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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

OR

Commission File Number 0-1088

KELLY SERVICES, INC.

(Exact name of Registrant as specified in its charter)

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 Exchange Act Rule 12b-2).  Yes  x  No  ¨

At July 28, 2003, 32,123,943 shares of Class A and 3,474,943 shares of Class B common stock of the Registrant were outstanding.

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KELLY SERVICES, INC. AND SUBSIDIARIES

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PART I. FINANCIAL INFORMATION

KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF EARNINGS

(UNAUDITED)

(In thousands of dollars except per share data)

See accompanying Notes to Financial Statements.

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KELLY SERVICES, INC. AND SUBSIDIARIES

BALANCE SHEETS

(In thousands of dollars)

See accompanying Notes to Financial Statements.

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KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands of dollars)

See accompanying Notes to Financial Statements.

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KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands of dollars)

See accompanying Notes to Financial Statements.

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KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

(In thousands of dollars)

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 December 29, 2002 (the 2002 consolidated financial statements). Certain prior year amounts have been reclassified to conform with the current presentation.

2. 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 sales and earnings from operations of the Company for the 13-week and 26-week periods ended June 29, 2003 and June 30, 2002. 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.

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KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (continued)

(UNAUDITED)

(In thousands of dollars)

3. Contingencies

The Company is subject to various legal proceedings, claims and liabilities which arise in the ordinary course of its business. Litigation is subject to many uncertainties, the outcome of individual litigated matters 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 June 29, 2003 with respect to these matters cannot be ascertained, the Company believes that any resulting liability will not be material to the financial statements of the Company at June 29, 2003.

4. Earnings Per Share

The reconciliations of earnings per share computations for the 13-week and 26-week periods ended June 29, 2003 and June 30, 2002 were as follows:

Stock options representing 2,565,000 and 786,000 shares, respectively, for the quarters ended June 29, 2003 and June 30, 2002 and 2,596,000 and 851,000 shares, respectively, for the six months ended June 29, 2003 and June 30, 2002 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.

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KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (continued)

(UNAUDITED)

(In thousands of dollars)

5. Stock-Based Compensation

The Company has a Performance Incentive Plan for key employees and accounts for this plan under the recognition and measurement principles of Accounting Principles Board 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 June 29, 2003 and June 30, 2002 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.

6. Revenue Reclassification

Effective with the first quarter of 2003, the Company changed its method of reporting revenue for Kelly Staff Leasing (“KSL”), a wholly owned subsidiary. KSL is a Professional Employer Organization (“PEO”) and is part of the PTSA segment. Consistent with changing PEO industry practice, KSL changed from the gross method of reporting revenue to the net method under Emerging Issues Task Force Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” As a result, KSL will no longer include worksite employee payroll costs in sales of services or cost of services. This change does not impact gross profit or net earnings. Sales of services and cost of services have been reclassified for all prior periods for comparability. The effect of this change on prior periods is to reduce sales of services and cost of services for 2002, 2001 and 2000 by $266.5 million, $251.0 million and $236.6 million, respectively. Sales of services and cost of services adjustments for the first, second, third and fourth quarters of 2002 were $63.4 million, $62.1 million, $65.4 million, and $75.6 million, respectively.

7. Short-Term Borrowings

In June, 2003, the Company entered into a new $125 million three-year, unsecured multi-currency revolving credit facility to replace its existing $100 million revolving credit facility which was scheduled to expire in October, 2003. The credit facility will be used to fund working capital, acquisitions and for general corporate purposes. The interest rate applicable to borrowings under the new facility is 60 basis points over local LIBOR.

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KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (continued)

(UNAUDITED)

(In thousands of dollars)

8. New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46) which requires the consolidation of variable interest entities, as defined. FIN 46 is applicable to variable interest entities created after January 31, 2003. Variable interest entities created prior to February 1, 2003, must be consolidated effective July 1, 2003. Disclosures are required currently if the Company expects to consolidate any variable interest entities. The Company does not have any variable interest entities; therefore FIN 46 will not have a material effect on the Company’s consolidated results of operations or financial position.

In April 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company does not have any derivative instruments; therefore SFAS 149 will not have a material impact on our consolidated results of operations, cash flows or financial condition.

In May 2003, the FASB issued SFAS No.150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures three classes of freestanding financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS 150 was effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has not entered into any financial instruments within the scope of SFAS 150 since May 31, 2003, nor does it currently hold any financial instruments within its scope.

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Results of Operations

Second Quarter

Sales of services in the second quarter of 2003 were $1.060 billion, an increase of 4.4% from the same period in 2002. The increase was a result of an increase in hours worked of 1.1% and an increase in average hourly bill rates of 2.8%. Sales for the quarter increased in the Professional, Technical and Staffing Alternatives (PTSA) and International business segments while sales in the U.S. Commercial Staffing business segment declined slightly on a year-over-year basis. During the last year, the U.S. dollar declined in comparison to many foreign currencies, including the Euro and British pound. As a result, Kelly’s U.S. dollar translated sales were higher than would have otherwise been reported. On a constant currency basis second quarter sales increased 0.8% as compared with the prior year. 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 sales:

Gross profit of $172.4 million was 1.3% higher than the gross profit of $170.2 million for the same period of the prior year. The gross profit rate for the second quarter of 2003 averaged 16.3%, a decrease of 0.5 percentage point compared to the 16.8% rate earned for the same period in 2002. The gross profit rates of the U.S. Commercial Staffing and International segments decreased compared to the prior year, while the gross profit rate in PTSA remained constant. The decrease in the gross profit rate was principally due to higher workers’ compensation costs and a decline in fee based income in the International segment.

Selling, general and administrative expenses totaled $170.0 million and increased 3.8% year over year. Selling, general and administrative expenses expressed as a percentage of sales were 16.0% in the second quarter of 2003, a 0.1 percentage point decrease compared to the 16.1% rate in the second quarter of 2002. As measured on a constant currency basis, selling, general and administrative expenses decreased by 0.5%.

Earnings from operations in the second quarter of 2003 totaled $2.4 million, a 62.2% decrease compared to earnings from operations of $6.5 million reported for the second quarter of 2002.

Net interest income in the second quarter of 2003 was $4 thousand, a $78 thousand decrease compared to last year’s net interest income of $82 thousand. The decrease is primarily attributable to lower interest rates.

The effective income tax rate in the second quarter of 2003 was 39.5%, a 0.5 percentage point improvement compared with last year’s 40.0% rate.

Second quarter net earnings totaled $1.5 million, a decrease of 62.3% from net earnings of $3.9 million last year. Diluted earnings per share for the second quarter of 2003 were $0.04, a 63.6% decrease as compared to diluted earnings per share of $0.11 for the second quarter of 2002.

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US Commercial Staffing

Sales of services in the U.S. Commercial Staffing segment totaled $522.7 million in the second quarter of 2003, a 0.7% decrease compared to the $526.6 million reported for the same period in 2002. This reflected a decrease in hours worked of 2.4%, partially offset by an increase in average hourly bill rates of 1.7%. On a year-over-year basis, sales increased 1% in April, and decreased 1% in May and 2% in June. April results include the unfavorable impact of the Easter holiday falling in the second quarter of 2003, as compared to the first quarter in 2002. Without the unfavorable Easter impact, April sales results would have increased 2%. The sales growth trend declined in the second quarter, continuing the pattern established in the first quarter. Staffing volume was relatively flat month to month, but reported sales growth was impacted by tougher year-over-year comparisons as the quarter progressed. Management remains cautious regarding growth rates for U.S. Commercial Staffing in the third quarter, noting that the Company has not yet experienced a fundamental improvement in demand.

U.S. Commercial Staffing sales represented 49% of total Company sales in the second quarter of 2003 and 52% of total Company sales in the second quarter of 2002.

U.S. Commercial Staffing earnings from operations totaled $23.1 million in the second quarter of 2003, a decrease of 16.4% compared to earnings of $27.6 million last year. This was the result of the 0.7% decrease in sales and a 0.7 percentage point decrease in the gross profit rate. The decline in the gross profit rate was principally due to higher workers’ compensation costs, combined with changes in both the mix of customers to large corporate and national accounts, and the mix of service lines to those which have a lower-than-average gross profit rate. Higher state unemployment taxes, although largely recovered through pricing actions, also negatively impacted the gross profit rate. Selling, general and administrative expenses were essentially unchanged compared to the prior year and as a percentage of sales were 10.3% in both periods.

Many of the Company’s large corporate and national account customers have negotiated high volume global service agreements, which tend to result in lower gross profit rates than those earned with the Company’s small and medium size customers. The Company’s strategy is focused on serving and growing these large corporate national accounts. As customer mix shifts to large corporate and national accounts, the Company’s average gross margins tend to decrease. The Company expects this trend to continue over the balance of 2003.

Professional, Technical and Staffing Alternatives

Sales of services in the Professional, Technical and Staffing Alternatives (“PTSA”) segment for the second quarter of 2003 totaled $223.6 million, an increase of 1.6% compared to the $220.0 million reported in the second quarter of 2002. The growth is due to an increase in average billing rates of 2.2% offset by a decrease in hours worked of 3.4% for the professional and technical staffing businesses. In addition, revenues in the staffing alternatives businesses, which include staff leasing and management services, increased by 13.2%. PTSA sales represented 21% of total Company sales in the second quarter of 2003 and 22% in 2002.

Effective with the first quarter of 2003, the Company changed its method of reporting revenue for Kelly Staff Leasing (“KSL”), a wholly owned subsidiary. KSL is a Professional Employer Organization (“PEO”) and is part of the PTSA segment. Consistent with changing PEO industry practice, KSL changed from the gross method of reporting revenue to the net method under Emerging Issues Task Force Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” As a result, KSL will no longer include worksite employee payroll costs in sales of services or cost of services. This change does not impact gross profit or net earnings. Sales of services and cost of services have been reclassified for all prior periods for comparability. The effect of this change on prior periods is to reduce sales of services and cost of services for 2002, 2001 and 2000 by $266.5 million, $251.0 million and $236.6 million, respectively. Sales of services and cost of services adjustments for the first, second, third and fourth quarters of 2002 were $63.4 million, $62.1 million, $65.4 million, and $75.6 million, respectively.

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Results continued to vary among the 13 business units that comprise PTSA. Kelly Financial Resources and HRfirst exhibited double-digit sales growth for the second quarter of 2003. Staffing demand softened somewhat in Kelly Scientific, as the pharmaceutical industry, in particular, reduced its temporary workforce due to general economic factors. Kelly Home Care Services continued to experience revenue declines during the second quarter of 2003. Kelly Home Care customers are primarily private-pay, elderly clients. These customers have been impacted by the economic downturn, particularly through lower stock market returns and lower interest rates, which have reduced discretionary income, forcing some customers to reduce the level of home care services. This decrease, however, was consistent with industry trends.

PTSA earnings from operations for the second quarter of 2003 totaled $12.8 million, an increase of 2.8% from the same period in 2002. This was the result of the 1.6% increase in sales and a consistent gross profit rate, partially offset by a 1.8% increase in selling, general and administrative expenses. Selling, general and administrative expenses as a percent of sales were 12.2% in both the second quarter of 2003 and 2002.

International

Translated U.S. dollar sales in International for the second quarter of 2003 totaled $313.3 million, a 16.8% increase compared to the $268.2 million reported in the second quarter of 2002. This resulted from an increase in hours worked of 8.5% and an increase in the translated U.S. dollar average hourly bill rates of 8.2%.

On a constant currency basis, sales increased by 3.3% and average hourly bill rates decreased by 4.4%. The 3.3% constant currency increase in sales reflected an improvement from the first quarter, when the year-over-year constant currency sales were essentially unchanged. The 4.4% year-over-year decrease in average hourly bill rates, on a constant currency basis, is due primarily to a shift in mix of hours worked to countries such as Mexico, which typically have a lower average bill rate.

The Americas and Asia Pacific regions continue to show solid growth in sales. Sales in the United Kingdom turned positive during the second quarter, while sales in continental Europe improved slightly, but remained negative as compared with the prior year. International sales represented 30% of total Company sales in the second quarter of 2003 and 26% in the second quarter of 2002.

International results were an operating loss of $1.0 million in the second quarter of 2003, compared to earnings of $426 thousand for the same period in 2002. The 16.8% increase in sales was more than offset by a 0.8 percentage point decrease in the gross profit rate and a 15.0% increase in expenses, as measured in U.S. dollars.

The decline in the International gross profit rate is due to decreases in the United Kingdom and Asia Pacific regions, as well as the effect of lower fee-based income on a constant currency basis. The increase in U.S. dollar reported expenses is due primarily to the effect of currency rates. On a constant currency basis, second quarter expenses increased by 0.7% as compared to the prior year.

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Results of Operations

Year-to-Date

Sales of services totaled $2.063 billion during the first six months of 2003, an increase of 5.7% from the same period in 2002. The increase was a result of an increase in hours worked of 2.8% and an increase in average hourly bill rates of 2.5%. Sales increased in each of the Company’s three business segments: U.S. Commercial Staffing, PTSA and International. On a constant currency basis, sales of services increased by 2.3%. The table below summarizes the impact of foreign exchange adjustments on sales for the first half of 2003:

Gross profit of $338.0 million was 2.7% higher than the first six months of 2002. Gross profit as a percentage of sales was 16.4% in 2003, which decreased 0.5 percentage point compared to the 16.9% rate recorded in the prior year. This reflected decreases in the gross profit rates of all three business segments. The decrease in the gross profit rate was due to higher workers’ compensation costs, higher state unemployment taxes and a decline in fee based income in the International segment.

Selling, general and administrative expenses of $335.1 million were 4.2% higher than last year. Selling, general and administrative expenses expressed as a percentage of sales were 16.2% in the first six months of 2003, a 0.3 percentage point decrease compared to the 16.5% rate in the first six months of 2002. As measured on a constant currency basis, selling, general and administrative expenses were essentially unchanged.

Earnings from operations were $2.8 million in the first six months of 2003, a 62.9% decrease compared to earnings from operations of $7.7 million for the first six months of 2002.

Net interest income for the first six months of 2003 was $126 thousand, a decrease of $97 thousand compared to last year’s net interest income of $223 thousand. The decrease is primarily attributable to the impact of lower interest rates.

The effective income tax rate for the first half of 2003 was 39.5%, a 0.5 percentage point improvement compared with last year’s 40.0% rate.

Net earnings were $1.8 million, or a 62.1% decrease compared to the first six months of 2002. Basic and diluted earnings per share were $0.05, a decrease of 61.5% as compared to basic and diluted earnings per share of $0.13 in the first six months of 2002.

U.S. Commercial Staffing

Sales of services in the U.S. Commercial Staffing segment totaled $1.027 billion for the first six months of 2003, a 2.0% increase compared to the $1.007 billion reported for the same period in 2002. This reflected a 0.8% increase in hours worked and a 1.2% increase in average hourly bill rates. U.S. Commercial Staffing sales represented 50% of total Company sales for the first half of 2003 and 52% for the first half of 2002.

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U.S. Commercial Staffing earnings from operations totaled $47.1 million for the first six months of 2003 compared to earnings of $50.9 million last year, a decrease of 7.4%. The 2.0% increase in sales partially offset a 0.6 percentage point decrease in the gross profit rate and a 0.8% increase in selling, general and administrative expenses, to produce the 7.4% earnings decline. The decrease in the gross profit rate reflected the impact of higher workers’ compensation costs and the impact of changes in both customer and service line mix. Higher state unemployment taxes, although partially recovered through pricing actions, also negatively impacted the gross profit rate. Selling, general and administrative expenses were essentially unchanged compared to the prior year, and as a percentage of sales were 10.4% for the first six months of 2003 and 10.5% for the first six months of 2002.

Professional, Technical and Staffing Alternatives

Sales of services in the PTSA segment for the first six months of 2003 totaled $445.2 million, an increase of 3.8% compared to the $428.9 million reported for the first six months of 2002. This reflected a 2.6% increase in average hourly bill rates, partially offset by a 1.2% decrease in hours worked in the professional and technical businesses. Revenues in the staffing alternatives businesses, which include the staff leasing and management services business units, increased by 11.2% compared to the first six months of 2002. PTSA sales represented 21% of total Company sales for the first half of 2003 and 22% for the first half of 2002.

For the first six months of 2002, Kelly Financial Resources continued to be a leading performer, exhibiting double digit sales growth as compared to the same period in 2002. Kelly Healthcare, Kelly Staff Leasing, Kelly Information Technology Resources, Kelly Management Services, Kelly Automotive Services Group and Kelly Law Registry also maintained positive sales growth. However, two large PTSA units, Kelly Scientific Resources and Kelly Home Care, experienced revenue declines during the first six months of 2003 as compared to the first six months of 2002. These decreases, however, were consistent with industry trends in their staffing sectors.

PTSA earnings from operations for the first half of 2003 totaled $26.1 million and increased 9.2% from the same period in 2002. This was the result of the 3.8% increase in sales and a 0.7% decrease in expenses, partially offset by a 0.2 percentage point decrease in the gross profit rate.

International

Translated U.S. dollar sales in International for the first six months of 2003 totaled $590.7 million, a 14.6% increase compared to the $515.3 million reported in the first six months of 2002. This resulted from an increase in hours worked of 7.2% and a 7.3% increase in the translated U.S. dollar average hourly bill rates. International sales represented 29% of total Company sales in the first half of 2003 and 26% in the first half of 2002.

On a constant currency basis, sales increased by 1.7% and average hourly bill rates decreased by 4.8%. The year-over-year decrease in average hourly bill rates, on a constant currency basis, is due primarily to a shift in mix of hours worked to countries such as Mexico, which typically have a lower average bill rate.

International results were a loss of $4.2 million for the first six months of 2003 compared to a loss of $819 thousand for the same period in 2002. The 14.6% increase in sales was more than offset by a 0.6 percentage point decrease in the gross profit rate and a 13.8% increase in expenses, as measured in U.S. dollars.

The decrease in the International gross profit rate is due to rate decreases in the United Kingdom, as well as the effect of lower fee-based income on a constant currency basis. The increase in U.S. dollar reported expenses is due primarily to the effect of currency rates. On a constant currency basis, expenses decreased by 0.2%.

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Financial Condition

Historically, 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 $77 million at the end of second quarter 2003, a decrease of $24 million from the $101 million at year-end 2002.

Operating Activities

In the first half of 2003, the Company generated $891 thousand in cash in its operating activities, as compared to $18 million in the first half of 2002. The most significant reason for the decrease in cash generated from operations was that accrued liabilities, primarily payroll and related taxes, grew at a slower rate in 2003 versus 2002.

Accounts receivable totaled $618 million at the end of the first half of 2003. Global days sales outstanding at the end of the second quarter of 2003 were 53 days, which is consistent with the prior year. If the economy recovers in 2003, the Company could experience further growth in revenue, which may require the Company to fund additional increases in accounts receivable.

The Company’s working capital position was $370 million at the end of the first half of 2003, an increase of $18 million from year-end 2002. The current ratio was 2.0 at both the end of the first half of 2003 and at year-end 2002.

Investing Activities

In the first six months of 2003, the Company used $17 million for investing activities compared to $13 million in the first six months of 2002. Capital expenditures for the first six months of 2003 totaled $15 million, as compared with $14 million spent in the first six months of 2002. Capital expenditures for 2003, which are primarily related to the Company’s information technology programs, are expected to total between $35 and $40 million.

Financing Activities

In the first six months of 2003, the Company used $10 million in financing activities, compared to $12 million in the first six months of 2002. The decrease was primarily related to lower short-term debt repayments.

Short-term debt totaled $24 million at the end of the first half of 2003, compared to $25 million at year-end 2002. All short-term borrowings are foreign currency denominated and reduce the Company’s exposure to foreign exchange fluctuations. At the end of the first half of 2003, debt represented less than 4% of total capital.

In June, 2003, the Company entered into a new $125 million three-year, unsecured multi-currency revolving credit facility to replace its existing $100 million revolving credit facility which was scheduled to expire in October, 2003. The credit facility will be used to fund working capital, acquisitions and for general corporate purposes. The interest rate applicable to borrowings under the new facility is 60 basis points over local LIBOR.

Contractual Obligations and Commercial Commitments

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

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Summary

The Company’s financial position remains strong. The Company continues to carry no long-term debt and expects to meet its cash requirements, including possible increases in accounts receivable as discussed above, principally through cash generated from operations, available cash and equivalents and committed unused credit facilities.

Market Risk-Sensitive Instruments and Positions

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.

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46) which requires the consolidation of variable interest entities, as defined. FIN 46 is applicable to variable interest entities created after January 31, 2003. Variable interest entities created prior to February 1, 2003, must be consolidated effective July 1, 2003. Disclosures are required currently if the Company expects to consolidate any variable interest entities. The Company does not have any variable interest entities; therefore FIN 46 will not have a material effect on the Company’s consolidated results of operations or financial position.

In April 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company does not have any derivative instruments; therefore SFAS 149 will not have a material impact on our consolidated results of operations, cash flows or financial condition.

In May 2003, the FASB issued SFAS No.150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures three classes of freestanding financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS 150 was effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has not entered into any financial instruments within the scope of SFAS 150 since May 31, 2003, nor does it currently hold any financial instruments within its scope.

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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 annual report filed on Form 10-K.

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 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

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.

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PART II. OTHER INFORMATION AND SIGNATURE

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SIGNATURE

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 6, 2003

/s/    WILLIAM K. GERBER

William K. Gerber

Executive Vice President and

Chief Financial Officer

(Principal Financial Officer and

Principal Accounting Officer)

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INDEX TO EXHIBITS

REQUIRED BY ITEM 601,

REGULATION S-K

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