8-K

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 25, 2006

KELLY SERVICES, INC.

(Exact name of Registrant as specified in its charter)

DELAWARE	0-1088	38-1510762
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification Number)

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)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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Item 2.02.    Results of Operations and Financial Condition

Kelly Services, Inc. (the “Company”) today released financial information containing highlighted financial data for the three and six-month periods ended July 2, 2006. A copy of the press release is attached as exhibit 99.1 herein.

Item 9.01.    Financial Statements and Exhibits

(d) Exhibits

      99.1    Press Release dated July 25, 2006.

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SIGNATURES

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, hereunto duly authorized.

	KELLY SERVICES, INC.
Date: July 25, 2006
	/s/ William K. Gerber
	William K. Gerber
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial Officer)
Date: July 25, 2006
	/s/ Michael E. Debs
	Michael E. Debs
	Senior Vice President and Corporate Controller
	(Principal Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release dated July 25, 2006

EX-99.1

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Exhibit 99.1

ANALYST CONTACT:	MEDIA CONTACT:
James Polehna	Renee Walker
(248) 244-4586	(248) 244-5362
james_polehna@kellyservices.com	renee_walker@kellyservices.com

KELLY SERVICES REPORTS 36% INCREASE IN NET EARNINGS

FOR THE SECOND QUARTER OF 2006

TROY, MI (July 25, 2006) — Kelly Services, Inc., a global provider of staffing services, today announced record revenue and a 36% increase in net earnings for the second quarter ended July 2, 2006.

Carl T. Camden, President and Chief Executive Officer, announced revenue for the second quarter of 2006 totaled $1.416 billion, an 8.0% increase compared to the $1.312 billion for the corresponding quarter in 2005. Revenue for the six-month period totaled $2.776 billion, an 8.4% increase compared to the $2.561 billion for the first six months of 2005.

Net earnings for the second quarter of 2006 totaled $12.7 million, a 35.8% increase compared to $9.3 million reported for the second quarter of 2005. Net earnings for the first six months of 2006 totaled $21.2 million, a 60.0% increase compared to the $13.3 million earned in the comparable period of 2005.

Diluted earnings per share in the second quarter of 2006 were $0.35, an increase of 34.6% as compared to second quarter 2005 earnings of $0.26 per share. Diluted earnings per share for the first six months of 2006 were $0.59, a 59.5% increase compared to the $0.37 per share earned last year.

Commenting on the results, Camden said, “We’re very pleased that we combined solid sales increases with improved operating efficiency to generate strong earnings growth.

“Our earnings before taxes were very strong and grew by nearly 62% during the second quarter. However, our net earnings after taxes increased at a lower rate of 36%, because our tax rate was significantly higher than last year. This was primarily due to the fact that legislation to retroactively extend Work Opportunity Credits for 2006 was not passed in the second quarter, as was originally expected. It is not unusual for the credits to be delayed, and we remain confident that this legislation will be passed before year end.

“Revenue in our U.S. Commercial segment, which accounted for 45% of total sales, increased 6.1% year over year in the second quarter. Operating earnings totaled $33.6 million, an increase of 16.2% compared to last year.

“Revenue in our Professional, Technical, and Staffing Alternatives (PTSA) segment, which accounted for 21% of total sales, increased 4.3% year over year in the second quarter. Operating earnings totaled $18.6 million and increased 14.1% on a year over year basis.

“Revenue in our International segment, which accounted for 34% of total sales, increased 13.0% year over year in the second quarter. Operating earnings totaled $5.2 million, and increased 31.8% compared to last year.

“On a constant currency basis, International segment revenue increased 11.8% year over year in the second quarter. On a constant currency basis, total company revenue increased 7.6% year over year in the second quarter.

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“Corporate expenses totaled $36.0 million and increased 1.4% compared to last year. Operating earnings totaled $21.3 million, and increased 56.7% on a year over year basis.”

Mr. Camden concluded, “We expect third quarter 2006 earnings to be in the range of $0.43 to $0.48, as compared to $0.35 per share in the third quarter of 2005. This guidance includes a tax rate of approximately 26%, which assumes legislation to retroactively extend Work Opportunity Credits to the beginning of 2006 will be signed during the third quarter. For the full year, we continue to forecast earnings between $1.50 and $1.60 per share.”

In conjunction with its second quarter earnings release, Kelly Services, Inc. will host a conference call at 9:00 a.m. (ET) on July 25, 2006 to review the results and answer questions. The call may be accessed in one of the following ways:

Via the Telephone:

U.S.	1-800-230-1074
International	1-612-288-0340

The pass code is Kelly Services

Via the Internet:

The call is also available via the internet through the Kelly Services website:

www.kellyservices.com

This release contains statements that are forward looking in nature and accordingly, are subject to risks and uncertainties. These factors include: competition, changing market and economic conditions, currency fluctuations, changes in laws and regulations, including tax laws, and other factors discussed in this release and in the company’s filings with the Securities and Exchange Commission. Actual results may differ materially from any projections contained herein.

Kelly Services, Inc. (NASDAQ: KELYA, KELYB) is a Fortune 500 company headquartered in Troy, Mich., offering staffing solutions that include temporary staffing services, staff leasing, outsourcing, vendor on-site and full-time placement. Kelly operates in 30 countries and territories. Kelly provides employment to more than 700,000 employees annually, with skills including office services, accounting, engineering, information technology, law, science, marketing, light industrial, education, health care, and home care. Revenue in 2005 was $5.3 billion. Visit www.kellyservices.com.

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KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF EARNINGS

FOR THE 13 WEEKS ENDED JULY 2, 2006 AND JULY 3, 2005

(UNAUDITED)

(In thousands of dollars except per share data)

	2006			2005			Change			% Change
Revenue from services	$	1,416,409		$	1,311,904		$	104,505		8.0	%
Cost of services		1,186,186			1,097,802			88,384		8.1
Gross profit		230,223			214,102			16,121		7.5
Selling, general and administrative expenses		208,897			200,494			8,403		4.2
Earnings from operations		21,326			13,608			7,718		56.7
Other income (expense), net		465			(152)			617		405.9
Earnings before taxes		21,791			13,456			8,335		61.9
Income taxes		9,118			4,123			4,995		121.1
Net earnings	$	12,673		$	9,333		$	3,340		35.8	%
Basic earnings per share	$	0.35		$	0.26		$	0.09		34.6	%
Diluted earnings per share	$	0.35		$	0.26		$	0.09		34.6	%
STATISTICS:
Gross profit rate		16.3	%		16.3	%		0.0	%
Expenses as a % of revenue		14.7			15.3			(0.6)
% Return -  Earnings from operations		1.5			1.0			0.5
Earnings before taxes		1.5			1.0			0.5
Net earnings		0.9			0.7			0.2
Effective income tax rate		41.8	%		30.6	%		11.2	%
Average number of shares outstanding (thousands):
Basic		35,943			35,597
Diluted		36,198			35,841

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KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF EARNINGS

FOR THE 26 WEEKS ENDED JULY 2, 2006 AND JULY 3, 2005

(UNAUDITED)

(In thousands of dollars except per share data)

	2006			2005			Change			% Change
Revenue from services	$	2,776,498		$	2,561,239		$	215,259		8.4	%
Cost of services		2,326,913			2,143,053			183,860		8.6
Gross profit		449,585			418,186			31,399		7.5
Selling, general and administrative expenses		414,822			398,483			16,339		4.1
Earnings from operations		34,763			19,703			15,060		76.4
Other income (expense), net		505			(187)			692		370.1
Earnings before taxes		35,268			19,516			15,752		80.7
Income taxes		14,037			6,245			7,792		124.8
Net earnings	$	21,231		$	13,271		$	7,960		60.0	%
Basic earnings per share	$	0.59		$	0.37		$	0.22		59.5	%
Diluted earnings per share	$	0.59		$	0.37		$	0.22		59.5	%
STATISTICS:
Gross profit rate		16.2	%		16.3	%		(0.1)	%
Expenses as a % of revenue		14.9			15.6			(0.7)
% Return -  Earnings from operations		1.3			0.8			0.5
Earnings before taxes		1.3			0.8			0.5
Net earnings		0.8			0.5			0.3
Effective income tax rate		39.8	%		32.0	%		7.8	%
Average number of shares outstanding (thousands):
Basic		35,907			35,566
Diluted		36,187			35,957

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KELLY SERVICES, INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS BY SEGMENT

(UNAUDITED)

(In thousands of dollars)

	Second Quarter
	2006		2005		Change		% Change
Revenue from Services:
U.S. Commercial Staffing	$	639,213	$	602,425	$	36,788	6.1	%
PTSA		293,085		280,964		12,121	4.3
International		484,111		428,515		55,596	13.0
Consolidated Total	$	1,416,409	$	1,311,904	$	104,505	8.0	%
Earnings from Operations:
U.S. Commercial Staffing	$	33,553	$	28,877	$	4,676	16.2	%
PTSA		18,552		16,253		2,299	14.1
International		5,178		3,929		1,249	31.8
Corporate Expense		(35,957)		(35,451)		(506)	(1.4)
Consolidated Total	$	21,326	$	13,608	$	7,718	56.7	%
	June Year to Date
	2006		2005		Change		% Change
Revenue from Services:
U.S. Commercial Staffing	$	1,258,056	$	1,167,939	$	90,117	7.7	%
PTSA		591,598		553,386		38,212	6.9
International		926,844		839,914		86,930	10.3
Consolidated Total	$	2,776,498	$	2,561,239	$	215,259	8.4	%
Earnings from Operations:
U.S. Commercial Staffing	$	63,088	$	54,278	$	8,810	16.2	%
PTSA		37,823		30,808		7,015	22.8
International		8,499		3,977		4,522	113.7
Corporate Expense		(74,647)		(69,360)		(5,287)	(7.6)
Consolidated Total	$	34,763	$	19,703	$	15,060	76.4	%

Note:   Earnings from Operations for 2005 were reclassified to reflect the chargeback of payroll, billing and accounts receivable costs previously included in Corporate Expense to the U.S. Commercial, PTSA and International segments. This change did not affect Consolidated Total Earnings from Operations.

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KELLY SERVICES, INC. AND SUBSIDIARIES

RECONCILIATION OF CONSTANT CURRENCY

REVENUE FROM SERVICES TO REPORTED REVENUE FROM SERVICES

(UNAUDITED)

(In thousands of dollars)

	Second Quarter
	2006		2005		Change		% Change
U.S. Commercial	$	639,213	$	602,425	$	36,788	6.1	%
PTSA		293,085		280,964		12,121	4.3
International - constant currency*		479,169		428,515		50,654	11.8
Revenue from services - constant currency		1,411,467		1,311,904		99,563	7.6	%
Foreign currency impact		4,942				4,942
Revenue from services	$	1,416,409	$	1,311,904	$	104,505	8.0	%
		June Year to Date
	2006		2005		Change		% Change
U.S. Commercial	$	1,258,056	$	1,167,939	$	90,117	7.7	%
PTSA		591,598		553,386		38,212	6.9
International - constant currency*		942,430		839,914		102,516	12.2
Revenue from services - constant currency		2,792,084		2,561,239		230,845	9.0	%
Foreign currency impact		(15,586)				(15,586)
Revenue from services	$	2,776,498	$	2,561,239	$	215,259	8.4	%

* Information on constant currencies is provided to allow investors to separate the impact of foreign currency translations on reported results. Constant currency results are calculated by translating the current year results at prior year average exchange rates.

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KELLY SERVICES, INC. AND SUBSIDIARIES

BALANCE SHEETS

(UNAUDITED)

(In thousands of dollars)

	July 2, 2006			January 1, 2006			July 3, 2005
Current Assets
Cash and equivalents	$	72,309		$	63,699		$	65,042
Short-term investments		252			154			214
Trade accounts receivable, less allowances of $17,709, $16,648 and $16,724, respectively		844,175			803,812			756,951
Prepaid expenses and other current assets		44,198			47,434			46,489
Deferred taxes		31,227			33,805			39,987
Total current assets		992,161			948,904			908,683
Property and Equipment, Net		161,437			165,757			171,161
Noncurrent Deferred Taxes		20,819			22,088			19,662
Goodwill, Net		96,043			88,217			88,431
Other Assets		107,070			87,891			83,794
Total Assets	$	1,377,530		$	1,312,857		$	1,271,731
Current Liabilities
Short-term borrowings	$	54,789		$	56,644		$	56,449
Accounts payable		114,298			110,411			107,133
Accrued payroll and related taxes		277,379			263,112			236,030
Accrued insurance		33,793			34,097			33,537
Income and other taxes		59,572			56,651			69,779
Total current liabilities		539,831			520,915			502,928
Noncurrent Liabilities
Accrued insurance		54,350			54,517			59,451
Accrued retirement benefits		61,008			57,443			53,988
Other long-term liabilities		14,130			7,939			7,731
Total noncurrent liabilities		129,488			119,899			121,170
Stockholders’ Equity
Common stock		40,116			40,116			40,116
Treasury stock		(87,335)			(90,919)			(94,789)
Paid-in capital		27,250			27,015			24,414
Earnings invested in the business		701,997			688,033			669,198
Accumulated other comprehensive income		26,183			7,798			8,694
Total stockholders’ equity		708,211			672,043			647,633
Total Liabilities and Stockholders’ Equity	$	1,377,530		$	1,312,857		$	1,271,731
STATISTICS:
Working Capital	$	452,330		$	427,989		$	405,755
Current Ratio		1.8			1.8			1.8
Debt-to-capital %		7.2	%		7.8	%		8.0	%
Global Days Sales Outstanding
Quarter		54			53			53
Year-to-date		55			55			54

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KELLY SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS

FOR THE 26 WEEKS ENDED JULY 2, 2006 AND JULY 3, 2005

(UNAUDITED)

(In thousands of dollars)

	2006		2005
Cash flows from operating activities
Net earnings	$	21,231	$	13,271
Noncash adjustments:
Depreciation and amortization		20,610		21,128
Stock-based compensation		2,246		1,163
Increase in trade accounts receivable, net		(20,191)		(53,222)
Changes in other operating assets and liabilities		16,065		26,334
Net cash from operating activities		39,961		8,674
Cash flows from investing activities
Capital expenditures		(14,563)		(12,726)
(Increase) decrease in short-term investments		(97)		1,142
Increase in other assets		(364)		(8,503)
Acquisition of company, net of cash received		(4,469)		-
Investment in unconsolidated affiliate		-		(18,450)
Net cash from investing activities		(19,493)		(38,537)
Cash flows from financing activities
(Decrease) increase in short-term borrowings		(4,016)		7,161
Dividend payments		(7,267)		(7,112)
Stock options and other stock sales		1,526		1,745
Other financing activities		(2,692)		(2,428)
Financing to fund long-term investment in unconsolidated affiliate		-		18,450
Net cash from financing activities		(12,449)		17,816
Effect of exchange rates on cash and equivalents		591		(2,259)
Net change in cash and equivalents		8,610		(14,306)
Cash and equivalents at beginning of period		63,699		79,348
Cash and equivalents at end of period	$	72,309	$	65,042