UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

OR

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

Commission File Number 0-1088

KELLY SERVICES, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		38-1510762
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

(248) 362-4444

No Change
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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes o No o

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

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

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

At October 23, 2009, 31,482,716 shares of Class A and 3,459,785 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)
Consolidated Statements of Earnings			3
Consolidated Balance Sheets			4
Consolidated Statements of Stockholders’ Equity			5
Consolidated Statements of Cash Flows			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			36
Item 4. Controls and Procedures			36
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			37
Item 1A. Risk Factors			37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 6. Exhibits			37
SIGNATURES			38
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KELLY SERVICES, INC. AND SUBSIDIARIES

(UNAUDITED)

(In millions of dollars except per share data)

		13 Weeks Ended								39 Weeks Ended
		Sept. 27, 2009				Sept. 28, 2008				Sept. 27, 2009				Sept. 28, 2008
Revenue from services		$	1,049.2			$	1,397.8			$	3,120.7			$	4,238.2
Cost of services			883.0				1,152.1				2,607.3				3,485.2
Gross profit			166.2				245.7				513.4				753.0
Selling, general and administrative expenses			193.7				260.2				593.4				739.6
Asset impairments			0.5				—				53.1				—
(Loss) earnings from operations			(28.0	)			(14.5	)			(133.1	)			13.4
Other expense, net			(1.6	)			(0.1	)			(1.3	)			—
(Loss) earnings from continuing operations before taxes			(29.6	)			(14.6	)			(134.4	)			13.4
Income taxes			(14.8	)			(3.1	)			(37.5	)			6.5
(Loss) earnings from continuing operations			(14.8	)			(11.5	)			(96.9	)			6.9
(Loss) earnings from discontinued operations, net of tax			—				(0.7	)			0.6				(0.4	)
Net (loss) earnings		$	(14.8	)		$	(12.2	)		$	(96.3	)		$	6.5
Basic (loss) earnings per share:
(Loss) earnings from continuing operations		$	(0.43	)		$	(0.33	)		$	(2.78	)		$	0.19
(Loss) earnings from discontinued operations		$	—			$	(0.02	)		$	0.02			$	(0.01	)
Net (loss) earnings		$	(0.43	)		$	(0.35	)		$	(2.76	)		$	0.19
Diluted (loss) earnings per share:
(Loss) earnings from continuing operations		$	(0.43	)		$	(0.33	)		$	(2.78	)		$	0.19
(Loss) earnings from discontinued operations		$	—			$	(0.02	)		$	0.02			$	(0.01	)
Net (loss) earnings		$	(0.43	)		$	(0.35	)		$	(2.76	)		$	0.19
Dividends per share		$	—			$	.135			$	—			$	.405
Average shares outstanding (millions):
Basic			34.9				34.8				34.9				34.8
Diluted			34.9				34.8				34.9				34.8

See accompanying Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions)

		September 27, 2009				December 28, 2008
ASSETS
CURRENT ASSETS:
Cash and equivalents		$	91.0			$	118.3
Trade accounts receivable, less allowances of $15.7 and $17.0, respectively			707.3				815.8
Prepaid expenses and other current assets			54.3				62.0
Deferred taxes			25.7				31.9
Total current assets			878.3				1,028.0
PROPERTY AND EQUIPMENT:
Land and buildings			58.6				59.2
Computer hardware and software, equipment, furniture and leasehold improvements			267.8				302.6
Accumulated depreciation			(193.9	)			(210.5	)
Net property and equipment			132.5				151.3
NONCURRENT DEFERRED TAXES			66.0				40.0
GOODWILL, NET			67.3				117.8
OTHER ASSETS			134.6				120.2
TOTAL ASSETS		$	1,278.7			$	1,457.3
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term debt		$	15.3			$	35.2
Accounts payable and accrued liabilities			201.9				244.1
Accrued payroll and related taxes			229.6				243.2
Accrued insurance			25.0				26.3
Income and other taxes			29.8				51.8
Total current liabilities			501.6				600.6
NONCURRENT LIABILITIES:
Long-term debt			66.0				80.0
Accrued insurance			43.9				46.9
Accrued retirement benefits			74.0				61.6
Other long-term liabilities			14.2				15.3
Total noncurrent liabilities			198.1				203.8
STOCKHOLDERS’ EQUITY:
Capital stock, $1.00 par value
Class A common stock, shares issued 36.6 at 2009 and 2008			36.6				36.6
Class B common stock, shares issued 3.5 at 2009 and 2008			3.5				3.5
Treasury stock, at cost
Class A common stock, 5.2 shares at 2009 and 5.3 at 2008			(107.0	)			(110.6	)
Class B common stock			(0.6	)			(0.6	)
Paid-in capital			35.9				35.8
Earnings invested in the business			579.7				676.0
Accumulated other comprehensive income			30.9				12.2
Total stockholders’ equity			579.0				652.9
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,278.7			$	1,457.3

See accompanying Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In millions of dollars)

		13 Weeks Ended								39 Weeks Ended
		Sept. 27,				Sept. 28,				Sept. 27,				Sept. 28,
		2009				2008				2009				2008
Capital Stock
Class A common stock
Balance at beginning of period		$	36.6			$	36.6			$	36.6			$	36.6
Conversions from Class B			—				—				—				—
Balance at end of period			36.6				36.6				36.6				36.6
Class B common stock
Balance at beginning of period			3.5				3.5				3.5				3.5
Conversions to Class A			—				—				—				—
Balance at end of period			3.5				3.5				3.5				3.5
Treasury Stock
Class A common stock
Balance at beginning of period			(107.2	)			(110.8	)			(110.6	)			(105.7	)
Exercise of stock options, restricted stock awards and other			0.2				0.1				3.6				3.0
Purchase of treasury stock			—				—				—				(8.0	)
Balance at end of period			(107.0	)			(110.7	)			(107.0	)			(110.7	)
Class B common stock
Balance at beginning of period			(0.6	)			(0.6	)			(0.6	)			(0.6	)
Exercise of stock options, restricted stock awards and other			—				—				—				—
Balance at end of period			(0.6	)			(0.6	)			(0.6	)			(0.6	)
Paid-in Capital
Balance at beginning of period			34.7				33.3				35.8				34.5
Exercise of stock options, restricted stock awards and other			1.2				1.2				0.1				—
Balance at end of period			35.9				34.5				35.9				34.5
Earnings Invested in the Business
Balance at beginning of period			594.5				786.6				676.0				777.3
Net (loss) earnings			(14.8	)			(12.2	)			(96.3	)			6.5
Dividends			—				(4.8	)			—				(14.2	)
Balance at end of period			579.7				769.6				579.7				769.6
Accumulated Other Comprehensive Income
Balance at beginning of period			22.7				45.4				12.2				42.6
Foreign currency translation adjustments, net of tax			7.2				(16.3	)			13.7				(8.5	)
Unrealized gains (losses) on investments, net of tax			1.0				(3.3	)			5.0				(8.3	)
Balance at end of period			30.9				25.8				30.9				25.8
Stockholders’ Equity at end of period		$	579.0			$	758.7			$	579.0			$	758.7
Comprehensive (Loss) Income
Net (loss) earnings		$	(14.8	)		$	(12.2	)		$	(96.3	)		$	6.5
Foreign currency translation adjustments, net of tax			7.2				(16.3	)			13.7				(8.5	)
Unrealized gains (losses) on investments, net of tax			1.0				(3.3	)			5.0				(8.3	)
Comprehensive Loss		$	(6.6	)		$	(31.8	)		$	(77.6	)		$	(10.3	)

See accompanying Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions of dollars)

		39 Weeks Ended
		Sept. 27,				Sept. 28,
		2009				2008
Cash flows from operating activities:
Net (loss) earnings		$	(96.3	)		$	6.5
Noncash adjustments:
Impairment of assets			53.1				—
Depreciation and amortization			30.9				34.1
Provision for bad debts			2.7				4.8
Stock-based compensation			3.6				3.0
Other, net			(4.0	)			1.8
Changes in operating assets and liabilities			50.7				36.2
Net cash from operating activities			40.7				86.4
Cash flows from investing activities:
Capital expenditures			(7.9	)			(23.5	)
Acquisition of companies, net of cash received			(7.5	)			(32.4	)
Other investing activities			(2.9	)			(0.4	)
Net cash from investing activities			(18.3	)			(56.3	)
Cash flows from financing activities:
Net change in revolving line of credit			(11.9	)			12.5
Repayment of debt			(22.9	)			—
Dividend payments			—				(14.2	)
Purchase of treasury stock			—				(8.0	)
Other financing activities			(18.5	)			1.1
Net cash from financing activities			(53.3	)			(8.6	)
Effect of exchange rates on cash and equivalents			3.6				(0.7	)
Net change in cash and equivalents			(27.3	)			20.8
Cash and equivalents at beginning of period			118.3				92.8
Cash and equivalents at end of period		$	91.0			$	113.6

See accompanying Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Kelly Services, Inc. (the “Company,” “Kelly,” “we” or “us”) 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 statement 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 December 28, 2008, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 11, 2009 (the 2008 consolidated financial statements).

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform with the current presentation.

We have evaluated the consolidated financial statements for subsequent events through the date of the filing of this Form 10-Q.

2. Fair Value Measurements

The carrying value of cash and equivalents, accounts receivable, accounts payable, accrued liabilities and short-term borrowings approximate their fair values due to the short-term maturities of these assets and liabilities. As of September 27, 2009, the carrying value of long-term debt (see Note 6), approximates the fair value.

The following tables present assets measured at fair value on a recurring basis as of September 27, 2009 and December 28, 2008 on the consolidated balance sheet by fair value hierarchy level, as described below.

		Fair Value Measurements on a Recurring Basis
		As of September 27, 2009
Description		Total				Level 1				Level 2				Level 3
		(In millions of dollars)
Money market funds		$	2.9			$	2.9			$	—			$	—
Available-for-sale investment			27.4				27.4				—				—
Total assets at fair value		$	30.3			$	30.3			$	—			$	—

		Fair Value Measurements on a Recurring Basis
		As of December 28, 2008
Description		Total				Level 1				Level 2				Level 3
		(In millions of dollars)
Money market funds		$	28.6			$	28.6			$	—			$	—
Available-for-sale investment			22.5				22.5				—				—
Total assets at fair value		$	51.1			$	51.1			$	—			$	—

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

2. Fair Value Measurements (continued)

Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities. Level 2 measurements include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3 measurements include significant unobservable inputs.

Money market funds as of September 27, 2009 represent investments in money market accounts, of which $1.8 million is included in cash and equivalents and $1.1 million of restricted cash is included in prepaid expenses and other current assets on the consolidated balance sheet. Money market funds as of December 28, 2008 represent investments in money market accounts, of which $27.3 million is included in cash and equivalents and $1.3 million of restricted cash is included in prepaid expenses and other current assets on the consolidated balance sheet. The valuations were based on quoted market prices of those accounts as of the respective period end.

Available-for-sale investment represents the Company’s investment in Temp Holdings Co., Ltd. (“Temp Holdings”) and is included in other assets on the consolidated balance sheet. The valuation is based on the quoted market price of Temp Holdings stock on the Tokyo Stock Exchange as of the period end. During the fourth quarter of 2008, the Company recorded in the consolidated statement of earnings an other-than-temporary impairment of $18.7 million related to the investment in Temp Holdings. The unrealized gain of $1.0 million pretax and net of tax for the quarter ended September 27, 2009 and loss of $5.8 million ($3.3 million net of tax) for the quarter ended September 28, 2008 was recorded in other comprehensive income, a component of stockholders’ equity. The unrealized gain of $5.0 million pretax and net of tax for the 39 weeks ended September 27, 2009 and loss of $14.3 million ($8.3 million net of tax) for the 39 weeks ended September 28, 2008 was recorded in other comprehensive income.

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis, such as when there is evidence of impairment. The following table presents assets carried on the consolidated balance sheet by fair value hierarchy level described above as of September 27, 2009, for which a nonrecurring change in fair value has been recorded during the third quarter and first nine months of 2009.

																		Total Gains (Losses)
		Fair Value Measurements on a Nonrecurring Basis																Third				September
		As of September 27, 2009																Quarter				Year to Date
Description		Total				Level 1				Level 2				Level 3				2009				2009
		(In millions of dollars)																(In millions of dollars)
Goodwill		$	67.3			$	—			$	—			$	67.3			$	—			$	(50.5	)
Long-lived assets and intangible assets			146.8				—				—				146.8				(0.5	)			(2.6	)

Due to significantly worse than anticipated economic conditions and the impacts to our business in the second quarter of 2009, we revised our internal forecasts for all of our segments, which we deemed to be a triggering event for purposes of assessing goodwill for impairment. Accordingly, goodwill at all of our reporting units was tested for impairment in the second quarter of 2009. The Company’s reporting units are the same as its reportable segments.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

2. Fair Value Measurements (continued)

The Company primarily used a discounted cash flow methodology to determine the estimated fair value of its reporting units. We also considered other valuation techniques, such as the market approach. We determined that the estimated fair value of our Americas Commercial, APAC Commercial and EMEA PT reporting units were less than their carrying value. As a result, we performed additional impairment testing to determine the implied fair value of goodwill for these reporting units. The implied fair value of the goodwill was less than the carrying value of the goodwill in each of those reporting units. As a result, we recorded a goodwill impairment loss of $50.5 million, of which $16.4 million is related to the Americas Commercial reporting unit, $12.1 million is related to the APAC Commercial reporting unit and $22.0 million is related to the EMEA PT reporting unit (See Note 5). This expense was recorded in the asset impairments line on the consolidated statement of earnings. The estimated fair value of all other reporting units exceeded their carrying value.

Our analysis used significant assumptions by segment, including: expected future revenue and expense growth rates, profit margins, cost of capital, discount rate and forecasted capital expenditures. Our projections assumed that revenue remained relatively flat in the near term, followed by a recovery and long-term modest growth. Assumptions and estimates about future cash flows and discount rates are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts.

Although we believe the assumptions and estimates we made are reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results. Different assumptions of the anticipated future results and growth from these businesses could result in an impairment charge of our remaining goodwill balance of $67.3 million. Such a charge would decrease operating income and result in lower asset values on our consolidated balance sheet. For example, a continued worsening of the economy or assumed growth rate reduced by half for the next two years could result in the estimated fair value of the OCG segment falling below its book value.

Additionally, we evaluate long-lived assets, including intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When estimated undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value, determined by estimated future discounted cash flows. The Company’s estimates as of June 28, 2009 resulted in a $2.1 million reduction in the carrying value of long-lived assets and intangible assets in Japan. Additionally, the Company’s estimates as of September 27, 2009 resulted in a $0.5 million reduction in the carrying value of long-lived assets and intangible assets in Europe.

3. Acquisitions

During the first nine months of 2009, the Company made payments as follows: $5.7 million earnout payment related to the 2007 acquisition of access AG, $1.0 million related to the 2007 acquisition of CGR/seven LLC, $0.6 million earnout payment related to the 2006 acquisition of The Ayers Group and $0.2 million earnout payment related to the 2008 acquisition of Toner Graham. All of the above payments were accrued in the previous year.

During the first nine months of 2008, the Company made net cash payments as follows: $12.8 million related to the acquisition of the Portuguese subsidiaries of Randstad Holding N.V., $9.0 million related to the acquisition of Toner Graham, $7.6 million related primarily to the acquisition of access AG and a $2.0 million earnout payment and $1.0 million acquisition payment related to the acquisition of CGR/seven LLC.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

4. Restructuring

On January 21, 2009, the Chief Executive Officer of Kelly Services, Inc. authorized a restructuring plan for our United Kingdom (“Kelly U.K.”) operations. The plan was the result of management’s strategic review of the U.K. operations which identified under-performing branch locations and the opportunity for additional operational cost savings.

On March 13, 2009, the Company sold 31, or nearly half, of the commercial staffing branches scheduled for closure in the U.K. to Hexagon Staffing Solutions Limited, trading as Interaction Recruitment (“Interaction Recruitment”). As part of this transaction, we incurred $3.1 million in related expenses.

As of September 27, 2009, Kelly U.K. has closed 11 of the remaining 16 branches scheduled for closure. Total restructuring charges associated with these actions for the 13 and 39 weeks ended September 27, 2009 were $0.7 million and $8.5 million, respectively, including the $3.1 million related to the Interaction Recruitment transaction. These charges were reported as a component of selling, general and administrative expenses in the EMEA Commercial segment. Cash expenditures related to the restructuring program totaled $1.2 million and $5.9 million, respectively, for the 13 and 39 weeks ended September 27, 2009. We expect to incur approximately $1 million to $2 million of additional facility and other exit costs in the fourth quarter of 2009. Total pre-tax charges related to the U.K. restructuring program, which include facility exit costs, the payment to Interaction Recruitment and employee termination costs, are expected to total approximately $11 million to $12 million.

Following is a summary of the Company’s balance sheet accrual related to the facility exit costs (in millions of dollars):

Balance at beginning of year		$	1.5
Additions charged to operations			5.4
Reductions for cash payments			(2.8	)
Balance at March 29, 2009			4.1
Additions charged to operations			2.4
Reductions for cash payments			(1.9	)
Translation adjustment			0.7
Balance at June 28, 2009			5.3
Additions charged to operations			0.7
Reductions for cash payments			(1.2	)
Translation adjustment			(0.1	)
Balance at September 27, 2009		$	4.7

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

5. Goodwill

The changes in the net carrying amount of goodwill and accumulated impairment losses for the 39 weeks ended September 27, 2009 were as follows:

		Goodwill, Net												Accumulated Impairment Losses
		Balance				Impairment				Balance				Balance				Impairment				Balance
		as of				Losses				as of				as of				Losses				as of
		Dec. 28, 2008				(Note 2)				Sept. 27, 2009				Dec. 28, 2008				(Note 2)				Sept. 27, 2009
		(In millions of dollars)												(In millions of dollars)
Americas
Americas Commercial		$	16.4			$	(16.4	)		$	—			$	—			$	(16.4	)		$	(16.4	)
Americas PT			39.2				—				39.2				—				—				—
Total Americas			55.6				(16.4	)			39.2				—				(16.4	)			(16.4	)
EMEA
EMEA Commercial			—				—				—				(50.4	)			—				(50.4	)
EMEA PT			22.0				(22.0	)			—				—				(22.0	)			(22.0	)
Total EMEA			22.0				(22.0	)			—				(50.4	)			(22.0	)			(72.4	)
APAC
APAC Commercial			12.1				(12.1	)			—				—				(12.1	)			(12.1	)
APAC PT			1.8				—				1.8				—				—				—
Total APAC			13.9				(12.1	)			1.8				—				(12.1	)			(12.1	)
OCG			26.3				—				26.3				—				—				—
Consolidated Total		$	117.8			$	(50.5	)		$	67.3			$	(50.4	)		$	(50.5	)		$	(100.9	)

Goodwill excluding impairment losses as of December 28, 2008 and September 27, 2009 was $168.2 million.

6. Debt

As of September 27, 2009, the Company had a $150 million committed revolving credit facility, a 5.5 billion yen-denominated amortizing term loan facility, and a 9.0 million euro and 5.0 million British pound sterling term loan facility.

The facilities listed above contained certain financial covenants, including a minimum cumulative level of earnings before interest, taxes, depreciation and amortization (“EBITDA”). As of June 28, 2009, we did not meet the requirement for a minimum cumulative EBITDA of $5 million for the last twelve months. The Company’s lenders approved waivers of this requirement. There were no borrowings against the $150 million facility as of September 27, 2009.

On September 28, 2009, the Company entered into an agreement with its lenders for a new $90 million revolving credit facility. The new facility is secured by the assets of the Company and has a three-year term, maturing on September 28, 2012. This facility replaced the $150 million facility, which was canceled upon mutual agreement between the lenders and the Company. At the same time, the Company amended its term loans to conform to the pricing, terms, and conditions of the revolver. The maturity dates of the term loans remained unchanged.

Interest and other charges under the new and revised agreements vary based on the Company’s ratio of total indebtedness to the sum of net worth and total indebtedness. As of September 28, 2009, the loans carry an all-in spread of 350 basis points over the London InterBank Offering Rate.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

6. Debt (continued)

The new agreements also contain modified financial covenants and certain restrictions that are described below.

•

As long as any loan is outstanding under the facility, the Company must maintain an EBITDA level for the last twelve months of not less than negative $30 million as of the end of Q3 2009 and Q4 2009, negative $20 million as of the end of Q1 2010 and negative $7.5 million as of the end of Q2 2010. This covenant expires after Q2 2010.

•

The Company must not allow its ratio of EBITDA to interest expense (“Interest Coverage Ratio”) for the last twelve months to be below 1.5 to 1.0 as of the end of Q3 2010, 3.0 to 1.0 as of the end of Q4 2010, and 3.5 to 1.0 as of the end of Q1 2011 and thereafter.

•

The Company must keep its ratio of total indebtedness to the sum of net worth and total indebtedness below 0.4 to 1.0 at all times.

•

Dividends, stock buybacks and similar transactions are restricted when the Interest Coverage Ratio is less than 3.0 to 1.0. When the Interest Coverage Ratio is above 3.0 to 1.0, the Company may pay up to $20 million annually, and when the Interest Coverage Ratio is above 5.0 to 1.0, the Company may pay up to $30 million annually.

•

The Company must adhere to other operating restrictions relating to the conduct of business, such as certain limitations on asset sales and the type and scope of investments.

Certain cash and non-cash charges that are non-recurring in nature are excluded from EBITDA.

7. Earnings Per Share

In June 2008, the Financial Accounting Standards Board (“FASB”) issued guidance which clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities and, therefore, included in the calculation of earnings per share using the two-class method. This guidance was effective beginning with the first quarter of 2009, and all prior period earnings per share data presented was adjusted retrospectively to conform with the provisions of this guidance. The impact of adopting the provisions of this guidance was to lower basic and diluted earnings per share on income from continuing operations for the 39 weeks ended September 28, 2008 by $0.01.

The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. Under this method, earnings from continuing operations (or net earnings) is reduced by the amount of dividends declared, and the remaining undistributed earnings is allocated to common stock and participating securities based on the proportion of each class’s weighted average shares outstanding to the total weighted average shares outstanding. The calculation of diluted earnings per share includes the effect of potential common shares outstanding in the average weighted shares outstanding.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

7. Earnings Per Share (continued)

The reconciliation of basic earnings per share on common stock for the 13 and 39 weeks ended September 28, 2008 was as follows:

		13 Weeks				39 Weeks
		Ended 2008				Ended 2008
		(In millions of dollars
		except per share data)
(Loss) earnings from continuing operations		$	(11.5	)		$	6.9
Less: Earnings allocated to participating securities			—				(0.1	)
(Loss) earnings from continuing operations available to common shareholders		$	(11.5	)		$	6.8
Loss from discontinued operations		$	(0.7	)		$	(0.4	)
Less: Loss allocated to participating securities			—				—
Loss from discontinued operations available to common shareholders		$	(0.7	)		$	(0.4	)
Net (loss) earnings		$	(12.2	)		$	6.5
Less: Earnings allocated to participating securities			—				(0.1	)
Net (loss) earnings available to common shareholders		$	(12.2	)		$	6.4
Basic (loss) earnings per share on common stock:
(Loss) earnings from continuing operations		$	(0.33	)		$	0.19
Loss from discontinued operations		$	(0.02	)		$	(0.01	)
Net (loss) earnings		$	(0.35	)		$	0.19
Average common shares outstanding (millions)			34.8				34.8

Due to the fact that there were no potentially dilutive common shares outstanding during the period, the computations of basic and diluted earnings per share on common stock are the same for both 13-week and 39-week periods ended September 27, 2009 and September 28, 2008. Stock options representing 0.9 million and 1.0 million shares, respectively, for the 13 weeks ended September 27, 2009 and September 28, 2008 and 0.9 million and 1.1 million shares, respectively, for the 39 weeks ended September 27, 2009 and September 28, 2008 were excluded from the computation of diluted (loss) earnings per share due to their anti-dilutive effect.

In connection with the $50.0 million Class A share repurchase program authorized by the board of directors in August, 2007, the Company repurchased 0.4 million shares for $8.0 million during the first quarter of 2008. No shares were repurchased during 2009 or second and third quarters of 2008. Share repurchases totaled $42.7 million under the program, which expired in August, 2009.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

8. Other Expense, Net

Included in other expense, net are the following:

		13 Weeks Ended								39 Weeks Ended
		2009				2008				2009				2008
		(In millions of dollars)								(In millions of dollars)
Interest income		$	0.3			$	0.9			$	1.2			$	2.8
Interest expense			(1.0	)			(1.0	)			(2.4	)			(3.0	)
Dividend income			—				—				0.3				0.3
Foreign exchange losses			(1.1	)			—				(0.8	)			—
Other			0.2				—				0.4				(0.1	)
Other expense, net		$	(1.6	)		$	(0.1	)		$	(1.3	)		$	(0.0	)

9. Contingencies

The Company is subject to various legal proceedings and claims which arise in the ordinary course of its business, typically employment discrimination and wage and hour matters. These legal proceedings and claims are subject to many uncertainties, the outcome of which is not predictable. It is reasonably possible that some matters could be decided unfavorably to the Company and, if so, could have a material impact to our consolidated financial statements. The Company’s exposure is most significant in matters involving alleged violations of state wage and hour laws. Certain legal proceedings seek class action status; these matters individually and in the aggregate seek compensatory, statutory and/or punitive damages. Disclosure of the most likely outcomes of individual cases and significant assumptions made in estimating related reserves are likely to have adverse consequences to the Company including, by way of example, the possibility that the disclosures themselves constitute admissible evidence in a trial and the potential to set a floor in settlement negotiations.

During the third quarter of 2008, several matters reached a stage in the litigation process that caused the Company to reassess its litigation risk and establish reserves which, in the aggregate, then resulted in a charge of $23.5 million. The Company has reached negotiated settlements in the two most significant of these cases; final court approval of these two settlements is expected during the fourth quarter of 2009; an additional reserve in the amount of $4.3 million was established in the third quarter of 2009 in anticipation of the final orders.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

10. Segment Disclosures

The Company’s segments are based on the organizational structure for which financial results are regularly evaluated by the Company’s chief operating decision maker to determine resource allocation and assess performance. Each reportable segment is managed by its own management team and reports to executive management. The Company’s seven reporting segments are: (1) Americas Commercial, (2) Americas Professional and Technical (“Americas PT”), (3) Europe, Middle East and Africa Commercial (“EMEA Commercial”), (4) Europe, Middle East and Africa Professional and Technical (“EMEA PT”), (5) Asia Pacific Commercial (“APAC Commercial”), (6) Asia Pacific Professional and Technical (“APAC PT”) and (7) Outsourcing and Consulting Group (“OCG”).

The Commercial business segments within the Americas, EMEA and APAC regions represent traditional office services, contact-center staffing, marketing, electronic assembly, light industrial and substitute teachers. The PT segments encompass a wide range of highly skilled temporary employees, including scientists, financial professionals, attorneys, engineers, IT specialists and healthcare workers. OCG includes recruitment process outsourcing, contingent workforce outsourcing, business process outsourcing, executive placement and career transition/outplacement services. Corporate expenses that directly support the operating units have been allocated to the seven segments. Included in corporate expenses in the 13 and 39 weeks ended September 27, 2009 is $0.5 million and $53.1 million, respectively, related to asset impairment charges (See Notes 2 and 5).

The following table presents information about the reported revenue from services and earnings from operations of the Company for the 13 and 39 weeks ended September 27, 2009 and September 28, 2008. Effective with the first quarter of 2009, segment data has been revised to include the effect of intersegment revenues. Prior periods have been reclassified to conform with the current presentation. Asset information by reportable segment is not presented, since the Company does not produce such information internally, nor does it use such data to manage its business.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

10. Segment Disclosures (continued)

		13 Weeks Ended								39 Weeks Ended
		2009				2008				2009				2008
		(In millions of dollars)								(In millions of dollars)
Revenue from Services:
Americas Commercial		$	467.5			$	621.6			$	1,422.9			$	1,921.1
Americas PT			192.1				234.8				584.3				718.9
Total Americas Commercial and PT			659.6				856.4				2,007.2				2,640.0
EMEA Commercial			228.0				353.6				656.3				1,027.2
EMEA PT			36.4				44.0				102.3				134.1
Total EMEA Commercial and PT			264.4				397.6				758.6				1,161.3
APAC Commercial			71.2				84.9				201.9				262.5
APAC PT			6.5				9.2				18.2				27.1
Total APAC Commercial and PT			77.7				94.1				220.1				289.6
OCG			52.9				55.9				151.7				164.9
Less: Intersegment revenue			(5.4	)			(6.2	)			(16.9	)			(17.6	)
Consolidated Total		$	1,049.2			$	1,397.8			$	3,120.7			$	4,238.2
(Loss) Earnings from Operations:
Americas Commercial		$	(0.6	)		$	11.9			$	1.9			$	53.8
Americas PT			4.9				10.2				16.8				38.7
Total Americas Commercial and PT			4.3				22.1				18.7				92.5
EMEA Commercial			(5.6	)			4.0				(23.0	)			3.7
EMEA PT			(0.1	)			0.4				(2.0	)			2.8
Total EMEA Commercial and PT			(5.7	)			4.4				(25.0	)			6.5
APAC Commercial			(1.2	)			0.2				(3.7	)			0.7
APAC PT			(0.3	)			0.1				(1.0	)			(0.2	)
Total APAC Commercial and PT			(1.5	)			0.3				(4.7	)			0.5
OCG			(3.7	)			(0.1	)			(8.1	)			2.4
Corporate Expense (including asset impairments)			(21.4	)			(41.2	)			(114.0	)			(88.5	)
Consolidated Total		$	(28.0	)		$	(14.5	)		$	(133.1	)		$	13.4

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

11. New Accounting Pronouncements

In June 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-01, “Statement of Financial Accounting Standard No. 168 — The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States (the GAAP hierarchy). This statement was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this standard, which was effective for the quarter ended September 27, 2009, changed how we reference various elements of GAAP when preparing our financial statement disclosures, but had no impact on the Company’s consolidated financial statements.

In August 2009, the FASB issued ASU No. 2009-05, “Measuring Liabilities at Fair Value”. This update amends Subtopic 820-10, “Fair Value Measurements and Disclosures — Overall” by providing clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value by applying a valuation technique consistent with the principles of Topic 820. This guidance is effective for the first reporting period (including interim periods) beginning after issuance. Therefore, it will be effective for our reporting period ended January 3, 2010 and is not expected to have a significant effect on the Company’s consolidated financial statements.

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

Executive Overview

During 2009, the rate of job loss that began with the recession in December, 2007 has gradually decelerated, and August and September posted the fewest number of jobs lost of the year. Within the temporary staffing industry, approximately 14,000 jobs were lost during the third quarter, compared to an average of 140,000 in each of the preceding six quarters. September marked one of the smallest month-over-month declines in temporary jobs lost since the recession began.

While we are encouraged by this steady, sequential improvement, the job market remains difficult, and the global recession has continued to adversely affect Kelly’s quarterly financial performance. Permanent placement and temporary-to-permanent conversion fees declined year over year in the third quarter. This decline, coupled with shifts in business mix, served to negatively impact our profit margins for the third quarter. For the third quarter of 2009, Kelly reported a net loss from continuing operations of $0.43 per diluted share, compared to a net loss of $0.33 per diluted share in the third quarter of 2008.

Yet, in the face of those challenges, we can report significant progress in reducing operating costs, preserving customer relationships and pursuing a strategic plan aimed at building long-term value for our stakeholders. During the third quarter we:

•

Recorded positive earnings in our Americas PT segment,

•

Effectively controlled expenses: year-over-year selling, general and administrative expenses are down almost $70 million for the third quarter and almost $150 million year to date,

•

Continued to maintain a strong balance sheet and cash position, and

•

Renegotiated our revolving credit facility, effective September 28, 2009.

Going forward, we will continue to carefully monitor expenses and guard our ability to serve customers. Kelly remains committed to providing a broad array of staffing, consulting, placement and talent-management services that help customers compete successfully in today’s marketplace.

Results of Operations
Third Quarter

Revenue from services in the third quarter of 2009 totaled $1.05 billion, a decrease of 24.9% from the same period in 2008. This was the result of a decrease in hours worked of 21.6% combined with a decrease in average hourly bill rates of 5.1% (a decrease of 1.4% on a constant currency basis). Fee-based income, which is included in revenue from services, totaled $20.5 million, or 2.0% of total revenue, for the third quarter of 2009, a decrease of 48.2% as compared to $39.6 million in the third quarter of 2008. Revenue for the quarter decreased in all seven business segments, reflecting the global economic slowdown.

Compared to the third quarter of 2008, the U.S. dollar was stronger against many foreign currencies, including the euro, British pound, Australian dollar and Canadian dollar. As a result, our consolidated U.S. dollar translated revenue was lower than would have otherwise been reported. On a constant currency basis, third quarter revenue decreased 22.4% as compared with the prior year. When we use the term “constant currency,” it means that we have translated financial data for 2009 into U.S. dollars using the same foreign currency exchange rates that we used to translate financial data for 2008. 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 third quarter revenue:

		Third Quarter Revenue
		2009				2008				% Change
		(In millions of dollars)
Revenue from Services — Constant Currency:
Americas Commercial		$	474.7			$	621.6				(23.6	)%
Americas PT			192.3				234.8				(18.1	)
Total Americas Commercial and PT — Constant Currency			667.0				856.4				(22.1	)
EMEA Commercial			249.2				353.6				(29.5	)
EMEA PT			39.3				44.0				(10.7	)
Total EMEA Commercial and PT — Constant Currency			288.5				397.6				(27.4	)
APAC Commercial			74.7				84.9				(12.0	)
APAC PT			6.6				9.2				(28.0	)
Total APAC Commercial and PT — Constant Currency			81.3				94.1				(13.6	)
OCG — Constant Currency			53.4				55.9				(4.4	)
Less: Intersegment revenue			(5.3	)			(6.2	)			(14.2	)
Total Revenue from Services — Constant Currency			1,084.9				1,397.8				(22.4	)
Foreign Currency Impact			(35.7	)
Revenue from Services		$	1,049.2			$	1,397.8				(24.9	)%

Gross profit of $166.2 million was 32.4% lower than the gross profit of $245.7 million for the same period of the prior year. The gross profit rate for the third quarter of 2009 was 15.8%, versus 17.6% for the third quarter of 2008. Compared to the prior year, the gross profit rate decreased in all business segments. The decrease in the gross profit rate is primarily due to decreases in fee-based income and changes in business and customer mix. Our average mark-up has been impacted by shifts to a higher proportion of light industrial business compared to clerical, and to large corporate customers compared to retail.

Fee-based income has a significant impact on gross profit rates. There are very low direct costs of services associated with fee-based income. Therefore, increases or decreases in fee-based income can have a disproportionate impact on gross profit rates.

Selling, general and administrative (“SG&A”) expenses totaled $193.7 million, a year-over-year decrease of $66.5 million, or 25.6% (23.4% on a constant currency basis). Included in SG&A expenses is a pretax charge of $4.3 million for litigation expenses in the third quarter of 2009 and $22.5 million in the third quarter of 2008. Details of the decrease in SG&A expenses in the third quarter of 2009 are estimated to be as follows (in millions of dollars):

Structural changes		$	31
Litigation expenses			18
Compensation changes			7
Other discretionary savings			8
Foreign currency effect			6
Severance / lease terminations			(3	)
Acquisitions / investments			(1	)
Total expense decrease		$	66

Structural changes represent actions we have taken around the world during the last 15 months to reduce expenses, including a reduction of approximately 1,600 full-time employees and the closing, sale or consolidation of approximately 130 branches. Compensation and other discretionary savings represent the impact of expense-reduction initiatives implemented during the first quarter, including the suspension of headquarters and field-based incentive compensation and retirement matching contribution, along with a reduction in discretionary spending on travel and general expenses. These savings were partially offset by severance and lease termination costs, including expenses related to restructuring actions in the U.K. (see Restructuring Note 4), and incremental costs related to prior year’s acquisitions and investments. Severance and lease termination costs incurred during the last 15 months, including those related to the U.K. restructuring action, are estimated to be $23 million ($4 million estimated for the third quarter of 2009).

During the third quarter of 2009, asset impairment charges of $0.5 million were also recorded. We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When estimated undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value, determined by estimated future discounted cash flows. The Company’s estimates as of September 27, 2009 resulted in a $0.5 million reduction in the carrying value of long-lived assets and intangible assets in Europe.

As a result of the above, we reported a loss from operations in the third quarter of 2009 totaling $28.0 million, compared to $14.5 million reported for the third quarter of 2008.

Income tax benefit on continuing operations for the third quarter of 2009 was $14.8 million, compared to $3.1 million for the third quarter of 2008. The third quarter of 2009 was positively impacted by nontaxable income from the cash surrender value of life insurance policies used to fund the Company’s deferred compensation plan, and by tax benefits associated with worthless stock deductions for tax reporting purposes for certain foreign subsidiaries. The Company incurred tax losses through the first nine months of 2009 in the United States and certain foreign countries. Continued tax losses in these jurisdictions could result in recording a valuation allowance against a significant portion of the Company’s deferred tax assets.

Loss from continuing operations was $14.8 million in the third quarter of 2009, compared to $11.5 million in the third quarter of 2008. Included in the loss from continuing operations in 2009 was $2.7 million, net of tax, related to litigation expenses, $3 million, net of tax, for estimated costs associated with other expense reduction initiatives (including the $0.7 million related to the U.K. restructuring action) and $0.5 million, net of tax, related to asset impairments. Included in the loss from continuing operations in 2008 was $13.9 million, net of tax, of litigation expenses.

Loss from discontinued operations, which include the operating results of Kelly Home Care and Kelly Staff Leasing, business units which were sold in previous years, totaled $0.7 million in the third quarter of 2008. This amount primarily represents litigation expenses booked during the third quarter of 2008. No adjustments to discontinued operations were recorded in the third quarter of 2009.

Third quarter net loss for 2009 totaled $14.8 million, compared to $12.2 million last year. Diluted loss from continuing operations per share for the third quarter of 2009 was $0.43, as compared to $0.33 for the third quarter of 2008.

Effective with the first quarter of 2009, we adopted the provisions of Financial Accounting Standards Board guidance which clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities and, therefore, included in the calculation of earnings per share using the two-class method in accordance with generally accepted accounting principles. Accordingly, all prior period earnings per share data presented was adjusted retrospectively to conform with the provisions of this guidance. Adopting these provisions had no effect on previously reported basic or diluted earnings per share for the quarter ended September 28, 2008.

Americas Commercial

		Third Quarter
														Constant
														Currency
		2009				2008				Change				Change
		(In millions of dollars)
Revenue from Services		$	467.5			$	621.6				(24.8	)%			(23.6	)%
Fee-based income			1.7				4.3				(60.3	)			(59.3	)
Gross profit			67.2				95.2				(29.4	)			(28.4	)
SG&A expenses			67.8				83.3				(18.7	)			(17.7	)
Earnings from Operations			(0.6	)			11.9				(104.8	)
Gross profit rate			14.4	%			15.3	%		(0.9		) pts.
Expense rates:
% of revenue			14.5				13.4				1.1
% of gross profit			100.8				87.6				13.2
Operating margin			(0.1	)			1.9				(2.0	)

The change in Americas Commercial revenue from services reflected a decrease in hours worked of 22.9%, combined with a decrease in average hourly bill rates of 2.1% (0.5% on a constant currency basis). On a year-over-year basis, constant currency revenue decreased 26.0% in July, 23.9% in August and 20.4% in September. Americas Commercial represented 44.6% of total Company revenue in the third quarter of 2009 and 44.4% in the third quarter of 2008.

The decrease in the gross profit rate was primarily due to a decrease in fee-based income, along with a decline in temporary margins due to an increase in the proportion of light industrial business to clerical business.

As noted above, the decrease in SG&A expenses from the prior year included the impact of estimated structural changes of $9 million and estimated compensation savings of $4 million for Americas Commercial.

Americas PT

		Third Quarter
														Constant
														Currency
		2009				2008				Change				Change
		(In millions of dollars)
Revenue from Services		$	192.1			$	234.8				(18.2	)%			(18.1	)%
Fee-based income			2.1				5.0				(57.3	)			(57.2	)
Gross profit			29.5				39.1				(24.5	)			(24.4	)
SG&A expenses			24.6				28.9				(14.6	)			(14.5	)
Earnings from Operations			4.9				10.2				(52.7	)
Gross profit rate			15.4	%			16.6	%		(1.2		) pts.
Expense rates:
% of revenue			12.9				12.3				0.6
% of gross profit			83.7				74.0				9.7
Operating margin			2.5				4.3				(1.8	)

The change in Americas PT revenue from services reflected a decrease in hours worked of 17.5%, partially offset by an increase in average billing rates of 0.3% (0.4% on a constant currency basis). On a year-over-year basis, constant currency revenue decreased 18.3% in July, 17.9% in August and 18.1% in September. Americas PT revenue represented 18.3% of total Company revenue in the third quarter of 2009 and 16.8% in the third quarter of 2008.

The Americas PT gross profit rate decreased due to decreases in fee-based income, as well as higher growth in certain lower-margin customer accounts.

The decrease in SG&A expenses was primarily due to lower incentive compensation, combined with reduced recruiting and retention, travel and other costs as a result of lower volume and cost-savings initiatives.

EMEA Commercial

		Third Quarter
														Constant
														Currency
		2009				2008				Change				Change
		(In millions of dollars)
Revenue from Services		$	228.0			$	353.6				(35.5	)%			(29.5	)%
Fee-based income			3.7				10.2				(64.5	)			(60.1	)
Gross profit			33.9				63.0				(46.2	)			(41.4	)
SG&A expenses			39.5				59.0				(33.2	)			(27.8	)
Earnings from Operations			(5.6	)			4.0				(237.9	)
Gross profit rate			14.9	%			17.8	%		(2.9		) pts.
Expense rates:
% of revenue			17.3				16.7				0.6
% of gross profit			116.3				93.6				22.7
Operating margin			(2.4	)			1.1				(3.5	)