Terence E. Adderley Chairman, President and Chief Executive Officer

LOOKING BACK

We begin the last Chairman's letter of the 20th century with a brief look back. In October 1946, William Russell Kelly opened the "Russell Kelly Office Service" in Detroit, Michigan, with initial sales of $848 and 12 customers. From that beginning evolved the modern temporary staffing industry. It was a new business concept. We literally went from company to company explaining temporary help. Over the years, most companies have adopted this concept as a good business practice. Kelly Services, and that concept, has become a vital part of how business is done throughout the world.

LOOKING FORWARD

We entered the '90s with what turned out to be an inadequate platform for growth. Our international, professional and technical businesses were sleepy and small. Our U.S. commercial customer base had shifted to small- and medium-sized companies. Our technology base was aging, and many of our senior executives were nearing retirement. Kelly Services today is fundamentally a different company. Our international, professional and technical businesses are expanding rapidly. We have successfully repositioned our commercial staffing business and more than 60 percent of our sales come from the world's largest companies. Our technology leads the industry. Our executive team has been rebuilt, and is aggressively growing the company. We have built a superb platform for future growth. We enter the next century with great expectations.

1999 IN BRIEF

1999 was a year of significant achievements for Kelly Services. Although challenged by the tightest labor market in history, we delivered record sales and earnings. We continued to expand our business, develop and implement new staffing solutions, and deploy new technology systems.

RECORD FINANCIAL PERFORMANCE

For the 8th consecutive year, the company achieved record sales and increased earnings per share. Sales for the fiscal year ending January 2, 2000 were $4.3 billion, a 4.3 percent increase over 1998. Net earnings of $85.1 million were up 0.5 percent. Diluted earnings per share rose 5.8 percent to $2.36 in 1999. Kelly Services' fiscal 1999 was a normal, 52-week year. However, fiscal 1998 was a 53-week year. Adjusting 1998 to a 52-week basis, for comparative purposes, sales in 1999 increased 5.6 percent, net earnings increased 1.7 percent and diluted earnings per share increased 7.3 percent. For the 28th consecutive year, the annual dividend was increased. The quarterly dividend on Class A and Class B common stock was raised to 24 cents per share. The financial section of our annual report contains additional information on the performance of our three business sectors: U.S. Commercial Staffing; Professional, Technical and Staffing Alternatives (PTSA); and International.

SERVICE EXPANSION

Our PTSA units delivered substantial growth, led by scientific and automotive staffing. We also launched two new businesses in 1999, Kelly Healthcare Resources and Kelly Financial Resources. Our corporate accounts typically use multiple PTSA services in addition to commercial staffing. This adoption of PTSA services by large accounts is a further validation of our one-stop shop strategy. Our international business exceeded $1 billion in sales for the first time. While most of this strong growth was organic, we also successfully acquired and integrated The Help Group in Sweden, LabStaff in Australia, Interim SARL in Luxembourg and the HTM Group in Mexico. Finally, although challenged by the tight U.S. labor market, U.S. commercial had a good year. In 1999, our U.S. commercial staffing group deployed two new services: KellyConnect, an updated call center staffing product, and Kelly Educational Staffing, our new substitute teacher program, which has made front page news nationwide.

SENIOR MANAGEMENT CHANGES

Two executives were promoted to senior vice president in April 1999: James H. Bradley to senior vice president, administration, and Larry Seyfarth to senior vice president, technical services group. In May, Chief Financial Officer William K. Gerber was promoted to executive vice president. In July, Michael L. Durik joined as senior vice president, human resources, and James A. Tanchon joined as senior vice president, global sales.

INFORMATION TECHNOLOGY

We made significant progress in information technology in 1999. We successfully began deployment of financial, administrative, and field office technology. In addition, we completed our Y2K initiative without disruption to our business. Our multi-year IT program, which represents a significant portion of our total capital expenditures, is ahead of schedule and within budget. The Internet is becoming an important business medium for Kelly Services. The Kelly Career Network now has more than 100,000 people being notified when relevant job opportunities become available. We also have agreements with various e-procurement companies, in addition to Kelly CustomerNet, our new proprietary procurement system.

CONCLUDING COMMENTS

As we look forward to the 21st century, several important global workplace trends are emerging. Competitive advantage today - for companies and for countries - requires a skilled and flexible workforce. In turn, many individuals are choosing the flexibility of personal career management with its increased choices of where, when, and how to work. At the intersection of these two trends is the staffing industry. 1999 was our 53rd year, and we assigned more than 750,000 of our employees to 200,000 customers. We remain committed to the basic principles set in place by William Russell Kelly over a half century ago. His pioneering ideas on temporary help continue to grow in importance. Kelly Services will continue our tradition of innovation and leadership, on behalf of our customers, employees, and stockholders, into the new millennium.

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