The Year in Brief
It is a pleasure to report excellent results for 1997, our 51st year. We achieved record sales and earnings and for the 26th consecutive year, raised the dividend. We worked hard to expand our service lines, increase the number of field offices, and open new operations in Europe. The Kelly Quality Management System continues to grow and mature. We also began building a new information technology infrastructure. There were a number of important organizational changes, as well.

Sales and Earnings
Sales for the fiscal year ending December 28, 1997 were $3.9 billion, a 17 percent increase over 1996 sales of $3.3 billion. Sales exceeded $1 billion in each of our last two quarters.

Earnings from operations were $136 million, 12 percent more than 1996 operating earnings of $121 million.

Record net earnings of $81 million were 11 percent higher than the $73 million reported in 1996. Earnings per share in 1997 were $2.12 versus $1.92 per share in 1996.

Dividend Increased for 26th Consecutive Year
The company's 26th consecutive annual dividend increase was approved by the Board of Directors in May 1997. The regular quarterly dividend on Class A and Class B common stock was raised from 21 to 22 cents per share.

Expansion of Our Office Network
In 1997 Kelly Services passed two important milestones: opening our 1,500th field office, and our 500th on-site "Kelly Partnered Staffing" office. Kelly Partnered Staffing has been a global phenomenon, and very successful.

Expansion of Professional and Technical Service Lines and Alternative Staffing Solutions
Kelly customers are seeking a wider spectrum of staffing services, delivered efficiently and globally. They call upon us for office personnel, as well as professional and technical employees. In addition to traditional temporary help, they also need alternative staffing solutions such as on-site staffing, outsourcing, staff leasing and full-time placement.

On pages 8 to 13 of this year's annual report, we've featured employees from these service lines. The kinds of work these employees, and others, do has changed over the years, and the reasons they work vary greatly, as well.

In 1997 we opened new offices dedicated to legal, scientific, information technology and engineering staffing. I am pleased that sales of our traditional services as well as sales of our professional and technical services, and staffing alternatives all enjoyed significant growth.

International Expansion
The company's international operations continued to expand, particularly in Europe.

In January 1998 we placed the first temporary employee ever assigned by a staffing company in Italy, drawing media attention throughout the country. Legislation passed in 1997 permits temporary help companies to operate in Italy, a country with the world's eighth largest economy. Our first temporary employee, Antonina Saitta, is pictured on page 12.

In April of 1997 we acquired Personnel Corps in St. Petersburg, Russia. We now offer both temporary staffing and permanent placement there and in Moscow.

The Kelly Quality Management System
I am very proud of the Kelly Quality Management System. It is recognized as one of the outstanding Quality initiatives in the service industry. Quality has changed the way we do business. It has had a positive effect on our sales, service delivery, customer satisfaction and cost controls. At the end of the year, more than 300 headquarters and field offices had earned admission to the Quality "Enterprise," having passed rigorous Quality audits and won KQMS certification. In 1998 the number of Kelly offices earning this is expected to more than double.

Information Technology
Our anticipated growth requires that we build a new information technology infrastructure for today that will carry us well into the 21st century. Last October, I announced plans for a significant investment in information technology. Our plans have four primary initiatives: building a worldwide telecommunications network, installing new hardware and software in the field offices and at headquarters, upgrading our current branch automation systems, and assuring that all of our systems are Y2K compliant.

The Board of Directors
Dr. Maureen Fay was elected to the Board of Directors in May 1997. Dr. Fay is president of the University of Detroit - Mercy, Michigan's largest private university. Harold E. Guenther retired from the Board of Directors in November. His dedicated service to the company included 12 years as a director, and five years as chair of its Compensation Committee.

Senior Management Changes
In July 1997 Bob Barranco, executive vice president, Operations, announced that he planned to retire in early 1998. Bob's career at Kelly Services began in 1989, as vice president of Kelly Assisted Living Services. In 1991 he became senior vice president and general manager of the Middle Markets division. In 1993 he was named executive vice president, responsible for field operations. Following Bob's retirement in March, Executive Vice President Carl Camden's responsibilities were expanded to include field operations. Carl joined Kelly Services in 1995 as senior vice president, Marketing, adding Sales and Public Affairs in 1996. David Beckstrand joined the company in August as senior vice president of Human Resources. David brings many years of domestic and international experience as a senior HR executive with one of the world's largest banks.

The Changing Business Landscape
Business has changed dramatically in the 1990s. One of the most significant changes is that companies worldwide are sharply reducing the number of their suppliers. The Quality movement encourages them to move toward "single-sourcing." To Kelly Services' great benefit, a number of our large customers have reduced the number of their staffing suppliers to one. Consistent Quality service in all offices is making us the supplier of choice to many major companies. Our top 100 customers now account for more than 50 percent of our sales, a percentage which has more than doubled since 1992. We are also pleased that the same Quality and consistency has maintained the loyalty of more than 200,000 smaller but highly valued customers.

The Changing Employee Landscape
For more than half a century, Kelly Services has enabled customers to operate more efficiently and effectively. However, the benefits to employees have been less frequently recognized. Kelly temporary employees find it easier to return to the workforce after an absence of a number of years, to try out new skills, or to move to new, more rewarding jobs.

For Kelly employees, temporary work is often a chosen career. They want greater flexibility to work when and where they choose. They also want to choose the type of work they do, especially using new skills they may have learned on temporary assignments. Greater choice is possible today for many temporary employees because there are a variety of interesting jobs available to them at all levels of experience and skills.