Terence E. Adderley Chairman, President and Chief Executive Officer

1998 began with a personal loss. On January 3, our founder, William Russell Kelly died. Russ is greatly missed at our company. With the passing of Russ, we reaffirmed our commitment to his basic principles of quality, integrity and customer service. His pioneering spirit lives on as we continue to develop innovative staffing solutions, on behalf of our customers and employees.

Kelly Services had a good year in 1998. We delivered record sales and record earnings. These results were especially gratifying because we achieved them while expanding our worldwide business, developing and implementing new staffing solutions, and deploying our new technology systems.

For the 8th consecutive year, Kelly Services achieved record sales and record earnings. Sales for the fiscal year ending January 3, 1999, were $4.1 billion, a 6.2 percent increase over 1997. Net earnings of $85 million were up 4.9 percent. Diluted earnings per share rose 5.2 percent to $2.23 in 1998.

For the 27th consecutive year, the annual dividend was increased. The quarterly dividend on Class A and Class B common stock was raised to 23 cents per share, by the Board of Directors.

This year, for the first time, the financial section of our annual report contains additional detail on the performance of three sectors of our business: U.S. Commercial Staffing; Professional, Technical and Staffing Alternatives, and International.

With the growth in our engineering and information technology business, we organized Kelly Engineering Resources and Kelly Information Technology Resources as separate business units in 1998.

Major geographic expansion during 1998 included opening our first offices in Belgium, with branch locations in Antwerp and Brussels. In Germany, we purchased Workshop Zeitarbeit GmbH, which now operates as Kelly Services, Germany. In addition, we added over 100 branch offices, bringing our total office network to 1,800 around the world.

Upon the death of William Russell Kelly on January 3, the Board of Directors elected Terence E. Adderley, president and chief executive officer of Kelly Services to the additional post of chairman of the board.

Robert G. Barranco, executive vice president responsible for field operations, retired from the company in 1998.

Carl T. Camden, senior vice president for marketing, was promoted to executive vice president with responsibilities for field operations, sales and marketing.

Tommi A. White, senior vice president for service and quality, was promoted to executive vice president and added information technology to her responsibilities.

Paul K. Geiger, senior vice president and chief financial officer, retired from the company in 1998.

William K. Gerber joined the company, and was elected senior vice president and chief financial officer.

Eugene L. Hartwig, senior vice president, general counsel and corporate secretary, retired from the company in 1998.

George M. Reardon joined the company, and was elected senior vice president, general counsel and corporate secretary.

Several major information technology (IT) initiatives were underway during 1998. These include significant enhancements to our corporate and branch office computer hardware, software, and global telecommunications systems. This multi-year IT program will cost approximately $100 million. I am pleased to report that the IT projects are ahead of schedule and within budget.

Kelly’s Year 2000 computer remediation is a global, corporate-wide program involving all employees. This program is also on schedule and within budget. As previously announced, we expect to spend $18 to $21 million on Year 2000 remediation. Page 29 in the financial section of this report provides additional information about our Y2K program.

Our shared vision for Kelly Services is, "To be the world’s best staffing services company, and to be recognized as the best."

The Kelly Quality Management System (KQMS) is our business management system. Throughout 1998, we continued to deploy and enhance KQMS at our locations around the world.

We have started taking the necessary steps to globalize Kelly Services. At Kelly Services, we define globalization as: "The art of integrating … into a seamless result … the best practices of our worldwide organization … on behalf of our customers."

To be effective, globalization will require that we further standardize our strategy, structure, standards and systems across country boundaries. Yet we must, at the same time, provide as much flexibility as is practical to our local operations around the world.

During 1998, our 52nd year of operations, Kelly Services assigned over 800,000 of our temporary employees to our customers. We are gratified by the support we receive from our customers, employees and stockholders.

Our tradition of customer and employee focus, and our commitment to quality are major factors establishing our leadership within the staffing industry, and our growth, becoming one of the largest companies in the world.

T. E. Adderley
Chairman, President and Chief Executive Officer
Kelly Services, Inc.