarter of 2005, a decrease of $13 million from the $83 million at year-end 2004. As further described below, the Company generated $10 million of cash from operating activities, used $39 million of cash in investing activities and generated $18 million in financing activities.

Operating Activities

In the first six months of 2005, the Company generated $10 million in cash from its operating activities, as compared to generating $7 million in the first six months of 2004.

Trade accounts receivable totaled $757 million at the end of the second quarter of 2005. Global days sales outstanding at the end of the second quarter of 2005 were 53 days, a one-day improvement as compared with the end of the second quarter in the prior year.

The Company’s working capital position was $397 million at the end of the second quarter of 2005, compared to $405 million at year-end 2004. The current ratio was 1.8 at the end of the second quarter of 2005 and at year-end 2004.

Investing Activities

In the first six months of 2005, the Company used $39 million for investing activities, compared to $14 million in the first six months of 2004. Capital expenditures totaled $13 million for the first six months of 2005 and the first six months of 2004. Capital expenditures for 2005, which are primarily related to the Company’s information technology programs and branch openings, refurbishments and relocations, are expected to total between $28 and $32 million.

During the first quarter of 2005, the Company made an $18 million investment in Tempstaff, the second largest staffing company in Japan.

Financing Activities

In the first six months of 2005, the Company generated $18 million from financing activities, compared to using $4 million in the first six months of 2004.

Short-term debt totaled $56 million at the end of the second quarter of 2005, compared to $34 million at year-end 2004. At the end of the first six months of 2005, debt represented approximately 8% of total capital.

In connection with the investment in Tempstaff in the first quarter of 2005, the Company obtained short-term financing utilizing an $18 million Yen-denominated credit facility from the Bank of Tokyo.

Contractual Obligations and Commercial Commitments

The Company has no material, unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated entities.

Summary

The Company’s financial position remains strong. The Company has no long-term debt and expects to meet its cash requirements principally through cash generated from operations, available cash and equivalents and committed unused credit facilities.

Forward-Looking Statements

Certain statements contained in this document are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements include statements which are predictive in nature; which depend upon or refer to future events or conditions; or which include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or variations or negatives thereof or by similar or comparable words or phrases. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future Company actions that may be provided by management are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about the Company, and economic and market factors in the countries in which the Company does business, among other things. These statements are not guarantees of future performance, and the Company has no specific intention to update these statements.

Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal important risk factors that could cause the Company’s actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, competitive market pressures including pricing, changing market and economic conditions, material changes in demand from large corporate customers, availability of temporary workers with appropriate skills required by customers, increases in wages paid to temporary workers, liabilities for client and employee actions, foreign currency fluctuations, changes in laws and regulations (including federal, state and international tax laws), the Company’s ability to effectively implement and manage its information technology programs, and the ability of the Company to successfully expand into new markets and service lines. Certain risk factors are discussed more fully under “Risk Factors” in Part I, Item I of the Company’s Amendment to Annual Report filed on Form 10-K/A.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Kelly does not hold or invest in derivative contracts. The Company is exposed to foreign currency risk primarily due to its net investment in foreign subsidiaries, which conduct business in their local currencies. These risks are mitigated by the use of the Company’s multi-currency line of credit. This credit facility is used to borrow in local currencies, which mitigates the exchange rate risk resulting from foreign currency-denominated net investments fluctuating in relation to the U.S. dollar.

In addition, the Company is exposed to interest rate risks through its use of the multi-currency line of credit.

The Company is exposed to market risk as a result of its obligation to pay benefits under its nonqualified deferred compensation plan and its related investments in company-owned variable universal life insurance policies. The obligation to employees increases and decreases based on movements in the equity and debt markets. The investments in publicly traded mutual funds, as part of the company-owned variable universal life insurance policies, are designed to mitigate this risk with offsetting gains and losses.

Overall, the Company’s holdings and positions in market risk-sensitive instruments do not subject the Company to material risk.

Item 4.

Controls and Procedures

Based on their evaluation as of the end of the period covered by this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective.

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION AND SIGNATURES

Item 1.

Legal Proceedings

See Note 4 to the financial statements of this Quarterly Report on Form 10-Q for a discussion of current legal proceedings.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

(a) Sales of Equity Securities Not Registered Under the Securities Exchange Act of 1933

On May 17, 2005, four non-employee members of the Company’s Board of Directors purchased a total of 400 shares of the Company’s Class B shares of common stock at a price of $27.30 per share. The purchase price was equal to the average of the high and low price of the Class B shares on May 16, 2005. The total cash proceeds of $11 thousand were used to fund the Company’s working capital requirements.

On June 2, 2005, six officers of the Company purchased a total of 600 shares of the Company’s Class B shares of common stock at a price of $28.07 per share. The purchase price was equal to the average of the high and low price of the Company’s Class A shares on June 1, 2005; no Class B shares had traded since May 17, 2005. The total cash proceeds of $17 thousand were used to fund the Company’s working capital requirements.

In issuing these shares, the Company relied upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended.


Period	Total Number of Shares (or Units) Purchased		Average Price Paid per Share (or Unit)			Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs
April 4, 2005 through May 8, 2005	152	⁽¹⁾	$	26.30	⁽¹⁾	—	—
May 9, 2005 through June 5, 2005	15,556	⁽¹⁾		28.16	⁽¹⁾	—	—
June 6, 2005 through July 3, 2005	—	⁽¹⁾		—	⁽¹⁾	—	—

Total	15,708		$	28.15		—	—

⁽¹⁾

These shares were not purchased through a publicly announced plan. The shares were “repurchased” in connection with the vesting of restricted shares, where the employee satisfied his or her tax obligation by authorizing the Company to withhold the appropriate number of shares, and the Company issued to the employee the net difference between the shares due upon vesting and the withheld shares.

Item 4.

Submission of Matters to a Vote of Security Holders.

(a)

The annual meeting of stockholders of registrant was held May 4, 2005.

(b)

The nominees for directors, as listed in the Company’s proxy statement dated April 5, 2005, were elected. The directors whose terms of office continued after the meeting are also listed in the proxy statement.

(c)

A brief description and the results of the matters voted upon at the meeting follow.

(1)

Election of C. T. Camden as director:


Shares voted “For”		3,460,353
Shares voted “Withhold”		1,735

(2)

Election of D. R. Parfet as director:


Shares voted “For”		3,460,343
Shares voted “Withhold”		1,745

(3)

Election of B. J. White as director:


Shares voted “For”		3,460,353
Shares voted “Withhold”		1,735

(4)

Approval of Kelly Services, Inc. Equity Incentive Plan:


Shares voted “For”		3,240,240
Shares voted “Against”		172,745
Shares abstained from voting		1,095

(5)

Ratification of the selection of PricewaterhouseCoopers LLP as the Company’s independent auditors:


Shares voted “For”		3,460,855
Shares voted “Against”		163
Shares abstained from voting		1,070

Item 6.

Exhibits.

See Index to Exhibits required by Item 601, Regulation S-K, set forth on page 23 of this filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		KELLY SERVICES, INC.

Date: August 3, 2005
		/s/ William K. Gerber
		William K. Gerber

		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

Date: August 3, 2005
		/s/ Michael E. Debs
		Michael E. Debs

		Senior Vice President and Corporate Controller
		(Principal Accounting Officer)

INDEX TO EXHIBITS

REQUIRED BY ITEM 601,

REGULATION S-K


Exhibit No.		Description
10.6		Kelly Services, Inc. Equity Incentive Plan. (Reference is made to Appendix C to the Definitive Proxy Statement furnished in connection with the solicitation of proxies on behalf of the Board of Directors for use at the Annual Meeting of Stockholders of the Company held on May 4, 2005 filed with the Commission in April, 2005, which is incorporated by reference.)

31.1		Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended.

31.2		Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended.

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Certification

Exhibit 31.1

CERTIFICATIONS

I, Terence E. Adderley, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Kelly Services, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 3, 2005

/s/ Terence E. Adderley

Terence E. Adderley

Chairman and

Chief Executive Officer

Certification

Exhibit 31.2

CERTIFICATIONS

I, William K. Gerber, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Kelly Services, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 3, 2005

/s/ William K. Gerber

William K. Gerber

Executive Vice President and

Chief Financial Officer

Certification

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Kelly Services, Inc. (the “Company”) on Form 10-Q for the period ended July 3, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terence E. Adderley, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 3, 2005

/s/ Terence E. Adderley

Terence E. Adderley

Chairman and

Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Kelly Services, Inc. and will be retained by Kelly Services, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Certification

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Kelly Services, Inc. (the “Company”) on Form 10-Q for the period ended July 3, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William K. Gerber, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 3, 2005

/s/ William K. Gerber

William K. Gerber

Executive Vice President and

Chief Financial Officer

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