NOT FOR DISTRIBUTION OR TRANSMISSION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES.

Transcription

1 IMPORTANT NOTICE NOT FOR DISTRIBUTION OR TRANSMISSION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES. IMPORTANT: You must read the following notice before continuing. The following notice applies to the issue of Bonds described in the Listing Prospectus dated 20 November 2009 prepared in connection with the listing of the Bonds on the SIX Swiss Exchange Ltd (the "Listing Prospectus"), whether received by , accessed from an internet page or otherwise received as a result of electronic communication and you are therefore advised to read this notice carefully before reading, accessing or making any other use of the Listing Prospectus. In reading, accessing or making any other use of the Listing Prospectus, you agree to be bound by the following terms and conditions and each of the restrictions set out in the Listing Prospectus, including any modifications made to them from time to time, each time you receive any information from us as a result of such access. NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE BONDS DESCRIBED IN THE LISTING PROSPECTUS IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE BONDS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUBJECT TO CERTAIN EXCEPTIONS, THE BONDS MAY NOT BE OFFERED, SOLD OR DELIVERED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT ("REGULATION S")). THE BONDS ARE BEING OFFERED AND SOLD OUTSIDE THE UNITED STATES TO NON-U.S. PERSONS IN RELIANCE ON REGULATION S. FOR A MORE COMPLETE DESCRIPTION OF RESTRICTIONS ON OFFERS AND SALES, SEE "SUBSCRIPTION AND SALE" AND "SELLING RESTRICTIONS" IN THE LISTING PROSPECTUS. THE LISTING PROSPECTUS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. DISTRIBUTION OR REPRODUCTION OF THE LISTING PROSPECTUS IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE SECURITIES LAWS OF OTHER JURISDICTIONS. To be eligible to view the Listing Prospectus or make an investment decision with respect to or in connection with the Bonds, each prospective investor in respect of the Bonds being offered outside of the United States in an offshore transaction pursuant to Regulation S must be a person other than a U.S. person (each a Relevant Person ). By accepting the and accessing, reading or making any other use of the Listing Prospectus, you shall be deemed to have represented to Adecco S.A. that (1) you are (or the person you represent is) a person other than a U.S. person, and that the electronic mail (or ) address to which, pursuant to your request, the Listing Prospectus has been delivered by electronic transmission is utilised by a person other than a U.S. person, and (2) you are a Relevant Person and/or a person to whom the Listing Prospectus may be delivered in accordance with the restrictions set out in the sections of the Listing Prospectus entitled Subscription and Sale and Sales Restrictions. The Listing Prospectus has been made available to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of Adecco Investment (Bermuda) Ltd. (the "Issuer") as issuer of the Bonds, Adecco S.A., or any person who controls or is a director, officer, employee or agent of any Manager, the Issuer or Adecco S.A. or any affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between the Listing Prospectus distributed to you in electronic format and the hard copy version available to you on request from the Managers (as named in the Listing Prospectus). The materials relating to the offering do not constitute, and may not be used in connection with any offer or solicitation in any place where such offers or solicitations are not permitted by law. Under no circumstances shall the Listing Prospectus constitute an offer to sell, or the solicitation of an offer to buy, nor shall there be any sale of the Bonds, in any jurisdiction in which such offer, solicitation or sale would be unlawful. The Listing Prospectus may only be communicated or caused to be communicated, in the United Kingdom to a person in the circumstances specified in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 in which Section 21(1) of the Financial Services and Markets Act 2000 does not apply to the Issuer. The distribution of the Listing Prospectus in certain jurisdictions may be restricted by law. Persons into whose possession the Listing Prospectus comes are required by the Managers, and the Issuer to inform themselves about, and to observe, any such restrictions.

2 Adecco Investment (Bermuda) Ltd. (incorporated in Bermuda in accordance with the laws of Bermuda with registered number 43579) CHF 900,000,000 Senior Secured Limited Recourse Mandatory Convertible Bonds due 2012 convertible into registered shares of Adecco S.A. (incorporated in Switzerland with limited liability) This prospectus (the "Prospectus") relates to an offering (the "Offering") of senior secured limited recourse mandatory convertible bonds in the aggregate amount of Swiss francs ("CHF") 900,000,000 due 2012 (the "Bonds" and each a "Bond") of Adecco Investment (Bermuda) Ltd. (the "Issuer") convertible into registered shares of Adecco S.A. ("Adecco" and, together with its subsidiaries, the "Adecco Group") with a nominal value of CHF 1 each as of the date hereof (the "Ordinary Shares"). The Bonds are constituted by a trust deed between the Issuer and Deutsche Trustee Company Limited (the "Trustee"). Unless defined otherwise herein, the words and expressions defined in the "Terms and Conditions of the Bonds" (as set out on page 42 et seq.) below shall have the same meaning in this Prospectus. Issue Price: 100% Placement Price: According to demand Settlement Date: 26 November 2009 Maturity Date: 26 November 2012 Assurances: Pari passu clause, negative pledge clause (with restrictions), trust deed Trustee: Deutsche Trustee Company Limited Issuer Status: The Issuer is a wholly owned subsidiary of Adecco, incorporated in Bermuda. The Issuer is a special purpose vehicle incorporated specifically for the issuance of the Bonds. Save for assets and liabilities incidental to its incorporation, the issue of the Bonds, the Call Spread Agreement, the Forward Purchase Agreement and the Loan Agreement, the Issuer has no other assets and liabilities. The Issuer will give customary undertakings restricting its activities Status of the Bonds: Direct, unsubordinated, secured limited recourse obligations of the Issuer Denomination / Form: The Bonds are in principal amounts of CHF 100,000 each and will be represented by a global bond in registered form without coupons (the "Global Bond"). Such Global Bond will be deposited with a common depositary for Euroclear and Clearstream, Luxembourg. Except in certain limited circumstances described in the Global Bond, investors will not be entitled to receive the Bonds in definitive form Interest: 6.50% per annum payable in arrear on 1 June in each year (each an "Interest Payment Date"), subject to deferral provisions. The first Interest Payment Date will be 1 June 2010 and the final Interest Payment Date will fall on the Maturity Date (short first and last coupon) Minimum Conversion Price: The "Minimum Conversion Price" will be CHF (100% of the Reference Price) Maximum Conversion Price: The "Maximum Conversion Price" will be CHF (120% of the Reference Price) Reference Price for the Ordinary Shares: CHF 50.50, being the placement price determined in the bookbuilding for the Ordinary Shares Mandatory Conversion on Maturity Date: Listing and Trading: Selling Restrictions: Governing Law and Jurisdiction: Unless previously converted or purchased and cancelled, each Bond will be mandatorily converted on the Maturity Date into a number of Ordinary Shares equal to the Maturity Conversion Shares per Bond The Bonds have been provisionally admitted to trading on the SIX Swiss Exchange as of 24 November 2009 and application will be made for the Bonds to be listed on the SIX Swiss Exchange; last trading day for the Bonds is expected to be 21 November Reg S Category 1 only, no sales into US (not Rule 144A eligible), UK, Bermuda, Canada, Japan, Australia or South Africa (for details see page 6 of this Prospectus) The Bonds will be governed by, and construed in accordance with, English Law. English courts will have jurisdiction See "Risk Factors" for a discussion of certain factors that should be considered in connection with an investment in the Bonds. Global Co-ordinator Deutsche Bank Credit Suisse ABN AMRO Joint Lead Managers Co-Lead Managers Co-Managers Deutsche Bank Société Générale Corporate & Investment Banking Banca IMI BNP PARIBAS CALYON ING NATIXIS Bonds Ordinary Shares Swiss Security Number ISIN XS CH Common Code Ticker Symbol ADI09 ADEN The date of this Prospectus is 20 November 2009

3 IMPORTANT INFORMATION THIS DOCUMENT MAY NOT BE PUBLISHED IN OR DISTRIBUTED DIRECTLY OR INDIRECTLY INTO THE UNITED STATES OR US PERSONS, CANADA, JAPAN, AUSTRALIA OR SOUTH AFRICA OR TO ANY OTHER JURISDICTION IN WHICH OFFERS OR SALES WOULD BE PROHIBITED BY APPLICABLE LAW. Prospective holders of Bonds (the "Bondholders") are expressly advised that an investment in the Bonds entails financial risks (including, without limitation, that (a) the market price of the Ordinary Shares into which the Bonds are convertible may be volatile, that (b) there is no prior market for the Bonds and no active trading market may develop, and that (c) the Bond prices may be volatile) and they should therefore carefully review the entire content of this Prospectus. For a description of certain further risks see "Risk Factors" on pages 15 et seq. Investors should satisfy themselves that they understand all the risks associated in making investments in the Bonds and the Ordinary Shares. The Bonds and the Ordinary Shares are only suitable for financially sophisticated investors who are capable of evaluating the risks involved in investing in the Bonds and the Ordinary Shares. This Prospectus does not constitute an offer of, or an invitation by or on behalf of the Issuer, Adecco or the Managers (as defined under "General Information-Subscription and Sale") to subscribe for, any of the Bonds. The distribution of this Prospectus and the offering or sale of the Bonds in certain jurisdictions is restricted by law. Persons into whose possession this Prospectus may come are required by the Issuer, Adecco and the Managers to inform themselves about and to observe such restrictions. This Prospectus may not be used for or in connection with any offer to, or solicitation by, anyone in any jurisdiction or in any circumstances in which such offer or solicitation is not authorised or is unlawful. This Prospectus may only be used for the purposes for which it has been published. This Prospectus is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by the Issuer, Adecco, the Managers or the Trustee that any recipient of this Prospectus should purchase any of the Bonds. In making an investment decision, prospective Bondholders must rely on their own examination of the Issuer, Adecco and the terms and conditions of the Offering, including the merits and risks involved. Prospective Bondholders should not construe anything in this Prospectus as legal, business or tax advice. Each prospective Bondholder should consult its own advisors as needed to make its investment decision and to determine whether it is legally permitted to purchase the Bonds under applicable laws and regulations. Each person receiving this Prospectus acknowledges that such person has not relied on the Managers or any of them in connection with its investigation of the accuracy of such information or its investment decision. No dealer, salesman or any other person has been authorised to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorised by or on behalf of the Issuer, Adecco or the Managers. No representation or warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Managers or any of their affiliates or advisers or selling agents as to the accuracy or completeness of any information contained in this Prospectus and nothing contained in this Prospectus is, or shall be relied upon as, a promise or representation by the Managers or any of their affiliates or advisers or selling agents as to the past or the future. Neither the delivery of this Prospectus nor any sale of Bonds shall under any circumstances create any implication that there has been no change in the information contained herein or in the affairs of the Issuer or Adecco since the date hereof. In connection with the offering of the Bonds, the Managers and any of their respective affiliates acting as an investor for its or their own account(s) may subscribe for or purchase, as the case may be, Bonds or Ordinary Shares, and, in that capacity, may retain, purchase, sell, offer to sell or otherwise deal for its or their own account(s) in such securities, any other securities of the Issuer or Adecco or other related investments in connection with the offering or otherwise. Accordingly, references in this Prospectus to the Bonds or Ordinary Shares being issued, offered, subscribed or otherwise dealt with should be read as including any issue or offer to, or subscription or dealing by, the Managers or any of them and any of their affiliates acting as an investor for its or their own account(s). The Managers do not intend to disclose the extent of any such investment or transactions otherwise than 2/298

4 in accordance with any legal or regulatory obligation to do so. The Bonds and the Ordinary Shares to be issued upon conversion of the Bonds have not been and will not be registered under the U.S. Securities Act of 1933 (the "Securities Act") and may not be offered, sold or delivered in the United States except in accordance with Regulation S or in a transaction that is exempt from, or not subject to, the registration requirements of the Securities Act. For a description of certain further restrictions on offers and sales of Bonds and distribution of this Prospectus, see "Sales Restrictions" on pages 6 et seq. All references in this document to "U.S. dollars", "USD","U.S.$" and "$" are to the currency of the United States of America, references to "GBP" and " " are to the currency of the United Kingdom, references to "Swiss francs" and "CHF" are to the currency of Switzerland and references to "Euro", "EUR" and " " are to the currency introduced at the start of the third stage of the European economic and monetary union pursuant to the Treaty establishing the European Community as amended by the Treaty on European Union and the Treaty of Amsterdam. Bermuda The Issuer has received a direction from the Bermuda Minister of Finance that Part III and Section 35 of Part IV of the Companies Act 1981 of Bermuda, as amended, relating to prospectuses and public offers shall not apply to the Offering provided that the Offering is only made to persons who are recognised as institutional, professional or sophisticated investors in the relevant jurisdictions in which the Offering is being effected, such persons being comparable to the definition of persons who are "qualified investors" (within the meaning of Article 2(1)(e) of the Prospectus Directive of the European Union (Directive 2003/71/EC)). This Prospectus will be filed with the Registrar of Companies in Bermuda in accordance with Bermuda law. In giving such direction or accepting this Prospectus for filing, neither the Bermuda Minister of Finance nor the Registrar of Companies in Bermuda accepts any responsibility for the financial soundness or the correctness of any of the statements made or opinions expressed in this Prospectus. Notice to Prospective Bondholders This Prospectus has been prepared by the Issuer for the purpose of making offers and sales of Bonds outside the United States to non-u.s. persons in reliance on Regulation S of the Securities Act (the "Regulation S"). Each prospective Bondholder of Bonds offered hereby will be deemed to have represented and agreed that such prospective Bondholder understands that the Bonds and the Ordinary Shares have not been and will not be registered under the Securities Act, and may not be offered or sold in the United States. 3/298

5 Table of Contents SALES RESTRICTIONS... 6 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 7 SUMMARY... 8 RISK FACTORS RESPONSIBILITY STATEMENT SECTION 1: GENERAL INFORMATION Authorisation Subscription and Sale Lock-Up No Stabilisation Activities Use of Proceeds Representative Publications Trust Deed Documents Available Taxation SECTION 2: INFORMATION ON THE BONDS, ASSETS AND SECURITY Structural Overview Assets Security Description of Risks Terms and Conditions of the Bonds Provisions relating to the Bonds while in Global Form SECTION 3: INFORMATION ON THE ORDINARY SHARES Share Category Share Capital Subscription and Preemptive Rights Listings, Ticker Symbols Share Price (on SIX Swiss Exchange) Dividends /298

6 SECTION 4: INFORMATION ON THE ISSUER General Information Board of Directors and Auditors Business Activities Share Capital Financial Statements No Material Adverse Change SECTION 5: INFORMATION ON ADECCO General Information Board of Directors and Auditors Business Activities Financial Results Licences Legal Proceedings Capital Structure SECTION 6: INFORMATION ON THE TRUSTEE Profile of the Trustee Authorities of the Trustee Retirement and Removal of the Trustee Governing Law and Jurisdiction Availability of Trust Deed ANNEXES: Annex A Opening Balance Sheet of the Issuer Annex B Financial Review Adecco Group and Adecco 2008 (incl. Auditor's Reports) Annex C Financial Review Adecco Group and Adecco 2007 (incl. Auditor's Reports) Annex D Adecco Group Half Year Report Annex E Adecco Group Quarterly Release Q /298

7 SALES RESTRICTIONS The Offering consists of a public offering of Bonds in Switzerland from 23 November 2009 and private placements of Bonds to other prospective Bondholders in certain other jurisdictions outside of Switzerland, and outside of the United States and other jurisdictions, where prohibited by applicable law. The Bonds are being offered outside the United States in reliance on Regulation S, and in accordance with applicable securities laws. No action has been or will be taken in any jurisdiction outside Switzerland by the Issuer, and no action has been taken by the Managers, that would, or is intended to, permit a public offering of the Bonds, or possession or distribution of this Prospectus or any other offering material, in any country or jurisdiction where action for that purpose is required. Persons into whose hands this Prospectus comes are required by the Issuer and the Managers to comply with all applicable laws and regulations in each country or jurisdiction in which they purchase, offer, sell or deliver Bonds or have in their possession, distribute or publish this Prospectus or any other offering material relating to the Bonds, in all cases at their own expense. Each prospective Bondholder must comply with all applicable laws and regulations in force in any jurisdiction in which it purchases, offers or sells Bonds or possesses or distributes this Prospectus and must obtain any consent, approval or permission required for the purchase, offer or sale by it of Bonds under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers or sales, and none of the Issuer, Adecco or the Managers shall have any responsibility therefor. United States of America The Bonds and the Ordinary Shares to be issued upon conversion of the Bonds have not been and will not be registered under the Securities Act and may not be offered or sold within the United States except in accordance with Regulation S under the Securities Act (Regulation S) or pursuant to an exemption from the registration requirements of the Securities Act. Each Manager has represented that it has not offered or sold, and agrees that it will not offer or sell, any Bonds constituting part of its allotment within the United States except in accordance with Rule 903 of Regulation S. Terms used in this paragraph have the meanings given to them by Regulation S. United Kingdom Each Manager has represented, warranted and agreed that: (i) (ii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act ("FSMA")) received by it in connection with the issue or sale of any Bonds in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom. Bermuda The Issuer has received a direction from the Bermuda Minister of Finance that Part III and Section 35 of Part IV of the Companies Act 1981 of Bermuda, as amended, relating to prospectuses and public offers shall not apply to the Offering provided that the Offering is only made to persons who are recognised as institutional, professional or sophisticated investors in the relevant jurisdictions in which the Offering is being effected, such persons being comparable to the definition of persons who are "qualified investors" (within the meaning of 6/298

8 Article 2(1)(e) of the Prospectus Directive of the European Union (Directive 2003/71/EC)). This Prospectus will be filed with the Registrar of Companies in Bermuda in accordance with Bermuda law. In giving such direction or accepting this Prospectus for filing, neither the Bermuda Minister of Finance nor the Registrar of Companies in Bermuda accepts any responsibility for the financial soundness or the correctness of any of the statements made or opinions expressed in this Prospectus. General Each Manager has agreed that it will (to the best of its knowledge and belief) comply with all applicable securities laws and regulations in force in any jurisdiction in which it purchases, offers, sells or delivers Bonds or possesses or distributes this Prospectus. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Prospectus contains certain forward-looking statements and information relating to the Adecco Group that are based on the current expectations, estimates and projections of its management and information currently available to the Adecco Group. These statements include, but are not limited to, the statements under "Information on Adecco-Business Activities" and other statements contained in this Prospectus that are not historical facts. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance or achievements of the Adecco Group to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Terms and phrases such as "believe", "expect", "anticipate", "intend", "plan", "predict", "estimate", "project", "may" and "could", and variations of these words and similar expressions, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. These statements reflect current views of the Adecco Group's management with respect to future events and are not a guarantee of future performance. Various factors could cause actual results or performance to differ materially from the expectations reflected in these forward-looking statements. These factors include, among others: The Adecco Group's ability to successfully implement its growth and operating strategies; Intense competition in the markets in which Adecco Group operates; integration of acquired companies; Changes in Adecco Group s ability to attract and retain qualified internal and external personnel or clients; Fluctuations in interest rates or foreign currency exchange rates; Changes in global GDP trends and the demand for temporary work; Changes in regulation of temporary work; Instability in domestic and foreign financial markets; The Adecco Group's ability to obtain commercial credit; Changes in general political, economic and business conditions in the countries or regions in which the Adecco Group operates; The potential impact of disruptions related to IT; and Any adverse developments in existing commercial relationships, disputes or legal and tax proceedings. 7/298

9 Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. Therefore, no undue reliance should be placed on forward-looking statements. The Adecco Group undertakes no obligation to update any forward-looking statement, even if new information, future events or other circumstances have made them incorrect or misleading. All subsequent written and oral forward-looking statements attributable to the Adecco Group are qualified in their entirety by the foregoing factors. SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and the financial information, including the notes thereto, appearing elsewhere in this Prospectus. Issuer Securities Offered Denomination / Form Ordinary Shares Adecco Investment (Bermuda) Ltd. Senior Secured Limited Recourse Mandatory Convertible Bonds due 2012, mandatorily convertible into Ordinary Shares The Bonds are in principal amounts of CHF 100,000 each and will be represented by the Global Bond. Such Global Bond will be deposited with a common depositary for Euroclear and Clearstream, Luxembourg. Except in certain limited circumstances described in the Global Bond, investors will not be entitled to receive the Bonds in definitive form New or existing registered shares in Adecco with a par value of currently CHF 1 each (the "Ordinary Shares") Ordinary Shares delivered on conversion will rank for all dividends where the relevant record date or other due date for the establishment of entitlement falls on or after the relevant Conversion Date Aggregate Principal Amount Issuer Status Status of the Bonds Overview The Assets CHF 900 million The Issuer is a wholly owned subsidiary of Adecco, incorporated in Bermuda. The Issuer is a special purpose vehicle incorporated specifically for the issuance of the Bonds. Save for assets and liabilities incidental to its incorporation, the issue of the Bonds, the Call Spread Agreement, the Forward Purchase Agreement and the Loan Agreement, the Issuer has no other assets and liabilities. The Issuer will give customary undertakings restricting its activities. Direct, unsubordinated, secured limited recourse obligations of the Issuer See "Section 2: Information on the Bonds, Assets and Security" for an overview of the structure and contractual arrangements underlying the Bonds The Issuer will enter into a share forward purchase agreement (the "Forward Purchase Agreement") with Adecco pursuant to which the Issuer will make payment to Adecco of a sum equal to the net proceeds of the issue of the Bonds and Adecco will grant to the Issuer the right to require Adecco to issue or deliver to as directed by the Issuer a number of Ordinary Shares equal to the number of Ordinary Shares required to be delivered by the Issuer to Bondholders pursuant to the Bonds and to Adecco Financial Services (Bermuda) Ltd., ("Adecco Financial Services") pursuant to the Call Spread Agreement referred to below. The Forward Purchase Agreement will contain provisions relating to adjustments that correspond to the provisions of the Bonds relating to the 8/298

10 adjustment of the Maximum and Minimum Conversion Prices. The obligations of Adecco under the Forward Purchase Agreement will be subordinated in that if Adecco fails to deliver Ordinary Shares and becomes insolvent or steps are otherwise taken for its winding-up, the claims of the Issuer against Adecco in the winding-up of Adecco shall entitle the Issuer to participate in the proceeds of such winding-up pari passu with the holders of Ordinary Shares of Adecco. This participation will be expressed to be in respect of an amount equal to the total number of Ordinary Shares that Adecco shall have failed to deliver to the Issuer in accordance with the Forward Purchase Agreement The Issuer will enter into a call spread agreement (the "Call Spread Agreement") with Adecco Financial Services pursuant to which the Issuer will, upon conversion of the Bonds, deliver to Adecco Financial Services a number of Ordinary Shares equal to the Issuer s Specified Proportion and pursuant to which Adecco Financial Services will pay to the Issuer, by way of an up-front premium payment (the "Premium Payment"), an amount equal to the sum of all scheduled interest payments on the Bonds The Premium Payment will be credited to an account of the Issuer with the Principal Paying, Transfer and Conversion Agent (the "Premium Account") Amounts credited to the Premium Account will be applied (a) in making payments when due to Bondholders of the Bonds, (b) in the case of a voluntary conversion at the option of the Bondholders, in making payment to the Issuer of an amount equal to the sum of all scheduled payments of interest on the relevant Bonds falling after the relevant Conversion Date, (c) in the case of a voluntary conversion by Bondholders following a Change of Control, in making payments to the Issuer of an amount (if any) by which the sum of all scheduled payments of interest on the relevant Bonds exceeds the Make Whole Amount in respect of such Bonds and (d) in the case of a conversion of all the Bonds, in making payments to the Issuer of any amounts standing to the credit of the Premium Account following satisfaction of the Issuer s obligations in respect of such conversion All or part of the amounts credited to the Premium Account may, at any time other than during the period commencing on the exercise of rights of conversion of the Bonds by the Issuer or Bondholders and ending on the relevant Conversion Date, be from time to time loaned by the Issuer to Adecco pursuant to the Loan Agreement. Such loans will be repayable upon demand by the Issuer and will be interest bearing. The Loan Agreement will provide for repayment on each day on which a payment is required to be made by the Issuer pursuant to the Bonds of an amount equal to such payment. Interest paid on such loans will not be paid into the Premium Account and may be used for such purposes as the Issuer may determine. The obligations of Adecco under the Loan Agreement will constitute subordinated obligations of Adecco Accordingly, on a winding-up, liquidation, bankruptcy or dissolution of Adecco the rights and claims of the Issuer against Adecco in respect of the Loan Agreement will rank behind unsubordinated creditors of Adecco, but will rank at least pari passu with all other subordinated creditors of Adecco The Issuer has no other material assets available to it to meet its obligations under the Bonds other than its rights under the Forward Purchase Agreement, the Call Spread Agreement and the Loan Agreement and the Premium Account (the "Assets") Limited Recourse Claims of the Bondholders against the Issuer shall be limited to any amount or property received or recovered in respect of the Issuer s rights and entitlements under the Assets, and the Bonds shall not give 9/298

11 rise to any payment or other obligations in excess of any amount or property received or recovered in respect of the Assets Risk Factors Adecco S.A. Rating For a description of certain considerations that should be taken into account in deciding whether to invest in the Bonds, see "Risk Factors" on pages 15 et seq. Baa3 (Outlook Stable) by Moody's BBB (Outlook Negative) by Standard & Poor's Minimum Conversion Price Maximum Conversion Price Reference Price The "Minimum Conversion Price" will be CHF (100% of the Reference Price) The "Maximum Conversion Price" will be CHF (120% of the Reference Price) CHF 50.50, being the placement price determined in the bookbuilding for the Ordinary Shares Issue Price 100% Settlement Date 26 November 2009 Maturity Date Interest 26 November 2012 (3 years after the Issue Date) 6.50% per annum payable in arrear on 1 June in each year (each an "Interest Payment Date"). The first Interest Payment Date shall be 1 June 2010 and the final Interest Payment Date shall fall on the Maturity Date (short first and last coupon) Deferral of Interest The Issuer may, by giving notice to the Bondholders by not later than 10 Zurich business days prior to any Interest Payment Date, elect to defer in whole or in part the interest which would otherwise be due and payable on any such Interest Payment Date provided that during the period of 3 months ending on and including such Deferred Interest Payment Date, Adecco shall not have: (i) declared, paid or made any dividend or other distribution in respect of the Ordinary Shares; or (ii) redeemed, purchased or acquired any Ordinary Shares (but, for the avoidance of doubt, other than any acquisition of Ordinary Shares by the Issuer pursuant to the Forward Purchase Agreement and other than pursuant to an Exempt Transaction) "Exempt Transaction" means any purchase or acquisition of Ordinary Shares for the purposes of or to enable Adecco to meet obligations under or in respect of any long-term executive or employee incentive plan or any executive or employee share option plan Payment of Deferred Interest If (1) Adecco shall declare, pay or make any dividend or other distribution in respect of the Ordinary Shares; or (2) Adecco or any subsidiary of Adecco shall redeem, purchase or otherwise acquire any Ordinary Shares (but, for the avoidance of doubt, other than any acquisition of Ordinary Shares by the Issuer pursuant to the Forward Purchase Agreement and other than pursuant to an Exempt Transaction) then the Issuer shall on or prior to the date any such dividend or other distribution is paid or made or any such redemption, purchase or acquisition is made, pay in full all outstanding and unpaid deferred interest In the event of an early conversion at the option of the Issuer, a volun- 10/298

12 tary conversion by Bondholders following a Change of Control or a Conversion following an Accelerated Conversion Event, all outstanding and unpaid deferred interest shall be paid in full All deferred interest outstanding and unpaid on the Maturity Date shall be paid in full on the Maturity Date Upon a Voluntary Conversion at the option of Holders, all outstanding and unpaid deferred interest shall be cancelled, and the Issuer shall have no further liability in respect thereof Conversion Shares per Bond Relevant Proportion Number of Ordinary Shares determined by dividing the principal amount of one Bond by the Minimum Conversion Price (the "Conversion Shares per Bond") The "Relevant Proportion" on any dealing day shall be determined as follows: (i) if the Volume Weighted Average Price ("VWAP") of the Ordinary Shares is less than or equal to the Minimum Conversion Price, the Relevant Proportion for such dealing day shall be 100% (the "Maximum Proportion") (ii) if the VWAP is greater than the Maximum Conversion Price, the Relevant Proportion for such dealing day shall be the fraction (expressed as a percentage) determined in accordance with the following formula: 1 [ ( MaxCP MinCP) ] VWAP where: MaxCP = Maximum Conversion Price in effect on the relevant dealing day MinCP = Minimum Conversion Price in effect on the relevant dealing day VWAP = Volume Weighted Average Price per Share on the relevant dealing day (iii) if the VWAP is greater than the Minimum Conversion Price but less than or equal to the Maximum Conversion Price, the Relevant Proportion for such dealing day shall be the Minimum Conversion Price divided by the VWAP, expressed as a percentage. For the avoidance of doubt, if the VWAP is equal to the Maximum Conversion Price the Relevant Proportion will be per cent of the Conversion Shares per Bond ("Minimum Proportion") Change of Control Proportion The "Change of Control Proportion" means (1 RP) x t/t where: RP = Relevant Proportion t = Number of days remaining from (and including) the relevant Conversion Date to (but excluding) the Maturity Date T = 1096, the number of days from (and including) the Issue Date to (but excluding) the Maturity Date Mandatory Conversion on Maturity Date The Bonds will only be convertible into Ordinary Shares and will not be 11/298

13 redeemable for cash Unless previously converted or purchased and cancelled, Bonds will be mandatorily converted on the Maturity Date into a number of Ordinary Shares equal to the Maturity Conversion Shares per Bond The "Maturity Conversion Shares per Bond" will be calculated as a proportion of the Conversion Shares per Bond on the Maturity Date, such proportion being the arithmetic average of the Relevant Proportion on each dealing day in the period of 20 consecutive dealing days ending on the third dealing day prior to the Maturity Date Voluntary Conversion at the option of the Bondholders The Bonds may at the option of each Bondholder be converted into Ordinary Shares at any time 41 days after the Settlement Date until the 30th dealing day (dates inclusive) prior to the Maturity Date (the "Voluntary Conversion Option") In case of a Voluntary Conversion at the option of Holders, the Bondholders will receive a number of Ordinary Shares for each Bond equal to the Minimum Proportion of the Conversion Shares per Bond Early Conversion at the Option of the Issuer Voluntary Conversion by Bondholders following a Change of Control The Bonds may at the option of the Issuer be converted into Ordinary Shares at any time 41 days after the Settlement Date until the 30th dealing day (dates inclusive) prior to the Maturity Date. The Bondholders will receive Ordinary Shares for each Bond equal to the maximum proportion of the Conversion Share per Bond, together with the Make Whole Amount If an Offer is publicly announced, then at any time from (and including) the day the Offer is publicly announced up to (and including the last day of the Relevant Period) a Bondholder may exercise the right to convert Bonds If a Bondholder shall exercise the right to convert Bonds and the relevant Bond and conversion notice shall be received at the specified office of any Paying, Transfer and Conversion Agent on any Zurich business day prior to the publication of the Definitive Interim Results, then provided that a Change of Control shall occur, the relevant Conversion Date shall be deemed to be the Zurich business day immediately following such publication. If the Change of Control shall not have occurred by the time of such publication, then the relevant conversion notice and exercise of the right of conversion by the relevant Bondholder shall be null and void (but without prejudice to the ability of the relevant Bondholder to convert Bonds at any other time pursuant to these Conditions) and the relevant Bond shall be re-delivered to the relevant Bondholder If a Bondholder shall have exercised the right to convert Bonds and the relevant Bonds and conversion notice shall be received at the specified office of a Paying, Transfer and Conversion Agent at any time on or after publication of the Definitive Interim Results and prior to the end of the Relevant Period, then provided that a Change of Control shall have occurred, the Conversion Date shall be the dealing day following the delivery of the relevant Bond and conversion notice Upon a Voluntary Conversion by Bondholders following a Change of Control, the Bondholder will receive a number of Ordinary Shares calculated as a proportion of the Conversion Shares per Bond, such proportion being the sum of the Relevant Proportion on the relevant Conversion Date and the Change of Control Proportion on the relevant Conversion Date. In addition Bondholders will receive the Make Whole Amount Where: A "Change of Control" shall occur if an Offer is made and such Offer 12/298

14 shall have become or shall have been declared unconditional (except in relation to any conditions remaining to be satisfied at the time of the publication of the Definitive Interim Results) by the publication of the Definitive Interim Results (provided that, based on such Definitive Interim Results, the Offeror shall hold or control not less than 51 per cent of the issued Ordinary Shares of Adecco (including for the avoidance of doubt, any Ordinary Shares tendered in the Offer) "Offer" means an offer to all (or as nearly as may be practicable all) Shareholders (or all) (or as nearly as may be practicable all) Shareholders other than the offeror and/or any associates of the offeror or any parties acting in concert (as defined in Article 11 of the Swiss Takeover Ordinance) to acquire all or a majority of the issued Ordinary Shares of Adecco "Definitive Interim Results" means, in respect of an Offer, the definitive results of acceptances of such Offer during the initial period (as may be extended) during which the Offer is open for acceptance and that is required to be published pursuant to the Swiss Takeover Ordinance "Relevant Period" means, in respect of an Offer, the period ending on the 60th dealing day following the publication of the Definitive Interim Results in respect of such Offer "Swiss Takeover Ordinance" means, the Ordinance of the Swiss Takeover Board on Public Tender Offers of 21 August 2008, or any modification or re-enactment thereof Conversion on Accelerated Conversion Event The following are Accelerated Conversion Events: Non-payment of any payments under the Bonds when due or failure to deliver Ordinary Shares upon conversion and, such failure continuing for a period of 10 trading days Breach of other conditions under the terms of the Bonds, which default is incapable of remedy or is not remedied within 30 days Non-payment by Adecco of any existing or future indebtedness, subject to a threshold of EUR 50 million or, if greater, an amount equal to two per cent of the consolidated shareholders equity of Adecco as set out in the most recently published audited consolidated annual accounts of Adecco The Issuer and/or Adecco is insolvent or bankrupt or unable to pay its debts as and when they fall due or if the Issuer and/or Adecco has initiated or consented to become subject to proceedings relating to itself under any applicable bankruptcy, liquidation, insolvency, administration, examinership, or insolvency law The corporate credit rating of Adecco from any of Moody s Investors Service Limited ("Moody s") or Standard & Poor s Rating Services, a division of The McGraw-Hill Companies Inc. ("S&P") or any of their respective successors (each a "Rating Agency") falls to or below Ba2 (in the case of Moody s) or to or below BB (in the case of S&P) The corporate credit rating of Adecco from any of Moody s or S&P is withdrawn Upon the occurrence of an Accelerated Conversion Event the outstanding Bonds will be converted into Ordinary Shares such that the Bondholder will receive a number of Ordinary Shares calculated as a proportion of the Conversion Shares per Bond, such proportion being the arithmetic average of the Relevant Proportion on each dealing day in the period of each of the 20 consecutive dealing days commencing on the 3 rd dealing day following the accelerated conversion notice being given by the Trustee. In addition, Bondholders will receive the Make 13/298

15 Whole Amount Make Whole Amount Present Value All deferred interest and the present value of all interest due on Interest Payment Dates falling after the relevant Conversion Date until the Maturity Date (the "Make Whole Amount") In the case of an Early Conversion at the option of the Issuer, a Voluntary Conversion at the option of Holders following a Change of Control or a Conversion following an Accelerated Conversion Event, the Issuer shall pay to each Bondholder on the relevant Conversion Date in respect of each Bond converted, an amount equal to the Present Value "Present Value" means, in respect of a Bond, an amount in CHF (rounded, if necessary, to the nearest CHF 0.01, with CHF being rounded up), equal to the aggregate amount of all Interest Amounts relating to such Bond in respect of Interest Payment Dates falling after the relevant Conversion Date and up to and including the Maturity Date, discounted, in each case, from the relevant Interest Payment Date to the relevant Conversion Date by reference to appropriate CHF interbank offered rates and mid-swap rates Fractions Anti-dilution /adjustment provisions Share Dividend Adjustment The number of Ordinary Shares to be delivered upon conversion to any Bondholder is calculated by reference to the aggregate number of Bonds presented for conversion by such Bondholder. Fractions of Ordinary Shares will not be delivered and no cash payments will be made The Maximum Conversion Price and Minimum Conversion Prices are subject to adjustment in accordance with Standard Euromarket antidilution and adjustment provisions, dealing with, inter alia, share subdivisions and consolidations, rights issues, bonus issues, mergers and distributions, including full conversion price adjustments for any dividends or distributions made on the Ordinary Shares If and whenever Adecco shall pay or make any dividend or distribution to Shareholders, the Minimum Conversion Price and Maximum Conversion Price shall be adjusted by multiplying the Minimum Conversion Price and Maximum Conversion Price in force immediately prior to the Effective Date (where the "Effective Date" means the first date on which the Ordinary Shares are traded ex-the relevant dividend) by the following fraction: A B A where: A is the Current Market Price of a Share on the Effective Date B is the portion of the aggregate dividend attributable to one Share, with such portion being determined by dividing the aggregate dividend by the number of Ordinary Shares entitled to receive the relevant dividend Where "Current Market Price" means the arithmetic average of the daily VWAP on each of 5 consecutive dealing days ending on the dealing day immediately preceding such date, as defined in the Terms & Conditions Such adjustment shall become effective on the Effective Date Governing Law Jurisdiction Tax English law The English courts The Bonds do not contain any gross up provision and may not be redeemed by the Issuer 14/298

16 Under current law and practice, payments in respect of the Bonds by the Issuer are neither subject to withholding taxes in Bermuda nor to Swiss Withholding Tax (Verrechnungssteuer) Any Swiss securities transfer stamp duty (Umsatzabgabe), if due, as well as the fee of the SIX Swiss Exchange, if any, payable upon the delivery of the Ordinary Shares upon the conversion of Bonds will be paid or reimbursed by Adecco Principal Paying, Transfer & Conversion Agent Swiss Paying, Transfer & Conversion Agent Share Delivery Agent Calculation Agent Trustee Listing and Trading Deutsche Bank AG, London Branch, pursuant to the Calculation Agency Agreement with the Issuer (the "Calculation Agency Agreement"), to be entered on or about 26 November Credit Suisse AG Credit Suisse AG Deutsche Bank AG, London Branch Deutsche Trustee Company Limited (the "Trustee") The Bonds have been provisionally admitted to trading on the SIX Swiss Exchange as of 24 November 2009 and application will be made for the Bonds to be listed on the SIX Swiss Exchange; last trading day for the Bonds is expected to be 21 November Security Codes: Bonds Ordinary Shares Swiss Security Number: ISIN: XS CH Common Code: Ticker Symbol: ADI09 ADEN RISK FACTORS In addition to other information contained in this Prospectus, potential investors should read and consider carefully the specific risk factors described below before making a decision to purchase any of the Bonds. All of these risk factors are contingencies which may or may not occur and neither the Issuer nor Adecco are in a position to express a view on the likelihood of any such contingency occurring. The occurrence of one or more of these risks, either individually or in conjunction with other circumstances, could materially and adversely affect the Issuer s or the Adecco Group s business, financial condition, results of operation or prospects. The market price of the Bonds could decline due to the occurrence of any of these risks, and investors may lose part or all of their investment. The risk factors described below are not the only risks inherent in investing in the Bonds. Additional risks and uncertainties of which the Issuer or Adecco is currently not aware, or which the Issuer or Adecco currently deems immaterial may also affect the market price of Bonds. Risks related to the structure of the Bonds and the Issuer s ability to fulfil its obligations thereunder The Bonds have features which may contain particular risks for potential investors. Set out below is a description of such features: The obligations of Adecco under the Forward Purchase Agreement and the Loan Agreement are subordinated The particular transactional structure underlying the Bonds contains certain obligations of Adecco under the Forward Purchase Agreement and the Loan Agreement. 15/298

17 The obligations of Adecco under the Forward Purchase Agreement are subordinated in that if Adecco fails to deliver Ordinary Shares, the claims of the Issuer against Adecco in the winding-up of Adecco shall entitle the Issuer to participate in the proceeds of such winding-up pari passu with the holders of Ordinary Shares of Adecco. The obligations of Adecco under the Loan Agreement constitute subordinated obligations of Adecco. Accordingly, on a winding-up, liquidation, bankruptcy or dissolution of Adecco the rights and claims of the Issuer against Adecco in respect of the Loan Agreement will rank behind unsubordinated creditors of Adecco, but will rank at least pari passu with all other subordinated creditors of Adecco. The obligations of the Issuer under the Bonds are limited recourse obligations Recourse against the Issuer in respect of its obligations under the Bonds is limited to the net assets and proceeds received by the Issuer under or in respect of the Forward Purchase Agreement, the Call Spread Agreement, the Loan Agreement and amounts (if any) standing to the credit of the Premium Account. If such net assets and proceeds are not sufficient to meet such obligations and any payments then due to the Trustee: (i) (ii) (iii) (iv) such obligations of the Issuer will be limited to such net assets and proceeds; the Issuer shall be under no obligation to pay any shortfall (if any) arising therefrom; all claims in respect of such shortfall shall be extinguished and no debt or obligation shall be owed by the Issuer in respect thereof; and the Trustee and the Bondholders shall have no further claim against the Issuer in respect of such obligations and will accordingly not be entitled to petition for the winding up of the Issuer as a consequence of such shortfall or take any other action to recover any such shortfall. The Issuer has provided security only over its rights under the Forward Purchase Agreement The Issuer s obligations under the Bonds to deliver Ordinary Shares upon a Conversion are secured by an assignment by way of security of all the Issuer s rights under the Forward Purchase Agreement, including the right to receive Ordinary Shares and all other property thereunder. None of the Issuer s other obligations under the Bonds are secured. The Issuer has not granted and will not grant any security interest in respect of its rights under the Call Spread Agreement or the Loan Agreement or in respect of the Premium Account to or in favour of the Trustee or the Bondholders. The Issuer is a special purpose vehicle incorporated specifically for the issuance of the Bonds. The Issuer has no material assets available to meet its obligations under the Bonds other than its rights under the Forward Purchase Agreement, the Call Spread Agreement and the Loan Agreement and such amounts (if any) standing to the credit of the Premium Account. The Issuer is a Bermuda company and it may be difficult for Bondholders to enforce judgments against the Issuer or its directors and executive officers The Issuer is a Bermuda exempted company. None of the Issuer's directors are residents of the United Kingdom, and the Issuer's assets are located outside the United Kingdom. As a result, it may be difficult for investors to effect service of process on those persons in the United Kingdom or to enforce in the United Kingdom judgments obtained in the United Kingdom courts against the Issuer or those persons based on the civil liability provisions of the United Kingdom securities laws. It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United Kingdom, against the Issuer or its directors or 16/298

18 officers under the securities laws of those jurisdictions or entertain actions in Bermuda against the Issuer or its directors or officers under the securities laws of other jurisdictions. Risks related to the Bonds generally The Bonds may not be a suitable investment for all investors Each potential investor in the Bonds must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: (i) (ii) (iii) (iv) (v) have sufficient knowledge and experience to make a meaningful evaluation of the Bonds, the merits and risks of investing in the Bonds and the information contained in this Prospectus or any applicable supplement; have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Bonds and the impact the Bonds will have on its overall investment portfolio; have sufficient financial resources and liquidity to bear all of the risks of an investment in the Bonds; understand thoroughly the terms of the Bonds and be familiar with the behaviour of any relevant indices and financial markets; and be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks. The Bonds are complex financial instruments and such instruments may be purchased by potential investors as a way to reduce risk or enhance yield with an understood, measured, appropriate addition of risk to their overall portfolios. A potential investor should not invest in the Bonds unless it has the expertise (either alone or with a financial adviser) to evaluate how the Bonds will perform under changing conditions, the resulting effects on the value of the Bonds and the impact this investment will have on the potential investor s overall investment portfolio. Legal investment considerations may restrict certain investments The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (1) Bonds are legal investments for it, (2) Bonds can be used as collateral for various types of borrowing and (3) other restrictions apply to its purchase or pledge of any Bonds. Financial institutions should consult their legal advisors or the appropriate regulators to determine the appropriate treatment of Bonds under any applicable risk-based capital or similar rules. Bondholders will bear the risk of fluctuation in the price of the Ordinary Shares The market price of the Bonds is expected to be affected by fluctuations in the market price of the Ordinary Shares, and it is impossible to predict whether the price of the Ordinary Shares will rise or fall. Trading prices of the Ordinary Shares will be influenced by, among other things, the financial position of the Adecco Group, the results of operations and political, economic, financial and other factors, including those described under "Factors that may affect the performance of the Adecco Group". Any decline in the price of the Ordinary Shares may have an adverse effect on the market price of the Bonds. The future issue of Ordinary Shares by Adecco or the disposal of Ordinary Shares by any substantial shareholders of Adecco or the perception that such issues or sales may occur may significantly affect the trading 17/298

19 price of the Bonds and the Ordinary Shares. Adecco has agreed to certain restrictions on its ability to issue or dispose of Ordinary Shares or related securities for 180 days after the Issue Date. Except for such restrictions and the undertakings of Adecco described in the Conditions, there is no restriction on Adecco s ability to issue Ordinary Shares, and there can be no assurance that Adecco will not issue Ordinary Shares or that any substantial shareholder will not dispose of, encumber, or pledge its Ordinary Shares or related securities. The Bonds are mandatorily convertible into Ordinary Shares at maturity Unless previously converted, the Bonds are mandatorily convertible into Ordinary Shares at maturity. As a result, investors in the Bonds will become shareholders in Adecco at such time. Risks attached to Conversion If the market price of the Ordinary Shares on conversion is below the Minimum Conversion Price, a Bondholder is obliged to accept delivery of the Ordinary Shares at that Minimum Conversion Price, which might be substantially higher than the prevailing price of the Ordinary Shares. The further the Share price falls below the Minimum Conversion Price, the greater the risk of a material decline in the market price of the Bonds. In case of a failure of the technical systems or other technical difficulties with respect to the delivery of the Ordinary Shares upon conversion or if a party involved in the process of the delivery of the Ordinary Shares is legally barred from performing its obligations required for the delivery of the Ordinary Shares, the delivery of the Ordinary Shares to Bondholders may be delayed until resolution of the legal or technical impediments. Bondholders have limited anti-dilution protection The Minimum Conversion Price and Maximum Conversion Price will be adjusted in the event that there is a consolidation, reclassification or subdivision of the Ordinary Shares, capitalisation of profits, dividends or distributions to Shareholders, rights issue or grant of other subscription rights or other adjustment which affects the Ordinary Shares, but only in the situations and only to the extent provided in the Conditions. There is no requirement that there should be an adjustment for every corporate or other event that may affect the value of the Ordinary Shares. Events in respect of which no adjustment is made may adversely affect the value of the Ordinary Shares and, therefore, adversely affect the value of the Bonds. Bondholders must deliver a Conversion Notice within the relevant timeframe following a Mandatory Conversion to receive Ordinary Shares In order to obtain delivery of the relevant Ordinary Shares on a Mandatory Conversion of the Bonds, the relevant Bondholder must deliver a duly completed Conversion Notice, together with the relevant Bonds to the specified office of any Paying, Transfer and Conversion Agent prior to the relevant Conversion Date. If the Conversion Notice and relevant Bonds are not delivered to the specified office of a Paying, Transfer and Conversion Agent on or before such date, then the relevant Ordinary Shares will be sold on behalf of the Issuer and, subject to any necessary consents being obtained and to the deduction by the Issuer of any amount payable in respect of its liability to taxation and the payment of any capital, stamp, issue, registration duties (if any) and any costs and expenses incurred, the net proceeds of the sale of such Ordinary Shares will be distributed rateably to the relevant Bondholders. The Bonds will be converted into Ordinary Shares at the option of the Issuer or the Bondholders The Bonds may be mandatorily converted prior to Maturity Date at the option of the Issuer. Furthermore, the Bonds may be converted at the option of Bondholders following a Change of Control or an accelerated conversion event, in which cases the number of Ordinary Shares to be delivered will be determined by reference 18/298

20 to a formula as specified in the Conditions. In addition, the Bonds may be converted at the option of the Bondholders at any time, but in such circumstances Bondholders will receive the minimum proportion of Ordinary Shares, that is a number of Ordinary Shares determined by dividing the principal amount of the Bonds by the Maximum Conversion Price then in effect. Bondholders may not receive interest payments The Issuer may elect to defer in whole or in part any payments of interest which would otherwise be due and payable on any Interest Payment Date provided that during the period of three months ending on and including the relevant Interest Payment Date, Adecco shall not have: (i) (ii) declared, paid or made any dividend or other distribution in respect of the Ordinary Shares; or redeemed, purchased or acquired any Ordinary Shares other than a purchase or acquisition of Ordinary Shares for the purposes of or to enable Adecco to meet obligations under or in respect of any long-term executive or employee incentive plan or any executive or employee share option plan. Deferred interest will not bear interest. Deferred interest is only required to be paid if Adecco declares, pays or makes any dividend or other distribution in respect of the Ordinary Shares or Adecco or any Subsidiary of Adecco shall redeem, purchase or otherwise acquire any Ordinary Shares (other than any purchase or acquisition of Ordinary Shares for the purposes of or to enable Adecco to meet obligations under or in respect of any long-term executive or employee incentive plan or any executive or employee share option plan). Deferred interest is also payable upon a conversion, other than a Voluntary Conversion at the option of Holders pursuant to Condition 8(c) of the Terms and Conditions of the Bonds. Modification and waivers The Conditions contain provisions for calling meetings of Bondholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Bondholders, including such Bondholders who did not attend and vote at the relevant meeting and Bondholders who voted in a manner contrary to the majority. The relevant Conditions also provide that the Trustee may, without the consent of the Bondholders, agree to any modification of, or waiver or authorisation of any breach or proposed breach of, the Conditions. EU Savings Directive Under EC Council Directive 2003/48/EC on the taxation of savings income (the "Directive"), each Member State of the European Economic Area, including Belgium from 1 January 2010, is required to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to, or collected by such a person for, an individual resident or certain other persons in that other Member State. However, for a transitional period, Belgium, Luxembourg and Austria may instead operate a withholding system in relation to such payments, deducting tax at rates rising over time to 35 per cent. The transitional period is to terminate at the end of the full fiscal year following agreement by certain non-eu countries to the exchange of information relating to such payments. A number of non-eu countries and territories including Switzerland have adopted similar measures (a withholding system in the case of Switzerland) with effect from the same date. On 15 September 2008 the European Commission issued a report to the Council of the European Union on the operation of the Directive, which included the Commission s advice on the need for changes to the Direc- 19/298

21 tive. On 13 November 2008 the European Commission published a more detailed proposal for amendments to the Directive, which included a number of suggested changes. If any of those proposed changes are made in relation to the Directive, they may amend or broaden the scope of the requirements described above. If a payment were to be made or collected through a Member State which has opted for a withholding system, or through another country that has adopted similar measures, and an amount of or in respect of, tax were to be withheld from that payment, neither the Issuer nor any Paying, Transfer and Conversion Agent nor any other person would be obliged to pay additional amounts with respect to any Bond as a result of the imposition of such withholding tax. However, the Issuer is required to maintain a Paying, Transfer and Conversion Agent in a Member State that will not be obliged to withhold or deduct tax pursuant to the Directive. Change of law The Conditions are based on English law in effect as at the date of issue of the Bonds. No assurance can be given as to the impact of any possible judicial decision or change to English law or administrative practice after the date of issue of the Bonds. Because the Global Bond will be held by or on behalf of Euroclear and Clearstream, Luxembourg, investors will have to rely on their procedures for transfer, payment, voting and communication with the Issuer The Bonds are to be issued in registered form and will be represented by a Global Bond. Such Global Bond will be deposited with a common depositary for Euroclear and Clearstream, Luxembourg. Except in certain limited circumstances described in the Global Bond, investors will not be entitled to receive the Bonds in definitive form. Euroclear and Clearstream, Luxembourg will maintain records of the beneficial interests in the Global Bond. While the Bonds are represented by the Global Bond, investors will be able to trade their beneficial interests only through Euroclear or Clearstream, Luxembourg. The Issuer will discharge its payment obligations under the Bonds by making payments to the common depositary for Euroclear and Clearstream, Luxembourg for distribution to their account holders. A holder of a beneficial interest in the Global Bond must rely on the procedures of Euroclear and Clearstream, Luxembourg to receive payments under the Bonds. The Issuer has no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Bond. Bondholders of beneficial interests in the Global Bond will not have a direct right to vote in respect of the Bonds. Instead, such Bondholder will be permitted to act only to the extent that they are enabled by Euroclear or Clearstream, Luxembourg to appoint appropriate proxies. Risk Factors related to the Ordinary Shares The price of the Ordinary Shares may be subject to downward pressure upon conversion The issue of Ordinary Shares out of the conditional capital of Adecco pursuant to the conversion of the Bonds may cause downward pressure on the market price of the Ordinary Shares. Future dividend payments on the Ordinary Shares are not guaranteed Future dividend payments on the Ordinary Shares are not guaranteed. Dividend cancellations or reductions can exert downward pressure on the market price of the Ordinary Shares. 20/298

22 Factors that may affect the performance of the Adecco Group The Issuer, incorporated in Bermuda, is a wholly owned subsidiary of Adecco. The Issuer is a special purpose vehicle incorporated specifically for the issuance of the Bonds. The Bonds will be mandatorily convertible into Ordinary Shares at maturity. Therefore, the price of the Bonds is, among other factors, dependent on the performance of the Adecco Group. In an economic downturn, companies may use fewer temporary employees, which could materially adversely affect the Adecco Group Demand for personnel services is sensitive to changes in the level of economic activity. For example, when economic activity begins to increase, temporary employees are often added before full-time employees are hired. During expansions, there is also increased competition among temporary services firms for qualified temporary personnel. As economic activity slows, companies tend to reduce their use of temporary employees before undertaking layoffs of their regular employees, resulting in decreased demand for temporary personnel. Furthermore, in some countries where the Adecco Group operates, the Adecco Group has the obligation to pay wages even when associates are not seconded to clients. A significant economic downturn, particularly in France or North America where the Adecco Group collectively derived 46 per cent of its 2008 revenues, could have a material adverse effect on the Adecco Group operating margin, results of operations, financial condition or liquidity. Due to the current economic downturn, the Adecco Group experienced a sharp deceleration since the fourth quarter of This difficult business environment results in pronounced pressure on revenues. In an economic downturn, clients may delay payments for the Adecco Group s services which could materially adversely affect the cash-flows and liquidity of the Adecco Group Cash collection trends measured by days sales outstanding ("DSO") have a material impact on the cash receipts and, consequently, on the Adecco Group s cash flows. DSO varies significantly within the various countries in which the Adecco Group has operations, due to the various market practices and regulations within these countries. In general, a deterioration of DSO increases the balance of trade accounts receivable resulting in less cash inflows from operating activities. Due to the current economic environment, DSO may increase, which will have an adverse effect on the Adecco Group s liquidity. Current capital market conditions The current problems that are affecting the banking system and financial markets generally for all companies have resulted in major financial institutions consolidating or going out of business, the tightening of credit markets, significantly lower liquidity in most financial markets, and extreme volatility in fixed income, credit, currency and equity markets. As a result the cost of capital has increased significantly over the period since the summer of 2007 and, in particular, made issuance of new debt capital more expensive and difficult. Adverse and continued constraints in the supply of liquidity may adversely affect the cost of funding the Adecco Group and could materially and adversely affect the Adecco Group s business. The worldwide staffing services market is highly competitive with few barriers to entry, potentially limiting the Adecco Group s ability to maintain or increase its client base and market share or margins The worldwide staffing services market is highly fragmented and competitive with few barriers to entry. The Adecco Group competes on a local and national basis in markets throughout North America, Europe, Austra- 21/298

23 lia, Asia and Latin America with full-service and specialised temporary service agencies. Moreover, there is also some competition from internet-based sources. While the majority of the Adecco Group s competitors are significantly smaller than the Adecco Group, several competitors have substantial marketing and financial resources. Price competition in the staffing industry is significant and pricing pressure from competitors and customers is increasing. The Adecco Group expects that the level of competition will remain high in the future and may even increase due to the difficult economic situation. This could limit the Adecco Group s ability to retain existing or attract new clients. As a consequence, the Adecco Group may not be able to maintain or increase its market share or margins. The Adecco Group s success depends upon its ability to attract and retain qualified temporary personnel The Adecco Group depends upon its ability to attract and retain temporary personnel who possess the skills and experience necessary to meet the staffing requirements of its clients. The Adecco Group must continually evaluate and upgrade its base of available qualified personnel to keep pace with changing client needs and emerging technologies. Competition for individuals with proven professional skills or special industry knowhow may be expected in periods of high demands for these individuals. There can be no assurance that qualified personnel will continue to be available to the Adecco Group in sufficient numbers and on terms of employment acceptable to the Adecco Group and its clients. If the Adecco Group loses its key personnel, its business may suffer The Adecco Group s operations are dependent on the continued efforts of its key personnel at group level. In addition, the Adecco Group is dependent on the performance and productivity of its local managers and field personnel. The Adecco Group s ability to attract and retain business is significantly affected by local relationships and the quality of service rendered. The loss of key personnel at group level who have acquired experience in operating a staffing service company on an international level may cause a significant disruption to the Adecco Group s business. Moreover, the loss of the Adecco Group s key local managers and field personnel may jeopardise existing customer relationships with businesses that continue to use the Adecco Group s staffing services based upon past direct relationships with these local managers and field personnel. Either of these types of losses could adversely affect the Adecco Group s operations, including its ability to establish and maintain customer relationships. The Adecco Group may be exposed to employment-related claims and costs that could materially adversely affect its business The Adecco Group is in the business of employing people and placing them in the workplace of other businesses. Attendant risks of these activities include possible claims by customers or third parties of fraudulent employee activities or of employee misconduct or negligence, claims by employees of discrimination or harassment (including claims relating to actions of the Adecco Group s customers), claims related to the inadvertent employment of illegal aliens or unlicensed personnel, payment of workers compensation claims and other similar claims. In addition, certain agreements with customers of the Adecco Group contain indemnifications and hold harmless obligations in favour of the customers. These risks are especially prevalent in the United States where the legal systems favour class actions and claims for substantial damages. The Adecco Group is not always able to contractually exclude or limit such potential claims and certain of its contracts therefore bear the risk of uncapped liability. There can be no assurance that the Adecco Group will not experience these problems in the future, that the insurance will cover all claims that may be asserted against the Adecco Group or that the Adecco Group may not incur fines or other losses or negative publicity with respect to these problems that could have a material adverse effect on the Adecco Group s business. 22/298

24 Litigation and regulatory investigations and audits to which the Adecco Group is currently, or may become, subject to could materially adversely affect its business, financial condition, results of operations or cash flows In the ordinary course of business, the Adecco Group is involved in various legal actions and claims, including those related to social security charges, other payroll related charges and various employment related matters. Also in the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. Many of these uncertainties arise as a consequence of intercompany transactions and arrangements as well as operations within multiple tax jurisdictions. At any given time, the Adecco Group is undergoing tax audits in several tax jurisdictions covering multiple years. There can be no assurance that the resolution of any of these matters or other litigation or investigations will not have a material adverse effect on the Adecco Group s financial position, results of operations or cash flows. Risks associated with the Adecco Group s financial reporting may adversely affect the Adecco Group s business Failure to comply with external reporting requirements due to failure of internal controls and lack of knowledge of external reporting requirements relating to accounting and reporting may have an adverse effect on the Adecco Group s business. Government regulations may result in the prohibition or restriction of certain types of employment services or the imposition of additional licensing or tax requirements that may adversely affect the Adecco Group s business and results of operations In many jurisdictions in which the Adecco Group operates, the temporary employment industry is heavily regulated. There can be no assurance that the countries in which the Adecco Group operates will not: create additional regulations that prohibit or restrict types of employment services the Adecco Group currently provides; require the Adecco Group to obtain additional licensing to provide staffing services; or increase taxes payable by the providers of staffing services. Future changes in regulations may make it more difficult or expensive for the Adecco Group to continue to provide its staffing services and may have an adverse effect on the Adecco Group s financial condition, results of operations and liquidity. The Adecco Group s failure to comply with restrictive covenants under its loan agreements or bond issues could trigger default The Adecco Group s failure to comply with restrictive covenants under its loan agreements or bond issues, both of which may contain cross-default provisions, could result in a situation of default that, if not cured, could lead the Adecco Group to be required to repay such borrowings before their due date. The need to refinance these borrowings on less favourable terms could adversely affect the Adecco Group s results of operations and financial condition. The same applies for financing agreements that require the Adecco Group to maintain a certain credit rating. 23/298

25 Risks associated with the Adecco Group s international operations, including currency fluctuations, may adversely affect the Adecco Group s business or operating results The Adecco Group s operations are conducted around the world. Operations in the Adecco Group s markets are subject to risks inherent in international business activities, including, but not limited to: foreign currency fluctuation; varying political conditions; cultures and business practices in different regions; overlapping of different tax structures; accounting and reporting requirement compliance; changing and, in some cases, complex or ambiguous laws and regulations; and litigation claims and judgments. The Adecco Group funds its subsidiaries in various currencies and has issued bonds in various currencies. The Adecco Group s local operations are reported in the applicable foreign currencies and then translated into Euro at the applicable foreign currency exchange rates for inclusion in the Adecco Group's consolidated financial statements. Exchange rates for currencies may fluctuate in relation to the Euro and these fluctuations may have an adverse effect on the Company s operating results when foreign currencies are translated into Euro. Failure of the Adecco Group s IT-systems may result in an adverse impact on operations The Adecco Group relies on IT systems to manage temporary personnel, the provision of its services to the clients, its finance and accounting systems and other material functions. Failure of these systems could have an adverse impact on the Adecco Group s results of operations. The Adecco Group s acquisition strategy may have an adverse effect on the Adecco Group s business The Adecco Group has a strategy of growing in part by acquisitions and may make material acquisitions in the future. Acquisitions may involve significant risks, including but not limited to: difficulties in the assimilation or integration of the operations, services and corporate culture of the acquired companies; failure to achieve expected synergies and other benefits; insufficient indemnification from the selling parties for liabilities incurred by the acquired companies prior to the acquisitions; and diversion of management s attention from other business concerns. On 20 October 2009 the Adecco Group announced an offer to acquire MPS Group, Inc. ("MPS Group"), a leading provider of professional staffing services, for an enterprise value of EUR 782 million, or USD per share. In 2008, the Adecco Group made no material acquisitions. In 2007, the Adecco Group acquired the Tuja Group, thus strengthening its position in the profitable German temporary staffing market. Tuja is a leading staffing company in Germany which also has operations in Switzerland and Austria. The realisation of risks inherent in acquisitions could result in impairment charges. In addition, further acquisitions would likely result in the incurrence of debt and contingent liabilities and may result in the issuance of additional shares and an increase in interest expense and amortisation expense related to intangible assets. Both possible results of acquisitions could have a material adverse effect on the Adecco Group's results of 24/298

26 operations, financial condition, liquidity or credit rating. The Adecco Group s major shareholders, which include a member of the Board of Directors, could have a significant impact on decisions taken by a meeting of shareholders As of 5 November 2009, 41,009,796 Ordinary Shares representing per cent of the total Adecco issued share capital, were held by a group with pooled voting rights, consisting of Jacobs Holding AG, Zurich, Switzerland, Jacobs Foundation, Zurich, Switzerland, Renata I. Jacobs, Lavinia Jacobs, Nicolas Jacobs, Philippe Jacobs, Nathalie Jacobs, Christian Jacobs, Andreas Jacobs, Jacobs Venture AG, Baar, Switzerland, Triventura AG, Baar, Switzerland, and Sentosa Beteiligungs GmbH, Hamburg, Germany (the "Jacobs Group"). Jacobs Holding AG represents the Jacobs Group. Jacobs Holding AG s own shares and participation certificates are held by Jacobs Foundation and by the association Jacobs Familienrat (both based in Zurich, Switzerland). The ownership of a substantial percentage of the outstanding Ordinary Shares by the Jacobs Group provides them with significant voting power, which could have a significant impact on decisions taken by a meeting of shareholders. Andreas Jacobs, the chairman of Jacobs Holding AG, is a member of the Board of Directors of Adecco. Risks related to changes in accounting standards, rules and interpretations New or revised accounting standards, rules and interpretations could have an adverse effect on Adecco Group s reported financial results. Changes in law and accounting standards could increase Adecco Group s effective tax rate. The accounting treatment under the United States Generally Accepted Accounting Principles ("US GAAP") significantly affects the way Adecco Group reports its financial position and results of operations. New or revised standards and interpretations may be issued, which could have a significant impact on the financial results and financial position that Adecco Group reports. The effective tax rate of Adecco Group may be influenced by a number of factors including changes in law and accounting standards, the results of which could increase that rate. Adecco Group may or may not elect to apply the International Financial Reporting Standards ("IFRS") in the future. Risks related to the market generally Set out below is a brief description of the principal market risks, including liquidity risk, exchange rate risk, interest rate risk and credit risk: The secondary market generally The Bonds are new securities which may not be widely distributed and for which there is currently no active trading market. If the Bonds are traded after their initial issuance, they may trade at a discount to their issue price, depending upon prevailing interest rates, the market for similar securities, general economic conditions, the performance of the Adecco Group and, in respect of the Bonds, the market price of the Ordinary Shares. Although application has been made for the Bonds to be listed on the SIX, there is no assurance that such applications will be accepted or that an active trading market will develop. Accordingly, there is no assurance as to the development or liquidity of any trading market for the Bonds. Exchange rate risks and exchange controls Each Issuer will pay interest on the Bonds in Swiss francs. This presents certain risks relating to currency conversions if an investor s financial activities are denominated principally in a currency or currency unit (the 25/298

27 "Investor s Currency") other than the Swiss francs. These include the risk that exchange rates may significantly change (including changes due to devaluation of the Swiss francs or revaluation of the Investor s Currency) and the risk that authorities with jurisdiction over the Investor s Currency may impose or modify exchange controls. An appreciation in the value of the Investor s Currency relative to the Swiss francs would decrease (1) the Investor s Currency-equivalent yield on the Bonds, (2) the Investor s Currency equivalent value of the principal payable on the Bonds and (3) the Investor s Currency equivalent market value of the Bonds. Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal. Interest rate risks Investment in Bonds involves the risk that subsequent changes in market interest rates may adversely affect the value of the Bonds. Possible volatility of the price of the Bonds The trading prices of the Bonds may be subject to fluctuations in response to numerous factors including, but not limited to, variations in the performance of the Adecco Group, changes in investor perceptions of the Adecco Group, the depth and liquidity of the market for the Bonds and changes in actual or forecast global or regional economic conditions and interest rate fluctuations. In addition, the global bond markets have from time to time experienced extreme price and volume fluctuations. Developments in, and changes to securities analyst recommendations regarding the personnel services industry may also influence and introduce volatility to the price of the Bonds in the market. Any such broad market fluctuations may adversely affect the trading price of the Bonds. 26/298

28 RESPONSIBILITY STATEMENT The Issuer and Adecca. having made all reasonable enquiries. confirm that this Prospectus contains all information. with respect to the Issuer. Adecco and the Bonds. that is material in the context of the issue and the Offering. The Issuer and Adecco confirm that the information in this Prospectus is corred to 1he best of their knowledge and that no material facts Cl( drcumstances have!)een omitted. Hamilton. Bermuda. a$ of 20 November 2009 Adecco InYflltment (Bermuda) Ltd. By: Marl< Eaton Dif1lClo< CMserex, Switze~and. as of 20 Nove"'_"'''_, Adecco S.A. -112L-~ "'-"-'-'''-'''--''<L By: Patrio;l< De Maeseneire Chief Executive OIIIcer By: Dom inik cm Daniel Chief Financill OIfic:er 27/298

29 SECTION 1: GENERAL INFORMATION Authorisation The issue of the Bonds was authorised by a unanimous written resolution of the board of directors of the Issuer on 19 October 2009 and by a resolution of the board of directors of Adecco passed at a meeting held on 19 October Each of the Bonds may be converted into Ordinary Shares pursuant to the Terms and Conditions of the Bonds. Subscription and Sale On 20 October 2009, a subscription agreement with respect to the Bonds (the "Subscription Agreement") was entered into between (i) the Issuer, (ii) Credit Suisse AG and Deutsche Bank AG, London Branch (together, the "Joint Lead Managers"), (iii) Adecco, (iv) Société Générale and ABN AMRO Bank N.V. (London Branch) (together, the "Co-Lead Managers"), and (v) Banca IMI S.p.A., BNP PARIBAS, Calyon, ING Belgium NV and Natixis (the "Co-Managers" and, together with the Joint Lead Managers and the Co-Lead Managers, the "Managers"). On the day of settlement, (a) a paying, transfer and conversion agency agreement (the "Agency Agreement") will be entered into among (i) the Issuer, (ii) Deutsche Trustee Company Limited, as Trustee, (iii) Deutsche Bank AG, London Branch, as Principal Paying, Transfer and Conversion Agent, (iv) Credit Suisse AG, as Swiss Paying, Transfer and Conversion Agent and (v) Deutsche Bank Luxembourg SA, as Registrar (the "Registrar"), and (b) a share delivery agency agreement (the "Share Delivery Agreement") will be entered into among (i) the Issuer, (ii) Adecco and (iii) Credit Suisse AG. Subject to the provisions of the Subscription Agreement, the Issuer has agreed to issue the Bonds on 26 November 2009, or such later date, not being later than 10 December 2009, as the Issuer and the Joint Lead Managers (on behalf of the Managers) may agree, to the Managers or as they may direct and the Managers severally and not jointly agree to subscribe or procure subscribers for the aggregate principal amount of CHF 900,000,000, divided between them as follows: Manager Principal Amount in CHF Deutsche Bank AG, London Branch 405,000,000 Credit Suisse AG 270,000,000 ABN AMRO Bank N.V. (London Branch) 90,000,000 Société Générale 90,000,000 Banca IMI S.p.A. 9,000,000 BNP PARIBAS 9,000,000 Calyon 9,000,000 ING Belgium NV 9,000,000 Natixis 9,000,000 Aggregate Principal Amount 900,000,000 The Subscription Agreement provides that all of the Managers obligations are subject to certain conditions precedent. The Subscription Agreement also entitles the Joint Lead Managers to terminate the Subscription Agreement in certain circumstances prior to the issue of the Bonds. If the right to terminate the Subscription Agreement is exercised by the Joint Lead Managers, the Offering will terminate and any previously purported purchase or subscription of the Bonds will be deemed not to have been made. As is more fully set out in the Subscription Agreement, the Issuer and Adecco agree jointly and severally to indemnify the Joint Lead Man- 28/298

30 agers for, inter alia, losses as a result of breaches of certain representations and undertakings in connection with the Offering. Lock-Up The Issuer and Adecco have agreed with the Managers that they will not, and will procure that none of the other subsidiaries of Adecco will, during the period commencing on the date hereof and ending 180 days after the Issue Date, without the prior written consent of the Joint Lead Managers (on behalf of the Managers) (i) directly or indirectly, issue, offer, pledge, sell, contract to issue or sell, issue or sell any option or contract to purchase, purchase any option or contract to issue or sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any Ordinary Shares or other Relevant Securities or any securities convertible into or exercisable or exchangeable for Ordinary Shares or other relevant securities or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, any of the economic consequences of ownership of Ordinary Shares or other relevant securities, whether any such swap or transaction described in paragraph (i) or (ii) above is to be settled by delivery of Ordinary Shares or other relevant securities or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (a) the issue of the Bonds or (b) the entering into and performance of obligations under the Forward Purchase Agreement and the Call Spread Agreement or (c) any Ordinary Shares issued pursuant to the conversion of the Bonds or (d) the issue of Ordinary Shares pursuant to any options, warrants or other rights existing at the date hereof and described under "Information on Adecco - Capital Structure" or (e) the issue of Ordinary Shares pursuant to any Exempt Transaction existing at the date hereof or (f) any of the actions described in paragraphs (i) and (ii) above which are carried out between Adecco or any direct or indirect subsidiary of Adecco. For the purposes of this clause, "Relevant Securities" shall include any participation certificates and any depositary or other receipt, instrument, rights or entitlement representing Ordinary Shares. No Stabilisation Activities The Issuer and Adecco undertake that, during the period commencing the date hereof and ending 30 days after the last date on which the Bonds are issued, neither the Issuer nor Adecco will (and will cause its affiliates not to) engage, directly or indirectly, in any transaction for the purpose of creating actual, or apparent, active trading in or raising, stabilising or maintaining the price of the Bonds or the Ordinary Shares. Use of Proceeds The net proceeds of the Offering, which are estimated to amount to approximately CHF 886,000,000, will increase Adecco's financial flexibility and strengthen its balance sheet in conjunction with the announced acquisition of MPS Group. The net proceeds of the Offering are intended to be used for general corporate purposes exclusively outside of Switzerland. Representative In accordance with Article 43 of the SIX Swiss Exchange Listing Rules, Credit Suisse AG was appointed by the Issuer as representative to lodge the listing application with SIX Exchange Regulation. 29/298

31 Publications Information about the Adecco Group is available on the Adecco Group's website under with financial reports and media releases in particular available under and information about the Bonds will be published, if and when appropriate, under Trust Deed The Bonds are constituted by the trust deed dated 26 November 2009 (the "Trust Deed") with Deutsche Trustee Company Limited as Trustee. The Trust Deed is available for inspection as set forth under "Documents Available" below. Documents Available Copies of this Prospectus are available, free of charge, at the offices of (i) Deutsche Bank AG, London Branch, acting through Deutsche Bank AG, Zurich Branch, Uraniastrasse 9, 8001 Zurich, Switzerland (tel.: +41 (0) ; fax: +41 (0) ) and (ii) Credit Suisse AG, Uetlibergstrasse 231, 8070 Zurich, Switzerland (tel.: +41 (0) ); fax: +41 (0) ; At the same offices, copies of the Trust Deed are available for inspection. The current annual report of Adecco is available on the Adecco Group's website under Taxation The following summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase, own or dispose of the Bonds and/or the Ordinary Shares and does not purport to deal with the tax consequences applicable to all categories of prospective Bondholders, some of which (such as dealers in securities and commodities, but also others) may be subject to special rules. Prospective Bondholders are advised to consult their own tax advisers concerning the overall tax consequences of their ownership of the Bonds and/or the Ordinary Shares deliverable upon mandatory conversion of the Bonds. Bermuda Taxation At the present time, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by the Issuer or by Bondholders in respect of the Bonds. The Issuer has obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 28, 2016, be applicable to the Issuer or to any of its operations or to its shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by the Issuer in respect of real property owned or leased by it in Bermuda. 30/298

32 Swiss Taxation The following information is of a general nature and is based on the law and the tax practice of the relevant tax authorities presently in force in Switzerland. It does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision of a prospective Bondholder to purchase, hold or dispose of the Bonds and/or the Ordinary Shares. Prospective Bondholders who are in doubt as to their personal tax position should consult their professional advisers in advance. Taxes in relation to the Bonds Withholding Tax All payments in respect of the Bonds by the Issuer are not subject to Swiss withholding tax. Income and Wealth Taxes Coupon Payments to the Bondholders Swiss Resident Private Bondholders: Based on the present practice, for Swiss individual income tax purposes, the Bonds will be classified for private Swiss Bondholders (not qualifying as so called professional securities dealer (gewerbsmässiger Wertschriftenhändler)) holding the Bonds as private (as opposed to business) property as "non-classical transparent convertible bonds" (nicht-klassische Wandelanleihe) under the circular letter no. 15 issued by the Swiss Federal Tax Administration on 7 February For the purposes of Swiss Federal Income Tax, the coupon payments are divided into interest and option components. The annual coupon of the Bonds has a rate of 6.50% which is composed of 3.70% interest on the nominal value of the Bonds and 2.80% of option premium. The annual 3.70% periodical interest will be subject to individual income tax for Swiss resident private Bondholders. The option premium qualifies for Federal, Cantonal and Municipal Tax as tax exempted capital gain. The market value of the Bonds will be subject to individual wealth tax. Swiss Resident Business Bondholders: The periodical interest payments of the Issuer as well as the portion paid as option premium will be subject to individual or corporate income tax. The market value of the Bonds will be subject to individual wealth tax. Non-Swiss Resident Bondholders: Under present Swiss law, a Bondholder who is a non-resident of Switzerland and who during the taxable year has not engaged in trade or business through a permanent establishment within Switzerland and who is not subject to individual or corporate income taxation in Switzerland for any other reason will not be subject to any Swiss Federal, Cantonal or Municipal income or other tax on interest payments of such Bonds. Gains on Sale or Conversion of Bonds Swiss Resident Private Bondholders: Based on the present practice, gains realised on the sale of Bonds by Swiss resident private Bondholders holding the Bonds as individual (as opposed to business including a qualification as professional securities dealer (gewerbsmässiger Wertschriftenhändler), as well as any realised gain on conversion will not be subject to individual income tax. Swiss Resident Business Bondholders: Gains realised on the sale of Bonds by Swiss resident individual Bondholders holding the Bonds as part of their business assets (including as professional securities dealer (gewerbsmässiger Wertschriftenhändler)) as well as Swiss resident legal entity Bondholders are part of their taxable business profit subject to individual income tax or corporate income tax, respectively. Any unrealised gains on conversion will not be subject to individual income tax or corporate income tax unless the tax basis of 31/298

33 the Ordinary Shares received will increase. Non-Swiss Resident Bondholders: Under present Swiss law, a Bondholder who is a non-resident of Switzerland and who during the taxable year has not engaged in trade or business through a permanent establishment within Switzerland and who is not subject to individual income or corporate income taxation in Switzerland for any other reason will not be subject to any Swiss Federal, Cantonal or Municipal income or other tax on gains realised on the sale or Redemption of Bonds or on the due exercise of the Conversion Rights in respect of such Bonds. Stamp Duties Issuance Stamp Duty The issuance of the Bonds is not subject to Swiss issuance stamp duty. An issuance of Ordinary Shares being Ordinary Shares issued from the conditional capital of Adecco pursuant to the conversion of the Bonds will, however, be subject to Swiss issuance stamp duty at the current rate of 1% and will be borne by Adecco. Transfer Stamp Duty The issuance of the Bonds is principally not subject to Swiss transfer stamp duty (but exceptions may be possible for Bondholders qualifying as Swiss professional securities dealers). The subsequent sale or transfer of the Bonds may, however, be subject to Swiss transfer stamp duty at the current rate of 0.3% if such sale or transfer is made by or through the intermediary of a professional securities dealer as defined in the Swiss Stamp Tax Act. In addition, the sale or transfer of the Bonds by or through a member of the SIX Swiss Exchange may be subject to a stock exchange levy. The delivery of the Ordinary Shares from Adecco to the Issuer pursuant to the conversion of the Bonds will, however and if not being Ordinary shares issued from the conditional capital of Adecco pursuant to the conversion of the Bonds, be subject to the Swiss transfer stamp duty at the current rate of 0.15% and will be borne by Adecco. The conversion of the Bonds into Ordinary Shares is principally not subject to Swiss transfer stamp duty (but exceptions may be possible for Bondholders qualifying as Swiss professional securities dealers). Taxes in relation to the Ordinary Shares after conversion Withholding Tax Dividends and similar payments or distributions in kind made by Adecco to a Shareholder (including liquidation proceeds exceeding the nominal value of the Ordinary Shares and stock dividends) are subject to Swiss withholding tax at a rate of 35%. Gains realised upon repurchase of Ordinary Shares by Adecco may be characterised as dividend income if certain conditions have been met. In the case of such re-characterisation of capital gains into dividend income, Swiss withholding tax will be levied on the difference between the purchase price and the nominal value of the Ordinary Shares purchased. The Swiss withholding tax must be deducted by Adecco from the gross disbursement and be paid to the Swiss Federal Tax Administration. The Swiss withholding tax is in principle reimbursed in full to an individual or legal entity that is domiciled or headquartered in Switzerland and therefore fully liable to Swiss individual or corporate income tax if the recipient was the beneficial owner of the Ordinary Shares at the time the distributions were made and duly reported the gross disbursement received in his or her personal tax return and/or in its financial statements. The Swiss withholding tax may be refunded in full or in part to non-swiss tax residents under the terms of an applicable double taxation treaty between Switzerland and the country of tax residency of each Shareholder. 32/298

34 Shareholders not being tax resident in Switzerland should be aware that the procedures for claiming treaty benefits (and the time required for obtaining a refund) may differ from country to country. Shareholders not being tax resident in Switzerland should consult their own legal, financial or tax advisors regarding receipt, ownership, purchase, sale or other dispositions of Ordinary Shares and the procedures for claiming a refund of Swiss withholding tax. Under certain circumstances, a Shareholder being a corporation may be also entitled for refund of Swiss withholding tax based on art. 15 para.1 of the agreement between Switzerland and the EU on the taxation of savings income, entered into force on 1 July Income Tax Taxes on Dividends and Similar Distributions A Swiss resident or foreign resident Shareholder being subject to Swiss individual or corporate income taxation who receives dividends and similar distributions (including stock dividends and liquidation proceeds) from Adecco generally must declare these distributions in its financial statements and/or in his or her personal tax return and owe individual or corporate income tax on the relevant amounts. Under some Cantons tax legislation, no tax is levied at the Cantonal and Municipal level on stock dividends (Gratisaktien) if the Ordinary Shares are held as private assets. A Swiss resident or a foreign legal entity subject to Swiss taxation who is a Shareholder and who itself is a corporation may, under certain circumstances, benefit from relief from taxation under the dividend participation relief (Beteiligungsabzug). Dividends and similar distributions received by a non-swiss resident Shareholder will not be subject to Swiss income taxation, provided that the non-swiss resident Shareholder does not hold the Ordinary Shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or a fixed place of business. Taxes on Capital Gains upon the Disposal of Ordinary Shares Under prevailing Swiss tax law, Swiss resident individuals who hold Ordinary Shares as part of their private assets will generally not be subject to any Swiss Federal, Cantonal or Municipal individual income taxation on gains realised upon the sale or other disposal of Ordinary Shares. However, capital gains realised upon repurchase of Ordinary Shares by Adecco are considered taxable dividend income under certain circumstances. In case of such re-characterisation of capital gains into dividend income, individual income tax will be levied on the difference between the purchase price and the nominal value of the Ordinary Shares purchased. In Cantons not levying taxes on stock dividends, the full purchase price will be taxed. Capital gains realised on Ordinary Shares held as part of the business assets of a Swiss resident or foreign resident being subject to Swiss individual or corporate income taxation are included in the taxable income of such person. This provision also applies to individuals who qualify as so-called professional securities dealers (gewerbsmässige Wertschriftenhändler). Gains realised upon the sale of Ordinary Shares by a non-swiss resident individual will not be subject to Swiss individual income taxation, provided that the individual does not hold the Ordinary Shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or a fixed place of business. Transfer Stamp Duty The sale of Ordinary Shares, whether by Swiss resident or non-swiss resident Shareholders, may be subject to a Swiss transfer stamp duty of up to 0.15% calculated on the sale proceeds if it occurs through or with a professional securities dealer as defined in the Swiss Stamp Duty Act, either as a partner or a broker, or if the 33/298

35 transaction takes place through the SIX Swiss Exchange. The sale of Ordinary Shares through a non-swiss or Liechtenstein bank or securities dealer may also be subject to Swiss transfer stamp duty if (i) such bank or dealer is a member of the SIX Swiss Exchange; and (ii) the transaction takes place on the SIX Swiss Exchange. The sale of Ordinary Shares by or through a member of the SIX Swiss Exchange may also be subject to a stock exchange stamp levy. The prevailing Swiss Stamp Duty Law exempts some categories of institutional Bondholders from the Swiss transfer stamp duty. These include foreign states and central banks, domestic and foreign investment funds, foreign social security institutions, foreign pension funds, and foreign life insurance providers. In addition, as of 1 January 2001, the following are classified as securities dealers under the Swiss Federal Stamp Duty Act: domestic pension funds and the associated insurance, domestic social security institutions (AHV/IV/EO/ALV), the Swiss Federal government, the Cantons and political Municipalities. However, these securities dealers have the option to delegate the payment obligation to commercial dealers (banks). As of 1 January 2001, the Swiss transfer stamp duty affecting the other party is eliminated in the case of transactions involving domestic securities that are executed by a Swiss securities dealer as a member on a foreign stock exchange). Other taxes Value Added Tax In general, no value added tax will arise in respect of payments in consideration for the issue of the Bonds or in respect of the payments made under the Bonds, or in respect of a transfer of the Bonds and/or the Ordinary Shares. Other Taxes and Duties No registration tax, customs duty, transfer tax, stamp duty or any other similar documentary tax or duty, will be payable in Switzerland by a Bondholder in respect of or in connection with the subscription, issue, placement, allotment, delivery or transfer of the Bonds and/or the Ordinary Shares. EU Directive on the Taxation of Savings Income According to the agreement between Switzerland and the EU on the taxation of savings income, entered into force on 1 July 2005, Switzerland agreed to introduce a special withholding tax. Interest payments from non- Swiss sources made by a Swiss paying agent to a beneficial owner who is an individual and resident of an EU member state are subject to a withholding tax in Switzerland at a rate of 20% on the gross interest amount until 30 June 2011 and 35% hereafter. Under the Directive, Member States are required to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to an individual resident in that other Member State or to certain limited types of entities established in that other Member State. However, for a transitional period, Belgium, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-eu countries and territories including Switzerland have adopted similar measures (a withholding system in the case of Switzerland). On 15 September 2008 the European Commission issued a report to the Council of the European Union on the operation of the Directive, which included the Commission s advice on the need for changes to the Directive. On 13 November 2008 the European Commission published a more detailed proposal for amendments to 34/298

36 the Directive, which included a number of suggested changes. If any of those proposed changes are made in relation to the Directive, they may amend or broaden the scope of the requirements described above. 35/298

37 SECTION 2: INFORMATION ON THE BONDS, ASSETS AND SECURITY Structural Overview Set out below is a summary of the various structural and contractual arrangements underlying the Bonds. 1. The Issuer issues the Bonds. 2. Adecco and the Issuer enter into a Forward Purchase Agreement under which Adecco grants the Issuer the right to call for delivery of such number of Ordinary Shares as it may be required to deliver pursuant to the Bonds and the Call Spread Agreement described below, in consideration for the payment by the Issuer to Adecco of an amount equal to the net proceeds of the Bonds. Under the Trust Deed, the Issuer enters into a security assignment of all of its rights, title and interest in the Forward Purchase Agreement in favour of the Trustee as trustee for the Bondholders. 3. Adecco Financial Services (being a wholly-owned subsidiary of Adecco with registered office in Bermuda) and the Issuer enter into a Call Spread Agreement, under which the Issuer agrees to deliver a certain number of Ordinary Shares to Adecco Financial Services, in consideration for the payment to the Issuer of an upfront premium equal to the sum of the scheduled interest payments payable under the Bonds. 4. Adecco and the Issuer enter into the Loan Agreement, pursuant to which the Issuer lends the amount of the premium paid by Adecco Financial Services under the Call Spread Agreement to Adecco. The loan is interest-bearing, and is repayable by Adecco on demand and in any event, on the business day prior to the date on which any payment becomes due under the Bonds, in an amount equal to such payment 36/298

38 Assets Forward Purchase Agreement and Call Spread Agreement The following is a summary of the key provisions of the Forward Purchase Agreement and Call Spread Agreement and is not and does not purport to be complete and is subject to the detailed provisions of the Forward Purchase Agreement and Call Spread Agreement. General On or before 26 November 2009: (i) (ii) the Issuer will enter into the Forward Purchase Agreement with Adecco pursuant to which the Issuer will make payment to Adecco of a sum equal to the net proceeds of the issue of the Bonds and Adecco will grant to the Issuer the right to require Adecco to issue or deliver to or as directed by the Issuer a number of Ordinary Shares equal to the number of Ordinary Shares required to be delivered by the Issuer to Bondholders pursuant to the Bonds and to Adecco Financial Services pursuant to the Call Spread Agreement; and the Issuer will enter into the Call Spread Agreement (together with the Forward Purchase Agreement the "Derivative Transactions") with Adecco Financial Services pursuant to which the Issuer will, upon conversion of the Bonds, deliver to Adecco Financial Services a number of Ordinary Shares equal to the Issuer s Specified Proportion (as defined below) for a settlement price of zero and pursuant to which Adecco Financial Services will pay to the Issuer an up-front premium payment equal to the sum of the scheduled interest payments on the Bonds. The Premium Payment will be credited to an account of the Issuer with the Principal Paying, Transfer and Conversion Agent. Each Derivative Transaction will be in the form of a confirmation under a 2002 ISDA Master Agreement (Multicurrency-Cross Border), as published by the International Swaps and Derivatives Association, Inc. ("ISDA"), and the schedule thereto (the "Master Agreement") and will incorporate the 2006 ISDA Definitions (as published by ISDA, the "ISDA Definitions") and the 2002 ISDA Equity Derivatives Definitions (as published by ISDA, the "Equity Definitions" and together with the ISDA Definitions, the "Definitions"), modified to reflect the terms of each Derivative Transaction. Except as expressly set forth therein, each Derivative Transaction will be governed in all respects by the provisions set forth in the Master Agreement and the Definitions, without regard to any amendments or modifications to the Master Agreement or the Definitions published by ISDA subsequent to the date of such Derivative Transaction. The Derivative Transactions will be governed by English law and the settlement currency will be Swiss francs. Payments and Deliveries under the Derivative Transactions Under the Forward Purchase Agreement, the Issuer will agree to make payment to Adecco on the Issue Date of a sum equal to the net proceeds of the issue of the Bonds (net of fees and expenses) and Adecco will agree to issue or deliver to or as directed by the Issuer a number of Ordinary Shares equal to the number of Ordinary Shares required to be delivered by the Issuer to Bondholders pursuant to the Bonds and to Adecco Financial Services pursuant to the Call Spread Agreement, such delivery to be made by Adecco one day prior to each date for delivery of Ordinary Shares to Bondholders on the relevant conversion of the Bonds. The Forward Purchase Agreement will contain provisions relating to adjustments that correspond to the provisions of the Bonds relating to the adjustment of the Maximum Conversion Price and Minimum Conversion Price. The obligations of Adecco under the Forward Purchase Agreement will be subordinated in that, if Adecco fails to deliver Ordinary Shares and becomes insolvent or steps are otherwise taken for its winding-up, the claims of the Issuer against Adecco in the winding-up of Adecco shall entitle the Issuer to participate in the proceeds 37/298

39 of such winding-up pari passu with the holders of the Ordinary Shares of Adecco. Under the Call Spread Agreement, Adecco Financial Services will agree to pay the Premium Payment to the Issuer on the Issue Date, and the Issuer will agree to deliver to Adecco Financial Services a number of Ordinary Shares equal to the Issuer s Specified Proportion, such delivery to be made on or shortly prior to the date for delivery of Ordinary Shares to Bondholders on the relevant conversion of the Bonds. The Issuer s Specified Proportion is the number of Ordinary Shares equal to the Conversion Shares per Bond on the relevant Conversion Date minus the number of Ordinary Shares required to be delivered to Bondholders in respect of the relevant conversion. The Issuer s obligation to deliver Ordinary Shares to Adecco Financial Services is subject to Adecco having delivered sufficient Ordinary Shares to the Issuer under the Forward Purchase Agreement for the Issuer first to satisfy its obligations to deliver Ordinary Shares to the Bondholders in respect of the relevant Conversion Date. Conditions Precedent The respective obligations of the Issuer and Adecco or Adecco Financial Services, as applicable, to pay or deliver under the relevant Derivative Transaction will be subject to the following conditions precedent: (i) no Derivative Event of Default (as defined below under "Defaults under the Derivative Transactions") (or event that with the giving of notice or lapse of time or both would become a Derivative Event of Default) shall have occurred and be continuing; and (ii) no Early Termination Date (as defined below under "Early Termination of the Derivative Transactions") has occurred or has been effectively designated. Defaults under the Derivative Transactions "Events of Default" (as defined in the Master Agreement) under the Forward Purchase Agreement (each, a "Derivative Event of Default") are limited to the failure of Adecco to pay any amount when due or deliver when due any Ordinary Shares to be delivered after giving effect to the applicable grace period, if any. There are no Events of Default applicable to the Issuer. If Adecco fails to deliver the appropriate number of Ordinary Shares as provided for under the Forward Purchase Agreement, and becomes insolvent or steps are otherwise taken for its winding-up, the claims of the Issuer against Adecco in such winding-up or insolvency shall entitle the Issuer to participate in the proceeds of the winding-up of Adecco pari passu with the holders of the Ordinary Shares of Adecco. This participation is in respect of the total number of Ordinary Shares that Adecco should have delivered to the Issuer in accordance with the terms of the Forward Purchase Agreement. "Events of Default" (as defined in the Master Agreement) under the Call Spread Agreement (each, a "Derivative Event of Default") are limited to the failure of the Issuer to deliver when due any Ordinary Shares to be delivered after giving effect to the applicable grace period, if any. There are no Events of Default applicable to Adecco Financial Services. If the Issuer fails to deliver the appropriate number of Ordinary Shares as provided for under the Call Spread Agreement, Adecco Financial Services may claim against the Issuer for the loss Adecco Financial Services suffers by reference to the number of Ordinary Shares that the Issuer failed to deliver to Adecco Financial Services in accordance with Section 6(e)(i) of the Master Agreement. Termination Events under the Derivative Transactions There are no "Termination Events" (as defined in the Master Agreement) specified as applicable under either the Forward Purchase Agreement or the Call Spread Agreement. Early Termination of the Derivative Transactions Upon the occurrence of a Derivative Event of Default, the date on which the relevant Derivative Transaction will terminate (an "Early Termination Date") must be designated by one of the parties, as specified in each 38/298

40 case in the applicable Derivative Transaction, and will occur only upon notice, all as set forth in the applicable Derivative Transaction. As provided in each Derivative Transaction, under certain circumstances such Derivative Transaction may terminate early, in whole or in part, prior to its final maturity date. Any such early termination or partial termination will correspond in notional amount to the principal amount of Bonds converted at such time. In addition, to the extent that Adecco or any of its subsidiaries purchases and cancels any Bonds pursuant to Condition 11, the corresponding notional amount subject to each Derivative Transaction will be automatically reduced on the date such purchase is notified by Adecco to the Issuer in the same proportion as the principal amount of the Bonds so purchased and cancelled bears to the aggregate principal amount of the Bonds outstanding immediately prior to such cancellation. Transfers of the Derivative Transactions Under Section 7 of the Master Agreement, neither a Derivative Transaction nor any interest or obligation in or under a Derivative Transaction may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except in limited circumstances. Notwithstanding the above, the parties to the Forward Purchase Agreement will specifically agree that the Issuer may assign by way of security its rights under the Forward Purchase Agreement to the Trustee without the consent of Adecco. Set-Off of Share Delivery Obligations Provided that Adecco delivers sufficient Ordinary Shares to the Issuer for the Issuer first to satisfy its obligations to deliver Ordinary Shares to Bondholders with respect to a Conversion Date, Adecco Financial Services may in its sole discretion agree that Adecco s obligation to deliver additional Ordinary Shares to the Issuer with respect to such Conversion Date will be discharged by its set-off against the obligation of the Issuer to deliver Ordinary Shares to Adecco Financial Services under the Call Spread Agreement with respect to such Conversion Date. In such case the number of Ordinary Shares deliverable under the Forward Purchase Agreement by Adecco to the Issuer with respect to such Conversion Date will be reduced by the number of Ordinary Shares, if any, that would have otherwise been deliverable by the Issuer to Adecco Financial Services under the Call Spread Agreement with respect to such Conversion Date. Adecco Financial Services is obliged under the Call Spread Agreement to give the Issuer and Adecco notice of any such set-off. Notional Amount of the Derivative Transactions The notional amount of each Derivative Transaction will be CHF 900,000,000, as reduced by any partial exercise or partial termination of such Derivative Transaction. Exercise of the Derivative Transactions The Forward Purchase Agreement may be exercised in whole or in part by the Issuer by delivery to Adecco of a notice referring to a conversion of the Bonds and the number of Ordinary Shares to be delivered with respect to such conversion. The Call Spread Agreement will be automatically exercised on conversion of the Bonds, in an amount equal to the proportion of the outstanding Bonds converted. On exercise of a Derivative Transaction, the requisite number of Ordinary Shares will be delivered as described in "Payments and Deliveries under the Derivative Transactions" above. Stamp Duty, Taxes and Fees Under the Forward Purchase Agreement, Adecco will agree to pay directly to the relevant authorities any 39/298

41 Swiss Federal Stamp Duty and any other taxes or capital, stamp, issue and registration and transfer taxes and duties payable in Switzerland, Luxembourg, Belgium or Bermuda in respect of the allotment, issue and delivery of the Ordinary Shares thereunder, and any applicable exchange fees in respect of the allotment, issue or delivery of the Ordinary Shares. Under the Call Spread Agreement, Adecco Financial Services will agree to pay directly to the relevant authorities any Swiss Federal Stamp Duty and any other taxes or capital, stamp, issue and registration and transfer taxes and duties payable in Switzerland, Luxembourg, Belgium or Bermuda in respect of the delivery of the Ordinary Shares to Adecco Financial Services thereunder. Calculation Agent The Calculation Agent for each Derivative Transaction will be Deutsche Bank AG, London Branch. Loan Facility The following is a summary of the key provisions of the Loan Agreement and is not and does not purport to be complete and is subject to the detailed provisions of the Loan Agreement. On or about 26 November 2009, the Issuer is expected to enter into a Loan Agreement (the "Loan Agreement") with Adecco. Pursuant to the Loan Agreement, Adecco may from time to time require the Issuer to make advances under the Loan Agreement (the "Advances") to Adecco, out of the proceeds from time to time standing to the credit of the Premium Account. The aggregate principal amount of Advances outstanding at any time shall not exceed CHF 175,500,000. Advances will not be made by the Issuer within 15 Zurich business days prior to any Interest Payment Date under the Bonds nor during the period commencing on the exercise of conversion rights in respect of the Bonds by the Issuer or Bondholders and ending on the relevant Conversion Date. Advances will be made in Swiss francs only and will bear interest at the rate of three month CHF LIBOR plus 1.5 per cent per annum, or such other rate as may be agreed between the Issuer and Adecco from time to time. Advances will be repayable on the Zurich business day prior to each day on which a payment is required to be made by the Issuer pursuant to the Bonds in a principal amount equal to such payment, together with accrued interest thereon. In addition, Adecco shall repay all Advances made to it on demand by the Issuer at any time, together with all accrued interest. Adecco may at any time prepay the whole or part of any Advance and, subject as provided in the Loan Agreement, may request further Advances. The Loan Agreement provides that all payments of principal and interest in respect to Advances by Adecco to the Issuer shall be made free and clear of and without any withholding or deduction for or on account of any taxes unless required by law. If any such withholding or deduction is required by law, then the Loan Agreement provides that Adecco is required to pay such additional amounts to the Issuer as will result in the receipt by the Issuer, after any such withholding or deduction, of the full amount that otherwise would have been payable in the absence of any such withholding or deduction. The obligations of Adecco under the Loan Agreement will constitute subordinated obligations of Adecco in that on a winding-up, liquidation, bankruptcy or dissolution of Adecco, the rights and claims of the Issuer against Adecco in respect of or arising under the Loan Agreement will be subordinated to the claims of all unsubordinated creditors of Adecco, such that the Issuer will not be entitled to receive any payment under or in respect of the Loan Agreement until such time as all unsubordinated creditors of Adecco have been paid in full, but 40/298

42 shall rank at least pari passu with the claims of all other subordinated creditors of Adecco The Loan Agreement will be governed by and construed in accordance with English law. Security Assignment of Forward Purchase Agreement The Issuer will assign to the Trustee on behalf of the Bondholders its rights under the Forward Purchase Agreement as security for its obligations to deliver Ordinary Shares to holders of the Bonds upon conversion of the Bonds. The Issuer will not create any security interest in respect of the Call Spread Agreement, the Loan Agreement, the Premium Payment or the Premium Account, and the arrangements in relation to the operation of the Premium Account shall not constitute a security interest. Restrictions on the Activities of the Issuer The Issuer is a special purpose vehicle incorporated specifically for the issue of the Bonds and is a wholly owned subsidiary of Adecco S.A. The Issuer is restricted in terms of its actions by virtue of the limited objects set out in its memorandum of association and restrictions included in its bye-laws. The Issuer s memorandum of association states, inter alia, that the objects for which the Issuer is formed are: (i) to issue and sell the Bonds pursuant to the Trust Deed as may be amended or supplemented from time to time, and to enter into and perform its obligations under the various agreements to which the Issuer is a party in connection with the Bonds, including, without limitation, the receipt of and onward payment of the cash premium from Adecco Financial Services, pursuant to the terms of the Call Spread Agreement and to deal with and effect the conversion of the Bonds at or prior to maturity into securities of Adecco, pursuant to the terms and conditions of the Bonds, (ii) to pledge defined assets as security for its obligations under the Bonds and the Trust Deed in favour of the Trustee for the benefit of itself and the Bondholders pursuant to the Trust Deed, and (iii) to enter into other activities incidental to the foregoing. In addition, the Issuer may (i) enter into and perform contracts, undertakings and arrangements of any kind in furtherance of, or for the purpose of implementing, any of the objects contemplated above and to engage in any other activity but only to the extent that such activity is necessary, expedient, incidental or conducive to the accomplishments of the objects referred to above and (ii) do all such things as are incidental or conducive to the attainment of the above objects or any of them. The Issuer s bye-laws provide that the memorandum of association cannot be altered or amended otherwise than in accordance with the Companies Act 1981 of Bermuda (as amended) (the "Act") and until the same has been approved by a resolution of the board of directors and a resolution of the member and, as long as the Bonds remain in issue, has been approved in writing by the Trustee. The Issuer s bye-laws further provide that bye-laws cannot be rescinded, altered or amended and that no new bye-law can be made otherwise than in accordance with the Act and until the same has been approved by a resolution of the board of directors and a resolution of the member and, as long as the Bonds remain in issue, has been approved in writing by the Trustee. Limited Recourse Claims of the holders of the Bonds against the Issuer shall be limited to any amount or property received or recovered in respect of the Issuer s rights and entitlements under the Assets, and the Bonds shall not give rise 41/298

43 to any payment or other obligations in excess of any amount or property received or recovered in respect of the Assets. Description of Risks See "Risk Factors" for a description of the specific risks associated with the structure and contractual arrangements underlying the Bonds and of the general risks inherent in investing in the Bonds. Terms and Conditions of the Bonds The following, subject to completion and amendment, and save for the paragraphs in italics, is the text of the Terms and Conditions of the Bonds. The issue of the CHF 900,000, per cent. Senior Secured Limited Recourse Mandatory Convertible Bonds due 2012 (the "Bonds") was authorised by a resolution of the board of directors of Adecco Investment (Bermuda) Ltd (the "Issuer") passed on 19 October The Bonds are constituted by a trust deed dated 26 November 2009 (the "Trust Deed") between the Issuer and Deutsche Trustee Company Limited (the "Trustee", which expression shall include all persons for the time being appointed as the trustee or trustees under the Trust Deed) as trustee for the holders (as defined below) of the Bonds. The statements set out in these Terms and Conditions (the "Conditions") are summaries of, and are subject to, the detailed provisions of the Trust Deed, which includes the form of the Bonds. The Bondholders (as defined below) are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and those provisions applicable to them which are contained in the Paying, Transfer and Conversion Agency Agreement dated 26 November 2009 (the "Agency Agreement") relating to the Bonds between the Issuer, the Trustee and Deutsche Bank AG, London Branch (the "Principal Paying, Transfer and Conversion Agent", which expression shall include any successor as Principal Paying, Transfer and Conversion Agent under the Agency Agreement), the Paying, Transfer and Conversion Agents for the time being (such persons, together with the Principal Paying, Transfer and Conversion Agent, being referred to below as the "Paying, Transfer and Conversion Agents", which expression shall include their successors as Paying, Transfer and Conversion Agents under the Agency Agreement) and Deutsche Bank Luxembourg S.A. in its capacity as registrar (the "Registrar", which expression shall include any successor as registrar under the Agency Agreement). The Issuer has also entered into a Calculation Agency Agreement (the "Calculation Agency Agreement") dated 26 November 2009 with the Trustee and Deutsche Bank AG, London Branch as calculation agent (the "Calculation Agent"), which expression shall include any successor in such capacity under the Calculation Agency Agreement. Copies of the Trust Deed, the Agency Agreement and the Calculation Agency Agreement are available for inspection at the office of the Trustee at Winchester House, 1 Great Winchester Street, London EC2N 2DB, and at the specified offices of the Paying, Transfer and Conversion Agents and the Registrar. Capitalised terms used but not defined in these Conditions shall have the meanings attributed to them in the Trust Deed unless the context otherwise requires or unless otherwise stated. On or about 26 November 2009: (i) the Issuer will enter into a Forward Purchase Agreement with Adecco S.A. pursuant to which the Issuer will make payment to Adecco S.A. of a sum equal to the net proceeds of the issue of the Bonds and Adecco S.A. will grant to the Issuer the right to require Adecco S.A. to issue or deliver to or as directed by the Issuer a number of Ordinary Shares equal to the number of Ordinary Shares required to be delivered by the Issuer to Bondholders pursuant to the Bonds and to Adecco Financial Services (Bermuda) Ltd pur- 42/298

44 suant to the Call Spread Agreement referred to below. The Forward Purchase Agreement will contain provisions relating to adjustments that correspond to the provisions of the Bonds relating to the adjustment of the Maximum and Minimum Conversion Price. The obligations of Addeco S.A. under the Forward Purchase Agreement are subordinated in that if Adecco S.A. fails to deliver Ordinary Shares, the claims of the Issuer against Adecco S.A. in the winding-up of Adecco S.A. shall entitle the Issuer to participate in the proceeds of such winding-up pari passu with the holders of the Ordinary Shares of Adecco S.A. This participation is expressed to be in respect of an amount equal to the total number of Ordinary Shares that Adecco S.A. shall have failed to deliver to the Issuer in accordance with the Forward Purchase Agreement; (ii) the Issuer will enter into a Call Spread Agreement with Adecco Financial Services (Bermuda) Ltd pursuant to which upon conversion of the Bonds, the Issuer will agree to deliver to Adecco Financial Services (Bermuda) Ltd a number of Ordinary Shares equal to the Issuer s Specified Proportion (as defined below) and pursuant to which Adecco Financial Services (Bermuda) Ltd will pay to the Issuer an up-front premium payment (the "Premium Payment") equal to the sum of the scheduled interest payments on the Bonds; The Premium Payment will be credited to an account of the Issuer with the Principal Paying, Transfer and Conversion Agent (the "Premium Account"). Amounts credited to the Premium Account may be applied in making Permitted Payments as described in the Conditions, including, other than during the period commencing on the exercise of rights of conversion of the Bonds by the Issuer or Bondholders and ending on the relevant Conversion Date, be applied in making loans to Adecco S.A. pursuant to the Loan Agreement between the Issuer and Adecco. Such loans will be repayable upon demand by the Issuer and will be interest bearing. The Loan Agreement will provide for repayment on each day on which a payment is required to be made by the Issuer pursuant to the Bonds of an amount equal to such payment. Interest paid on such loans will not be paid into the Premium Account and may be used for such purposes as the Issuer may determine. The obligations of Adecco S.A. under the Loan Agreement will constitute subordinated obligations of Adecco S.A. Accordingly, on a winding up, liquidation, bankruptcy or dissolution of Adecco S.A., the rights and claims of the Issuer against Adecco S.A. in respect of the Loan Agreement will rank behind unsubordinated creditors of Adecco S.A., but will rank at least pari passu with all other subordinated creditors of Adecco S.A. 1. Form, Denomination and Title (a) Form and Denomination The Bonds are in registered form in principal amounts of CHF100,000 each. (b) Title Title to the Bonds will pass by transfer and registration as described in Condition 5. The holder (as defined below) of any Bond will (except as otherwise required by law or as ordered by a court of competent jurisdiction) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest in it or its theft or loss (or that of the related certificate, as applicable) or anything written on it or the certificate representing it (other than a duly executed transfer thereof) and no person will be liable for so treating the holder. 43/298

45 2. Status and Security (a) Status The Bonds constitute unsubordinated obligations of the Issuer, secured to the extent and in the manner described in Condition 2(b), recourse in respect of which is limited in the manner described in Condition 2(d). The Bonds shall at all times rank pari passu without preference or priority among themselves. (b) Security The Issuer s obligations under the Bonds and the Trust Deed to deliver Ordinary Shares upon a Mandatory Conversion or a Voluntary Conversion (the "Secured Obligations") are secured in favour of the Trustee for the benefit of itself and the Bondholders, (subject as provided in these Conditions and the Transaction Documents) pursuant to the Trust Deed by an assignment by way of security of all the Issuer s rights, title and interest in and to the Forward Purchase Agreement, including the right to receive Ordinary Shares and all other property thereunder. The property which is from time to time the subject of the security described in this Condition 2(b) is referred to herein as the "Secured Property" and the security so described is referred to as the "Security". The Issuer has not granted and will not grant any security interest in respect of its rights under the Call Spread Agreement or the Loan Agreement or in respect of the Premium Account to or in favour of the Trustee or the Bondholders. (c) Enforcement of Security The Security shall become enforceable upon a failure by the Issuer to perform its obligations to deliver Ordinary Shares upon a Mandatory Conversion or Voluntary Conversion in respect of the Bonds or any of them. If the Security becomes enforceable, the Trustee, without notice to the Issuer, may at its discretion and shall if so requested in writing by Bondholders holding at least one-quarter in principal amount of the Bonds then outstanding or if so directed by an Extraordinary Resolution (as defined in the Trust Deed) (subject in each case to being secured and/or pre-funded and/or indemnified to its satisfaction) enforce the Security. To do this, the Trustee may, at its discretion, take possession of and/or realise all or any part of the Secured Property and/or take action against any person liable in respect of the Secured Property, and the Forward Purchase Agreement in accordance with their terms, but without any liability as to the consequences of such action and without having regard to the effect of such action on individual Bondholders, and provided that the Trustee shall not be required to take any action that would involve any personal liability or exposure without first being secured and/or prefunded and/or indemnified to its satisfaction. Pursuant to the Trust Deed, the Trustee shall apply all property, assets and moneys received by it under the Trust Deed in connection with the realisation or enforcement of the Security, on trust to apply them as follows: (i) (ii) (iii) first, in payment or satisfaction of the fees, costs, charges, expenses and liabilities properly incurred by the Trustee or any receiver in preparing and performing the trusts constituted by and its rights, powers, duties and authorities under the Trust Deed (including holding and enforcing the security constituted by the Trust Deed and including any taxes required to be paid, the costs of realising any Security and the remuneration of the Trustee and any receiver appointed by it); secondly, in or towards payment or discharge or satisfaction pari passu of the Secured Obligations to the Bondholders in respect of the Bonds and pursuant to the Trust Deed; and thirdly, in payment or delivery of any balance to the Issuer. 44/298

46 (d) Limited Recourse and Shortfall Recourse against the Issuer in respect of its obligations under the Bonds and the Trust Deed is limited to the net assets and proceeds received by the Issuer under or in respect of the Forward Purchase Agreement, the Call Spread Agreement, the Loan Agreement and amounts (if any) standing to the credit of the Premium Account. If such net assets and proceeds are not sufficient to meet such obligations and any payments then due to the Trustee: (i) (ii) (iii) (iv) such obligations of the Issuer will be limited to such net assets and proceeds; the Issuer shall be under no obligation to pay any shortfall (if any) arising therefrom; all claims in respect of such shortfall shall be extinguished and no debt or obligation shall be owed by the Issuer in respect thereof; and the Trustee and the Bondholders shall have no further claim against the Issuer in respect of such obligations and will accordingly not be entitled to petition for the winding up of the Issuer as a consequence of such shortfall or take any other action to recover any such shortfall. (e) Release of Secured Property The Trust Deed contains provisions for the automatic release from the Security referred to in Condition 2(b) of: (i) (ii) Ordinary Shares to be delivered to a Bondholder on a Voluntary Conversion or a Mandatory Conversion; and provided that an Accelerated Conversion Event shall not have occurred and be continuing and provided that the Issuer is not otherwise in breach or default of any of its obligations under the Bonds or any of the Transaction Documents) the Issuer s Specified Proportion of the Conversion Shares per Bond to be received and retained by the Issuer pursuant to Condition 8(h). 3. Covenants So long as any Bond remains outstanding (as defined in the Trust Deed), save with the prior written consent of the Trustee or as approved by any Extraordinary Resolution (as defined in the Trust Deed) of the Bondholders or as expressly permitted in any of the Transaction Documents or these Conditions, the Issuer: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) will not create or permit to subsist any mortgage, pledge, lien, security interest, charge or encumbrance or any arrangement having a like or similar effect upon all or any of the Secured Property or the whole or any part of its other assets, present or future (including any uncalled capital) or undertaking; will not transfer, sell, lend, part with or otherwise dispose of, or deal with, or grant any option or present or future right to acquire any of the Secured Property; will not engage in any activity which is not incidental and necessary to any of the activities which the Transaction Documents provide or envisage that the Issuer will engage in, other than activities of a routine or administrative nature; will not have any employees; will not have any subsidiaries or premises; will not amend, supplement or otherwise modify its constitutional documents; will not act as a director of any company or other corporation; will not pay any dividend or make any other distribution to its shareholders or issue any further shares; 45/298

47 (ix) (x) (xi) (xii) (xiii) will not incur any indebtedness in respect of money borrowed or raised or any other liabilities whatsoever other than any liability of a routine administrative nature or give any guarantee in respect of any obligation of any person, in each case, other than under the Transaction Documents; will not consolidate or merge with any other person or convey or transfer its properties or assets substantially as an entirety to any other person; will procure that the Premium Payment and the repayments of principal by Adecco under the Loan Agreement shall be credited to the Premium Account and that only Permitted Payments will be made out of the Premium Account will not have a branch or place of business in the United Kingdom or Switzerland; and will not permit any of the Transaction Documents to be amended, terminated, postponed or discharged, or consent to any variation of, or exercise of any powers of consent or waiver pursuant to any of the Transaction Documents, or permit any party to any of the Transaction Documents, or any other person whose obligations form part of the security to be released from such obligations. In giving any consent to the foregoing, the Trustee may require the Issuer to make such modifications or additions to the provisions of any of the Transaction Documents or may impose such other conditions or requirements as the Trustee may deem expedient (in its absolute discretion) in the interests of the Bondholders. 4. Definitions In these Conditions, unless otherwise provided: "Adecco" means Adecco S.A. "Additional Ordinary Shares" has the meaning provided in Condition 9(b). "Bondholder" and "holder" mean the person in whose name a Bond is registered in the Register (as defined in Condition 5(a)). "business day" means, in relation to any place, a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets are open for business in that place. "Calculation Period" means: (a) (b) in the case of a Mandatory Conversion on the Maturity Date pursuant to Condition 8(a), a period of 20 consecutive dealing days ending on, and including, the 3rd dealing day prior to the Maturity Date; and in the case of a Conversion following an Accelerated Conversion Event pursuant to Condition 8(e), a period of 20 consecutive dealing days commencing on the 3rd dealing day following the day on which the relevant Accelerated Conversion Notice is given by the Trustee to the Issuer pursuant to Condition 14. "Call Spread Agreement" means the call spread agreement dated 26 November 2009 between Adecco Financial Services (Bermuda) Ltd (the "Call Spread Counterparty") and the Issuer. "Change of Control" has the meaning provided in Condition 8(d). "Change of Control Proportion" means: (1 RP) x t/t where: RP = the Relevant Proportion as determined as provided in Condition 8(d); 46/298

48 t = number of days remaining from (and including) the relevant Conversion Date to (but excluding) the Maturity Date; and T = 1096, the number of days from (and including) the Issue Date to (but excluding) the Maturity Date. "CHF" means the lawful currency of Switzerland. "Conversion Date" means: (a) (b) (c) (d) (e) in the case of a Mandatory Conversion on the Maturity Date pursuant to Condition 8(a), the Maturity Date; in the case of Early Conversion at the option of the Issuer pursuant to Condition 8(b), the Conversion Date specified in the Issuer Early Conversion Notice; in the case of a Voluntary Conversion at the option of Holders pursuant to Condition 8(c), the dealing day following the delivery of the relevant Bond and Conversion Notice on exercise of such conversion pursuant to Condition 10(a); in the case of a Voluntary Conversion at the option of Holders following a Change of Control pursuant to Condition 8(d), date specified as the Conversion Date pursuant to Condition 8(d); and in the case of a Conversion following an Accelerated Conversion Event pursuant to Condition 8(e), the 3rd dealing day following the end of the relevant Calculation Period, or, in any such case, if the relevant date is not a dealing day, the next following dealing day. "Conversion Notice" has the meaning provided in Condition 10(a). "Conversion Shares per Bond" means, in respect of any dealing day, a number of Ordinary Shares determined by dividing the principal amount of a Bond by the Minimum Conversion Price in effect on such dealing day, rounded down, if necessary to the nearest whole number of Ordinary Shares. "Current Market Price" means, in respect of an Ordinary Share at a particular date, the average of the daily Volume Weighted Average Price of an Ordinary Share on each of the five consecutive dealing days ending on the dealing day immediately preceding such date; provided that if at any time during the said five-dealing-day period the Volume Weighted Average Price shall have been based on a price ex-dividend (or ex- any other entitlement) and during some other part of that period the Volume Weighted Average Price shall have been based on a price cum-dividend (or cum- any other entitlement), then: (a) (b) if the Ordinary Shares to be issued or transferred and delivered do not rank for the Dividend (or entitlement) in question, the Volume Weighted Average Price on the dates on which the Ordinary Shares shall have been based on a price cum-dividend (or cum- any other entitlement) shall for the purpose of this definition be deemed to be the amount thereof reduced by an amount equal to the Fair Market Value of any such Dividend or entitlement per Ordinary Share as at the date of first public announcement of such Dividend (or entitlement), in any such case, determined on a gross basis and disregarding any withholding or deduction required to be made on account of tax, and disregarding any associated tax credit; or if the Ordinary Shares to be issued or transferred and delivered do rank for the Dividend (or entitlement) in question, the Volume Weighted Average Price on the dates on which the Ordinary Shares shall have been based on a price ex-dividend (or ex- any other entitlement) shall for the purpose of this definition be deemed to be the amount thereof increased by an amount equal to the Fair Market Value of any such Dividend or entitlement per Ordinary Share as at the date of first public announcement of such Dividend (or entitlement), in any such case, determined on a gross basis and disregarding any withholding or deduction required to be made on account of tax, and disregarding 47/298

49 any associated tax credit, and provided further that if on each of the said five dealing days the Volume Weighted Average Price shall have been based on a price cum-dividend (or cum- any other entitlement) in respect of a Dividend (or other entitlement) which has been declared or announced but the Ordinary Shares to be issued or transferred and delivered do not rank for that Dividend (or other entitlement) the Volume Weighted Average Price on each of such dates shall for the purposes of this definition be deemed to be the amount thereof reduced by an amount equal to the Fair Market Value of any such Dividend or entitlement per Ordinary Share as at the date of the first public announcement of such Dividend or entitlement, in any such case, determined on a gross basis and disregarding any withholding or deduction required to be made on account of tax, and disregarding any associated tax credit, and provided further that, if the Volume Weighted Average Price of an Ordinary Share is not available on one or more of the said five dealing days (disregarding for this purpose the proviso to the definition of Volume Weighted Average Price), then the average of such Volume Weighted Average Prices which are available in that five-dealing-day period shall be used (subject to a minimum of two such prices) and if only one, or no, such Volume Weighted Average Price is available in the relevant period the Current Market Price shall be determined by a Financial Adviser. "dealing day" means a day on which the Relevant Stock Exchange or relevant stock exchange or securities market is open for business and on which Ordinary Shares, Securities, Spin-Off Securities options, warrants or other rights (as the case may be) may be dealt in (other than a day on which the Relevant Stock Exchange or relevant stock exchange or securities market is scheduled to or does close prior to its regular weekday closing time). "Dividend" means any dividend or distribution to Shareholders (including a Spin-Off) whether of cash, assets or other property, and however described and whether payable out of share premium account, profits, retained earnings or any other capital or revenue reserve or account, and including a distribution or payment to holders upon or in connection with a reduction of capital (and for these purposes a distribution of assets includes without limitation an issue of Ordinary Shares or other Securities credited as fully or partly paid up by way of capitalisation of profits or reserves), provided that: (a) where: (1) a Dividend in cash is announced which is to be, or may at the election of a Shareholder or Shareholders be, satisfied by the issue or delivery of Ordinary Shares or other property or assets, or where a capitalisation of profits or reserves is announced which is to be, or may at the election of a Shareholder or Shareholders be, satisfied by the payment of cash, then the Dividend in question shall be treated as a cash Dividend of an amount equal to the greater of: (i) (ii) the Fair Market Value of such cash amount; and the Current Market Price of such Ordinary Shares or, as the case may be, the Fair Market Value of such other property or assets, in any such case as at the first date on which the Ordinary Shares are traded ex- the relevant Dividend or capitalisation on the Relevant Stock Exchange or, if later, the date on which the number of Ordinary Shares (or amount of such other property or assets, as the case may be) which may be issued or delivered is determined; or (2) there shall be any issue of Ordinary Shares by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve) where such issue is or is expressed to be in lieu of a Dividend (whether or not a Cash Dividend equivalent or amount is announced or would otherwise be payable to Shareholders, whether at their 48/298

50 election or otherwise), the Dividend in question shall be treated as a Cash Dividend of an amount equal to the Current Market Price of such Ordinary Shares as at the first date on which the Ordinary Shares are traded ex- the relevant capitalisation on the Relevant Stock Exchange or, if later, the date on which the number of Ordinary Shares to be issued or transferred and delivered is determined; (b) (c) (d) (e) (f) any issue of Ordinary Shares falling within Condition 9(a)(ii) shall be disregarded; a purchase or redemption or buy back of share capital of Adecco by or on behalf of Adecco or any of its Subsidiaries shall not constitute a Dividend unless, in the case of a purchase or redemption or buy back of Ordinary Shares by or on behalf of Adecco or any of its Subsidiaries, the weighted average price per Ordinary Share (before expenses) on any one day (a "Specified Share Day") in respect of such purchases or redemptions or buy backs (translated, if not in the Relevant Currency, into the Relevant Currency at the Prevailing Rate on such day) exceeds by more than 5 per cent. the average of the daily Volume Weighted Average Price of an Ordinary Share on the five dealing days immediately preceding the Specified Share Day or, where an announcement (excluding, for the avoidance of doubt for these purposes, any general authority for such purchases, redemptions or buy backs approved by a general meeting of Shareholders or any notice convening such a meeting of Shareholders) has been made of the intention to purchase, redeem or buy back Ordinary Shares at some future date at a specified price or where a tender offer is made, on the five dealing days immediately preceding the date of such announcement or the date of first public announcement of such tender offer (and regardless of whether or not a price per Ordinary Share, a minimum price per Ordinary Share or a price range or formula for the determination thereof is or is not announced at such time), as the case may be, in which case such purchase, redemption or buy back shall be deemed to constitute a Dividend in cash in the Relevant Currency to the extent that the aggregate price paid (before expenses) in respect of such Ordinary Shares purchased, redeemed or bought back by Adecco or, as the case may be, any of its Subsidiaries (translated where appropriate into the Relevant Currency as provided above) exceeds the product of (i) 105 per cent. of the daily Volume Weighted Average Price of an Ordinary Share determined as aforesaid and (ii) the number of Ordinary Shares so purchased, redeemed or bought back; if Adecco or any of its Subsidiaries shall purchase, redeem or buy back any depositary or other receipts or certificates representing Ordinary Shares, the provisions of paragraph (c) above shall be applied in respect thereof in such manner and with such modifications (if any) as shall be determined in good faith by a Financial Adviser; where a dividend or distribution is paid or made to Shareholders pursuant to any plan implemented by Adecco for the purpose of enabling Shareholders to elect, or which may require Shareholders, to receive dividends or distributions in respect of the Ordinary Shares held by them from a person other than, (or in addition to Adecco, such dividend or distribution shall for the purposes of these Conditions be treated as a dividend or distribution made or paid to Shareholders by Adecco, and the foregoing provisions of this definition and the provisions of these Conditions shall be construed accordingly, and any such determination shall be made on a gross basis and disregarding any withholding or deduction required to be made on account of tax, and disregarding any associated tax credit; and a dividend or distribution that is a Spin-Off shall be deemed to be a Dividend paid or made by Adecco. "equity share capital" means, in relation to any entity, its issued share capital excluding any part of that capital which, neither as respects dividends nor as respects capital, carries any right to participate beyond a specific amount in a distribution. 49/298

51 "Exempt Newco Scheme" means a Newco Scheme where, immediately after completion of the relevant Scheme of Arrangement, the ordinary shares of Newco are (1) admitted to trading on the Relevant Stock Exchange or (2) listed and admitted to trading on such other regulated, regularly operating, recognised stock exchange or securities market as Adecco or Newco may determine. "Existing Shareholders" has the meaning provided in the definition "Newco Scheme". "Extraordinary Resolution" has the meaning provided in the Trust Deed. "Fair Market Value" means, with respect to any property on any date, the fair market value of that property as determined by a Financial Adviser provided that (i) the Fair Market Value of a Dividend in cash shall be the amount of such cash; (ii) the Fair Market Value of any other cash amount shall be the amount of such cash; (iii) where Securities, Spin-Off Securities, options, warrants or other rights are publicly traded on a stock exchange or securities market of adequate liquidity (as determined by a Financial Adviser), the Fair Market Value of such Securities, Spin-Off Securities options, warrants or other rights shall equal the arithmetic mean of the daily Volume Weighted Average Prices of such Securities, Spin-Off Securities, options, warrants or other rights during the period of five dealing days on the relevant stock exchange or securities market commencing on such date (or, if later, the first such dealing day such Securities, Spin-Off Securities, options, warrants or other rights are publicly traded) or such shorter period as such Securities, Spin-Off Securities, options, warrants or other rights are publicly traded; (iv) where Securities, Spin-Off Securities, options, warrants or other rights are not publicly traded on a stock exchange or securities market of adequate liquidity (as aforesaid), the Fair Market Value of such Securities, Spin-Off Securities, options, warrants or other rights shall be determined by a Financial Adviser, on the basis of a commonly accepted market valuation method and taking account of such factors as it considers appropriate, including the market price per Ordinary Share, the dividend yield of an Ordinary Share, the volatility of such market price, prevailing interest rates and the terms of such Securities, Spin-Off Securities, options, warrants or other rights, including as to the expiry date and exercise price (if any) thereof. Such amounts shall, in the case of (i) above, be translated into the Relevant Currency (if declared or paid or payable in a currency other than the Relevant Currency) at the rate of exchange used to determine the amount payable to Shareholders who were paid or are to be paid or are entitled to be paid the Dividend in cash in the Relevant Currency; and in any other case, shall be translated into the Relevant Currency (if expressed in a currency other than the Relevant Currency) at the Prevailing Rate on that date. In addition, in the case of (i) and (ii) above, the Fair Market Value shall be determined on a gross basis and disregarding any withholding or deduction required to be made on account of tax, and disregarding any associated tax credit. "Financial Adviser" means a financial institution of international repute appointed at its own expense by the Issuer and approved in writing by the Trustee or, if the Issuer fails to make such appointment and such failure continues for a reasonable period (as determined by the Trustee in its sole discretion) and the Trustee is indemnified and/or secured and/or prefunded to its satisfaction against the costs, fees and expenses of such adviser and otherwise in connection with such appointment, appointed by the Trustee following notification to the Issuer. "Forward Purchase Agreement" means the forward purchase agreement dated 26 November 2009 between Adecco and the Issuer. "Holders Voluntary Conversion Period" means the period commencing on 6 January 2010 and ending on the 30 th dealing day prior to the Maturity Date (both dates inclusive). "Interest Payment Date" has the meaning provided in Condition 6(a). "Issue Date" means 26 November "Issuer Early Conversion Notice" has the meaning provided in Condition 8(b). "Issuer Early Conversion Period" means the period commencing on 6 January 2010 and ending on the 30 th 50/298

52 dealing day prior to the Maturity Date (both dates inclusive). "Issuer's Specified Proportion" means in respect of a Bond on a Mandatory Conversion on the Maturity Date pursuant to Condition 8(a), a Voluntary Conversion at the option of Holders pursuant to Condition 8(c), a Voluntary Conversion at the option of Holders following a Change of Control pursuant to Condition 8(d) or a Conversion following an Accelerated Conversion Event pursuant to Condition 8(e), the number of Ordinary Shares equal to the Conversion Shares per Bond on the relevant Conversion Date minus the number of Ordinary Shares required to be delivered to Bondholders in respect of the relevant conversion. "Loan Agreement" means a loan agreement in the form scheduled to the Trust Deed that may be entered into between the Issuer and Adecco and pursuant to which the Issuer may lend certain amounts corresponding to the Premium Payment received by it. "Mandatory Conversion" means a conversion pursuant to Condition 8(a), (b) or (e). "Maturity Date" means 26 November "Maximum Conversion Price" means CHF60.60 per Ordinary Share, being 120 per cent. of the Minimum Conversion Price, subject to adjustment pursuant to Condition 9(a). "Maximum Proportion" means the Relevant Proportion of the Conversion Shares per Bond which would be deliverable assuming the Volume Weighted Average Price per Ordinary Share on the relevant dealing day is equal to the Minimum Conversion Price on such dealing day (i.e. 100 per cent. of the Conversion Shares per Bond on such dealing day). "Minimum Conversion Price" means CHF per Ordinary Share, subject to adjustment pursuant to Condition 9(a). "Minimum Proportion" means the Relevant Proportion of the Conversion Shares per Bond which would be deliverable assuming the Volume Weighted Average Price per Ordinary Share on the relevant dealing day is equal to the Maximum Conversion Price on such dealing day (i.e per cent. of the Conversion Shares per Bond on such dealing day). "Newco Scheme" means a scheme of arrangement or analogous proceeding ("Scheme of Arrangement") which effects the interposition of a limited liability company ("Newco") between the Shareholders of Adecco immediately prior to the Scheme of Arrangement (the "Existing Shareholders") and Adecco; provided that (i) only ordinary shares of Newco or depositary or other receipts or certificates representing ordinary shares are issued to Existing Shareholders; (ii) immediately after completion of the Scheme of Arrangement the only shareholders of Newco or, as the case may be, the only holders of depositary or other receipts or certificates representing ordinary shares of Newco are Existing Shareholders; (iii) immediately after completion of the Scheme of Arrangement, Newco is (or one or more wholly-owned Subsidiaries of Newco are) the only shareholder of Adecco; (iv) all Subsidiaries of Adecco immediately prior to the Scheme of Arrangement (other than Newco, if Newco is then a Subsidiary of Adecco) are Subsidiaries of the Issuer (or of Newco) immediately after completion of the Scheme of Arrangement; and (v) immediately after completion of the Scheme of Arrangement, Adecco (or Newco) holds, directly or indirectly, the same percentage of the ordinary share capital and equity share capital of those Subsidiaries as was held by Adecco immediately prior to the Scheme of Arrangement. "Offer Notice" has the meaning provided in Condition 8(d). "Ordinary Shares" means fully paid ordinary shares in the capital of Adecco currently with a par value of CHF 1.00 each. "Permitted Payments" means (a) payments when due to Bondholders, (b) in the case of a Voluntary Conversion at the option of the Holders pursuant to Condition 8(c), payment to the Issuer of an amount equal to the sum of all scheduled payments of interest on the relevant Bonds falling after the relevant Conversion Date, (c) 51/298

53 in the case of a Voluntary Conversion by Holders following a Change of Control pursuant to Condition 8(d), payment to the Issuer of an amount (if any) by which the sum of all payments of interest that otherwise would have fallen to be paid on Interest Payment Dates falling after the relevant Conversion Date exceeds the Deferred Interest and Present Value in respect of such Bonds, (d) in the case of a Mandatory Conversion on the Maturity Date pursuant to Condition 8(a), an Early Conversion at the option of the Issuer pursuant to Condition 8(b) or conversion following an Accelerated Conversion Event pursuant to Condition 8(e), payment to the Issuer of any amounts standing to the credit of the Premium Account following satisfaction of the Issuer s obligations in respect of such conversion, (e) in making loans to Adecco SA, other than during the period commencing on the exercise of rights of conversion of the Bonds by the Issuer or Bondholders and ending on the relevant Conversion Date and (f) payments to the Issuer of amounts in respect of interest accrued on balances standing to the credit of the Premium Account from time to time. a "person" includes any individual, company, corporation, firm, partnership, joint venture, undertaking, association, organisation, trust, state or agency of a state (in each case whether or not being a separate legal entity). "Premium Account" means the account CHF 001 CTA of the Issuer with the Principal Paying, Transfer and Conversion Agent. "Premium Payment" means the up-front premium payment of CHF175,500,000 (representing the sum of all interest scheduled to be paid on all Interest Payment Dates in respect of the Bonds). "Present Value" means, in respect of a Bond, an amount in CHF (rounded, if necessary, to the nearest CHF 0.01, with CHF being rounded up) calculated by the Calculation Agent on or about the third Zurich business day before the relevant Conversion Date, equal to the aggregate amount of all Interest Amounts relating to such Bond in respect of Interest Payment Dates falling after the relevant Conversion Date and up to and including the Maturity Date, discounted, in each case, from the relevant Interest Payment Date to the relevant Conversion Date by reference to appropriate CHF inter-bank offered rates and mid-swap rates, as determined by the Calculation Agent. "Prevailing Rate" means, in respect of any currencies on any day, the spot rate of exchange between the relevant currencies prevailing as at or about 12 noon (London time) on that date as appearing on or derived from the Relevant Page or, if such a rate cannot be determined at such time, the rate prevailing as at or about 12 noon (London time) on the immediately preceding day on which such rate can be so determined. "Rating Agency" means "Moody s Investors Services Limited ("Moody's") and Standard & Poor s Rating Services, division of the McGraw-Hill Companies Inc. ("S&P") or any of their respective successors. A "Rating Event" shall occur if either Rating Agency shall either withdraw (whether at the request of Adecco or otherwise) the corporate credit rating of Adecco or shall reduce the corporate credit rating of Adecco to Ba1 or below (in the case of Moody s) or BB+ or below (in the case of S&P). "Record Date" has the meaning provided in Condition 12(b). "Reference Date" means, in relation to a Retroactive Adjustment, the date as of which the relevant Retroactive Adjustment takes effect or, in any such case, if that is not a dealing day, the next following dealing day. "Register" has the meaning provided in Condition 5(a). "Relevant Currency" means CHF or, if at the relevant time or for the purposes of the relevant calculation or determination, SIX Swiss Exchange is not the Relevant Stock Exchange, the currency in which the Ordinary Shares are quoted or dealt in on the Relevant Stock Exchange at such time. "Relevant Date" means, in respect of any Bond, whichever is the later of: (i) the date on which payment in respect of it first becomes due; and 52/298

54 (ii) if any amount of the money payable is improperly withheld or refused the date on which payment in full of the amount outstanding is made or (if earlier) the date on which notice is duly given by the Issuer to the Bondholders in accordance with Condition 21 that, upon further presentation of the Bond, where required pursuant to these Conditions, being made, such payment will be made, provided that such payment is in fact made as provided in these Conditions. "Relevant Period" has the meaning provided in Condition 8(d). "Relevant Proportion" on any dealing day shall be determined as follows: (i) (ii) if the Volume Weighted Average Price per Ordinary Share on such dealing day is less than or equal to the Minimum Conversion Price on such dealing day, the Relevant Proportion for such dealing day shall be 100 per cent.; if the Volume Weighted Average Price per Ordinary Share on such dealing day is greater than the Maximum Conversion Price on such dealing day, the Relevant Proportion for such dealing day shall be the fraction (expressed as a percentage) determined in accordance with the following formula: 1 [ ( MaxCP MinCP) VWAP ] where MaxCP MinCP VWAP means the Maximum Conversion Price in effect on the relevant dealing day. means the Minimum Conversion Price in effect on the relevant dealing day. means the Volume Weighted Average Price per Ordinary Share on the relevant dealing day. (iii) if the Volume Weighted Average Price per Ordinary Share on such dealing day is greater than the Minimum Conversion Price on such dealing day, but less than or equal to the Maximum Conversion Price on such dealing day, the Relevant Proportion in respect of such dealing day shall be the Minimum Conversion Price on such dealing day divided by such Volume Weighted Average Price per Ordinary Share, expressed as a percentage. "Relevant Page" means the relevant page on Bloomberg or such other information service provider that displays the relevant information. "Relevant Stock Exchange" means SIX Swiss Exchange or if at the relevant time the Ordinary Shares are not at that time listed and admitted to trading on the SIX Swiss Exchange, the principal stock exchange or securities market on which the Ordinary Shares are then listed, admitted to trading or quoted or dealt in. "Retroactive Adjustment" has the meaning provided in Condition 9(b). "Scheme of Arrangement" has the meaning provided in the definition of "Newco Scheme". "Securities" means any securities including, without limitation, Ordinary Shares, or options, warrants or other rights to subscribe for or purchase or acquire Ordinary Shares. "Shareholders" means the holders of Ordinary Shares. "SIS" means SIX SIS Ltd. "SIX Swiss Exchange" means SIX Swiss Exchange Ltd. "Specified Date" has the meaning provided in Conditions 9(a)(vii) and (viii). "Spin-Off" means: (a) a distribution of Spin-Off Securities by Adecco to Shareholders as a class; or 53/298

55 (b) any issue, transfer or delivery of any property or assets (including cash or shares or securities of or in or issued or allotted by any entity) by any entity (other than Adecco) to Shareholders as a class or, in the case of or in connection with a Newco Scheme, Existing Shareholders as a class (but excluding the issue and allotment of ordinary shares by Newco to Existing Shareholders as a class), pursuant in each case to any arrangements with Adecco or any of its Subsidiaries. "Spin-Off Securities" means equity share capital of an entity other than Adecco or options, warrants or other rights to subscribe for or purchase equity share capital of an entity other than Adecco. "Subsidiary" means, in relation to any entity, any company which is for the time being a subsidiary (within the meaning of Section 1159 of the Companies Act (as amended and re-enacted from time to time) of such entity. "Transaction Documents" means the Trust Deed, the Agency Agreement, the Calculation Agency Agreement, the Forward Purchase Agreement, the Call Spread Agreement and the Loan Agreement. "Voluntary Conversion" means a conversion pursuant to Condition 8(c) or (d). "Volume Weighted Average Price" means, in respect of an Ordinary Share, Security or, as the case may be, a Spin-Off Security on any dealing day, the order book volume-weighted average price of an Ordinary Share, Security or, as the case may be, a Spin-Off Security published by or derived (in the case of an Ordinary Share) from Bloomberg page VAP or (in the case of a Security (other than Ordinary Shares) or Spin-Off Security) from the principal stock exchange or securities market on which such Securities or Spin-Off Securities are then listed or quoted or dealt in, if any or, in any such case, such other source as shall be determined to be appropriate by a Financial Adviser on such dealing day, provided that if on any such dealing day such price is not available or cannot otherwise be determined as provided above, the Volume Weighted Average Price of an Ordinary Share, Security or a Spin-Off Security, as the case may be, in respect of such dealing day shall be the Volume Weighted Average Price, determined as provided above, on the immediately preceding dealing day on which the same can be so determined. References to any act or statute or any provision of any act or statute shall be deemed also to refer to any statutory modification or re-enactment thereof or any statutory instrument, order or regulation made thereunder or under such modification or re-enactment. References to any issue or offer or grant to Shareholders or Existing Shareholders "as a class" or "by way of rights" shall be taken to be references to an issue or offer or grant to all or substantially all Shareholders or Existing Shareholders, as the case may be, other than Shareholders or Existing Shareholders, as the case may be, to whom, by reason of the laws of any territory or requirements of any recognised regulatory body or any other stock exchange or securities market in any territory or in connection with fractional entitlements, it is determined not to make such issue or offer or grant. In making any calculation or determination of Current Market Price or Volume Weighted Average Price, such adjustments (if any) shall be made as a Financial Adviser considers appropriate to reflect any consolidation or sub-division of the Ordinary Shares or any issue of Ordinary Shares by way of capitalisation of profits or reserves, or any like or similar event. For the purposes of Conditions 9(a), (b) and (f), (1), references to the "issue" of Ordinary Shares or Ordinary Shares being "issued" shall include the transfer and/or delivery of Ordinary Shares, whether newly issued and allotted or previously existing or held by or on behalf of Adecco or any of its Subsidiaries, and (2) Ordinary Shares held by or on behalf of Adecco or any of its respective Subsidiaries (and which, in the case of Condition 9(a)(iv) and (vi), do not rank for the relevant right or other entitlement) shall not be considered as or treated as "in issue" or "issued", or entitled to receive the relevant Dividend, right or other entitlement. 54/298

56 5. Registration and Transfer of Bonds (a) Registration The Issuer will cause a register (the "Register") to be kept at the specified office of the Registrar outside the United Kingdom on which will be entered the names and addresses of the holders of the Bonds and the particulars of the Bonds held by them and of all transfers, redemptions and conversions of Bonds. (b) Transfer Bonds may, subject to the terms of the Agency Agreement and to Conditions 5(c) and 5(d), be transferred in whole or in part in an authorised denomination by lodging the relevant Bond (with the form of application for transfer in respect thereof duly executed and duly stamped where applicable) at the specified office of the Registrar or any Paying, Transfer and Conversion Agent. No transfer of a Bond will be valid unless and until entered on the Register. A Bond may be registered only in the name of, and transferred only to, a named person (or persons, not exceeding four in number). The Registrar will within seven business days, in the place of the specified office of the Registrar, of any duly made application for the transfer of a Bond, register the relevant transfer and deliver a new Bond to the transferee (and, in the case of a transfer of part only of a Bond, deliver a Bond for the untransferred balance to the transferor) at the specified office of the Registrar or (at the risk and, if mailed at the request of the transferee or, as the case may be, the transferor otherwise than by ordinary mail, at the expense of the transferee or, as the case may be, the transferor) mail the Bond by uninsured mail to such address as the transferee or, as the case may be, the transferor may request. (c) Formalities Free of Charge Such transfer will be effected without charge subject to (i) the person making such application for transfer paying or procuring the payment of any taxes, duties and other governmental charges in connection therewith, (ii) the Registrar being satisfied with the documents of title and/or identity of the person making the application and (iii) such reasonable regulations as the Issuer may from time to time agree with the Registrar and the Trustee (and as initially set out in the Agency Agreement). (d) Closed Periods Neither the Issuer nor the Registrar will be required to register the transfer of any Bond (or part thereof) (i) during the period of 15 days ending on and including the day immediately prior to the Final Maturity Date or any earlier Conversion Date in respect of a conversion of the Bonds pursuant to Condition 8(b) or (e); (ii) in respect of which a Conversion Notice has been delivered in accordance with Condition 8(b); or (iii) during the period of 15 days ending on (and including) any Record Date in respect of any payment of interest on the Bonds. 6. Interest (a) Interest Rate Each Bond bears interest on its principal amount from and including the Issue Date at the rate of 6.50 per cent. per annum (the "Interest Rate") payable in arrear on 1 June in each year (each an "Interest Payment Date"), save that the first Interest Payment Date shall be 1 June 2010 and the amount of interest payable on that date in respect of each Bond shall be CHF 29,971,233 and the final Interest Payment Date shall fall on the Maturity Date and the amount of interest payable on that date in respect of each Bond shall be CHF 28,528, /298

57 The amount of interest payable in respect of any period which is shorter than an Interest Period shall be calculated on the basis of the number of days in the relevant period from (and including) the first day of such period to (but excluding) the last day of such period divided by the product of the number of days from (and including) the immediately preceding Interest Payment Date (or, if none, the Issue Date) to (but excluding) the next Interest Payment Date and the number of Interest Periods normally ending in any year. "Interest Period" means the payment period beginning on (and including) the Issue Date and ending on (but excluding) the first Interest Payment Date and each successive period beginning on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date. The amount of any interest payable in respect of a Bond pursuant to this Condition 6(a) on any Interest Payment Date is referred to as an "Interest Amount". (b) Accrual of Interest In the case of Mandatory Conversion on the Maturity Date in respect of the Bonds pursuant to Condition 8(a), interest will cease to accrue on the Bonds with effect from the Maturity Date, and such interest accrued from (and including) the Interest Payment Date immediately preceding the Maturity Date to (but excluding) the Maturity Date shall be paid on the Maturity Date, subject to and as provided in these Conditions. In the case of an Early Conversion at the option of the Issuer pursuant to Condition 8(b), a Voluntary Conversion at the option of Holders in respect of a Bond pursuant to Condition 8(c), or a Voluntary Conversion at the option of Holders following a Change of Control pursuant to Condition 8(d) or in the case of an Accelerated Conversion following an Accelerated Conversion Event pursuant to Condition 8(e), interest will cease to accrue on the relevant Bonds from (and including) the Interest Payment Date falling on or immediately preceding the relevant Conversion Date (or, if none, from the Issue Date). 7. Interest Deferral (a) Optional Deferral of Interest Subject as provided below, the Issuer may elect to defer in whole or in part any payment of the Interest Amount which would otherwise be due and payable on any Interest Payment Date (a "Deferred Interest Payment Date") provided that during the period of 3 months ending on and including such Deferred Interest Payment Date, Adecco shall not have: (i) (ii) declared, paid or made any Dividend or other distribution in respect of the Ordinary Shares; or redeemed, purchased or acquired any Ordinary Shares (but, for the avoidance of doubt, other than any acquisition of Ordinary Shares by the Issuer pursuant to the Forward Purchase Agreement and other than pursuant to an Exempt Transaction). "Exempt Transaction" means any purchase or acquisition of Ordinary Shares for the purposes of or to enable Adecco to meet obligations under or in respect of any long-term executive or employee incentive plan or any executive or employee share option plan. The Issuer shall not be entitled to defer the payment of any amount in respect of the Present Value payable pursuant to Condition 8(f). The Issuer may not defer any payment of an Interest Amount in respect of an Interest Payment Date that falls on or after the date a notice is given by the Issuer pursuant to Condition 8(b). The Issuer shall give notice of such deferral (a "Deferral Notice") to the Bondholders in accordance with Condition 21 and to the Trustee and the Principal Paying, Transfer and Conversion Agent by not later than 10 Zurich business days prior to the relevant Deferred Interest Payment Date. 56/298

58 The non-payment of any interest on any Deferred Interest Payment Date in respect of which a Deferral Notice has been given pursuant to this Condition 7(a) shall not constitute a default or failure for any purpose (including, without limitation, shall not constitute an Accelerated Conversion Event) on the part of the Issuer. Any interest which is not paid on a Deferred Interest Payment Date and which has not been paid in accordance with these Conditions is referred to as "Deferred Interest". Deferred Interest will not bear interest. The Issuer may elect to pay any Deferred Interest in full or in part at any time upon the expiry of not less than 5 Zurich business days notice to such effect given by the Issuer to Bondholders in accordance with Condition 21 and to the Trustee. If the Issuer gives such a notice, the Deferred Interest (or part thereof) to be paid shall be paid in accordance with Condition 12. (b) Payment of Deferred Interest (i) If: (1) (2) Adecco shall declare, pay or make any Dividend or other distribution in respect of the Ordinary Shares; or Adecco or any subsidiary of Adecco shall redeem, purchase or otherwise acquire any Ordinary Shares (but, for the avoidance of doubt, other than any acquisition of Ordinary Shares by the Issuer pursuant to the Forward Purchase Agreement and other than pursuant to an Exempt Transaction), then the Issuer shall on or prior to the date of any such Dividend or other distribution is paid or made or any such redemption, purchase or acquisition is made, pay in full all outstanding and unpaid Deferred Interest. (ii) (iii) In the event of an Early Conversion at the option of the Issuer pursuant to Condition 8(b), a Voluntary Conversion at the option of Holders following a Change of Control pursuant to Condition 8(d) or a Conversion following an Accelerated Conversion Event pursuant to Condition 8(e), all outstanding and unpaid Deferred Interest shall be paid in full on the relevant Conversion Date and will be paid as provided in Condition 12(a). All Deferred Interest outstanding and unpaid on the Maturity Date shall be paid in full on the Maturity Date. (c) Cancellation of Deferred Interest Upon a Voluntary Conversion at the option of Holders pursuant to Condition 8(c), all outstanding and unpaid Deferred Interest shall be cancelled, and the Issuer shall have no further liability in respect thereof. 8. Conversion of Bonds (a) Mandatory Conversion on the Maturity Date Unless previously converted or purchased and cancelled in accordance with these Conditions, each Bond will be mandatorily converted on the Maturity Date into such number of Ordinary Shares as is equal to the Maturity Conversion Shares per Bond. The Maturity Conversion Shares per Bond will be calculated as a proportion of the Conversion Shares per Bond on the Maturity Date, such proportion being the arithmetic average of the Relevant Proportion on each dealing day during the relevant Calculation Period. 57/298

59 (b) Early Conversion at the option of the Issuer The Issuer may, at its option, upon giving not less than 15 and no more than 60 days notice (an "Issuer Early Conversion Notice") to the Trustee and to the Bondholders in accordance with Condition 21, convert all but not some only of the outstanding Bonds into Ordinary Shares on the Conversion Date specified in the Issuer s Early Conversion Notice, provided that such Conversion Date shall fall within the Issuer s Early Conversion Period. The number of Ordinary Shares to be delivered in respect of each Bond upon such conversion shall be equal to the Maximum Proportion of the Conversion Shares per Bond on the relevant Conversion Date. An Issuer Early Conversion Notice shall be irrevocable. (c) Voluntary Conversion at the option of Holders Subject as provided below, Bondholders shall have the right to convert their Bonds at any time during the Holders Voluntary Conversion Period, provided that the relevant Conversion Date falls within the Holders Voluntary Conversion Period. The number of Ordinary Shares to be delivered on such conversion in respect of each Bond shall be equal to the Minimum Proportion of the Conversion Shares per Bond on the relevant Conversion Date. A holder may not exercise a right to convert any Bond pursuant to this Condition 8(c) either (i) following the giving of an Accelerated Conversion Notice by the Trustee and to the Bondholders pursuant to Condition 14, or (ii) following the giving of an Issuer Early Conversion Notice. (d) Voluntary Conversion at the option of Holders following a Change of Control (i) (ii) (iii) (iv) If an Offer is publicly announced then at any time from (and including) the day the Offer is publicly announced up to (and including the last day of the Relevant Period) a holder may exercise the right to convert Bonds pursuant to, and subject as provided in, this Condition 8(d). If a holder shall exercise the right to convert Bonds pursuant to this Condition 8(d) and the relevant Bond and Conversion Notice shall be received at the specified office of any Paying, Transfer and Conversion Agent on any Zurich business day prior to the publication of the Definitive Interim Results, then provided that a Change of Control shall occur, the relevant Conversion Date shall be deemed to be the dealing day immediately following such publication. If the Change of Control shall not have occurred by the time of such publication, then the relevant Conversion Notice and exercise of the right of conversion by the relevant holder shall be null and void (but without prejudice to the ability of the relevant holder to convert Bonds at any other time pursuant to these Conditions) and the relevant Bond shall be re-delivered to the relevant holder. If a holder shall have exercised the right to convert Bonds pursuant to this Condition 8(d) and the relevant Bond and Conversion Notice shall be received at the specified office of a Paying, Transfer and Conversion Agent at any time on or after publication of the Definitive Interim Results and prior to the end of the Relevant Period, then provided that a Change of Control shall have occurred, the Conversion Date shall be the dealing day following the delivery of the relevant Bond and Conversion Notice pursuant to Condition 10(a). A "Change of Control" shall occur if an Offer is made and such Offer shall have become or shall have been declared unconditional (except in relation to any conditions remaining to be satisfied at the time of the publication of the Definitive Interim Results) by the publi- 58/298

60 cation of the Definitive Interim Results (provided that, based on such Definitive Interim Results, the Offeror shall hold or control not less than 51 per cent. of the issued Ordinary Shares of Adecco, including for the avoidance of doubt Ordinary Shares validly tendered in the Offer), and the date of the Change of Control shall be deemed to be the date of such publication. "Offer" means an offer to all (or as nearly as may be practicable all) Shareholders (or all) (or as nearly as may be practicable all) Shareholders other than the offeror and/or any associates of the offeror or any parties acting in concert (as defined in Article 11 of the Swiss Takeover Ordinance) to acquire all or a majority of the issued Ordinary Shares of Adecco. "Definitive Interim Results" means, in respect of an Offer, the definitive results of acceptances of such Offer during the initial period (as may be extended) during which the Offer is open for acceptance and that is required to be published pursuant to the Swiss Takeover Ordinance. "Relevant Period" means, in respect of an Offer, the period ending on the 60 th dealing day following the publication of the Definitive Interim Results in respect of such Offer. "Swiss Takeover Ordinance" means, the Ordinance of the Swiss Takeover Board on Public Tender Offers of 21 August 2008, or any modification or re-enactment thereof. (v) (vi) The number of Ordinary Shares to be delivered on such Conversion in respect of each Bond shall be equal to the sum of (1) the Relevant Proportion of the Conversion Shares per Bond on the relevant Conversion Date and (2) the Change of Control Proportion. As soon as practicable and in any event not later than 15 dealing days following the Issuer being notified by Adecco that an Offer has been made, the Issuer shall give notice thereof to the Trustee and to the Bondholders in accordance with Condition 21 (an "Offer Notice"). The Offer Notice shall contain a statement informing Bondholders of their entitlement to convert their Bond pursuant to, and subject as provided in, this Condition 8(d). The Offer Notice shall also specify: (i) (ii) (iii) the Minimum Conversion Price and the Maximum Conversion Price immediately prior to the public announcement of the Offer; the closing price of the Ordinary Shares as derived from the Relevant Stock Exchange as at the latest practicable date prior to the public announcement of the Offer; and the expected last day of the Relevant Period. The provisions of this Condition 8(d) will apply mutatis mutandis to any subsequent Change of Control. The Trustee shall not be required to take any steps to ascertain whether a Change of Control or any event which could lead to a Change of Control has occurred or may occur and will not be responsible to Bondholders or any other person for any loss arising from any failure by it to do so. (e) Conversion following an Accelerated Conversion Event If the Trustee shall give an Accelerated Conversion Notice pursuant to Condition 14, then all but not some only of the outstanding Bonds shall be converted into Ordinary Shares on the Conversion Date. 59/298

61 The number of Ordinary Shares to be delivered in respect of each Bond upon such conversion shall be equal to the Accelerated Conversion Event Conversion Shares per Bond on the relevant Conversion Date. The Accelerated Conversion Event Conversion Shares per Bond will be calculated as a proportion of the Conversion Shares per Bond on the relevant Conversion Date, such proportion being the arithmetic average of the Relevant Proportion on each dealing day during the relevant Calculation Period. (f) Present Value In the case of an Early Conversion at the option of the Issuer pursuant to Condition 8(b), a Voluntary Conversion at the option of Holders following a Change of Control pursuant to Condition 8(d) or a Conversion following an Accelerated Conversion Event pursuant to Condition 8(e), the Issuer shall pay to each Bondholder on the relevant Conversion Date in respect of each Bond converted, an amount equal to the Present Value, which shall be paid in accordance with Condition 12(a). (g) Fractions Fractions of Ordinary Shares will not be delivered on or in respect of any conversion pursuant to this Condition 8 and no cash payment or other adjustment will be made in lieu thereof. However, the number of Ordinary Shares to be delivered on conversion to a Bondholder shall be calculated on the basis of the aggregate principal amount of the Bonds of such Bondholders being so converted, rounded down, if necessary, to the nearest whole number of Ordinary Shares. (h) Issuer's Specified Proportion On a Mandatory Conversion on the Maturity Date pursuant to Condition 8(a), a Voluntary Conversion at the option of Holders pursuant to Condition 8(c), a Voluntary Conversion at the option of Holders following a Change of Control pursuant to Condition 8(d) or a Conversion following an Accelerated Conversion Event pursuant to Condition 8(e), the Issuer shall (subject as provided in Condition 2(e)(ii)) be entitled to receive and retain, and there shall be released from the Security, the Issuer s Specified Proportion. (i) Taxes and Stamp duties etc. A Bondholder must pay directly to the relevant authorities any taxes and capital, stamp, issue and registration and transfer taxes and duties arising on conversion of the Bond (other than any Swiss Federal Stamp Duty and any other taxes or capital, stamp, issue and registration and transfer taxes and duties payable in Switzerland, Luxembourg, Belgium or Bermuda in respect of the allotment, issue and delivery of any Ordinary Shares pursuant to these Conditions on such conversion (including any Additional Ordinary Shares), which shall be paid by Adecco, failing which, the Issuer). Each Bondholder shall be responsible for all, if any, taxes imposed on it arising by reference to any disposal or deemed disposal of a Bond or interest therein in connection with such conversion. The Trustee shall not be responsible for determining whether such taxes or capital, stamp, issue and registration and transfer taxes and duties are payable or the amount thereof and it shall not be responsible or liable for any failure by the Issuer or any other person to pay such taxes or capital, stamp, issue and registration and transfer taxes and duties. (j) Multiple Exercises Condition 8(d) shall not apply in respect of any Bond in respect of which the holder shall have exercised the right to convert pursuant to Condition 8(c) prior to the giving of the relevant Offer Notice. 60/298

62 9. Adjustment of Conversion Price (a) Adjustments Upon the happening of any of the events described below, the Minimum Conversion Price and the Maximum Conversion Price shall be adjusted as follows (with references in this Condition 9 to the Conversion Price being construed as a separate reference to each of the Minimum Conversion Price and the Maximum Conversion Price): (i) If and whenever there shall be a consolidation, reclassification or subdivision in relation to the Ordinary Shares, the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to such consolidation, reclassification or subdivision by the following fraction: A B where: A B is the aggregate number of Ordinary Shares in issue immediately before such consolidation, reclassification or subdivision, as the case may be; and is the aggregate number of Ordinary Shares in issue immediately after, and as a result of, such consolidation, reclassification or subdivision, as the case may be. Such adjustment shall become effective on the date the consolidation, reclassification or subdivision, as the case may be, takes effect. (ii) If and whenever Adecco shall issue any Ordinary Shares credited as fully paid to the Shareholders by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve) other than (1) where any such Ordinary Shares are or are to be issued instead of the whole or part of a Dividend in cash which the Shareholders would or could otherwise have elected to receive or (2) where the Shareholders may elect to receive a Dividend in cash in lieu of such Ordinary Shares or (3) where any such Ordinary Shares are or are expressed to be issued in lieu of a Dividend (whether or not a cash Dividend equivalent or amount is announced or would otherwise be payable to Shareholders, whether at their election or otherwise), the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to such issue by the following fraction: A B where: A B is the aggregate number of Ordinary Shares in issue immediately before such issue; and is the aggregate number of Ordinary Shares in issue immediately after such issue. Such adjustment shall become effective on the date of issue of such Ordinary Shares. (iii) (A) If and whenever Adecco shall pay or make any Dividend to Shareholders, the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to the Effective Date by the following fraction: 61/298

63 A B A where: A B is the Current Market Price of one Ordinary Share on the Effective Date; and is the portion of the Fair Market Value of the aggregate Dividend attributable to one Ordinary Share, with such portion being determined by dividing the Fair Market Value of the aggregate Dividend by the number of Ordinary Shares entitled to receive the relevant Dividend (or, in the case of a purchase, redemption or buy back of Ordinary Shares or any depositary or other receipts or certificates representing Ordinary Shares by or on behalf of Adecco or any Subsidiary of Adecco, by the number of Ordinary Shares in issue immediately following such purchase, redemption or buy back, and treating as not being in issue any Ordinary Shares, or any Ordinary Shares represented by depositary or other receipts or certificates, purchased, redeemed or bought back). Such adjustment shall become effective on the Effective Date or, if later, the first date upon which the Fair Market Value of the relevant Dividend is capable of being determined as provided herein. "Effective Date" means, in respect of this sub-paragraph (a)(iii), the first date on which the Ordinary Shares are traded ex-the relevant Dividend on the Relevant Stock Exchange or, in the case of a purchase, redemption or buy back of Ordinary Shares or any depositary or other receipts or certificates representing Ordinary Shares, the date on which such purchase, redemption or buy back is made or, in the case of a Spin-Off, on the first date on which the Ordinary Shares are traded ex-the relevant Spin-Off on the Relevant Stock Exchange. (B) For the purposes of the above, Fair Market Value shall (subject as provided in paragraph (a) of the definition of "Dividend" and in the definition of "Fair Market Value") be determined as at the Effective Date. (iv) If and whenever Adecco shall issue Ordinary Shares to Shareholders as a class by way of rights, or shall issue or grant to Shareholders as a class by way of rights, any options, warrants or other rights to subscribe for or purchase Ordinary Shares, or any Securities which by their terms of issue carry (directly or indirectly) rights of conversion into, or exchange or subscription for, any Ordinary Shares (or shall grant any such rights in respect of existing Securities so issued), in each case at a price per Ordinary Share which is less than 95 per cent. of the Current Market Price per Ordinary Share on the Effective Date, the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to the Effective Date by the following fraction: A B A C where: A B is the number of Ordinary Shares in issue on the Effective Date; is the number of Ordinary Shares which the aggregate consideration (if any) receivable for the Ordinary Shares issued by way of rights, or for the Securities issued by way of rights, or for the options or warrants or other rights 62/298

64 issued by way of rights plus the additional consideration (if any) receivable upon (and assuming) the exercise of such options, warrants or rights at the initial subscription, purchase or acquisition price, would purchase at such Current Market Price per Ordinary Share; and C is the number of Ordinary Shares to be issued or, as the case may be, the maximum number of Ordinary Shares which may be issued upon exercise of such options, warrants or rights calculated as at the date of issue of such options, warrants or rights or upon conversion or exchange or exercise of rights of subscription or purchase in respect thereof at the initial conversion, exchange, subscription or purchase price or rate. Such adjustment shall become effective on the Effective Date. "Effective Date" means, in respect of this sub-paragraph (a)(iv), the first date on which the Ordinary Shares are traded ex-rights, ex-options or ex-warrants on the Relevant Stock Exchange. (v) If and whenever Adecco shall issue any Securities (other than Ordinary Shares or options, warrants or other rights to subscribe for or purchase any Ordinary Shares) to Shareholders as a class by way of rights or grant to Shareholders as a class by way of rights any options, warrants or other rights to subscribe for or purchase any Securities (other than Ordinary Shares or options, warrants or other rights to subscribe for or purchase Ordinary Shares), the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to the Effective Date by the following fraction: A A B where: A B is the Current Market Price of one Ordinary Share on the Effective Date; and is the Fair Market Value on the Effective Date of the portion of the rights attributable to one Ordinary Share. Such adjustment shall become effective on the Effective Date. "Effective Date" means, in respect of this sub-paragraph (a)(v), the first date on which the Ordinary Shares are traded ex- the relevant Securities or ex-rights, ex-option or ex-warrants on the Relevant Stock Exchange. (vi) If and whenever Adecco shall issue (otherwise than as mentioned in sub-paragraph (a)(iv) above) wholly for cash or for no consideration any Ordinary Shares (other than Ordinary Shares issued on conversion of the Bonds or on the exercise of any rights of conversion into, or exchange or subscription for or purchase of, Ordinary Shares) or issue or grant (otherwise than as mentioned in sub-paragraph (a)(iv) above) wholly for cash or for no consideration any options, warrants or other rights to subscribe for or purchase any Ordinary Shares (other than the Bonds), in each case at a price per Ordinary Share which is less than 95 per cent. of the Current Market Price per Ordinary Share on the date of the first public announcement of the terms of such issue or grant, the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to the Effective Date by the following fraction: A B A C where: 63/298

65 A B C is the number of Ordinary Shares in issue immediately before the issue of such Ordinary Shares or the grant of such options, warrants or rights; is the number of Ordinary Shares which the aggregate consideration (if any) receivable for the issue of such Ordinary Shares or, as the case may be, for the Ordinary Shares to be issued or otherwise made available upon the exercise of any such options, warrants or rights, would purchase at such Current Market Price per Ordinary Share; and is the number of Ordinary Shares to be issued pursuant to such issue of such Ordinary Shares or, as the case may be, the maximum number of Ordinary Shares which may be issued upon exercise of such options, warrants or rights calculated as at the date of issue of such options, warrants or rights. Such adjustment shall become effective on the Effective Date. "Effective Date" means, in respect of this sub-paragraph (a)(vi), the date of issue of such Ordinary Shares or, as the case may be, the grant of such options, warrants or rights. (vii) If and whenever Adecco or any Subsidiary of Adecco or (at the direction or request of or pursuant to any arrangements with Adecco or any Subsidiary of Adecco) any other company, person or entity (otherwise than as mentioned in sub-paragraphs (a)(iv), (a)(v) or (a)(vi) above) shall issue wholly for cash or for no consideration any Securities (other than the Bonds) which by their terms of issue carry (directly or indirectly) rights of conversion into, or exchange or subscription for, Ordinary Shares (or shall grant any such rights in respect of existing Securities so issued) or Securities which by their terms might be redesignated as Ordinary Shares, and the consideration per Ordinary Share receivable upon conversion, exchange, subscription or redesignation is less than 95 per cent. of the Current Market Price per Ordinary Share on the date of the first public announcement of the terms of such issue or grant, the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to the Effective Date by the following fraction: A B A C where: A B C is the number of Ordinary Shares in issue immediately before such issue or grant; is the number of Ordinary Shares which the aggregate consideration (if any) receivable for the Ordinary Shares to be issued or otherwise made available upon conversion or exchange or upon exercise of the right of subscription attached to such Securities or, as the case may be, for the Ordinary Shares to be issued or to arise from any such redesignation would purchase at such Current Market Price per Ordinary Share; and is the maximum number of Ordinary Shares to be issued or otherwise made available upon conversion or exchange of such Securities or upon the exercise of such right of subscription attached thereto at the initial conversion, exchange or subscription price or rate or, as the case may be, the maximum number of Ordinary Shares which may be issued or arise from any such redesignation. provided that if at the time of issue of the relevant Securities or date of grant of such rights (as used in this sub-paragraph (a)(vii), the "Specified Date") such number of Ordinary Shares is to be deter- 64/298

66 mined by reference to the application of a formula or other variable feature or the occurrence of any event at some subsequent time (which may be when such Securities are converted or exchanged or rights of subscription are exercised or, as the case may be, such Securities are redesignated or at such other time as may be provided), then for the purposes of this sub-paragraph (a)(vii), "C" shall be determined by the application of such formula or variable feature or as if the relevant event occurs or had occurred as at the Specified Date and as if such conversion, exchange, subscription, purchase or acquisition or, as the case may be, redesignation had taken place on the Specified Date. Such adjustment shall become effective on the Effective Date. "Effective Date" means, in respect of this sub-paragraph (a)(vii), the date of issue of such Securities or, as the case may be, the grant of such rights. (viii) If and whenever there shall be any modification of the rights of conversion, exchange, subscription, purchase or acquisition attaching to any such Securities (other than the Bonds) as are mentioned in sub-paragraph (a)(vii) above (other than in accordance with the terms (including terms as to adjustment) applicable to such Securities upon issue) so that following such modification the consideration per Ordinary Share receivable has been reduced and is less than 95 per cent. of the Current Market Price per Ordinary Share on the date of the first public announcement of the proposals for such modification, the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to the Effective Date by the following fraction: A B A C where: A B C is the number of Ordinary Shares in issue on the dealing day immediately before such modification; is the number of Ordinary Shares which the aggregate consideration (if any) receivable for the Ordinary Shares to be issued or otherwise made available upon conversion or exchange or upon exercise of the right of subscription, purchase or acquisition attached to the Securities so modified would purchase at such Current Market Price per Ordinary Share or, if lower, the existing conversion, exchange, subscription, purchase or acquisition price or rate of such Securities; and is the maximum number of Ordinary Shares which may be issued or otherwise made available upon conversion or exchange of such Securities or upon the exercise of such rights of subscription, purchase or acquisition attached thereto at the modified conversion, exchange, subscription, purchase or acquisition price or rate but giving credit in such manner as a Financial Adviser shall consider appropriate for any previous adjustment under this sub-paragraph (a)(viii) or sub-paragraph (a)(vii) above; provided that if at the time of such modification (as used in this sub-paragraph (b)(viii), the "Specified Date") such number of Ordinary Shares is to be determined by reference to the application of a formula or other variable feature or the occurrence of any event at some subsequent time (which may be when such Securities are converted or exchanged or rights of subscription, purchase or acquisition are exercised or at such other time as may be provided), then for the purposes of this subparagraph (a)(viii), "C" shall be determined by the application of such formula or variable feature or as if the relevant event occurs or had occurred as at the Specified Date and as if such conversion, exchange, subscription, purchase or acquisition had taken place on the Specified Date. 65/298

67 Such adjustment shall become effective on the Effective Date. "Effective Date" means, in respect of this sub-paragraph (a)(viii), the date of modification of the rights of conversion, exchange, subscription, purchase or acquisition attaching to such Securities. (ix) If and whenever Adecco or any Subsidiary of Adecco or (at the direction or request of or pursuant to any arrangements with Adecco or any Subsidiary of Adecco) any other company, person or entity shall offer any Securities in connection with which Shareholders as a class are entitled to participate in arrangements whereby such Securities may be acquired by them (except where the Conversion Price falls to be adjusted under sub-paragraphs (a)(ii), (a)(iii), (a)(iv), (a)(vi) or (a)(vii) above or (a)(x) below (or would fall to be so adjusted if the relevant issue or grant was at less than 95 per cent. of the Current Market Price per Ordinary Share on the relevant day) or under subparagraph (a)(v) above), the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately before the Effective Date by the following fraction: A B A where: A B is the Current Market Price of one Ordinary Share on the Effective Date; and is the Fair Market Value on the Effective Date of the portion of the relevant offer attributable to one Ordinary Share. Such adjustment shall become effective on the Effective Date. "Effective Date" means, in respect of this sub-paragraph (a)(ix), the first date on which the Ordinary Shares are traded ex-rights on the Relevant Stock Exchange. (x) If Adecco determines that a reduction to the Conversion Price should be made for whatever reason, the Conversion Price will be reduced (either generally or for a specified period as notified to Bondholders) in such manner and with effect from such date as Adecco shall determine and notify to the Bondholders (provided that the Minimum Conversion Price and the Maximum Conversion Price shall each be reduced in the same proportion). Notwithstanding the foregoing provisions: (a) (b) where the events or circumstances giving rise to any adjustment pursuant to this Condition 6(b) have already resulted or will result in an adjustment to the Conversion Price or where the events or circumstances giving rise to any adjustment arise by virtue of any other events or circumstances which have already given or will give rise to an adjustment to the Conversion Price or where more than one event which gives rise to an adjustment to the Conversion Price occurs within such a short period of time that, in the opinion of Adecco, a modification to the operation of the adjustment provisions is required to give the intended result, such modification shall be made to the operation of the adjustment provisions as may be advised by a Financial Adviser to be in its opinion appropriate to give the intended result; in addition, such modification shall be made to the operation of these Conditions as may be advised by a Financial Adviser to be in its opinion appropriate (i) to ensure that an adjustment to the Conversion Price or the economic effect thereof shall not be taken into account more than once and (ii) to ensure that the economic effect of a Dividend is not taken into account more than once; and 66/298

68 (c) for the avoidance of doubt, the issue of Ordinary Shares on conversion of the Bonds or the exercise of any other options, warrants or other rights, shall not result in an adjustment to the Conversion Price. For the purpose of any calculation of the consideration receivable or price pursuant to subparagraphs (a)(iv), (a)(vi), (a)(vii) and (a)(viii), the following provisions shall apply: (a) (b) (c) (d) the aggregate consideration receivable or price for Ordinary Shares issued for cash shall be the amount of such cash; (x) the aggregate consideration receivable or price for Ordinary Shares to be issued or otherwise made available upon the conversion or exchange of any Securities shall be deemed to be the consideration or price received or receivable for any such Securities and (y) the aggregate consideration receivable or price for Ordinary Shares to be issued or otherwise made available upon the exercise of rights of subscription attached to any Securities or upon the exercise of any options, warrants or rights shall be deemed to be that part (which may be the whole) of the consideration or price received or receivable for such Securities or, as the case may be, for such options, warrants or rights which are attributed by Adecco to such rights of subscription or, as the case may be, such options, warrants or rights or, if no part of such consideration or price is so attributed, the Fair Market Value of such rights of subscription or, as the case may be, such options, warrants or rights as at the Effective Date as referred to in (a)(iv) or the date of the first public announcement as referred to in (a)(vi), (a)(vii) or (a)(viii), as the case may be, plus in the case of each of (x) and (y) above, the additional minimum consideration receivable or price (if any) upon the conversion or exchange of such Securities, or upon the exercise of such rights or subscription attached thereto or, as the case may be, upon exercise of such options, warrants or rights and (z) the consideration receivable or price per Ordinary Share upon the conversion or exchange of, or upon the exercise of such rights of subscription attached to, such Securities or, as the case may be, upon the exercise of such options, warrants or rights shall be the aggregate consideration or price referred to in (x) or (y) above (as the case may be) divided by the number of Ordinary Shares to be issued upon such conversion or exchange or exercise at the initial conversion, exchange or subscription price or rate; if the consideration or price determined pursuant to (a) or (b) above (or any component thereof) shall be expressed in a currency other than the Relevant Currency, it shall be converted into the Relevant Currency at the Prevailing Rate on the relevant Effective Date (in the case of (a) above) or the relevant Effective Date or date of the first public announcement, as the case may be, (in the case of (b) above); and in determining the consideration or price pursuant to the above, no deduction shall be made for any commissions or fees (howsoever described) or any expenses paid or incurred for any underwriting, placing or management of the issue of the relevant Ordinary Shares or Securities or options, warrants or rights, or otherwise in connection therewith. (b) Retroactive Adjustments If the Conversion Date in relation to the conversion of any Bond shall be after the record date in respect of any consolidation, reclassification or sub-division as is mentioned in Condition 9(a)(i), or after the record date or other due date for the establishment of entitlement for any such issue, distribution, grant or offer (as the case may be) as is mentioned in Condition 9(a)(ii), (iii) (iv), (v) or (ix), or after the date of the first public announcement of the terms of any such issue or grant as is mentioned in Condition 9(a)(vi) and (vii) or of the terms of 67/298

69 any such modification as is mentioned in Condition 9(a)(viii), but before the relevant adjustment to the Conversion Price becomes effective under Condition 9(a) (such adjustment, a "Retroactive Adjustment"), then the Issuer shall (conditional upon the relevant adjustment becoming effective) procure that there shall be issued or transferred and delivered to the converting Bondholder, in accordance with the instructions contained in the Conversion Notice, such additional number of Ordinary Shares (if any) (the "Additional Ordinary Shares") as, together with the Ordinary Shares issued or to be transferred and delivered on conversion of the relevant Bond (together with any fraction of an Ordinary Share not so issued), is equal to the number of Ordinary Shares which would have been required to be issued or delivered on conversion of such Bond as if the relevant adjustment to the Conversion Price had been made and become effective immediately prior to the relevant Conversion Date. (c) Decision of a Financial Adviser If any doubt shall arise as to whether an adjustment falls to be made to the Conversion Price or as to the appropriate adjustment to the Conversion Price, and following consultation between the Issuer and a Financial Adviser, a written opinion of such Financial Adviser in respect thereof shall be conclusive and binding on the Issuer, the Bondholders and the Trustee, save in the case of manifest error. (d) Share or Option Schemes No adjustment will be made to the Conversion Price where Ordinary Shares or other Securities (including rights, warrants and options) are issued, offered, exercised, allotted, appropriated, modified or granted to, or for the benefit of, employees or former employees (including Directors holding or formerly holding executive office or the personal service company of any such person) or their spouses or relatives, in each case, of Adecco or any of its Subsidiaries or any associated company or to a trustee or trustees to be held for the benefit of any such person, in any such case pursuant to any share or option scheme. (e) Rounding and Notice of Adjustment to the Conversion Price On any adjustment, the resultant Conversion Price, if not an integral multiple of CHF 0.01, shall be rounded to the nearest whole multiple of CHF 0.01, with CHF0.005 being rounded up. No adjustment shall be made to the Conversion Price where such adjustment (rounded up if applicable) would be less than one per cent. of the Conversion Price then in effect. Any adjustment not required to be made and/or any amount by which the Conversion Price has been rounded up, shall be carried forward and taken into account in any subsequent adjustment, and such subsequent adjustment shall be made on the basis that the adjustment not required to be made had been made at the relevant time and/or, as the case may be, that the relevant rounding down had not been made. Notice of any adjustments to the Conversion Price shall be given by the Issuer to Bondholders in accordance with Condition 21 and to the Trustee promptly after the determination thereof. The Conversion Price shall not in any event be reduced to below the nominal value of the Ordinary Shares. Adecco has undertaken in the Forward Purchase Agreement that it shall not take any action, and shall procure that no action is taken, that would otherwise result in an adjustment to the Conversion Price to below such nominal value or any minimum level permitted by applicable laws or regulations. 10. Procedure for Conversion (a) Voluntary Conversion To exercise its right to convert a Bond pursuant to Condition 8(c) or 8(d), a Bondholder must deliver the relevant Bonds during the relevant period provided for in the relevant Condition to the specified office of any Paying, Transfer and Conversion Agent, during its usual business hours, accompanied by a duly completed and 68/298

70 signed notice of conversion (a "Conversion Notice") in the form (for the time being current) obtainable from any Paying, Transfer and Conversion Agent. Such exercise may only be in respect of the whole of the principal amount of a Bond and shall be subject to any applicable fiscal or other laws or regulations applicable in the jurisdiction in which the specified office of the Paying, Transfer and Conversion Agent to whom the relevant Conversion Notice is delivered is located. (b) Mandatory Conversion As a precondition to any delivery of any Ordinary Shares pursuant to a Mandatory Conversion, a Bondholder shall be required to deliver the relevant Bond or Bonds together with a duly executed Conversion Notice to the specified office of any Paying, Transfer and Conversion Agent by not later than 3 dealing days, prior to the relevant Conversion Date. If, in the case of a Mandatory Conversion, the Conversion Notice and the relevant Bond or Bonds are not delivered to the specified office of a Paying, Transfer and Conversion Agent by not later than 3 dealing days prior to the relevant Conversion Date, the relevant Ordinary Shares shall be sold on behalf of the Issuer as soon as practicable, and (subject to any necessary consents being obtained and to the deduction by the Issuer of any amount which it determines to be payable in respect of its liability to taxation and the payment of any capital, stamp, issue or registration duties (if any) and any costs and expenses incurred by the Issuer in connection with any such sale) the net proceeds of sale (converted where applicable into CHF), shall be paid to the Principal Paying, Transfer and Conversion Agent, and such net proceeds shall be distributed rateably by the Principal Paying, Transfer and Conversion Agent to the holders of the relevant Bonds in accordance with Condition 12(a) or in such other manner as the Trustee shall determine and notify to Bondholders in accordance with Condition 21. Any such cash amount paid as aforesaid to a holder pursuant to this paragraph shall be treated for all purposes as discharging the Issuer s obligations in respect of the relevant Bonds. Neither the Trustee nor the Principal Paying, Transfer and Conversion Agent shall have any obligation or liability in respect of any sale of the Ordinary Shares whether for the timing of any such sale or the price at which the Ordinary Shares are sold or the inability to sell the Ordinary Shares, or at the rate at which the net proceeds of any such sale are converted into CHF. (c) U.S. Certification In the case of a Voluntary Conversion, Bondholders will, in the Conversion Notice, be required to represent and warrant that, at the time of signing and delivery of the relevant Conversion Notice, (A) it is not "a person resident in the United States" within the meaning of Section 12(g) of the U.S. Securities Exchange Act, as amended and Rule 12g-3-2(a) thereunder, (B) it understands that the Ordinary Shares to be issued upon conversion of the Bonds have not been registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") and (C) it is not a U.S. person nor acting for the account or benefit of a U.S. person and is located outside the United States within the meaning of Regulation S ("Regulation S") under the Securities Act, is acquiring the Ordinary Shares to be issued upon conversion of the Bonds in an offshore transaction (as defined in Regulation S) in accordance with Rule 903 or 904 of Regulation S and understands that the Ordinary Shares may not be delivered within the United States and may not be resold in the United States except pursuant to an exemption from the registration requirements of the Securities Act. (d) Determination If delivery of a Conversion Notice is made after CET on any day or is made on a day which is not a business day in the place of the specified office of the relevant Paying, Transfer and Conversion Agent, such delivery shall be deemed for all purposes of these Conditions to have been made on the next following such business day. 69/298

71 Any determination as to whether any Conversion Notice has been duly completed and properly delivered shall be made by the relevant Paying, Transfer and Conversion Agent and shall, save in the case of manifest error, be conclusive and binding on the Issuer, the Trustee, the Paying, Transfer and Conversion Agents and the relevant Bondholder. A Conversion Notice, once delivered, shall be irrevocable. (e) Delivery of Ordinary Shares The Ordinary Shares to be delivered upon conversion will be either Ordinary Shares issued from the conditional capital of Adecco or issued and outstanding Ordinary Shares of Adecco. Where a holder of Bonds shall have delivered a Conversion Notice on a Voluntary Conversion or Mandatory Conversion, the Issuer will deliver the relevant Ordinary Shares to such holder or to the person designated for such purpose in the relevant Conversion Notice through the facilities of SIS, Euroclear Bank S.A./N.V. or Clearstream Banking, société anonyme or any other settlement organisation of the Relevant Stock Exchange in accordance with directions contained in the relevant Conversion Notice by not later than 10 dealing days following the relevant Conversion Date or, in the case of any Additional Ordinary Shares, by not later than 10 dealing days following the relevant Reference Date (or, in the case of a Voluntary Conversion at the option of Holders following a Change of Control pursuant to Condition 8(d), by not later than 5 dealing days following the relevant Conversion Date (or in the case of any Additional Ordinary Shares in respect thereof, by not later than 5 dealing days following the relevant Reference Date). (f) Ordinary Shares Ordinary Shares issued or transferred and delivered on conversion of Bonds will be fully paid and will in all respects rank pari passu with the fully paid Ordinary Shares in issue on the relevant Conversion Date or, in the case of Additional Ordinary Shares, on the relevant Reference Date, except (i) in any such case for any right excluded by mandatory provisions of applicable law; (ii) that such Ordinary Shares or, as the case may be, Additional Ordinary Shares will not rank for (or, as the case may be, the relevant holder shall not be entitled to receive) any rights, distributions or payments the record date or other due date for the establishment of entitlement for which falls prior to the relevant Conversion Date or, as the case may be, the relevant Reference Date; and (iii) that the relevant Bondholder or other person designated in the relevant Conversion Notice to whom the Ordinary Shares are to be delivered will not be entitled to exercise voting rights in respect of such Ordinary Shares until registered as the holder of such Ordinary Shares in Adecco s share register. (g) Purchase or Redemption of Ordinary Shares Adecco or any Subsidiary of Adecco may exercise such rights as it may from time to time enjoy to purchase or redeem or buy back any shares of Adecco (including Ordinary Shares) or any depositary or other receipts or certificates representing the same without the consent of the Bondholders. (h) No Duty to Monitor The Trustee shall not be under any duty to monitor whether any event or circumstance has happened or exists which may require an adjustment to be made to the Conversion Price and will not be responsible or liable to the Bondholders for any loss arising from any failure by it to do so. (i) Consolidation, Amalgamation or Merger Without prejudice to Condition 8(d), in the case of any consolidation, amalgamation or merger of Adecco with any other corporation (other than a consolidation, amalgamation or merger in which Adecco is the continuing entity), or in the case of any sale or transfer of all, or substantially all, of the assets of Adecco, the Issuer will, promptly upon notification from Adecco to it in respect of the relevant event, give notice thereof to the Trustee 70/298

72 and to the Bondholders in accordance with Condition 21 and take such steps as shall be required by the Trustee to ensure that each Bond then outstanding will be convertible into the class and amount of shares and other securities and property receivable upon such consolidation, amalgamation, merger, sale or transfer by a holder of the number of Ordinary Shares which would have become liable to be issued or transferred and delivered upon conversion of the Bonds immediately prior to such consolidation, amalgamation, merger, sale or transfer. The above provisions of this Condition 10(i) will apply, mutatis mutandis to any subsequent consolidations, amalgamations, mergers, sales or transfers. 11. Purchase and Cancellation (a) Purchase Subject to the requirements (if any) of any stock exchange on which the Bonds may be listed and admitted to trading at the relevant time and subject to compliance with applicable laws and regulations, Adecco or any Subsidiary of Adecco may at any time purchase any Bonds in the open market or otherwise at any price. (b) Cancellation All Bonds which are redeemed or which are converted will be cancelled and may not be reissued or resold. Bonds purchased by Adecco or any of its Subsidiaries shall be surrendered to the Principal Paying, Transfer and Conversion Agent for cancellation and may not be reissued or re-sold. 12. Payments (a) Interest Amounts and Deferred Interest Payment of any Interest Amount due on any Interest Payment Date in respect of the Bonds and payment of any Deferred Interest or any Present Value will be made to the persons shown in the Register at the close of business on the Record Date. (b) Record Date "Record Date" means the seventh business day, in the place of the specified office of the Registrar, before the due date for the relevant payment. (c) Payments Each payment in respect of the Bonds pursuant to Condition 12(a) will be made by transfer to a CHF account maintained by the payee with a bank in Zurich. Payment instructions (for value on the due date or, if that is not a Zurich business day, for value the first following day which is a Zurich business day) will be initiated on the Zurich business day preceding the due date for payment (for value the next Zurich business day). (d) Payments subject to fiscal laws All payments in respect of the Bonds are subject in all cases to any applicable fiscal or other laws and regulations. (e) Delay in payment Bondholders will not be entitled to any interest or other payment for any delay after the due date in receiving the amount due as a result of the due date not being a Zurich business day. 71/298

73 (f) Paying, Transfer and Conversion Agents, etc. The Issuer reserves the right under the Agency Agreement at any time, with the prior written approval of the Trustee, to vary or terminate the appointment of any Paying, Transfer and Conversion Agent and Registrar and appoint additional or other Paying, Transfer and Conversion Agents, provided that it will (i) maintain a Principal Paying, Transfer and Conversion Agent, (ii) maintain a Paying, Transfer and Conversion Agent (which may be the Principal Paying, Transfer and Conversion Agent) with a specified office in a European Union member state that will not be obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any other European Union Directive implementing the conclusions of the ECOFIN council meeting of November 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive, (iii) maintain a Paying, Transfer and Conversion Agent with a specified office in Switzerland and (iv) maintain a Registrar with a specified office outside the United Kingdom. Notice of any change in the Paying, Transfer and Conversion Agents or the Registrar or their specified offices will promptly be given by the Issuer to the Bondholders in accordance with Condition 21. (g) No charges Neither the Registrar nor the Paying, Transfer and Conversion Agents shall make or impose on a Bondholder any charge or commission in relation to any payment or conversion in respect of the Bonds. (h) Rounding of payments When making payments to Bondholders, if the relevant payment is not of an amount which is a whole multiple of the smallest unit of the relevant currency in which such payment is to be made, such payment will be rounded up to the nearest unit. 13. Taxation All payments made by or on behalf of the Issuer in respect of the Bonds will be made subject to and after deduction or withholding for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of Bermuda or any political subdivision or any authority thereof or therein having power to tax required to be made by law. The Issuer will not be required to pay any additional or further amounts in respect of such deduction or withholding. 14. Accelerated Conversion Events The Trustee at is discretion may, and if so requested in writing by the holders of not less than 25 per cent. in principal amount of the Bonds then outstanding or if so directed by an Extraordinary Resolution of the Bondholders shall (subject to the Trustee having been indemnified and/or provided with security and/or prefunded to its satisfaction) give notice (an "Accelerated Conversion Notice") in writing to the Issuer if any of the following events (each an "Accelerated Conversion Event") shall have occurred and be continuing: (a) (b) there is a failure by the Issuer to pay any Interest Amount, Present Value or other amount on or in respect of any of the Bonds or to deliver any Ordinary Shares upon conversion of any of the Bonds and such failure continues for a period of 10 days; or a default is made by the Issuer in the performance or observance of any covenant, condition or provision contained in the Trust Deed or any Transaction Document to which it is a party or in the Bonds and on its part to be performed or observed (other than the covenant to pay any amounts or deliver any Ordinary Shares in respect of any of the Bonds) or a default is made by Adecco in the performance or observance of any covenant, condition or provision contained in the Forward Purchase Agreement and on its part to be performed and in any such case (except where the Trustee certifies in writing that, in its opinion, such default is not capable of remedy, when no such notice or 72/298

74 continuation as is mentioned below shall be required) such default continues for the period of 30 days next following the service by the Trustee on the Issuer of notice requiring such default to be remedied; or (c) (d) (e) (f) (g) (h) (i) any other present or future indebtedness of the Issuer, Adecco or any Subsidiary of Adecco for or in respect of moneys borrowed or raised is not paid when due or, as the case may be, within any applicable grace period, or becomes due and payable prior to its stated maturity as a result of an event of default (howsoever described), or any security in respect of any such indebtedness becomes enforceable or any guarantee of, or indemnity in respect of any such indebtedness given by the Issuer, Adecco or any Subsidiary of Adecco is not honoured when due and called upon, provided that no such event shall be taken into account for the purposes of this paragraph (c) unless the relative indebtedness, either alone or when aggregated with other indebtedness relative to all, if any, other such events which shall have occurred and are continuing shall at any time have an outstanding nominal value of at least Euro 50,000,000 or its equivalent in any other currency or currencies or, if greater, an amount equal to two per cent. of the consolidated shareholders equity of Adecco as set out in the most recently published audited consolidated annual accounts of Adecco; or an encumbrancer or a receiver or a person with similar functions takes possession of the whole or any substantial part of the assets or undertaking of the Issuer, Adecco or any Subsidiary of Adecco; or a distress, execution or other process is levied or enforced upon or sued out against a substantial part of the property, assets or revenues of the Issuer, Adecco or any Subsidiary of Adecco and is not paid, discharged, removed or stayed within 30 days; or Adecco transfers or disposes of all or substantially all of its business or assets except for the purposes of or pursuant to and followed by a consolidation, amalgamation, merger or reconstruction the terms of which shall have previously been approved in writing by the Trustee or by an Extraordinary Resolution of the Bondholders; or the Issuer, Adecco or any Subsidiary of Adecco is insolvent or bankrupt or unable to pay its debts as and when they fall due or the Issuer, Adecco or any Subsidiary of Adecco initiates or consents to proceedings relating to itself under any applicable bankruptcy, composition, postponement of bankruptcy, administration or insolvency law or makes a general assignment for the benefit of, or enters into any composition with, its creditors; or an order is made or an effective resolution is passed for the winding-up or dissolution of the Issuer, Adecco or any Subsidiary of Adecco or the Issuer, Adecco or any Subsidiary of Adecco ceases or threatens to cease to continue all or substantially all of its business or operations except (A) in the case of a winding-up or dissolution where the terms of such winding-up or dissolution have previously been approved in writing by the Trustee or by an Extraordinary Resolution of the Bondholders or (B) for the purposes of or pursuant to and followed by a consolidation, amalgamation, merger or reconstruction the terms of which shall have previously been approved by the Trustee in writing or by an Extraordinary Resolution of the Bondholders or (C) in the case of a Subsidiary of Adecco where the entire undertaking and assets of such Subsidiary are transferred to or otherwise vested in Adecco and/or one or more other Subsidiary/Subsidiaries of Adecco that is/are in each case wholly owned directly or indirectly by Adecco or (D) in the case of a Subsidiary of Adecco a sale, transfer or other disposal on arms length terms; or proceedings are initiated against the Issuer, Adecco or any Subsidiary of Adecco under any applicable bankruptcy, composition, postponement of bankruptcy, administration or insolvency law and such proceedings are not discharged or stayed within a period of 60 days; or 73/298

75 (j) (k) if a Rating Event occurs; or any event occurs which under applicable laws has an analogous effect to any of the events referred to in paragraphs (f) to (i) above, provided that: (i) (ii) for the purposes of paragraphs (d), (e), (g), (h), (i) and (k) above, where a relevant event occurs in relation to a Subsidiary of Adecco, no Accelerated Conversion Notice may be given unless and until such event either alone or when coupled with one or more other such events which have occurred in relation to one or more Subsidiaries of Adecco has/have occurred in relation to a Subsidiary or Subsidiaries of Adecco whose revenues, where applicable, in aggregate, (determined as described in (A) and, where applicable, (B) below) constitute at least 10 per cent, of Adecco s consolidated revenues attributable to the Shareholders (determined as described in (C) below); and in the case of any event described in (or any event which, as referred to in paragraph (k), has an analogous effect to) paragraphs (b), (c), (d), (e) and (i), the Trustee shall have certified that such event is in its opinion materially prejudicial to the interests of the Bondholders. In order to determine whether the test set out in (i) has been met: (A) (B) (C) (D) on each occasion on which an event described in (or an event which, as referred to in paragraph (k), has an analogous effect to) paragraph (d), (e), (g), (h) or (i) occurs in relation to a Subsidiary of Adecco (each a "Relevant Occasion"), the revenues of the relevant Subsidiary attributable to Adecco (consolidated in the case of a Subsidiary which itself has Subsidiaries) shall be such revenues as are disclosed in the most recently published audited annual accounts (consolidated or, as the case may be, unconsolidated) of the relevant Subsidiary; on each Relevant Occasion (other than the first Relevant Occasion), the revenues of each Subsidiary in respect of which a Relevant Occasion has previously occurred and the relative event is continuing shall be aggregated with the revenues of the relevant Subsidiary determined in accordance with (A) in respect of the then current Relevant Occasion; on each Relevant Occasion, Adecco s consolidated revenues attributable to the Shareholders shall be such consolidated revenues as disclosed in the most recently published audited consolidated annual accounts of Adecco and its Subsidiaries as being so attributable; and on each Relevant Occasion, the revenues, where applicable, in aggregate, (determined as described in (A) and, where applicable. (B)) shall be divided by the consolidated revenues determined as described in (C) and the result expressed as a percentage. Subject as provided in the preceding paragraph, upon an Accelerated Conversion Notice being given to the Issuer the outstanding Bonds shall be mandatorily converted into Ordinary Shares as provided in Condition 8(e). A report by the auditors of Adecco that in their opinion a relevant event shall have occurred in relation to a Subsidiary of Adecco entitling the Trustee, subject, where applicable, to certification as referred to in (ii), to give an Accelerated Conversion Notice under this Condition may be relied upon by the Trustee without further enquiry or evidence and, if relied upon by the Trustee, shall, in the absence of manifest or proven error, be conclusive and binding on all parties. 15. Issuer Undertaking (a) In the event of a Newco Scheme, the Issuer shall take (or shall procure that there is taken) all necessary action to ensure that (to the satisfaction of the Trustee) immediately after completion of the Scheme of Arrangement such amendments are made to these Conditions and the Trust Deed as 74/298

76 are necessary, in the opinion of the Trustee, to ensure that the Bonds may be converted into or exchanged for ordinary shares in Newco mutatis mutandis in accordance with and subject to these Conditions. (b) (c) The Issuer will use its reasonable efforts to have the Bonds listed on SIX and to maintain such listing up to and including three dealing days prior to the Maturity Date. If at any time there shall be a failure by Adecco to make any payment when due to the Issuer under the Loan Agreement, then (subject to the Issuer being secured and/or prefunded and/or indemnified to its reasonable satisfaction) the Issuer will at the request of the Trustee take such action to enforce its rights against Adecco under and in respect of the Loan Agreement as the Trustee may reasonably request in the interests of the Bondholders. 16. Prescription Claims against the Issuer for payment in respect of the Bonds shall be prescribed and become void unless made within 10 years from the appropriate Relevant Date in respect of such payment. All other claims against the Issuer relating to the Bonds including any breach by the Issuer of any of its obligations or failure by the Issuer to perform any of its obligations under the Bonds shall be prescribed and become void unless made within 10 years from the date of the relevant breach or failure. 17. Replacement of Bonds If any Bond is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the specified office of any Paying, Transfer and Conversion Agent subject to all applicable laws and stock exchange requirements, upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence and indemnity as the Issuer may require. Mutilated or defaced Bonds must be surrendered before replacements will be issued. 18. Meetings of Bondholders, Modification and Waiver (a) Meetings of Bondholders The Trust Deed contains provisions for convening meetings of Bondholders to consider matters affecting their interests, including the sanctioning by Extraordinary Resolution of a modification of any of these Conditions or any provisions of the Trust Deed or any Transaction Document. Such a meeting may be convened by the Issuer or the Trustee and shall be convened by the Issuer if requested in writing by Bondholders holding not less than 10 per cent. in principal amount of the Bonds for the time being outstanding. The quorum for any meeting convened to consider an Extraordinary Resolution will be one or more persons holding or representing a clear majority in principal amount of the Bonds for the time being outstanding, or at any adjourned meeting one or more persons being or representing Bondholders whatever the principal amount of the Bonds so held or represented, unless the business of such meeting includes consideration of proposals, inter alia, (i) to change the Maturity Date or the dates on which any Interest Amount or Deferred Interest or Present Value is payable in respect of the Bonds, (ii) to modify the circumstances in which the Bonds may be converted, (iii) to reduce or cancel the principal amount of, or interest on, the Bonds or any Deferred Interest or Present Value, (iv) to modify the provisions relating to the conversion of the Bonds other than a reduction to the Minimum Conversion Price or the Maximum Conversion Price), (v) to increase the Minimum Conversion Price or the Maximum Conversion Price (other than in accordance with these Conditions or pursuant to a Newco Scheme Modification), (vi) to change the currency of the denomination or any payment in respect of the Bonds, (vii) to change the governing law of the Bonds, the Trust Deed or the Agency Agreement, or (viii) to modify the provisions concerning the quorum required at any meeting of Bondholders or the majority required to pass an Ex- 75/298

77 traordinary Resolution, in which case the necessary quorum will be one or more persons holding or representing not less than two-thirds, or at any adjourned meeting not less than one-half, in principal amount of the Bonds for the time being outstanding. Any Extraordinary Resolution duly passed shall be binding on Bondholders (whether or not they were present at the meeting at which such resolution was passed). The Trust Deed provides that a resolution in writing signed by or on behalf of the holders of not less than 75 per cent. of the aggregate principal amount of Bonds outstanding shall for all purposes be as valid and effective as an Extraordinary Resolution passed at a meeting of Bondholders duly convened and held. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Bondholders. No consent or approval of Bondholders shall be required in connection with any Newco Scheme Modification. (b) Modification and Waiver The Trustee may agree, without the consent of the Bondholders, to (i) any modification of any of the provisions of the Trust Deed, any trust deed supplemental to the Trust Deed, the Agency Agreement, any agreement supplemental to the Agency Agreement, any Transaction Document, any agreement supplemental to any Transaction Document, the Bonds or these Conditions which in the Trustee s opinion is of a formal, minor or technical nature or is made to correct a manifest or proven error or to comply with mandatory provisions of law, and (ii) any other modification to the Trust Deed, any trust deed supplemental to the Trust Deed, the Agency Agreement, any agreement supplemental to the Agency Agreement, any Transaction Document, any agreement supplemental to any Transaction Document, the Bonds or these Conditions (except as mentioned in the Trust Deed), and (iii) any waiver or authorisation of any breach or proposed breach, of any of the provisions of the Trust Deed, any trust deed supplemental to the Trust Deed, the Agency Agreement, any agreement supplemental to the Agency Agreement, any Transaction Document, any agreement supplemental to any Transaction Document, the Bonds or these Conditions which is, in the opinion of the Trustee, not materially prejudicial to the interests of the Bondholders. The Trustee may, without the consent of the Bondholders, determine that any Accelerated Conversion Event should not be treated as such, provided that in the opinion of the Trustee, the interests of Bondholders will not be materially prejudiced thereby. Any such modification, authorisation or waiver shall be binding on the Bondholders and, if the Trustee so requires, such modification shall be notified to the Bondholders promptly in accordance with Condition 21. (c) Entitlement of the Trustee In connection with the exercise of its functions (including but not limited to those referred to in this Condition) the Trustee shall have regard to the interests of the Bondholders as a class and, in particular but without limitation, shall not have regard to the consequences of the exercise of its trusts, powers or discretions for individual Bondholders resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory, and the Trustee shall not be entitled to require, nor shall any Bondholder be entitled to claim, from the Issuer or any other person any indemnification or payment in respect of any tax consequence of any such exercise upon individual Bondholders. 19. Enforcement (a) The Trustee may at any time at its discretion and without notice take such action as it may think fit to enforce the provisions of the Trust Deed and the Bonds and the other Transaction Documents, but it shall not be bound to take any proceedings or any other action in relation to the Transaction Documents or the Bonds unless (i) it shall have been so directed by an Extraordinary Resolution of the Bondholders or so requested in writing by the holders of at least one-quarter in principal amount of the Bonds then outstanding, and (ii) it shall have been indemnified and/or secured and/or prefunded to its satisfaction. 76/298

78 (b) (c) No Bondholder shall be entitled to proceed directly against the Issuer unless the Trustee, having become bound so to proceed, fails so to do within a reasonable period and such failure shall be continuing. The Trustee and the Bondholders shall have recourse only to the Secured Property and, the Trustee having realised the same and distributed the net proceeds in accordance with Condition 2 and the Trust Deed, none of the Trustee or the Bondholders or anyone acting on behalf of any of them shall be entitled to take any further steps against the Issuer to recover any further sum and no debt shall be owed by the Issuer in respect of such sum. In particular, none of the Trustee or the Bondholders shall be entitled to bring or institute, or join with any other person in bringing or instituting insolvency proceedings (whether court based or otherwise) in relation to the Issuer. 20. The Trustee The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility, including relieving it from taking proceedings unless indemnified and/or secured and/or prefunded to its satisfaction. The Trustee may rely without liability to Bondholders on a report, confirmation or certificate or any advice of any accountants, financial advisers, financial institution or other expert, whether or not addressed to it and whether their liability in relation thereto is limited (by its terms or by any engagement letter relating thereto entered into by the Trustee or in any other manner) by reference to a monetary cap, methodology or otherwise. The Trustee may accept and shall be entitled to rely on any such report, confirmation or certificate or advice and such report, confirmation or certificate or advice shall be binding on the Issuer, the Trustee and the Bondholders. The Trustee may acquire, hold or dispose of any Bond or other security (or any interest therein) of the Issuer, Adecco or any other Subsidiary of Adecco (or any entity related thereto) or any other person, may enter into or be interested in any contract or transaction with any such person and may act on, or as depositary or agent for, any committee or body of holders of any securities of any such person, in each case with the same rights as it would have had if the Trustee were not acting as trustee and need not account for any profit. 21. Notices Prior to the first day on which the Bonds may be traded on the SIX Swiss Exchange all notices to Bondholders regarding the Bonds shall be published in a daily newspaper of national circulation in Switzerland, expected to be the Neue Zürcher Zeitung. On or after the first day on which the Bonds may be traded on the SIX Swiss Exchange and for as long as the Bonds are admitted to trading or listed on the SIX Swiss Exchange, all notices to Bondholders regarding the Bonds shall be valid as soon as published electronically on the internet website of the SIX Swiss Exchange in accordance with applicable regulations ( 22. Contracts (Rights of Third Parties) Act 1999 No person shall have any right to enforce any term or condition of the Bonds under the Contracts (Rights of Third Parties) Act Governing Law and Jurisdiction (a) Governing Law The Trust Deed, the Agency Agreement and the Bonds and any non-contractual obligations arising out of or in 77/298

79 connection with them are governed by, and shall be construed in accordance with, English law. (b) Jurisdiction The courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with the Trust Deed or the Bonds and accordingly any legal action or proceedings arising out of or in connection with the Trust Deed or the Bonds ("Proceedings") may be brought in such courts. The Issuer has in the Trust Deed irrevocably submitted to the jurisdiction of such courts and has waived any objection to Proceedings in such courts whether on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. This submission is made for the benefit of the Trustee and each of the Bondholders and shall not limit the right of any of them to take Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not). (c) Agent for Service of Process The Issuer has irrevocably appointed Adecco UK Ltd. at its registered office for the time being, currently at Adecco House, Elstree Way, Boreham Wood, Hertfordshire WD6 1HY, as its agent in England to receive service of process in any Proceedings in England. Nothing herein or in the Trust Deed shall affect the right to serve process in any other manner permitted by law. The Forward Purchase Agreement contains, inter alia, the following provisions: Whilst any Bond remains outstanding, Adecco will, save with the approval of an Extraordinary Resolution or with the prior written approval of the Trustee where, in its opinion, it is not materially prejudicial to the interests of the Bondholders to give such approval: (a) other than in connection with a Newco Scheme, not issue or pay up any Securities, in either case by way of capitalisation of profits or reserves, other than: (i) (ii) (iii) (iv) by the issue of fully paid Ordinary Shares to Shareholders and other holders of shares in the capital of Adecco which by their terms entitle the holders thereof to receive Ordinary Shares or other shares or Securities on a capitalisation of profits or reserves; or by the issue of Ordinary Shares paid up in full (in accordance with applicable law) and issued wholly, ignoring fractional entitlements, in lieu of the whole or part of a Dividend in cash; or by the issue of fully paid equity share capital (other than Ordinary Shares) to the holders of equity share capital of the same class and other holders of shares in the capital of Adecco which by their terms entitle the holders thereof to receive equity share capital (other than Ordinary Shares); or by the issue of Ordinary Shares or any equity share capital to, or for the benefit of, any employee or former employee, director or executive holding or formerly holding executive office of Adecco or any of its Subsidiaries or any associated company or to trustees or nominees to be held for the benefit of any such person, in any such case pursuant to an employee, director or executive share or option scheme whether for all employees, directors, or executives or any one or more of them, unless, in any such case, the same constitutes a Dividend or otherwise gives rise (or would, but for the provisions of Condition 9(e) relating to roundings or the carry forward of adjustments, give rise) to an adjustment to the Minimum Conversion Price and the Maximum Conversion Price; (b) not modify the rights attaching to the Ordinary Shares with respect to voting, dividends or liquidation nor issue any other class of equity share capital carrying any rights which are more favourable than 78/298

80 the rights attaching to the Ordinary Shares but so that nothing in this paragraph (b) shall prevent: (i) (ii) (iii) (iv) any consolidation, reclassification or subdivision of the Ordinary Shares; or any modification of such rights which is not, in the opinion of a Financial Adviser, materially prejudicial to the interests of the holders of the Bonds; or any issue of equity share capital where the issue of such equity share capital results, or would, but for the provisions of Condition 9(e) relating to roundings or the carry forward of adjustments or, where comprising Ordinary Shares, the fact that the consideration per Ordinary Share receivable therefor is at least 95 per cent. of the Current Market Price per Ordinary Share, otherwise result, in an adjustment to the Minimum Conversion Price and the Maximum Conversion Price; or any issue of equity share capital or modification of rights attaching to the Ordinary Shares, where prior thereto Adecco shall have instructed a Financial Adviser to determine what (if any) adjustments should be made to the Minimum Conversion Price and the Maximum Conversion Price as being fair and reasonable to take account thereof and such Financial Adviser shall have determined either that no adjustment is required or that an adjustment resulting in a decrease in the Conversion Price is required and, if so, the new Minimum Conversion Price and the Maximum Conversion Price as a result thereof and the basis upon which such adjustment is to be made and, in any such case, the date on which the adjustment shall take effect (and so that the adjustment shall be made and shall take effect accordingly); (c) (d) (e) procure that no Securities (whether issued by Adecco or any Subsidiary of Adecco or procured by Adecco or any Subsidiary of Adecco to be issued or issued by any other person pursuant to any arrangement with Adecco or any Subsidiary of Adecco) issued without rights to convert into, or exchange or subscribe for, Ordinary Shares shall subsequently be granted such rights exercisable at a consideration per Ordinary Share which is less than 95 per cent. of the Current Market Price per Ordinary Share at the close of business on the last dealing day preceding the date of the first public announcement of the proposed inclusion of such rights unless the same gives rise (or would, but for the provisions of Condition 9(e) relating to roundings or the carry forward of adjustments, give rise) to an adjustment to the Minimum Conversion Price and the Maximum Conversion Price and that at no time shall there be in issue Ordinary Shares of differing nominal values, save where such Ordinary Shares have the same economic rights; not take any action, and procure that no action is taken, that would otherwise result in an adjustment to the Conversion Price in respect of the Bonds, that would otherwise result in an adjustment to such Conversion Price to below such nominal value or any minimum level permitted by applicable laws and regulations, and not make any issue, grant or distribution or take or omit to take any other action if the effect thereof would be that, on the conversion of the Bonds, Ordinary Shares could not, under any applicable law then in effect, be either delivered from treasury holdings of Adecco or legally issued as fully paid; not reduce its issued share capital, share premium account, or any uncalled liability in respect thereof, or any non-distributable reserves, except: (i) (ii) (iii) pursuant to the terms of issue of the relevant share capital; or by means of a purchase or redemption of share capital of Adecco to the extent permitted by applicable law; or pursuant to a Newco Scheme; or 79/298

81 (iv) (v) (vi) by way of transfer to reserves as permitted under applicable law; or where the reduction is permitted by applicable law and the Trustee is advised by a Financial Adviser, acting as an expert, that the interests of the Bondholders will not be materially prejudiced by such reduction; or where the reduction is permitted by applicable law and results in (or would, but for the provisions of Condition 9(e) relating to roundings or the carry forward of adjustments, result in) an adjustment to the Minimum Conversion Price and the Maximum Conversion Price or is otherwise taken into account for the purposes of determining whether such an adjustment should be made, provided that, without prejudice to the other provisions of these Conditions, Adecco may exercise such rights as it may from time to time be entitled pursuant to applicable law to purchase, redeem or buy back its Ordinary Shares and any depositary or other receipts or certificates representing Ordinary Shares without the consent of Bondholders; (f) (g) if any offer is made to all (or as nearly as may be practicable all) Shareholders (or all (or as nearly as may be practicable all) Shareholders other than the offeror and/or any associates of the offeror or any parties acting in concert with the offeror (as defined in Article 11 of the Swiss Takeover Ordinance)) to acquire the whole or any part of the issued Ordinary Shares, or if any person proposes a scheme with regard to such acquisition (other than a Newco Scheme), give notice of such offer or scheme to the Bondholders at the same time as any notice thereof is sent to the Shareholders (or as soon as practicable thereafter) that details concerning such offer or scheme may be obtained from the specified offices of the Paying, Transfer and Conversion Agents and, where such an offer or scheme has been recommended by the board of directors of Adecco, or where such an offer has become or been declared unconditional in all respects or such scheme has become effective, use all reasonable endeavours to procure that a like offer or scheme is extended to the holders of any Ordinary Shares issued and/or delivered during the period of the offer or scheme arising out of the conversion of the Bonds by the Bondholders and/or to the holders of the Bonds; in the event of a Newco Scheme, take (or shall procure that there is taken) all necessary action to ensure that (to the satisfaction of the Trustee) immediately after completion of the Scheme of Arrangement, Newco is substituted under the Forward Purchase Agreement as obligor in place of Adecco and, (i) such amendments are made to the Forward Purchase Agreement as are necessary to ensure that under the Forward Purchase Agreement there shall be deliverable ordinary shares in Newco mutatis mutandis in accordance with and subject to the terms of the Forward Purchase Agreement and (ii) the ordinary shares of Newco are: (A) (B) admitted to the Relevant Stock Exchange; or listed and admitted to trading on another regulated, regularly operating, recognised stock exchange or securities market; (h) (i) use all reasonable endeavours to ensure that the Ordinary Shares issued or delivered upon conversion of the Bonds will, as soon as is practicable, be listed and admitted to trading on the Relevant Stock Exchange and will be listed, quoted or dealt in, as soon as is practicable, on any other stock exchange or securities market on which the Ordinary Shares may then be listed or quoted or dealt in; and for so long as any Bond remains outstanding, use all reasonable endeavours to ensure that its issued and outstanding Ordinary Shares shall be listed and admitted to trading on the Relevant Stock Exchange. 80/298

82 For the purposes of paragraphs (a), (b), (c) and (h), references to the "issue" of Ordinary Shares or Ordinary Shares being "issued" shall include the transfer and/or delivery of Ordinary Shares, whether newly issued and allotted or previously existing or held by or on behalf of Adecco or any of its Subsidiaries; and "equity share capital" means, in relation to any entity, its issued share capital excluding any part of that capital which, neither as respects dividends nor as respects capital, carries any right to participate beyond a specific amount in a distribution. Provisions relating to the Bonds while in Global Form The Bonds will be evidenced by a Global Bond in registered form without coupons. No Bondholder will be entitled to demand the delivery of individual certificates. The Global Bond contains provisions which apply to the Bonds while they are in global form, some of which modify the effect of Conditions. The following is a summary of certain of those provisions. Exchange The Global Bond is exchangeable in whole but not in part (free of charge to the holder) for definitive registered Bonds if (1) the Global Bond is held by or on behalf of a clearing system and such clearing system is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so or (2) if the Issuer would suffer a material disadvantage in respect of the Bonds as a result of a change in the laws or regulations (taxation or otherwise) of any jurisdiction referred to in Condition 13 which would not be suffered were the Bonds in definitive form and a certificate to such effect signed by two directors of the Issuer is delivered to the Trustee, by the Issuer giving notice to the Principal Paying, Transfer and Conversion Agent and the Bondholders of its intention to exchange the Global Bond for definitive registered Bonds on or after the Exchange Date specified in the notice. On or after the Exchange Date (as defined below) the Issuer will deliver, or procure the delivery of, an equal aggregate principal amount of duly executed and authenticated definitive Bonds in registered form, printed in accordance with any applicable legal and stock exchange requirements and in or substantially in the form set out in the Trust Deed. Such definitive Bonds will be registered in the name of the accountholders at Clearstream, Luxembourg and Euroclear which previously had Bonds credited to the accounts. "Exchange Date" means a day falling not less than 60 days after that on which the notice requiring exchange is given and on which the banks are open for business in the city in which the specified office of the Registrar is located and, except in the case of exchange pursuant to (1) above, in the city or cities in which the relevant clearing system(s) is located. Payments Payments of amounts falling due in respect of Bonds represented by the Global Bond will be made against presentation for endorsement and, if no further payment falls to be made in respect of the Bonds, surrender of the Global Bond to or to the order of the Principal Paying, Transfer and Conversion Agent or such other Agent as shall have been notified to the Bondholders for such purpose. A record of each payment so made will be endorsed in the appropriate schedule to the Global Bond, which endorsement will be prima facie evidence that such payment has been made. 81/298

83 Notices So long as Bonds are represented by the Global Bond and the Global Bond is held on behalf of Euroclear or Clearstream, Luxembourg, notices to the holders of such Bonds may be given by delivery of the relevant notice to the relevant clearing system for communication by it to entitled accountholders in substitution for notification, as required by the Conditions, except that the Issuer shall also ensure that all notices are duly published in a manner which complies with the rules and regulations of any stock exchange or other relevant authority on which the Bonds are for the time being listed and/or admitted to trading. Prescription Claims against the Issuer for payment in respect of the Bonds while the Bonds are represented by the Global Bond shall be prescribed and become void unless made within 10 years of the relevant breach or failure from the appropriate Relevant Date (as defined in the Conditions) in respect of such payment. All other claims against the Issuer relating to the Bonds while the Bonds are represented by the Global Bond, including any breach by the Issuer of any of its obligations or failure by the Issuer to perform any of its obligations under the Bonds, shall be prescribed and become void unless made within 10 years following the due date. Meetings The holder of the Global Bond shall be treated as two persons for the purposes of any quorum requirements of a meeting of Bondholders and, at any such meeting, as having one vote in respect of each CHF1 principal amount of Bonds represented by the Global Bond. Redemption or Purchase and Cancellation Cancellation of any Bond following its redemption or purchase will be effected by reduction in the principal amount of the Global Bond in the Register. Conversion Subject to the requirements of Euroclear and Clearstream, Luxembourg, the Voluntary Conversion in respect of Bonds represented by the Global Bond may be exercised by the presentation, during the relevant period provided for in the relevant Condition, of one or more Conversion Notices duly completed and signed by or on behalf of a Bondholder together with the Global Bond to the Principal Paying, Transfer and Conversion Agent or such other Agent as shall have been notified to the Bondholder for such purpose. Mandatory Conversion Subject to the requirements of Euroclear and Clearstream Luxemburg, where there is a Mandatory Conversion in respect of Bonds represented by the Global Bond, the Global Bond together with one or more Conversion Notices duly completed and signed by or on behalf of a Bondholder shall be presented to the Principal Paying, Transfer and Conversion Agent or such other Agent as shall have been notified to the Bondholder for such purpose. Trustee s Powers In considering the interests of Bondholders while the Global Bond is held on behalf of a clearing system, the Trustee may, to the extent it considers it appropriate to do so in the circumstances, (a) have regard to such information as may have been made available to it by or on behalf of the relevant clearing system or its opera- 82/298

84 tor as to the identity of its accountholders (either individually or by way of category) with entitlements in respect of the Global Bond and (b) consider such interests on the basis that such accountholders were the holders of the Bonds represented by the Global Bond. 83/298

85 SECTION 3: INFORMATION ON THE ORDINARY SHARES Share Category Registered shares of Adecco of CHF 1 nominal value each. Share Capital As of 31 December 2008, Adecco s share capital registered with the Commercial Register amounted to CHF 189,263,506 divided into 189,263,506 fully paid up registered shares with a nominal value of CHF 1 each. Subscription and Preemptive Rights Preemptive rights (Bezugsrechte) of the existing shareholders to the shares issued in connection with the conversion of Bonds are excluded pursuant to Art. 3quater para. 2 of Adecco's Articles of Incorporation. Advance subscription rights (Vorwegzeichnungsrechte) of the existing shareholders in the Bonds have been excluded by resolution of Adecco's Board of Directors dated 19 October 2009 to issue such Bonds in the international capital markets pursuant to Art. 3quater para. 3 and 4 of Adecco's Articles of Incorporation. Listings, Ticker Symbols The Ordinary Shares are listed in Switzerland on the SIX Swiss Exchange under the symbol ADEN as well as on Euronext in France under the symbol ADE. Stock exchange listings Bloomberg Reuters SIX Telekurs SIX Swiss Exchange ADEN VX <equity> ADEN.VX ADEN Euronext ADE FP <equity> ADEN.PA ADE Swiss Security number ISIN CH Common Code Share Price (on SIX Swiss Exchange) The following table shows the reported closing, high and low prices of the Ordinary Shares in Swiss francs for the financial years 2004 until /298

86 Closing Price (1) High (2) Low (2) (1) (2) Closing price on 19 November 2009 Period from 1 January 2009 to 19 November 2009 Further information is available on the website of the SIX Swiss Exchange ( section shares, quotes. Dividends Adecco has paid the following dividends per Ordinary Share for the fiscal years : Fiscal Year Dividend per Ordinary Share (in CHF) Date of payment 27 May May May June June 2005 For further information regarding the share capital of Adecco see "Information on Adecco - Capital Structure". 85/298

87 SECTION 4: INFORMATION ON THE ISSUER General Information The Issuer was incorporated by Adecco under the laws of Bermuda on 5 October 2009 as an exempted company with registration number for unlimited duration. The Issuer is a wholly owned direct subsidiary of Adecco and its registered office is 129 Front Street, 5 th floor, Hamilton, HM 12, Bermuda. Board of Directors and Auditors Board of Directors The following list sets forth the name of those individuals who serve as members of the Board of Directors of the Issuer as of the date of this Prospectus: Dominik De Daniel, with business address at Adecco management & consulting S.A., Sägereistrasse 10, 8152 Glattbrugg, Switzerland; Mark Eaton, with business address at Adecco management & consulting S.A., Sägereistrasse 10, 8152 Glattbrugg, Switzerland; William A. Manuel Jr., with business address at 129 Front Street, 5 th floor, Hamilton, HM 12, Bermuda; Douglas Tufts, with business address at 129 Front Street, 5 th floor, Hamilton, HM 12, Bermuda; Martin Zolnai, with business address at 129 Front Street, 5 th floor, Hamilton, HM 12, Bermuda. Auditors Auditors of the Issuer are Ernst & Young -Bermuda, Reid Hall, 3 Reid Street, Hamilton, Bermuda. Business Activities The Issuer was incorporated as a special purpose vehicle specifically for the purpose of the issuance of the Bonds and as of the date of this Prospectus has no other business activities. For a description of the business activities of the Adecco Group, see Section 5 below. As of the day of this Prospectus, there are no known legal proceedings pending or threatened against the Issuer. Other than as set out in this Prospectus, the Issuer is not dependent on any patents or licences, industrial, commercial or financing contracts or new manufacturing processes. Share Capital The share capital of the Issuer amounts to USD 10,000, divided into 10,000 common shares of par value 86/298

88 USD 1 each, which are all held by Adecco and are not paid-up. There are no outstanding convertible bonds or options issued on the shares of the Issuer. Financial Statements For the opening balance sheet of the Issuer, see Annex A. The financial year of the Issuer will end on 31 December in each year, and the first financial year of the Issuer will end on 31 December No Material Adverse Change Since the opening balance sheet date, and except as disclosed in this Prospectus, there has been no material change in the assets and liabilities, financial position and profits and losses of the Issuer. 87/298

89 SECTION 5: INFORMATION ON ADECCO General Information History and Development of Adecco The Adecco Group resulted from the August 1996 combination of Adia SA ("Adia") and Ecco SA ("Ecco"). In connection with the combination with Ecco, Adia changed its name to Adecco. Henri F. Lavanchy founded Adia (former Sofigesca SA) in 1957 in Lausanne, Switzerland, to provide temporary personnel to businesses in that country. Beginning in the 1960s and continuing through 1996, Adia expanded throughout Europe, the United States, Mexico, Japan, Southeast Asia. In 1964, Philippe Foriel-Destezet founded Ecco in Lyon, France. By the early 1970s, Ecco had become the largest supplier of temporary personnel in France. Name, Registered Office, Incorporation, Duration, Legislation Adecco is a société anonyme, incorporated for an indefinite period of time, first registered on 18 May 1967, and organised under the laws of Switzerland. Adecco is registered with the commercial register of the Canton of Vaud, Switzerland, under number CH , its registered head office being in 1275 Chéserex, Switzerland. Adecco s principal corporate office is operated by its wholly owned subsidiary, Adecco management & consulting S.A., located at Sägereistrasse 10, 8152 Glattbrugg, Switzerland. Adecco is the ultimate holding company of the subsidiaries of the Adecco Group. Purpose Article 2 of Adecco s Articles of Incorporation states 1 : " 1 The purpose of the Company is the acquisition and management of financial holdings of whatever form in service, commercial, financial and industrial enterprises and companies in Switzerland and abroad and, in particular, in enterprises and companies supplying employees, or providing supervision, inspection or consulting services. 2 The Company may grant loans to such enterprises and companies and conduct all such operations as have a bearing on the above mentioned purpose, including borrowing money and acquiring real estate." Board of Directors and Auditors Board of Directors The following list sets forth the name and principal positions of those individuals who serve as members of the Board of Directors of Adecco as of the date of this Prospectus: Rolf Dörig - Chairman of the Board of Directors. Thomas O Neill - Vice-Chairman of the Board of Directors, member of the Audit Committee and of the Corporate Governance Committee. 1 Unofficial English translation of the original and prevailing French version of Adecco's Articles of Incorporation. 88/298

90 Jakob Baer - Member of the Board of Directors, Chairman of the Audit Committee, and member of the Corporate Governance Committee. Andreas Jacobs - Member of the Board of Directors and Chairman of the Nomination & Compensation Committee. Francis Mer - Member of the Board of Directors, Chairman of the Corporate Governance Committee, member of the Nomination & Compensation Committee and of the Audit Committee. David Prince - Member of the Board of Directors and member of the Audit Committee. Wanda Rapaczynski - Member of the Board of Directors and member of the Corporate Governance Committee. Judith A. Sprieser - Member of the Board of Directors and member of the Nomination & Compensation Committee. The business address for the above Directors is: Adecco management & consulting S.A., Sägereistrasse 10, 8152 Glattbrugg, Switzerland. Auditors Ernst & Young AG, Bleicherweg 21, 8002 Zurich, has audited the accounts for each of the financial years ending on 31 December 2007 and 31 December Ernst & Young AG is also responsible for the audit of the financial year Business Activities Business and Industry Background The Adecco Group is the world s leading provider of human resource solutions. With over 28,000 full time equivalent employees and more than 5,700 offices, in over 60 countries and territories around the world, Adecco Group offers a wide variety of services, connecting more than 500,000 colleagues with over 100,000 clients every day. The seasonality of employment markets influences the Adecco Group s quarterly operating results. Historically demand for temporary staffing services has been lowest during the first quarter of the year. The staffing industry is fragmented and highly competitive. Customer demand is dependent upon the overall strength of the labour market as well as an established trend towards greater workforce flexibility. More liberal labour market laws, particularly for temporary staffing, are beneficial for the industry and have been a driver for greater workforce flexibility. The business is also strongly influenced by the macroeconomic cycle, which typically results in growing demand for employment services during periods of economic expansion and, conversely, contraction of demand during periods of economic downturn. Due to the sensitivity to the economic cycle and the low visibility in the temporary staffing sector, forecasting demand for staffing and human resource services is difficult. Typically, customers are not able to provide much advance notice of changes in their staffing needs. Responding to the customer s fluctuating staffing requirements in a flexible way is a key element of the Adecco Group s strategy, which it addresses through its diverse staffing and human resource services network. Anticipating trends in demand is also important in managing the Adecco Group s internal cost structure. This coupled with the Adecco Group s ability to maximise its overall resources and to enhance competitive advantage through its wide variety of services and locations, while maintaining standards of quality to both the 89/298

91 Adecco Group s clients and temporary associates are key components to achieving profitability targets during any part of the economic cycle. Strategy The Adecco Group segments its business into two core categories with distinct market approaches. General Staffing: In its general staffing business, the Adecco Group offers tailored solutions to retail and large clients. This segment represents the majority of the Adecco Group business accounting for 83% of total revenues in Given the low-margin nature of the business, cost leadership and price discipline are key factors. Strategically, the Adecco Group aims to build longer-lasting relationships with colleagues and clients, not only to improve their prospects, but also in order to optimise costs. Within the general staffing segment, a further distinction is made between the two business lines "Office" and "Industrial". Professional Staffing: In its professional staffing business, the Adecco Group focuses on its "experts talk to experts" approach. With this approach, the Adecco Group establishes relationships with line managers to better understand the skill sets of candidates needed. This ensures successful matching of candidates profiles with clients needs for positions requiring higher qualifications. Furthermore, higher-level "expert" points of contact with clients lead to longer lasting and more challenging assignments for colleagues. Such assignments, in turn, enable the Adecco Group to attract talented, qualified and consequently more sought-after individuals. The professional staffing business represented in % of the Adecco Group s revenues. The strategic objective with this approach is to profit from the demand for talent, while generating higher margin returns. Within the professional staffing segment, a further distinction is made among the following business lines: Information Technology, Engineering & Technical, Finance & Legal, Medical & Science, Sales, Marketing & Events and Human Capital Solutions. The Adecco Group's business is a local business. Every country or region has its own characteristics in terms of culture, client structure, demographics and regulations. The management of the Adecco Group is convinced that decentralisation is the right strategy for managing a global staffing organisation and promoting local entrepreneurship a key success factor for the Adecco Group's business. The two distinct market approaches in the general and professional staffing businesses, coupled with a decentralised country approach, form the heart of the Adecco Group's strategy aimed at achieving sustainable and profitable growth. In view of the cyclical nature of the Adecco Group's business, a tight grip on cost management is of utmost importance, especially during economic downturns. Keeping in mind the strategic goal of enhancing the Adecco Group's leadership position, adjusting the cost base in the direction of revenue developments is a priority for the management in the current economic environment. Rigorous cost management is achieved through stringent reporting, review processes as well as the application of the "Economic Value Added" concept. In spite of the current crisis, the Adecco Group is continuing to ensure that its strategy is embedded in its local operations. During 2008, the Adecco Group initiated a group-wide project to accelerate the development of both its general and professional staffing businesses in the local markets. In collaboration with top management, country managers selected work streams based on areas in need of improvement in their respective countries, while expert groups at a corporate level facilitated best practice and idea sharing among the country organisations. Key Performance Indicators To measure the effectiveness of the Adecco Group s strategy from a financial perspective, Adecco Group closely monitors the following key performance indicators: Revenue growth 90/298

92 Gross profit growth and gross profit margin development Selling, general and administrative (SG&A) expenses development EBITA growth and EBITA margin development Days sales outstanding (DSO) Apart from the above financial measures, Adecco Group also monitors its business through a number of additional quantitative and qualitative key performance indicators. Organisational Structure The Adecco Group is organised in a geographical structure, as further detailed in Annex E (Adecco Group Quarterly Release Q3 2009), page 294 of this Prospectus. Service lines In addition to the segmentation of the business into two core categories, the Adecco Group classifies its services in different service lines: temporary staffing, permanent placement, outsourcing, consulting and outplacement. The Adecco Group generates the majority of its business 92% of revenues in the financial year 2008 in the temporary staffing segment. Permanent placement represented 2%, while outsourcing, outplacement and consulting services and other accounted for 6% in terms of revenues Temporary staffing billings are generally negotiated and invoiced on an hourly basis. Temporary associates record the hours they have worked and these hours, at the rate agreed with the customer, are then accumulated and billed according to the agreed terms. Temporary staffing service revenues are recognised upon rendering of the service. The temporary associate is paid the net hourly amount after statutory deductions on a daily, weekly, or monthly basis. Certain other employer payroll-related costs are incurred and the net difference between the amounts billed and payroll costs incurred is reported as gross profit. The terms of outsourcing, consulting, and outplacement services are negotiated with the client on a project basis and revenues are recognised upon rendering the service. For permanent placement services, the placement fee is directly negotiated with the client. Revenues from permanent placement services are generally recognised at the time the candidate begins full-time employment and an allowance is established, based on historical information, for any non-fulfilment of permanent placement obligations. Outplacement and permanent placement services provide significantly higher gross margins. Latest Acquisitions The Adecco Group made several acquisitions in the years , including Tuja Group (2007) as well as DNC (De Nederlanden Compagnie N.V.) and Groupe Datavance (2008). Furthermore, in August 2009, Adecco UK Holdco Limited, a wholly-owned subsidiary of Adecco, made a recommended public offer for the entire issued (and, at that time, to be issued) share capital of Spring Group plc. ("Spring") for a total amount of approximately GBP 108,000,000. The deal was successfully closed in October On 20 October 2009, the Adecco Group announced an offer to acquire MPS Group, a leading provider of professional staffing services, for an enterprise value of EUR 782 million, or USD per share. This acquisition is expected to significantly enhance the Adecco Group's position in the professional staffing business, particularly in the USA & Canada and the UK. 91/298

93 Financial Results Financial Year 2008 The financial results of the Adecco Group for the financial year 2008 are set out in Annex B (Financial Review Adecco Group and Adecco 2008 incl. Auditor's Reports). Financial Year 2007 The financial results of the Adecco Group for the financial year 2007 are set out in Annex C (Financial Review Adecco Group and Adecco 2007 incl. Auditor's Reports). Developments in 2009 H Results The financial results of the Adecco Group for the first half year 2009 are set out in Annex D (Adecco Group Half Year Report 2009). Q Results The financial results of the Adecco Group for the third quarter 2009 are set out in Annex E (Adecco Group Quarterly Release Q3 2009). No Material Adverse Change Other than disclosed in this Prospectus, there has been no material adverse change in the assets and liabilities, financial position and profits and losses of Adecco or the Adecco Group since 31 December Outlook In the third quarter of 2009, the Adecco Group has seen first signs of a demand pick-up in general staffing. In particular, the light industrial segment, noticeably in France and in the USA & Canada, improved during the third quarter compared to the low base of the second quarter. The year-on-year revenue decline rate adjusted for business days improved over the course of the third quarter of 2009, and the trend continued in October with an expected decline rate of 22%. This is mainly driven by a lower comparable base, but also thanks to improving market conditions. The management team continues to focus its efforts on further structurally optimising the cost base while sticking to its value-based strategy. The acquisitions of MPS Group and Spring will significantly increase Adecco Group s exposure to the attractive professional staffing market, thereby strengthening the Company s profitability profile in the mid-term. Adecco Group expects to incur approximately EUR 35 million of restructuring costs in the fourth quarter of 2009 for various countries as part of the previously announced guidance of EUR 40 million for the second half of Licences In many jurisdictions in which the Adecco Group operates, the temporary employment industry is heavily regulated. Adecco Group is dependent on government licences in order to conduct its business. 92/298

94 Legal Proceedings In the ordinary course of business, the Adecco Group is involved in various legal actions and claims, including those related to social security charges, other payroll related charges, and various employment related matters. Although the outcome of the legal proceedings cannot be predicted with certainty, the Adecco Group believes it has adequately reserved for such matters. Among these legal proceedings currently pending, management only considers the French Antitrust Investigation (as described below) to be material to the Adecco Group. French Antitrust Investigation Two of the Adecco Group s French subsidiaries, Adecco France (formerly Adecco Travail Temporaire) and Adia SASU (formerly Adia SAS) and two of its competitors were investigated by the French competition authority concerning alleged anti-competitive practices in France. The investigation started in November 2004 when certain documents were collected by the authorities. In November 2007, Adecco France and Adia SASU received a Statement of Objections by the Conseil de la Concurrence, the French Competition Council, alleging infringements of competition rules, i.e. exchange of commercially sensitive information with competitors in 2003 and 2004 and in one case concerning Adecco France and Adia SASU, involvement in a concerted practice in response to a tender offer of a French company. On 1 February 2008, the Adecco Group entered into an agreement ("La Transaction") with the Rapporteur Général which meant that the Adecco Group would not oppose the factual statements listed in the Statement of Objections thus receiving a certain rebate on the potential fine in exchange of certain commitments made in the agreement. On 11 February 2008, the Adecco Group submitted its comprehensive answer to the Statement of Objections. On 3 June 2008 and 1 August 2008, a further written exchange between the competition authorities and the Adecco Group took place. A general hearing before the members of the Competition Council occurred in Paris on 1 October On 2 February 2009, the Adecco Group received the decision of the French Competition Council. The decision imposed a fine of EUR 34 million. The Adecco Group has decided to appeal against certain aspects of the decision relating to the calculation of the fine before the Paris Court of Appeal, since it considers the level of the fine too high. However, it is difficult to estimate whether such appeal, which normally takes about eighteen months, will finally end in a reduction of the fine. The Adecco Group has provisioned EUR 34 million for this matter. Capital Structure Overview As of the date of this Prospectus, Adecco has a registered share capital in the nominal amount of CHF 189,263,506. and a conditional capital in the nominal amount of CHF 19'566'804. in total. All issued Ordinary Shares bear the same dividend and voting rights. The relevant articles of Adecco's Articles of Incorporation are set out below. 93/298

95 Issued Capital (Art. 3 of Adecco's Articles of Incorporation) 1 "The share capital totals CHF 189'263'506. (one hundred and eighty-nine million two hundred and sixty three thousand five hundred and six Swiss francs), divided into 189'263'506 (one hundred and eighty nine million two hundred and sixty three thousand five hundred and six) fully paid up registered shares of CHF 1. (one franc) nominal value each." Conditional Capital (Art. 3ter of Adecco's Articles of Incorporation) 1 " 1 The share capital of the company shall be increased by a maximum aggregate amount of CHF 4'166'804. (four million one hundred sixty-six thousand eight hundred and four francs) by issuing a maximum of 4'166'804 (four million one hundred sixty-six thousand eight hundred and four) fully paid up registered shares with a nominal value of CHF 1. (one franc) each, through the exercise of option rights which the Board of Directors grants to the employees and to the members of the Board of Directors of the company or of its affiliated companies. The newly issued registered shares shall be subject to the transfer restrictions of Art. 4 of the Articles of Incorporation. 2 The subscription rights of shareholders as well as the option subscription rights of the shareholders are excluded. 3 The Board of Directors shall issue rules governing the terms and conditions of the option grants and exercise of options." Conditional Capital (Art. 3quater of Adecco's Articles of Incorporation) 1 " 1 The share capital of the company shall be increased by a maximum aggregate amount of CHF 15'400'000. (fifteen million four hundred thousand Swiss francs) by issuing a maximum of 15'400'000 (fifteen million four hundred thousand) fully paid up registered shares with a nominal value of CHF 1. (one Swiss franc) each, through the exercise of option and conversion rights granted in relation with bond issues or similar debt instruments of the company or affiliated companies. 2 The subscription rights of the shareholders regarding the subscription of the shares are excluded. The acquisition of shares through the exercise of option or conversion rights and the later transfer of the shares shall be subject to the transfer restrictions of Art. 4 of the Articles of Incorporation. 3 The shareholders bond subscription rights in the issue of the bonds or similar debt instruments may be limited or excluded by the Board of Directors (1) to finance the acquisition of enterprises and companies, parts thereof, or participations or of significant investments of the company, or (2) to issue warrants or convertible bonds on the international capital markets. 4 To the extent that the bond subscription rights are excluded, (1) the bonds are to be placed with the public at market conditions, (2) the term to exercise the option rights may not exceed five years and the term to exercise conversion rights may not exceed ten years as of the date of the bond issue and (3) the exercise price for the new shares must at least correspond to the market price at the time of the bond issue." Share Register, Transfer Restrictions (Art. 4 of Adecco's Articles of Incorporation) 1 " 1 The company shall maintain a share register showing the surnames, first names, domicile, address and nationality (in the case of legal entities the registered office) of the holders or usufructuaries of registered shares. 2 Upon request, acquirers of registered shares are registered in the share register as shareholders with the 1 Unofficial English translation of the original and prevailing French version of Adecco's Articles of Incorporation. 94/298

96 right to vote, provided that they declare explicitly to have acquired the registered shares in their own name and for their own account. 3 The Board of Directors may register nominees with the right to vote in the share register to the extent of up to 5% of the registered share capital as set forth in the commercial register. Registered shares held by a nominee that exceed this limit may be registered in the share register if the nominee discloses the names, addresses and the number of shares of the persons for whose account it holds 0.5% or more of the registered share capital as set forth in the commercial register. Nominees within the meaning of this provision are persons who do not explicitly declare in the request for registration to hold the shares for their own account or with whom the Board of Directors has entered into a corresponding agreement. 4 Corporate bodies and partnerships or other groups of persons or joint owners who are interrelated to one another through capital ownership, voting rights, uniform management or otherwise linked as well as individuals or corporate bodies and partnerships who act in concert to circumvent the regulations concerning the nominees (especially as syndicates), shall be treated as one nominee respectively as one person within the meaning of paragraph 3 of this article. 5 After hearing the registered shareholder or nominee, the Board of Directors may cancel the registration with retroactive effect as of the date of registration, if the registration was effected based on false information. The respective shareholder or nominee shall be informed immediately of the cancellation of the registration. 6 The Board of Directors shall specify the details and give the necessary orders concerning the adherence to the preceding regulations. In particular cases, the Board of Directors may allow exemptions from the regulation concerning nominees. 7 The limitation for registration in the share register provided for in this article shall also apply to shares acquired or subscribed by the exercise of subscription rights, option or conversion rights." Guaranteed Zero-Coupon Convertible Bonds On 26 August 2003, Adecco Financial Services issued CHF 900 million unsubordinated bonds guaranteed by Adecco and convertible into Ordinary Shares, due August 26, The bonds are structured as zero-coupon, 10-year premium redemption convertible bonds with a yield to maturity of 1.5% per annum. At any time from 6 October 2003 to 12 August 2013, at the option of the holder (the "Holder of Convertibles"), the bonds are convertible into Ordinary Shares at a conversion price of CHF per share. If all bonds originally issued were converted, Adecco would issue 9,523,810 Ordinary Shares. In November 2007, the terms of the bond were amended. The amendment allows Adecco to deliver either treasury shares held at the time of conversion or shares to be issued out of conditional capital instead of only issuing Ordinary Shares out of conditional capital. Holders of Convertibles may put the bonds on 26 August 2010, at the accreted principal amount. Adecco may call the bonds at any time from 26 August 2010 at the accreted principal amount or at any time after a substantial majority of the bonds has been redeemed, converted, or repurchased. The current share price of Adecco suggests that the Holders of Convertibles may exercise the put option. If not converted, Adecco will pay a redemption price of up to % of the principal amount of the bonds at maturity. On 14 October 2009, Adecco publicly announced that Adecco Financial Services has, in accordance with the terms of the convertibles, repurchased and cancelled convertibles in the nominal amount of CHF 300 million. Accordingly, the total nominal value of the convertibles at the date of this Prospectus amounts to CHF 600 million. More details on this convertible bond are available from the respective prospectus that is accessible online under: 95/298

97 Stock Option Plans The Adecco Group had several stock option plans under which employees and directors received the option to purchase Ordinary Shares. For more details regarding the various plans as well as the number of options outstanding thereunder as of 31 December 2008, please see Annex B (Financial Review Adecco Group and Adecco 2008, note 8 to consolidated financial statements), pages of this Prospectus. Treasury Ordinary Shares As at the date of this Prospectus, Adecco holds 15,184,076 treasury Ordinary Shares, representing 8.02% of the issued share capital of Adecco. The voting rights of the treasury Ordinary Shares are suspended for as long as they are held by Adecco. For a detailed description of Adecco Group's purchase and sales positions with respect to Ordinary Shares as at the date of this Prospectus, see the notice regarding disclosure of shareholdings published by Adecco on 20 November 2009 that is accessible online under: aspx. 96/298

98 SECTION 6: INFORMATION ON THE TRUSTEE Profile of the Trustee Deutsche Trustee Company Limited shall act as trustee (the "Trustee") for the Bondholders. The registered office of the Trustee is Winchester House, 1 Great Winchester Street, London EC2N 2DB, United Kingdom. The trust deed dated 26 November 2009 (the "Trust Deed") will be made available for viewing as set forth under "Documents Available" on page 30 of this Prospectus. The Trust Deed will be governed by and construed in accordance with English law. Authorities of the Trustee The principal authorities and competencies of the Trustee, in summary, are as follows: i. Pursuant to Clause 2.2 of the Trust Deed, the Issuer will covenant with the Trustee to comply with, perform and observe all the provisions of the Conditions and Transaction Documents. The Trustee will hold the benefit of these covenants on trust for the Bondholders. ii. iii. iv. Pursuant to Clause of the Trust Deed the Issuer, with full title guarantee and as continuing security, will assign by way of security in favour of the Trustee all of its rights, title and interest in and to the Forward Purchase Agreement, including the right to receive Ordinary Shares and all other property thereunder (the "Security"). Pursuant to Clause of the Trust Deed, the Security will be held by the Trustee (for itself and the Bondholders) as continuing security for the Issuer s obligations under the Trust Deed and the Bonds to deliver Ordinary Shares upon a mandatory conversion pursuant to pursuant to Condition 8(a), (b) or (e) or a voluntary conversion pursuant to Condition 8(c) or (d). Pursuant to Clause 6.1 of the Trust Deed, all moneys received by the Trustee in respect of the Bonds or amounts payable under the Trust Deed (including any moneys which represent principal, premium or interest or other sums in respect of Bonds which have become void or in respect of which claims have become prescribed under Condition 16) will be held by the Trustee upon trust to apply them (i) first, in payment of all costs, charges, expenses and liabilities properly incurred by the Trustee (including remuneration payable to the Trustee) in carrying out its functions under the Trust Deed; (ii) secondly, in payment of any amounts owing in respect of the Bonds pari passu and rateably; and (iii) thirdly, in payment of the balance (if any) to the Issuer for itself. v. Pursuant to Clause 6.2 of the Trust Deed, all property, assets and moneys received by the Trustee in connection with the realisation or enforcement of the Security will be held by the Trustee on trust to apply them (i) first, in payment or satisfaction of the fees, costs, charges, expenses and liabilities properly incurred by the Trustee or any receiver in preparing and performing the trusts constituted by and its rights, powers, duties and authorities under the Trust Deed; (ii) secondly, in or towards payment or discharge or satisfaction pari passu of the Secured Obligations to the Bondholders in respect of the Bonds and under the Trust Deed; and (iii) thirdly, in payment of any balance to the Issuer. vi. vii. The Trustee may, without the consent of the Bondholders, grant waivers under the Trust Deed pursuant to Clause 15.1 thereof or agree to modifications of the Trust Deed and any other Transaction Document pursuant to Clause 17 of the Trust Deed. Pursuant to Clause 18.3 of the Trust Deed the Trustee may, by giving prior notice in writing to the Issuer, appoint an additional Trustee to act jointly with the Trustee. If there are more than two Trus- 97/298

99 tees, the majority of such Trustees will (provided such majority includes a trust corporation) be competent to carry out all or any of the Trustee s functions. The Trustee s powers, authorities or discretions, as well as limitations on its liability, are further elaborated in Clauses 11, 12 and 14 of the Trust Deed. The Trust Deed also contains provisions for the indemnification of the Trustee and for its relief from responsibility, including relieving it from taking proceedings unless indemnified and/or secured and/or pre-funded to its satisfaction. Retirement and Removal of the Trustee The Trustee may retire at any time on giving not less than three months prior notice in writing to the Issuer without giving any reason and without being responsible for any costs occasioned by such retirement. The Bondholders may, by Extraordinary Resolution (as defined in the Trust Deed), remove any Trustee. Such retirement or removal will not become effective until a trust corporation is appointed as successor Trustee. The Issuer will be required to use all reasonable endeavours to appoint a successor Trustee. However, if the Issuer fails to appoint a successor Trustee within three months of the removal or retirement, the Trustee may exercise the power of appointing a successor Trustee. Governing Law and Jurisdiction The Trust Deed, and any non-contractual obligations arising out of or in connection with it, shall be governed by and construed in accordance with English law. The courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with the Trust Deed and the Bonds and accordingly any legal action or proceedings arising out of or in connection with the Trust Deed or the Bonds ("Proceedings") may be brought in such courts. The Issuer irrevocably submits to the jurisdiction of such courts and waives any objections to Proceedings in such courts on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. This submission is for the benefit of each of the Trustee and the Bondholders and shall not limit the right of any of them to take Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in any one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not). Availability of Trust Deed The Trust Deed is available for inspection at the offices of (i) Deutsche Bank AG, London Branch, acting through Deutsche Bank AG, Zurich Branch, Uraniastrasse 9, 8001 Zurich, Switzerland (tel.: +41 (0) ; fax: +41 (0) ) and (ii) Credit Suisse AG, Uetlibergstrasse 231, 8070 Zurich, Switzerland (tel.: +41 (0) ); fax: +41 (0) ; [email protected]). 98/298

100 Annex A Opening Balance Sheet of the Issuer 99/298

101 ADECCO INVESTMENT (BERMUDA) LTD. OPENING BALANCE SHEET AS OF OCTOBER 5, 2009 IN ACCORDANCE WITH US GAAP ASSETS October 5, 2009 CHF Current assets Current accounts receivable from shareholder 7'183 Subscription receivable from shareholder 10'265 TOTAL ASSETS 17'448 LIABILITIES AND SHAREHOLDER'S EQUITY Short-term liabilities Accrued liabilities 7'183 Total liabilities 7'183 Shareholder's equity Share capital (10,000 issued and authorized shares of USD 1 each) 10'265 Total shareholder's equity 10'265 TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY 17' /298

102 Annex B Financial Review Adecco Group and Adecco 2008 (incl. Auditor's Reports) The contents of this Annex B represent an excerpt from pages 73 to 152 of Adecco Group's Annual Report 2008; hence, any references to a page or pages not included in this Annex B refer to the respective page(s) in Adecco Group's Annual Report /298

103 Financial Review Financial Review Adecco Group 74 Operating and financial review and prospects 93 Selected financial information 94 Consolidated financial statements 99 Notes to consolidated financial statements 134 Report of the Statutory Auditor on the Consolidated Financial Statements Adecco S.A. (Holding Company) 136 Financial statements 138 Notes to financial statements 150 Report of the Statutory Auditor on the Financial Statements 152 Major consolidated subsidiaries Adecco Financial Review / _Adecco_GB08.indd :36:24 Uhr

104 Adecco Group Operating and financial review and prospects in millions, except share and per share information 1. Introduction The information in this discussion and analysis should be read in conjunction with the Company s consolidated financial statements and the notes thereto that are prepared in accordance with U.S. generally accepted accounting principles ( U.S. GAAP ) and are included elsewhere in this Annual Report and with the disclosure concerning forward-looking statements at the end of this section. Statements throughout this discussion and analysis using the term the Company refer to the Adecco Group, which comprises Adecco S.A., a Swiss corporation, its majority-owned subsidiaries and other affiliated entities. advance notice of changes in their staffing needs. Responding to the customer s fluctuating staffing requirements in a flexible way is a key element of the Company s strategy, which it addresses through its diverse staffing and human resource services network. Anticipating trends in demand is also important in managing our internal cost structure. This coupled with our ability to maximise our overall resources and to enhance competitive advantage through our wide variety of services and locations while maintaining standards of quality to both our clients and associates are key components to achieving profitability targets during any part of the economic cycle. 1.1 Business and industry background The Company is the global leader in human resource services including temporary staffing, permanent placement, outsourcing, outplacement, and career services consulting. The Company had a network of over 6,600 branches and over 34,000 full-time equivalent employees in over 60 countries and territories at the end of In 2008, the Company connected on average on a daily basis over 700,000 associates with over 145,000 clients. Registered in Switzerland and managed by a multinational team with expertise in markets worldwide, the Company delivers a broad range of human resource services to meet the needs of small and large business clients as well as those of associates. The staffing industry is fragmented and highly competitive. Customer demand is dependent upon the overall strength of the labour market as well as an established trend towards greater workforce flexibility. More liberal labour market laws, particularly for temporary staffing, are beneficial for the industry and have been a driver for greater workforce flexibility. The business is also strongly influenced by the macroeconomic cycle, which typically results in growing demand for employment services during periods of economic expansion and, conversely, contraction of demand during periods of economic downturn. Due to the sensitivity to the economic cycle and the low visibility in the temporary staffing sector, forecasting demand for staffing and human resource services is difficult. Typically, customers are not able to provide much 1.2 Organisational structure The Company is organised in a geographical structure (which corresponds to the primary segments). The heads of the main geographies consisting of France, USA & Canada, UK & Ireland, Germany, Japan, Italy, Iberia, Nordics, Benelux, Switzerland & Austria and Australia & New Zealand directly manage the office and industrial business lines as well as the professional business lines. They are supported and guided by a global business line head for the professional business line Adecco Human Capital Solutions and by the corporate business development department for the professional business lines Adecco Information Technology; Adecco Engineering & Technical; Adecco Finance & Legal; Adecco Medical & Science; and Adecco Sales, Marketing & Events. In addition, the countries in the Emerging Markets are directly managed by five regional heads. The classification into business lines is determined by the largest business line revenue share generated in a specific branch. 1.3 Service lines Revenues and gross profits derived from temporary staffing totalled 92% and 79% in 2008 and 93% and 80% in 2007 of the respective consolidated totals, when excluding the positive impact in both years of the modification of calculation of French social charges. Temporary staffing billings are generally negotiated and invoiced on an hourly basis. Temporary associates record the hours they have worked and these 74 Adecco Financial Review / _Adecco_GB08.indd :36:24 Uhr

105 hours, at the rate agreed with the customer, are then accumulated and billed according to the agreed terms. Temporary staffing service revenues are recognised upon rendering of the service. The temporary associate is paid the net hourly amount after statutory deductions on a daily, weekly, or monthly basis. Certain other employer payroll-related costs are incurred and the net difference between the amounts billed and payroll costs incurred is reported as gross profit. Revenues and gross profits derived from outsourcing, outplacement, consulting, and permanent placement services totalled 8% and 21% in 2008 and 7% and 20% in 2007 of the respective consolidated totals, when excluding the positive impact in both years of the modification of calculation of French social charges. The terms of outsourcing, consulting, and outplacement services are negotiated with the client on a project basis and revenues are recognised upon rendering the service. For permanent placement services, the placement fee is directly negotiated with the client. Revenues from permanent placement services are generally recognised at the time the candidate begins full-time employment and an allowance is established, based on historical information, for any non-fulfilment of permanent placement obligations. Outplacement and permanent placement services provide significantly higher gross margins. Temporary associates the number of temporary associates at work. Clients the number of active clients. Permanent placements the number of candidates placed in permanent job positions. Average fee per placement the average amount received for job placement services. Days sales outstanding ( DSO ) accounts receivable turnover. Full time equivalent ( FTE ) employees. Retention rate of FTE employees, associates, and clients. Branches the number of locations from which the Company offers human resource services. Economic Value Added residual income after cost of capital. 1.5 Seasonality Our quarterly operating results are affected by the seasonality of our customers businesses. Demand for temporary staffing services historically has been lowest during the first quarter of the year. 1.6 Currency 1.4 Key performance indicators We monitor operational results through a number of additional key performance indicators beside revenues, gross profit, selling, general and administrative expenses, and operating income before amortisation and impairment of goodwill and intangible assets and use these measures of current operational performance along with qualitative information and economic trend data to direct the Company s strategic focus. These indicators include the following: Business mix the revenue split between temporary staffing, permanent placement, and other services. Bill rate an average hourly billing rate for temporary staffing services indicating current price levels. Pay rate an average hourly payroll rate including social charges for temporary staffing services indicating current costs. Temporary hours sold the volume of temporary staffing services sold. The financial results of the Company are presented in Euro, which the Company has selected as its reporting currency in recognition of the significance of the Euro to the Company s operations. In 2008, 57% of total revenues were generated in the Euro zone. Amounts shown in the consolidated statements of operations and consolidated statements of cash flows are translated using average exchange rates for the period. In 2008, the average exchange rate for the Japanese yen and Swiss franc, which comprised 7% and 2% of total revenues, respectively, strengthened against the Euro, whereas the US dollar, the British pound, the Norwegian krone, the Australian dollar, and the Canadian dollar, which comprised 12%, 7%, 3%, 2%, and 2% of total revenues, respectively, weakened against the Euro. The Company s consolidated balance sheets are translated using the year end exchange rates. At year end, for the main currencies used, the US dollar, the Japanese yen, and the Swiss franc strengthened against the Euro, whereas the British pound, the Norwegian krone, the Australian dollar, and the Canadian dollar all weakened against the Euro. Adecco Financial Review / _Adecco_GB08.indd :36:24 Uhr

106 Adecco Group Operating and financial review and prospects in millions, except share and per share information 2. Non-U.S. GAAP information and financial measures The Company uses non-u.s. GAAP financial measures for management purposes. The principal non-u.s. GAAP financial measures discussed herein are net debt and constant currency comparisons, which are used in addition to and in conjunction with results presented in accordance with U.S. GAAP. Net debt and constant currency comparisons should not be relied upon to the exclusion of U.S. GAAP financial measures, but rather reflect an additional measure of comparability and means of viewing aspects of the Company s operations that, when viewed together with the U.S. GAAP results, provide a more complete understanding of factors and trends affecting our business. Because net debt and constant currency comparisons are not standardised, it may not be possible to compare our measures with other companies non-u.s. GAAP financial measures having the same or a similar name. Management encourages investors to review the Company s financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. 2.1 Net debt Management monitors outstanding debt obligations by calculating net debt. Net debt comprises short-term and longterm debt less cash and cash equivalents and short-term investments. The following table reconciles net debt to the most directly comparable financial measures calculated in accordance with U.S. GAAP: in EUR Net debt Short-term debt and current maturities of long-term debt Long-term debt, less current maturities 1,142 1,072 Total debt 1,198 1,429 Less: Cash and cash equivalents Short-term investments 7 8 Net debt Constant currency Constant currency comparisons are calculated by multiplying the prior year functional currency amount by the current year foreign currency exchange rate. Management believes that constant currency comparisons are important supplemental information for investors because these comparisons exclude the impact of changes in foreign currency exchange rates, which are outside the Company s control, and focus on the underlying growth and performance. 3. Operating results 3.1 Overview The Company was confronted with an exceptionally challenging business environment, particularly during the second half of Revenues decreased in 2008 compared to 2007 by 5% to EUR 19,965 or by 5% excluding acquisitions and currency impact. Whereas the revenue growth was 0% for the first half of 2008, the Company experienced a revenue decline 76 Adecco Financial Review / _Adecco_GB08.indd :36:24 Uhr

107 of 10% in the second half of 2008 with an accelerated trend from the third to the fourth quarter of 2008 with a revenue decline of 6% and 14%, respectively. Excluding the impact of acquisitions and currency, revenues declined in 2008 in all geographies except in Japan and the Emerging Markets. In 2008, the Company made no material acquisitions. In 2007, the Company acquired the Tuja Group ( Tuja ), thus strengthening its position in the profitable German temporary staffing market. Tuja is a leading staffing company in Germany with operations also in Switzerland and Austria. The gross margin in 2008 was 18.4% and in %. However, both years were impacted by the modification of the calculation of French social charges (refer to 3.6 Operating income). Excluding this impact, gross margin was up 30 bps. Operating income decreased 29% to EUR 748 and net income decreased 33% to EUR 495 in 2008 compared to 2007, mainly caused by lower positive impact of the modification of the calculation of French social charges (positively impacting operating income in 2008 by EUR 62 and in 2007 by EUR 156 refer to 3.6 Operating income) and by impairment charges to goodwill and intangible assets (in 2008 by EUR 116). 3.2 Revenues Revenues decreased 5% to EUR 19,965 in 2008 or 3% in constant currency. This reduction was driven primarily by a temporary staffing volume decrease as temporary hours sold contracted 4% to 1,271 million. Permanent placement revenues were EUR 354 in 2008, which represents a decrease of 9% or 4% in constant currency versus 2007 and outplacement revenues were EUR 209 in 2008 which represents an increase of 27% or 32% in constant currency. Acquisitions had a positive impact of 2% on 2008 revenues. Geographical performance The geographical breakdown of revenues is presented below: Variance % in EUR EUR Constant currency Revenues France 6,574 6,891 (5) (5) USA & Canada 2,697 3,199 (16) (9) UK & Ireland 1,404 1,879 (25) (14) Germany 1,538 1, Japan 1,463 1, Italy 1,170 1,252 (7) (7) Iberia 1,028 1,157 (11) (11) Nordics (3) (2) Benelux (3) (3) Switzerland & Austria Australia & New Zealand (17) (12) Emerging Markets 1,211 1, Adecco Group 19,965 21,090 (5) (3) Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

108 Adecco Group Operating and financial review and prospects in millions, except share and per share information France France s revenues decreased 5% to EUR 6,574 in Temporary hours sold fell by 7% and temporary staffing services bill rates increased by 2%. In 2008, France accounted for 33% of the Company s revenues. USA & Canada Revenues in the USA & Canada decreased by 16%, or 9% in constant currency, to EUR 2,697 in Temporary hours sold fell by 16% and bill rates increased 6% in constant currency reflecting an improved customer and skill mix. On the contrary, the outplacement business increased revenues by 37%, or 47% in constant currency. USA & Canada contributed 13% to the Company s revenues in UK & Ireland UK & Ireland s revenues contracted 25% or 14% in constant currency to EUR 1,404 in Temporary hours sold decreased 19% and bill rates grew 2% in constant currency. Permanent placement revenues were weak. UK & Ireland generated 7% of the Company s revenues in Germany Boosted by the acquisition of Tuja in 2007 (results included since August 2007), Germany achieved revenue growth of 23% to EUR 1,538 in 2008, reflecting a 22% growth in temporary hours sold and a 1% increase in bill rates. Excluding the impact of the acquisition, Germany s revenues decreased 2%. Revenues in Germany in 2008 accounted for 8% of the Company s revenues. Japan In Japan, revenues grew 6% to EUR 1,463, but remained unchanged in constant currency. Temporary hours sold increased 1% and bill rates remained unchanged in constant currency. In 2008, 7% of the Company s revenues were generated in Japan. Italy In Italy, revenues contracted 7% to EUR 1,170 in 2008 as temporary hours sold decreased 11% and bill rates grew 4%. Italy accounted for 6% of the Company s revenues in Iberia In Iberia, revenues decreased 11% to EUR 1,028. A 17% decline in temporary hours sold and a 2% increase in bill rates resulted in a temporary staffing revenue decline of 16%, which was partly offset by a 7% increase in outsourcing. In 2008, Iberia contributed 5% to the Company s revenues. Nordics Revenues in the Nordic countries declined 3%, or 2% in constant currency, to EUR 959. A decrease in temporary hours sold of 5% and an increase in the bill rate of 6% in constant currency resulted in a temporary staffing revenue increase of 1% in constant currency, which was more than offset by a decrease of 44% in constant currency in outsourcing. The Nordics revenues in 2008 accounted for 5% of the Company s revenues. Benelux In the Benelux countries, revenues decreased by 3% to EUR 957 in Temporary hours sold decreased by 7% and bill rates increased by 5%. The Benelux revenues in 2008 accounted for 5% of the Company s revenues. Switzerland & Austria In Switzerland & Austria revenues increased to EUR 569. The increase of 8% or 5% in constant currency was supported by the acquisition of Tuja in 2007 (results included since August 2007). The temporary hours sold increased by 1% and the bill rates increased 4% in constant currency. Switzerland & Austria revenues in 2008 represented 3% of the Company s revenues. Excluding acquisitions and currency impact, Switzerland & Austria revenues decreased by 5% in constant currency. Australia & New Zealand In Australia & New Zealand, revenues decreased by 17%, or 12% in constant currency, to EUR 395 in Australia & New Zealand contributed 2% of the Company s revenues in Emerging Markets In the Emerging Markets, the Company experienced revenue growth of 10%, or 15% in constant currency, to EUR 1,211. The Emerging Markets represented 6% of the Company s revenues in Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

109 Business line performance The business line breakdown of revenues is presented below: Variance % in EUR EUR Constant currency Revenues 1 Office 4,358 4,765 (9) (6) Industrial 10,963 11,521 (5) (4) Total Office & Industrial 15,321 16,286 (6) (4) Information Technology 1,173 1,381 (15) (9) Engineering & Technical (9) (4) Finance & Legal (8) (3) Medical & Science Sales, Marketing & Events Human Capital Solutions Total Professional Business Lines 3,449 3,717 (7) (3) Emerging Markets 2 1,195 1, Adecco Group 19,965 21,090 (5) (3) 1 Breakdown of revenues is based on dedicated branches. The 2008 information includes certain changes in the allocation of branches to business lines, most notably from Finance & Legal to Office and from Office to Sales, Marketing & Events, as well as from Emerging Markets to Office & Industrial (Austria previously reported under Emerging Markets is now reported together with Switzerland). The 2007 information has been reclassified to conform to the current year presentation. 2 Excluding professional business lines. Office & Industrial The Company s Office & Industrial businesses contracted 6% (7% when excluding acquisitions, divestures and currency impact) to EUR 15,321 in 2008, which represents 77% of the Company s revenues. In the Office business, revenues were unchanged in Japan. Revenues declined in UK & Ireland, USA & Canada, France, and the Nordics. Japan, UK & Ireland, USA & Canada, France, and the Nordics generated more than 80% of the revenues in the Office business. In the Industrial business, revenue growth was strong in Germany (mainly due to the acquisition of Tuja). In France, USA & Canada, Italy, and Iberia revenues declined. France, Germany, Italy, USA & Canada, and Iberia accounted for over 80% of the revenues in the Industrial business. Information Technology In Information Technology, the Company s revenues decreased 15% or 9% in constant currency compared to 2007, experiencing a decline in the UK & Ireland as well as in the USA & Canada. UK & Ireland and USA & Canada contributed approximately 65% of the business line s revenues. Engineering & Technical Revenues in the Company s Engineering & Technical business line contracted by 9% or 4% in constant currency. The Company saw strong demand in Germany, while revenues declined slightly in the USA & Canada and demand slumped in the UK & Ireland. Over 70% of the business line s revenues were generated in USA & Canada, UK & Ireland, and Germany. Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

110 Adecco Group Operating and financial review and prospects in millions, except share and per share information Finance & Legal In Finance & Legal, the Company experienced revenue deceleration of 8% or 3% in constant currency. Demand for finance and legal professionals was strong in Germany and in the Nordics, while revenues decreased in the USA & Canada. The USA & Canada, Germany and the Nordics were responsible for over 75% of revenues in the business line Finance & Legal. Human Capital Solutions The Company s Human Capital Solutions revenues grew by 9%, or 12% in constant currency, reflecting the generally better conditions of the outplacement market. Over 85% of the Human Capital Solutions business line revenues were generated in the USA & Canada and France. Medical & Science Medical & Science revenues grew by 14%, driven by the Nordics and France. France and the Nordics accounted for over 75% of the business line s revenues. Sales, Marketing & Events In Sales, Marketing & Events, the Company achieved revenue growth of 3%, or 1% in constant currency. France, Iberia, and Japan were the main contributors to the business line s revenues. 3.3 Gross profit Gross profit decreased 6%, or 4% in constant currency, to EUR 3,673 in Excluding the modification of the calculation of French social charges in 2008 of EUR 62, which had a 30 bps positive impact and in 2007 of EUR 172, which had an 80 bps positive impact, the gross margin was up 30 bps. Higher gross margins in the temporary staffing business and the growing contribution of outplacement are the main drivers behind this improvement. Acquisitions (mainly Tuja) added 10 bps to the Company s gross margin. The change in gross margin in 2008 compared to 2007 is attributable to: bps Temporary staffing 10 Permanent placement (10) Outplacement 20 Other 10 Excluding French social charges impact 30 Impact French social charges (50) Total (20) 3.4 Selling, general and administrative expenses During 2008, the Company maintained its emphasis on cost control. Selling, general and administrative expenses ( SG&A ) decreased 3% or was unchanged in constant currency, reflecting an increase in SG&A as a percentage of revenues of 30 bps to 13.8% from 13.5% in Included in the fourth quarter of 2008 are restructuring expenses associated with headcount reduction and branch optimisation in France and other European countries of EUR 40. Personnel expenses, which comprised approximately 70% of total SG&A, decreased by 3% to EUR 1,905 in 2008, or remained flat in constant currency, also impacted by restructuring expenses in the fourth quarter of The decrease was mainly due to a reduction in the number of FTE employees. The average FTE employees and the average branches during 2008 decreased 1% to 36,399 and 1% to 6,762, respectively. At year end, the number of FTE employees and the number of branches exceeded 34,000 and 6,600, respectively. 80 Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

111 The following table shows the average FTE employees and the average branches by geographical areas: FTE employees Branches % variance % variance Geographical breakdown (yearly average) France 8,393 8,472 (1) 1,829 1,834 0 USA & Canada 5,841 6,235 (6) 1,117 1,263 (12) UK & Ireland 2,665 3,133 (15) (7) Germany 2,927 2, Japan 2,701 2, Italy 2,005 2,064 (3) Iberia 2,311 2,438 (5) Nordics 1,579 1, Benelux 1,881 1,899 (1) Switzerland & Austria Australia & New Zealand (9) (8) Emerging Markets 4,416 4, Corporate (31) Adecco Group 36,399 36,661 (1) 6,762 6,798 (1) Marketing expenses were EUR 95 in 2008, compared to EUR 104 in Bad debt expense increased by EUR 16 to EUR 35 in Amortisation of intangible assets and impairment of goodwill and intangible assets Amortisation of intangible assets increased to EUR 44 from EUR 27 in 2007 mainly due to the acquisition of Tuja. In 2008, the Company recorded an impairment charge to goodwill and indefinite-lived intangible assets of EUR 116. The goodwill impairment charge of EUR 58 relates to the UK & Ireland operations and the intangible assets impairment charge of EUR 58 mainly relates to the write-down of the trade names acquired in the Tuja acquisition. 3.6 Operating income Operating income decreased 29%, or 28% in constant currency, to EUR 748 in The modification of the calculation of French social charges positively impacted operating income in 2008 and 2007 by EUR 62 and EUR 156, respectively (for further details refer to Note 1 to the consolidated financial statements). The increase in gross margin was more than offset by the increased SG&A as percentage of sales, as well as the lower benefits from the modification of the calculation of French social charges and the increased amortisation of intangible assets and the impairment of goodwill and intangible assets. This led to a reduction in the operating income margin. Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

112 Adecco Group Operating and financial review and prospects in millions, except share and per share information The geographical breakdown of operating income is presented in the following table: Variance % in EUR EUR Constant currency Operating income France (33) (33) USA & Canada (24) (18) UK & Ireland (45) (37) Germany Japan Italy (17) (17) Iberia (31) (31) Nordics Benelux (13) (13) Switzerland & Austria (2) (5) Australia & New Zealand 9 13 (28) (24) Emerging Markets Total operating units 993 1,189 (16) (16) Corporate expenses (85) (108) Amortisation of intangible assets (44) (27) Impairment of goodwill and intangible assets (116) Adecco Group 748 1,054 (29) (28) France France s operating income decreased 33% to EUR 272 in The operating income margin decreased 180 bps to 4.1% in 2008 compared to 2007, mainly due to the lower positive impact of the modification of the calculation of French social charges (EUR 62 in 2008 compared to EUR 156 in 2007) and to a lower extent due to restructuring expenses in UK & Ireland The UK & Ireland s operating income decreased 45%, or 37% in constant currency, to EUR 23 in The unsatisfactory results were also caused by a weakening demand in permanent placement. The operating income margin declined by 60 bps to 1.6% in 2008 compared to USA & Canada The USA & Canada s operating income decreased 24%, or 18% in constant currency, to EUR 114 in The difficult economic situation was the main reason behind the operating income margin decrease of 50 bps to 4.2% in 2008 compared to In 2008, the Company invested EUR 15 in customer mix and efficiency improvements. Germany Germany achieved strong operating income growth of 14% to EUR 157 in 2008 and an operating income margin of 10.2%, a decline of 80 bps compared to Japan Operating income for Japan grew 11%, or 6% in constant currency, to EUR 107 in 2008 and operating income margin improved 30 bps to 7.3% compared to Efficient cost management led to lower SG&A as a percentage of revenues. 82 Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

113 Italy In Italy, operating income declined 17% to EUR 70 in 2008 and operating income margin contracted 70 bps to 6.0% compared to 2007 due to an increase of SG&A as a percentage of revenues. 3.7 Interest expense Interest expense increased by EUR 2 to EUR 58 in 2008 compared to EUR 56 in Iberia In Iberia, operating income declined by 31% to EUR 53 in Operating income margin decreased by 150 bps to 5.1% in 2008 compared to 2007 due to an increase of SG&A as a percentage of revenues, partly caused by restructuring expenses in the fourth quarter of Nordics Operating income increased 6%, or 8% in constant currency, to EUR 46 in Operating income margin increased 40 bps to 4.8% in 2008 compared to 2007 mainly due to an improvement in the gross margin. Benelux In the Benelux countries, operating income decreased by 13% to EUR 50 in Operating income margin decreased by 60 bps to 5.3% in 2008 compared to 2007, which is due to a combination of lower gross margin and higher SG&A as a percentage of revenues. 3.8 Other income/(expenses), net Other income/(expenses), net, which include interest income, foreign exchange gains and losses, and other non-operating income/(expenses), net, were income of EUR 19 in 2008 compared to income of EUR 30 in The decrease in income in 2008 compared to 2007 is mainly due to lower interest income in 2008 of EUR 18 compared to EUR 31 in Provision for income taxes The provision for income taxes decreased by EUR 75 to EUR 210 in 2008 compared to EUR 285 in The effective tax rate for the fiscal year 2008 was 30% compared with 28% in the prior year. The 2008 effective tax rate was negatively impacted by the goodwill impairment charge which is not tax deductible. Switzerland & Austria In Switzerland & Austria, operating income decreased 2%, or 5% in constant currency, to EUR 45 in 2008 compared to Operating income margin declined by 80 bps to 7.9% due to higher SG&A as a percentage of revenues. Australia & New Zealand In Australia & New Zealand, operating income decreased 28%, or 24% in constant currency, to EUR 9 in 2008 compared to Operating income margin decreased 40 bps to 2.3% in 2008 compared to Net income Net income for 2008 decreased to EUR 495 compared to EUR 735 in 2007, or by 33%. Basic earnings per share ( EPS ), negatively impacted by the lower positive impact of the modified calculation of the French social charges in 2008 compared to 2007 and by the impairment charges to goodwill and intangible assets, was EUR 2.82 for 2008 compared with EUR 3.97 for The modified calculation of French social charges had a positive impact on basic EPS of EUR 0.23 and EUR 0.55 in 2008 and 2007, respectively. Emerging Markets In the Emerging Markets, the Company experienced an increase in operating income of 20%, or 23% in constant currency, to EUR 47. Operating income margin improved from 3.6% in 2007 to 3.9% in Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

114 Adecco Group Operating and financial review and prospects in millions, except share and per share information 4. Outlook In today s exceptionally difficult business environment, resulting in pronounced pressure on revenues, protecting margins through disciplined pricing and cost reductions is a key priority for the management of the Company. The commitment to value based management is even more important under the current circumstances, and the Company is well positioned to seize opportunities in this downturn. Looking into the near future, management currently sees no signs of improvement. Adapting the cost base remains at the forefront of management s priorities, and initiated actions in the second half of 2008 are well underway. Given the sharp deceleration experienced in the fourth quarter of 2008 and the weak start in 2009, the Company plans to spend EUR 50 in the first half of 2009 in order to reduce costs with the aim to defend margins and to structurally improve the business. Investments to structurally improve the organisation, with strict financial discipline and with the focus on professional and specialised business fields, aim to optimally position the Company for the next economic upswing. 5. Liquidity and capital resources Liquidity is the ability to generate sufficient cash flows from operating activities to meet the Company s obligations and commitments. In addition, liquidity includes the ability to obtain appropriate financing. Currently, cash needed to finance the Company s operations is primarily generated through operating activities, bank overdrafts, the existing multicurrency credit facility, and, when necessary, the issuance of bonds. The principal funding requirements of the Company s business include financing working capital and capital expenditures. Capital expenditures mainly comprise the purchase of computer equipment, capitalised software, and the cost of leasehold improvements. Within the Company s working capital, trade accounts receivable, net of allowance for doubtful accounts, comprise approximately 76% of total current assets. Accrued salaries and wages, payroll taxes and employee benefits and sales and value added taxes comprise 68% of total current liabilities. Working capital financing needs increase as business grows. Management believes that the ability to generate cash from operations combined with additional capital resources available are sufficient to support the expansion of existing business activities and to meet short- and medium-term financial commitments. The Company may utilise available cash resources, secure additional financing or use treasury shares to refinance debt or for acquisitions. 84 Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

115 5.1 Analysis of cash flow statements Cash and cash equivalents and short-term investments increased by a total of EUR 18 to EUR 581 at the end of The increase was mainly due to the generation of operating cash flows (EUR 1,054), substantially offset by the acquisitions of DNC de Nederlanden Compagnie N.V. ( DNC ) and Groupe Datavance ( Datavance ) (EUR 97), the repayment of debt (EUR 371), the payment of dividends (EUR 163), the purchase of treasury shares (EUR 279), and capital expenditures (EUR 106). Cash flows from operations are generally derived from receipt of cash from customers less payments to temporary personnel, regulatory authorities, employees, and other operating disbursements. Cash receipts are dependent on general business trends, foreign currency fluctuations, and cash collection trends measured by DSO. DSO varies significantly within the various countries in which the Company has operations, due to the various market practices within these countries. In general, an improvement of DSO reduces the balance of trade accounts receivable resulting in cash inflows from operating activities. Cash disbursement activity is predominantly associated with scheduled payroll payments to the temporary personnel. Given the nature of these liabilities, the Company has limited flexibility to adjust its disbursement schedule. Also, the timing of cash disbursements differs significantly amongst the various countries. The following table illustrates cash from or used in operating, investing, and financing activities: in EUR Summary of cash flows information Net cash from operating activities 1,054 1,062 Net cash from/(used in) investing activities (236) (929) Net cash from/(used in) financing activities (800) (424) Cash flows from operating activities decreased by EUR 8 to EUR 1,054 in 2008 compared to This decrease is primarily attributable to lower net income substantially offset by the overall net decrease in accounts receivable exceeding the overall net decrease in accounts payable and accrued expenses, mainly due to declining revenues, and the increase of non-cash impairment and amortisation charges. DSO decreased to 57 days for the full year 2008 compared to 58 days for the full year Cash flows used in investing activities decreased by EUR 693 to EUR 236 in 2008 compared to During 2008 and 2007, the Company made several acquisitions. In 2008, DNC and Datavance were acquired for a consideration, net of cash acquired, of EUR 56 and EUR 41, respectively. In 2007, the Company acquired 100% of outstanding common shares of Tuja, one of the leading temporary staffing companies in Germany with operations also in Switzerland and Austria, for a total consideration, net of cash acquired, of EUR 580, and approximately 16% of outstanding DIS shares for a total consideration of EUR 219. The Company s capital expenditures amounted to EUR 106 in 2008 and EUR 91 in Cash flows used in financing activities increased by EUR 376 to EUR 800 in 2008 compared to In 2008, the Company repaid debt of EUR 371, including the EUR 200 floating rate guaranteed notes and the EUR 122 Olsten guaranteed notes. In 2007, the Company repaid EUR 207 of debt assumed in the acquisition of Tuja. Furthermore, in 2008 and 2007, dividend payments to shareholders were EUR 163 and EUR 135, respectively. In 2008, the Company acquired 8,458,891 treasury shares for a total consideration of EUR 279. In 2007, 3,253,500 treasury shares were acquired for a total of EUR 124. Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

116 Adecco Group Operating and financial review and prospects in millions, except share and per share information 5.2 Additional capital resources As of December 31, 2008, the Company s total capital resources amounted to EUR 4,549 comprising EUR 1,198 in debt and EUR 3,351 in equity, excluding treasury shares. Long-term debt, including current maturities, was EUR 1,143 as of December 31, 2008 and EUR 1,394 as of December 31, 2007 and includes long-term notes and a convertible bond. The borrowings, which are unsubordinated and unsecured, are denominated in Swiss francs and Euros. The majority of the borrowings outstanding as of December 31, 2008 mature in The convertible bond includes, however, a put option for the bondholders, which could trigger early redemption in During 2008, the Company decreased its short- and long-term debt including foreign currency effect by EUR 231. Furthermore, as of December 31, 2008, the Company had lines of credit, excluding the committed multicurrency credit facility, amounting to EUR 476, of which EUR 55 was used. These lines of credit include EUR 456 uncommitted facilities, of which EUR 55 was used, and EUR 20 committed facilities. Net debt decreased by EUR 249 to EUR 617 as of December 31, Net debt is reconciled to the most comparable financial measures calculated in accordance with U.S. GAAP on page 76. Under the terms of the various short- and long-term credit agreements, the Company is subject to covenants requiring, among other things, compliance with certain financial tests and ratios. As of December 31, 2008, the Company was in compliance with all financial covenants. In addition, the Company maintains a committed multicurrency revolving credit facility issued by a syndicate of banks which permits borrowings up to a maximum of EUR 550. The original multicurrency revolving credit facility, which was entered into in March 2003, allowed borrowings up to a maximum of EUR 580 and matured in March In April 2008, the Company renegotiated the existing facility. The new facility consisted of a committed EUR 550 multicurrency five-year revolving credit facility and a EUR 300 term facility which expired in December The new five-year revolving credit facility of EUR 550 is used for general corporate purposes including refinancing of advances and outstanding letters of credit. The interest rate is based on LIBOR, or EURIBOR for drawings denominated in Euro, plus a margin between 0.4% and 0.7% depending on certain debt-to-ebitda ratios. The letter of credit fee equals the applicable margin, and the commitment fee equals 33% of the applicable margin. As of December 31, 2008 and December 31, 2007, there were no outstanding borrowings under the credit facility. As of December 31, 2008, the Company had EUR 463 available under the new five-year facility after utilising EUR 87 in the form of letters of credit. For further details regarding financing arrangements see Note 6 to the consolidated financial statements. The Company manages its cash position to ensure that contractual commitments are met and reviews cash positions against existing obligations and budgeted cash expenditures. The Company s policy is to invest excess funds primarily in investments with maturities of 12 months or less, and in money market and fixed income funds with sound credit ratings, limited market risk and high liquidity. To a limited extent, the Company invested excess cash in the US in auction rate securities until February Auction rate securities are variablerate debt instruments with long-term scheduled maturities and periodic interest rate reset dates. As of December 31, 2008 and December 31, 2007, the Company did not hold any auction rate securities. The Company s current cash and cash equivalents and shortterm investments are invested primarily within Europe. In most cases, there are no restrictions on the transferability of these funds among entities within the Company. 86 Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

117 5.3 Contractual obligations The Company s contractual obligations are presented in the following table: in EUR Thereafter Total Payments due by period Short-term debt obligations Long-term debt obligations ,143 Interest on long-term debt obligations Operating leases Purchase and service contractual obligations Total ,989 1 Assumes that the put option on the convertible bond is exercised in 2010 and that share conversion does not occur (refer to section Guaranteed zero-coupon convertible bond in Note 6 to the consolidated financial statements for further details). In the event that the put option is not exercised in 2010, the Company s interest commitments in connection with the convertible bond will be EUR 43 in 2013 instead of EUR 14 in Short-term debt obligations consist of bank overdrafts and borrowings outstanding under the lines of credit. Long-term debt obligations consist primarily of CHF 900 convertible debt and EUR 500 fixed rate notes, both due in These debt instruments were issued in part for acquisitions, to refinance existing debt, optimise available interest rates, and increase the flexibility of cash management. The CHF 900 convertible bond includes a put option for the bondholders dated August 26, The put option entitles the bondholders to return the bonds at accreted value. The current share price of Adecco S.A. suggests that the bondholders will exercise the put option. Future minimum rental commitments under non-cancellable leases comprise the majority of the operating lease obligations of EUR 573 presented above. The Company expects to fund these commitments with existing cash and cash flows from operations. Operating leases are employed by the Company to maintain the flexible nature of the branch network. As of December 31, 2008, the Company had future purchase and service contractual obligations of approximately EUR 106, primarily related to IT development and maintenance agreements, earn-out agreements related to acquisitions, marketing sponsorship agreements, equipment purchase agreements, and other vendor commitments. 5.4 Additional funding requirements The Company plans to invest approximately EUR 120 in property, equipment, and leasehold improvements for existing operations in The focus of these investments will be on information technology. Further planned cash outflows include distribution of dividends for 2008 in the amount of CHF 1.50 per share to shareholders of record on the date of payment. The maximum amount of dividends payable based on the total number of shares issued (excluding treasury shares) of 174,188,402 and conditional shares of 19,566,804 is CHF 291 (EUR 195 based on CHF/EUR exchange rate per December 31, 2008 of 1.49). Payment of dividends is subject to approval by the Annual General Meeting of Shareholders. In August 2008, the Company announced that the Board of Directors had decided to repurchase up to an additional 2% of the Company s issued shares. Since the announcement and as of December 31, 2008, 224,391 shares have been acquired under the new share buy-back programme for a total consideration of EUR 5. Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

118 Adecco Group Operating and financial review and prospects in millions, except share and per share information The Company has entered into certain guarantee contracts and standby letters of credit that total EUR 836, including the letters of credit issued under the multicurrency revolving credit facility (EUR 87). The guarantees primarily relate to government requirements for operating a temporary staffing business in certain countries and are generally renewed annually. Other guarantees relate to operating leases and credit lines. The standby letters of credit mainly relate to workers compensation in the US. If the Company is not able to obtain and maintain letters of credit and/or guarantees from third parties then the Company would be required to collateralise its obligations with cash. Due to the nature of these arrangements and historical experience, the Company does not expect to be required to collateralise its obligations with cash. 5.5 Income taxes The Company has reserves for taxes that may become payable in future periods as a result of tax audits. At any given time, the Company is undergoing tax audits in different tax jurisdictions, which cover multiple years. Ultimate outcomes of these audits could, in a future period, have a material impact on cash flows. Based upon current available information, the Company is not able to determine if it is reasonably possible that the final outcome of tax audits will result in a materially different outcome than that assumed in its tax reserves. 6. Financial risk management foreign currency and derivative financial instruments The Company is exposed to market risk, primarily related to foreign exchange, interest rates, and equity market risk. Except for the equity market risk, these exposures are actively managed by the Company in accordance with written policies approved by the Board of Directors. The Company s objective is to minimise, where deemed appropriate, fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. It is the Company s policy to use a variety of derivative financial instruments to hedge the volatility relating to these exposures in the absence of natural hedges. Given the global nature of the Company s business, the Company is exposed to foreign exchange movements, primarily in the currencies of the US, the UK, Japan, and subsidiaries whose functional currency is the Euro. Consequently, the Company enters into various contracts, such as foreign currency forward contracts, which change in value as foreign exchange rates change, to preserve the value of assets, equity, and commitments. Depending on the amount of outstanding foreign currency forward contract hedges and the fluctuation of exchange rates, the settlement of these contracts may result in significant cash inflows or cash outflows. 5.6 Credit ratings The Company s current long-term credit rating is Baa2 from Moody s and BBB from Standard & Poor s. The Company uses interest rate swaps to hedge interest rate risks and to maintain a balance between fixed rate and floating rate debt. The terms of the interest rate swaps generally match the terms of specific debt agreements. Additional discussion of these interest rate swaps is located in Note 10 to the consolidated financial statements. 88 Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

119 7. Controls and compliance The Company is committed to maintaining the highest standards of ethical business conduct. The Company has a Chief Human Resources Officer and a Head of Group Compliance, who oversee worldwide compliance practices and business ethics and report regularly on these topics to the Board of Directors. In addition, the Company has a Head of Group Internal Audit who reports directly to the Chairman of the Audit Committee. The Board of Directors and Management of the Company are responsible for establishing and maintaining adequate internal control over financial reporting. Management has assessed the effectiveness of the Company s internal control over financial reporting as of December 31, In making this assessment, Management used the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, Management has concluded that, as of December 31, 2008, the Company s internal control over financial reporting is effective based on those criteria. The Company s internal control system is designed to provide reasonable assurance to the Company s Management and Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of its published consolidated financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statements preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 8. Critical accounting policies, judgements, and estimates The preparation of the financial statements in accordance with U.S. GAAP requires management to adopt accounting policies and make significant judgements and estimates. There may be alternative policies and estimation techniques that could be applied. The Company has in place a review process to monitor the application of new accounting policies and the appropriateness of estimates. Changes in estimates may result in adjustments based on changes in circumstances and the availability of new information. Therefore, actual results could differ materially from estimates. The policies and estimates discussed below either involve significant estimates or judgements or are material to the Company s financial statements. The selection of critical accounting policies and estimates has been discussed with the Audit Committee. The Company s significant accounting policies are disclosed in Note 1 to the consolidated financial statements. 8.1 Accruals and provisions Various accruals and provisions are recorded for sales and income taxes, payroll related taxes, pension and health liabilities, workers compensation, profit sharing, and other similar items taking into account local legal and industry requirements. The estimates used to establish accruals and provisions are based on historical experience, information from external professionals, including actuaries, and other facts and reasonable assumptions under the circumstances. If the historical data the Company uses to establish its accruals and provisions does not reflect the Company s ultimate exposure, accruals and provisions may need to be increased or decreased and future results of operations could be materially affected. Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

120 Adecco Group Operating and financial review and prospects in millions, except share and per share information On a routine basis, governmental agencies in some of the countries in which the Company operates will audit payroll tax calculations and compliance with other payroll-related regulations. These audits focus primarily on documentation requirements and the support for payroll tax remittances. Due to the nature of our business, the number of people employed, and the complexity of some payroll tax regulations, the Company may be required to make some adjustments to the payroll tax remittances as a result of these audits. The Company makes an estimate of the additional remittances that may be required and record the estimate as a component of direct costs of services or SG&A, as appropriate. The estimate is based on the results of past audits, with consideration for changing business volumes and changes to the payroll tax regulations. To the extent that actual experience differs from the estimates, the Company will increase or decrease the reserve balance. In most states of the US, the Company is self-insured for workers compensation claims by temporary workers. The provision recognised is based on actuarial valuations which take into consideration historical claim experience and workers demographic and market components. Workers compensation expense is included in direct costs of services. Significant weakening of the US market, changes in actuarial assumptions, increase of claims or changes in laws may require additional workers compensation expense. Improved claim experience may result in lower workers compensation premiums. 8.2 Allowance for doubtful accounts The Company makes judgements as to its ability to collect outstanding receivables and provides allowances for the portion of receivables when collection becomes doubtful. Provisions are made based on a specific review of significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing percentages, based on the age of the receivable. In determining these percentages, the Company analyses its historical collection experience and current economic trends. In the event that recent history and trends indicate that a smaller or larger allowance is appropriate, the Company would record a credit or charge to SG&A during the period in which such a determination was made. Since the Company cannot predict with certainty future changes in the financial stability of its customers, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected. As of December 31, 2008 and December 31, 2007, the Company had recorded an allowance for doubtful accounts of EUR 130 and EUR 125, respectively. Bad debt expense of EUR 35 and EUR 19 was recorded in 2008 and 2007, respectively. 8.3 Income taxes The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes ( SFAS No. 109 ) and FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 ( FIN 48 ). Deferred tax assets and liabilities are determined based on differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are also provided for the future tax benefit of existing net operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to be in effect in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded against deferred tax assets in those cases when management believes that the realisation is more unlikely than not. While management believes that its judgements and estimations regarding deferred income tax assets and liabilities are appropriate, significant differences in actual experience may materially affect the Company s future financial results. In addition, significant judgement is required in determining the worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. Many of these uncertainties arise as a consequence of intercompany transactions and arrangements. Although management believes that its tax return positions are supportable, no assurance can be given that the final outcome of these matters will not be materially different from amounts reflected in the income tax provisions and accruals. Such differences could have a material effect on the income tax provisions or benefits in the periods in which such determinations are made. 90 Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

121 8.4 Impairment of goodwill and indefinite-lived intangible assets The carrying value of goodwill and indefinite-lived intangible assets is reviewed annually for impairment at a reporting unit level. The annual impairment test is performed during the fourth quarter based on financial information as of October 31. In interim periods, an impairment test will be performed in the instance that an event occurs or there is a change in circumstances which would indicate that the carrying value of goodwill or indefinite-lived intangible assets may be impaired. In step one of the goodwill impairment test, the goodwill of the reporting units is tested for impairment by comparing the carrying value of each reporting unit to the reporting unit s fair value as determined using a combination of comparable market multiples, additional market information, and discounted cash flow valuation models. If the fair value of the reporting unit is lower than the carrying value of the reporting unit, step two is performed to measure the amount, if any, of impairment. In step two, the fair value of all assets and liabilities of the reporting unit is determined, as if the reporting unit had been acquired on a stand-alone basis. The fair value of the reporting unit s assets and liabilities is then compared to the fair value of the reporting unit, with the excess, if any, considered to be the implied goodwill of the reporting unit. If the carrying value of the reporting unit s goodwill exceeds this implied goodwill value, that excess is recorded as an impairment charge in operating income. In 2008, the Company recorded a goodwill impairment charge of EUR 58 for the reporting unit UK & Ireland. No goodwill impairment charge was recognised in Determining the fair value of a reporting unit and, if necessary, its assets (including indefinite-lived intangible assets) and liabilities requires the Company to make certain estimates and judgements about assumptions which include expected revenue growth rates, profit margins, working capital levels, discount rates, and capital expenditures. Estimates and assumptions are based on historical and forecasted operational performance and consider external market and industry data. Differences between the estimates used by management in its assessment and the Company s actual performance, as well as market and industry developments, changes in the business strategy that may lead to reorganisation of reporting units and the disposal of businesses could all result in an impairment of goodwill and indefinite-lived intangible assets. 8.5 Defined benefit pension plans In order to determine the ultimate obligation under its defined benefit pension plans, the Company estimates the future cost of benefits and attributes that cost to the time period during which each covered employee works. Various actuarial assumptions must be made in order to predict and measure costs and obligations many years prior to the settlement date, the most significant ones being the interest rates used to discount the obligations of the plans, and the long-term rates of return on the plans assets. Management, along with third-party actuaries and investment managers, reviews all of these assumptions on an ongoing basis to ensure that the most reasonable information available is being considered. Indefinite-lived intangible assets are tested by comparing the fair value of the asset to the carrying value of the asset. In the event that the carrying value exceeds the fair value, an impairment charge is recorded in operating income. An impairment charge for indefinite-lived intangible assets amounting to EUR 58 was recognised in The impairment charge mainly relates to the write-down of the trade names acquired in the Tuja acquisition. No impairment charge for indefinite-lived intangible assets was recognised in Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

122 Adecco Group Operating and financial review and prospects in millions, except share and per share information 8.6 Contingencies In the ordinary course of business conducted around the world, the Company faces loss contingencies that may result in the recognition of a liability or the write-down of an asset. Management periodically assesses these risks based on information available and assessments from external professionals. As discussed in Note 16 to the consolidated financial statements, the Company is currently involved in various claims and legal proceedings, including the antitrust procedure in France. Periodically, the status of each significant loss contingency is reviewed to assess the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, an accrued liability for the estimated loss is recorded. Because of uncertainties related to these matters, accruals are based on the best information available at the time. As additional information becomes available, the potential liability related to pending claims and litigation is reassessed and, if required, estimates are revised. Such revisions in the estimates of the potential liabilities could have a material impact on results of operations and the financial position of the Company. 9. Forward-looking statements Information in this Annual Report may involve guidance, expectations, beliefs, plans, intentions or strategies regarding the future. These forward-looking statements involve risks and uncertainties. All forward-looking statements included in this Annual Report are based on information available to the Company as of the date of publication, and we assume no duty to update any such forward-looking statements. The forwardlooking statements in this Annual Report are not guarantees of future performance and actual results could differ materially from our current expectations. Numerous factors could cause or contribute to such differences. Factors that could affect the Company s forward-looking statements include, among other things: global GDP trends and the demand for temporary work; changes in regulation of temporary work; intense competition in the markets in which the Company competes; changes in the Company s ability to attract and retain qualified temporary personnel; the resolution of the French antitrust procedure; and any adverse developments in existing commercial relationships, disputes or legal and tax proceedings. 92 Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

123 Adecco Group Selected financial information in millions, except share and per share information For the fiscal years (in EUR) Statements of operations Revenues 19,965 21,090 20,417 18,303 17,239 Operating income 748 1, Income from continuing operations Income from discontinued operations 30 Net income As of (in EUR) Balance sheets Cash and cash equivalents and short-term investments ,203 Trade accounts receivable, net 3,046 3,773 3,846 3,659 3,149 Goodwill 2,666 2,646 1,882 1,434 1,196 Total assets 7,530 8,254 7,682 6,839 6,441 Short-term debt and current maturities of long-term debt Accounts payable and accrued expenses 3,053 3,476 3,544 3,287 3,025 Long-term debt, less current maturities 1,142 1,072 1, ,272 Total liabilities 4,732 5,374 5,175 4,702 4,666 Total shareholders equity 2,793 2,873 2,466 2,117 1,773 For the fiscal years (in EUR) Cash flows from continuing operations Cash flows from operating activities 1,054 1, Cash flows from/(used in) investing activities (236) (929) (308) (241) 113 Cash flows from/(used in) financing activities (800) (424) (13) (478) (407) Other indicators Capital expenditures, net As of Other indicators Net debt (in EUR) Additional statistics Number of FTE employees at end of year (approximate) 34,000 37,000 35,000 33,000 29,000 1 For 2008, 2007, and 2006, the Company s fiscal year included the full calendar year ended December 31, 2008, December 31, 2007, and December 31, 2006, respectively. In 2005 and 2004, the Company s fiscal year contained 52 weeks ended December 31, 2005 and 53 weeks ended January 2, 2005, respectively. 2 Net debt is a non-u.s. GAAP measure and comprises short-term and long-term debt, less cash and cash equivalents and short-term investments. For a reconciliation of net debt to the most comparable U.S. GAAP measure, see page 76. Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

124 Adecco Group Consolidated balance sheets in millions, except share and per share information As of (in EUR) Assets Current assets: Cash and cash equivalents Short-term investments 7 8 Trade accounts receivable, net Note 3 3,046 3,773 Other current assets Note Total current assets 4,016 4,660 Property, equipment, and leasehold improvements, net Note Other assets Note Intangible assets, net Note 2, Goodwill Note 2, 5 2,666 2,646 Total assets 7,530 8,254 Liabilities and shareholders equity Liabilities Current liabilities: Accounts payable and accrued expenses: Accounts payable Accrued salaries and wages Accrued payroll taxes and employee benefits Accrued sales and value added taxes Accrued income taxes Note Other accrued expenses Note Total accounts payable and accrued expenses 3,053 3,476 Short-term debt and current maturities of long-term debt Note Total current liabilities 3,109 3,833 Long-term debt, less current maturities Note 6 1,142 1,072 Other liabilities Note Total liabilities 4,732 5,374 Minority interests 5 7 Shareholders equity Common shares Note Additional paid-in capital 2,140 2,121 Treasury shares, at cost Note 7 (558) (279) Retained earnings 1,394 1,064 Accumulated other comprehensive income/(loss), net Note 7 (301) (151) Total shareholders equity 2,793 2,873 Total liabilities and shareholders equity 7,530 8,254 The accompanying notes are an integral part of these consolidated financial statements. 94 Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

125 Adecco Group Consolidated statements of operations in millions, except share and per share information For the fiscal years ended December 31 (in EUR) Revenues Note 15 19,965 21,090 20,417 Direct costs of services (16,292) (17,163) (16,871) Gross profit 3,673 3,927 3,546 Selling, general and administrative expenses (2,765) (2,846) (2,718) Amortisation of intangible assets Note 5 (44) (27) (12) Impairment of goodwill and intangible assets Note 5 (116) Operating income Note , Interest expense (58) (56) (51) Other income/(expenses), net Note Income before income taxes and minority interests 709 1, Provision for income taxes Note 13 (210) (285) (168) Income applicable to minority interests (4) (8) (6) Net income Basic earnings per share Note Basic weighted-average shares Note ,414, ,107, ,343,724 Diluted earnings per share Note Diluted weighted-average shares Note ,859, ,279, ,532,960 The accompanying notes are an integral part of these consolidated financial statements. Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

126 Adecco Group Consolidated statements of cash flows in millions, except share and per share information For the fiscal years ended December 31 (in EUR) Cash flows from operating activities Net income Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortisation Impairment of goodwill and intangible assets 116 Bad debt expense Stock-based compensation 3 6 Deferred tax provision/(benefit) 33 (37) (66) Tax benefit of treasury shares write-down 22 Excess tax benefit on exercise of stock options (6) (13) Other, net Changes in operating assets and liabilities, net of acquisitions: Trade accounts receivable (209) Accounts payable and accrued expenses (470) Other assets and liabilities (20) 52 3 Cash flows from operating activities 1,054 1, Cash flows from/(used in) investing activities Capital expenditures (106) (91) (85) Proceeds from sale of property and equipment Acquisition of DNC, net of cash acquired (56) Acquisition of Datavance, net of cash acquired (41) Acquisition of Tuja, net of cash acquired (580) Acquisition of DIS, net of cash acquired (16) (219) (552) Purchase of auction rate securities (31) (597) (327) Proceeds from sale of auction rate securities Purchase of other available-for-sale securities (5) (4) (51) Proceeds from sale of other available-for-sale securities Proceeds from settlement of term deposits 195 Cash settlements on derivative instruments 24 (10) 5 Other acquisition and investing activities (47) (35) (36) Cash flows from/(used in) investing activities (236) (929) (308) 96 Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

127 For the fiscal years ended December 31 (in EUR) Cash flows from/(used in) financing activities Borrowings of short-term debt under the multicurrency revolving credit facility and the eight-month term facility 400 Repayment of short-term debt under the multicurrency revolving credit facility and the eight-month term facility (400) Other net increase/(decrease) in short-term debt 18 (1) 15 Repayment of long-term debt (352) (517) Repayment of debt assumed in Datavance acquisition (19) Repayment of debt assumed in Tuja acquisition (207) Borrowings of long-term debt, net of issuance costs 694 Dividends paid to shareholders (163) (135) (120) Common stock options exercised Cash settlements on derivative instruments (1) (15) Purchase of treasury shares, net (279) (124) (123) Excess tax benefit on exercise of stock options 6 13 Other financing activities (5) (2) (3) Cash flows from/(used in) financing activities (800) (424) (13) Effect of exchange rate changes on cash 1 (29) (19) Net increase/(decrease) in cash and cash equivalents 19 (320) 407 Cash and cash equivalents: Beginning of year End of year Supplemental disclosures of cash paid Cash paid for interest Cash paid for income taxes The accompanying notes are an integral part of these consolidated financial statements. Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

128 Adecco Group Consolidated statements of changes in shareholders equity in millions, except share and per share information In EUR Common shares Additional paid-in capital Treasury shares, at cost Retained earnings/ (accumulated deficit) Accumulated other comprehensive income/(loss), net Total shareholders equity January 1, ,045 (59) (25) 39 2,117 Comprehensive income: Net income Other comprehensive income/(loss) Currency translation adjustment, net of tax (74) (74) Unrealised gain on cash flow hedging activities, net of tax 1 1 Changes in available-for-sale securities, net of tax (4) (4) Total comprehensive income 534 Adjustment to initially apply SFAS No. 158, net of tax 3 3 Stock-based compensation 4 4 Common stock options exercised Subsidiary stock option transactions (1) (1) Treasury shares transactions (123) (123) Excess tax benefit on exercise of stock options Cash dividends, CHF 1.00 per share (120) (120) Other (1) (1) December 31, ,100 (182) 466 (35) 2,466 Comprehensive income: Net income Other comprehensive income/(loss) Currency translation adjustment, net of tax (125) (125) Pension related adjustments, net of tax 8 8 Changes in available-for-sale securities, net of tax 1 1 Total comprehensive income 619 Stock-based compensation 3 3 Common stock options exercised Subsidiary stock option transactions (1) (1) Exchange of subsidiary stock options for Adecco S.A. shares (5) 5 Treasury shares transactions (124) (124) Excess tax benefit on exercise of stock options 6 6 Impact of adoption of FIN 48 (2) (2) Cash dividends, CHF 1.20 per share (135) (135) Other 1 1 December 31, ,121 (279) 1,064 (151) 2,873 Comprehensive income: Net income Other comprehensive income/(loss) Currency translation adjustment, net of tax (132) (132) Pension related adjustments, net of tax (18) (18) Total comprehensive income 345 Tax benefit of treasury shares write-down Treasury shares transactions (279) (279) Transactions with derivatives on Adecco S.A. shares (2) (2) Impact of adoption of SFAS No. 158 measurement date provisions, net of tax (1) (1) Cash dividends, CHF 1.50 per share (163) (163) Other (1) (1) (2) December 31, ,140 (558) 1,394 (301) 2,793 The accompanying notes are an integral part of these consolidated financial statements. 98 Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

129 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Note 1 The business and summary of significant accounting policies Business The consolidated financial statements include Adecco S.A., a Swiss corporation, its majority-owned subsidiaries and other affiliated entities (collectively, the Company ). The Company s principal business is providing human resource services including temporary staffing, permanent placement, outsourcing, outplacement, and career services consulting to businesses and organisations throughout Europe, North America, Asia Pacific, Latin America, and Africa. At the end of 2008, the Company s worldwide network consists of over 6,600 branches and more than 34,000 full-time equivalent employees in over 60 countries and territories. The Company is organised in a geographical structure (which corresponds to the primary segments). The heads of the main geographies consisting of France, USA & Canada, UK & Ireland, Germany, Japan, Italy, Iberia, Nordics, Benelux, Switzerland & Austria, and Australia & New Zealand directly manage the office and industrial business lines as well as the professional business lines. They are supported and guided by a global business line head for the professional business line Adecco Human Capital Solutions and by the corporate business development department for the professional business lines Adecco Information Technology; Adecco Engineering & Technical; Adecco Finance & Legal; Adecco Medical & Science; and Adecco Sales, Marketing & Events. In addition, the countries in the Emerging Markets are directly managed by five regional heads. The classification into business lines is determined by the largest business line revenue share generated in a specific branch. Basis of presentation The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ( U.S. GAAP ) and the provisions of Swiss law. Reporting currency The reporting currency of the Company is the Euro, which reflects the significance of the Company s Euro-denominated operations. Adecco S.A. s share capital is denominated in Swiss francs and the Company declares and pays dividends in Swiss francs. Foreign currency translation The Company s operations are conducted in various countries around the world and the financial statements of foreign subsidiaries are reported in the applicable foreign currencies (functional currencies). Financial information is translated from the applicable functional currency to the Euro, the reporting currency, for inclusion in the Company s consolidated financial statements. Income, expenses, and cash flows are translated at average exchange rates prevailing during the fiscal year, and assets and liabilities are translated at fiscal year end exchange rates. Resulting translation adjustments are included as a component of accumulated other comprehensive income/(loss), net, in shareholders equity. Exchange gains and losses on intercompany balances that are considered permanently invested are also included in equity. Principles of consolidation The consolidated financial statements include 100% of the assets, liabilities, revenues, expenses, income, loss, and cash flows of Adecco S.A., its majority-owned subsidiaries and entities for which the Company has been determined to be the primary beneficiary under the Financial Accounting Standards Board ( FASB ) Interpretation No. 46(R), Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51 ( FIN 46(R) ). Minority interest is calculated for entities fully consolidated but not wholly owned. The components of equity attributable to the minority shareholders are presented in minority interests within the consolidated balance sheets while net income attributed to the minority shareholders is included in income applicable to minority interests within the consolidated statements of operations. Intercompany balances and transactions have been eliminated in the consolidated financial statements. Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

130 Adecco Group Notes to consolidated financial statements in millions, except share and per share information The Company records investments in affiliates over which it is able to exercise significant influence using the equity method of accounting. The cost method of accounting is applied for investments in entities over which the Company is not able to exercise significant influence (generally investments in which the Company s ownership is less than 20%). The Company accounts for variable interest entities in accordance with FIN 46(R) which requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity s expected losses, receives a majority of the entity s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make judgements, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to allowance for doubtful accounts, accruals and provisions, impairment of goodwill and indefinite-lived intangible assets, contingencies, pension accruals, and income taxes. The Company bases its estimates on historical experience and on various other market specific assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. Social security charges in France In April 2007, the Central Agency for Social Security Organisations in France issued a letter outlining a modification of the calculation of certain social security charges, with retroactive effect to January 1, This modification resulted in a reduction in payroll taxes to be remitted. On August 1, 2007, the French Parliament passed an amendment to the social security legislation, which became effective on October 1, This amendment eliminated the payroll tax benefits resulting from the modification made in April The 2007 statement of operations includes a positive effect to net income of EUR 102 in connection to this modification including an increase of EUR 172 in gross profit and EUR 16 in selling, general, and administrative expenses ( SG&A ). This change resulted in an increase to the basic and diluted earnings per share, net of tax, of EUR 0.55 and EUR 0.52, respectively. All proceeds related to this modification were received in In April 2008, the Company received additional information from the trade association, which was based on communications with the Central Agency for Social Security Organisations in France indicating that the modification discussed above is also applicable to Accordingly, the 2008 statement of operations includes a positive effect to net income of EUR 41, including an increase of EUR 62 in gross profit. This change resulted in an increase to the basic and diluted earnings per share, net of tax, of EUR 0.23 and EUR 0.22, respectively. All proceeds related to this modification were received in Recognition of revenues The Company generates revenues from sales of temporary staffing services, permanent placement services, outsourcing services, outplacement services, and other personnel services. Revenues are recognised on the accrual basis and are reported net of any sales taxes. Allowances are established for estimated discounts, rebates, and other adjustments and are recorded as a reduction of sales. Revenues related to temporary staffing services are generally negotiated and invoiced on an hourly basis. Temporary associates record the hours they have worked and these hours, at the rate agreed with the customer, are then accumulated and billed according to the agreed terms. Temporary staffing service revenues are recognised upon rendering the services. Revenues related to permanent placement services are generally recognised at the time the candidate begins full-time employment, and an allowance is established for non-fulfilment of permanent placement obligations. 100 Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

131 Revenues related to outsourcing services and outplacement services are negotiated with the client on a project basis and are recognised upon rendering the services. The Company presents revenues and the related direct costs of services in accordance with Emerging Issues Task Force Issue No , Reporting Revenue Gross as a Principal versus Net as an Agent. For sales arrangements in which the Company acts as a principal in the transaction and has risks and rewards of ownership (such as the obligation to pay temporary personnel and the risk of loss for collection and performance or pricing adjustments), the Company reports gross revenues and gross direct costs. Under arrangements where the Company acts as an agent, the revenues are reported on a net basis. Trade accounts receivable Trade accounts receivable are recorded at net realisable value after deducting an allowance for doubtful accounts. The Company makes judgements on an entity-by-entity basis as to its ability to collect outstanding receivables and provides an allowance for doubtful accounts based on a specific review of significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing percentages based on the age of the receivable. In determining these percentages, the Company analyses its historical collection experience and current economic trends. Where available and when cost effective, the Company utilises credit insurance. Accounts receivable balances are written off when the Company determines that it is unlikely that future remittances will be received, or as permitted by local law. The Company provides services in the normal course of business at arm s-length terms to entities that are affiliated with certain of its officers and significant shareholders through investment or board directorship. Marketing costs Marketing costs totalled EUR 95, EUR 104, and EUR 93 in 2008, 2007, and 2006, respectively. These costs are included in SG&A and are expensed as incurred. Cash equivalents and short-term investments Cash equivalents consist of highly liquid instruments having an original maturity at the date of purchase of three months or less. The Company s policy is to invest excess funds primarily in investments with maturities of 12 months or less, and in money market and fixed income funds with sound credit ratings, limited market risk and high liquidity. Until February 2008, the Company invested, to a limited extent, excess cash in the US in auction rate securities. Auction rate securities are variable-rate debt instruments with long-term scheduled maturities and periodic interest rate reset dates. As of December 31, 2008 and December 31, 2007, the Company did not hold any auction rate securities. Property, equipment, and leasehold improvements Property and equipment are carried at historical cost and are depreciated on a straight-line basis over the estimated useful lives (generally three to five years for furniture, fixtures, and office equipment; three to five years for computer equipment and software; and twenty to forty years for buildings). Leasehold improvements are stated at cost and are depreciated over the shorter of the useful life of the improvement or the remaining lease term, which includes the expected lease renewal. Expenditures for repairs and maintenance are charged to expense as incurred. Goodwill and indefinite-lived intangible assets Goodwill represents the excess of the purchase price in a business combination over the value assigned to the net tangible and identifiable intangible assets of businesses acquired less liabilities assumed. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets ( SFAS No. 142 ), goodwill and indefinite-lived intangible assets are not amortised. Rather, the carrying values of goodwill and indefinitelived intangible assets are tested annually for impairment. Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

132 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Goodwill is tested on a reporting unit level using a two-step impairment test. Reporting units may be operating segments as a whole or an operation one level below an operating segment, referred to as a component. In step one of the goodwill impairment test, the carrying value of each reporting unit is compared to the reporting unit s fair value as determined using a combination of comparable market multiples, additional market information, and discounted cash flow valuation models. If the fair value of the reporting unit is lower than the carrying value of the reporting unit, step two is performed to measure the amount, if any, of impairment. In step two, the fair value of all assets and liabilities of the reporting unit is determined, as if the reporting unit had been acquired on a stand-alone basis. The fair value of the reporting unit s assets and liabilities is then compared to the fair value of the reporting unit, with the excess, if any, considered to be the implied goodwill of the reporting unit. If the carrying value of the reporting unit s goodwill exceeds this implied goodwill value, that excess is recorded as an impairment charge in operating income. Indefinite-lived intangible assets are tested by comparing the fair value of the asset to the carrying value of the asset. In the event that the carrying value exceeds the fair value, an impairment charge is recorded in operating income. Definite-lived intangible assets In accordance with SFAS No. 141, Business Combinations ( SFAS No. 141 ), purchased identifiable intangible assets are capitalised at fair value as of the acquisition date. Intangible assets with definite lives, primarily customer relationships, are generally amortised on a straight-line basis over the estimated period in which benefits will be received, which generally ranges from one to six years. Impairment of long-lived assets including definite-lived intangible assets The Company evaluates long-lived assets, including intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ( SFAS No. 144 ). In such circumstances, the Company calculates the undiscounted future cash flows expected to be generated by the asset and compares that amount to the asset s carrying amount. If the undiscounted cash flows are less than the asset s carrying amount, the asset is written down to its fair value and an impairment charge is recorded in operating income. Income taxes The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes ( SFAS No. 109 ). The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 ( FIN 48 ) on January 1, FIN 48 clarifies the accounting for uncertainty in income taxes recognised in an enterprise s financial statements in accordance with SFAS No FIN 48 prescribes a recognition threshold and measurement attribute for the financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Current liabilities and assets are recognised for the estimated payable or refundable taxes on the tax returns for the current year. Deferred tax assets and liabilities are determined based on differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, including the future tax benefit of existing net operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to be in effect in the years in which those temporary differences are expected to be recovered or settled. A valuation 102 Adecco Financial Review / _Adecco_GB08.indd :36:25 Uhr

133 allowance is recorded against deferred tax assets in those cases when management believes that the realisation is more unlikely than not. While management believes that its judgements and estimates regarding deferred income tax assets and liabilities are appropriate, significant differences in actual experience may materially affect the Company s future financial results. In addition, significant judgement is required in determining the worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. Many of these uncertainties arise as a consequence of intercompany transactions and arrangements. Although management believes that its tax return positions are supportable, no assurance can be given that the final outcome of these matters will not be materially different from amounts reflected in the income tax provisions and accruals. Such differences could have a material effect on the income tax provisions or benefits in the periods in which such determinations are made. Earnings per share In accordance with SFAS No. 128, Earnings per Share ( SFAS No. 128 ), basic earnings per share is computed by dividing net income available to common shareholders by the number of weighted-average common shares outstanding for the fiscal year. Diluted earnings per share reflects the maximum potential dilution that could occur if dilutive securities, such as stock options or convertible debt, were exercised or converted into common shares or resulted in the issuance of common shares that would participate in net income. Financial instruments In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ( SFAS No. 133 ), all derivative instruments are initially recorded at cost as either other current assets, other assets, other accrued expenses, or other liabilities in the accompanying consolidated balance sheets and subsequently remeasured to fair value, regardless of the purpose or intent for holding the derivative instruments. For derivative instruments designated and qualifying as fair value hedges, changes in the fair value of the derivative instruments as well as the changes in the fair value of the hedged item attributable to the hedged risk are recognised within the same line item in earnings. For derivative instruments designated and qualifying as cash flow hedges, the effective portion of the changes in the fair value of derivative instruments is initially recorded as a component of accumulated other comprehensive income/(loss), net, in shareholders equity and reclassified into earnings in the same period during which the hedged transaction affects earnings. The ineffective portion of the change in fair value of the derivative instruments is immediately recognised in earnings. For derivative instruments designated and qualifying as net investment hedges, changes in the fair value of the derivative instruments are recorded as a component of accumulated other comprehensive income/(loss), net, in shareholders equity to the extent they are considered effective. These gains or losses will remain in equity until the related net investment is sold or otherwise disposed. For derivative instruments that are not designated or that do not qualify as hedges under SFAS No. 133, the changes in the fair value of the derivative instruments are recognised in other income/(expenses), net, within the consolidated statements of operations. Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

134 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Fair value measurement On January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements ( SFAS No. 157 ) for all financial assets and liabilities as well as for other assets and liabilities that are carried at fair value on a recurring basis. Fair value is defined by SFAS No. 157 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 establishes a three-level fair value hierarchy that prioritises the inputs used to measure fair value. The hierarchy requires entities to maximise the use of observable inputs and minimise the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1 Quoted prices in active markets for identical assets and liabilities. Level 2 Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. interest rate curves and currency rates. The Company also utilises independent third-party pricing services. When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence. New accounting standards In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations ( SFAS No. 141(R) ) and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 ( SFAS No. 160 ). The new standards require most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at full fair value and require noncontrolling interests to be reported as a component of equity. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, Under SFAS No. 141(R), the direct costs of a business combination, such as transaction fees, due diligence, and consulting services are required to be expensed as incurred. The Company elected under the transition rules to expense transaction costs capitalisable under SFAS No. 141, when it became probable that the possible future acquisition would not close by January 1, 2009, the date the Company will adopt SFAS No. 141(R). Acquisition related costs expensed in 2008 amounted to EUR 5. The Company measures fair values using unadjusted quoted market prices. If quoted market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based parameters such as In September 2006, the FASB issued SFAS No SFAS No. 157 provides enhanced guidance for using fair value to measure assets and liabilities, expands the required disclosures about fair value measurement, and is applicable whenever other standards require assets or liabilities to be measured at fair value. However, it does not expand the use of fair value in any new circumstances. The Company adopted SFAS No. 157 for all financial assets and liabilities as well as for other assets 104 Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

135 and liabilities that are carried at fair value on a recurring basis on January 1, The adoption of SFAS No. 157 for these assets and liabilities did not have a material impact on the Company s consolidated financial statements. The Company will adopt SFAS No. 157 for non-financial assets and liabilities on January 1, 2009 and does not expect the adoption to have a material impact on the consolidated financial statements. In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 ( SFAS No. 161 ). SFAS No. 161 requires entities to provide greater transparency about the reason for entering into a derivative instrument, the accounting treatment of derivative instruments and the related hedged items under SFAS No. 133, and the impact of derivative instruments and related hedged items on the Company s consolidated financial statements. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, The adoption of SFAS No. 161 is not expected to have a material impact on the Company s consolidated financial statements. Presentation and reclassifications Certain reclassifications have been made to prior year amounts or balances in order to conform to the current year presentation. Other disclosures required by Swiss law: in EUR Personnel expenses 1,905 1,984 The detailed disclosures regarding the executive remuneration that are required by Swiss law are included in Note 6 to Adecco S.A. (Holding Company) financial statements and the Remuneration Report. The fire insurance value of property, equipment, and leasehold improvements amounted to EUR 632 and EUR 644 as of December 31, 2008 and December 31, 2007, respectively. Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

136 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Note 2 Acquisitions The Company made several acquisitions in 2008, 2007, and With the exception of the acquisitions of Tuja Group ( Tuja ) and approximately 16% of outstanding DIS Deutscher Industrie Service AG ( DIS ) shares in 2007 and the acquisition of approximately 84% of DIS outstanding shares in 2006, the Company does not consider any of its 2008, 2007, or 2006 acquisition transactions to be material, individually or in the aggregate, to its consolidated balance sheets or results of operations. The following table illustrates the aggregate impact of the 2008 and 2007 acquisitions: in EUR Impact of acquisitions Net tangible assets acquired 3 8 Identified intangible assets Goodwill Debt acquired (38) (207) Deferred tax liabilities (12) (109) Minority interests 4 22 Total consideration In November and December 2008, the Company acquired 100% of the outstanding shares of DNC de Nederlanden Compagnie N.V. ( DNC ), for approximately EUR 56, net of cash acquired. As a result of this acquisition, approximately EUR 67 and EUR 21 of goodwill and intangible assets, respectively, were recorded. DNC is a Dutch specialised secondment firm working in the IT, Finance, Legal, Management Support & Information Management segments. In December 2008, the Company acquired 100% of the outstanding shares of Groupe Datavance ( Datavance ), for approximately EUR 41, net of cash acquired and an additional maximum contingent consideration of EUR 27 payable between 2010 and The contingent consideration will be based on the three-year EBITDA growth and will be recorded as additional goodwill at the time the contingency is resolved. Goodwill and intangible assets recognised for the Datavance acquisition, excluding contingent consideration, amounted to EUR 43 and EUR 15, respectively. Datavance is a French company which specialises in the IT sector. Both the DNC and Datavance acquisitions were financed with cash. In July 2007, the Company acquired approximately 97% of the outstanding common shares of Tuja, a leading staffing company in Germany with operations also in Switzerland and Austria for approximately EUR 555, net of cash acquired of EUR 20, and later in 2007 acquired the remaining 3% of Tuja shares for an additional purchase price of EUR 25. In addition, the Company assumed approximately EUR 207 in net debt which the Company had repaid by the end of As a result of the acquisition, the Company has strengthened its presence, especially in the German temporary staffing market. The acquisition was mainly financed with cash. The following table summarises the estimated fair value of assets acquired and liabilities assumed in the Tuja acquisition: 106 Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

137 in EUR Fair value of assets acquired and liabilities assumed Cash 20 Other current assets 98 Tangible assets 12 Intangible assets Marketing related (trade names) 141 Customer base 119 Goodwill 640 Current liabilities (122) Debt (207) Deferred tax liabilities (101) Total fair value of assets acquired and liabilities assumed 600 Almost all of the marketing related intangible assets (trade names) are considered to have indefinite lives and are therefore not amortised. Customer base intangible assets acquired have estimated useful lives of five years and are amortised on a straight-line basis over the useful lives. Tuja was consolidated by the Company as of July 31, 2007, and the results of Tuja s operations have been included in the consolidated financial statements since August 1, The following unaudited pro forma information shows consolidated operating results as if the Tuja acquisition had occurred at the beginning of 2007 and at the beginning of 2006: in EUR Pro forma consolidated operating results Revenues 21,431 20,901 Net income Basic earnings per share Diluted earnings per share The 2007 and 2006 pro forma net loss of Tuja, including adjustments for amortisation of definite-lived intangible assets, interest expense, interest income, and income taxes decreased consolidated pro forma net income by EUR 3 (including intangible assets amortisation, net of tax, of EUR 9) and EUR 13 (including intangible assets amortisation, net of tax, of EUR 16), respectively. The pro forma consolidated results of operations do not necessarily represent operating results, which would have occurred if the acquisition had taken place on the basis assumed above, nor are they indicative of future operating results of the combined companies. Following the acquisition of approximately 84% of the outstanding common shares of DIS in March 2006 for approximately EUR 552, net of cash acquired, in September 2007, the Company acquired approximately 16% of DIS outstanding shares for EUR 219. The acquisition was financed with existing resources. The Company accounted for this acquisition in accordance with the provisions of SFAS No. 141 using the principles of step acquisition accounting and recognised goodwill of EUR 177 and additional intangible assets of EUR 29. EUR 21 of the additional intangible assets represent marketing related intangible assets (trade names) which are considered to have indefinite lives and are therefore not amortised. Customer base intangible assets acquired of EUR 8 have estimated useful lives of five years and are amortised on a straight-line basis over the useful lives. In 2008, the Company acquired the remaining 0.5% outstanding shares of DIS for EUR 16 through squeeze-out proceedings. As of December 31, 2008, the Company held 100% of DIS outstanding common shares. No shares were issued in any of the transactions. Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

138 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Note 3 Trade accounts receivable in EUR Trade accounts receivable 3,176 3,898 Allowance for doubtful accounts (130) (125) Trade accounts receivable, net 3,046 3,773 Note 4 Property, equipment, and leasehold improvements in EUR Gross Accumulated depreciation Gross Accumulated depreciation Land and buildings 40 (15) 42 (15) Furniture, fixtures, and office equipment 148 (101) 148 (110) Computer equipment and software 603 (500) 574 (483) Leasehold improvements 244 (183) 230 (163) Total property, equipment, and leasehold improvements 1,035 (799) 994 (771) Depreciation expense was EUR 84, EUR 89, and EUR 94 for 2008, 2007, and 2006, respectively. Note 5 Goodwill and intangible assets The changes in the carrying amount of goodwill for the years ended December 31, 2008 and December 31, 2007 are as follows: in EUR France USA & Canada UK & Ireland Germany Japan Italy Iberia Other Total Changes in goodwill January 1, ,882 Additions Currency translation adjustment (55) (19) (1) (1) (76) Other December 31, , ,646 Additions Impairment charge (58) (58) Currency translation adjustment 21 (36) 7 (34) (42) Other (3) (19) (1) (23) December 31, , , Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

139 The Company performed its annual goodwill impairment test in the fourth quarter of In step one, which requires a comparison of the carrying value of each reporting unit to the fair value of the respective reporting unit, the Company concluded that the carrying value of the reporting unit UK & Ireland exceeded its fair value. Accordingly, the Company proceeded to step two of the goodwill impairment test in which the fair value of all assets and liabilities of the reporting unit is determined as if the reporting unit had been acquired on a stand-alone basis. The fair value of the reporting unit s assets and liabilities was then compared to the reporting unit s value as determined in step one with the excess considered to be the implied goodwill of the reporting unit. As the carrying value of the goodwill of the reporting unit UK & Ireland exceeded the implied goodwill, the Company recognised a noncash impairment charge related to goodwill of EUR 58 in The impairment charge can be attributed to the deteriorating economic environment and lower profitability of the reporting unit which led the Company to lower the reporting unit s projected future cash flows compared to the prior year. No impairment charge was recognised in the years 2007 and The carrying amounts of other intangible assets at December 31, 2008 and December 31, 2007 are as follows: in EUR Gross Accumulated amortisation Gross Accumulated amortisation Intangible assets Marketing related (trade names) 242 (19) 295 (15) Customer base 230 (77) 192 (39) Contract 18 (1) 16 (1) Other 1 (1) 1 (1) Total intangible assets 491 (98) 504 (56) No intangible assets have a residual value. The estimated aggregate amortisation expense related to definite-lived intangible assets for the next five years is EUR 50 in 2009, EUR 47 in 2010, EUR 38 in 2011, EUR 22 in 2012, and EUR 17 in 2013 and afterwards. The weighted-average amortisation period for customer base intangible assets is five years. The carrying amount of indefinite-lived intangible assets was EUR 219 and EUR 274 as of December 31, 2008 and December 31, 2007, respectively. Indefinite-lived intangible assets consist mainly of trade names. In 2008, the indefinite-lived intangible assets impairment testing performed by the Company concluded that the fair value of certain trade names was lower than their carrying value. Consequently a non-cash impairment charge of the indefinitelived intangible assets of EUR 58 was recorded in The impairment charge mainly relates to the write-down of the trade names acquired in the Tuja acquisition in Germany and is a result of the decrease in projected sales for those brands. The annual impairment testing of indefinite-lived intangible assets performed in 2007 and 2006 determined that no impairment existed. Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

140 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Note 6 Financing arrangements Short-term debt To support short-term working capital and borrowing requirements, the Company had available, in certain countries in which it operates, lines of credit amounting to EUR 476 and EUR 367 as of December 31, 2008 and December 31, 2007, respectively, excluding the committed multicurrency revolving credit facility discussed below. At December 31, 2008 and December 31, 2007, bank overdrafts and borrowings outstanding under the lines of credit amounted to EUR 55 and EUR 35, respectively. The lines of credit, which include both committed and uncommitted facilities, are in various currencies, have various interest rates, and have maturities of up to two years. The weighted-average interest rate on borrowings outstanding was 5.6% and 7.1% as of December 31, 2008 and December 31, 2007, respectively. Long-term debt in EUR Principal at maturity Maturity Fixed interest rate Guaranteed zero-coupon convertible bond CHF Committed multicurrency revolving credit facility EUR Fixed rate guaranteed notes EUR % Floating rate guaranteed notes EUR Olsten EUR guaranteed notes EUR % 122 Other ,143 1,394 Less current maturities (1) (322) Long-term debt, less current maturities 1,142 1,072 Guaranteed zero-coupon convertible bond On August 26, 2003, Adecco Financial Services (Bermuda) Ltd., a wholly-owned subsidiary of the Company, issued CHF 900 unsubordinated bonds guaranteed by and convertible into shares of Adecco S.A., due August 26, The bonds are structured as zero-coupon, 10-year premium redemption convertible bonds with a yield to maturity of 1.5% per annum. Bondholders may put the bonds on August 26, 2010, at the accreted principal amount. The Company may call the bonds at any time after the end of year seven (August 26, 2010) at the accreted principal amount or at any time after a substantial majority of the bonds has been redeemed, converted, or repurchased. The current share price of Adecco S.A. suggests that the bondholders will exercise the put option. At any time from October 6, 2003 to August 12, 2013, at the option of the bondholder, the bonds are convertible into shares of Adecco S.A. at a conversion price of CHF per share. If all bonds were converted, Adecco S.A. would issue 9,523,810 additional shares. If not converted, the Company will pay a redemption price of up to % of the principal amount of the bonds. In November 2007, the terms of the bond were amended. The amendment allows the Company to deliver treasury shares held at the time of conversion instead of issuing shares of Adecco S.A. out of the approved conditional capital. Nevertheless, Adecco S.A. has to retain enough conditional capital to issue the full amount of 9,523,810 shares if required upon conversion. In the last quarter of 2008, the Company repurchased bonds with nominal amount of EUR 27. The gain on the repurchase amounted to EUR 3. The bonds are kept in treasury. Multicurrency revolving credit facility In March 2003, the Company entered into a committed multicurrency revolving credit facility issued by a syndicate of banks, which allowed borrowings up to a maximum of EUR 580. In April 2008, the Company renegotiated the existing EUR 580 multicurrency revolving credit facility originally maturing in March The new facility consisted of a committed EUR 550 multicurrency five-year revolving credit facility and a EUR 300 term facility. The term facility matured on December 15, The new five-year revolving credit facility of EUR 550 is used for general corporate purposes including refinancing of advances and outstanding letters of credit. The interest rate is based on LIBOR, or EURIBOR for drawings denominated in Euro, plus a margin between 0.4% and 0.7% depending on 110 Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

141 certain debt-to-ebitda ratios. The letter of credit fee equals the applicable margin, and the commitment fee equals 33% of the applicable margin. As of December 31, 2008 and December 31, 2007, there were no outstanding borrowings under the credit facility. As of December 31, 2008, the Company had EUR 463 available under the new facility after utilising EUR 87 in the form of letters of credit. As of December 31, 2007, the Company had EUR 462 available under the old facility after utilising EUR 118 in the form of letters of credit. The eight-month term facility of EUR 300 which matured in December 2008 has been used to refinance the current maturities of long-term debt. The interest rate was based on LIBOR, or EURIBOR for drawings denominated in Euro, plus a margin between 0.325% and 0.6% depending on certain debt-to-ebitda ratios. Fixed and floating rate guaranteed notes On April 25, 2006, Adecco International Financial Services BV, a wholly-owned subsidiary of the Company, issued EUR 500 fixed rate notes guaranteed by Adecco S.A. due April 25, 2013, and EUR 200 floating rate notes guaranteed by Adecco S.A. due April 25, The proceeds were used to refinance the DIS acquisition and for general corporate purposes. Interest is paid on the fixed rate notes annually in arrears at a fixed annual rate of 4.5%. During 2006 and 2008, the Company entered into fair value hedges of the EUR 500 fixed rate guaranteed notes, which are further discussed in Note 10. Interest on the floating rate notes was paid quarterly in arrears at a rate determined by the three-month EURIBOR plus 23 basis points. In April 2008, the Company repaid the EUR 200 floating rate notes. Olsten EUR guaranteed notes In connection with the March 2000 Olsten acquisition, the Company assumed Olsten s outstanding EUR 122 guaranteed notes on which interest was paid annually on the principal amount. These notes were guaranteed by Adecco S.A. and were repaid in May Payments of long-term debt are due as follows: in EUR Thereafter Total Payments due by period ,143 1 Assumes that the put option on the convertible bond is exercised in 2010 and that share conversion does not occur (refer to Guaranteed zero-coupon convertible bond section above). Note 7 Shareholders equity The summary of the components of authorised shares at December 31, 2008, December 31, 2007, and December 31, 2006 and changes during those years are as follows: Outstanding shares Treasury shares Issued shares 1 Conditional capital Authorised shares Changes in components of authorised shares January 1, ,097,645 1,509, ,607,395 21,222, ,830,310 Common stock options exercised 1,193,772 1,193,772 (1,193,772) Treasury shares transactions (2,454,955) 2,454,955 December 31, ,836,462 3,964, ,801,167 20,029, ,830,310 Common stock options exercised 946,106 (483,767) 462,339 (462,339) Treasury shares transactions (3,135,275) 3,135,275 December 31, ,647,293 6,616, ,263,506 19,566, ,830,310 Treasury shares transactions (8,458,891) 8,458,891 December 31, ,188,402 15,075, ,263,506 19,566, ,830,310 1 Shares at CHF 1 par value. Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

142 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Authorised shares and appropriation of available earnings The Company had 4,166,804 shares of conditional capital reserved for issuance of common shares to employees and members of the Board of Directors upon the exercise of stock options as of December 31, 2008 and December 31, In addition, as of December 31, 2008 and December 31, 2007, the Company was authorised by its shareholders to issue up to 15,400,000 shares of conditional capital in connection with the issuance of financial instruments, principally convertible bonds. 9,523,810 shares have been reserved for issuance upon conversion of the outstanding guaranteed zero-coupon convertible bond. The remaining 5,876,190 shares represent conditional capital that was originally authorised without time limitation in connection with the issuance of a convertible bond in 1999, which was repaid in 2004 without conversion. This conditional capital remains available for issuance upon conversion of financial instruments the Company may issue in the future. In 2008, cash dividends for 2007 of CHF 1.50 per share, totalling EUR 163, were paid. The Company may only pay dividends from unappropriated available earnings disclosed in the annual financial statements of the parent, Adecco S.A., prepared in accordance with Swiss law and as approved at the Annual General Meeting of Shareholders. For 2008, the Board of Directors of Adecco S.A. will propose a dividend of CHF 1.50 per share outstanding for the approval of shareholders at the Annual General Meeting of Shareholders. Under Swiss law, a minimum of 5% of the yearly net income of the parent, Adecco S.A., must be transferred to a general reserve until this reserve reaches 20% of the paid-in share capital. Other allocations to this reserve are also mandatory. The general reserve was CHF 2,103 at December 31, 2008 and December 31, 2007, thereby exceeding 20% of the paid-in share capital in both years. The general reserve is usually not available for distribution. Treasury shares On November 2, 2007, the Company announced that its Board of Directors had decided to purchase the Company s shares for up to EUR 400 by the end of On July 1, 2008, the Company announced that it had completed the repurchase programme. The shares are intended to be used for future acquisitions or to minimise potential dilution related to the outstanding convertible bond. In 2008, the Company purchased 8,234,500 treasury shares for a total consideration of EUR 274 under this share buy-back programme. In 2007, the Company purchased 3,253,500 treasury shares for a total consideration of EUR 124. On August 12, 2008, the Company announced that its Board of Directors had decided to purchase up to an additional 2% of the Company s shares. The shares are intended to be used for future acquisitions. In 2008, the Company acquired 224,391 treasury shares for a total consideration of EUR 5 under this new share buy-back programme. Accumulated other comprehensive income/(loss), net The components of accumulated other comprehensive income/(loss), net of tax, are as follows: in EUR Currency translation adjustment (290) (158) Unrealised gain on cash flow hedging activities 1 1 Pension related adjustments (12) 6 Accumulated other comprehensive income/(loss), net (301) (151) 112 Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

143 Note 8 Stock-based compensation As of December 31, 2008, the Company had options and tradeable options outstanding relating to its common shares under several existing plans including plans assumed in the Olsten acquisition. No compensation expense was recognised in 2008 in connection with the stock option plans as they are fully vested. There were no options outstanding under the DIS stock option plan as of December 31, In 2007, the Company recognised compensation expense of EUR 3, related to the various stock option plans, which was included in SG&A. The total income tax benefit recognised related to stock compensation during 2007 was not significant. Adecco and Olsten stock option plans Under the Adecco and Olsten stock option plans, options vest and become exercisable in instalments, generally on a rateable basis up to four years beginning on the date of grant or one year after the date of grant, and have a contractual life of three to ten years. Options are typically granted with an exercise price equal to or above fair market value on the date of grant. No options have been granted since Certain options granted under the plans are tradeable on the SIX Swiss Exchange. The options are granted to employees or members of the Board of Directors of the Company and give the optionee a choice of selling the option on the market or exercising the option to receive an Adecco S.A. share. If the option holder chooses to sell the option on the market, the options may be held by a non-employee or non-director of the Company. As of December 31, 2008, December 31, 2007 and December 31, 2006, the number of stock options outstanding sold on the market was 2,272,095, 3,116,028 and 2,625,019, respectively. The trading and valuation of the tradeable options are managed by a Swiss bank. The Company uses the Black-Scholes model to estimate the fair value of stock options granted to employees. Management believes that this model appropriately approximates the fair value of the stock option. The fair value of the option award, as calculated using the Black-Scholes model, is expensed for non-tradeable stock options on a straight-line basis and for tradeable stock options on an accelerated basis over the service period, which is consistent with the vesting period. A summary of the status of the Company s Adecco and Olsten stock option plans as of December 31, 2008, December 31, 2007 and December 31, 2006, and changes during those years are presented below: Number of shares Weightedaverage exercise price per share (in CHF) Weightedaverage remaining life (in years) Aggregate intrinsic value (in CHF millions) Summary of Adecco and Olsten stock option plans Options outstanding as of January 1, ,045, Exercised (1,142,782) Forfeited (703,557) 89 Expired (754,290) 99 Options outstanding as of December 31, ,444, Exercised (933,896) Forfeited (260,416) 89 Expired (1,601,780) 91 Options outstanding and vested as of December 31, ,648, Forfeited (160,360) 82 Expired (1,418,140) 73 Options outstanding and vested as of December 31, ,070, Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

144 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Options fully vested and exercisable were 5,648,625 and 8,298,647 as of December 31, 2007 and December 31, 2006, respectively. The aggregate intrinsic value as of December 31, 2008 in the table above represents the total pre-tax intrinsic value (the difference between the Company s closing stock price on the last trading day of 2008 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, This amount changes based on the fair market value of Adecco S.A. stock. As of December 31, 2008, all options were out-ofthe-money. DIS stock option plan Under the DIS stock option plan, which was approved by its shareholders, each option had a term of up to five years and gave the option holder the right to acquire one DIS share at an exercise price originally linked to the fair market value at the date of grant. Subsequent to the date of grant, the exercise price of the share options increased 10% each year and was adjusted for dividends. While options vested immediately at time of grant, options became exercisable as follows: 1 3 two years after date of grant, 1 3 three years after date of grant, and the remaining 1 3 four years after date of grant. There were no options granted during 2008 or The fair value of the 2006 option award was estimated on the date of grant using a binomial pricing model utilising the assumptions noted in the following table: 2006 Assumptions used for the estimation of the fair value of option awards Share price on grant date in EUR Average exercise price in EUR Expected term (in years) 5 Risk-free interest rate 3% Expected volatility 38.8% The volatility as measured by the standard deviation of the expected share price gains was based on statistical analyses of the daily share price over the previous three years. The expected term of the options was determined using historical data. The expected dividend yield was based on the expected annual dividend at the time of grant of EUR 0.05 per share. The risk-free rate was based on the five-year German government bonds rate in effect as of the grant date. In 2008, the Company finalised squeeze-out proceedings to acquire the remaining 0.5% of DIS outstanding shares and delisted DIS shares from the Frankfurt Stock Exchange. As part of the squeeze-out proceedings Adecco extended the offer to acquire the outstanding stock options to all stock option holders. As of December 31, 2008 there were no outstanding stock options under the DIS stock option plan. A summary of the status of the DIS stock option plan as of December 31, 2008, December 31, 2007 and December 31, 2006, and changes during the periods are presented below: 114 Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

145 Number of shares Weightedaverage exercise price per share (in EUR) Weightedaverage remaining life (in years) Aggregate intrinsic value (in EUR millions) Summary of DIS stock option plan Options outstanding and vested at acquisition, March 31, , Granted 117, Exercised (58,145) 31 2 Options outstanding and vested as of December 31, , Exercised (44,821) 30 3 Forfeited (183,261) 1 41 Options outstanding and vested as of December 31, , Exercised (2,144) 35 Exercised under the squeeze-out proceedings (161,976) 60 8 Forfeited (3,778) 15 Options outstanding and vested as of December 31, During 2007, 164,840 options were forfeited in exchange for 108,197 Adecco S.A. shares. The number of Adecco S.A. shares exchanged represented the equivalent value of the options at the DIS acquisition date plus a premium for the share price performance of Adecco S.A. from acquisition through to the date of the exchange. Options fully vested and exercisable were 16,410 and 78,586 as of December 31, 2007 and December 31, 2006, respectively. The weighted-average grant date fair value of options granted and vested during the year ended December 31, 2006 was EUR Note 9 Employee benefit plans In accordance with local regulations and practices, the Company has various employee benefit plans, including defined contribution and both contributory and non-contributory defined benefit plans. Defined contribution plans and other arrangements The Company recorded an expense of EUR 76, EUR 73, and EUR 62, in connection with defined contribution plans in 2008, 2007, and 2006, respectively, and an expense of EUR 40, EUR 42, and EUR 39, in connection with the Italian employee termination indemnity arrangement in 2008, 2007, and 2006, respectively. The Company sponsors a non-qualified defined contribution plan in the US for certain of its employees. This plan is partly funded through a Rabbi trust, which is consolidated in the Company s financial statements. At December 31, 2008 and December 31, 2007, the assets held in the Rabbi trust amounted to EUR 28 and EUR 37, respectively. The related pension liability totalled EUR 43 and EUR 50 at December 31, 2008 and December 31, 2007, respectively. Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

146 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Certain employees are covered under multi-employer pension plans administered by unions. The data available from administrators of the plans is not sufficient to determine the projected benefit obligation or the net assets attributable to the Company. Consequently, these plans are reported as defined contribution plans. Contributions made to those plans during 2008, 2007, and 2006, amounted to EUR 5, EUR 5, and EUR 4, respectively. Defined benefit plans The Company sponsors defined benefit plans principally in Switzerland, the Netherlands, the UK, and the US. These plans provide benefits primarily based on years of service and level of compensation, and are in accordance with local regulations and practices. The defined benefit obligations and related assets of all major plans are reappraised annually by independent actuaries. On January 1, 2008, the Company adopted the measurement provisions of SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) ( SFAS No. 158 ) and therefore the measurement date in 2008 for all defined benefit plans is December 31. The adoption of the measurement provisions of SFAS No. 158 resulted in a decrease, net of tax, of EUR 1 in retained earnings. For the previous periods presented, the measurement date used for the Swiss defined benefit plan was September 30 and the measurement date for the other major defined benefit plans was December 31. Plan assets are recorded at fair value, and consist primarily of marketable equity securities, fixed income instruments, and real estate. The projected benefit obligation ( PBO ) is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future pay increases. The accumulated benefit obligation ( ABO ) is the actuarial present value of benefits attributable to employee service rendered to date, but excluding the effects of estimated future pay increases. Actuarial gains and losses are recognised as a component of other comprehensive income/(loss), net, in the period when they arise. Those amounts are subsequently recognised as a component of net period pension cost using the corridor method. The components of pension expense, net, for the defined benefit plans are: Swiss plan Non-Swiss plans in EUR Components of pension expense Service cost Interest cost Expected return on plan assets (4) (4) (4) (5) (3) (4) Amortisation of net (gain)/loss (3) 2 (5) Pension expense, net (1) 4 (3) 116 Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

147 The following table provides a reconciliation of the changes in the benefit obligations, the change in the fair value of assets, and the funded status of the Company s defined benefit plans as of the above described measurement dates: Swiss plan Non-Swiss plans in EUR Pension liabilities and assets Projected benefit obligation, beginning of period Service cost Interest cost Participant contributions Actuarial (gain)/loss 8 (10) (18) (6) Plan amendments 2 Benefits paid (34) (23) (2) (2) Curtailments and settlements (1) (1) Foreign currency translation 9 (2) (6) (3) Adoption of SFAS No. 158 measurement provisions 3 Projected benefit obligation, end of period Plan assets, beginning of period Actual return/(decrease) on assets (15) 2 (10) 1 Employer contributions Participant contributions Benefits paid (34) (23) (2) (2) Curtailments and settlements (1) Foreign currency translation 10 (2) (5) (2) Adoption of SFAS No. 158 measurement provisions 1 Plan assets, end of period Funded status of the plan (11) 11 (6) (13) Contributions from measurement date to fiscal year end 2 Amount recognised (11) 13 (6) (13) Accumulated benefit obligation, end of period The amounts recognised in the consolidated balance sheets as of December 31, 2008 and December 31, 2007, were: Swiss plan Non-Swiss plans in EUR Pension related assets Pension related liabilities (11) (20) (22) Total (11) 13 (6) (13) Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

148 Adecco Group Notes to consolidated financial statements in millions, except share and per share information As of December 31, 2008, the Company recognised a net loss of EUR 14 for Swiss defined benefit plans and a net gain of EUR 2 for non-swiss defined benefit plans in accumulated other comprehensive income/(loss), net. The estimated amount that will be amortised from accumulated other comprehensive income/(loss), net, into pension expense, net, over the next fiscal year is an expense of EUR 2 for Swiss defined benefit plans and a benefit of EUR 1 for non-swiss defined benefit plans. As of December 31, 2007, the Company recognised a net gain for Swiss defined benefit plans of EUR 6 in accumulated other comprehensive income/(loss), net. For plans with a PBO in excess of the fair value of plan assets as of December 31, 2008 and December 31, 2007, the total PBO was EUR 137 and EUR 48, respectively, and the fair value of the plan assets was EUR 106 and EUR 26, respectively. Certain of the Company s pension plans have an ABO that exceeds the fair value of plan assets. For plans with an ABO that exceeds the fair value of plan assets, the aggregated ABO was EUR 131 and EUR 25 as of December 31, 2008 and December 31, 2007, respectively, and the fair value of the plan assets of those plans was EUR 106 and EUR 9, respectively. The assumptions used for the defined benefit plans reflect the different economic conditions in the various countries. The weighted-average actuarial assumptions are: Swiss plan Non-Swiss plans in % Weighted-average actuarial assumptions Discount rate Rate of increase in compensation levels Expected long-term rate of return on plan assets The overall expected long-term rate of return on plan assets for the Company s defined benefit plans is based on inflation rates, inflation-adjusted interest rates, and the risk premium of equity investments above risk-free rates of return. Longterm historical rates of return are adjusted when appropriate to reflect recent developments. The Swiss and non-swiss pension plans target weightedaverage asset allocations at December 31, 2008, and the actual weighted-average asset allocations at the measurement dates, by asset category, are as follows: Swiss plan Non-Swiss plans Actual allocation Actual allocation in % Target allocation range Target allocation range Weighted-average asset allocations Equity securities Debt securities Real estate Other Total Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

149 The investment policy and strategy for the assets held by the Company s pension plans is directed at achieving a long-term return. Factors included in the investment strategy are the achievement of consistent year-over-year results, effective and appropriate risk management, and effective cash flow management. The Company expects to contribute EUR 11 to its pension plan in Switzerland and EUR 3 to its non-swiss plans in Future benefits payments, which include expected future service, are estimated as follows: in EUR Swiss plan Non-Swiss plans Future benefits payments Years Note 10 Financial instruments Risk and use of derivative instruments The Company conducts business in various countries and funds its subsidiaries in various currencies, and is therefore exposed to the effects of changes in foreign currency exchange rates, including the US dollar, the British pound, the Japanese yen, and the Euro against the Swiss franc. In order to mitigate the impact of currency exchange rate fluctuations, the Company assesses its exposure to currency risk and hedges certain risks through the use of derivative instruments. The Company has also issued bonds and long-term notes in various currencies. Accordingly, the Company manages exposure to fixed and floating interest rates and currency fluctuations through the use of derivative instruments. The main objective of holding derivative instruments is to minimise the volatility of earnings arising from these exposures in the absence of natural hedges. The responsibility for assessing exposures as well as entering into and managing derivative instruments is centralised in the Company s treasury department. The activities of the treasury department are covered by corporate policies and procedures approved by the Board of Directors, which generally limit the use of derivative instruments for trading and speculative purposes. Group management approves the hedging strategy and monitors the underlying market risks. Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

150 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Fair value of financial instruments The following table shows the carrying value and the fair value of financial instruments: in EUR Carrying value Fair value Carrying value Fair value Financial instruments other than derivative instruments Current assets: Cash and cash equivalents Available-for-sale securities Trade accounts receivable, net 3,046 3,046 3,773 3,773 Financial instruments included in other current assets 3 3 Current liabilities: Accounts payable Short-term debt Current maturities of long-term debt Non-current liabilities: Long-term debt 1,142 1,121 1,072 1,079 Derivative instruments Current assets: Foreign currency contracts Non-current assets: Call options on own shares 5 5 Interest rate swaps 8 8 Current liabilities: Foreign currency contracts Interest rate swaps 1 1 Non-current liabilities: Interest rate swaps Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

151 The Company uses the following methods and assumptions to estimate the fair value of each class of financial instruments: Cash equivalents, trade accounts receivable, net, accounts payable, and short-term debt The carrying amount approximates the fair value given the short maturity of such instruments. Available-for-sale securities The fair value for these instruments is based on quoted market prices. Current maturities of long-term debt The fair value of the Company s current maturities of publicly traded long-term debt is estimated using quoted market prices. The carrying amount for the other current maturities of long-term debt approximates the fair value given the short maturity of those instruments. Long-term debt The fair value of the Company s publicly traded long-term debt is estimated using quoted market prices. The fair value of other long-term debt is estimated by discounting future cash flows using interest rates currently available for similar debt with identical terms, similar credit ratings, and remaining maturities. See Note 6 for details on debt instruments. Foreign currency contracts The fair value is calculated by using the present value of future cash flows based on quoted market information. Call options on own shares The fair value of these derivative instruments is based on information obtained from financial institutions. Interest rate swaps The fair value for interest rate swaps is calculated using the present value of future cash flows based on quoted market information. Fair value hedges EUR 350 of interest rate swaps that contain a receipt of fixed interest rate payments and payment of floating interest rate payments have been designated as fair value hedges of the EUR 500 fixed rate guaranteed notes issued by Adecco International Financial Services BV. The outstanding contracts have an original contract period of five to seven years and expire in EUR 120 of interest rate swaps that contained a receipt of fixed interest rate payments and payment of floating interest rate payments were designated as fair value hedges of the EUR 122 Olsten EUR guaranteed notes which were repaid in The contracts had an original contract period of two years and expired in No significant gains or losses were recorded in 2008, 2007, and 2006, respectively, due to ineffectiveness in fair value hedge relationships. No significant gains or losses were excluded from the assessment of hedge effectiveness of the fair value hedges in 2008, 2007, or Cash flow hedges During the year 2007, the Company acquired cash settled call options on Adecco S.A. shares. The options were designated as cash flow hedges of the senior management share-linked bonus plan for the years 2007 to 2009, to minimise volatility of future cash flows arising from fluctuations in the share price of Adecco S.A. The majority of the contracts expired in As of December 31, 2008 and December 31, 2007, no significant balances were included in accumulated other comprehensive income/(loss), net, in connection with cash flow hedges. No significant gains or losses were recorded in 2008, 2007, and 2006, respectively, due to ineffectiveness in cash flow hedge relationships. In 2008 and 2007, a loss of EUR 5 and EUR 17, respectively, due to the change of time value of the options, was excluded from the assessment of hedge effectiveness of the share-linked bonus plan cash flow hedge, and was recognised in SG&A in the accompanying consolidated statements of operations. No significant reclassifications into earnings of gains and losses that are reported in accumulated other comprehensive income/(loss), net, are expected within the next 12 months. Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

152 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Net investment hedges During 2004, the Company restructured the financing of its investment in the US operations and entered into forward foreign currency contracts to hedge a portion of the Company s exposure to fluctuations in the US dollar against the Swiss franc. All net investment hedges were terminated by September As of December 31, 2008, the net loss relating to net investment hedges included as a component of accumulated other comprehensive income/(loss), net, amounted to EUR 60. No reclassifications of losses reported in accumulated other comprehensive income/(loss), net, into earnings are expected within the next 12 months. Other hedge activities The Company has entered into certain derivative contracts that are not designated or do not qualify as hedges under SFAS No These are mainly forward foreign currency contracts used to hedge the net exposure of short-term subsidiary funding advanced in the local operations functional currency. These contracts are entered into in accordance with the written treasury policies and procedures and represent economic hedges. Gains and losses on these contracts are recognised in earnings, as foreign exchange gain/(loss), net, in the accompanying consolidated statements of operations. In connection with these activities, the Company recorded a net loss of EUR 5, EUR 4, and less than EUR 1 in 2008, 2007, and 2006, respectively. Credit risk concentration Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash investments, short-term investments, trade accounts receivable, and derivative financial instruments. The Company places its cash and short-term investments in major financial institutions throughout the world, which management assesses to be of high credit quality, in order to limit the exposure of each investment. Credit risk with respect to trade accounts receivable is dispersed due to the international nature of the business, the large number of customers, and the diversity of industries serviced. The Company s receivables are well diversified and management performs credit evaluations of its customers and, where available and cost-effective, utilises credit insurance. To minimise counterparty exposure on derivative instruments, the Company enters into derivative contracts with several large multinational banks and limits the exposure in combination with the short-term investments with each counterparty. 122 Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

153 Note 11 Fair value measurement The following table represents the Company s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2008, consistent with the fair value hierarchy provisions of SFAS No. 157: in EUR Level 1 Level 2 Level 3 Total Assets: Available-for-sale securities 7 7 Derivative assets Other current assets 3 3 Liabilities: Derivative liabilities Note 12 Other income/(expenses), net For the years 2008, 2007, and 2006, other income/(expenses), net, consist of the following: in EUR Foreign exchange gain/(loss), net (5) (2) (4) Interest income Other non-operating income/(expenses), net Total other income/(expenses), net Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

154 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Note 13 Income taxes Adecco S.A. is incorporated in Switzerland but the Company operates in various countries with differing tax laws and rates. A substantial portion of the Company s operations are outside Switzerland. Since the Company operates worldwide, the weighted-average effective tax rate will vary from year to year according to the earnings by country. The weighted-average tax rate is calculated by aggregating pre-tax operating income or loss in each country in which the Company operates multiplied by the country s statutory income tax rate. Income before income taxes and minority interests in Switzerland totalled EUR 236, EUR 477, and EUR 422 in 2008, 2007, and 2006, respectively. Foreign source income before income taxes and minority interests amounted to EUR 473, EUR 551, and EUR 363 in 2008, 2007, and 2006, respectively. The provision for income taxes consists of the following for the fiscal years: in EUR Provision for income taxes Current tax provision: Domestic Foreign Total current tax provision Deferred tax provision/(benefit): Domestic Foreign 20 (44) (74) Total deferred tax provision/(benefit) 33 (37) (66) Total provision for income taxes The difference between the provision for income taxes and the weighted-average tax rate is reconciled as follows for the fiscal years: in EUR Tax rate reconciliation Income taxed at weighted-average tax rate Items taxed at other than weighted-average tax rate (12) Non-deductible expenses Net change in valuation allowance 3 (10) (74) Non-deductible impairment of goodwill 17 Adjustments to deferred tax assets due to rate changes (1) (25) 4 Other, net 6 1 (6) Total provision for income taxes As of December 31, 2008 and December 31, 2007, a deferred tax liability of EUR 36 and EUR 24 has been provided for non-swiss withholding taxes and additional Swiss taxes due upon the future dividend payment of cumulative undistributed earnings. In 2007, the reconciling item adjustments to deferred tax assets due to rate changes included a net decrease in the tax provision of EUR 27 attributable to the change in the German statutory income tax rate. 124 Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

155 Temporary differences that give rise to deferred income tax assets and liabilities are summarised as follows: in EUR Temporary differences Net operating loss carryforwards Tax credits Depreciation Deferred compensation and accrued employee benefits Accrued expenses Financial amortisation in excess of tax amortisation Intercompany transactions Other Gross deferred tax assets FIN 48 provision, net (69) (68) Valuation allowance (53) (57) Deferred tax assets, net Intangible assets basis in excess of tax basis (132) (149) Accrued expenses (1) (1) Tax amortisation in excess of financial amortisation (5) Undistributed earnings of foreign subsidiaries (36) (24) Other (16) (16) Deferred tax liabilities (190) (190) Deferred tax assets, net of deferred tax liabilities Management s assessment of the realisation of deferred tax assets is made on a country-by-country basis. The assessment is based upon the weight of all available evidence, including factors such as the recent earnings history and expected future taxable income. A valuation allowance is recorded to reduce deferred tax assets to a level which, more likely than not, will be realised. Valuation allowances on deferred tax assets of foreign and domestic operations decreased by EUR 4 in Included in the change of the valuation allowance is a decrease of EUR 4 for fluctuations in foreign exchange rates and EUR 3 related to losses which expired during the year. This was partially offset by an increase of EUR 3 for losses originated in Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

156 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Other current assets include current net deferred tax assets of EUR 148 and EUR 168 as of December 31, 2008 and December 31, 2007, respectively. Other long-term assets include EUR 104 and EUR 147 of net deferred tax assets as of December 31, 2008 and December 31, 2007, respectively. Other accrued expenses include current deferred tax liabilities of EUR 6 and EUR 3 as of December 31, 2008 and December 31, 2007, respectively. Other liabilities include EUR 165 and EUR 167 of non-current deferred tax liabilities as of December 31, 2008 and December 31, 2007, respectively. As of December 31, 2008, the Company had approximately EUR 471 of net operating loss carryforwards. These losses will expire as follows: in EUR Thereafter No expiry Total Expiration of losses by period The largest net operating loss carryforwards are in the US, Germany, and Brazil, and total EUR 328 as of December 31, The losses in the US begin to expire in The losses in Germany and Brazil do not expire. In addition, tax credits of EUR 14 are predominately related to the US operations and begin to expire in As of December 31, 2008, the amount of unrecognised tax benefits including interest is EUR 310 of which EUR 264 would, if recognised, decrease the Company s effective tax rate. As of December 31, 2007, the amount of unrecognised tax benefits including interest was EUR 332 of which EUR 242 would have, if recognised, decreased the Company s effective tax rate. The following table summarises the activity related to the Company s unrecognised tax benefits: in EUR Unrecognised tax benefits Balance at January 1, Increases related to current year tax positions 57 Expiration of the statutes of limitation for the assessment of taxes (4) Settlements with tax authorities (2) Additions to prior years 20 Decreases to prior years (13) Foreign exchange currency movement (24) Balance at December 31, Increases related to current year tax positions 39 Expiration of the statutes of limitation for the assessment of taxes (6) Settlements with tax authorities (13) Additions to prior years 13 Decreases to prior years (78) Foreign exchange currency movement 9 Balance at December 31, Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

157 In 2008, the item decreases to prior years includes EUR 50 related to a settlement of pre-acquisition contingencies with limited impact to the income tax expense. The Company recognises interest and penalties related to unrecognised tax benefits as a component of the provision for income taxes. As of December 31, 2008 and December 31, 2007, the amount of interest and penalties recognised in the balance sheet amounted to EUR 21 and EUR 31, respectively. The total amount of interest and penalties recognised in the statement of operations in 2008 was a net benefit of EUR 10. The total amount of interest and penalties recognised in the statement of operations in 2007 was not significant. The Company and its subsidiaries file income tax returns in multiple jurisdictions with varying statutes of limitation. The open tax years by major jurisdiction are the following: Open tax years Country US France Germany UK Spain Japan In certain jurisdictions, the Company may have more than one tax payer. The table above reflects the statutes of years open to examination for the major tax payers in each major tax jurisdiction. Based on the outcome of examinations, or as a result of the expiration of statutes of limitation for specific jurisdictions, it is reasonably possible that the related unrecognised tax benefits for tax positions taken regarding previously filed tax returns could materially change from those recorded as liabilities for uncertain tax positions in the financial statements. An estimate of the range of the possible change cannot be made until issues are further developed or examinations close onwards 2006 onwards 2002 onwards 2003 onwards 2004 onwards 2002 onwards Significant estimates are required in determining income tax expense and benefits. Various internal and external factors may have favourable or unfavourable effects on the future effective tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, results of tax audits, and changes in the overall level of pre-tax earnings. Adecco Financial Review / _Adecco_GB08.indd :36:26 Uhr

158 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Note 14 Earnings per share The following table sets forth the computation of basic and diluted earnings per share: in EUR (except number of shares) Basic Diluted Basic Diluted Basic Diluted Numerator Net income Interest on convertible bond, net of tax Net income available for earnings per share calculation Denominator Weighted-average shares 175,414, ,414, ,107, ,107, ,343, ,343,724 Incremental shares for assumed conversions: Convertible bond 9,441,281 9,523,810 9,523,810 Employee stock options 3, , ,426 Total average equivalent shares 175,414, ,859, ,107, ,279, ,343, ,532,960 Per share amounts Net earnings per share Stock options of 5,522,846 in 2008, 5,180,559 in 2007, and 6,936,122 in 2006 were excluded from the computation of diluted net income per share as the effect would have been anti-dilutive. Note 15 Segment reporting The Company is organised in a geographical structure (which corresponds to the primary segments). The heads of the main geographies directly manage the office and industrial business lines as well as the professional business lines. The classification into business lines is determined by the largest business line revenue share generated in a specific branch. The Company evaluates the performance of its segments based on operating income before amortisation and impairment of goodwill and intangible assets, which is defined as the amount of income before amortisation and impairment of goodwill and intangible assets, interest expense, other income/(expenses), net, income applicable to minority interests, and provision for income taxes. Corporate items consist of certain assets and expenses which are separately managed at the corporate level. Segment assets include current assets, property, equipment, and leasehold improvements, net, other assets, intangible assets, net, and goodwill. The accounting principles used for the segment reporting are those used by the Company. Approximately 92% of the Company s revenues in 2008 were related to temporary staffing, whereas in 2007 and 2006 temporary staffing represented 93% of the Company s revenues. The remaining portion relates to permanent placement and other services. 128 Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

159 in EUR France USA & Canada UK & Ireland Germany Japan Italy Iberia Other Corporate Total 2008 segment reporting Revenues 6,574 2,697 1,404 1,538 1,463 1,170 1,028 4,091 19,965 Depreciation (18) (15) (10) (8) (4) (4) (3) (15) (7) (84) Operating income before amortisation and impairment of goodwill and intangible assets (85) 908 Amortisation of intangible assets (44) Impairment of goodwill and intangible assets (116) Operating income 748 Interest expense, and other income/(expenses), net (39) Provision for income taxes (210) Income applicable to minority interests (4) Net income 495 Capital expenditures (28) (9) (15) (12) (3) (5) (6) (22) (6) (106) Segment assets 1,734 1, , , ,530 Long-lived assets in EUR France USA & Canada UK & Ireland Germany Japan Italy Iberia Other Corporate Total 2007 segment reporting Revenues 6,891 3,199 1,879 1,251 1,385 1,252 1,157 4,076 21,090 Depreciation (21) (18) (10) (7) (4) (3) (3) (15) (8) (89) Operating income before amortisation and impairment of goodwill and intangible assets (108) 1,081 Amortisation of intangible assets (27) Impairment of goodwill and intangible assets Operating income 1,054 Interest expense, and other income/(expenses), net (26) Provision for income taxes (285) Income applicable to minority interests (8) Net income 735 Capital expenditures (17) (14) (12) (10) (3) (5) (6) (19) (5) (91) Segment assets 1,967 1, , , ,254 Long-lived assets Long-lived assets include fixed assets and other non-current assets. Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

160 Adecco Group Notes to consolidated financial statements in millions, except share and per share information in EUR France USA & Canada UK & Ireland Germany Japan Italy Iberia Other Corporate Total 2006 segment reporting Revenues 6,777 3,709 1, ,432 1,156 1,089 3,653 20,417 Depreciation (26) (20) (9) (4) (6) (4) (3) (14) (8) (94) Operating income before amortisation and impairment of goodwill and intangible assets (127) 828 Amortisation of intangible assets (12) Impairment of goodwill and intangible assets Operating income 816 Interest expense, and other income/(expenses), net (31) Provision for income taxes (168) Income applicable to minority interests (6) Net income 611 Capital expenditures (17) (19) (13) (6) (3) (3) (2) (16) (6) (85) Segment assets 2,192 1, , ,682 Long-lived assets Long-lived assets include fixed assets and other non-current assets. Revenues by business line are as follows: in EUR Office Industrial Information Technology Engineering & Technical Finance & Legal Medical & Science Sales, Marketing & Events Human Capital Solutions Emerging Markets 1 Total Revenues ,358 10,963 1, ,195 19, ,765 11,521 1, ,087 21, ,758 11,005 1, ,417 1 Emerging Markets excluding professional business lines. 2 The 2008 information includes certain changes in the allocation of branches to business lines, most notably from Finance & Legal to Office and from Office to Sales, Marketing & Events, as well as from Emerging Markets to Office & Industrial (Austria previously reported under Emerging Markets is now reported together with Switzerland). The 2007 and 2006 information has been reclassified to conform to the current year presentation. 130 Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

161 Note 16 Commitments and contingencies The Company leases facilities under operating leases, certain of which require payment of property taxes, insurance, and maintenance costs. Operating leases for facilities are usually renewable at the Company s option. Total rent expense under operating leases amounted to EUR 223, EUR 210, and EUR 194 during 2008, 2007, and 2006, respectively. Future minimum annual lease payments under operating leases are as follows: in EUR Thereafter Total Lease payments by period As of December 31, 2008, the Company has future purchase and service contractual obligations of approximately EUR 106 primarily related to IT development and maintenance agreements, earn-out agreements related to acquisitions, marketing sponsorship agreements, equipment purchase agreements, and other vendor commitments. Future payments under these arrangements are as follows: in EUR Thereafter Total Contractual obligations by period Guarantees The Company has entered into certain guarantee contracts and standby letters of credit that total EUR 836, including those letters of credit issued under the multicurrency revolving credit facility (EUR 87). The guarantees primarily relate to government requirements for operating a temporary staffing business in certain countries and are generally renewed annually. Other guarantees relate to operating leases and credit lines. The standby letters of credit mainly relate to workers compensation in the US. If the Company is not able to obtain and maintain letters of credit and/or guarantees from third parties then the Company would be required to collateralise its obligations with cash. Due to the nature of these arrangements and historical experience, the Company does not expect to be required to collateralise its obligations with cash. Contingencies In the ordinary course of business, the Company is involved in various legal actions and claims, including those related to social security charges, other payroll related charges, and various employment related matters. Although the outcome of the legal proceedings cannot be predicted with certainty, the Company believes it has adequately reserved for such matters. Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

162 Adecco Group Notes to consolidated financial statements in millions, except share and per share information French antitrust procedure Two of the Company s French subsidiaries, Adecco France (formerly Adecco Travail Temporaire) and Adia SASU (formerly Adia SAS) and two of its competitors were investigated by the French competition authority concerning alleged anti-competitive practices in France. The investigation started in November 2004 when certain documents were collected by the authorities. In November 2007, Adecco France and Adia France received a Statement of Objections by the Conseil de la Concurrence, the French Competition Council, alleging infringements of competition rules, i.e. exchange of commercially sensitive information with competitors in 2003 and 2004 and in one case concerning Adecco France and Adia France, involvement in a concerted practice in response to a tender offer of a French company. On February 1, 2008, the Company entered into an agreement ( La Transaction ) with the Rapporteur Général meaning that the Company will not oppose the factual statements listed in the Statement of Objections thus receiving a certain rebate on the potential fine in exchange of certain commitments made in the agreement. On February 11, 2008, the Company submitted their comprehensive answer to the Statement of Objections. On June 3, 2008 and August 1, 2008, a further written exchange between the competition authorities and the Company took place. A general hearing before the members of the Competition Council occurred in Paris on October 1, On February 2, 2009, the Company received the decision of the Competition Council. The decision imposed a fine of EUR 34. The Company decided to appeal against certain aspects of the decision relating to the calculation of the fine before the Paris Court of Appeal, since it considers the level of the fine too high. However, it is difficult to estimate whether such appeal, which normally takes about eighteen months, will finally end in a reduction of the fine. The Company has accrued EUR 34 for this matter. Note 17 Risk management The Board of Directors, who is ultimately responsible for the risk management of the Company, has delegated its execution to Group Management. The risk management process is embedded into the Company s strategic and organisational context. The process is focused on managing risks as well as identifying opportunities. The Company s risk management process covers the significant risks for the Company including financial, operational and strategic risks. All countries perform the risk management process on a regular basis and report their results to Group Management. The Company s risk management activities consist of risk identification, risk assessment, risk response and risk monitoring. The Company s Global Risk Categorisation Model has been used to support the countries when identifying risks. This model divides the risks into external and internal driven risks. Within this model, Group Management has defined common key risks, which can have a significant impact on the Company s results. All countries are required to assess those key risks. The key risks are economic trends/situation (e.g. GDP growth), client attraction/retention, associate attraction/retention, colleague attraction/retention, financial reporting, IT environment, change in regulatory/legal and political environment, and fraudulent activities. Furthermore, the Company has identified three key risks which are managed centrally: liquidity risk, financial market risk (primarily related to foreign exchange, interest rates, and equity market risk), and M&A activities. In addition, the countries assess specific country risks. The risk assessment includes the following steps: estimation of the potential risk impact on the financial results, assessment of the likelihood of the risk occurrence, assessment of the effectiveness of existing internal controls, and development of action plans needed to mitigate the risk to an acceptable level. 132 Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

163 The risk assessment is aligned with the Company s decentralised organisational structure. The countries report to Group Management a comprehensive risk assessment, including mitigating actions. At the Group Management level the individual country results are reviewed and discussed with the countries before being categorised and consolidated. Risk monitoring is performed at Group level on a regular basis. The financial reporting risk includes the failure to comply with external reporting requirements due to failure of internal controls and lack of knowledge of external reporting requirements relating to accounting and reporting. The Company has implemented a Group Policy environment as well as an Internal Control System in order to mitigate the risk of failure to comply with financial reporting requirements. The Company s Internal Control System is designed to provide reasonable assurance to the Company s Management and Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of its published consolidated financial statements. The financial market risk primarily relates to foreign exchange, interest rates, and equity market risk and is further discussed in Note 10. Except for the equity market risk, these exposures are actively managed by the Company in accordance with written policies approved by the Board of Directors. The Company s objective is to minimise, where deemed appropriate, fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. It is the Company s policy to use a variety of derivative financial instruments to hedge the volatility relating to these exposures in the absence of natural hedges. The Company concluded that the risk management process has worked properly throughout Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

164 Report of the Statutory Auditor on the Consolidated Financial Statements to the General Meeting of Adecco S.A., Chéserex As statutory auditor, we have audited the accompanying consolidated financial statements of Adecco S.A., which are comprised of the consolidated balance sheets as of December 31, 2008 and 2007, and the related consolidated statements of operations, cash flows, changes in shareholders equity, and notes thereto, for each of the three years in the period ended December 31, Board of Directors responsibility The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Swiss law, Swiss Auditing Standards and auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements, referred to above, present fairly, in all material respects, the consolidated financial position of Adecco S.A. as of December 31, 2008 and 2007, and of the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in accordance with accounting principles generally accepted in the United States and comply with Swiss law. 134 Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

165 Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved. Ernst & Young Ltd Dominick Giuffrida Certified Public Accountant (U.S.) Robin Errico Licensed audit expert (Auditor in charge) Zurich, Switzerland March 18, 2009 Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

166 Adecco S.A. (Holding Company) Balance sheets in millions, except share and per share information and compensation table data As of (in CHF) Assets Current assets: Cash and cash equivalents Receivables from subsidiaries Receivables from third parties 1 7 Accrued income, prepaid expenses, and withholding taxes Total current assets Non-current assets: Investments in subsidiaries 7,047 6,749 Loans to subsidiaries 688 1,429 Provisions on investments in and loans to subsidiaries (565) (874) Treasury shares Intangible assets Financial assets 2 8 Total non-current assets 7,806 7,798 Total assets 7,981 7,936 Liabilities and shareholders equity Liabilities Current liabilities: Amounts due to subsidiaries Amounts due to third parties 1 23 Accrued liabilities Total current liabilities Non-current liabilities: Long-term debt to subsidiaries Provisions and non-current liabilities Total non-current liabilities Total liabilities 1,247 1,059 Shareholders equity Share capital General reserve 2,103 2,103 Reserve for treasury shares Retained earnings 3,534 4,136 Total shareholders equity 6,734 6,877 Total liabilities and shareholders equity 7,981 7, Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

167 Adecco S.A. (Holding Company) Statements of operations in millions, except share and per share information and compensation table data For the fiscal years ended December 31 (in CHF) Operating income Royalties and license fees Dividends from subsidiaries Gain on sale of investments 6 Release of provision on loans and investments Interest income from subsidiaries Other income Total operating income Operating expenses Interest expense to subsidiaries (73) (71) Interest expense to third parties (19) (3) Taxes (17) (72) Financial expense (465) (11) Other expenses (including depreciation of CHF 4 in 2008 and CHF 7 in 2007) (97) (168) Total operating expenses (671) (325) Net income Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

168 Adecco S.A. (Holding Company) Notes to financial statements in millions, except share and per share information and compensation table data Note 1 Contingent liabilities in CHF Guarantees 2,301 2,949 Letters of comfort Total contingent liabilities 2,440 3,076 Adecco S.A. has irrevocably and unconditionally guaranteed the fixed rate notes of CHF 747 (EUR 500) due 2013 issued by Adecco International Financial Services BV, a wholly-owned subsidiary of Adecco S.A. Adecco S.A. has irrevocably and unconditionally guaranteed the zero-coupon convertible bonds of CHF 900 and accrued interest of CHF 71 due 2013 issued by Adecco Financial Services (Bermuda) Ltd. ( AFS ), a wholly-owned subsidiary of Adecco S.A. During 2008, AFS repurchased bonds with nominal amount of CHF 43, which were held as treasury bonds as of December 31, Adecco S.A. granted to AFS a right to subscribe for the maximum of 9,523,810 registered shares of Adecco S.A. The nominal value of each share is CHF 1 and the initial exercise price is CHF On December 15, 2003, AFS paid to Adecco S.A. CHF 101 as a consideration for granting the above right. Adecco S.A. has guaranteed the amount of CHF 48 utilised from the revolving credit facility in the form of letters of credit as of December 31, Approximately CHF 592 of the credit facilities issued to several subsidiaries in Europe, North America, South America, Asia, and Australia have been guaranteed. Adecco S.A. has also guaranteed the outstanding acquisition commitments of its subsidiaries in the amount of CHF 34. Additionally, Adecco S.A. has provided guarantees and letters of comfort amounting to CHF 91 relating to government requirements for operating a temporary staffing business and to operating leases of its subsidiaries mainly in the US. Note 2 Treasury shares The reserve for treasury shares held by Adecco S.A. is transferred to/from retained earnings. As of December 31, 2008 and December 31, 2007, all treasury shares held by the Company are held by Adecco S.A. 138 Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

169 Carrying value (in CHF millions) Average purchase/sale Number price per share of shares (in CHF) Highest price per share (in CHF) Lowest price per share (in CHF) January 1, ,964,705 Disposed of (43) (601,992) Acquired 207 3,253, December 31, ,616,213 Acquired 459 8,458, Written down (362) December 31, ,075,104 On November 2, 2007, the Company announced that its Board of Directors had decided to purchase the Company s shares for up to EUR 400 by the end of On July 1, 2008, the Company announced that it had completed the repurchase programme. The shares are intended to be used for future acquisitions or to minimise potential dilution related to the outstanding convertible bond. In 2008, the Company purchased 8,234,500 treasury shares for a total consideration of CHF 451 (EUR 274) under this share buy-back programme. In 2007 the Company purchased 3,253,500 treasury shares for a total consideration of CHF 207 (EUR 124). On August 12, 2008, the Company announced that its Board of Directors had decided to purchase up to an additional 2% of the Company s shares. The shares are intended to be used for future acquisitions. In 2008, the Company acquired 224,391 treasury shares for a total consideration of CHF 8 (EUR 5) under this new share buy-back programme. The Company has written down the carrying value of treasury shares to the December 2008 average stock price. Note 3 Shareholders equity in CHF Share capital General reserve Reserve for treasury shares Retained earnings Total January 1, , ,136 6,877 Dividend distribution (264) (264) Net movement in reserve for treasury shares 459 (459) Net income December 31, , ,534 6,734 1 Common shares of CHF 189,263,506 at CHF 1 par value. On May 6, 2008, Adecco S.A. held its Annual General Meeting of Shareholders in Lausanne. Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

170 Adecco S.A. (Holding Company) Notes to financial statements in millions, except share and per share information and compensation table data Conditional capital As of December 31, 2008, Adecco S.A. had conditional capital under Art. 3 quater of the Articles of Incorporation of Adecco S.A. of 15,400,000 shares, for a maximum aggregate amount of CHF 15 for issue of a maximum of 15,400,000 registered shares, which shall be fully paid by the exercise of option and conversion rights to be granted in relation with bond issues or other obligations of Adecco S.A. or affiliated companies. 9,523,810 shares have been reserved for issuance upon conversion of the outstanding guaranteed zero-coupon convertible bond issued by AFS. The remaining 5,876,190 shares represent conditional capital that was originally authorised without time limitation in connection with the issuance of a convertible bond in 1999, which was repaid in 2004 without conversion. This conditional capital remains available for issuance upon conversion of any financial instruments that Adecco S.A. or its subsidiaries may issue in the future. Adecco S.A. had 4,166,804 shares of conditional capital reserved for issuance of common shares to employees and members of the Board of Directors upon the exercise of stock options as of December 31, 2008 and December 31, 2007, under Art. 3 ter of the Articles of Incorporation of Adecco S.A. These shares shall be fully paid up by the exercise of option rights which the Board of Directors has granted to the employees and to the members of the Board of Directors of Adecco S.A. or of its affiliated companies. During 2008, Adecco S.A. did not issue any shares. Note 4 Significant shareholders The Company has only registered shares. Not all shareholders register with the Company s share register. The following figures are based on information from the share register as of December 31, 2008, on shareholders disclosure or on other information available to the Company. 43,065,512 and 54,854,179 shares in 2008 and 2007, respectively, held by a shareholder group with pooled voting rights, consisting of Jacobs Holding AG, Zurich, Switzerland; Klaus J. Jacobs heirs, Renata I. Jacobs, Royston, UK; Lavinia Jacobs, Kusnacht, Switzerland; Nicolas Jacobs, São Paulo, Brazil; Philippe Jacobs, Shanghai, China; Nathalie Jacobs, Zurich, Switzerland; Jacobs Venture AG, Baar, Switzerland; and Triventura AG, Baar, Switzerland. 10,163,580 shares in 2008 and 2007, held by Akila Finance S.A., Luxembourg, controlled by Mr Philippe Foriel-Destezet, London, UK. 9,933,656 shares, as disclosed per January 4, 2008 (no information was disclosed in 2007), held by Group Franklin Templeton Investments, Ft. Lauderdale, USA, with pooled voting rights, consisting of Franklin Advisers, Inc., San Mateo, USA; Fiduciary International Inc., New York, USA; Franklin Templeton Investments Corp., Toronto, Canada; Franklin Templeton Investment Management Limited, Edinburgh, UK; Templeton Global Advisors Limited, Nassau, Bahamas; Templeton Investment Counsel, Ft. Lauderdale, USA. 9,421,391 shares as disclosed per January 28, 2009 and 9,496,700 shares as disclosed per November 20, 2007, held by Harris Associates L.P., Chicago, USA. Refer to Note 2 for details on shares held by the Company. For further detailed information see the links listed under item 1.2 of the Corporate Governance section. 140 Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

171 Note 5 Restriction regarding the distribution of dividends Swiss law requires that Adecco S.A. retains at least 5% of its annual net profits as general reserves until such reserves cover 20% of Adecco S.A. s nominal paid-in share capital (Art. 671 sec. 1, Swiss Code of Obligations). Any remaining net profits may be distributed as dividends, pursuant to a resolution of the General Meeting of Shareholders. Note 6 Compensation, shareholdings, and loans Compensation and shareholding of acting members of the Board of Directors and the Executive Committee The members of the Board of Directors are compensated in the form of cash. The amount conferred to the members of the Board of Directors for the fiscal year 2008 amounted to CHF 5. This amount includes honorariums (fees), salaries, credits, bonuses, and benefits in kind (according to market value at time of conferral). The total of all compensation conferred for the fiscal year 2008 to the Executive Committee, including bonus payments for 2008 due in 2009, amounted to CHF 17. Not included are bonus payments due for 2007 but made during Further information on the compensation of the Board and the Executive Committee of the Company can be found in the Remuneration Report. Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

172 Adecco S.A. (Holding Company) Notes to financial statements in millions, except share and per share information and compensation table data Individual compensation and shareholding for 2008 and 2007 are presented in the tables below: Board of Directors Compensation For the year 2008 Net cash compensation Social contributions 1 in CHF (except shares) Office/ compensation period in 2008 Base fee for term served Compensation in kind Old age insurance/pensions and others Fees for further work Total conferred Shareholding as of December 31, Name and function Jürgen Dormann, Chairman 3 since Jan ,600 80, ,400 28,500 Rolf Dörig, Vice-Chairman 4 since Jan ,340 84, ,468 Jakob Baer since Jan ,015 48, ,440 3,601 Andreas Jacobs since Jan , ,500 3,300 5 Francis Mer since Jan ,123 44, ,314 Thomas O Neill since Jan ,590 33, ,713 2,000 David Prince since Jan ,000 3, ,000 1 Wanda Rapaczynski 6 since May , ,000 Judith A. Sprieser 6 since May , ,000 Philippe Marcel until May ,000 8, , , ,742 n.a. Peter V. Ueberroth until May , ,500 n.a. Total 4,674,077 37,402 1 Including director s and Company s social contributions. 2 The members of the Board of Directors and the Executive Committee are required to disclose to the Company direct or indirect purchases and sales of equity related securities of Adecco S.A. Such transactions are published on the website of the Company (see: 3 Until December 31, Chairman as of January 1, In case of retirement from the Board of Directors before the Annual General Meeting of 2014 due to resignation or non-reelection, a cash compensation to Rolf Dörig in the amount of one annual fixed board fee will become due. The annual fixed board fee from January 1, 2009 on amounts to CHF 1,800,000 (net of social security charges) of which CHF 300,000 are payable in Adecco S.A. shares. 5 See Corporate Governance section, item 1.2 Significant shareholders and Note 4 Significant shareholders regarding shares held by a group to which Andreas Jacobs is a member. 6 Elected May 6, 2008 as new member of the Board of Directors. 7 Includes car allowance for private use. 142 Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

173 For the year 2007 Cash compensation Social contributions in CHF (except shares) Office/ compensation period in 2007 Base fee for term served 1 Annual bonus Loyalty bonus 2 Compensation in kind 3 Old age insurance/pensions and others Fees for further work Total conferred Shareholding as of December 31, Name and function Jürgen Dormann, Chairman 5 since Jan , , , , ,079,859 30,301 Rolf Dörig, Vice-Chairman 7 since May ,500 28, ,678 1 Jakob Baer since Jan ,000 24, ,247 3,601 Andreas Jacobs since Jan , ,000 3,301 8 Philippe Marcel 9 since Jan , , , , Francis Mer since Jan ,000 22, ,314 1 Thomas O Neill since Jan ,000 16, ,521 2,001 David Prince since Jan , , ,022,252 2 Peter V. Ueberroth since Jan , ,000 1 Klaus J. Jacobs, Chairman 13 until May 2007 n.a. Total 6,331, ,710 1 Including director s social contributions (where applicable). 2 Bonus conferred and accrued for 2007 under the loyalty bonus plan, payable in 2009, subject to continued function with the Company through to December 31, Car allowance for private use and housing allowance. 4 The members of the Board of Directors and the Executive Committee are required to disclose to the Company direct or indirect purchases and sales of equity related securities of Adecco S.A. Such transactions are published on the website of the Company (see: 5 Since May 8, 2007, before Vice-Chairman. 6 In addition to the amount disclosed in the 2007 Annual Report, this includes CHF 120,317 accrued in Elected May 8, 2007 as new member of the Board. 8 See Corporate Governance section, item 1.2 Significant shareholders and Note 4 Significant shareholders regarding shares held by a group to which Andreas Jacobs is a member. 9 Stock options held by Philippe Marcel as per December 31, 2007: See table Stock options held below. 10 In addition to CHF 300,000 Adecco S.A. board membership fee, amount includes fee for board membership in the Adecco France organisation. 11 Of which 79,080 shares were held by members of Philippe Marcel s family and 15,420 shares were held by an investment company in which Philippe Marcel reported a 50% ownership and parties related to Philippe Marcel participate as well. 12 For consultancy services performed. 13 Until May 8, See Annual Report 2007 Corporate Governance section, item 1.2 Significant shareholders and Note 4 Significant shareholders regarding shares held by a group to which Klaus J. Jacobs was a member. Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

174 Adecco S.A. (Holding Company) Notes to financial statements in millions, except share and per share information and compensation table data Executive Committee Compensation For the year 2008 Gross cash compensation 1 Social contributions 2 in CHF (except shares) Office/ compensation period in 2008 Annual base salary for term served Annual bonus Loyalty bonus 3 Compensation in kind 4 Old age insurance/ pensions and others Additional health/accident insurance Severance payments Total conferred Shareholding as of December 31, Name and function Dieter Scheiff, CEO 6 since Jan ,657, ,040 7, ,784 17,222 2,789,316 27,120 Dominik de Daniel, CFO 7 since Jan , , ,135 2,061 1,582,181 29,978 François Davy, Country Manager France 8 since Jan , ,567 8, ,692 11,450 1,747,120 Theron I (Tig) Gilliam, Country Manager USA & Canada 9 since Jan , ,567 38,545 52,909 1,110,598 Christian Vasino, Chief HR Officer since Jan , , ,850 93,646 2, ,313 1,000 Annalisa Gigante, Chief Business Development and Marketing Officer since Aug ,750 75,000 49,032 32, ,348 Jean-Manuel Bullukian, President Business Lines Engineering & Technical and Information Technology 11 until March ,000 3, ,998 7,091 1,697,335 2,275,074 n.a. Jan-Pieter Gommers, President Business Line Sales, Marketing & Events 11 until March ,500 12, ,370 2,527 1,578,964 1,965,634 n.a. Gonzalo Fernandez-Castro, Chief Marketing & Business Development Officer 11 until March ,000 16, ,238 2,071 1,830,000 2,278,139 n.a. Ekkehard Kuppel, President Business Line Human Capital Solutions 12, 13 until March , , ,022 10,397 46,687 2, ,790 n.a. Neil Lebovits, President Business Line Finance & Legal 11 until March ,806 84,498 62,918 4, , ,739 n.a. Francois-Xavier Quilici, Chief Information Officer 12 until March ,500 1,170 18, ,081 n.a. René Schuster, Country Manager UK & Ireland 12, 14 until March ,970 17,082 26,095 1, ,857 n.a. Total 16,566,190 58, Adecco Financial Review / _Adecco_GB08.indd :36:27 Uhr

175 1 Including employee s social contributions. 2 Including employer s social contributions. 3 Bonuses conferred and accrued for 2008 under the loyalty bonus plan, payable in 2009, subject to continued function with the Company through to December 31, Car allowance for private use, car lease financed by the Company, membership fees, housing allowance, relocation, education, health insurance, representation allowance. 5 The members of the Board of Directors and the Executive Committee are required to disclose to the Company direct or indirect purchases and sales of equity related securities of Adecco S.A. Such transactions are published on the website of the Company (see: 6 Minimum contract duration until June 30, Minimum contract duration until December 31, Severance payment of EUR 1,500,000 (CHF 2,240,100) due in case of termination of the employment contract by the employer. 9 Severance payment of USD 1,000,000 (CHF 1,068,240) due in case of termination of the employment contract by the employer. 10 Includes a bonus of CHF 31,036 for services performed in a specific project. 11 Membership in the Executive Committee ended March 3, Compensation conferred in the fiscal year 2008 until termination of employment. 12 Member of the Executive Committee until March 3, 2008; function no longer represented in the Executive Committee from March 4, 2008 onwards. Compensation received in the fiscal year 2008 for activities as member of the Executive Committee only, i.e. excluding compensation received in relation to other positions after such activity as member of the Executive Committee. 13 Minimum contract duration until December 31, Severance payment of EUR 1,000,000 (CHF 1,493,400) due in case of termination of the employment contract by the employer. Adecco Financial Review / _Adecco_GB08.indd :36:28 Uhr

176 Adecco S.A. (Holding Company) Notes to financial statements in millions, except share and per share information and compensation table data For the year 2007 Cash compensation Social contributions in CHF (except shares) Office/ Annual base compensation salary for period in 2007 term served Annual bonus Loyalty bonus 1 Compensation in kind 2 Old age insurance/ pensions and others Additional health/accident insurance Severance payments Total conferred Shareholding as of December 31, Name and function Dieter Scheiff, CEO 4 since Jan ,614,242 1,159,246 1,159, , ,957 20,190 4,462,229 27,120 6 Dominik de Daniel, CFO 7 since Jan , , , ,551 2,422 2,096,027 29,978 6 François Davy, Country Manager France 8 since Jan , , ,193 38, , ,226,228 Theron I (Tig) Gilliam, Country Manager USA & Canada 10 since March , , ,384 3,237 48,678 20,044 1,522,676 Christian Vasino, Chief HR Officer 12,13 since April , , ,375 4,230 52,359 2, ,972 1,000 Jean-Manuel Bullukian, President Business Lines Engineering & Technical and Information Technology 14 since Jan , ,736 13,245 91,658 11,820 1,098,459 Jan-Pieter Gommers, President Business Line Sales, Marketing & Events 14 since Jan , ,736 32,724 62,633 4, ,304 Gonzalo Fernandez-Castro, Chief Marketing & Business Development Officer 15 since Jan , ,736 22,440 62,157 3, ,631 Ekkehard Kuppel, President Business Line Human Capital Solutions 16,17 since Jan , , , , ,053 13,003 1,765,495 Neil Lebovits, President Business Line Finance & Legal 12,14 since Feb , ,899 25,818 29,006 18, ,323 Francois-Xavier Quilici, Chief Information Officer 16 since Jan , , ,893 4,630 74, ,852 René Schuster, Country Manager UK & Ireland 16,18 since Jan , , ,654 51,559 10,307 1,401,663 Ray Roe, former Country Manager USA & Canada 12,19 until Feb ,802 93,558 93, ,873 20, ,439 n.a. Thomas Flatt, former Chief HR Officer and former Head Business Line Medical & Science until March ,744 7,050 20, ,174,348 1,328,343 n.a. Jim Fredholm, former Head Business Line Finance & Legal until Jan ,833 2,677 9,382 3,788 1,440,198 1,516,878 n.a. Total 23,389,519 58, Adecco Financial Review / _Adecco_GB08.indd :36:28 Uhr

177 1 Bonuses conferred and accrued for 2007 under the loyalty bonus plan, payable in 2009, subject to continued function with the Company through to December 31, Car allowance for private use, car lease financed by the Company, membership fees, housing allowance, relocation, education, health insurance, representation allowance. 3 The members of the Board of Directors and the Executive Committee are required to disclose to the Company direct or indirect purchases and sales of equity related securities of Adecco S.A. Such transactions are published on the website of the Company (see: 4 Minimum contract duration until June 30, Payable after December 31, 2008, subject to no breach of employment contract by employee up to this point in time. 6 During 2007, DIS options were forfeited in exchange for Adecco S.A. shares. The number of shares exchanged represented the equivalent value of the options at the DIS acquisition date plus a premium for the share price performance of Adecco S.A. from acquisition through to the date of the exchange. 7 Minimum contract duration until December 31, Severance payment of EUR 1,500,000 (CHF 2,485,875) due in case of termination of the employment contract by the employer. 9 In addition to the amount disclosed in the 2007 Annual Report, this includes CHF 539,109 accrued in Severance payment of USD 1,000,000 (CHF 1,126,155) due in case of termination of the employment contract by the employer. 11 In addition to the amount disclosed in the 2007 Annual Report, this includes CHF 308,429 accrued in Compensation received in the fiscal year 2007 for activities as member of the Executive Committee only, i.e. excluding compensation received in relation to other positions prior to or after such activity as member of the Executive Committee. 13 Annual bonus based on Economic Value Added only. Loyalty bonus based on operating profit. 14 Membership in the Executive Committee and function with the Company ended March 3, Member of the Executive Committee and Chief Marketing & Business Development Officer until March 3, Function no longer represented in the Executive Committee from March 4, 2008 onwards. 17 Minimum contract duration until December 31, Severance payment of EUR 1,000,000 (CHF 1,657,250) due in case of termination of the employment contract by the employer. 19 Severance payment of USD 1,000,000 (CHF 1,126,155) due in case of termination of the employment contract. Adecco Financial Review / _Adecco_GB08.indd :36:28 Uhr

178 Adecco S.A. (Holding Company) Notes to financial statements in millions, except share and per share information and compensation table data Compensation of former members of Governing Bodies (Board of Directors, Executive Committee, and closely linked parties) No compensation payments were made to other former members of Governing Bodies in relation to their former offices. Shares and stock options allocated to Governing Bodies In 2008, no Adecco S.A. shares nor stock options were allocated to current or former members of Governing Bodies. Share ownerships of Governing Bodies For the individual share ownerships of the Board of Directors and the Executive Committee, see the tables Board of Directors Compensation and Executive Committee Compensation above and item 1.2 Significant shareholders of the Corporate Governance section. As per December 31, 2008, the members of the Board of Directors, including parties closely linked, reported to hold 37,402 shares; not included are the shares held by a group to which Mr Andreas Jacobs is a member (see item 1.2 Significant shareholders of the Corporate Governance section). As per December 31, 2008, the members of the Executive Committee, including parties closely linked, reported to hold 58,098 shares. The members of the Board of Directors and the Executive Committee are required to disclose to the Company direct or indirect purchases and sales of equity related securities in accordance with the requirements of the SIX Swiss Exchange. Such transactions are published on the website of the Company (see: Stock options held by Governing Bodies Stock options granted since the merger of Adia and Ecco in 1996 to, exercised by, lapsed from, and held by the members of Governing Bodies in office as of December 31, 2008 and as of December 31, 2007, are presented in the tables below (no stock options were granted since 2004): As of December 31, 2008 Last year of expiry detail Year of grant Christian Vasino Strike price (CHF) Granted Exercised Lapsed Held Stock options held ,500 (500) 2,000 As of December 31, 2007 Last year of expiry detail Year of grant Year of expiry Philippe Marcel Neil Lebovits Christian Vasino Strike price (CHF) Granted Exercised Lapsed Held Held by Philippe Marcel Held by Neil Lebovits Held by Christian Vasino Stock options held ,000 (1,000) / ,000 (141,000) 35,000 35, / ,050 (145,600) ,000 (2,400) 1,600 1, / ,000 (91,334) 178, ,666 12, ,000 (20,000) , , , / ,500 (20,000) 2,500 2,500 Total 739,550 (182,000) (239,334) 318, ,666 14,050 2, Adecco Financial Review / _Adecco_GB08.indd :36:28 Uhr

179 One option entitles the holder to purchase one Adecco S.A. share under the conditions as outlined in the respective plan. Options shown as held in the tables above are included as part of the total options outstanding presented in the table appearing in the Corporate Governance section, item 2.7 Convertible notes and options. For additional information on stock options, see Corporate Governance section, item 2.7 Convertible notes and options. Additional fees and remuneration of Governing Bodies Philippe Marcel, a member of the Board of Directors, has received honorariums in the amount of CHF 0.3. Loans granted to Governing Bodies In 2008, the Company did not grant any guarantees nor loans or advances or credits to members of the Board of Directors or to members of the Executive Committee, including closely linked parties. Note 7 Risk management The detailed disclosure regarding risk management required by Swiss law is included in Note 17 to the Adecco Group consolidated financial statements. Note 8 Proposed appropriation of available earnings in CHF Available earnings of previous year 4,136 3,888 Profit for the year Net movement on treasury share provision (459) (164) Dividend distribution (264) (222) Total available earnings 3,534 4,136 Proposed dividend of CHF 1.50 per registered share (291) 1 (303) Proposed balance to be carried forward 3,243 3,833 1 This amount represents the maximum amount of dividends payable based on the total number of shares issued (excluding treasury shares) of 174,188,402 and conditional shares of 19,566,804, which were not in circulation as of December 31, Adecco Financial Review / _Adecco_GB08.indd :36:28 Uhr

180 Report of the Statutory Auditor on the Financial Statements to the General Meeting of Adecco S.A., Chéserex As statutory auditor, we have audited the accompanying financial statements of Adecco S.A., which comprise the balance sheet, statement of operations and notes for the year ended December 31, Board of Directors responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements for the year ended December 31, 2008 comply with Swiss law and the company s articles of incorporation. 150 Adecco Financial Review / _Adecco_GB08.indd :36:28 Uhr

181 Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Over-sight Act (AOA) and independence (Art. 728 Code of Obligations [CO] and Art. 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company s articles of incorporation. We recommend that the financial statements submitted to you be approved. Ernst & Young Ltd Dominick Giuffrida Certified Public Accountant (U.S.) Robin Errico Licensed audit expert (Auditor in charge) Zurich, Switzerland March 18, 2009 Adecco Financial Review / _Adecco_GB08.indd :36:28 Uhr

182 Major consolidated subsidiaries Name of legal entity Country Registered seat Currency of of legal entity Ownership Type 1 share capital Share capital in thousands Adecco Argentina S.A. Argentina Buenos Aires 100% O ARS 44,526 Adecco Industrial Pty Ltd Australia Melbourne 100% O AUD 5 Icon Recruitment Pty Ltd Australia Melbourne 100% O AUD 24,469 Adecco Personnel Services NV Belgium Brussels 100% O EUR 4,151 Adecco Coordination Center NV Belgium Brussels 100% F EUR 1,332,468 Adecco Financial Services (Bermuda) Ltd Bermuda Hamilton 100% F USD 12 Adecco Employment Services Limited Canada Toronto, Ontario 100% H/O CAD 90,615 Ajilon Canada Inc. Canada Toronto, Ontario 100% O CAD 14,884 Adecco A/S Denmark Frederiksberg 100% O DKK 10,000 Adecco France SASU France Villeurbanne 100% O EUR 85,317 ADIA SASU France Villeurbanne 100% O EUR 83,293 Adecco Medical SASU France Villeurbanne 100% O EUR 230 Altedia SA France Paris 100% O EUR 3,027 Adecco Holding France SASU France Villeurbanne 100% H EUR 601,200 Groupe Datavance SAS France Paris 100% H EUR 5,708 Adecco Germany Holding GmbH Germany Düsseldorf 100% H EUR 25 Adecco Personaldienstleistungen GmbH Germany Fulda 100% O EUR 31 DIS Deutscher Industrie Service AG Germany Düsseldorf 100% O EUR 12,300 TUJA Zeitarbeit GmbH Germany Ingolstadt 100% O EUR 40 euro engineering AG Germany Ulm 100% O EUR 540 Adecco Személyzeti Közvetitö Kft. Hungary Budapest 100% O HUF 49,000 Adecco Flexione Workforce Solutions Limited India Bangalore 100% O INR 500 Adecco Italia SpA Italy Milan 100% O EUR 2,976 Adecco Ltd Japan Tokyo 100% O JPY 5,562,863 Ecco Servicios de Personal SA de CV Mexico Mexico City 100% H/O MXN 101,854 Adecco Personeelsdiensten BV Netherlands Utrecht 100% O EUR 227 Adecco International Financial Services BV Netherlands Utrecht 100% F EUR 2,500 DNC de Nederlanden Compagnie N.V. Netherlands The Hague 100% H EUR 11,422 Adecco Norge AS Norway Oslo 100% O NOK 50,000 Adecco Poland Sp. z o.o. Poland Warsaw 100% O PLN 50 Adecco Recursos Humanos Portugal Lisbon 100% O EUR 1,925 Adecco Personnel Pte Ltd Singapore Singapore 100% O SGD 100 Adecco TT SA Empresa de Trabajo Temporal Spain Madrid 100% O EUR 1,759 Alta Gestión SA Empresa de Trabajo Temporal Spain Madrid 100% O EUR 6,420 Atlas Servicios Empresariales S.A.U. Spain Madrid 100% O EUR 60 Eurocén Europea de Contratas SA Spain Madrid 100% O EUR 661 Adecco Sweden AB Sweden Stockholm 100% O SEK 3,038 Adecco Ressources Humaines S.A. Switzerland Lausanne 100% O CHF 7,000 Adecco S.A. Switzerland Chéserex H CHF 189,264 Adecco management & consulting S.A. Switzerland Lausanne 100% S CHF 500 Adecco Invest S.A. Switzerland Luzern 100% H CHF 100 Adecco UK Ltd United Kingdom Borehamwood 100% O GBP 15,000 Ajilon (UK) Ltd United Kingdom Borehamwood 100% O GBP 10 Office Angels Ltd United Kingdom Borehamwood 100% O GBP 2,657 Roevin Management Services Ltd United Kingdom Borehamwood 100% O GBP <1 Adecco USA, Inc. United States Wilmington, DE 100% O USD <1 Adecco Inc. United States Wilmington, DE 100% H USD <1 Ajilon LLC United States Wilmington, DE 100% O USD n/a 2 Ajilon Professional Staffing LLC United States Wilmington, DE 100% O USD n/a 2 Lee Hecht Harrison LLC United States Wilmington, DE 100% O USD n/a 2 Olsten Staffing Services Corp. United States Wilmington, DE 100% O USD <1 1 H Holding; O Operating; S Services; F Financial. 2 Subsidiary is registered as a Limited Liability Company ( LLC ). No shares have been issued as LLCs have membership interests rather than shares. 152 Adecco Financial Review / _Adecco_GB08.indd :36:28 Uhr

183 Annex C Financial Review Adecco Group and Adecco 2007 (incl. Auditor's Reports) The contents of this Annex C represent an excerpt from pages 59 to 134 of Adecco Group's Annual Report 2007; hence, any references to a page or pages not included in this Annex C refer to the respective page(s) in Adecco Group's Annual Report /298

184 Financial Review Adecco Group 60 Operating and financial review and prospects 79 Selected financial information 80 Consolidated financial statements 85 Notes to consolidated financial statements 120 Report of the Group Auditors Adecco S.A. (Holding Company) 122 Financial statements 124 Notes to financial statements 132 Report of the Statutory Auditors 133 Confirmation in Respect of Conditional Capital Increase 134 Major consolidated subsidiaries Adecco Financial Review /298

185 Adecco Group Operating and financial review and prospects in millions, except share and per share information 1. Introduction The information in this discussion and analysis should be read in conjunction with the Company s consolidated financial statements and the notes thereto that are prepared in accordance with U.S. generally accepted accounting principles ( U.S. GAAP ) and are included elsewhere in this Annual Report and with the disclosure concerning forward-looking statements at the end of this section. Statements throughout this discussion and analysis using the term the Company refer to the Adecco Group, which comprises Adecco S.A., a Swiss corporation, its majority-owned subsidiaries and other affiliated entities. 1.1 Business and industry background The Company is the global leader in human resource services including temporary staffing and permanent placement, outsourcing, and career services consulting and outplacement. The Company s network of over 7,000 branches and over 37,000 full-time equivalent employees in over 60 countries and territories at the end of 2007 connects on average on a daily basis over 700,000 associates with over 150,000 clients. Registered in Switzerland and managed by a multinational team with expertise in markets worldwide, the Company delivers a broad range of human resource services to meet the needs of small and large business clients as well as those of associates. The staffing industry is fragmented and highly competitive. Customer demand is dependent upon the overall strength of the labour market as well as an established trend towards greater workforce flexibility. More liberal labour market laws, particularly for temporary staffing, are beneficial for the industry and have been a driver for greater workforce flexibility. The business is also strongly influenced by the macroeconomic cycle, which typically results in growing demand for employment services during periods of economic expansion and, conversely, contraction of demand during periods of economic downturn. Due to the sensitivity to the economic cycle and the low visibility in the temporary staffing sector, forecasting demand for staffing and human resource services is difficult. Typically, customers are not able to provide much advance notice of changes in their staffing needs. Responding to the customer s fluctuating staffing requirements in a flexible way is a key element of the Company s strategy, which it addresses through its diverse staffing and human resource services network. Anticipating trends in demand is also important in managing our internal cost structure. This coupled with our ability to maximise our overall resources and to enhance competitive advantage through our wide variety of services and locations while maintaining standards of quality to both our clients and associates are key components to achieving profitability targets during any part of the economic cycle. 1.2 Organisational structure Since January 2006, the Company is organised in a geographic structure (which corresponds to the primary segments) complemented by global business lines, through which the professional services are marketed. The heads of the main geographic areas consisting of France, USA & Canada, UK & Ireland, Japan, Italy, Iberia, Benelux, Nordics, Germany, Australia & New Zealand, Switzerland, and Emerging Markets directly manage the Office and Industrial businesses, while co-leading together with the professional business line heads the professional business lines in the country. The professional business lines are Adecco Finance & Legal; Adecco Engineering & Technical; Adecco Information Technology; Adecco Medical & Science; Adecco Sales, Marketing & Events, and Adecco Human Capital Solutions. The classification into business lines is determined by the largest business line revenue share generated in a specific branch. As of March 2008, the operational responsibility of the professional business lines with the exception of Human Capital Solutions has been fully transferred to the countries, while supported and guided by the corporate business development department. 1.3 Service lines Revenues and gross profits derived from temporary staffing totalled 93% and 80% of the respective consolidated totals in 2007 and 2006 when excluding the positive impact in 2007 of the modification of calculation of French social charges. Temporary staffing billings are generally negotiated and invoiced 60 Adecco Financial Review /298

186 on an hourly basis. Temporary associates record the hours they have worked and these hours, at the rate agreed with the customer, are then accumulated and billed according to the agreed terms. Temporary staffing service revenues are recognised upon rendering of the service. The temporary associate is paid the net hourly amount after statutory deductions on a daily, weekly, or monthly basis. Certain other employer payroll-related costs are incurred and the net difference between the amounts billed and payroll costs incurred is reported as gross profit. Revenues and gross profits derived from outsourcing, outplacement, consulting, and permanent placement services totalled 7% and 20% of the respective consolidated totals both in 2007 and The terms of outsourcing, consulting, and outplacement services are negotiated with the client on a project basis and revenues are recognised upon rendering of the service. For permanent placement services, the placement fee is directly negotiated with the client. Revenues from permanent placement services are generally recognised at the time the candidate begins full-time employment and an allowance is established, based on historical information, for any non-fulfillment of permanent placement obligations. Outplacement and permanent placement services provide significantly higher gross margins. 1.4 Key performance indicators We monitor operational results through a number of additional key performance indicators beside revenues, gross profit, selling, general and administrative expenses, and operating income before amortisation and use these measures of current operational performance along with qualitative information and economic trend data to direct the Company s strategic focus. These indicators include the following: Business mix the revenue split between temporary staffing, permanent placement, and other services. Bill rate an average hourly billing rate for temporary staffing services indicating current price levels. Pay rate an average hourly payroll rate including social charges for temporary staffing services indicating current costs. Temporary hours sold the volume of temporary staffing services sold. Temporary associates the number of temporary associates at work. Clients the number of active clients. Permanent placements the number of candidates placed in permanent job positions. Average fee per placement the average amount received for job placement services. Days sales outstanding ( DSO ) accounts receivable turnover. Full time equivalent ( FTE ) employees. Branches the number of locations from which the Company offers human resource services. Economic Value Added residual income after cost of capital. 1.5 Seasonality Our quarterly operating results are affected by the seasonality of our customers businesses. Demand for temporary staffing services historically has been lowest during the first quarter of the year. 1.6 Currency The financial results of the Company are presented in Euro, which the Company selected as its reporting currency in recognition of the significance of the Euro to the Company s operations. In 2007, 56% of total revenues were generated in the Euro zone. Amounts shown in the consolidated statements of operations and consolidated statements of cash flows are translated using average exchange rates for the period. In 2007, the average exchange rate for the British pound and the Norwegian krone, which comprised 9% and 3% of total revenues, respectively, were unchanged, and the US dollar, the Japanese yen, the Swiss franc, and the Canadian dollar, which comprised 14%, 7%, 2%, and 2% of total revenues, respectively, weakened against the Euro. In contrast, the average exchange rate for the Australian dollar, which comprised 2% of total revenues, strengthened against the Euro. With the exception of the Norwegian krone and the Canadian dollar, the year-end currency exchange rates for the main currencies used in translating the Company s consolidated balance sheets, including the US dollar, the British pound, the Japanese yen, the Australian dollar, and the Swiss franc weakened against the Euro. Adecco Financial Review /298

187 Adecco Group Operating and financial review and prospects in millions, except share and per share information 2. Non-U.S. GAAP information and financial measures The Company uses non-u.s. GAAP financial measures for management purposes. The principal non-u.s. GAAP financial measures discussed herein are net debt and constant currency comparisons, which are used in addition to and in conjunction with results presented in accordance with U.S. GAAP. Net debt and constant currency comparisons should not be relied upon to the exclusion of U.S. GAAP financial measures, but rather reflect an additional measure of comparability and means of viewing aspects of the Company s operations that, when viewed together with the U.S. GAAP results, provide a more complete understanding of factors and trends affecting our business. Because net debt and constant currency comparisons are not standardised, it may not be possible to compare our measures with other companies non-u.s. GAAP financial measures having the same or a similar name. Management encourages investors to review the Company s financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. 2.1 Net debt Management monitors outstanding debt obligations by calculating net debt. Net debt comprises short-term and longterm debt less cash and cash equivalents and short-term investments. The following table reconciles net debt to the most directly comparable financial measures calculated in accordance with U.S. GAAP: in EUR Net debt Short-term debt and current maturities of long-term debt Long-term debt, less current maturities 1,072 1,406 Total debt 1,429 1,444 Less: Cash and cash equivalents Short-term investments 8 13 Net debt Constant currency Constant currency comparisons are calculated by multiplying the prior year functional currency amount by the current year s foreign currency exchange rate. Management believes that constant currency comparisons are important supplemental information for investors because these comparisons exclude the impact of changes in foreign currency exchange rates, which are outside the Company s control, and focus on the underlying growth and performance. 3. Operating results 3.1 Overview 2007 saw a good overall business environment and continued growth in demand for staffing and human resource services. Countries undergoing liberalisation of temporary labour markets and enjoying favourable economic conditions experienced strong growth. 62 Adecco Financial Review /298

188 The Company s strategic focus during 2007 was on value creation for shareholders. The Company concluded 2007 with the following financial highlights: revenues grew 3% to EUR 21,090; operating income increased 29% to EUR 1,054; net income increased 20% to EUR 735; return on capital employed ( ROCE ) 1 improved 140 basis points ( bps ) to 21.7%. 1 Operating income minus income tax fixed at 30% divided by average invested capital. Invested capital is defined as assets minus liabilities excluding cash & cash equivalents, short-term investments and short-term and long-term debt. In 2007, the Company acquired the Tuja Group ( Tuja ), thus strengthening its position in the fast-growing and highly profitable German temporary staffing market. Tuja is a leading staffing company in Germany with operations also in Switzerland and Austria. In 2006, the Company made an important strategic acquisition of DIS Deutscher Industrie Service AG ( DIS ), in order to expand its professional staffing service offering, to gain market share in Germany, and to strengthen the management team. DIS is a leading German professional staffing provider. The 2007 operating income was positively impacted by the modification of the calculation of French social charges (see 3.5 Operating income). 3.2 Revenues Revenues increased 3% to EUR 21,090 in 2007 or 6% in constant currency. This growth was driven primarily by a temporary staffing volume increase as temporary hours sold rose 4% to 1,323 million. Permanent placement revenues were EUR 387 in 2007, which is an increase of 13% or 17% in constant currency versus Acquisitions had a positive impact of 2% on 2007 revenues. Geographical performance The geographical breakdown of revenues is presented below: Variance % in EUR EUR Constant Currency Revenues France 6,891 6, USA & Canada 1 3,199 3,709 (14) (6) UK & Ireland 1 1,879 1, Japan 1,385 1,432 (3) 7 Italy 1,252 1, Iberia 1,157 1, Benelux Nordics Germany 1, Australia & New Zealand Switzerland Emerging Markets 1,186 1, Adecco Group 21,090 20, A business previously reported in UK & Ireland is now included in USA & Canada, as in 2007 this business is managed by USA & Canada. The 2006 information has been restated to conform to the current year presentation. Adecco Financial Review /298

189 Adecco Group Operating and financial review and prospects in millions, except share and per share information France France s revenues rose 2% to EUR 6,891 in The focus on value generation led to a decrease of temporary staffing volume as temporary hours sold fell 1%. Temporary staffing services bill rates increased by 3%. In 2007, France accounted for 33% of the Company s revenues. USA & Canada Revenues in the USA & Canada decreased by 14%, or 6% in constant currency, to EUR 3,199 in Due to a generally slower market demand, temporary hours sold fell by 11%. The drop in temporary hours sold was partially offset by an increase in bill rates of 5% in constant currency reflecting an improved customer and skill mix. USA & Canada contributed 15% to the Company s revenues in UK & Ireland UK & Ireland s revenues grew 3% to EUR 1,879 in There was particularly strong demand in the Finance & Legal business line and solid demand in the Office business, while revenues declined in the Information Technology and Industrial business lines. Temporary hours sold decreased 4% and bill rates grew 8% in constant currency. UK & Ireland generated 9% of the Company s revenues in Japan In Japan, revenues declined 3%, but increased 7% in constant currency, to EUR 1,385 due to the solid economic environment. Temporary hours sold and bill rates in constant currency increased 9% and 1%, respectively, whereas revenues in outsourcing declined. In 2007, 6% of the Company s revenues were generated in Japan. Italy In Italy, revenues grew 8% to EUR 1,252 in 2007 as temporary hours sold increased 7% and bill rates grew 2%. Italy accounted for 6% of the Company s revenues in Benelux In the Benelux countries, revenues increased by 3% to EUR 983 in Temporary hours sold decreased by 3% and bill rates increased by 4% whereas permanent placement and outsourcing services increased significantly. The Benelux revenues in 2007 accounted for 5% of the Company s revenues. Nordics Revenue growth in the Nordic countries was 23%, or 22% in constant currency, to EUR 991 mainly due to an increase in temporary hours sold of 26%. A strong economic environment was the main driver behind this growth. The Nordics revenues in 2007 accounted for 5% of the Company s revenues. Germany Boosted by the acquisitions of Tuja in 2007 (results included since August 2007) and DIS in 2006 (results included since April 2006), Germany achieved strong revenue growth of 62% to EUR 1,251 in 2007, reflecting a 61% growth in temporary hours sold and a 1% increase in bill rates. Excluding the impact of the acquisitions, Germany s revenues increased 18% as a result of generally higher acceptance levels of temporary staffing combined with a strong economy. The German revenues in 2007 accounted for 6% of the Company s revenues. Australia & New Zealand In Australia & New Zealand, revenues increased 13%, or 11% in constant currency, to EUR 474 in Excluding acquisitions and currency impact, Australia & New Zealand s revenues increased 6%. Switzerland In Switzerland, an increase in temporary hours sold of 10% led to an increase in revenues of 6%, or 11% in constant currency to EUR 442 in Excluding acquisitions and currency impact, Switzerland increased revenues by 7%. Iberia In Iberia, revenues grew 6% to EUR 1,157, reflecting a 3% growth in temporary hours sold and a 2% increase in bill rates. In 2007, Iberia contributed 5% to the Company s revenues. Emerging Markets In the Emerging Markets, the Company experienced revenue growth of 13%, or 18% in constant currency, to EUR 1,186. Excluding acquisitions and currency impact, revenues in the Emerging Markets increased 14%. The revenue additions were particularly strong in Argentina, Mexico, India, Poland, and Singapore. The Emerging Markets represented 6% of the Company s revenues in Adecco Financial Review /298

190 Business line performance The business line breakdown of revenues is presented below: Variance % in EUR EUR Constant Currency Revenues 1 Office 4,701 4,739 (1) 3 Industrial 11,426 10, Total Office & Industrial 16,127 15, Information Technology 1,381 1,399 (1) 2 Engineering & Technical Finance & Legal Medical & Science Sales, Marketing & Events Human Capital Solutions Total Professional Business Lines 3,791 3, Emerging Markets 2 1,172 1, Adecco Group 21,090 20, Breakdown of revenues is based on dedicated branches. The 2007 information includes certain changes in the allocation of branches to business lines, most notably from Office to Finance & Legal and from Sales, Marketing & Events to Industrial. The 2006 information has been restated to conform to the current year presentation. 2 Excluding professional business lines. Office & Industrial The Company s Office & Industrial businesses grew 3% to EUR 16,127 in 2007, which represents 76% of the Company s revenues. In the Office business, revenue additions were strong in Japan and in the Nordics. In France and the USA & Canada, revenues declined as the Company focused on value generation in France and as demand softened in the USA & Canada. Japan, USA & Canada, UK & Ireland, the Nordics, and France generated more than 85% of the revenues in the Office business. In the Industrial business, revenue growth was strong in Italy, which reflects a still favourable economic environment. Revenues declined in the USA & Canada as demand softened. France, where revenues were slightly up, Italy, and USA & Canada accounted for 70% of the revenues in the Industrial business. Information Technology In Information Technology, the Company s revenues decreased by 1% (remained flat when excluding acquisitions and currency impact) compared to 2006, experiencing a revenue decline in the UK & Ireland as well as in the USA & Canada. The Company has seen strong demand in Australia & New Zealand (partly from acquisitions) and Japan. UK & Ireland and USA & Canada contributed about 70% of the business line s revenues. Engineering & Technical The Company s Engineering & Technical business line grew revenues by 5% (3% when excluding acquisitions and currency impact). The revenue growth was strongest in Germany (also due to acquisitions), while revenues in the USA & Canada grew low single digit in constant currency. Revenues remained stable in the UK & Ireland. Over 75% of the business line s revenues were generated in the USA & Canada, UK & Ireland, and Germany. Adecco Financial Review /298

191 Adecco Group Operating and financial review and prospects in millions, except share and per share information Finance & Legal In Finance & Legal, the Company achieved revenue growth of 6% (10% when excluding acquisitions and currency impact). Demand for finance and legal professionals was strong in the UK & Ireland, while revenues decreased in the USA & Canada. The USA & Canada and the UK & Ireland were responsible for over 70% of revenues in the business line Finance & Legal. Human Capital Solutions The Company s Human Capital Solutions revenues grew by 3%, or 7% in constant currency, reflecting the generally better conditions of the outplacement market. Over 80% of the Human Capital Solutions business line revenues were generated in the USA & Canada and France. Medical & Science Medical & Science grew revenues by 12% (10% when excluding acquisitions and currency impact), with strong revenue growth in the Nordics. In France, revenues declined slightly. France and the Nordics accounted for over 75% of the business line s revenues. Sales, Marketing & Events In Sales, Marketing & Events, the Company achieved revenue growth of 8%, or 11% in constant currency. France, Iberia, and Japan were the main contributors to the business line s revenues. 3.3 Gross profit Gross profit increased 11%, or 14% in constant currency, to EUR 3,927 in Gross margin improved 120 bps to 18.6% compared to Excluding the modification of the calculation of French social charges of EUR 172, which had an 80 bps positive impact and is included in other services, the gross margin was up 40 bps. Higher gross margins in the temporary staffing business and the growing contribution of permanent placement are the main drivers behind this improvement. The acquisitions of Tuja and DIS added 10 bps to the Company s gross margin. The gross margin improvement in 2007 compared to 2006 of 120 bps is attributable to: bps Temporary Staffing 40 Permanent Placement 10 Outplacement 0 Other 70 Total Selling, general and administrative expenses During 2007, the Company maintained its emphasis on cost control. Selling, general and administrative expenses ( SG&A ) increased 5% or 8% in constant currency, reflecting an increase in SG&A as a percentage of revenues of 20 bps to 13.5% from 13.3% in However, when excluding expenses related to the modification of the calculation of French social charges of EUR 16 and the expenses related to the French antitrust proceedings of EUR 15, SG&A as a percentage of revenues was at the same level as in Personnel expenses, which comprised 70% of total SG&A, increased by 5% to EUR 1,984 in 2007, or 8% in constant currency. The increase was mainly due to the expansion of the Company s branch network including acquisitions and the resulting increase in FTE employees. The average branches and the average FTE employees during 2007 increased 5% to 7,041 and 4% to 36,514, respectively. At year-end, the number of branches and FTE employees exceeded 7,000 and 37,000, respectively. 66 Adecco Financial Review /298

192 The following table shows the increase in the average FTE employees and the average branches by geographic areas: FTE employees Branches % variance % variance Geographical breakdown (yearly average) France 8,472 8,682 (2) 1,834 1,863 (2) USA & Canada 1 6,235 6,508 (4) 1,263 1,309 (4) UK & Ireland 1 3,133 3,334 (6) Japan 2,664 2, Italy 2,064 2, Iberia 2,438 2, Benelux 1,899 1, Nordics 1,541 1, Germany 2,346 1, Australia & New Zealand (14) Switzerland Emerging Markets 4,040 3, Corporate (17) Adecco Group 36,514 35, ,041 6, A business previously reported in UK & Ireland is now included in USA & Canada, as in 2007 this business is managed by USA & Canada. The 2006 information has been restated to conform to the current year presentation. Marketing expenses were EUR 104 in 2007, compared to EUR 93 in Bad debt expense decreased by EUR 3 to EUR 19 in Operating income Operating income increased 29%, or 32% in constant currency, to EUR 1,054 in The operating income margin improved 100 bps to 5.0% in 2007 compared to The modification of the calculation of French social charges positively impacted operating income by EUR 156 (for further details refer to Note 1 of the consolidated financial statements) while the legal provision for the French antitrust proceedings had a negative impact of EUR 15. The higher gross margin in the temporary staffing business and the growing contribution of permanent placement were the main drivers behind the underlying improved operating income margin. Adecco Financial Review /298

193 Adecco Group Operating and financial review and prospects in millions, except share and per share information The geographical breakdown of operating income is presented in the following table: Variance % in EUR EUR Constant Currency Operating Income France USA & Canada (4) 5 UK & Ireland (33) (33) Japan Italy Iberia Benelux Nordics (13) (14) Germany Australia & New Zealand Switzerland Emerging Markets Total Operating Units 1, Corporate expenses (108) (127) Amortisation of intangible assets (27) (12) Adecco Group 1, A business previously reported in UK & Ireland is now included in USA & Canada, as in 2007 this business is managed by USA & Canada. The 2006 information has been restated to conform to the current year presentation. France France s operating income increased 58% to EUR 405 in The operating income margin increased 210 bps to 5.9% in 2007 compared to 2006, mainly due to the positive impact of the modification of the calculation of French social charges (EUR 156) partly offset by the expense for the legal provisions for the French antitrust proceedings (EUR 15). USA & Canada The USA & Canada s operating income declined 4%, or increased 5% in constant currency, to EUR 150 in An improved customer and skill mix and efficient cost management resulted in an operating income margin improvement of 50 bps to 4.7% in 2007 compared to UK & Ireland The UK & Ireland s operating income decreased 33% to EUR 41 in Unprofitable contracts, restructuring costs, and bad debt write offs were the main reasons for this decline. As a result, the operating income margin declined by 120 bps to 2.2% in 2007 compared to Japan Operating income for Japan showed a 13%, or 26% in constant currency, increase to EUR 96 in 2007 and operating income margin improved 110 bps to 7.0% compared to The general shortage of candidates, combined with the solid economic environment, good permanent placement revenues, and efficient cost management led to improved gross margins and lower SG&A as a percentage of revenues. 68 Adecco Financial Review /298

194 Italy In Italy, operating income grew 17% to EUR 85 in 2007 and operating income margin improved 50 bps to 6.7% compared to 2006 mainly due to better cost management. Iberia Iberia achieved an operating income growth of 12% to EUR 76 in Operating income margin increased by 40 bps to 6.6% in 2007 compared to Improved pricing in temporary services is the main reason behind this enhancement. Benelux In the Benelux countries, operating income increased by 35% to EUR 58 in Operating income margin showed an improvement of 140 bps to 5.9% in 2007 compared to 2006, which is a result of an improved gross margin. Nordics Operating income declined 13% to EUR 43 in Operating income margin declined 180 bps to 4.4% in 2007 compared to The introduction of a collective wage agreement in the construction sector and investments into the infrastructure had a negative impact on operating income. Germany Germany achieved strong operating income growth of 72% to EUR 137 in 2007 and an operating income margin improvement of 70 bps to 11.0% compared to 2006, boosted by the acquisitions of Tuja and DIS. Emerging Markets In the Emerging Markets, the Company experienced an increase in operating income of 14%, or 17% in constant currency, to EUR 40. Operating income margin improved from 3.3% in 2006 to 3.4% in Amortisation of intangible assets Amortisation of intangible assets increased to EUR 27 from EUR 12 in 2006 mainly due to the acquisition of Tuja. 3.7 Interest expense Interest expense increased by EUR 5 to EUR 56 in 2007 compared to EUR 51 in Other income/(expenses), net Other income/(expenses), net, which include interest income, foreign exchange gains and losses, and other non-operating income/(expenses), net, were income of EUR 30 in 2007 compared to income of EUR 20 in Interest income in 2007 was EUR 31 compared to EUR 22 in Foreign exchange gain/(loss), net, amounted to a loss of EUR 2 in 2007 compared to a loss of EUR 4 in Australia & New Zealand In Australia & New Zealand, operating income increased 25%, or 20% in constant currency, to EUR 13 in 2007 compared to Operating income margin improved 20 bps to 2.7% in 2007 compared to Switzerland In Switzerland, operating income increased 15%, or 20% in constant currency, to EUR 45 in 2007 compared to 2006, which represents an operating income margin improvement of 80 bps to 10.2%. 3.9 Provision for income taxes The provision for income taxes increased by EUR 117 to EUR 285 in 2007 compared to EUR 168 in The effective tax rate for the fiscal year 2007 was 28% compared with 21% in the prior year. In 2006, the effective tax rate benefited from the release of a valuation allowance on deferred tax assets in the US in the amount of EUR 64. Adecco Financial Review /298

195 Adecco Group Operating and financial review and prospects in millions, except share and per share information 3.10 Net income Net income for 2007 increased by 20% to EUR 735 compared to EUR 611 in Basic earnings per share ( EPS ) was EUR 3.97 for 2007 compared with EUR 3.28 for The modified calculation of French social charges had a positive EPS impact on basic EPS of EUR The release of the tax valuation allowance in the US positively impacted 2006 basic EPS by EUR Liquidity and capital resources Liquidity is the ability to generate sufficient cash flows from operating activities to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate financing. Currently, cash needed to finance the Company s operations is primarily generated through operating activities, bank overdrafts, the existing multicurrency credit facility and, when necessary, the issuance of bonds. 4. Outlook The key drivers for our industry are global GDP trends in developed and emerging markets; increased demand for temporary labour generally but particularly across professional segments as skill shortages rise; and more favourable regulation. It is anticipated that the cyclical nature of the temporary staffing markets and the trend towards more favourable regulation of labour markets is continuing. Management continues to be confident that the focus on value based management and professional and specialised business fields will allow the Company to continuously improve 2009 operating margin to over 5%. At the same time, the Company remains committed to its objective of revenue growth of at least 7-9% per annum on average for the coming years and a return on capital employed (ROCE) of above 25% in 2009, assuming the macroeconomic environment is favourable. ROCE was 21.7% in 2007 and 20.3% in For the beginning of 2008, management anticipates the market in the USA & Canada to remain weak, while expecting solid growth in Europe and ongoing good demand in Japan to continue. As the focus on shareholder value and profitable growth continues, management expects to experience below market growth in France and the UK. The principal funding requirements of the Company s business include financing working capital and capital expenditures. Capital expenditures mainly comprise the purchase of computer equipment, capitalised software, and cost of leasehold improvements. Within the Company s working capital, trade accounts receivable, net of allowance for doubtful accounts, comprise approximately 81% of total current assets. Accrued salaries and wages, payroll taxes and employee benefits and sales and value added taxes comprise 62% of total current liabilities. Working capital financing needs increase as business grows. Management believes that the ability to generate cash from operations combined with additional capital resources available are sufficient to support the expansion of existing business activities and to meet short- and medium-term financial commitments. Additionally, the Company may utilise available cash resources to repay debt. For acquisitions, the Company may choose to utilise available cash resources or secure additional financing. 70 Adecco Financial Review /298

196 5.1 Analysis of cash flow statements Cash and cash equivalents and short-term investments decreased by a total of EUR 325 to EUR 563 at the end of The decrease was mainly due to the acquisition of Tuja, the purchase of approximately 16% of outstanding common shares of DIS, the payment of dividends, the purchase of treasury shares, and capital expenditures, substantially offset by the generation of operating cash flows. Cash flows from operations are generally derived from receipt of cash from customers less payments to temporary personnel, regulatory authorities, employees, and other operating disbursements. Cash receipts are dependent on general business trends, foreign currency fluctuations, and cash collection trends measured by DSO. DSO varies significantly within the various countries in which the Company has operations, due to the various market practices within these countries. In general, an improvement of DSO reduces the balance of trade accounts receivable resulting in cash inflows from operating activities. Cash disbursement activity is predominantly associated with scheduled payroll payments to the temporary personnel. Given the nature of these liabilities, the Company has limited flexibility to adjust its disbursement schedule. Also, the timing of cash disbursements differs significantly amongst the various countries. The following table illustrates cash from or used in operating, investing, and financing activities: in EUR Summary of cash flows information Net cash from operating activities 1, Net cash from/(used in) investing activities (929) (308) Net cash from/(used in) financing activities (424) (13) Cash flows from operating activities increased by EUR 315 to EUR 1,062 in 2007 compared to This increase is primarily attributable to higher net income, the increase in accounts payable and accrued expenses as well as the decrease in accounts receivable. DSO decreased to 58 days for the full year 2007 compared to 59 days for the full year Cash flows used in investing activities increased by EUR 621 to EUR 929 in 2007 compared to During 2007, the Company acquired 100% of outstanding common shares of Tuja, one of the leading temporary staffing companies in Germany with operations also in Switzerland and Austria, for a total consideration, net of cash acquired, of EUR 580, and approximately 16% of outstanding DIS shares for a total consideration of EUR 219. In March 2006, the Company had acquired approximately 84% of the outstanding common shares of DIS, a leading supplier of professional staffing services in Germany, for a total purchase price, net of cash acquired, of EUR 552. The Company s capital expenditures amounted to EUR 91 in 2007 and EUR 85 in During 2007, the Company purchased and sold auction rate securities for EUR 597 and EUR 596, respectively. During 2006, the Company purchased and sold auction rate securities for EUR 327 and EUR 337, respectively. During 2006, the Company purchased and sold other available-for-sale securities amounting to EUR 51 and EUR 399, respectively. Cash flows used in financing activities increased by EUR 411 to EUR 424 in 2007 compared to The Company repaid EUR 207 of debt assumed in the acquisition of Tuja. The acquisition of Tuja and DIS minority interest was financed with internal resources. The acquisition of DIS in 2006 was originally financed with a bridge facility of EUR 408 and cash on hand. On April 25, 2006, the Company issued EUR 500 fixed rate guaranteed notes and EUR 200 floating rate guaranteed notes. The proceeds were used to settle the bridge facility and for general corporate purposes. During 2006, the Company repaid EUR 517 of long-term debt. Further, in 2007 and 2006, dividend payments to shareholders were EUR 135 and EUR 120, respectively. Proceeds from stock option exercises amounted to EUR 40 in 2007 and EUR 43 in In 2007, the Company acquired 3,253,500 treasury shares for a total of EUR 124 as part of the share buy-back program of EUR 400 announced in November In 2006, the Company acquired 2,455,000 treasury shares for a total of EUR 123. Adecco Financial Review /298

197 Adecco Group Operating and financial review and prospects in millions, except share and per share information 5.2 Additional capital resources As of December 31, 2007, the Company s total capital resources amounted to EUR 4,581, comprising EUR 1,429 in debt and EUR 3,152 in equity, excluding treasury stock. Long-term debt, including current maturities was EUR 1,394 as of December 31, 2007 and EUR 1,406 as of December 31, 2006 and includes long-term notes and a convertible bond. The borrowings, which are unsubordinated and unsecured, are denominated in Swiss francs and Euros and have maturity dates ranging from 2008 to During 2007, the Company decreased its short- and long-term debt including foreign currency effect by EUR 15. In addition, the Company maintains a multicurrency revolving credit facility issued by a syndicate of banks which permits borrowings up to a maximum of EUR 580. On March 17, 2006, the Company agreed with the syndicate of banks an extension of EUR 577 of the existing EUR 580 multicurrency revolving credit facility from March 2008 through March The fiveyear facility is available for general corporate purposes including cash drawings and letters of credit. The interest rate is based on LIBOR, or EURIBOR (for drawings denominated in Euro), plus a margin, which varies depending on the Company s debt-to- EBITDA ratio. As of December 31, 2007 and December 31, 2006, there were no outstanding borrowings under the credit facility. As of December 31, 2007, the Company had EUR 462 available under the credit facility after utilising EUR 118 in the form of letters of credit. Furthermore, as of December 31, 2007, the Company had lines of credit, excluding the multicurrency credit facility, amounting to EUR 367, of which EUR 35 was used. by operating cash flows of EUR 1,062. Net debt is reconciled to the most comparable financial measures calculated in accordance with U.S. GAAP on page 62. Under the terms of the various short- and long-term credit agreements, the Company is subject to covenants requiring, among other things, compliance with certain financial tests and ratios. As of December 31, 2007, the Company was in compliance with all financial covenants. For further details regarding financing arrangements see Note 6 to the consolidated financial statements. The Company manages its cash position to ensure that contractual commitments are met and reviews cash positions against existing obligations and budgeted cash expenditures. The Company s policy is to invest excess funds primarily in investments with maturities of 12 months or less, and in money market and fixed income funds with sound credit ratings, limited market risk and high liquidity. To a limited extent the Company invests excess cash in the US in auction rate securities. Auction rate securities are variable-rate debt instruments with long-term scheduled maturities and periodic interest rate reset dates. As of December 31, 2007 and December 31, 2006, the Company did not hold any auction rate securities. The Company s current cash and cash equivalents and shortterm investments are invested primarily within Europe, with 5% invested in Switzerland and 77% invested in other European countries. In most cases, there are no restrictions on the transferability of these funds among entities within the Company. Net debt increased by EUR 310 to EUR 866 as of December 31, This increase can mainly be attributed to the decrease of cash and cash equivalents due to the purchase of Tuja and DIS minority interests combined with dividend payments, the purchase of treasury shares, and capital expenditures offset 72 Adecco Financial Review /298

198 5.3 Contractual obligations The Company s contractual obligations are presented in the following table: in EUR Total Thereafter 1 Payments due by period Short-term debt obligations Long-term debt obligations 1, ,071 Interest on long-term debt obligations Operating leases Purchase and service contractual obligations Total 2, ,182 1 Assumes that the put and call options are not exercised and that share conversion does not occur (refer to section Guaranteed zero-coupon convertible bond in Note 6 to the consolidated financial statements for further details). Short-term debt obligations consist of bank overdrafts and borrowings outstanding under the lines of credit. Long-term debt obligations consist primarily of EUR 200 floating rate notes and EUR 122 guaranteed notes, due in April and May 2008, respectively, as well as CHF 900 convertible debt and EUR 500 fixed rate notes, both due in These debt instruments were issued in part for acquisitions, to refinance existing debt, optimise available interest rates, and increase the flexibility of cash management. Future minimum rental commitments under non-cancellable leases comprise the majority of the operating lease obligations presented above. We expect to fund these commitments with existing cash and cash flows from operations. Operating leases are employed by the Company to maintain the flexible nature of the branch network. As of December 31, 2007, the Company had future purchase and service contractual obligations of approximately EUR 94, primarily related to IT development and maintenance agreements, earn-out agreements related to acquisitions, marketing sponsorship agreements, equipment purchase agreements, and other vendor commitments. 5.4 Additional funding requirements The Company plans to invest approximately EUR 100 in property, equipment, and leasehold improvements for existing operations including planned branch openings in Further planned cash outflows include distribution of dividends for 2007 in the amount of CHF 1.50 per share to shareholders of record on the date of payment. The maximum amount of dividends payable based on the total number of shares issued (excluding treasury shares) of 182,647,293 and conditional shares of 19,566,804 is CHF 303 (EUR 183 based on CHF/EUR per year-end of 1.66). Payment of dividends is subject to approval by the Annual General Meeting of Shareholders. Following the purchase of 6,604,000 of its own shares in January 2008 for EUR 218 and the purchase of 3,253,500 of its own shares for EUR 124 in 2007, the Company intends to invest an additional EUR 58 to acquire its own shares in The Company has entered into certain guarantee contracts and standby letters of credit that total EUR 845, including the letters of credit issued under the multicurrency revolving credit facility (EUR 118). The guarantees primarily relate to Adecco Financial Review /298

199 Adecco Group Operating and financial review and prospects in millions, except share and per share information government requirements for operating a temporary staffing business in certain countries and are generally renewed annually or every two years. Other guarantees relate to operating leases and credit lines. The standby letters of credit mainly relate to workers compensation in the US. If the Company is not able to obtain and maintain letters of credit and/or guarantees from third parties then the Company would be required to collateralise its obligations with cash. Due to the nature of these arrangements and historical experience, the Company does not expect to be required to collateralise its obligations with cash. 5.5 Income taxes The Company has reserves for taxes that may become payable in future periods as a result of tax audits. At any given time, the Company is undergoing tax audits in different tax jurisdictions, which cover multiple years. Ultimate outcomes of these audits could, in a future period, have a significant impact on cash flows. Based upon current available information, the Company is not able to determine if it is reasonably possible that the final outcome of tax audits will result in a materially different outcome than that assumed in its tax reserves. 5.6 Credit ratings The Company s most current credit rating from Moody s is Baa2 with stable outlook and from Standard & Poor s is BBB with stable outlook. Both ratings are investment grade. 6. Financial risk management foreign currency and derivative financial instruments The Company is exposed to market risk, primarily related to foreign exchange, interest rates, and equity market risk. Except for the equity market risk, which is only partially managed, these exposures are actively managed by the Company in accordance with written policies approved by the Board of Directors. The Company s objective is to minimise, where deemed appropriate, fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. It is the Company s policy to use a variety of derivative financial instruments to hedge the volatility relating to these exposures in the absence of natural hedges. The Company uses interest rate swaps to hedge interest rate risks and to maintain a balance between fixed rate and floating rate debt. The terms of the interest rate swaps generally match the terms of specific debt agreements. Additional discussion of these interest rate swaps is located in Note 10 to the consolidated financial statements. Depending on the amount of outstanding foreign currency forward contract hedges and the fluctuation of exchange rates, the settlement of these contracts may result in significant cash inflows or cash outflows. Given the global nature of the Company s business, the Company is exposed to foreign exchange movements, primarily in the currencies of the US, the UK, Japan, and subsidiaries whose functional currency is the Euro. Consequently, the Company enters into various contracts, such as foreign currency forward contracts and cross-currency swaps, which change in value as foreign exchange rates change, to preserve the value of assets, equity, and commitments. 74 Adecco Financial Review /298

200 7. Controls and compliance The Company is committed to maintaining the highest standards of ethical business conduct. The Company has a Chief Compliance Officer and a Chief Human Resources Officer, who oversee worldwide compliance practices and business ethics and report to the Board of Directors. The Board of Directors and Management of the Company are responsible for establishing and maintaining adequate internal control over financial reporting. Management has assessed the effectiveness of the Company s internal control over financial reporting as of December 31, In making this assessment, Management used the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, Management has concluded that, as of December 31, 2007, the Company s internal control over financial reporting is effective based on those criteria. The Company s internal control system was designed to provide reasonable assurance to the Company s Management and Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of its published consolidated financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Tuja, acquired in July 2007, which is included in the 2007 consolidated financial statements of the Company. Tuja constituted revenues of EUR 266, or 1.3% of the Company s total revenues for the year ended December 31, Critical accounting policies, judgements, and estimates The preparation of the financial statements in accordance with U.S. GAAP requires management to adopt accounting policies and make significant judgements and estimates. There may be alternative policies and estimation techniques that could be applied. The Company has established a review process to monitor the application of new accounting policies and the appropriateness of estimates. Changes in estimates may result in adjustments based on changes in circumstances and the availability of new information. Therefore, actual results could differ materially from estimates. The policies and estimates discussed below either involve significant estimates or judgements or are material to the Company s financial statements. The selection of critical accounting policies and estimates has been discussed with the Board of Directors and the Audit Committee. The Company s significant accounting policies are disclosed in Note 1 to the consolidated financial statements. 8.1 Accruals and provisions Various accruals and provisions are recorded for sales and income taxes, payroll related taxes, pension and health liabilities, workers compensation, profit sharing, and other similar items taking into account local legal and industry requirements. The estimates used to establish accruals and provisions are based on historical experience, information from external professionals, including actuaries, and other facts and reasonable assumptions under the circumstances. If the historical data the Company uses to establish its accruals and provisions does not reflect the Company s ultimate exposure, accruals and provisions may need to be increased or decreased and future results of operations could be materially affected. On a routine basis, governmental agencies in some of the countries in which the Company operates will audit our payroll tax calculations and our compliance with other payroll-related regulations. These audits focus primarily on documentation requirements and our support for our payroll tax remittances. Due to the nature of our business, the number of people Adecco Financial Review /298

201 Adecco Group Operating and financial review and prospects in millions, except share and per share information employed, and the complexity of some payroll tax regulations, the Company may be required to make some adjustments to the payroll tax remittances as a result of these audits. We make an estimate of the additional remittances that may be required and record the estimate as a component of direct costs of services or SG&A, as appropriate. The estimate is based on the results of past audits, with consideration for changing business volumes and changes to the payroll tax regulations. To the extent that actual experience differs from the estimates, the Company will increase or decrease the reserve balance. The French government has instituted various social programs, the adoption of which results in the recognition of a lower social security charge. The Company establishes provisions to cover the risk of non-compliance with these programs as well as for other French social security related risks. These provisions are adjusted periodically for the results of audits by local authorities and the expiration of statutes of limitations. Expenses are included in direct costs of services, as well as in SG&A. In most states of the US, the Company is self-insured for workers compensation claims by temporary workers. The provision recognised is based on actuarial valuations which take into consideration historical claim experience and workers demographic and market components. Workers compensation expense is included in direct costs of services. Significant weakening of the US market, changes in actuarial assumptions, increase of claims or changes in laws may require additional workers compensation expense. Improved claim experience may result in lower workers compensation premiums. 8.2 Allowance for doubtful accounts the age of the receivable. In determining these percentages, the Company analyses its historical collection experience and current economic trends. In the event that recent history and trends indicate that a smaller or larger allowance is appropriate, the Company would record a credit or charge to SG&A during the period in which such a determination was made. Since the Company cannot predict with certainty future changes in the financial stability of its customers, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected. As of December 31, 2007 and December 31, 2006, the Company had recorded an allowance for doubtful accounts of EUR 125 and EUR 122, respectively. Bad debt expense of EUR 19 and EUR 22 was recorded in 2007 and 2006, respectively. 8.3 Income taxes The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes ( SFAS No. 109 ). Deferred tax assets and liabilities are determined based on differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are also provided for the future tax benefit of existing net operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to be in effect in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded against deferred tax assets in those cases when management believes that the realisation is more unlikely than not. While management believes that its judgements and estimations regarding deferred income tax assets and liabilities are appropriate, significant differences in actual experience may materially affect the Company s future financial results. The Company makes judgements as to its ability to collect outstanding receivables and provides allowances for the portion of receivables when collection becomes doubtful. Provisions are made based on a specific review of significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing percentages, based on In addition, significant judgement is required in determining the worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. Many of these 76 Adecco Financial Review /298

202 uncertainties arise as a consequence of intercompany transactions and arrangements. Although management believes that its tax return positions are supportable, no assurance can be given that the final outcome of these matters will not be materially different from amounts reflected in the income tax provisions and accruals. Such differences could have a material effect on the income tax provisions or benefits in the periods in which such determinations are made. The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 ( FIN 48 ) on January 1, FIN 48 clarifies the accounting for uncertainty in income taxes recognised in an enterprise s financial statements in accordance with SFAS No FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Interim reporting for income taxes is based on an estimated annual tax rate. In determining this rate, management makes estimates about taxable income for each subsidiary within the Company and the tax rate in effect in each jurisdiction. In addition, discrete events are reported in the quarter in which they occur. To the extent these estimates change during the year, the actual results will differ from these estimates. In addition, should discrete events take place during a particular quarter, the estimated annual tax rate may change between quarterly periods and may differ from the actual tax rate for the year. 8.4 Impairment of goodwill and indefinite-lived intangible assets The carrying value of goodwill and indefinite-lived intangible assets is reviewed annually for impairment at a reporting unit level. The annual impairment test is performed during the fourth quarter based on financial information as of October 31. In interim periods, an impairment test will be performed in the instance that an event occurs or there is a change in circumstances which would indicate that the carrying value of goodwill or indefinite-lived intangible assets may be impaired. In step one of the goodwill impairment test, goodwill of the reporting units is tested for impairment by comparing the carrying value of each reporting unit with the reporting unit s fair value as determined using a combination of comparable market multiples, additional market information, and discounted cash flow valuation models. If the fair value of the reporting unit is lower than the carrying value of the reporting unit, step two is performed to measure the amount, if any, of impairment. In step two, the fair value of all assets and liabilities of the reporting unit is determined, as if the reporting unit had been acquired on a standalone basis. The fair value of the reporting unit s assets and liabilities is then compared with the fair value of the reporting unit, with the excess, if any, considered to be the implied goodwill of the reporting unit. If the carrying value of the reporting unit s goodwill exceeds this implied goodwill value, that excess is recorded as an impairment loss in operating income. In 2007 and 2006, no goodwill impairment loss was recognised. Indefinite-lived intangible assets are tested by comparing the fair value of the asset to the carrying value of the asset. In the event that the carrying value exceeds the fair value, an impairment loss is recorded in operating income. In 2007 and 2006, no impairment loss for indefinite-lived intangible assets was recognised. Determining the fair value of a reporting unit and, if necessary, its assets (including indefinite-lived intangible assets) and liabilities requires the Company to make certain estimates and judgements about assumptions which include expected revenue growth rates, profit margins, working capital levels, discount rates, and capital expenditures. Estimates and assumptions are based on historical and forecasted operational performance and consider external market and industry data. Adecco Financial Review /298

203 Adecco Group Operating and financial review and prospects in millions, except share and per share information Differences between the estimates used by management in its assessment and the Company s actual performance, as well as market and industry developments, changes in the business strategy that may lead to reorganisation of reporting units and the disposal of businesses could all result in an impairment of goodwill and indefinite-lived intangible assets. 8.5 Contingencies In the ordinary course of business conducted around the world, the Company faces loss contingencies that may result in the recognition of a liability or the write-down of an asset. Management periodically assesses these risks based on information available and assessments from external professionals. As discussed in Note 15 to the consolidated financial statements, the Company is currently involved in various claims and legal proceedings, including an antitrust proceeding in France. Periodically, the status of each significant loss contingency is reviewed to assess the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, an accrued liability for the estimated loss is recorded. Because of uncertainties related to these matters, accruals are based on the best information available at that time. As additional information becomes available, the potential liability related to pending claims and litigation is reassessed and, if required, estimates are revised. Such revisions in the estimates of the potential liabilities could have a material impact on results of operations and financial position of the Company. The US securities class action complaint filed against Adecco S.A. and certain of its current and former directors and officers has been ultimately dismissed and decided in favour of Adecco S.A. The class action lawsuits were commenced following the Company s January 2004 announcement of a delay in the release of its 2003 consolidated financial statements. The lawsuits alleged violations of Sections 10(b) and 20(a) of the US Securities Exchange Act of 1934 in connection with public disclosures made by the Company between March 2000 and January 2004 regarding its earnings and operating results. On March 29, 2006, the US District Court for the Southern District of California dismissed the plaintiffs amended consolidated complaint with prejudice and entered judgement in the Company s favour. The following decision of the US Court of Appeals for the Ninth Circuit from November 20, 2007, fully confirming the decision of the US District Court for the Southern District of California, became final and effective, after the plaintiffs did not make use of their right to appeal to the US Federal Supreme Court. 9. Forward-looking statements Information in this Annual Report may involve guidance, expectations, beliefs, plans, intentions or strategies regarding the future. These forward-looking statements involve risks and uncertainties. All forward-looking statements included in this Annual Report are based on information available to the Company as of the date of publication, and we assume no duty to update any such forward-looking statements. The forwardlooking statements in this Annual Report are not guarantees of future performance and actual results could differ materially from our current expectations. Numerous factors could cause or contribute to such differences. Factors that could affect the Company s forward-looking statements include, among other things: global GDP trends and the demand for temporary work; changes in regulation of temporary work; intense competition in the markets in which the Company competes; changes in the Company s ability to attract and retain qualified temporary personnel; the resolution of the French anti-trust proceedings; and any adverse developments in existing commercial relationships, disputes or legal and tax proceedings. 78 Adecco Financial Review /298

204 Adecco Group Selected financial information in millions, except share and per share information For the fiscal years (in EUR) Statements of operations Revenues 21,090 20,417 18,303 17,239 16,226 Operating income 1, Income from continuing operations Income/(loss) from discontinued operations 30 (3) Net income As of (in EUR) Balance sheets Cash and cash equivalents and short-term investments , Trade accounts receivable, net 3,773 3,846 3,659 3,149 2,947 Goodwill 2,646 1,882 1,434 1,196 1,241 Total assets 8,254 7,682 6,839 6,441 6,316 Short-term debt and current maturities of long-term debt Accounts payable and accrued expenses 3,476 3,544 3,287 3,025 2,772 Long-term debt, less current maturities 1,072 1, ,272 1,479 Total liabilities 5,374 5,175 4,702 4,666 4,769 Total shareholders equity 2,873 2,466 2,117 1,773 1,547 For the fiscal years (in EUR) Cash flows from continuing operations Cash flows from operating activities 1, Cash flows from/(used in) investing activities (929) (308) (241) 113 (432) Cash flows from/(used in) financing activities (424) (13) (478) (407) 357 Other indicators Capital expenditures, net As of Other indicators Net debt (in EUR) Additional statistics Number of FTE employees at end of year (approximate) 37,000 35,000 33,000 30,000 27,000 1 For 2007 and 2006, the Company s fiscal year included the full calendar year ending December 31, 2007 and December 31, 2006, respectively. In 2005 and 2004, the Company s fiscal year contained 52 weeks ending December 31, 2005 and 53 weeks ending January 2, 2005, respectively. In 2003, the Company s fiscal year contained 52 weeks ending December 28, Net debt is a non-u.s. GAAP measure and comprises short-term and long-term debt, less cash and cash equivalents and short-term investments. For a reconciliation of net debt to the most comparable U.S. GAAP measure, see page 62. Adecco Financial Review /298

205 Adecco Group Consolidated balance sheets in millions, except share and per share information As of (in EUR) Assets Current assets: Cash and cash equivalents Short-term investments 8 13 Trade accounts receivable, net Note 3 3,773 3,846 Other current assets Note Total current assets 4,660 5,045 Property, equipment, and leasehold improvements, net Note Other assets Note Intangible assets, net Note 2, Goodwill Note 2, 5 2,646 1,882 Total assets 8,254 7,682 Liabilities and shareholders equity Liabilities Current liabilities: Accounts payable and accrued expenses: Accounts payable Accrued salaries and wages Accrued payroll taxes and employee benefits Accrued sales and value added taxes Accrued income taxes Note Other accrued expenses Note Total accounts payable and accrued expenses 3,476 3,544 Short-term debt and current maturities of long-term debt Note Total current liabilities 3,833 3,582 Long-term debt, less current maturities Note 6 1,072 1,406 Other liabilities Note Total liabilities 5,374 5,175 Minority interests 7 41 Shareholders equity Common shares Note Additional paid-in capital 2,121 2,100 Treasury stock, at cost Note 7 (279) (182) Retained earnings 1, Accumulated other comprehensive income/(loss), net Note 7 (151) (35) Total shareholders equity 2,873 2,466 Total liabilities and shareholders equity 8,254 7,682 The accompanying notes are an integral part of these consolidated financial statements. 80 Adecco Financial Review /298

206 Adecco Group Consolidated statements of operations in millions, except share and per share information For the fiscal years (in EUR) Revenues Note 14 21,090 20,417 18,303 Direct costs of services (17,163) (16,871) (15,217) Gross profit 3,927 3,546 3,086 Selling, general and administrative expenses (2,846) (2,718) (2,469) Amortisation of intangible assets Note 5 (27) (12) (3) Operating income Note 14 1, Interest expense (56) (51) (52) Other income/(expenses), net Note Income before income taxes and minority interests 1, Provision for income taxes Note 12 (285) (168) (150) Income applicable to minority interests (8) (6) (2) Net income Basic earnings per share Note Basic weighted-average shares Note ,107, ,343, ,599,019 Diluted earnings per share Note Diluted weighted-average shares Note ,279, ,532, ,546,937 1 For 2007 and 2006, the Company s fiscal year included the full calendar year ending December 31, 2007 and December 31, 2006, respectively. In 2005, the Company s fiscal year contained 52 weeks ending December 31, The accompanying notes are an integral part of these consolidated financial statements. Adecco Financial Review /298

207 Adecco Group Consolidated statements of cash flows in millions, except share and per share information For the fiscal years (in EUR) Cash flows from operating activities Net income Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortisation Bad debt expense Stock-based compensation Deferred tax provision/(benefit) (37) (66) 14 Excess tax benefit on exercise of stock options (6) (13) Other (16) Changes in operating assets and liabilities, net of acquisitions: Trade accounts receivable 61 (209) (357) Accounts payable and accrued expenses Other assets and liabilities 52 3 (8) Cash flows from operating activities 1, Cash flows from/(used in) investing activities Capital expenditures (91) (85) (68) Proceeds from sale of property and equipment 1 2 Acquisition of Tuja, net of cash acquired (580) Acquisition of DIS, net of cash acquired (219) (552) Acquisition of Altedia, net of cash acquired (91) Acquisition of Humangroup, net of cash acquired (57) Purchase of auction rate securities (597) (327) (117) Proceeds from sale of auction rate securities Purchase of other available-for-sale securities (4) (51) (155) Proceeds from sale of other available-for-sale securities Investment in term deposits (327) Proceeds from settlement of term deposits Proceeds from sale of PSI 42 Cash settlements on derivative instruments (10) 5 (9) Other acquisition and investing activities (35) (36) (17) Cash flows from/(used in) investing activities (929) (308) (241) 82 Adecco Financial Review /298

208 For the fiscal years (in EUR) Cash flows from/(used in) financing activities Net increase/(decrease) in short-term debt (1) 15 (23) Repayment of debt assumed in Tuja acquisition (207) Borrowings on long-term debt, net of issuance costs 694 Repayment of long-term debt (517) (249) Dividends paid to shareholders (135) (120) (122) Common stock options exercised Cash settlements on derivative instruments (1) (15) (35) Purchase of treasury shares, net (124) (123) (58) Excess tax benefit on exercise of stock options 6 13 Other financing activities (2) (3) Cash flows from/(used in) financing activities (424) (13) (478) Effect of exchange rate changes on cash (29) (19) 10 Net increase/(decrease) in cash and cash equivalents (320) 407 (411) Cash and cash equivalents: Beginning of year End of year Supplemental disclosures of cash paid Cash paid for interest Cash paid for income taxes For 2007 and 2006, the Company s fiscal year included the full calendar year ending December 31, 2007 and December 31, 2006, respectively. In 2005, the Company s fiscal year contained 52 weeks ending December 31, The accompanying notes are an integral part of these consolidated financial statements. Adecco Financial Review /298

209 Adecco Group Consolidated statements of changes in shareholders equity in millions, except share and per share information In EUR Common shares Additional paid-in capital Treasury stock, at cost Retained earnings/ (accumulated deficit) Accumulated other comprehensive income/(loss), net Total shareholders equity January 3, ,026 (1) (356) (12) 1,773 Comprehensive income: Net income Other comprehensive income/(loss) Currency translation adjustment, net of tax Unrealised loss on cash flow hedging activities (1) (1) Minimum pension liability adjustment, net of tax 6 6 Changes in available-for-sale securities, net of tax 2 2 Total comprehensive income 504 Stock-based compensation Common stock options exercised Treasury stock transactions (58) (58) Cash dividends, CHF 1.00 per share (122) (122) December 31, ,045 (59) (25) 39 2,117 Comprehensive income: Net income Other comprehensive income/(loss) Currency translation adjustment, net of tax (74) (74) Unrealised gain on cash flow hedging activities, net of tax 1 1 Changes in available-for-sale securities, net of tax (4) (4) Total comprehensive income 534 Adjustment to initially apply SFAS No. 158, net of tax 3 3 Stock-based compensation 4 4 Common stock options exercised Subsidiary stock option transactions (1) (1) Treasury stock transactions (123) (123) Excess tax benefit on exercise of stock options Cash dividends, CHF 1.00 per share (120) (120) Other (1) (1) December 31, ,100 (182) 466 (35) 2,466 Comprehensive income: Net income Other comprehensive income/(loss) Currency translation adjustment, net of tax (125) (125) Pension related adjustments, net of tax 8 8 Changes in available-for-sale securities, net of tax 1 1 Total comprehensive income 619 Stock-based compensation 3 3 Common stock options exercised Subsidiary stock option transactions (1) (1) Exchange of subsidiary stock options for Adecco S.A. shares (5) 5 Treasury stock transactions (124) (124) Excess tax benefit on exercise of stock options 6 6 Impact of adoption of FIN 48 (2) (2) Cash dividends, CHF 1.20 per share (135) (135) Other 1 1 December 31, ,121 (279) 1,064 (151) 2,873 The accompanying notes are an integral part of these consolidated financial statements. 84 Adecco Financial Review /298

210 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Note 1 The business and summary of significant accounting policies Business The consolidated financial statements include Adecco S.A., a Swiss corporation, its majority-owned subsidiaries and other affiliated entities (collectively, the Company ). The Company s principal business is providing human resource services including temporary staffing, permanent placement, outsourcing, and career services consulting and outplacement to businesses and organisations throughout Europe, North America, Asia Pacific, Latin America, and Africa. The Company s worldwide network consists of over 7,000 branches and more than 37,000 full-time equivalent employees in over 60 countries and territories at the end of Since January 2006, the Company is organised in a geographic structure (which corresponds to the primary segments) complemented by global business lines, through which the professional services are marketed. The heads of the main geographic areas consisting of France, USA & Canada, UK & Ireland, Japan, Italy, Iberia, Benelux, Nordics, Germany, Australia & New Zealand, Switzerland, and Emerging Markets directly manage the Office and Industrial businesses, while co-leading together with the professional business line heads the professional business lines in the country. The professional business lines are Adecco Finance & Legal; Adecco Engineering & Technical; Adecco Information Technology; Adecco Medical & Science; Adecco Sales, Marketing & Events, and Adecco Human Capital Solutions. The classification into business lines is determined by the largest business line revenue share generated in a specific branch. As of March 2008, the operational responsibility of the professional business lines with the exception of Human Capital Solutions has been fully transferred to the countries, while supported and guided by the corporate business development department. Basis of presentation The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ( U.S. GAAP ) and the provisions of Swiss law. In 2005, the Company decided to change its fiscal year-end. Instead of the Company s fiscal year ending on the Sunday nearest to December 31, the Company now has a fiscal year that coincides with the calendar year. The change did not have a material impact on the consolidated financial statements. For 2007 and 2006, the Company s fiscal year included the full calendar year ending December 31, 2007 and December 31, 2006, respectively. In 2005, the Company s fiscal year contained 52 weeks ending December 31, Reporting currency The reporting currency of the Company is the Euro, which reflects the significance of the Company s Euro-denominated operations. Adecco S.A. s share capital is denominated in Swiss francs, and the Company declares and pays dividends in Swiss francs. Foreign currency translation The Company s operations are conducted in various countries around the world and the financial statements of foreign subsidiaries are reported in the applicable foreign currencies (functional currencies). Financial information is translated from the applicable functional currency to the Euro, the reporting currency, for inclusion in the Company s consolidated financial statements. Income, expenses, and cash flows are translated at average exchange rates prevailing during the fiscal year, and assets and liabilities are translated at fiscal year-end exchange rates. Resulting translation adjustments are included as a component of accumulated other comprehensive income/(loss), net, in shareholders equity. Exchange gains and losses on intercompany balances that are considered permanently invested are also included in equity. Principles of consolidation The consolidated financial statements include 100% of the assets, liabilities, revenues, expenses, income, loss, and cash flows of Adecco S.A., its majority-owned subsidiaries and entities for which the Company has been determined to be the primary beneficiary under the Financial Accounting Standards Board ( FASB ) Interpretation No. 46(R), Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51 ( FIN 46(R) ). Minority interest is calculated for entities fully consolidated but not wholly owned. The components of equity attributable to the minority shareholders is presented in minority interests within the consolidated balance sheets while net income attributed to the minority shareholders is included in income applicable to minority Adecco Financial Review /298

211 Adecco Group Notes to consolidated financial statements in millions, except share and per share information interests, within the consolidated statements of operations. Intercompany balances and transactions have been eliminated in the consolidated financial statements. The Company records investments in affiliates over which it is able to exercise significant influence using the equity method of accounting. The cost method of accounting is applied for investments in entities over which the Company is not able to exercise significant influence (generally investments in which the Company s ownership is less than 20%). The Company accounts for variable interest entities in accordance with FIN 46(R) which requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity s expected losses, receives a majority of the entity s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make judgements, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to allowance for doubtful accounts, accruals and provisions, impairment of goodwill and indefinite-lived intangible assets, contingencies, and income taxes. The Company bases its estimates on historical experience and on various other market specific assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from those estimates. The French government has instituted various social programs, the adoption of which results in the recognition of lower social security charges. The Company establishes provisions to cover the risk of non-compliance with these programs as well as for other French social security related risks. These provisions are adjusted periodically for the results of audits by local authorities and the expiration of statutes of limitations. Social security charges in France In April 2007, the Central Agency for Social Security Organisations in France issued a letter outlining a modification of the calculation of certain social security charges, with retroactive effect to January 1, This modification resulted in a reduction in payroll taxes to be remitted. On August 1, 2007, the French Parliament passed an amendment to the social security legislation, which became effective on October 1, This amendment eliminated the payroll tax benefits resulting from the modification made in April The 2007 statement of operations includes a positive effect to net income of EUR 102 in connection to this modification including an increase of EUR 172 in gross profit and EUR 16 in selling, general, and administrative expenses ( SG&A ). This change resulted in an increase to the basic and diluted earnings per share, net of tax, of EUR 0.55 and EUR 0.52, respectively. All proceeds related to this modification were received in Recognition of revenues The Company generates revenues from sales of temporary staffing services, permanent placement services, outsourcing services, outplacement services, and other personnel services. Revenues are recognised on the accrual basis and are reported net of any sales taxes. Allowances are established for estimated discounts, rebates, and other adjustments and are recorded as a reduction of sales. Revenues related to temporary staffing services are generally negotiated and invoiced on an hourly basis. Temporary associates record the hours they have worked and these hours, at the rate agreed with the customer, are then accumulated and billed according to the agreed terms. Temporary staffing service revenues are recognised upon rendering of the service. Revenues related to permanent placement services are generally recognised at the time the candidate begins full-time employment, and an allowance is established for non-fulfillment of permanent placement obligations. Revenues related to outsourcing services and outplacement services are negotiated with the client on a project basis and are recognised upon rendering of the service. 86 Adecco Financial Review /298

212 The Company presents revenues and the related direct costs of services in accordance with Emerging Issues Task Force Issue No , Reporting Revenue Gross as a Principal versus Net as an Agent. For sales arrangements in which the Company acts as a principal in the transaction and has risks and rewards of ownership (such as the obligation to pay temporary personnel and the risk of loss for collection and performance or pricing adjustments), the Company reports gross revenues and gross direct costs. Under arrangements where the Company acts as an agent the revenues are reported on a net basis. The Company provides services in the normal course of business at arm s length terms to entities that are affiliated with certain of its officers and significant shareholders through investment or board directorship. Marketing costs Advertising and marketing costs totalled EUR 104, EUR 93, and EUR 93 in 2007, 2006, and 2005, respectively. These costs are included in SG&A and are expensed as incurred. Stock-based compensation The Company adopted Statement of Financial Accounting Standards ( SFAS ) No. 123(R), Share-based payment ( SFAS 123(R) ) on January 1, 2006, using the modified prospective application method. Accordingly, compensation cost is recognised for awards granted to employees prior to January 1, 2006, and which remain unvested as of that date. As such, prior periods do not reflect restated amounts. Prior to the adoption of SFAS No. 123(R), the Company utilised the fair value method of accounting for stock-based compensation in accordance with SFAS No. 123, Accounting for Stock-Based Compensation for grants in the year 2003 and subsequent years, and the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees for grants prior to The adoption of SFAS No. 123(R) did not have a material impact on the accounting for option grants which were granted on or after the first day of 2003 but resulted in a reduction of net income for the year 2006 of EUR 2 and a reduction of basic and diluted earnings per share for the year 2006 of EUR 0.01 due to the recognition of compensation expense for stock options granted prior to As stock-based compensation expense for stock options vested during the years 2007 and 2006 was recognised in the Company s consolidated financial statements, there is no difference between reported and pro forma net income. Had compensation expense for the Company s stock-based compensation plans been determined based on the fair value method consistent with SFAS No. 123(R) for periods prior to its adoption, the Company s pro forma net income and earnings per share for 2005 would have changed as follows: in EUR 2005 Pro forma net income Net income, as reported 453 Stock-based employee compensation expense included in reported net income, net of tax 8 Total stock-based employee compensation expense determined under the fair value based method for all awards, net of tax (20) Pro forma net income 441 Pro forma earnings per share Basic earnings per share: As reported 2.43 Pro forma 2.37 Diluted earnings per share: As reported 2.34 Pro forma 2.28 Adecco Financial Review /298

213 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Cash equivalents and short-term investments Cash equivalents consist of highly liquid instruments having an original maturity at the date of purchase of three months or less. Capitalised costs are amortised on a straight-line basis over the estimated life commencing when the software is placed into service, typically ranging from three to five years. The Company s policy is to invest excess funds primarily in investments with maturities of 12 months or less, and in money market and fixed income funds with sound credit ratings, limited market risk and high liquidity. To a limited extent the Company invests excess cash in the US in auction rate securities. Auction rate securities are variable-rate debt instruments with long-term scheduled maturities and periodic interest rate reset dates. As of December 31, 2007 and December 31, 2006, the Company did not hold any auction rate securities. Trade accounts receivable Trade accounts receivable are recorded at net realisable value after deducting an allowance for doubtful accounts. The Company makes judgements on an entity-by-entity basis as to its ability to collect outstanding receivables and provides an allowance for doubtful accounts based on a specific review of significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing percentages based on the age of the receivable. In determining these percentages, the Company analyses its historical collection experience and current economic trends. Where available and when cost effective, the Company utilises credit insurance. Accounts receivable balances are written off when the Company determines that it is unlikely that future remittances will be received, or as permitted by local law. Capitalised costs for internal-use software The Company capitalises internal-use software development costs in accordance with the provisions of the American Institute of Certified Public Accountants Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use ( SOP 98-1 ). In accordance with SOP 98-1, internal and external costs incurred to develop internal-use computer software during the application development stage are capitalised. Application development stage costs generally include software configuration, coding, installation, and testing. Costs incurred for maintenance, testing minor upgrades, and enhancements are expensed as incurred. Capitalised internal-use software development costs are included in property, equipment, and leasehold improvements. Property, equipment, and leasehold improvements Property and equipment are carried at historical cost and are depreciated on a straight-line basis over the estimated useful lives (three to five years for furniture, fixtures, and office equipment; three to five years for computer equipment and software; and twenty to forty years for buildings). Leasehold improvements are stated at cost and are amortised over the shorter of the useful life of the improvement or the remaining lease term, which includes the expected lease renewal. Expenditures for repairs and maintenance are charged to expense as incurred. Goodwill and indefinite-lived intangible assets Goodwill represents the excess of the purchase price in a business combination over the value assigned to the net tangible and identifiable intangible assets of businesses acquired less liabilities assumed. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets ( SFAS No. 142 ), goodwill and indefinite-lived intangible assets are not amortised. Rather, the carrying values of goodwill and indefinitelived intangible assets are tested annually for impairment. Goodwill is tested on a reporting unit level using a two-step impairment test. Reporting units may be operating segments as a whole or an operation one level below an operating segment, referred to as a component. In step one of the goodwill impairment test, the carrying value of each reporting unit is compared with the reporting unit s fair value as determined using a combination of comparable market multiples, additional market information, and discounted cash flow valuation models. If the fair value of the reporting unit is lower than the carrying value of the reporting unit, step two is performed to measure the amount, if any, of impairment. In step two, the fair value of all assets and liabilities of the reporting unit is determined, as if the reporting unit had been acquired on a stand-alone basis. The fair value of the reporting unit s assets and liabilities is then compared to the fair value of the reporting unit, with the excess, if any, considered to be the implied goodwill of the reporting unit. If the carrying value of the reporting unit s goodwill exceeds this implied goodwill 88 Adecco Financial Review /298

214 value, that excess is recorded as an impairment loss in operating income. Indefinite-lived intangible assets are tested by comparing the fair value of the asset to the carrying value of the asset. In the event that the carrying value exceeds the fair value, an impairment loss is recorded in operating income. allowance is recorded against deferred tax assets in those cases when management believes that the realisation is more unlikely than not. While management believes that its judgements and estimates regarding deferred income tax assets and liabilities are appropriate, significant differences in actual experience may materially affect the Company s future financial results. Definite-lived intangible assets In accordance with SFAS No. 141, Business Combinations ( SFAS No. 141 ), purchased identifiable intangible assets are capitalised at fair value as of the acquisition date. Intangible assets with definite lives, primarily customer relationships, are generally amortised on a straight-line basis over the estimated period in which benefits will be received, which generally ranges from one to six years. Impairment of long-lived assets including definite-lived intangible assets The Company evaluates long-lived assets, including intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long- Lived Assets ( SFAS No. 144 ). In such circumstances, the Company calculates the undiscounted future cash flows expected to be generated by the asset and compares that amount to the asset s carrying amount. If the undiscounted cash flows are less than the asset s carrying amount the asset is written down to its fair value and an impairment charge is recorded in operating income. Income taxes The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes ( SFAS No. 109 ). Current liabilities and assets are recognised for the estimated taxes payable or refundable on the tax returns for the current year. Deferred tax assets and liabilities are determined based on differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, including the future tax benefit of existing net operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to be in effect in the years in which those temporary differences are expected to be recovered or settled. A valuation In addition, significant judgement is required in determining the worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. Many of these uncertainties arise as a consequence of intercompany transactions and arrangements. Although management believes that its tax return positions are supportable, no assurance can be given that the final outcome of these matters will not be materially different from amounts reflected in the income tax provisions and accruals. Such differences could have a material effect on the income tax provisions or benefits in the periods in which such determinations are made. The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 ( FIN 48 ) on January 1, FIN 48 clarifies the accounting for uncertainty in income taxes recognised in an enterprise s financial statements in accordance with SFAS No FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Earnings per share In accordance with SFAS No. 128, Earnings per Share ( SFAS No. 128 ), basic earnings per share is computed by dividing net income available to common shareholders by the number of weighted-average common shares outstanding for the fiscal year. Diluted earnings per share reflects the maximum potential dilution that could occur if dilutive securities, such as stock options or convertible debt, were exercised or converted into common shares or resulted in the issuance of common shares that would participate in net income. Adecco Financial Review /298

215 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Financial instruments In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ( SFAS No. 133 ), all derivative instruments are initially recorded at cost as either other current assets, other assets, other accrued expenses, or other liabilities in the accompanying consolidated balance sheets and subsequently remeasured to fair value, regardless of the purpose or intent for holding the derivative instruments. For derivative instruments designated and qualifying as fair value hedges, changes in the fair value of the derivative instruments as well as the changes in the fair value of the hedged item attributable to the hedged risk are recognised within the same line item in earnings. For derivative instruments designated and qualifying as cash flow hedges, the effective portion of the changes in the fair value of derivative instruments is initially recorded as a component of accumulated other comprehensive income/(loss), net, in shareholders equity and reclassified into earnings in the same period during which the hedged transaction affects earnings. The ineffective portion of the change in fair value of the derivative instruments is immediately recognised in earnings. For derivative instruments designated and qualifying as net investment hedges, changes in the fair value of the derivative instruments are recorded as a component of accumulated other comprehensive income/ (loss), net, in shareholders equity to the extent they are considered effective. These gains or losses will remain in equity until the related net investment is sold or otherwise disposed. For derivative instruments that are not designated or that do not qualify as hedges under SFAS No. 133, the changes in the fair value of the derivative instruments are recognised in other income/(expenses), net, within the consolidated statements of operations. Accounting for costs associated with exit or disposal activities The Company accounts for costs associated with exit or disposal activities in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. When termination arrangements require employees to render services beyond a minimum retention period, liabilities associated with employee termination benefits are recorded as employees render services over the future service period. Otherwise, liabilities associated with employee termination benefits are recorded at the point when management has taken a decision to terminate a specific group of employees, the employees have been notified of the decision, and the type and amount of benefits to be received by the employees is known. Liabilities for contract termination and other exit costs are recorded at fair value when a contract is formally terminated. New accounting standards In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations ( SFAS No. 141(R) ) and SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51 ( SFAS No. 160 ). The new standards require most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at full fair value and require noncontrolling interests to be reported as a component of equity. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, The Company is in the process of assessing the impact of the adoption of these standards on the consolidated financial statements. 90 Adecco Financial Review /298

216 In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) ( SFAS No. 158 ). SFAS No. 158 requires plan sponsors of defined benefit pension plans to recognise the funded status of their defined benefit plans in the statement of financial position, reflect changes in the funded status of defined benefit plans in comprehensive income, measure the fair value of plan assets and benefit obligations as of the date of the fiscal year-end consolidated balance sheet, and provide additional disclosures. On December 31, 2006, the Company adopted the recognition and disclosure provisions of SFAS No The Company will adopt the measurement provisions of SFAS No. 158 in The Company does not believe the adoption of the measurement provision will have a material effect on the consolidated financial statements. The effect of adopting SFAS No. 158 on the Company s financial condition at December 31, 2006 has been included in the accompanying consolidated financial statements. See Note 9 for further discussion of the effect of adopting SFAS No. 158 on the Company s consolidated financial statements. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ( SFAS No. 157 ). SFAS No. 157 provides enhanced guidance for using fair value to measure assets and liabilities, expands the required disclosures about fair value measurement, and is applicable whenever other standards require assets or liabilities to be measured at fair value. However, it does not expand the use of fair value in any new circumstances. The Company will adopt SFAS No. 157 for all financial assets and liabilities as well as for any other assets and liabilities that are carried at fair value on a recurring basis on January 1, The adoption of SFAS No. 157 for financial assets and liabilities is not expected to have a material impact on the Company s consolidated financial statements. The Company will adopt SFAS No. 157 for non-financial assets and liabilities on January 1, 2009, and is in the process of assessing the impact of the adoption on the consolidated financial statements. Presentation and reclassifications Certain reclassifications have been made to prior year amounts or balances in order to conform to the current year presentation. Other disclosures required by Swiss law: in EUR Personnel expenses 1,984 1,893 The detailed disclosures regarding the executive remuneration that are required by Swiss law are included in the statutory financial statements of Adecco S.A. (Holding Company) on pages 126 to 130. The fire insurance value of property, equipment, and leasehold improvements amounted to EUR 644 and EUR 599 as of December 31, 2007 and December 31, 2006, respectively. Adecco Financial Review /298

217 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Note 2 Acquisitions The Company made several acquisitions in 2007 and With the exception of the acquisitions of the Tuja Group ( Tuja ) and approximately 16% of outstanding DIS Deutscher Industrie Service AG ( DIS ) shares in 2007 and approximately 84% of DIS outstanding shares in 2006, the Company does not consider any of its 2007 or 2006 acquisition transactions to be significant, individually or in the aggregate, to its consolidated balance sheets or results of operations. No significant acquisitions occurred in The following table illustrates the aggregate impact of the 2007 and 2006 acquisitions: in EUR Impact of acquisitions Net tangible assets acquired 8 40 Identified intangible assets Goodwill Debt acquired (207) Deferred tax liabilities (109) (49) Minority interests 22 (11) Total consideration In July 2007, the Company acquired approximately 97% of the outstanding common shares of Tuja, a leading staffing company in Germany with operations also in Switzerland and Austria for approximately EUR 555, net of cash acquired of EUR 20, and later in 2007 acquired the remaining 3% of Tuja shares for an additional purchase price of EUR 25. In addition, the Company assumed approximately EUR 207 in net debt which the Company had repaid by the end of As a result of the acquisition, the Company has strengthened its presence, especially in the German temporary staffing market. The acquisition was mainly financed with cash. The following table summarises the estimated fair value of assets acquired and liabilities assumed in the Tuja acquisition: in EUR Fair value of assets acquired and liabilities assumed Cash 20 Other current assets 98 Tangible assets 12 Intangible assets Marketing related (trademarks) 141 Customer base 119 Goodwill 640 Current liabilities (122) Debt (207) Deferred tax liabilities (101) Total fair value of assets acquired and liabilities assumed 600 Almost all of the indefinite-lived marketing related assets (trademarks) are considered to have indefinite lives and are therefore not amortised. Customer base intangible assets acquired have estimated useful lives of five years and are amortised on a straight line basis over the useful lives. Tuja was consolidated by the Company as of July 31, 2007, and the results of Tuja s operations have been included in the consolidated financial statements since August 1, The following unaudited pro forma information shows consolidated operating results as if the Tuja acquisition had occurred at the beginning of 2007 and at the beginning of 2006: 92 Adecco Financial Review /298

218 in EUR Pro forma consolidated operating results Revenues 21,431 20,901 Net income Basic earnings per share Diluted earnings per share The 2007 and 2006 pro forma net loss of Tuja, including adjustments for amortisation of definite-lived intangible assets, interest expense, interest income, and income taxes decreased consolidated pro forma net income by EUR 3 (including intangibles amortisation, net of tax, of EUR 9) and EUR 13 (including intangibles amortisation, net of tax, of EUR 16), respectively. The pro forma consolidated results of operations do not necessarily represent operating results, which would have occurred if the acquisition had taken place on the basis assumed above, nor are they indicative of future operating results of the combined companies. of professional staffing services in Germany, for approximately EUR 552, net of cash acquired. As a result of the acquisition, the Company strengthened its presence in the German temporary staffing market and the professional services segment. The acquisition of DIS was originally financed with a bridge facility of EUR 408 and cash on hand. In April 2006, the Company issued EUR 700 unsubordinated guaranteed notes, the proceeds of which were partly used to settle the bridge facility. See Note 6 for details on debt instruments. In March 2006, the Company acquired approximately 84% of the outstanding common shares of DIS, a leading supplier The following table summarises the estimated fair value of assets acquired and liabilities assumed in the DIS acquisition: in EUR Fair value of assets acquired and liabilities assumed Cash 28 Other current assets 65 Tangible assets 11 Intangible assets Marketing related (trademarks) 87 Customer base 32 Goodwill 483 Current liabilities (67) Deferred tax liabilities (48) Minority interests (11) Total fair value of assets acquired and liabilities assumed 580 Marketing related intangible assets (trademarks) are considered to have indefinite lives and are therefore not amortised. Customer base intangible assets acquired have estimated useful lives of five years and are amortised on a straight-line basis over the useful lives. DIS was consolidated by the Company as of March 31, 2006, and the results of DIS operations have been included in the consolidated financial statements since April 1, The following unaudited pro forma information shows consolidated operating results as if the DIS acquisition had occurred at the beginning of 2006 and at the beginning of 2005: Adecco Financial Review /298

219 Adecco Group Notes to consolidated financial statements in millions, except share and per share information in EUR Pro forma consolidated operating results Revenues 20,512 18,618 Net income Basic earnings per share Diluted earnings per share The pro forma net income/loss of DIS, including adjustments for depreciation of fixed assets, amortisation of definite-lived intangible assets, interest expense, and income taxes increased consolidated pro forma net income by EUR 2 for 2006 and reduced it by less than EUR 1 for The pro forma consolidated results of operations do not necessarily represent operating results which would have occurred if the acquisition had taken place on the basis assumed above, nor are they indicative of future operating results of the combined companies. In September 2007, the Company acquired approximately 16% of DIS outstanding shares for EUR 219 and has initiated squeeze-out proceedings to acquire the remaining 0.5% of outstanding shares. The acquisition was financed with existing resources. The Company accounted for this acquisition in accordance with the provisions of SFAS No. 141 using the principles of step acquisition accounting and recognised goodwill of EUR 177 and additional intangible assets of EUR 29. EUR 21 of the additional intangible assets represent marketing related intangible assets (trademarks) which are considered to have indefinite lives and are therefore not amortised. Customer base intangible assets acquired of EUR 8 have estimated useful lives of five years and are amortised on a straight line basis over the useful lives. No common stock was issued in any of the transactions. Note 3 Trade accounts receivable in EUR Trade accounts receivable 3,898 3,968 Allowance for doubtful accounts (125) (122) Trade accounts receivable, net 3,773 3,846 Note 4 Property, equipment, and leasehold improvements in EUR Gross Accumulated depreciation Gross Accumulated depreciation Land and buildings 42 (15) 45 (15) Furniture, fixtures, and office equipment 148 (110) 151 (115) Computer equipment and software 574 (483) 588 (488) Leasehold improvements 230 (163) 220 (157) Total property, equipment, and leasehold improvements 994 (771) 1,004 (775) Depreciation expense was EUR 89, EUR 94, and EUR 106 for 2007, 2006, and 2005, respectively. 94 Adecco Financial Review /298

220 Note 5 Goodwill and intangible assets The changes in the carrying amount of goodwill for the years ended December 31, 2007 and December 31, 2006, are as follows: in EUR France USA & Canada UK & Ireland Japan Italy Iberia Germany Other Total Changes in goodwill January 1, ,434 Goodwill acquired during year Currency translation adjustment (61) 5 (3) (3) (62) Other 1 5 (3) 3 December 31, ,882 Goodwill acquired during year Currency translation adjustment (55) (19) (1) (1) (76) Other December 31, , ,646 The carrying amounts of other intangible assets at December 31, 2007 and December 31, 2006, are as follows: in EUR Gross Accumulated amortisation Gross Accumulated amortisation Intangible assets Marketing (trademarks) 295 (15) 131 (12) Customer base 192 (39) 64 (16) Contract 16 (1) 2 (1) Other 1 (1) 2 (1) Total intangible assets 504 (56) 199 (30) No intangible assets have a residual value. The estimated aggregate amortisation expense related to definite-lived intangible assets for the next five years is EUR 43 in 2008, EUR 39 in 2009, EUR 36 in 2010, EUR 29 in 2011, and EUR 16 in The weighted-average amortisation period for customer base intangible assets is five years. The carrying amount of indefinite-lived intangible assets was EUR 274 and EUR 117 as of December 31, 2007 and December 31, 2006, respectively. Indefinite-lived intangible assets consist mainly of trademarks. The Company performed its annual impairment testing of goodwill and indefinite-lived intangible assets in 2007, 2006, and 2005, and determined there to be no impairment. Adecco Financial Review /298

221 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Note 6 Financing arrangements Short-term debt To support short-term working capital and borrowing requirements, the Company had available, in certain countries in which it operates, lines of credit amounting to EUR 367 and EUR 353 as of December 31, 2007 and December 31, 2006, respectively, excluding the multicurrency revolving credit facility discussed below. At December 31, 2007 and December 31, 2006, bank overdrafts and borrowings outstanding under the lines of credit amounted to EUR 35 and EUR 38, respectively. The lines of credit are in various currencies, have various interest rates, and have maturities of up to thirteen months. The weighted-average interest rate on borrowings outstanding was 7.1% and 6.6% as of December 31, 2007 and December 31, 2006, respectively. Long-term debt in EUR Principal at maturity Maturity Fixed interest rate Guaranteed zero-coupon convertible bond CHF 1, Fixed rate guaranteed notes EUR % Multicurrency revolving credit facility EUR Floating rate guaranteed notes EUR Olsten EUR guaranteed notes EUR % Other 1 1 1,394 1,406 Less current maturities (322) Long-term debt, less current maturities 1,072 1,406 Guaranteed zero-coupon convertible bond On August 26, 2003, Adecco Financial Services (Bermuda) Ltd., a wholly-owned subsidiary of the Company, issued CHF 900 unsubordinated bonds guaranteed by and convertible into shares of Adecco S.A., due August 26, The bonds are structured as zero-coupon, 10-year premium redemption convertible bonds with a yield to maturity of 1.5%. Investors may put the bonds on August 26, 2010, at the accreted principal amount. The issuer may call the bonds at any time after the end of year seven (August 26, 2010) at the accreted principal amount or at any time after a substantial majority of the bonds has been redeemed, converted, or repurchased. At any time from October 6, 2003 to August 12, 2013, at the option of the bondholder, the bonds are convertible into shares of Adecco S.A. at a conversion price of CHF per share. If all bonds were converted, Adecco S.A. would issue 9,523,810 additional shares. If not converted, the Company will pay a redemption price of up to % of the principal amount of the bonds. In November 2007, the terms of the bond were amended. The amendment allows the guarantor to deliver treasury shares held at the time of conversion instead of issuing shares of Adecco S.A. out of the approved conditional capital. Nevertheless, Adecco S.A. has to retain enough conditional capital to issue the full amount of 9,523,810 shares if required upon conversion. Fixed and floating rate guaranteed notes On April 25, 2006, Adecco International Financial Services BV, a wholly-owned subsidiary of the Company, issued EUR 500 fixed rate notes guaranteed by Adecco S.A. due April 25, 2013, and EUR 200 floating rate notes guaranteed by Adecco S.A. due April 25, The proceeds were used for the refinancing of the DIS acquisition and for general corporate purposes. Interest is paid on the fixed rate notes annually in arrears at a fixed annual rate of 4.5% and on the floating rate notes quarterly in arrears at a rate determined by the three-month EURIBOR plus 23 basis points, which at December 31, 2007 was 4.9%. During 2006, the Company entered into fair value hedges of the EUR 500 fixed rate notes, which are further discussed in Note 10. Multicurrency revolving credit facility In March 2003, the Company entered into a multicurrency revolving credit facility issued by a syndicate of banks, which allows borrowings up to a maximum of EUR 580. The five-year 96 Adecco Financial Review /298

222 facility is available for general corporate purposes including cash drawings and letters of credit. The interest rate is based on LIBOR, or EURIBOR for drawings denominated in Euro, plus a margin between 0.275% and 0.475% depending on certain debt-to-ebitda ratios and a utilisation fee of 0.05% if the drawings exceed 50% of the facility. The commitment fee is 35% of the applicable margin. On March 17, 2006, the Company agreed with the syndicate of banks an extension of EUR 577 of the existing EUR 580 multicurrency revolving credit facility from March 2008 through March As of December 31, 2007 and December 31, 2006, the Company had EUR 462 and EUR 440, respectively, available under the facility after utilising EUR 118 and EUR 140, respectively, in the form of letters of credit. Olsten EUR guaranteed notes In connection with the March 2000 Olsten acquisition, the Company assumed Olsten s outstanding EUR 122 guaranteed notes on which interest is paid annually on the principal amount. The notes are guaranteed by Adecco S.A. During 2006, the Company entered into fair value hedges of the EUR 122 guaranteed notes, which are further discussed in Note 10. Under the terms of the various financing agreements, the Company is subject to covenants requiring compliance with certain financial tests and ratios. As of December 31, 2007, the Company was in compliance with all financial covenants. Payments of long-term debt are due as follows: in EUR Thereafter 1 Total Payments due by period ,071 1,394 1 Assumes that the put and call options are not exercised and that share conversion does not occur (refer to Guaranteed zero-coupon convertible bond section above). Note 7 Shareholders equity The summary of the components of authorised shares at December 31, 2007, December 31, 2006, and December 31, 2005 and changes during those years are as follows: Outstanding shares Treasury shares Issued shares 1 Authorised capital Conditional capital Authorised shares Changes in components of authorised shares January 3, ,330,240 18, ,349,115 19,000,000 21,481, ,830,310 Common stock options exercised 258, ,280 (258,280) Treasury stock transactions (1,490,875) 1,490,875 Expiry of authorised capital (19,000,000) (19,000,000) December 31, ,097,645 1,509, ,607,395 21,222, ,830,310 Common stock options exercised 1,193,772 1,193,772 (1,193,772) Treasury stock transactions (2,454,955) 2,454,955 December 31, ,836,462 3,964, ,801,167 20,029, ,830,310 Common stock options exercised 946,106 (483,767) 462,339 (462,339) Treasury stock transactions (3,135,275) 3,135,275 December 31, ,647,293 6,616, ,263,506 19,566, ,830,310 1 Shares at CHF 1 par value. Adecco Financial Review /298

223 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Authorised shares and appropriation of available earnings On April 16, 2003, the Annual General Meeting of Shareholders extended the Board of Directors authorisation to increase the share capital in one or more steps by up to 19,000,000 shares (CHF 19) in connection with special capital market transactions, such as acquisitions. In accordance with Swiss statutory law, such authorisation ceased on April 16, 2005, and was not extended at the Annual General Meeting of Shareholders held on May 26, Under Swiss law, a minimum of 5% of the net income of the parent, Adecco S.A., for the year must be transferred to a general reserve until this reserve reaches 20% of the paid-in share capital. Other allocations to this reserve are also mandatory. The general reserve was CHF 2,103 and CHF 2,071 at December 31, 2007 and December 31, 2006, respectively, thereby exceeding 20% of the paid-in share capital in both years. The general reserve is usually not available for distribution. The Company had 4,166,804 and 4,629,143 common shares reserved for issuance of common shares to employees and members of the Board of Directors upon the exercise of stock options as of December 31, 2007 and December 31, 2006, respectively. In addition, as of December 31, 2007 and December 31, 2006, the Company was authorised by its shareholders to issue up to 15,400,000 shares of conditional capital in connection with the issuance of financial instruments, principally convertible bonds. 9,523,810 shares have been earmarked for issuance upon conversion of the outstanding guaranteed zero-coupon convertible bond. The remaining 5,876,190 shares represent conditional capital that was originally authorised without time limitation in connection with the issuance of a convertible bond in 1999, which was repaid in 2004 without conversion. This conditional capital remains available for issuance upon conversion of any financial instruments the Company may issue in the future. In 2007, a total of 462,339 shares have been issued to employees and members of the Board of Directors out of conditional capital and 483,767 out of treasury shares upon the exercise of stock options. In 2007, cash dividends for 2006 of CHF 1.20 per share, totalling EUR 135, were paid. The Company may only pay dividends from unappropriated available earnings disclosed in the annual financial statements of the parent, Adecco S.A., prepared in accordance with Swiss law and as approved at the Annual General Meeting of Shareholders. For 2007, the Board of Directors of Adecco S.A. will propose a dividend of CHF 1.50 per share outstanding for the approval of shareholders at the Annual General Meeting of Shareholders. Additional paid-in capital Prior to the Company s acquisition of DIS in March 2006, DIS had in place a stock incentive plan for its employees. Subsequent to the acquisition, DIS utilised a portion of its treasury stock to fulfill obligations resulting from the exercise of employee stock options under this plan. The Company treated the exercise of DIS stock options as a capital transaction in accordance with SEC Staff Accounting Bulletin Topic 5-H which allows for equity recognition of gains or losses on subsidiary stock transactions and requires that this accounting treatment be consistently applied for all future subsidiary stock transactions. The exercises resulted in a dilution of the Company s ownership in DIS of less than 0.5% in both 2007 and Because the book value per share of the Company s investment in DIS exceeded the cash proceeds from the option exercises, after tax losses of EUR 1 have been reported as an adjustment to the Company s additional paid-in capital in both 2007 and Treasury stock On November 2, 2007, the Company announced that its Board of Directors had decided to purchase the Company s shares for up to EUR 400 by the end of The shares are intended to be used for future acquisitions or to minimise potential dilution related to the outstanding convertible bond. From the time when the announcement was made to the year-end of 2007, the Company purchased 3,253,500 treasury shares for a total consideration of EUR 124. In January 2008, the Company acquired an additional 6,604,000 of its own shares for a total consideration of EUR 218. The treasury shares acquired prior to the announcement are generally reserved to support option exercises under stock option plans. 98 Adecco Financial Review /298

224 Accumulated other comprehensive income/(loss), net The components of accumulated other comprehensive income/ (loss), net of tax, are as follows: in EUR Currency translation adjustment (158) (33) Unrealised gain on cash flow hedging activities 1 1 Pension related adjustments 6 (2) Unrealised gain/(loss) on available-for-sale securities (1) Accumulated other comprehensive income/(loss), net (151) (35) Note 8 Stock-based compensation As of December 31, 2007, the Company had options and tradeable options outstanding relating to its common shares and the common shares of a subsidiary under several existing plans including plans assumed in the Olsten and DIS acquisitions. In 2007 and 2006, the Company recognised compensation expense of EUR 3 and EUR 6, respectively, related to the various stock option plans, which is included in SG&A. The total income tax benefit recognised related to stock compensation during 2007 and 2006 was not significant. Adecco and Olsten stock option plans Under the Adecco and Olsten stock option plans, options vest and become exercisable in instalments, generally on a rateable basis up to four years beginning on the date of grant or one year after the date of grant, and have a contractual life of three to ten years. Options are typically granted with an exercise price equal to or above fair market value on the date of grant. No options have been granted since Certain options granted under the plans are tradeable on the SWX Swiss Stock Exchange. The options are granted to employees or members of the Board of Directors of the Company and give the optionee a choice of selling the option on the market or exercising the option to receive an Adecco S.A. share. If the option holder chooses to sell the option on the market, the options may be held by a non-employee or nondirector of the Company. As of December 31, 2007, December 31, 2006 and December 31, 2005, the number of stock options outstanding sold on the market was 3,116,028, 2,625,019 and 1,086,662, respectively. The trading and valuation of the tradeable options is managed by a Swiss bank. The Company uses the Black-Scholes model to estimate the fair value of stock options granted to employees. Management believes that this model appropriately approximates the fair value of the stock option. The fair value of the option award, as calculated using the Black-Scholes model, is expensed for non-tradeable stock options on a straight-line basis and for tradeable stock options on an accelerated basis over the service period, which is consistent with the vesting period. Adecco Financial Review /298

225 Adecco Group Notes to consolidated financial statements in millions, except share and per share information A summary of the status of the Company s Adecco and Olsten stock option plans as of December 31, 2007, December 31, 2006 and December 31, 2005, and changes during those years are presented below: Number of shares Weightedaverage exercise price per share (in CHF) Weightedaverage remaining life (in years) Aggregate intrinsic value (in CHF millions) Summary of Adecco and Olsten stock option plans Options outstanding as of January 3, ,866, Exercised (321,480) 51 3 Forfeited (1,863,294) 73 Expired (636,099) 103 Options outstanding as of December 31, ,045, Exercised (1,142,782) Forfeited (703,557) 89 Expired (754,290) 99 Options outstanding as of December 31, ,444, Exercised (933,896) Forfeited (260,416) 89 Expired (1,601,780) 91 Options outstanding as of December 31, ,648, Of which fully vested and exercisable 5,648, Options fully vested and exercisable were 8,298,647 and 10,251,868 as of December 31, 2006 and December 31, 2005, respectively. The aggregate intrinsic value as of December 31, 2007 in the table above represents the total pre-tax intrinsic value (the difference between the Company s closing stock price on the last trading day of 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, This amount changes based on the fair market value of Adecco S.A. stock. For the year ended December 31, 2006, the total stock options exercised include 12,210 stock options for which Adecco S.A. common shares were issued in January 2007 only. Those shares were therefore not included in outstanding common shares at December 31, Adecco Financial Review /298

226 DIS stock option plan Under the DIS stock option plan, which was approved by its shareholders, each option has a term of up to five years and gives the option holder the right to acquire one DIS share at an exercise price originally linked to the fair market value at the date of grant. Subsequent to the date of grant, the exercise price of the share options increases 10% each year and is adjusted for dividends. While options vest immediately at time of grant, options become exercisable as follows: 1 3 two years after date of grant, 1 3 three years after date of grant, and the remaining 1 3 four years after date of grant. There were no options granted during The fair value of the 2006 option award was estimated on the date of grant using a binomial pricing model utilising the assumptions noted in the following table: 2006 Assumptions used for the estimation of the fair value of option awards Share price on grant date in EUR Average exercise price in EUR Expected term (in years) 5 Risk-free interest rate 3% Expected volatility 38.8% The volatility as measured by the standard deviation of the expected share price gains was based on statistical analyses of the daily share price over the previous three years. The expected term of the options was determined using historical data. The expected dividend yield was based on the expected annual dividend at the time of grant of EUR 0.05 per share. The risk-free rate was based on the five-year German government bonds rate in effect as of the grant date. A summary of the status of the DIS stock option plan as of December 31, 2007 and December 31, 2006, and the acquisition date, and changes during the periods are presented below: Number of shares Weightedaverage exercise price per share (in EUR) Weightedaverage remaining life (in years) Aggregate intrinsic value (in EUR millions) Summary of DIS stock option plan Options outstanding and vested at acquisition, March 31, , Granted 117, Exercised (58,145) 31 2 Options outstanding and vested as of December 31, , Exercised (44,821) 3 Forfeited (183,261) 1 Options outstanding and vested as of December 31, , Of which exercisable 16, During 2007, 164,840 options were forfeited in exchange for 108,197 Adecco S.A. shares. The number of Adecco S.A. shares exchanged represented the equivalent value of the options at the DIS acquisition date plus a premium for the share price performance of Adecco S.A. from acquisition through to the date of the exchange. Adecco Financial Review /298

227 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Options fully vested and exercisable were 78,586 as of December 31, The weighted-average grant date fair value of options granted and vested during the year ended December 31, 2006 was EUR The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between DIS closing stock price on the last trading day of 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, This amount changes based on the fair market value of DIS stock. As of December 31, 2007, all options granted under the DIS stock option plan had vested. Accordingly, there is no unrecognised compensation cost related to non-vested sharebased compensation arrangements under this plan. The Company sponsors a non-qualified defined contribution plan in the US for certain of its employees. This plan is partly funded through a Rabbi trust, which is consolidated in the Company s financial statements. At December 31, 2007 and December 31, 2006, the assets held in the Rabbi trust amounted to EUR 37 and EUR 39, respectively. The related pension liability totalled EUR 50 and EUR 54 at December 31, 2007 and December 31, 2006, respectively. Certain employees are covered under multi-employer pension plans administered by unions. The data available from administrators of the plans is not sufficient to determine the projected benefit obligation or the net assets attributable to the Company. Consequently, these plans are reported as defined contribution plans. Contributions made to those plans during 2007, 2006, and 2005, amounted to EUR 5, EUR 4, and EUR 5, respectively. Note 9 Employee benefit plans In accordance with local regulations and practices, the Company has various employee benefit plans, including defined contribution and both contributory and non-contributory defined benefit plans. Defined contribution plans and other arrangements The Company recorded an expense of EUR 73, EUR 62, and EUR 55, in connection with defined contribution plans in 2007, 2006, and 2005, respectively, and an expense of EUR 42, EUR 39, and EUR 36, in connection with the Italian employee termination indemnity arrangement in 2007, 2006, and 2005, respectively. Defined benefit plans The Company sponsors defined benefit plans principally in Switzerland, the Netherlands, the UK, and the US. These plans provide benefits primarily based on years of service and level of compensation, and are in accordance with local regulations and practices. The defined benefit obligations and related assets of all major plans are reappraised annually by independent actuaries. For the periods presented, the measurement date used for the Swiss defined benefit plan was September 30 and the measurement date for the other major defined benefit plans was December 31. Plan assets are recorded at fair value, and consist primarily of marketable equity securities, fixed income instruments, and real estate. The projected benefit obligation ( PBO ) is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future pay increases. The accumulated benefit obligation ( ABO ) is the actuarial present value of benefits attributable to employee service rendered to date, but excluding the effects of estimated future pay increases. 102 Adecco Financial Review /298

228 On December 31, 2006, the Company adopted the recognition and disclosure provisions of SFAS No SFAS No. 158 requires the Company to recognise the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations at the applicable measurement dates) of its defined benefit pension plans in the consolidated balance sheet as of December 31, 2006, with a corresponding adjustment to accumulated other comprehensive income/ (loss), net of tax. The adjustment to accumulated other comprehensive income/(loss), net, at adoption represents the net unrecognised actuarial gains or losses, which were previously netted against the plan s funded status in the Company s balance sheet pursuant to the provisions of SFAS No. 87, Employers Accounting for Pensions. Following the adoption of these provisions, the amounts classified in accumulated other comprehensive income/(loss), net, are subsequently recognised as net periodic pension cost pursuant to the Company s historical accounting policy for amortising such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognised as net periodic pension cost in the same periods are recognised as a component of other comprehensive income/(loss), net. Those amounts are subsequently recognised as a component of net periodic pension cost on the same basis as the amounts recognised in accumulated other comprehensive income/(loss), net, at adoption of SFAS No The components of pension expense, net, for the defined benefit plans are: Swiss plan Non-Swiss plans in EUR Components of pension expense Service cost Interest cost Expected return on plan assets (4) (4) (3) (3) (4) (5) Amortisation of net (gain)/loss 2 (5) 3 Pension expense, net (3) 8 Adecco Financial Review /298

229 Adecco Group Notes to consolidated financial statements in millions, except share and per share information The following table provides a reconciliation of the changes in the benefit obligations, the change in the fair value of assets, and the funded status of the Company s defined benefit plans as of the above described measurement dates, as well as the impact of the adoption of SFAS No. 158 on the Company s consolidated balance sheet at December 31, 2006: Swiss plan Non-Swiss plans in EUR Pension liabilities and assets Projected benefit obligation, beginning of period Service cost Interest cost Participant contributions Actuarial gain (10) (7) (6) (10) Plan amendments 2 Benefits paid (23) (19) (2) (2) Curtailments and settlements (1) (2) Foreign currency translation (2) (2) (3) Projected benefit obligation, end of period Plan assets, beginning of period Actual return of assets Employer contributions Participant contributions Benefits paid (23) (19) (2) (2) Curtailments and settlements (1) (2) Foreign currency translation (2) (2) (2) Plan assets, end of period Funded status of the plan 11 1 (13) (16) Contributions from measurement date to fiscal year-end 2 2 Unrecognised actuarial gain, net of tax (3) Amount recognised before adoption of SFAS No (19) Adoption of SFAS No Amount recognised after adoption of SFAS No (13) (16) Accumulated benefit obligation, end of period The incremental effects of adopting the provisions of SFAS No. 158 on the Company s consolidated balance sheet at December 31, 2006 are presented in the following table. The adoption of SFAS No. 158 had no effect on the Company s consolidated statement of operations for the year ended December 31, 2006, or for any prior period presented. 104 Adecco Financial Review /298

230 The effect on the consolidated balance sheet as of December 31, 2006 as a result of adopting SFAS No. 158 is as follows: in EUR Before adopting SFAS No. 158 Effect of adopting SFAS No. 158 As reported at December 31, 2006 Effect of adopting SFAS No. 158 Other assets Other liabilities 190 (3) 187 Deferred income taxes 297 (1) 296 Accumulated other comprehensive income/(loss), net (38) 3 (35) Total shareholders equity 2, ,466 The amounts recognised in the consolidated balance sheets as of December 31, 2007 and December 31, 2006, were: Swiss plan Non-Swiss plans in EUR Pension related assets Pension related liabilities (22) (22) Total 13 3 (13) (16) As of December 31, 2007, a net gain for Swiss defined benefit plans of EUR 6 was recognised in accumulated other comprehensive income/(loss), net. No net gain or loss was recognised in accumulated other comprehensive income/(loss), net, for non-swiss defined benefit plans as of December 31, The estimated amount that will be amortised from accumulated other comprehensive income/(loss), net, into pension expense, net, over the next fiscal year is EUR 1. As of December 31, 2006, a net loss for non-swiss defined benefit plans of EUR 2 was recognised in accumulated other comprehensive income/(loss), net. For plans with a PBO in excess of the fair value of plan assets as of December 31, 2007 and December 31, 2006, the total PBO was EUR 48 and EUR 50, respectively, and the fair value of the plan assets was EUR 26 and EUR 28, respectively. Certain of the Company s pension plans have an ABO that exceeds the fair value of plan assets. For plans with an ABO that exceeds the fair value of plan assets, the aggregated ABO was EUR 25 and EUR 45 as of December 31, 2007 and December 31, 2006, respectively, and the fair value of the plan assets of those plans was EUR 9 and EUR 28, respectively. Adecco Financial Review /298

231 Adecco Group Notes to consolidated financial statements in millions, except share and per share information The assumptions used for the defined benefit plans reflect the different economic conditions in the various countries. The weighted-average actuarial assumptions are: Swiss plan Non-Swiss plans in % Weighted-average actuarial assumptions Discount rate Rate of increase in compensation levels Expected long-term rate of return on plan assets The overall expected long-term rate of return on plan assets for the Company s defined benefit plans is based on inflation rates, inflation-adjusted interest rates, and the risk premium of equity investments above risk-free rates of return. Longterm historical rates of return are adjusted when appropriate to reflect recent developments. The Swiss and Non-Swiss pension plans target weightedaverage asset allocations at December 31, 2007, and the actual weighted-average asset allocations at the measurement dates, by asset category, are as follows: Swiss plan Non-Swiss plans Target allocation range Actual allocation Target allocation range Actual allocation in % Weighted-average asset allocations Equity securities Debt securities Real estate Other Total The investment policy and strategy for the assets held by the Company s pension plans is directed at achieving a long-term return. Factors included in the investment strategy are the achievement of consistent year-over-year results, effective and appropriate risk management, and effective cash flow management. The Company expects to contribute EUR 10 to its pension plan in Switzerland and EUR 4 to its non-swiss plans in Future benefits payments, which reflect expected future service, are estimated as follows: in EUR Swiss plan Non-Swiss plans Future benefits payments Years Adecco Financial Review /298

232 Note 10 Financial instruments Risk and use of derivative instruments The Company conducts business in various countries and funds its subsidiaries in various currencies, and is therefore exposed to the effects of changes in foreign currency exchange rates, including the US dollar, the British pound, the Japanese yen, and the Euro against the Swiss franc. In order to mitigate the impact of currency exchange rate fluctuations, the Company assesses its exposure to currency risk and hedges certain risks through the use of derivative instruments. The Company has also issued bonds and medium and longterm notes in various currencies. Accordingly, the Company manages exposure to fixed and floating interest rates and currency fluctuations through the use of derivative instruments. The main objective of holding derivative instruments is to minimise the volatility of earnings arising from these exposures in the absence of natural hedges. The responsibility for assessing exposures as well as entering into and managing derivative instruments is centralised in the Company s treasury department. The activities of the treasury department are covered by corporate policies and procedures approved by the Board of Directors, which generally limit the use of derivative instruments for trading and speculative purposes. Senior management approves the hedging strategy and monitors the underlying market risks. Fair value of financial instruments The following table shows the carrying value and the fair value of financial instruments: in EUR Carrying value Fair value Carrying value Fair value Financial instruments other than derivative instruments Current assets: Cash and cash equivalents Available-for-sale securities Trade accounts receivable, net 3,773 3,773 3,846 3,846 Current liabilities: Accounts payable Short-term debt Current maturities of long-term debt Non-current liabilities: Long-term debt 1,072 1,079 1,406 1,486 Derivative instruments Current assets: Foreign currency contracts Non-current assets: Call options on own shares 5 5 Current liabilities: Foreign currency contracts Interest rate swaps Non-current liabilities: Interest rate swaps Adecco Financial Review /298

233 Adecco Group Notes to consolidated financial statements in millions, except share and per share information The Company uses the following methods and assumptions to estimate the fair value of each class of financial instruments for which it is practical to estimate the value: Cash equivalents, trade accounts receivable, net, accounts payable, and short-term debt The carrying amount approximates the fair value given the short maturity of such instruments. Available-for-sale securities The fair value for these instruments is based on quoted market prices. Current maturities of long-term debt The fair value of the Company s current maturities of publicly traded long-term debt is estimated using quoted market prices. The carrying amount for the other current maturities of long-term debt approximates the fair value given the short maturity of those instruments. Long-term debt The fair value of the Company s publicly traded long-term debt is estimated using quoted market prices. The fair value of other long-term debt is estimated by discounting future cash flows using interest rates currently available for similar debt with identical terms, similar credit ratings, and remaining maturities. See Note 6 for details on debt instruments. Foreign currency contracts The fair value is calculated by using the present value of future cash flows based on quoted market information. Call options on own shares The fair value of these derivative instruments is based on information obtained from financial institutions. Interest rate swaps The fair value for interest rate swaps is calculated using the present value of future cash flows based on quoted market information. Fair value hedges EUR 200 of interest rate swaps that contain a receipt of fixed interest rate payments and payment of floating interest rate payments have been designated as fair value hedges of the EUR 500 fixed rate guaranteed notes issued by Adecco International Financial Services BV. The contracts outstanding have an original contract period of seven years and expire in EUR 120 of interest rate swaps that contain a receipt of fixed interest rate payments and payment of floating interest rate payments have been designated as fair value hedges of the EUR 122 Olsten EUR guaranteed notes. The contracts outstanding have an original contract period of two years and expire in The Company also entered into foreign currency forward contracts to mitigate foreign currency risks on specific availablefor-sale securities. Foreign currency forward contracts to sell Euros and buy Swiss francs were designated as fair value hedges. The contracts had an original contract period of less than one year and expired in No significant gains or losses were recorded in 2007, 2006, and 2005, respectively, due to ineffectiveness in fair value hedge relationships. No significant gains or losses were excluded from the assessment of hedge effectiveness of the fair value hedges in 2007, 2006, or Cash flow hedges During the year 2007, the Company acquired cash settled call options on Adecco S.A. shares. The options are designated as cash flow hedges of the senior management share-linked bonus plan for the years 2007 to 2009, to minimise volatility of future cash flows arising from fluctuations in the share price of Adecco S.A. In addition, the Company has designated certain interest rate swaps as cash flow hedges of outstanding debt. As of December 31, 2007, and December 31, 2006, no significant balances were included in accumulated other comprehensive income/(loss), net, in connection with cash flow hedges. No significant gains or losses were recorded in 2007, 2006, and 2005, respectively, due to ineffectiveness in cash flow hedge relationships. In 2007, a loss of EUR 17, due to the change of time value of the options, was excluded from the assessment of hedge effectiveness of the share-linked bonus plan cash flow hedge, and was recognised in SG&A in the accompanying consolidated statements of operations. There was no significant gain or loss excluded from the assessment of hedge effectiveness of the other cash flow hedges in 2007, 2006 and No significant reclassifications into earnings 108 Adecco Financial Review /298

234 of gains and losses that are reported in accumulated other comprehensive income/(loss), net, are expected within the next 12 months. Net investment hedges During 2004, the Company restructured the financing of its investment in US operations and entered into forward foreign currency contracts to hedge a portion of the Company s exposure to fluctuations in the US dollar against the Swiss franc. All net investment hedges were terminated by September During 2005, the net loss related to these hedges included as a component of accumulated other comprehensive income/(loss), net, in the accompanying consolidated balance sheets and statements of changes in shareholders equity was EUR 68. No significant net gain or loss was recognised during 2005 due to ineffectiveness in the net investment hedge relationship. During 2005, the net loss excluded from the assessment of hedge effectiveness was EUR 5 and was recorded in foreign exchange gain/(loss), net. As of December 31, 2007, the net loss relating to net investment hedges included as a component of accumulated other comprehensive income/(loss), amounted to EUR 54. No reclassifications of losses reported in accumulated other comprehensive income/(loss), net, into earnings are expected within the next 12 months. Other hedge activities The Company has entered into certain derivative contracts that are not designated or do not qualify as hedges under SFAS No These are mainly forward foreign currency contracts used to hedge the net exposure of short-term subsidiary funding advanced in the local operations functional currency. These contracts are entered into in accordance with the written treasury policies and procedures and represent economic hedges. Gains and losses on these contracts are recognised in earnings, as foreign exchange gain/(loss), net, in the accompanying consolidated statements of operations. In connection with these activities, the Company recorded a net loss of EUR 4, less than EUR 1, and EUR 7 in 2007, 2006, and 2005, respectively. In 1992, a subsidiary of the Company issued US dollar denominated perpetual debt that was subsequently restructured under a structured finance agreement (the arrangement ). Under this arrangement, the Company was committed to pay to investors interest on the perpetual debt nominal value (USD 100) at LIBOR plus 1% until The Company entered into various interest rate and cross-currency interest rate swaps to reduce foreign currency exchange and interest rate exposure relating to the payments under the arrangement. Changes in the fair value of the derivative instruments were recorded on a periodic basis in earnings as interest expense. As of December 31, 2006, the fair value of the arrangement was EUR 4. These swap transactions matured in various years ending in During 2007, 2006, and 2005, the net losses recorded by the Company in connection with the arrangement were not significant. The arrangement requires the Company to pay the original debt principal of USD 100 only in the event of a merger or a liquidation of the subsidiary, which the Company has assessed the likelihood as remote. Adecco Financial Review /298

235 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Credit risk concentration Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash investments, short-term investments, trade accounts receivable, and derivative financial instruments. The Company places its cash and short-term investments in major financial institutions throughout the world, which management assesses to be of high credit quality, in order to limit the exposure of each investment. Credit risk with respect to trade accounts receivable is dispersed due to the international nature of the business, the large number of customers, and the diversity of industries serviced. The Company s receivables are well diversified and management performs credit evaluations of its customers and, where available and cost-effective, utilises credit insurance. To minimise counterparty exposure on derivative instruments, the Company enters into derivative contracts with several large multinational banks and limits the exposure in combination with the short-term investments with each counterparty. Note 11 Other income/(expenses), net For the years 2007, 2006, and 2005, other income/(expenses), net, consist of the following: in EUR Foreign exchange gain/(loss), net (2) (4) (14) Interest income Other non-operating income/(expenses), net Total other income/(expenses), net In October 2005, the Company sold its non-controlling interest in Professional Services Industries Holding Inc. ( PSI ) for USD 54. The investment in PSI was acquired by the Company in conjunction with its acquisition of Adia S.A. in In connection with the application of the purchase method of accounting, the Company assigned no fair value to the investment due to uncertainty in the investment s recoverability. Accordingly, the Company recorded a gain of EUR 42 in other non-operating income/(expenses), net, in 2005 as a result of the transaction. This gain resulted in an increase in basic earnings per share, net of tax, of EUR 0.17 in 2005 and an increase in diluted earnings per share, net of tax, of EUR 0.16 in Adecco Financial Review /298

236 Note 12 Income taxes Adecco S.A. is incorporated in Switzerland but the Company operates in various countries with differing tax laws and rates. A substantial portion of the Company s operations are outside of Switzerland. Since the Company operates worldwide, the weighted-average effective tax rate will vary from year to year according to the earnings by country. The weighted-average tax rate is calculated by aggregating pre-tax operating income or loss in each country in which the Company operates multiplied by the country s statutory income tax rate. Income before income taxes and minority interests in Switzerland totalled EUR 477, EUR 422, and EUR 221 in 2007, 2006, and 2005, respectively. Foreign source income before income taxes and minority interests amounted to EUR 551, EUR 363, and EUR 384 in 2007, 2006, and 2005, respectively. The provision for income taxes consists of the following for the fiscal years: in EUR Provision for income taxes Current tax provision: Domestic Foreign Total current tax provision Deferred tax provision/(benefit): Domestic Foreign (44) (74) (4) Total deferred tax provision/(benefit) (37) (66) 14 Total provision for income taxes The difference between the provision for income taxes and the weighted-average tax rate is reconciled as follows for the fiscal years: in EUR Tax rate reconciliation Income taxed at weighted-average tax rate Items taxed at other than weighted-average tax rate Non-deductible expenses Net change in valuation allowance (10) (74) (6) Adjustments to deferred tax assets due to rate changes (25) 4 2 Other, net 1 (6) 1 Total provision for income taxes As of December 31, 2007 and December 31, 2006, a deferred tax liability of EUR 24 and EUR 16 has been provided for non- Swiss withholding taxes and additional Swiss taxes due upon the future dividend payment of cumulative undistributed earnings. In 2007, the reconciling item Adjustments to deferred tax assets due to rate changes includes a net decrease in the tax provision of EUR 27 attributable to the change in the German statutory income tax rate. Adecco Financial Review /298

237 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Temporary differences that give rise to deferred income tax assets and liabilities are summarised as follows: in EUR Temporary differences Net operating loss carryforwards Tax credits Depreciation Deferred compensation and accrued employee benefits Accrued expenses Financial amortisation in excess of tax amortisation Intercompany transactions Other Gross deferred tax assets FIN 48 provision, net (68) Valuation allowance (57) (68) Deferred tax assets, net Depreciation (2) Intangible assets basis in excess of tax basis (149) (49) Accrued expenses (1) (9) Tax amortisation in excess of financial amortisation (9) Undistributed earnings of foreign subsidiaries (24) (16) Other (16) (21) Deferred tax liabilities (190) (106) Deferred tax assets, net of deferred tax liabilities Management s assessment of the realisation of deferred tax assets is made on a country-by-country basis. The assessment is based upon the weight of all available evidence, including factors such as the recent earnings history and expected future taxable income. A valuation allowance is recorded to reduce deferred tax assets to a level which, more likely than not, will be realised. Valuation allowances on deferred tax assets of foreign and domestic operations decreased by EUR 11 in Included in the change of the valuation allowance is a decrease of EUR 1 for fluctuations in foreign exchange rates and EUR 10 mainly attributable to the reduction of the income tax rate in Germany. 112 Adecco Financial Review /298

238 Other current assets include current net deferred tax assets of EUR 168 and EUR 143 as of December 31, 2007 and December 31, 2006, respectively. Other long-term assets include EUR 147 and EUR 239 of net deferred tax assets as of December 31, 2007 and December 31, 2006, respectively. Other accrued expenses include current deferred tax liabilities of EUR 3 and EUR 6 as of December 31, 2007 and December 31, 2006, respectively. Other liabilities include EUR 167 and EUR 80 of non-current deferred tax liabilities as of December 31, 2007 and December 31, 2006, respectively. As of December 31, 2007, the Company had approximately EUR 489 of net operating loss carryforwards. These losses will expire as follows: in EUR Thereafter No expiry Total Expiration of losses by period The largest net operating loss carryforwards are in the US, Germany, and Brazil, and total EUR 354 as of December 31, The losses in the US begin to expire in The losses in Germany and Brazil do not expire. In addition, tax credits of EUR 48 are predominately related to the US operations and begin to expire in The Company adopted the provisions of FIN 48 as of January 1, The Company s reassessment of its tax positions in accordance with FIN 48 resulted in a decrease of EUR 2 in its retained earnings. Consistent with the provisions of FIN 48, the Company reclassified EUR 78 of income tax liabilities from accrued income taxes to other accrued expenses as it is expected that these liabilities will be settled within one year. Additionally, EUR 164 of income tax liabilities were reclassified from accrued income taxes to other liabilities because payment of cash is not anticipated within one year of the balance sheet date. Furthermore, EUR 67 were reclassified from accrued income taxes to other assets. As of January 1, 2007, the amount of unrecognised tax benefits including interest was EUR 315 of which EUR 236 would, if recognised, decrease the Company s effective tax rate. As of December 31, 2007, the amount of unrecognised tax benefits including interest is EUR 332 of which EUR 242 would, if recognised, decrease the Company s effective tax rate. The following table summarises the activity related to the Company s unrecognised tax benefits: in EUR Unrecognised tax benefits Balance at January 1, Increases related to current year tax positions 57 Expiration of the statutes of limitation for the assessment of taxes (4) Settlements with tax authorities (2) Additions to prior years 20 Decreases to prior years (13) Foreign exchange currency movement (24) Balance at December 31, The Company continues to recognise interest and penalties related to unrecognised tax benefits as a component of the provision for income taxes. As of January 1, 2007 and December 31, 2007, the amount of interest and penalties recognised in the balance sheet amounted to EUR 33 and EUR 31, respectively. The total amount of interest and penalties recognised in the statement of operations was not significant. Adecco Financial Review /298

239 Adecco Group Notes to consolidated financial statements in millions, except share and per share information The Company and its subsidiaries file income tax returns in multiple jurisdictions with varying statutes of limitation. The open tax years by major jurisdiction are the following: Open tax years Country U.S. France Germany U.K. Spain Japan 1996 onwards 2003 onwards 2002 onwards 2000 onwards 2003 onwards 2001 onwards In certain jurisdictions, the Company may have more than one tax payer. The table above reflects the statutes of years open to examination for the major tax payers in each major tax jurisdiction. Based on the outcome of examinations, or as a result of the expiration of statutes of limitation for specific jurisdictions, it is reasonably possible that the related unrecognised tax benefits for tax positions taken regarding previously filed tax returns could materially change from those recorded as liabilities for uncertain tax positions in our financial statements. An estimate of the range of the possible change cannot be made until issues are further developed or examinations close. Significant estimates are required in determining income tax expense and benefits. Various internal and external factors may have favourable or unfavourable effects on the future effective tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, results of tax audits, and changes in the overall level of pre-tax earnings. 114 Adecco Financial Review /298

240 Note 13 Earnings per share The following table sets forth the computation of basic and diluted earnings per share: in EUR (except number of shares) Basic Diluted Basic Diluted Basic Diluted Numerator Net income Interest on convertible bond, net of tax Net income available for earnings per share calculation Denominator Weighted-average shares 185,107, ,107, ,343, ,343, ,599, ,599,019 Incremental shares for assumed conversions: Convertible bond 9,523,810 9,523,810 9,523,810 Employee stock options 647, , ,108 Total average equivalent shares 185,107, ,279, ,343, ,532, ,599, ,546,937 Per share amounts Net earnings per share Stock options of 5,180,559 in 2007, 6,936,122 in 2006, and 9,013,344 in 2005 were excluded from the computation of diluted net income per share as the effect would have been anti-dilutive. Note 14 Segment reporting net, income applicable to minority interests, and provision for income taxes. Corporate items consist of certain assets and expenses which are separately managed at the corporate level. Segment assets include current assets, property, equipment, and leasehold improvements, net, other assets, intangible assets, net, and goodwill. The accounting principles used for the segment reporting are those used by the Company. Since January 2006, the Company is organised in a geographic structure (which corresponds to the primary segments) complemented by global business lines, through which the professional services are marketed. The classification into business lines is determined by the largest business line revenue share generated in a specific branch. Approximately 93% of the Company s revenues in 2007 were related to temporary staffing, whereas in 2006 and 2005 temporary staffing represented 93% and 94%, respectively, of the Company s revenues. The remaining portion relates to permanent placements and other services. The Company evaluates the performance of its segments based on operating income before amortisation, which is defined as the amount of income before amortisation of intangible assets, interest expense, other income/(expenses), Adecco Financial Review /298

241 Adecco Group Notes to consolidated financial statements in millions, except share and per share information in EUR France USA & Canada 2 UK & Ireland 2 Japan Italy Iberia Germany Other Corporate Total 2005 segment reporting Revenues 6,298 3,649 1,535 1,407 1, ,106 18,303 Depreciation (27) (23) (10) (8) (5) (3) (1) (14) (15) (106) Operating income before amortisation (134) 617 Amortisation of intangible assets (3) (3) Operating income 614 Interest expense, and other income/(expenses), net (9) (9) Provision for income taxes (150) (150) Income applicable to minority interests (2) (2) Net income 453 Capital expenditures (13) (16) (11) (3) (3) (1) (1) (11) (9) (68) Segment assets 2,073 1, ,839 Long-lived assets in EUR France USA & Canada 2 UK & Ireland 2 Japan Italy Iberia Germany Other Corporate Total 2006 segment reporting Revenues 6,777 3,709 1,827 1,432 1,156 1, ,653 20,417 Depreciation (26) (20) (9) (6) (4) (3) (4) (14) (8) (94) Operating income before amortisation (127) 828 Amortisation of intangible assets (12) (12) Operating income 816 Interest expense, and other income/(expenses), net (31) (31) Provision for income taxes (168) (168) Income applicable to minority interests (6) (6) Net income 611 Capital expenditures (17) (19) (13) (3) (3) (2) (6) (16) (6) (85) Segment assets 2,192 1, , ,682 Long-lived assets Long-lived assets include fixed assets and other non-current assets. 2 A business previously reported in UK & Ireland is now included in USA & Canada, as in 2007 this business is managed by USA & Canada. The 2005 & 2006 information has been restated to conform to the current year presentation. 116 Adecco Financial Review /298

242 in EUR France USA & Canada UK & Ireland Japan Italy Iberia Germany Other Corporate Total 2007 segment reporting Revenues 6,891 3,199 1,879 1,385 1,252 1,157 1,251 4,076 21,090 Depreciation (21) (18) (10) (4) (3) (3) (7) (15) (8) (89) Operating income before amortisation (108) 1,081 Amortisation of intangible assets (27) (27) Operating income 1,054 Interest expense, and other income/(expenses), net (26) (26) Provision for income taxes (285) (285) Income applicable to minority interests (8) (8) Net income 735 Capital expenditures (17) (14) (12) (3) (5) (6) (10) (19) (5) (91) Segment assets 1,967 1, ,093 1, ,254 Long-lived assets Long-lived assets include fixed assets and other non-current assets. Revenues by business line are as follows: in EUR Office Industrial Information Technology Engineering & Technical Finance & Legal Medical & Science Sales, Marketing & Events Human Capital Solutions Emerging Markets 1 Total Revenues ,395 9,875 1, , ,739 10,958 1, ,050 20, ,701 11,426 1, ,172 21,090 1 Emerging Markets excluding professional business lines. 2 The 2007 information includes certain changes in the allocation of branches to business lines, most notably from Office to Finance & Legal and from Sales, Marketing & Events to Industrial. The 2005 and 2006 information has been restated to conform to the current year presentation. Adecco Financial Review /298

243 Adecco Group Notes to consolidated financial statements in millions, except share and per share information Note 15 Commitments and contingencies The Company leases facilities under operating leases, certain of which require payment of property taxes, insurance, and maintenance costs. Operating leases for facilities are usually renewable at the Company s option. Total rent expense under operating leases amounted to EUR 210, EUR 194, and EUR 173 during 2007, 2006, and 2005, respectively. Future minimum annual lease payments under operating leases are as follows: in EUR Thereafter Total Lease payments by period As of December 31, 2007, the Company has future purchase and service contractual obligations of approximately EUR 94 primarily related to IT development and maintenance agreements, earn-out agreements related to acquisitions, marketing sponsorship agreements, equipment purchase agreements, and other vendor commitments. Future payments under these arrangements are as follows: in EUR Thereafter Total Contractual obligations by period Guarantees The Company has entered into certain guarantee contracts and standby letters of credit that total EUR 845, including those letters of credit issued under the multicurrency revolving credit facility (EUR 118). The guarantees primarily relate to government requirements in certain countries for operating a temporary staffing business and are generally renewed either annually or every two years. Other guarantees relate to operating leases and credit lines. The standby letters of credit mainly relate to workers compensation in the US. If the Company is not able to obtain and maintain letters of credit and/or guarantees from third parties then the Company would be required to collateralise its obligations with cash. Due to the nature of these arrangements and historical experience, the Company does not expect to be required to collateralise its obligations with cash. 118 Adecco Financial Review /298

244 Contingencies In the ordinary course of business, the Company is involved in various legal actions and claims, including those related to social security charges, other payroll related charges, and various employment related matters. Although the outcome of the legal proceedings cannot be predicted with certainty, the Company believes it has adequately reserved for such matters. French antitrust proceedings In November 2004, the French competition authority ( DGCCRF ) commenced an investigation of two of the Company s French subsidiaries, the former Adecco Travail Temporaire (now Adecco France SASU) and Adia SAS (now Adia SASU) and certain of their competitors. In November 2007, Adecco France SASU and Adia SASU have received a Statement of Objections alleging infringements, i.e. exchange of commercially sensitive information with competitors in 2003 and 2004 and in one case, concerning Adia and Adecco and competitors, involvement in a concerted practice in response to a tender offer of a French company. On February 11, 2008, Adecco France SASU and Adia SASU submitted their comprehensive answer to the Statement of Objections. After a general hearing in 2008 before the members of the Competition Council, the French Competition Council will issue its final decision, imposing fines and making the proposed commitments binding. There is no provision in law regarding the time period in which the Competition Council must render such decision. The decision can be appealed before the Paris Court of Appeals. The final decision of the Competition Counsil will be based on multiple parameters such as nature, duration, and scope of the alleged anticompetitive practices, previous infringements, and the harm to consumers and the economy. The Company s management, after careful assessment and being advised by its external legal advisors, recorded a reserve of EUR 15. However, there can be no assurance that the ultimate resolution of this matter will not have a material adverse effect on the consolidated balance sheets, results of operations, or cash flows of the Company. Adecco Financial Review /298

245 Report of the Group Auditors to the General Meeting of Adecco S.A., Chéserex As group auditors, we have audited the accompanying consolidated balance sheets of Adecco S.A. and subsidiaries (the Company ) as of December 31, 2007 and 2006, and the related consolidated statements of operations, changes in shareholders equity, and cash flows for each of the three years in the period ended December 31, These financial statements are the responsibility of the Company s Board of Directors and management. Our responsibility is to express an opinion on these financial statements based on our audits. We confirm that we meet the legal requirements concerning professional qualification and independence. We conducted our audits in accordance with Swiss Auditing Standards and auditing standards generally accepted in the United States for the 2007 audit and Public Company Accounting Oversight Board (United States) ( PCAOB ) standards for the 2006 and 2005 audits. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company s internal control over financial reporting for 2007 and Our audits for 2007 and 2005 included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Adecco S.A. and subsidiaries at December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States and comply with Swiss law. We recommend that the consolidated financial statements submitted to you be approved. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organisations of the Treadway Commission (COSO) and our report dated March 15, 2007, expressed an unqualified opinion thereon. Ernst & Young AG Jan Birgerson Authorised Public Accountant (Auditor in charge) Robin Ginn Certified Public Accountant Zurich, Switzerland March 13, Adecco Financial Review /298

246 Adecco Financial Review /298

247 Adecco S.A. (Holding Company) Balance sheets in millions, except share and per share information and compensation table data As of December 31 (in CHF) Assets Current assets: Cash and cash equivalents Short-term investments 6 Receivables from subsidiaries Receivables from third parties 7 5 Accrued income, prepaid expenses, and withholding taxes Total current assets Non-current assets: Investments in subsidiaries 6,749 6,537 Loans to subsidiaries 1,429 1,480 Provisions on investments in and loans to subsidiaries (874) (917) Treasury shares Intangible assets Financial assets 8 1 Total non-current assets 7,798 7,443 Total assets 7,936 8,073 Liabilities and shareholders equity Liabilities Current liabilities: Amounts due to subsidiaries Amounts due to third parties Accrued liabilities Total current liabilities Non-current liabilities: Long-term debt to subsidiaries 684 1,312 Provisions and non-current liabilities Total non-current liabilities 796 1,417 Total liabilities 1,059 1,640 Shareholders equity Share capital General reserve 2,103 2,071 Reserve for treasury shares Retained earnings 4,136 3,888 Total shareholders equity 6,877 6,433 Total liabilities and shareholders equity 7,936 8, Adecco Financial Review /298

248 Adecco S.A. (Holding Company) Statements of operations in millions, except share and per share information and compensation table data For the fiscal years ended December 31 (in CHF) Operating income Royalties and license fees Dividends from subsidiaries Gain on sale of investments 6 1 Release of provision on loans Interest income from subsidiaries Other income Total operating income Operating expenses Interest expense to subsidiaries (71) (49) Interest expense to third parties (3) (2) Taxes (72) (59) Financial expense (11) (2) Other expenses (including depreciation of CHF 7 in 2007 and CHF 8 in 2006) (168) (177) Total operating expenses (325) (289) Net income for the year Adecco Financial Review /298

249 Adecco S.A. (Holding Company) Notes to financial statements in millions, except share and per share information and compensation table data Note 1 Contingent liabilities in CHF Guarantees 2,949 2,799 Letters of comfort Total contingent liabilities 3,076 2,924 Adecco S.A. has irrevocably and unconditionally guaranteed the floating rate notes of EUR 200 (CHF 331) due 2008 and the fixed rate notes of EUR 500 (CHF 829) due 2013 issued by Adecco International Financial Services BV, a wholly-owned subsidiary of Adecco S.A. Adecco S.A. has irrevocably and unconditionally guaranteed the zero-coupon convertible bonds of CHF 900 and accrued interest of CHF 60 due 2013 issued by Adecco Financial Services (Bermuda) Ltd. ( AFS ), a wholly-owned subsidiary of Adecco S.A. Adecco S.A. granted to AFS a right to subscribe for the maximum of 9,523,810 registered shares of Adecco S.A. The nominal value of each share is CHF 1 and the initial exercise price is CHF As a consideration for granting the above right, AFS has paid to Adecco S.A. consideration of CHF 101 on December 15, Following the acquisition of the Olsten Group, Adecco S.A. has guaranteed the outstanding notes of EUR 122 (CHF 202) issued by Adecco Olsten Holding BV. Approximately CHF 490 of the credit facilities issued to several subsidiaries in Europe, North America, South America, Asia, and Australia have been guaranteed. Adecco S.A. has also guaranteed the outstanding acquisition commitments of its subsidiaries in the amount of CHF 105. Additionally, Adecco S.A. has provided guarantees and letters of comfort amounting to CHF 99 relating to government requirements for operating a temporary staffing business and to operating leases of its subsidiaries mainly in the US. Note 2 Treasury shares Adecco S.A. has guaranteed the amount of CHF 60 utilised from the revolving credit facility in the form of letters of credit as of December 31, The reserve for treasury shares held by Adecco S.A. is transferred to/from retained earnings. As of December 31, 2007 and 2006, all treasury shares held by the Company are held by Adecco S.A. Total cost (in CHF millions) Average purchase/sale Number price per share of shares (in CHF) Highest price per share (in CHF) Lowest price per share (in CHF) January 1, ,509,750 Disposed of during the year (45) Acquired during the year 194 2,455, December 31, ,964,705 Disposed of during the year (43) (601,992) Acquired during the year 207 3,253, December 31, ,616,213 On November 2, 2007, the Company announced that its Board of Directors had decided to purchase the Company s shares for up to EUR 400 by the end of The shares are intended to be used for future acquisitions or to minimise potential dilution related to the outstanding convertible bond. From the time when the announcement was made to the year-end of 2007, the Company purchased 3,253,500 treasury shares for a total consideration of CHF 207 (EUR 124). In January 2008, the Company acquired an additional 6,604,000 of its own shares for a total consideration of CHF 361 (EUR 218). 124 Adecco Financial Review /298

250 Note 3 Shareholders equity in CHF Share capital General reserve Reserve for treasury shares Retained earnings Total January 1, , ,888 6,433 Dividend distribution (222) (222) Share capital increase Net movement in reserve for treasury shares 164 (164) Net income for the year December 31, , ,136 6,877 1 Common shares of CHF 189,263,506 at CHF 1 par value. On May 8, 2007, Adecco S.A. held its Annual General Meeting of Shareholders in Lausanne. Conditional shares As of December 31, 2007, Adecco S.A. had conditional capital under Art. 3 quater of the Articles of Incorporation of Adecco S.A. of 15,400,000 shares, for a maximum aggregate amount of CHF 15 for issue of a maximum of 15,400,000 registered shares, which shall be fully paid by the exercise of option and conversion rights to be granted in relation with bond issues or other obligations of Adecco S.A. or affiliated companies. 9,523,810 shares have been earmarked for issuance upon conversion of the outstanding guaranteed zero-coupon convertible bond issued by AFS. The remaining 5,876,190 shares represent conditional capital that was originally authorised without time limitation in connection with the issuance of a convertible bond in 1999, which was repaid in 2004 without conversion. This conditional capital remains available for issuance upon conversion of any financial instruments that Adecco S.A. or its subsidiaries may issue in the future. Adecco S.A. had 4,166,804 and 4,629,143 common shares reserved for issuance of common shares to employees and members of the Board of Directors upon the exercise of stock options as of December 31, 2007 and December 31, 2006, respectively, under Art. 3 ter of the Articles of Incorporation of Adecco S.A. These shares shall be fully paid by the exercise of option rights which the Board of Directors has granted to the employees and to the members of the Board of Directors of Adecco S.A. or of its affiliated companies. During 2007, Adecco S.A. issued 462,339 shares for stock options exercised for a total amount of CHF 32. Adecco Financial Review /298

251 Adecco S.A. (Holding Company) Notes to financial statements in millions, except share and per share information and compensation table data Note 4 Significant shareholders The Company has only registered shares. Not all shareholders register with the Company s share register. The following figures are based on information from the share register as of December 31, 2007, on shareholders disclosures or on other information available to the Company. 28% of the voting rights as per December 17, 2007 and per December 21, 2006, respectively. For further detailed information see the links listed under item 1.2 of the Corporate Governance Section. Note 5 Restriction regarding the distribution of dividends 54,854,179 and 54,904,180 shares in 2007 and 2006, respectively, held by a shareholder group with pooled voting rights, consisting of Jacobs Holding AG, Zurich, Switzerland; Klaus J. Jacobs, Royston, UK; Renata Jacobs, Royston, UK; Lavinia Jacobs, Küsnacht, Switzerland; Nathalie Jacobs, Zurich, Switzerland; Philippe Jacobs, Shanghai, China; Nicolas Jacobs, Küsnacht, Switzerland; Jacobs Venture AG, Baar, Switzerland; and Triventura AG, Baar, Switzerland. 10,163,580 and 10,188,580 shares in 2007 and 2006, respectively, held by Akila Finance S.A., Luxembourg, controlled by Mr Philippe Foriel-Destezet, London, UK. 9,933,656 shares, as disclosed per January 4, 2008 (no information was disclosed in 2006) held by Group Franklin Templeton Investments, Ft. Lauderdale, USA, with pooled voting rights, consisting of Franklin Advisers, Inc., San Mateo, USA; Fiduciary International Inc., New York, USA; Franklin Templeton Investments Corp., Toronto, Canada; Franklin Templeton Investment Management Limited, Edinburgh, UK; Templeton Global Advisors Limited, Nassau, Bahamas; Templeton Investment Counsel, Ft. Lauderdale, USA. 9,496,700 and 8,609,100 shares as disclosed per November 20, 2007 and per September 14, 2006, respectively, held by Harris Associates L.P., Chicago, USA. The group represented by Barclays PLC, London, UK, disclosed to have fallen below the threshold of 5% as per October 12, Other investors have disclosed to hold more than 5% of the voting rights in the Company, including but not limited to Sonata Securities S.A., Luxembourg, having disclosed to hold 22.7% of the voting rights as per January 3, 2006, no other disclosure being received since, and the group Deutsche Bank AG, Frankfurt, Germany, having disclosed to hold 1.01% and Swiss law requires that Adecco S.A. retains at least 5% of its annual net profits as general reserves until such reserves cover 20% of Adecco S.A. s nominal paid-in share capital (Art. 671 sec. 1, Swiss Code of Obligations). Any remaining net profits may be distributed as dividends, pursuant to a resolution of the General Meeting of Shareholders. Note 6 Compensation, shareholdings, and loans Compensation and shareholding of acting members of governing bodies (Board of Directors and Executive Committee) The total of all compensation conferred during the fiscal year 2007 to the Executive Committee amounted to CHF 23. This amount includes honorariums (fees), salaries, credits, bonuses, and benefits in kind (according to market value at time of conferral). The members of the Board of Directors are compensated in the form of cash. The amount conferred to the members of the Board of Directors amounted to CHF 6. Bonus payments for the fiscal year 2007 due in 2008 and 2009, respectively, are included and have been calculated based on an estimate of the actual targets achieved. Not included are bonus payments due for 2006 but made during Further information on the compensation of the Board and the Executive Committee of the Company can be found in the Corporate Governance section, items 5.1 (general description of current compensation plans, expiring in 2008/2009) and 5.2 (additional information based on best practice recommendations). 126 Adecco Financial Review /298

252 Individual compensation and shareholding are presented in the tables below: Board of Directors Compensation Net cash compensation Social contributions Old age insurance/ pensions in CHF (except shares) Office/ Compensation period in 2007 Annual base fee for term served Annual bonus Loyalty bonus 1 Compensation in kind 2 Fees for further work Total conferred Shareholding as of December 31, Name and function Jürgen Dormann, Chairman 4 since Jan , , ,600 40,342 1,959,542 30,301 Rolf Dörig, Vice-Chairman 5 since May ,500 28, ,678 1 Jakob Baer since Jan ,000 24, ,247 3,601 Andreas Jacobs since Jan , ,000 3,301 6 Philippe Marcel 7 since Jan , , , ,501 9 Francis Mer since Jan ,000 22, ,314 1 Thomas O Neill since Jan ,000 16, ,521 2,001 David Prince since Jan , , ,022,252 2 Peter V. Ueberroth since Jan , ,000 1 Klaus J. Jacobs, Chairman 11 until May 2007 n.a. Total 6,210, ,710 1 Bonus conferred and accrued for 2007 under the loyalty bonus plan, payable in 2009, subject to continued function with the Adecco Group through to December 31, Car allowance for private use and housing allowance. 3 The members of the Board of Directors and the Executive Committee are required to disclose to the Company direct or indirect purchases and sales of equity related securities of Adecco S.A. Such transactions are published on the website of the Company (see: and of SWX Swiss Stock Exchange (see: 4 Since May 8, 2007, before Vice-Chairman. 5 Elected May 8, 2007 as new member of the Board. 6 See Corporate Governance section, item 1.2 Significant shareholders and Note 4 Significant shareholders regarding shares held by a group to which Andreas Jacobs is a member. 7 Stock options held by Philippe Marcel as per December 31, 2007: See table Stock options held below. 8 In addition to CHF 300,000 Adecco S.A. Board membership fee, amount includes fee for Board membership in the Adecco France organisation. 9 Of which 79,080 shares were held by members of Philippe Marcel s family and 15,420 shares were held by an investment company in which Philippe Marcel has a 50% ownership and parties related to Philippe Marcel participate as well. 10 For consultancy services performed. 11 Until May 8, See Corporate Governance section, item 1.2 Significant shareholders and Note 4 Significant shareholders regarding shares held by a group to which Klaus J. Jacobs is a member. Adecco Financial Review /298

253 Adecco S.A. (Holding Company) Notes to financial statements in millions, except share and per share information and compensation table data Executive Committee Compensation Net cash compensation Social contributions in CHF (except shares) Office/ Annual base Compensation salary for period in 2007 term served Annual bonus Loyalty bonus 1 Compensation in kind 2 Old age insurance/ pensions Additional health/accident insurance Severance payments Total conferred Shareholding as of December 31, Name and function Dieter Scheiff, CEO 4 since Jan ,614,242 1,159,246 1,159, , ,957 20,190 4,462,229 27,120 6 Dominik de Daniel, CFO 7 since Jan , , , ,551 2,422 2,096,027 29,978 6 François Davy, Country Manager France 8 since Jan , , ,193 38, ,758 2,687,119 Theron I (Tig) Gilliam, Country Manager USA & Canada 9 since March , , ,384 3,237 48,678 20,044 1,214,247 Christian Vasino, Chief HR Officer 10,11 since April , , ,375 4,230 52,359 2, ,972 1,000 Jean-Manuel Bullukian, President Business Lines Engineering & Technical and Information Technology 12 since Jan , ,736 13,245 91,658 11,820 1,098,459 Jan-Pieter Gommers, President Business Line Sales, Marketing & Events 12 since Jan , ,736 32,724 62,633 4, ,304 Gonzalo Fernandez-Castro, Chief Marketing & Business Development Officer 13 since Jan , ,736 22,440 62,157 3, ,631 Ekkehard Kuppel, President Business Line Human Capital Solutions 14,15 since Jan , , , , ,053 13,003 1,765,495 Neil Lebovits, President Business Line Finance & Legal 10,12 since Feb , ,899 25,818 29,006 18, ,323 Francois-Xavier Quilici, Chief Information Officer 14 since Jan , , ,893 4,630 74, ,852 René Schuster, Country Manager UK & Ireland 14,16 since Jan , , ,654 51,559 10,307 1,401,663 Ray Roe, former Country Manager USA & Canada 10,17 until Feb ,802 93,558 93, ,873 20, ,439 n.a. Thomas Flatt, former Chief HR Officer and former Head Business Line Medical & Science until March ,744 7,050 20, ,174,348 1,328,343 n.a. Jim Fredholm, former Head Business Line Finance & Legal until Jan ,833 2,677 9,382 3,788 1,440,198 1,516,878 n.a. Total 22,541,981 58, Adecco Financial Review /298

254 1 Bonuses conferred and accrued for 2007 under the loyalty bonus plan, payable in 2009, subject to continued function with the Adecco Group throughout December 31, Car allowance for private use, car lease financed by the Company, membership fees, housing allowance, relocation, education, health insurance, representation allowance. 3 The members of the Board of Directors and the Executive Committee are required to disclose to the Company direct or indirect purchases and sales of equity related securities of Adecco S.A. Such transactions are published on the website of the Company (see: and of SWX Swiss Stock Exchange (see: 4 Minimum contract duration until June 30, Payable after December 31, 2008, subject to no breach of employment contract by employee up to this point in time. 6 During 2007, Adecco S.A. shares were exchanged for DIS options. The number of shares exchanged represented the equivalent value of the options at the DIS acquisition date plus a premium for the share price performance of Adecco S.A. from acquisition through to the date of the exchange. 7 Minimum contract duration until December 31, Severance payment of EUR 1,500,000 (CHF 2,485,875) due in case of termination of the employment contract by the employer. 9 Severance payment of USD 1,000,000 (CHF 1,126,155) due in case of termination of the employment contract by the employer. 10 Compensation received in the fiscal year 2007 for activities as member of the Executive Committee only, i.e. excluding compensation received in relation to other positions prior to or after such activity as member of the Executive Committee. 11 Annual bonus based on Economic Value Added only. Loyalty bonus based on operating profit, payable in 2010 and subject to continued function with the Adecco Group through to December 31, Membership to the Executive Committee and function with Adecco Group ended March 3, Member of the Executive Committee and Chief Marketing & Business Development Officer until March 3, Function no longer represented in the Executive Committee from March 4, 2008 onwards. 15 Minimum contract duration until December 31, Severance payment of EUR 1,000,000 (CHF 1,657,250) due in case of termination of the employment contract by the employer. 17 Severance payment of USD 1,000,000 (CHF 1,126,155) due in case of termination of the employment contract. The Company has not granted any guarantees in favour of members of the Board of Directors or the Executive Committee nor granted any outstanding loans. Shares allocated In 2007, no Adecco S.A. shares were allocated to current or former members of governing bodies. Compensation of former members of governing bodies (Board of Directors and Executive Committee) In 2007, compensation payments in the total amount of CHF 2.6 were made to Gilles Quinnez, General Manager France until December No compensation payments were made to other former members of governing bodies in relation to their former offices. Share ownerships For the individual share ownerships of the Executive Committee and the Board of Directors, see the tables Board of Directors Compensation and Executive Committee Compensation above and item 1.2 Significant shareholders of the Corporate Governance section. As per December 31, 2007, the members of the Board of Directors, including parties closely linked, owned 194,710 shares; not included are the shares owned by a group to which Mr Andreas Jacobs is a member (see item 1.2 Significant shareholders of the Corporate Governance section). As per December 31, 2007, the members of the Executive Committee including parties closely linked, owned Adecco Financial Review /298

255 Adecco S.A. (Holding Company) Notes to financial statements in millions, except share and per share information and compensation table data 58,098 shares. The members of the Board of Directors and the Executive Committee are required to disclose to the Company direct or indirect purchases and sales of equity related securities. Such transactions are published on the website of the Company (see: and SWX Swiss Stock Exchange (see: Stock options held Stock options granted since the merger of Adia and Ecco in 1996 to, exercised by, lapsed from, and held by the members of the Board of Directors and of the Executive Committee in office as of December 31, 2007, are presented in the table below (no stock options were granted since 2004): Last year of expiry detail Year of grant Year of expiry Philippe Marcel Neil Lebovits Christian Vasino Strike price (CHF) Granted Exercised Lapsed Held Held by Philippe Marcel Held by Neil Lebovits Held by Christian Vasino Stock options held ,000 (1,000) / ,000 (141,000) 35,000 35, / ,050 (145,600) ,000 (2,400) 1,600 1, / ,000 (91,334) 178, ,666 12, ,000 (20,000) , , , / ,500 (20,000) 2,500 2,500 Total 739,550 (182,000) (239,334) 318, ,666 14,050 2,500 One option entitles the holder to purchase one Adecco S.A. share under the conditions as outlined in the respective plan. Options shown as held in the table above are included as part of the total options outstanding presented in the table appearing in the Corporate Governance section, item 2.7 Convertible notes and options. No options granted under the DIS stock option plan were held by the members of the Board of Directors or the Executive Committee as of December 31, For additional information on stock options, see Corporate Governance section, item 2.7 Convertible notes and options. Additional fees and remunerations David Prince, a member of the Board of Directors, has received consultancy honorariums in the amount of approximately CHF 0.7 for specific services performed in No additional fees (including consultancy honorariums, other contracts/agreements) or other remuneration for services performed during 2007 were conferred by the Company to other members of the Board of Directors and closely linked parties or to members of the Executive Committee and closely linked parties. Loans granted to governing bodies (Board of Directors, Executive Committee, closely linked parties) The Company, as of December 31, 2007, has no guarantees or loans outstanding or advances or credits granted to members of the Board of Directors or to members of the Executive Committee, including parties closely linked to such persons. Highest total sum of compensation and stock option allotments conferred to a member of the Board of Directors during 2007 The highest total sum of compensation conferred to a member of the Board of Directors during 2007 amounted to CHF 2. Neither shares nor stock options were allotted to members of the Board of Directors during Adecco Financial Review /298

256 Note 7 Proposed appropriation of available earnings in CHF Available earnings of previous year 3,888 3,774 Profit for the year Net movement on treasury share provision (164) (194) Dividend distribution (222) (187) Total available earnings 4,136 3,888 Proposed dividend of CHF 1.50 per registered share (303) 1 (246) Proposed balance to be carried forward 3,833 3,642 1 This amount represents the maximum amount of dividends payable based on the total number of shares issued (excluding treasury shares) of 182,647,293 and conditional shares of 19,566,804, which were not in circulation as of December 31, Adecco Financial Review /298

257 Report of the Statutory Auditors to the General Meeting of Adecco S.A., Chéserex As statutory auditors, we have audited the accounting records and the financial statements (balance sheet, statement of operations and notes) of Adecco S.A. for the year ended December 31, These financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with Swiss Auditing Standards, which require that an audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. We have examined, on a test basis, evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accounting records and financial statements and the proposed appropriation of available earnings comply with Swiss law and Adecco S.A. s articles of incorporation. We recommend that the financial statements submitted to you be approved. Ernst & Young AG Jan Birgerson Authorised Public Accountant (Auditor in charge) Robin Ginn Certified Public Accountant Zurich, Switzerland March 13, Adecco Financial Review /298

258 Confirmation in Respect of Conditional Capital Increase to the Board of Directors of Adecco S.A., Chéserex As auditor of the capital increase of Adecco S.A., we have audited the issue of new shares based on the resolution of the general meeting as of May 2, 2001 during the period between January 1, 2007 and December 31, 2007 in accordance with the provisions of Swiss law. The issue of new shares in accordance with the provisions of Adecco S.A. s articles of association is the responsibility of the Board of Directors. Our responsibility is to express an opinion on whether the issue of new shares is in accordance with the provisions of Swiss law and Adecco S.A. s articles of association. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with auditing standards promulgated by the Swiss profession, which require that an audit be planned and performed to obtain reasonable assurance as to whether the issue of new shares, was free of material error. We have performed the audit procedures appropriate in the circumstance. We believe that our audit provides a reasonable basis for our opinion. In our opinion the issue of 462,339 registered shares of a nominal value of CHF 1 per share was in accordance with the provisions of the Swiss law and Adecco S.A. s articles of association. OBT AG Samuel Brunner Licensed Audit Expert (auditor in charge) Markus Fehr Licensed Audit Expert Zurich, January 31, 2008 Adecco Financial Review /298

259 Major consolidated subsidiaries Name of legal entity Country Registered seat Currency of of legal entity Ownership Type 1 share capital Share capital in thousands Adecco Argentina S.A. Argentina Buenos Aires 100% O ARS 44,526 Adecco Industrial Pty Ltd Australia Melbourne 100% O AUD 5 Icon Recruitment Pty Ltd Australia Melbourne 100% O AUD 24,469 Adecco Personnel Services NV Belgium Brussels 100% O EUR 4,151 Adecco Coordination Center NV Belgium Brussels 100% F EUR 1,332,468 Adecco Financial Services (Bermuda) Ltd Bermuda Hamilton 100% F USD 12 Adia Funding Ltd Bermuda Hamilton 100% F USD 12 Adecco Employment Services Limited Canada Toronto, Ontario 100% H/O CAD 90,625 Ajilon Canada Inc. Canada Toronto, Ontario 100% O CAD 14,884 Roevin Technical People Limited Canada Edmonton, Alberta 100% O CAD 811 Adecco A/S Denmark Frederiksberg 100% O DKK 10,000 Adecco Finland Oy Finland Helsinki 100% O EUR 34 Adecco France SASU France Villeurbanne 100% O EUR 85,317 ADIA SAS France Villeurbanne 100% O EUR 83,293 Quick Medical Service SA France Villeurbanne 100% O EUR 230 Altedia SA France Paris 100% O EUR 3,020 Adecco Holding France SASU France Villeurbanne 100% H EUR 601,200 Adecco Germany Holding GmbH Germany Düsseldorf 100% H EUR 25 Adecco Personaldienstleistungen GmbH Germany Fulda 100% O EUR 31 DIS Deutscher Industrie Service AG Germany Düsseldorf 99% O EUR 12,300 Tuja Zeitarbeit GmbH Germany Ingolstadt 100% O EUR 40 Euro Engineering AG Germany Ulm 99% O EUR 540 Adecco Flexione Workforce Solutions Limited India Bangalore 100% O INR 500 Adecco Italia SpA Italy Milan 100% O EUR 2,976 Adecco Ltd Japan Tokyo 100% O JPY 5,562,863 Ecco Servicios de Personal SA de CV Mexico Mexico City 100% H/O MXN 101,854 Adecco Personeelsdiensten BV Netherlands Utrecht 100% O EUR 227 Adecco Olsten Holding BV Netherlands Utrecht 100% H EUR 18 Adecco International Financial Services BV Netherlands Utrecht 100% F EUR 2,500 Adecco Norge AS Norway Oslo 100% O NOK 50,000 Adecco Recursos Humanos Portugal Lisbon 100% O EUR 1,925 Adecco Personnel Pte Ltd Singapore Singapore 100% O SGD 100 Adecco TT SA Empresa De Trabajo Temporal Spain Madrid 100% O EUR 1,759 Alta Gestion SA Empresa De Trabajo Temporal Spain Madrid 100% O EUR 6,420 Atlas Servicios Empresariales S.A.U. Spain Madrid 100% O EUR 60 Eurocen Europea de Contratas SA Spain Madrid 100% O EUR 661 Adecco Sweden AB Sweden Stockholm 100% O SEK 3,038 Adecco Ressources Humaines SA Switzerland Lausanne 100% O CHF 7,000 Adecco SA Switzerland Chéserex H CHF 189,264 Adecco management & consulting SA Switzerland Lausanne 100% S CHF 500 Adecco UK Ltd United Kingdom Borehamwood 100% O GBP 15,000 Ajilon (UK) Ltd United Kingdom Borehamwood 100% O GBP 10 Office Angels Ltd United Kingdom Borehamwood 100% O GBP 2,657 Roevin Management Services Ltd United Kingdom Borehamwood 100% O GBP <1 Adecco USA, Inc. United States Wilmington, DE 100% O USD <1 Adecco Inc. United States Wilmington, DE 100% H USD <1 Ajilon LLC United States Wilmington, DE 100% O USD n/a 2 Ajilon Professional Staffing LLC United States Wilmington, DE 100% O USD n/a 2 Lee Hecht Harrison LLC United States Wilmington, DE 100% O USD n/a 2 Olsten Staffing Services Corp. United States Wilmington, DE 100% O USD <1 1 H Holding; O Operating; S Services; F Financial. 2 Subsidiary is registered as a Limited Liability Company ( LLC ). No shares have been issued as LLCs have membership interests rather than shares. 134 Adecco Financial Review /298

260 Annex D Adecco Group Half Year Report /298

261 Contents 2 Selected financial information 3 Operating and financial review and prospects 9 Consolidated balance sheets 10 Consolidated statements of operations 11 Consolidated statements of cash flows 12 Consolidated statements of changes in shareholders equity 13 Notes to consolidated financial statements Adecco Half Year Report /298

262 Adecco Group Selected financial information (unaudited) in millions, except share and per share information For the six months ended (in EUR) Statements of operations Revenues 7,294 10,231 Amortisation of intangible assets (26) (22) Impairment of goodwill and intangible assets (192) Operating income/(loss) (143) 509 Net income/(loss) attributable to Adecco shareholders (124) 349 As of (in EUR) Balance sheets Cash and cash equivalents and short-term investments Trade accounts receivable, net 2,464 3,046 Goodwill 2,586 2,666 Total assets 7,122 7,530 Short-term debt and current maturities of long-term debt Accounts payable and accrued expenses 2,631 3,053 Long-term debt, less current maturities 1,509 1,142 Total liabilities 4,604 4,732 Total shareholders equity 2,518 2,798 For the six months ended (in EUR) Cash flows Cash flows from operating activities Cash flows from/(used in) investing activities (99) (91) Cash flows from/(used in) financing activities 158 (343) Other indicators Capital expenditures, net (54) (48) As of Other indicators Net debt (in EUR) Additional statistics Number of FTE employees at end of period (approximate) 29,000 34,000 1 Net debt is a non-u.s. GAAP measure and comprises short-term and long-term debt, less cash and cash equivalents and short-term investments. 2 Adecco Half Year Report /298

263 Adecco Group Operating and financial review and prospects in millions, except share and per share information 1. Operational results 1.1 Overview Statements throughout this discussion and analysis using the term the Company refer to the Adecco Group, which comprises Adecco S.A., a Swiss corporation, its majority-owned subsidiaries and other affiliated entities. The Company was confronted with an exceptionally challenging business environment in the first six months of Group revenues for the first six months of 2009 were EUR 7,294. Compared to the same period last year, revenues declined by 29%. In constant currency, revenues were down 30%. All geographies, with the exception of Emerging Markets, experienced double digit revenue decline in constant currency in the first six months of Permanent placement revenues amounted to EUR 97, a decrease of 51%, and outplacement revenues amounted to EUR 172, an increase of 61%, both in constant currency, in the first six months of Gross margin was 18.2%, down 50 basis points ( bps ) compared to the first six months of In the first six months of 2008, the gross profit was positively impacted, in the amount of EUR 61, by the modification to the calculation of social charges in France related to the year 2005 (for further details refer to Note 1 to the con solidated financial statements). When excluding these benefits, the gross margin in the first six months of 2009 was up 10 bps compared to the first six months of 2008, mainly due to the growing contribution from outplacement and other services, which was partly offset by a lower gross margin in the temporary staffing and the negative impact of the lower permanent placement business. Selling, general and administrative expenses ( SG&A ) were down 9% or 11% in constant currency. SG&A as a percentage of revenues increased by 370 bps to 17.2% in the first six months of 2009 (H1 2008: 13.5%). Included in the first six months of 2009 are restructuring costs for headcount reductions and branch optimisation ( Restructuring ) in certain countries of EUR 90. Excluding the costs related to the restructuring activities in 2009 of EUR 90 and the modification to the calculation of French social charges of EUR 7 in 2008, and the currency impact, SG&A decreased by 17% in the first six months of 2009 compared to the first six months of The office network declined by 12% and full time equivalent ( FTE ) employees declined by 15%. As of the end of June 2009, the Company had over 29,000 FTE employees and over 5,800 offices. Amortisation of intangible assets increased by EUR 4 to EUR 26 in the first six months of Impairment of goodwill and intangible assets. In the first six months of 2009, the Company recorded a non-cash impairment charge to goodwill and intangible assets of EUR 192. The goodwill impairment charge of EUR 125 relates to the German operations and the intangible assets impairment charge of EUR 67 relates mainly to the write-down of the customer base intangible assets and the trade names acquired in the Tuja acquisition (for further details refer to Note 2 to the consolidated financial statements). Operating income/(loss) for the first six months of 2009 was a loss of EUR 143 compared to income of EUR 509 in the same period of The operating income/(loss) margin was 2.0% for the first six months of 2009 and 5.0% for the first six months of Excluding impairment of goodwill and intangible assets of EUR 192 and restructuring costs of EUR 90 in the first six months of 2009 and the benefits of EUR 54 in the first six months of 2008 related to the modification to the calculation of French social charges, operating income/(loss) decreased by 70% in constant currency and the operating income/(loss) margin decreased by 250 bps to 1.9% in the first six months of Interest expense was EUR 24 compared to EUR 30 in the first six months of Other income/(expenses), net, were income of EUR 4, a decrease of EUR 5 compared to the same period last year mainly due to lower interest income. In the first six months of 2009, the Company recorded a tax benefit of EUR 39 compared to a tax expense of EUR 136 in the first six months of The effective tax rate in the first six months of 2009 was 24% compared to 28% in the same period of The effective tax rate in the first six months of 2009 was positively impacted by the change in the mix of earnings and the successful resolution of prior years audits. This was substantially offset by the negative impact of the goodwill impairment charge which is not tax deductible. Net income/(loss) attributable to Adecco shareholders was a loss of EUR 124 in the first six months of 2009 (H1 2008: income EUR 349). Basic earnings per share ( EPS ) was EUR 0.71 (H1 2008: EUR 1.98). The first six months of 2009 were negatively impacted by the impairment of goodwill and intangible assets and by the restructuring charges, whereas the first six months of 2008 were positively impacted by the benefits related to the modification to the calculation of French social charges. Adecco Half Year Report /298

264 Adecco Group Operating and financial review and prospects in millions, except share and per share information 1.2 Geographical performance The geographical breakdown of revenues and operating income/(loss) is provided below: H H Variance % H H Variance % in EUR EUR Constant Currency EUR Constant Currency Revenues Operating income/(loss) 1 France 2 2,280 3,393 (33) (33) (15) 181 (108) (108) USA & Canada 3 1,127 1,380 (18) (27) (9) Germany (38) (38) 3 81 (96) (96) Japan (17) (15) UK & Ireland (41) (31) (1) 26 (105) (105) Italy (47) (47) (6) 47 (113) (113) Benelux (17) (17) (7) 25 (130) (130) Nordics (42) (36) (6) 25 (124) (128) Iberia (42) (42) (3) 35 (107) (107) Switzerland & Austria (30) (34) 5 20 (78) (80) Australia & New Zealand (36) (26) 1 5 (80) (76) Emerging Markets (5) (30) (27) Total Operating Units (82) (83) Corporate expenses (28) (47) Operating income/(loss) before amortisation and impairment of goodwill and intangible assets (86) (86) Amortisation of intangible assets (26) (22) Impairment of goodwill and intangible assets (192) Adecco Group 7,294 10,231 (29) (30) (143) 509 (128) (127) 1 Operating income/(loss) before amortisation and impairment of goodwill and intangible assets on the operating unit level. 2 Restructuring expenses in 2009 of EUR 90, thereof France EUR 41, Italy EUR 19, Benelux EUR 10, Iberia EUR 10 and other countries EUR Puerto Rico previously reported under Emerging Markets is now reported together with USA & Canada. The 2008 information has been restated to conform to the current year presentation. France In France, revenues were down by 33%. In the first six months of 2009, France had an operating loss of EUR 15 compared to operating income of EUR 181 in the first six months of SG&A in the first six months of 2009 was impacted by restructuring expenses of EUR 41. Gross profit and SG&A in the first six months of 2008 were impacted by the modification to the calculation of French social charges. Excluding these impacts, the operating income in the first six months of 2009 was EUR 26 compared to the first six months of 2008 of EUR Adecco Half Year Report /298

265 Adecco Group Operating and financial review and prospects in millions, except share and per share information USA & Canada In the USA & Canada, revenues decreased by 18% or 27% in constant currency compared to the first six months of Operating income in the first six months of 2009 was EUR 61, a decrease of 9% in constant currency. The operating income margin increased by 110 bps to 5.4% in the first six months of 2009 due to the positive contribution from the Human Capital Solutions business. Germany In Germany, revenues declined by 38% compared to the first six months of Operating income was EUR 3, a decline of 96%. The operating income margin declined to 0.6% from 10.2%, mainly due to a drop in the utilisation of the temporary associates and a negative operating leverage. Japan In Japan, revenues increased by 6% or decreased by 17% in constant currency compared to the first six months of Excellent cost management led to operating income of EUR 56 and an operating income margin increase of 10 bps to 7.5%. UK & Ireland In the first six months of 2009, revenues in the UK & Ireland decreased by 41% or 31% in constant currency. In the first six months of 2009, UK & Ireland had an operating loss of EUR 1 compared to an operating income of EUR 26 in the first six months of Business line performance The following table illustrates the breakdown of revenues and revenue development by business line: H H Variance % in EUR EUR Constant Currency Revenues 1 Office 1,772 2,255 (21) (25) Industrial 3,460 5,721 (40) (40) Total Office & Industrial 5,232 7,976 (34) (36) Information Technology (8) (8) Engineering & Technical (24) (25) Finance & Legal (26) (30) Medical & Science (12) (11) Sales, Marketing & Events (1) (9) Human Capital Solutions Total Professional Business Lines 1,536 1,702 (10) (12) Emerging Markets (5) 0 Adecco Group 7,294 10,231 (29) (30) 1 Breakdown of revenues is based on dedicated branches. The 2009 information includes certain changes in the allocation of branches to business lines, most notably from Sales, Marketing & Events to Office. The 2008 information has been restated to conform to the current year presentation. 2 Emerging Markets excluding professional business lines. Adecco Half Year Report /298

266 Adecco Group Operating and financial review and prospects in millions, except share and per share information Office & Industrial The Company s Office and Industrial businesses which represented 71% of revenues declined by 34% or 36% in constant currency to EUR 5,232 compared to the first six months of In the Industrial business, revenues declined by 40%. In France, which comprises approximately 50% of the Industrial business, revenues decreased by 37%, Germany declined by 46%, Italy by 51% and USA & Canada by 38% in constant currency. In the Office business, revenues declined by 21% or 25% in constant currency. Japan declined by 17%, USA & Canada by 29% and UK & Ireland by 32%, all in constant currency. France declined by 29%. Together these countries generated more than 70% of the Office business revenues. Information Technology In Information Technology (IT), revenues decreased by 8% (also in constant currency) compared to the first six months of Revenues in the USA & Canada declined by 22% in constant currency, while revenues in UK & Ireland declined by 20% in constant currency. UK & Ireland and USA & Canada comprised approximately 55% of the IT business line s revenues. IT represented 8% of the Company s revenues in the first six months of Finance & Legal In Finance & Legal (F&L), revenues were down by 26% or 30% in constant currency compared to the first six months of The Finance & Legal businesses in the USA & Canada, the Nordics and Germany comprised approximately 70% of the business line s revenues. The F&L business line contributed 2% to the Company s revenues in the first six months of Human Capital Solutions In Human Capital Solutions (HCS), revenues increased by 50% or 40% in constant currency in the first six months of 2009 compared to the same period last year, mainly due to strong demand in the USA & Canada. Sales, Marketing & Events/Medical & Science In Sales, Marketing & Events (SM&E) and Medical & Science (M&S), revenues declined by 1% (9% in constant currency) and by 12% (11% in constant currency), respectively, in the first six months of 2009 compared to the first six months of Engineering & Technical Revenues in the Engineering & Technical (E&T) business decreased by 24% or 25% in constant currency in the first six months of 2009 compared to the same period in In the USA & Canada, revenues decreased by 24% in constant currency, while revenues in Germany and in France both declined by 17%. France combined with the USA & Canada and Germany comprised approximately 75% of Engineering & Technical s revenues. Engineering & Technical represented 4% of the Company s revenues in the first six months of Adecco Half Year Report /298

267 Adecco Group Operating and financial review and prospects in millions, except share and per share information 2. Non-U.S. GAAP information and financial measures The Company uses non-u.s. GAAP financial measures for management purposes. The principal non-u.s. GAAP financial measures discussed herein are net debt and constant currency comparisons which are used in addition to and in conjunction with results presented in accordance with U.S. GAAP. Net debt and constant currency comparisons should not be relied upon to the exclusion of U.S. GAAP financial measures, but rather reflect additional measures of comparability and means of viewing aspects of the Company s operations that, when viewed together with the U.S. GAAP results, provide a more complete understanding of factors and trends affecting the Company s business. Because net debt and constant currency comparisons are not standardised, it may not be possible to compare the Company s measures with other companies non-u.s. GAAP financial measures having the same or a similar name. Management encourages investors to review the Company s financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. Management monitors outstanding debt obligations by calculating net debt. Net debt comprises short-term and longterm debt less cash and cash equivalents and short-term investments. 3. Cash flow, net debt and Days of Sales Outstanding ( DSO ) The Company generated EUR 282 of operating cash flows in the first six months of 2009, compared with EUR 238 in the same period of This increase was primarily attributable to lower working capital requirements, mainly due to declining revenues and an improved DSO, substantially offset by lower net income, which was impacted by the non-cash impairment charge to goodwill and intangible assets. In the first six months of 2009, DSO improved by 4 days to 54 days compared to the same period last year, mainly due to improvements in France, UK & Ireland, Iberia, and USA & Canada. In France the DSO was positively impacted by French law changes which requires all invoices to be paid within 60 days. Cash outflows from investing activities amounted to EUR 99 in the first six months of 2009, which compared to cash outflows of EUR 91 in the first six months of Cash outflows from investing activities in the first six months of 2009 included EUR 54 for capital expenditures. Cash inflows from financing activities totaled EUR 158 in the first six months of 2009, which compared to cash outflows of EUR 343 in the first six months of The cash inflows from financing activities in the first six months of 2009 included proceeds of EUR 496 from the issuance of the guaranteed Euro medium term notes, which was partly offset by the buyback of long-term debt of EUR 131 and the payment of dividends of EUR 173. Net debt decreased by EUR 6 to EUR 611 at the end of June 2009 compared to December Constant currency comparisons are calculated by multiplying the prior year functional currency amount by the current year foreign currency exchange rate. Management believes that constant currency comparisons are important supplemental information for investors because these comparisons exclude the impact of changes in foreign currency exchange rates, which are outside the Company s control, and focus on the underlying growth and performance. Adecco Half Year Report /298

268 Adecco Group Operating and financial review and prospects in millions, except share and per share information 4. Outlook 5. Forward-looking statements Although market conditions in the second quarter of 2009 continued to be demanding, the sharp acceleration of the revenue decline rates, witnessed in previous quarters, appears to have stabilised over the course of the second quarter and into July 2009 in most markets. Management continues to focus its efforts on further structurally optimising the cost base while sticking to its value-based strategy. This approach, combined with our strong balance sheet, positions the Company well in the current environment and for the future. Looking ahead, management anticipates no material pick-up of business activities, and has therefore initiated further restructuring measures. Concretely, after the successful execution of the first social plan at Adecco in France and the additional measures announced in June to further optimise the structural cost base and to reduce headcount by approximately 350 employees (FTEs) at its subsidiary Adia, as well as additional measures taken in Iberia, the Company expects to incur approximately EUR 40 of restructuring costs in the second half of 2009 for various countries. With these measures, the Company will have significantly improved its cost base both structurally and in alignment with the demanding market conditions. Information in this report may involve guidance, expectations, beliefs, plans, intentions or strategies regarding the future. These forward-looking statements involve risks and uncertainties. All forward-looking statements included in this report are based on information available to the Company as of the date of this report, and we assume no duty to update any such forward-looking statements. The forward-looking statements in this report are not guarantees of future performance and actual results could differ materially from the Company s current expectations. Numerous factors could cause or contribute to such differences. Factors that could affect the Company s forward-looking statements include, among other things: global GDP trends and the demand for temporary work; changes in regulation of temporary work; intense competition in the markets in which the Company competes; changes in the Company s ability to attract and retain qualified internal and external personnel or clients; the potential impact of disruptions related to IT; and any adverse developments in existing commercial relationships, disputes or legal and tax proceedings. 8 Adecco Half Year Report /298

269 Adecco Group Consolidated balance sheets (unaudited) in millions, except share and per share information As of (in EUR) Assets Current assets: Cash and cash equivalents Short-term investments 1 7 Trade accounts receivable, net 2,464 3,046 Other current assets Total current assets 3,736 4,016 Property, equipment, and leasehold improvements, net Other assets Intangible assets, net Note Goodwill Note 2 2,586 2,666 Total assets 7,122 7,530 Liabilities and shareholders equity Liabilities Current liabilities: Accounts payable and accrued expenses Note 3 2,631 3,053 Short-term debt and current maturities of long-term debt Note Total current liabilities 2,656 3,109 Long-term debt, less current maturities Note 4 1,509 1,142 Other liabilities Note Total liabilities 4,604 4,732 Shareholders equity Adecco shareholders equity: Common shares Additional paid-in capital 2,118 2,140 Treasury shares, at cost (561) (558) Retained earnings 1,097 1,394 Accumulated other comprehensive income/(loss), net Note 5 (255) (301) Total Adecco shareholders equity 2,517 2,793 Noncontrolling interests 1 5 Total shareholders equity 2,518 2,798 Total liabilities and shareholders equity 7,122 7,530 The accompanying notes are an integral part of these consolidated financial statements. Adecco Half Year Report /298

270 Adecco Group Consolidated statements of operations (unaudited) in millions, except share and per share information For the six months ended June 30 (in EUR) Revenues Note 10 7,294 10,231 Direct costs of services (5,968) (8,319) Gross profit 1,326 1,912 Selling, general and administrative expenses Note 3 (1,251) (1,381) Amortisation of intangible assets (26) (22) Impairment of goodwill and intangible assets Note 2 (192) Operating income/(loss) Note 10 (143) 509 Interest expense (24) (30) Other income/(expenses), net 4 9 Income/(loss) before income taxes (163) 488 Provision for income taxes Note 9 39 (136) Net income/(loss) (124) 352 Net income attributable to noncontrolling interests (3) Net income/(loss) attributable to Adecco shareholders (124) 349 Basic earnings per share (0.71) 1.98 Basic weighted-average shares 174,103, ,473,705 Diluted earnings per share (0.71) 1.90 Diluted weighted-average shares 174,103, ,004,588 The accompanying notes are an integral part of these consolidated financial statements. 10 Adecco Half Year Report /298

271 Adecco Group Consolidated statements of cash flows (unaudited) in millions, except share and per share information For the six months ended June 30 (in EUR) Cash flows from operating activities Net income/(loss) (124) 352 Adjustments to reconcile net income/(loss) to cash flows from operating activities: Depreciation and amortisation Impairment of goodwill and intangible assets 192 Other charges (27) 25 Changes in operating assets and liabilities, net of acquisitions: Trade accounts receivable 584 (105) Accounts payable and accrued expenses (422) (108) Other assets and liabilities Cash flows from operating activities Cash flows from/(used in) investing activities Capital expenditures, net of proceeds (54) (48) Purchase of short-term investments (32) Proceeds from sale of short-term investments 27 Cash settlements on derivative instruments (13) (10) Other acquisition and investing activities (32) (28) Cash flows from/(used in) investing activities (99) (91) Cash flows from/(used in) financing activities Net increase/(decrease) in short-term debt (34) 418 Borrowings of long-term debt, net of issuance costs 496 Repayment of long-term debt (131) (322) Dividends paid to shareholders (173) (163) Purchase of treasury shares (3) (269) Other financing activities 3 (7) Cash flows from/(used in) financing activities 158 (343) Effect of exchange rate changes on cash 7 (15) Net increase/(decrease) in cash and cash equivalents 348 (211) Cash and cash equivalents: Beginning of year End of period The accompanying notes are an integral part of these consolidated financial statements. Adecco Half Year Report /298

272 Adecco Group Consolidated statements of changes in shareholders equity (unaudited) in millions, except share and per share information in EUR Common shares Additional paid-in capital Treasury shares, at cost Retained earnings Accumulated other comprehen sive income/(loss), net Noncontrolling interests Total share holders equity January 1, ,121 (279) 1,064 (151) 7 2,880 Comprehensive income: Net income/(loss) Other comprehensive income/(loss) Currency translation adjustment, net of tax (120) (120) Pension related adjustments, net of tax 1 1 Total comprehensive income 233 Treasury shares transactions (274) (274) Transactions with derivatives on Adecco S.A. shares (2) (2) Impact of adoption of SFAS No. 158 measurement date provisions, net of tax (1) (1) Cash dividends, CHF 1.50 per share (163) (163) Purchase of noncontrolling interests (5) (5) June 30, ,119 (553) 1,249 (270) 5 2,668 in EUR Common shares Additional paid-in capital Treasury shares, at cost Retained earnings Accumulated other comprehen sive income/(loss), net Noncontrolling interests Total share holders equity January 1, ,140 (558) 1,394 (301) 5 2,798 Comprehensive income: Net income/(loss) (124) (124) Other comprehensive income/(loss) Currency translation adjustment, net of tax Pension related adjustments, net of tax 2 2 Total comprehensive income (78) Tax impact of treasury shares valuation in Holding Company (22) (22) Treasury shares transactions (3) (3) Cash dividends, CHF 1.50 per share (173) (173) Purchase of noncontrolling interests (4) (4) June 30, ,118 (561) 1,097 (255) 1 2,518 The accompanying notes are an integral part of these consolidated financial statements. 12 Adecco Half Year Report /298

273 Adecco Group Notes to consolidated financial statements (unaudited) in millions, except share and per share information Note 1 Summary of significant accounting policies Basis of presentation and principles of consolidation The consolidated half year financial statements include Adecco S.A., a Swiss corporation, its majority-owned subsidiaries and other affiliated entities (collectively, the Company ). The Company prepares its consolidated half year financial statements using the same accounting principles and methods of computation that were applied in the audited consolidated financial statements as of December 31, 2008, and for the year then ended (except as noted below under New accounting standards ). Certain information and footnote disclosures included in the audited consolidated financial statements as of December 31, 2008 have been condensed or omitted. As a result, the financial information to the condensed consolidated financial statements should be read in conjunction with the Company s Annual Report including the Financial Review, the Corporate Governance and the Remuneration Report for the fiscal year ended December 31, The reporting currency of the Company is the Euro, which reflects the significance of the Company s Euro-denominated operations. Adecco S.A. s share capital is denominated in Swiss francs, and the Company declares and pays dividends in Swiss francs. In the opinion of management, the consolidated half year financial statements reflect all adjustments necessary to present fairly the consolidated balance sheets, the consolidated statements of operations, the consolidated statements of cash flows, the consolidated statements of changes in shareholders equity and the accompanying notes. Such adjustments are of a normal recurring nature. Use of estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles ( U.S. GAAP ) requires management to make judgements, assumptions, and estimates that affect the amounts reported in the consolidated half year financial statements and accompanying notes. The results of these estimates form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from those estimates. Social security charges in France In April 2007, the Central Agency for Social Security Organisations in France issued a letter outlining a modification to the calculation of certain social security charges, with retroactive effect to January 1, This modification resulted in a reduction in payroll taxes to be remitted. On August 1, 2007, the French Parliament passed an amendment to the social security legislation, which became effective on October 1, This amendment eliminated the payroll tax benefits resulting from the modification made in April In April 2008, the Company received additional information from the trade association, which was based on communications with the Central Agency for Social Security Organisations in France indicating that the modification discussed above was also applicable to Accordingly, the statement of oper ations for the six months ended June 30, 2008, included a positive effect to net income of EUR 36, including an increase of EUR 61 in gross profit and EUR 7 in SG&A. This change resulted in an increase to the basic and diluted earnings per share, net of tax, of EUR 0.20 and EUR 0.19, respectively, for the six months ended June 30, New accounting standards In September 2006, the Financial Accounting Standards Board ( FASB ) issued Statement of Financial Accounting Standards ( SFAS ) No. 157, Fair Value Measurements ( SFAS No. 157 ). SFAS No. 157 provides enhanced guidance for using fair value to measure assets and liabilities, expands the required dis closures about fair value measurement, and is applicable whenever other standards require assets or liabilities to be measured at fair value. However, it does not expand the use of fair value in any new circumstances. The Company adopted SFAS No. 157 for all financial assets and liabilities as well as for other assets and liabilities that are carried at fair value on a recurring basis on January 1, 2008, and for non-financial assets and liabilities on January 1, The adoption of SFAS No. 157 did not have a material impact on the Company s consolidated financial statements. Adecco Half Year Report /298

274 Adecco Group Notes to consolidated financial statements (unaudited) in millions, except share and per share information In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations ( SFAS No. 141(R) ) and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 ( SFAS No. 160 ). The new standards require most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at full fair value and require noncontrolling interests to be reported as a component of equity. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, In April 2009, the FASB issued FASB Staff Position ( FSP ) 141 (R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that arise from Contingencies ( FSP 141(R)-1 ), which amends and clarifies the initial and subsequent accounting and disclosures of contingencies in a business combination. The Company adopted SFAS No. 141(R) and FSP 141(R)-1 on January 1, 2009, and will apply them prospectively to business combinations completed after January 1, The Company adopted SFAS No. 160 effective January 1, Pursuant to the transition provisions, the presentation and disclosure requirements have been applied retrospectively for all periods presented. In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 ( SFAS No. 161 ). SFAS No. 161 requires entities to provide greater transparency about the reason for entering into a derivative instrument, the accounting treatment of derivative instruments and the related hedged items under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ( SFAS No. 133 ), and the impact of derivative instruments and related hedged items on the Company s consolidated financial statements. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, The Company adopted SFAS No. 161 on January 1, For further details on the required new disclosures see Note 7 to the consolidated financial statements. In December 2008, the FASB issued FSP 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets, ( FSP 132(R)-1 ). FSP 132(R)-1 is intended to improve disclosures about postretirement benefit plan assets and requires more information about how investment allocation decisions are made, or categories of plan assets, fair value assumptions and concentration of risks. The adoption of FSP 132(R)-1 is not expected to have a material impact on the Company s consolidated financial statements. The disclosures required by FSP 132(R)-1 will be included in the Company s December 31, 2009, financial statements. Note 2 Goodwill and intangible assets In accordance with SFAS No. 142, Goodwill and Other Intangible Assets ( SFAS No. 142 ), goodwill and indefinite-lived intangible assets are tested for impairment annually or whenever events or circumstances indicate that an impairment may have occurred. In addition, definite-lived intangible assets are evaluated for potential impairment in accordance with SFAS No. 144, Accounting for the Impairment and Disposal of Long- Lived Assets ( SFAS No. 144 ). Goodwill is tested on a reporting unit level using a two-step impairment test. Reporting units may be operating segments as a whole or an operation one level below an operating segment, referred to as a component. In step one of the goodwill impairment test, the carrying value of each reporting unit is compared to the reporting unit s fair value as determined using a combination of comparable market multiples, additional market information, and discounted cash flow valuation models. If the fair value of the reporting unit is lower than the carrying value of the reporting unit, step two is performed to measure the amount, if any, of impairment. In step two, the fair value of all assets and liabilities of the reporting unit is determined, as if the reporting unit had been acquired on a stand-alone basis. The fair value of the reporting unit s assets and liabilities (including unrecognised intangible assets) is then compared to the fair value of the reporting unit, with the excess, if any, considered to be the implied goodwill of the reporting unit. If the carrying value of the reporting unit s goodwill exceeds this implied goodwill value, that excess is recorded as an impairment charge in operating income. 14 Adecco Half Year Report /298

275 Adecco Group Notes to consolidated financial statements (unaudited) in millions, except share and per share information The Company s indefinite-lived intangible assets, which mostly comprise trade names, are tested by comparing the fair value of the asset to the carrying value of the asset. The trade names fair values are calculated using a relief from royalty valuation model which calculates the fair value of cost savings associated with owning rather than licensing the trade name, applying an assumed royalty rate within the discounted cash flow calculation. In the event that the carrying value exceeds the fair value, an impairment charge is recorded in operating income. Definite-lived intangible assets are evaluated for impairment by first comparing the carrying amount of a definite-lived intangible asset with the expected undiscounted future cash flows from the operations to which the asset relates. The asset is regarded as not recoverable if the carrying amount exceeds the undiscounted future cash flows. The impairment loss is then calculated as the difference between the asset s carrying value and its fair value, which is calculated using a discounted cash flow model. The Company performed its last annual goodwill and indefinite-lived intangible assets impairment test in the fourth quarter of As general economic conditions and the shortterm outlook of our business worsened in the second quarter of 2009 compared to the first quarter of 2009 and the end of 2008, the Company performed an interim impairment test based on management s revised five year projections for sales and earnings. Step one of the goodwill impairment test which comprised discounted cash flow valuations for all of the Company s reporting units led to the conclusion that there was no indication for impairment of goodwill except for the reporting unit Germany. In determining the fair value of the reporting units, the Company uses a detailed five year plan for revenues and earnings and for the long-term value a long-term growth rate of 2.0% - 2.5%. In the resulting step two of the goodwill impairment test it was determined that the carrying value of Germany s goodwill exceeded the implied goodwill. Consequently, the Company recognised a non-cash impairment charge related to goodwill of EUR 125 in the second quarter of The impairment charge can be attributed to worsening economic conditions and the short-term outlook for the Company business in Germany, which negatively impacted the fair value determination of the unit for goodwill impairment purposes. In addition, the Company concluded that the fair value of certain trade names was lower than their carrying value. Consequently, a non-cash impairment charge of indefinitelived intangible assets of EUR 11 was recorded in the second quarter of The impairment charge consists of the write-down of trade names in Germany which was a result of the decrease in projected sales for the short-term and in Iberia where the usage of one of the brands will be discontinued. Furthermore, the Company concluded that the carrying value of some of the definite-lived customer base intangible assets exceeded their fair value. Consequently a non-cash impairment charge of the definite-lived intangible assets of EUR 56 was recorded in the second quarter of The impairment charge is related to the decreased value of the customer relationships acquired in the Tuja acquisition in Germany and can be mainly attributed to the decrease in projected sales and earnings of the entity in the short-term. The Company engaged an external party to conduct the identification and valuation of intangible assets for the reporting unit Germany as of June 30, This valuation was used in step two of the goodwill impairment test and the intangible assets impairment test. Note 3 Restructuring In October 2008 and June 2009, the Company announced it had launched restructuring plans in France to structurally improve the French business and to align the cost base to current market developments. In addition, the Company has initiated restructuring plans in Italy, Benelux, Iberia and other countries. The Company accounts for restructuring expenses, including one-time termination benefits in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities ( SFAS No. 146 ) and for post-employment benefits for employee reductions related to restructuring activities under SFAS No. 112, Employers Accounting for Post- Employment Benefits ( SFAS No. 112 ). Adecco Half Year Report /298

276 Adecco Group Notes to consolidated financial statements (unaudited) in millions, except share and per share information Total restructuring costs incurred by the Company in the first six months of 2009 and in the fourth quarter of 2008 amounted to EUR 90 and EUR 40, respectively. Restructuring expenses are recorded as SG&A and represent mainly costs related to headcount reductions and branch optimisation in France, Italy, Benelux, Iberia and other countries. Restruc turing expenses recorded in the first six months of 2008 were not significant. As of June 30, 2009 restructuring liabilities of EUR 69 and EUR 8 were recorded in accounts payable and accrued expenses and in other liabilities, respectively. The changes in restructuring liabilities for the period ended June 30, 2009 were as follows: in EUR Restructuring liabilities December 31, Restructuring expenses 90 Cash payments (39) Other (3) June 30, The Company expects that the majority of the restructuring liabilities of EUR 77 as of June 30, 2009, will be paid in 2009 and the first quarter of Note 4 Financing arrangements The Company s long-term and short-term debt as of June 30, 2009, amounted to EUR 1,534 compared to EUR 1,198 as of December 31, As of June 30, 2009, and December 31, 2008, short-term debt (bank overdrafts and borrowings outstanding under lines of credit) amounted to EUR 25 and EUR 55, respectively. Long-term debt in EUR Principal at maturity Maturity Fixed interest rate Guaranteed Euro medium term notes EUR % 497 Guaranteed zero-coupon convertible bond CHF Committed multicurrency revolving credit facility EUR Fixed rate guaranteed notes EUR % Other 15 1,509 1,143 Less current maturities (1) Long-term debt, less current maturities 1,509 1, Adecco Half Year Report /298

277 Adecco Group Notes to consolidated financial statements (unaudited) in millions, except share and per share information Guaranteed Euro medium term notes On April 28, 2009, Adecco International Financial Services B.V., a wholly-owned subsidiary of the Company, issued EUR 500 notes guaranteed by Adecco S.A., due April 28, The interest is paid annually in arrears at a fixed annual rate of 7.625%. The five-year notes were issued within the framework of the Euro Medium Term Note Programme and trade on the London Stock Exchange. The proceeds further increase the Company s financial flexibility with respect to the refinancing of the guaranteed zero-coupon convertible bond and are also used for general corporate purposes. Guaranteed zero-coupon convertible bond On August 26, 2003, Adecco Financial Services (Bermuda) Ltd., a wholly-owned subsidiary of the Company, issued CHF 900 unsubordinated bonds guaranteed by and convertible into shares of Adecco S.A., due August 26, The bonds are structured as zero-coupon, 10-year premium redemption convertible bonds with a yield to maturity of 1.5% per annum. At any time from October 6, 2003 to August 12, 2013, at the option of the bondholder, the bonds are convertible into shares of Adecco S.A. at a conversion price of CHF per share. If all bonds were converted, Adecco S.A. would issue 9,523,810 additional shares. In November 2007, the terms of the bond were amended. The amendment allows the Company to deliver treasury shares held at the time of conversion instead of issuing shares of Adecco S.A. out of the approved conditional capital. Nevertheless, Adecco S.A. has to retain enough conditional capital to issue the full amount of 9,523,810 shares if required upon conversion. Bondholders may put the bonds on August 26, 2010, at the accreted principal amount. The Company may call the bonds at any time after the end of year seven (August 26, 2010) at the accreted principal amount or at any time after a substantial majority of the bonds has been redeemed, converted, or repurchased. The current share price of Adecco S.A. suggests that the bondholders will exercise the put option. If not converted, the Company will pay a redemption price of up to % of the principal amount of the bonds. In the first six months of 2009, the Company repurchased bonds with a nominal amount of EUR 108 representing 1,719,577 shares. In the last quarter of 2008, the Company repurchased bonds with a nominal amount of EUR 27, representing 449,735 shares. The gain on the repurchase for the first six months of 2009 and the last quarter of 2008 amounted to EUR 3 in each period and is recorded in other income/(expenses), net. The bonds are kept in treasury. Note 5 Shareholders equity The Company had 4,166,804 shares of conditional capital reserved for issuance of common shares to employees and members of the Board of Directors upon the exercise of stock options as of June 30, 2009 and December 31, In addition, as of June 30, 2009 and December 31, 2008, the Company was authorised by its shareholders to issue up to 15,400,000 shares of conditional capital in connection with the issuance of financial instruments, principally convertible bonds. 9,523,810 shares have been reserved for issuance upon conversion of the outstanding guaranteed zero-coupon convertible bond. The remaining 5,876,190 shares represent conditional capital that was originally authorised without time limitation in connection with the issuance of a convertible bond in 1999, which was repaid in 2004 without conversion. This conditional capital remains available for issuance upon conversion of any financial instruments the Company may issue in the future. During the six months ended June 30, 2009, no stock options were exercised by employees or members of the Board of Directors. Adecco Half Year Report /298

278 Adecco Group Notes to consolidated financial statements (unaudited) in millions, except share and per share information The Annual General Meeting of Shareholders of Adecco S.A. was held on May 13, The shareholders approved a dividend of CHF 1.50 per common share in respect of the fiscal year The dividend to shareholders of EUR 173 was paid in the second quarter of The components of accumulated other comprehensive income/(loss), net of tax, were as follows: in EUR Accumulated other comprehensive income/(loss), net Currency translation adjustment (246) (290) Unrealised gain on cash flow hedging activities 1 1 Pension related adjustments (10) (12) Accumulated other comprehensive income/(loss), net (255) (301) Note 6 Employee benefit plans For the six months ended June 30, 2009 and June 30, 2008, estimated net pension expense for the defined benefit plans was as follows: Swiss plan Non-Swiss plans in EUR Components of pension expense Service cost Interest cost Expected return on plan assets (2) (2) (2) (2) Amortisation of net (gain)/loss 2 1 Pension expense, net Note 7 Financial instruments In accordance with SFAS No. 133, all derivative instruments are initially recorded at cost as either other current assets, other assets, accounts payable and accrued expenses, or other liabilities in the accompanying consolidated balance sheets and subsequently remeasured to fair value, regardless of the purpose or intent for holding the derivative instruments. For derivative instruments designated and qualifying as fair value hedges, changes in the fair value of the derivative instruments as well as the changes in the fair value of the hedged item attributable to the hedged risk are recognised within the same line item in earnings. For derivative instruments designated and qualifying as cash flow hedges, the effective portion of the changes in the fair value of derivative instruments is initially recorded as a component of accumulated other comprehensive income/(loss), net, in shareholders equity and reclassified into earnings in the same period during which the hedged transaction affects earnings. The ineffective portion of the change in fair value of the derivative instruments is immediately recognised in earnings. For derivative instruments designated and qualifying as net investment hedges, changes in the fair value of the derivative instruments are recorded as a component of accumulated other comprehensive income/(loss), net, in shareholders equity to the extent they are considered effective. These gains or losses will remain in equity until the related net investment is sold or otherwise disposed. For derivative instruments that are not designated or that do not qualify as hedges under SFAS No. 133, the changes in the fair value of the derivative instruments are recognised in other income/(expenses), net, within the consolidated statements of operations. 18 Adecco Half Year Report /298

279 Adecco Group Notes to consolidated financial statements (unaudited) in millions, except share and per share information Risk and use of derivative instruments The Company conducts business in various countries and funds its subsidiaries in various currencies, and is therefore exposed to the effects of changes in foreign currency exchange rates, including the US dollar, the British pound, the Japanese yen, and the Euro against the Swiss franc. In order to mitigate the impact of currency exchange rate fluctuations, the Company assesses its exposure to currency risk and hedges certain risks through the use of derivative instruments. The Company has also issued bonds and long-term notes with fixed interest rates and the Company manages exposure to fixed and floating interest rates through the use of derivative instruments. The main objective of holding derivative instruments is to minimise the volatility of earnings arising from these exposures in the absence of natural hedges. The responsibility for assessing exposures as well as entering into and managing derivative instruments is centralised in the Company s treasury department. The activities of the treasury department are covered by corporate policies and procedures approved by the Board of Directors, which generally limit the use of derivative instruments for trading and speculative purposes. Group management approves the hedging strategy and monitors the underlying market risks. Fair value of derivative instruments The following table shows the carrying value and the fair value of derivative instruments as of June 30, 2009: in EUR Notional amount Balance sheet location Fair value Derivative assets Derivatives designated as hedging instruments under SFAS No. 133 Interest rate swaps 375 Other assets 15 Derivatives not designated as hedging instruments under SFAS No. 133 Foreign currency contracts 352 Other current assets 8 Derivative liabilities Derivatives designated as hedging instruments under SFAS No. 133 Interest rate swaps 50 Other liabilities Derivatives not designated as hedging instruments under SFAS No. 133 Foreign currency contracts 530 Accounts payable and accrued expenses 14 Total net derivatives 9 The fair value of foreign currency contracts and interest rate swaps is calculated by using the present value of future cash flows based on quoted market information. The Company adds an adjustment for non-performance risk in the recognised measure of fair value of derivative instruments as well as a liquidity charge represented by the bid-ask spread of the outstanding derivatives. The non-performance adjustment reflects the Credit Default Swap ( CDS ) applied to the exposure of each transaction. The Company uses the counterparty CDS spread in case of an asset position and its own CDS spread in case of a liability position. As of June 30, 2009 the total impact of non-performance risk and liquidity risk was less than EUR 1. Adecco Half Year Report /298

280 Adecco Group Notes to consolidated financial statements (unaudited) in millions, except share and per share information Fair value hedges EUR 350 of interest rate swaps that contain a receipt of fixed interest rate payments and payment of floating interest rate payments have been designated as fair value hedges of the 4.5% EUR 500 fixed rate guaranteed notes due 2013 issued by Adecco International Financial Services B.V. The outstanding contracts have an original contract period of five to seven years and expire in EUR 75 of interest rate swaps that contain a receipt of fixed interest rate payments and payment of floating interest rate payments have been designated as fair value hedges of the 7.625% EUR 500 guaranteed Euro medium term notes due 2014 issued by Adecco International Financial Services B.V. The outstanding contracts have an original contract period of five years and expire in The loss on the hedged fixed rate notes attributable to the hedged benchmark interest rate risk and the offsetting gain on the related interest rate swaps, both reported as interest expense, for the six months ended June 30, 2009 were as follows: in EUR Derivative Location of gain/(loss) on derivative recognised in earnings Gain/(loss) on derivative recognised in earnings Hedged item Location of gain/(loss) on related hedged item recognised in earnings Gain/(loss) on related hedged item recognised in earnings Interest rate swaps Interest expense 7 Long-term debt Interest expense (7) In addition, the net swap settlements that accrue each period are also reported in interest expense. No significant gains or losses were excluded from the assessment of hedge effectiveness of the fair value hedges in the first six months of 2009 and first six months of Cash flow hedges During the year 2007, the Company acquired cash settled call options on Adecco S.A. shares. The options were designated as cash flow hedges of the senior management share-linked bonus plan for the years 2007 to 2009, to minimise volatility of future cash flows arising from fluctuations in the share price of Adecco S.A. The majority of the contracts expired in As of June 30, 2009, and December 31, 2008, no significant balances were included in accumulated other comprehensive income/(loss), net, in connection with cash flow hedges. No significant gains or losses were recorded in the first six months of 2009 and the first six months of 2008, respectively, due to ineffectiveness in cash flow hedge relationships. In the first six months of 2009 and the first six months of 2008, a loss of less than EUR 1 and EUR 4, respectively, due to the change of time value of the options, was excluded from the assessment of hedge effectiveness of the share-linked bonus plan cash flow hedge, and was recognised in SG&A in the accompanying consolidated statements of operations. No significant reclassifications into earnings of gains and losses that are reported in accumulated other comprehensive income/ (loss), net, are expected within the next 12 months. Net investment hedges As of June 30, 2009, and December 31, 2008, the net loss relating to net investment hedges included as a component of accumulated other comprehensive income/(loss), net, amounted to EUR 59 and EUR 60, respectively. No reclassifications of losses reported in accumulated other comprehensive income/(loss), net, into earnings are expected within the next 12 months. 20 Adecco Half Year Report /298

281 Adecco Group Notes to consolidated financial statements (unaudited) in millions, except share and per share information Other hedge activities The Company has entered into certain derivative contracts that are not designated or do not qualify as hedges under SFAS No These are mainly forward foreign currency contracts used to hedge the net exposure of short-term subsidiary funding advanced in the local operations functional currency. These contracts are entered into in accordance with the written treasury policies and procedures and represent economic hedges. In connection with these activities, the Company recorded a loss below EUR 1 for the six months ended June 30, 2009, as follows: in EUR Derivative Location of gain/(loss) on derivative recognised in earnings Gain/(loss) on derivative recognised in earnings Hedged item Location of gain/(loss) on related hedged item recognised in earnings Gain/(loss) on related hedged item recognised in earnings Foreign currency contracts Other income/ (expenses), net (6) Loans and receivables to/ from subsidiaries Other income/ (expenses), net 6 Credit risk concentration Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash investments, short-term investments, trade accounts receivable, and derivative financial instruments. The Company places its cash and short-term investments in major financial institutions throughout the world, which management assesses to be of high credit quality, in order to limit the exposure of each investment. Credit risk with respect to trade accounts receivable is dispersed due to the international nature of the business, the large number of customers, and the diversity of industries serviced. The Company s receivables are well diversified and management performs credit evaluations of its customers and, where available and cost-effective, utilises credit insurance. To minimise counterparty exposure on derivative instruments, the Company enters into derivative contracts with several large multinational banks and limits the exposure in combination with the short-term investments with each counterparty. Note 8 Fair value measurement The following table represents the Company s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2009, and December 31, 2008, consistent with the fair value hierarchy provisions of SFAS No. 157: in EUR Level 1 Level 2 Level 3 Total June 30, 2009 Assets Available-for-sale securities 1 1 Derivative assets Other current assets 1 1 Liabilities Derivative liabilities December 31, 2008 Assets Available-for-sale securities 7 7 Derivative assets Other current assets 3 3 Liabilities Derivative liabilities Adecco Half Year Report /298

282 Adecco Group Notes to consolidated financial statements (unaudited) in millions, except share and per share information Note 9 Income taxes The Company operates in various countries with different tax laws and rates; therefore, the effective tax rate may vary from year to year due to changes in the mix of taxable income among countries and special transactions. Income taxes for the first half of 2009 were provided at a rate of 24%, based on the Company s current estimate of the annual effective tax rate. For the six months ended June 30, 2008, the tax rate was 28%. The effective tax rate in the first six months of 2009 was positively impacted by the change in the mix of earnings and the successful resolution of prior years audits. This was substantially offset by the negative impact of the goodwill impairment charge which is not tax deductible. Significant estimates are required in determining income tax expense and benefits. Various internal and external factors may have favourable or unfavourable effects on the future effective tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, results of tax audits, and changes in the overall level of pre-tax earnings. The Company and its subsidiaries file income tax returns in multiple jurisdictions with varying statutes of limitation. Based on the outcome of examinations, or as a result of the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognised tax benefits for tax positions taken regarding previously filed tax returns could materially change from those recorded as liabilities for uncertain tax positions in the Company s financial statements. An estimate of the range of the possible change cannot be made until issues are further developed or examin ations close. As of June 30, 2009, the total amount of unrecognised tax benefits recorded in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, and Related Implementation Issues ( FIN 48 ), decreased by EUR 51 due to the settlement of tax audits and the application of the statute of limitations in several jurisdictions, partly offset by current year additions. Note 10 Segment reporting The Company is organised in a geographical structure (which corresponds to the primary segments). The heads of the main geographies directly manage the office and industrial business lines as well as the professional business lines. The classification into business lines is determined by the largest business line revenue share generated in a specific branch. The Company evaluates the performance of its segments based on operating income before amortisation and impairment of goodwill and intangible assets, which is defined as the amount of income before amortisation and impairment of goodwill and intangible assets, interest expense, other income/(expenses), net, and provision for income taxes. Corporate items consist of certain assets and expenses which are separately managed at the corporate level. Segment assets include current assets, property, equipment, and leasehold improvements, net, other assets, intangible assets, net, and goodwill. The accounting principles used for the segment reporting are those used by the Company. 22 Adecco Half Year Report /298

283 Adecco Group Notes to consolidated financial statements (unaudited) in millions, except share and per share information in EUR France USA & Canada 1 Germany Japan UK & Ireland Italy Benelux Other 1 Corporate Total Six months ended June 30, 2009 Revenues 2,280 1, ,469 7,294 Depreciation (8) (7) (4) (2) (4) (3) (3) (7) (3) (41) Operating income/(loss) before amortisation and impairment of goodwill and intangible assets (15) (1) (6) (7) 12 (28) 75 Amortisation of intangible assets (26) Impairment of goodwill and intangible assets (192) Operating income/(loss) (143) Interest expense, and other income/(expenses), net (20) Provision for income taxes 39 Net income/(loss) (124) Segment assets 1,507 1,116 1, ,122 in EUR France USA & Canada 1 Germany Japan UK & Ireland Italy Benelux Other 1 Corporate Total Six months ended June 30, 2008 Revenues 3,393 1, ,099 10,231 Depreciation (8) (8) (4) (2) (5) (1) (2) (6) (4) (40) Operating income/(loss) before amortisation and impairment of goodwill and intangible assets (47) 531 Amortisation of intangible assets (22) Impairment of goodwill and intangible assets Operating income/(loss) 509 Interest expense, and other income/(expenses), net (21) Provision for income taxes (136) Net income/(loss) 352 Segment assets 2,074 1,126 2, , ,992 1 Puerto Rico previously reported under Other (Emerging Markets) is now reported together with USA & Canada. The 2008 information has been restated to conform to the current year presentation. Adecco Half Year Report /298

284 Adecco Group Notes to consolidated financial statements (unaudited) in millions, except share and per share information Note 11 Commitments and contingencies Guarantees The Company has entered into certain guarantee contracts and standby letters of credit that total EUR 826 including those letters of credit issued under the multicurrency revolving credit facility (EUR 86). The guarantees primarily relate to government requirements for operating a temporary staffing business in certain countries and are generally renewed annually. Other guarantees relate to operating leases and credit lines. The standby letters of credit mainly relate to workers compensation in the US. If the Company is not able to obtain and maintain letters of credit and/or guarantees from third parties then the Company would be required to collateralise its obligations with cash. Due to the nature of these arrangements and historical experience, the Company does not expect to be required to collateralise its obligations with cash. Contingencies In the ordinary course of business, the Company is involved in various legal actions and claims, including those related to social security charges, other payroll related charges, and various employment related matters. Although the outcome of the legal proceedings cannot be predicted with certainty, the Company believes it has adequately reserved for such matters. French antitrust procedure Two of the Company s French subsidiaries, Adecco France (formerly Adecco Travail Temporaire) and Adia SASU (formerly Adia SAS) and two of its competitors were investigated by the French competition authority concerning alleged anticompetitive practices in France. The investigation started in November 2004 when certain documents were collected by the authorities. In November 2007, Adecco France and Adia France received a Statement of Objections by the Conseil de la Concurrence, the French Competition Council, alleging infringements of competition rules, i.e. exchange of commercially sensitive information with competitors in 2003 and 2004 and in one case concerning Adecco France and Adia France, involvement in a concerted practice in response to a tender offer of a French company. On February 1, 2008, the Company entered into an agreement ( La Transaction ) with the Rapporteur Général meaning that the Company will not oppose the factual statements listed in the Statement of Objections thus receiving a certain rebate on the potential fine in exchange of certain commitments made in the agreement. On February 11, 2008, the Company submitted their comprehensive answer to the Statement of Objections. On June 3, 2008 and August 1, 2008, a further written exchange between the competition authorities and the Company took place. A general hearing before the members of the Competition Council occurred in Paris on October 1, On February 2, 2009, the Company received the decision of the Competition Council. The decision imposed a fine of EUR 34, which the Company provided for as of December The Company decided to appeal against certain aspects of the decision relating to the calculation of the fine before the Paris Court of Appeal, since it considers the level of the fine too high. The declarations of appeal followed by the legal briefs for Adecco France and Adia France were filed with the Paris Court of Appeal on March 4, 2009 and on April 3, However, it is difficult to estimate whether the appeal will finally end in a reduction of the fine. A hearing before the Paris Court of Appeal has been set for the last quarter of Adecco Half Year Report /298

285 Addresses Registered office Adecco S.A. (Holding) CH-1275 Chéserex Contact details Adecco management & consulting S.A. Sägereistrasse 10 P.O. Box CH-8152 Glattbrugg T F Corporate communications T F [email protected] Investor relations T F [email protected] Adecco on the Internet Imprint Publisher: Adecco Group, Glattbrugg Design: MetaDesign, Zurich Concept: irf communications, Zurich Photographer: Anita Affentranger, Zurich Typesetting: Linkgroup, Zurich August /298

286 Annex E Adecco Group Quarterly Release Q /298

287 Press Release Adecco starts to see improvements in the revenue trend Profitability significantly increased compared to the second quarter Q3 HIGHLIGHTS (Q versus Q3 2008) Revenues of EUR 3.7 billion, down 27% (-28% in constant currency) Gross margin of 17.4% on an adjusted 1 basis, down 60 bps Strong SG&A reduction of 22% adjusted 1 and in constant currency Adjusted EBITA 2 margin at 3.4% DSO improved by 6 days to 53 days in Q Key figures Q reported Q reported Q adjusted 1 Q adjusted 1 in EUR millions growth in constant currency Revenues 3,718-27% 3,718-28% Gross profit % % EBITA % % Operating income % Net income attributable to Adecco shareholders 90-46% Zurich, Switzerland, November 5, 2009: Adecco Group, the worldwide leader in Human Resource services, today announced results for Q Revenues declined by 28% in constant currency to EUR 3.7 billion. The gross margin declined by 60 bps to 17.4% on an adjusted basis. SG&A was reduced by 22% adjusted and in constant currency, resulting in an adjusted EBITA margin of 3.4%, up 100 bps sequentially. DSO improved by 6 days to 53 days in the third quarter. Patrick De Maeseneire, Chief Executive Officer of the Adecco Group, said: Market conditions have improved during the third quarter, especially in general staffing, and we have seen a gradual improvement of the revenue trend for the Adecco Group. Our efforts to structurally optimise our operations have led to a clearly lower SG&A base. The positive revenue trend and the reduction in costs have resulted in an adjusted EBITA margin of 3.4%, a material sequential increase of 100 basis points. As in the past, we will act in a highly disciplined way with regards to pricing and further optimise our underlying cost base. 1 Adjusted is a non US GAAP measure and excludes the positive impact on gross profit of EUR 11 million in Q due to favourable developments which resulted in the reassessment of existing accruals in France and the negative impact on SG&A of EUR 1 million in Q associated with restructuring costs for headcount reductions and branch optimisation. 2 EBITA is a non US GAAP measure and refers to operating income before amortisation and impairment of goodwill and intangible assets. Page 1/12, Q results release, November 5, /298

288 Press Release Q FINANCIAL PERFORMANCE Revenues Group revenues in Q were down 27% to EUR 3.7 billion compared to Q3 2008, or by 28% on a constant currency basis and organically 3. Permanent placement revenues amounted to EUR 40 million in Q3 2009, a decline of 54% and outplacement revenues totalled EUR 65 million, an increase of 31%, both in constant currency. Gross Profit The gross margin in Q was at 17.7%, a decline of 30 bps compared to the prior year. On an adjusted basis, the gross margin amounted to 17.4%, a decline of 60 bps versus Q The negative impact on gross margin from the temporary staffing business and the weak permanent placement business was partially compensated by the positive contribution of the outplacement business. As expected in this phase of the economic cycle, the pricing environment in the temporary staffing business became more challenging during the quarter under review. Adecco could limit the decrease in the temporary staffing gross margin in Q to 90 bps compared to the prior year. Selling, General and Administrative Expenses (SG&A) In Q3 2009, SG&A was reduced by 21% compared to Q On an adjusted basis and in constant currency, SG&A declined by 22% compared to the prior year s period. Sequentially, SG&A declined by 6% adjusted and in constant currency. Restructuring costs amounted to EUR 1 million in Q (EUR 4 million for various countries, partly offset by EUR 3 million reversal of restructuring costs in France). FTE employees were reduced by 21% (-7,600) compared to Q3 2008, while the branch network was reduced by 15% (-1,000 branches). At the end of the third quarter of 2009, the Adecco Group operated a network of more than 5,700 offices and had over 28,000 FTE employees. FTE employees at the end of Q declined by 4% compared to the end of the second quarter of EBITA In the period under review, EBITA declined by 47% to EUR 135 million, resulting in an EBITA margin of 3.6%, compared to 5.0% in the prior year. The adjusted EBITA was EUR 125 million in the quarter under review, a decline of 52% in constant currency. The adjusted EBITA margin was 3.4% in Q3 2009, up 100 bps sequentially. The contribution of the counter-cyclical US Human Capital Solutions business to Adecco Group s adjusted EBITA amounted to 12% in the third quarter, compared to 27% in Q Amortisation of Intangible Assets Amortisation of intangible assets amounted to EUR 8 million in the third quarter of 2009 compared to EUR 10 million in Q Operating Income In Q3 2009, the Adecco Group reported operating income of EUR 127 million, which compares to EUR 244 million in Q Organic growth is a non US GAAP measure and excludes the impact of currency, acquisitions and divestitures. Page 2/12, Q results release, November 5, /298

289 Press Release Interest Expense and Other Income / (Expenses), net The interest expense in the period under review amounted to EUR 17 million, EUR 2 million higher than in Q Other income / (expenses), net was an expense of EUR 1 million in Q compared to income of EUR 2 million in the third quarter of Interest expense is expected to be slightly below EUR 60 million for the full year Provision for Income Taxes The effective tax rate in Q was 18% compared to 27% in Q The effective tax rate in Q was positively impacted by a change in the mix of earnings. Net Income attributable to Adecco shareholders and EPS Net income attributable to Adecco shareholders in Q was down 46% to EUR 90 million compared to EUR 168 million in Q Basic EPS was EUR 0.52 (EUR 0.96 for Q3 2008). Cash flow, Net Debt 4 and DSO The operating cash flow generated in the first nine months of 2009 amounted to EUR 349 million compared to EUR 669 million in the same period last year. The Company paid dividends of EUR 173 million, invested EUR 64 million in capital expenditure and deposited cash of EUR 128 million for the Spring Group acquisition in an escrow account. Net debt at the end of September 2009 was EUR 702 million compared to EUR 617 million at year end DSO improved by 6 days to 53 days in the third quarter of Currency Impact In Q3 2009, currency fluctuations had a positive impact of approximately 1% on revenues and EBITA. 4 Net debt is a non US GAAP measure and comprises short-term and long-term debt less cash and cash equivalents and short-term investments. Page 3/12, Q results release, November 5, /298

290 Press Release GEOGRAPHICAL PERFORMANCE Q Revenues in percent in EUR millions Revenues EBITA EBITA % 34% France 1, % 14% USA & Canada % 7% Germany % 8% Japan % 6% UK & Ireland % 4% Italy % 6% Benelux % 4% Nordics % 5% Iberia % 3% Switzerland & Austria % 2% Australia & New Zealand % 7% Emerging Markets % In France, revenues declined by 27% to EUR 1.3 billion in Q3 2009, following a decline of 34% in Q Throughout the quarter, the Company experienced an increase in demand in the automotive, chemical and transport sectors. EBITA declined by 33% to EUR 47 million and was positively impacted by EUR 14 million, primarily due to a reassessment of existing accruals and a reversal of restructuring costs. Adjusted EBITA declined by 53% to EUR 33 million in Q The adjusted EBITA margin was 2.5% in Q3 2009, up 90 bps sequentially. In the USA & Canada, revenues and EBITA declined by 25% in constant currency, resulting in an EBITA margin of 4.4% despite the slowing growth rates encountered in the Human Capital Solutions business. The Human Capital Solutions business contributed 67% to EBITA in USA & Canada in Q3 2009, compared to 80% in Q In Germany, Q revenues decreased by 39% to EUR 247 million. On a sequential basis, the German business significantly improved profitability with an EBITA of EUR 20 million, corresponding to an EBITA margin of 8.1%. Better bench management and cost cutting measures positively contributed to this quarter s result. In Q3 2009, revenues in Japan amounted to EUR 298 million, a decline of 28% in constant currency. EBITA declined by 36% in constant currency and the EBITA margin was 6.7%, down 80 bps compared to Q Japan was the only region besides the Emerging Markets to experience a worsening in the revenue decline rate in the third quarter compared to the second quarter of this year, mainly due to our late cyclical clerical business. The efficient delivery model, strict cost management and price discipline again contributed to an excellent EBITA margin. In the UK & Ireland, revenues in Q were down 28% in constant currency. In terms of EBITA, the region was at break-even. In Italy, revenues declined by 43% in the third quarter of Italy reported an EBITA of EUR 5 million, corresponding to an EBITA margin of 3.4%. Cost cutting measures initiated in previous quarters positively contributed to this result. Revenues in the Benelux declined by 18% or 24% organically, while in the Nordics, revenues declined by 35% in constant currency and in Iberia by 33%. Emerging Markets continued to show resilience to the economic downturn as revenues declined only 4% in constant currency. The EBITA margin was 3.5% in Q3 2009, which resulted in an EBITA of EUR 10 million. Page 4/12, Q results release, November 5, /298

291 Press Release BUSINESS LINE PERFORMANCE Q Revenues Q Gross profit 7% IT 7% IT 4% E&T 4% E&T 2% F&L 4% F&L 2% M&S 2% M&S 2% SM&E 2% SM&E 2% HCS 10% HCS 7% EmMa* 5% EmMa* 22% Office 23% Office 52% Industrial 43% Industrial * Emerging Markets excluding professional business lines In Office & Industrial, Adecco s revenues in Q were EUR 2.8 billion, a decline of 32% in constant currency. In the Industrial business, revenues declined by 34% in constant currency, following a 41% fall in Q The most pronounced improvement in the year-on-year decline rate was experienced in Iberia, progressing from minus 50% in Q to minus 36% in Q France improved from minus 37% in Q to minus 29% in Q3, whereas the USA & Canada improved from minus 41% in Q to minus 33% in Q in constant currency. In the Office business, revenues declined by 28% in constant currency, posting the same decline rate as in Q Revenues in Japan declined by 28%, having fallen 24% in Q2 2009, while the decline rate improved in the USA & Canada with revenues down 20%, following 28% in Q2 2009, all in constant currency. In the UK & Ireland, revenues were down 29% in constant currency. In France, revenues declined by 33%. In the Professional Business 5 segment, revenues in Q declined by 17% in constant currency and by 20% on an organic basis. The gross margin increased by 10 bps to 27.8%, despite the weak permanent placement business. In Information Technology (IT), Adecco s revenues decreased 14% in constant currency and by 21% organically. In the USA & Canada revenues in Q were down 24% and in the UK & Ireland down 26%, both in constant currency. In France, revenues were flat. Adecco s Engineering & Technical (E&T) business was down 25% in constant currency. The USA & Canada revenues declined by 22% in constant currency, while revenues in Germany declined by 24% in the third quarter of In Finance & Legal (F&L), revenues declined by 33% in constant currency and by 36% on an organic basis. Weak demand in the USA & Canada, where revenues declined 41% in constant currency, was the main reason for the decline. In Q3 2009, revenues in Medical & Science (M&S) declined by 13% and in Sales, Marketing & Events (SM&E) by 17%, whereas revenues in Human Capital Solutions (HCS) were up 20%, all in constant currency. 5 Professional Business refers to Adecco s Information Technology, Engineering & Technical, Finance & Legal, Medical & Science, Sales, Marketing & Events and Human Capital Solutions business. Page 5/12, Q results release, November 5, /298

292 Press Release Management outlook The Adecco Group has seen first signs of a demand pick-up in general staffing. In particular, the light industrial segment, noticeably in France and in the USA & Canada, improved during the third quarter compared to the low base of the second quarter. The year-on-year revenue decline rate adjusted for business days improved over the course of the third quarter of 2009, and the trend continued in October with an expected decline rate of 22%. This is mainly driven by a lower comparable base, but also thanks to improving market conditions. The management team continues to focus its efforts on further structurally optimising the cost base while sticking to its value-based strategy. The recently announced acquisitions will significantly increase Adecco s exposure to the attractive professional staffing market, thereby strengthening the Company s profitability profile in the mid-term. Adecco expects to incur approximately EUR 35 million of restructuring costs in the fourth quarter of 2009 for various countries as part of the previously announced guidance of EUR 40 million for the second half of Acquisition of MPS Group On October 20, 2009, Adecco announced the acquisition of MPS Group, a leading provider of professional staffing services, for an enterprise value of EUR 782 million, or USD per share. This acquisition will significantly enhance Adecco's position in the professional staffing business, particularly in the USA & Canada and the UK. Adecco expects the transaction to be accretive on an adjusted EPS 6 basis in the first year and EVA 7 positive within three years. The transaction is expected to close in the first quarter of 2010, subject to shareholder and regulatory approval. Closing of the acquisition of Spring Group Adecco announced the successful closing of the acquisition of Spring Group on October 20, The integration of Spring Group has recently been initiated. Adecco expects to achieve annual synergies of EUR 13 million from the integration of Spring Group within one year. Integration costs are expected to be equal to the targeted annual synergies and will be incurred in the first year following the closing of the acquisition. Issuance of CHF 900 million mandatory convertible bond due 2012 On October 20, 2009, Adecco placed a 3-year CHF 900 million mandatory convertible bond with a coupon of 6.5%, issued by Adecco Investment (Bermuda) Ltd, a wholly-owned subsidiary of Adecco S.A. The net proceeds of the offering will increase Adecco's financial flexibility and strengthen its balance sheet in conjunction with the announced acquisition of MPS Group. The reference share price and initial minimum conversion price of the bond will be CHF and the initial maximum conversion price will be CHF (120% of the reference share price). On that basis the number of shares underlying the bond upon issue will be approximately in the range of million to million shares. The shares underlying the bond will be sourced from treasury shares and/or from conditional share capital of Adecco S.A, at Adecco s election. Settlement of the bond is expected to occur on November 26, The bond is intended to be listed and admitted to trading on the SIX Swiss Exchange (ISIN XS ). 6 Excluding amortisation and integration costs 7 Based on Adecco s cost of capital Page 6/12, Q results release, November 5, /298

293 Press Release Forward-looking statements Information in this release may involve guidance, expectations, beliefs, plans, intentions or strategies regarding the future. These forward-looking statements involve risks and uncertainties. All forward-looking statements included in this release are based on information available to Adecco S.A. as of the date of this release, and we assume no duty to update any such forward-looking statements. The forward-looking statements in this release are not guarantees of future performance and actual results could differ materially from our current expectations. Numerous factors could cause or contribute to such differences. Factors that could affect the Company s forward-looking statements include, among other things: global GDP trends and the demand for temporary work; changes in regulation of temporary work; intense competition in the markets in which the Company operates; integration of acquired companies; changes in the Company s ability to attract and retain qualified internal and external personnel or clients; the potential impact of disruptions related to IT; any adverse developments in existing commercial relationships, disputes or legal and tax proceedings. About the Adecco Group The Adecco Group, based in Zurich, Switzerland, is the world s leading provider of HR solutions. With over 28,000 FTE employees and more than 5,700 offices, in over 60 countries and territories around the world, Adecco Group offers a wide variety of services, connecting more than 500,000 colleagues with over 100,000 clients every day. The services offered fall into the broad categories of temporary staffing, permanent placement, outsourcing, consulting and outplacement. The Adecco Group is a Fortune Global 500 company. Adecco S.A. is registered in Switzerland (ISIN: CH ) with listings on the SIX Swiss Exchange (ADEN) and on Euronext in France (ADE). Q Results Conference Calls There will be a media conference call at 9 am CET as well as an analyst conference call at 11 am CET, details of which can be found on our website in the Investor Relations section at UK / Global + 44 (0) United States Cont. Europe + 41 (0) Adecco Corporate Investor Relations [email protected] or +41 (0) Adecco Corporate Press Office [email protected] or +41 (0) Financial Agenda 2009/2010 Q4/FY 2009 results March 3, 2010 Q results May 6, 2010 Annual General Meeting May 11, 2010 Q results August 11, 2010 Q results November 9, 2010 Page 7/12, Q results release, November 5, /298

294 Press Release Consolidated statements of operations (unaudited) EUR millions, Q Q Variance % 9M M 2008 except share and per share amounts EUR Constant Currency EUR Variance % Constant Currency Revenues 3,718 5,101-27% -28% 11,012 15,332-28% -29% Direct costs of services (3,060) (4,184) (9,028) (12,503) Gross profit % -29% 1,984 2,829-30% -31% Gross margin 17.7% 18.0% 18.0% 18.5% Selling, general and administrative expenses (523) (663) -21% -22% (1,774) (2,044) -13% -15% As a percentage of revenues 14.1% 13.0% 16.1% 13.3% Amortisation of intangible assets (8) (10) (34) (32) Impairment of goodwill and intangible assets (192) Operating income/(loss) % -49% (16) % -102% Operating income/(loss) margin 3.4% 4.8% -0.1% 4.9% Interest expense (17) (15) (41) (45) Other income/(expenses), net (1) Income/(loss) before income taxes % (54) % Provision for income taxes (19) (63) 20 (199) Net income/(loss) % (34) % Net income attributable to noncontrolling interests (3) Net income/(loss) attributable to Adecco shareholders Net income/(loss) margin attributable to Adecco shareholders % (34) % 2.4% 3.3% -0.3% 3.4% Basic earnings per share (0.20) 2.94 Basic weighted-average shares 174,079, ,412, ,095, ,779,185 Diluted earnings per share (0.20) 2.82 Diluted weighted-average shares 181,118, ,936, ,095, ,307,711 Page 8/12, Q results release, November 5, /298

295 Press Release Revenues and operating income/(loss) by geographies (unaudited) EUR millions Q Q Variance % 9M M 2008 Revenues EUR Constant Currency EUR Variance % Constant Currency France 1 1,280 1,747-27% -27% 3,560 5,140-31% -31% USA & Canada 1, % -25% 1,652 2,036-19% -27% Germany % -39% 739 1,196-38% -38% Japan % -28% 1,048 1,049 0% -20% UK & Ireland % -28% 672 1,092-38% -30% Italy % -43% % -45% Benelux % -18% % -17% Nordics % -35% % -36% Iberia % -33% % -39% Switzerland & Austria % -39% % -36% Australia & New Zealand % -27% % -27% Emerging Markets 1, % -4% % -1% Adecco Group 1 3,718 5,101-27% -28% 11,012 15,332-28% -29% Operating income/(loss) 3 France % -33% % -87% USA & Canada % -25% % -14% Germany % -62% % -83% Japan % -36% % -22% UK & Ireland % -89% (1) % -103% Italy % -64% (1) % -101% Benelux % -63% (2) % -104% Nordics % -62% (1) % -102% Iberia % -66% % -94% Switzerland & Austria % -59% % -72% Australia & New Zealand % -53% % -66% Emerging Markets % -20% % -24% Total Operating Units % -47% % -71% Corporate expenses (14) (19) (42) (66) Operating income/(loss) before amortisation and impairment of goodwill and intangible assets % -48% % -74% Amortisation of intangible assets (8) (10) (34) (32) Impairment of goodwill and intangible assets (192) Adecco Group % -49% (16) % -102% 1) In Q revenues decreased organically in France by -27% (9M: -32%); USA & Canada by -25% (9M: -26%); Benelux by -24% (9M: -24%); Emerging Markets by -3% (9M: -1%) and Adecco Group by -28% (9M: -30%). 2) Puerto Rico previously reported under Emerging Markets is now reported together with USA & Canada. The 2008 information has been restated to conform to the current year presentation. 3) Operating income/(loss) before amortisation and impairment of goodwill and intangible assets on the operating unit level. Page 9/12, Q results release, November 5, /298

296 Press Release Revenues by business line (unaudited) EUR millions Q Q Variance % 9M M 2008 Variance % Revenues 1 EUR Constant Currency EUR Constant Currency Office ,084-25% -28% 2,590 3,339-22% -26% Industrial 1,940 2,897-33% -34% 5,400 8,618-37% -38% Total Office and Industrial 2 2,758 3,981-31% -32% 7,990 11,957-33% -34% Information Technology % -14% % -10% Engineering & Technical % -25% % -25% Finance & Legal % -33% % -31% Medical & Science % -13% % -12% Sales, Marketing & Events % -17% % -11% Human Capital Solutions % 20% % 34% Total Professional Business Lines % -17% 2,227 2,518-12% -14% Emerging Markets 2, % -4% % -1% Adecco Group 2 3,718 5,101-27% -28% 11,012 15,332-28% -29% 1) Breakdown of revenues is based on dedicated branches. The 2009 information includes certain changes in the allocation of branches to business lines, most notably from Sales, Marketing & Events to Office. The 2008 information has been restated to conform to the current year presentation. 2) In Q revenues decreased organically in Office by -28% (9M: -25%); Total Office and Industrial by -32% (9M: -34%); Information Technology by -21% (9M: -18%); Finance and Legal by -36% (9M: -35%); Total Professional Business Lines by -20% (9M: -17%), Emerging Markets by -3% (9M: -1%) and Adecco Group by -28% (9M: -30%). 3) Emerging Markets excluding professional business lines. Page 10/12, Q results release, November 5, /298

297 Press Release Consolidated balance sheets (unaudited) EUR millions Sept 30 Dec Assets Current assets: Cash and cash equivalents Short-term investments 1 7 Trade accounts receivable, net 2,528 3,046 Other current assets Total current assets 3,767 4,016 Property, equipment, and leasehold improvements, net Other assets Intangible assets, net Goodwill 2,577 2,666 Total assets 7,144 7,530 Liabilities and shareholders equity Liabilities Current liabilities: Accounts payable and accrued expenses 2,671 3,053 Short-term debt and current maturities of long-term debt Total current liabilities 3,125 3,109 Long-term debt, less current maturities 1,016 1,142 Other liabilities Total liabilities 4,578 4,732 Shareholders equity Adecco shareholders equity: Common shares Additional paid-in capital 2,118 2,140 Treasury shares, at cost (561) (558) Retained earnings 1,188 1,394 Accumulated other comprehensive income/(loss), net (298) (301) Total Adecco shareholders equity 2,565 2,793 Noncontrolling interests 1 5 Total shareholders equity 2,566 2,798 Total liabilities and shareholders equity 7,144 7,530 Page 11/12, Q results release, November 5, /298

298 Press Release Consolidated statements of cash flows (unaudited) EUR millions 9M M 2008 Cash flows from operating activities Net income/(loss) (34) 520 Adjustments to reconcile net income/(loss) to cash flows from operating activities: Depreciation and amortisation Impairment of goodwill and intangible assets 192 Other charges (31) 56 Changes in operating assets and liabilities, net of acquisitions: Trade accounts receivable Accounts payable and accrued expenses (383) (107) Other assets and liabilities 4 33 Cash flows from operating activities Cash flows from/(used in) investing activities Capital expenditures, net of proceeds (64) (71) Spring acquisition - cash in escrow (128) Net purchase of short-term investments (5) Cash settlements on derivative instruments (19) 6 Other acquisition and investing activities (40) (50) Cash flows from/(used in) investing activities (251) (120) Cash flows from/(used in) financing activities Net increase/(decrease) in short-term debt (37) 337 Borrowings of long term debt, net of issuance costs 496 Repayment of long term debt (200) (322) Dividends paid to shareholders (173) (163) Purchase of treasury shares (3) (274) Other financing activities 3 (8) Cash flows from/(used in) financing activities 86 (430) Effect of exchange rate changes on cash 9 (3) Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents: Beginning of year End of period Page 12/12, Q results release, November 5, /298

299 ISSUER Adecco Investment (Bermuda) Ltd. 129 Front Street 5th floor Hamilton HM 12 Bermuda ADECCO Adecco S.A. Sägereistrasse Glattbrugg Switzerland LEGAL ADVISORS TO THE ISSUER AND ADECCO Bratschi Wiederkehr & Buob Vadianstrasse 44 Postfach St. Gallen Switzerland Linklaters LLP One Silk Street London EC2Y 8HQ United Kingdom Conyers Dill & Pearman Clarendon House 2 Church Street Hamilton HM11 Bermuda LEGAL ADVISORS TO THE JOINT LEAD MANAGERS Bär & Karrer AG Brandschenkestrasse Zürich Switzerland Freshfields Bruckhaus Deringer LLP 65 Fleet Street London EC4Y 1HT United Kingdom AUDITOR OF ADECCO Ernst & Young AG Bleicherweg Zürich Switzerland 298/298