Adecco Annual Report 2005

2005 was a year of change. Adecco faced significant challenges but met these with a wide-ranging strategic review leading to important structural developments. The company entered 2006 realigned to deliver enhanced growth and profitability through a focus on professional staffing services coordinated in six new global business lines.

Financial results

In 2005, Adecco Group sales increased by 6%, a below-expectation performance. In France and the U.S., our largest markets, we did not maintain market share. Gross margin improved slightly from 16.7% to 16.9%. At the same time we decreased SG&A only 10 basis points to 13.5%, although the previous year’s costs were inflated with charges associated with the 2003 financial reporting delay. We expanded our network with around 350 new offices and appointed 3,000 new employees. Operating margin was 3.4% in 2005, compared with 3.1% in 2004. Receivables grew more than we hoped in 2005 and reducing these will be a particular focus in 2006.

While these results are disappointing, they accompany a year of fundamental reappraisal and reconstruction. We enter 2006 as a company energised for ambitious expansion via organic growth and acquisitions, focused on our global opportunities for enhanced profitability and professionalism, and learning to act as a unified group under one brand – Adecco.

Market developments

The labour market in our core countries is changing dramatically. We will stay true to “better work, better life”, our mission of promoting efficiency, effectiveness and choice in the domain of work, as we adapt to the key trends. Longer life expectancy is resulting in more people staying at work into older age. Low birth rates in recent decades also mean there are fewer young adults entering the workforce. In this environment, as skills become increasingly scarce, Adecco must attract and retain high value professional associates, for both temporary and permanent work, in order to meet our clients’ growing needs.

6-K 1 d6k.htm ADECCO ANNUAL REPORT 2005 Adecco Annual Report 2005

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the month of: March 2006

ADECCO SA

(Exact name of Registrant as specified in its charter)

Commission # 0-25004

Sägereistrasse 10

CH-8152 Glattbrugg

Switzerland

+41 1 878 88 88

(Address of principal executive offices)

[Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or 40-F]

Form 20-F x Form 40-F ¨

[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934]

Yes ¨ No x

Attached:

-	Adecco Annual Report 2005

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Mission

We inspire individuals and organisations to create greater efficiencies, effectiveness, and choice in the domain of work, for the benefit of all stakeholders. As the world’s largest employment services group, a business that positively impacts millions of people every year, we are conscious of our global role and mission.

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For the fiscal years (in million EUR)	2005 (52 weeks)	2004 (53 weeks)	2003 (52 weeks)	2002 (52 weeks)	2001 (52 weeks)



Statement of operations data
Revenues	18,303	17,239	16,226	17,085	18,034
Gross profit	3,086	2,874	2,757	3,039	3,387
Operating income¹	614	530	509	454	48
Net income as adjusted²	453	332	305	242	442
Net income/(loss)	453	332	305	242	(282	)


Other financial indicators
Cash flow from operating activities	298	542	453	442	929
Free cash flow³	230	475	401	342	737
Net debt⁴	424	299	924	1,411	1,751


Key ratios (as % of revenues)

Gross margin	16.9%	16.7%	17.0%	17.8%	18.8%
Cost ratio	13.5%	13.6%	13.9%	15.1%	18.5%
Operating margin	3.4%	3.1%	3.1%	2.7%	0.3%


Per share figures
Basic EPS in EUR⁵	2.43	1.77	1.63	1.30	(1.52	)
Diluted EPS in EUR⁶	2.34	1.69	1.61	1.28	(1.52	)
Cash dividend in CHF	1.00	1.00	0.70	0.60	1.00


Number of shares
Basic weighted-average shares	186,599,019	187,074,416	186,744,214	186,527,178	185,880,663
Diluted weighted-average shares	196,546,937	201,328,174	195,777,267	193,469,123	185,880,663
Outstanding	186,097,645	187,330,240	186,989,728	186,697,162	186,174,880

1	Operating income includes amortisation of intangibles of EUR 3, EUR 1, EUR 6, EUR 4, and EUR 6 for 2005, 2004, 2003, 2002, and 2001, respectively. It also includes amortisation of goodwill of EUR 724 for 2001.

Net income as adjusted is excluding amortisation of goodwill in 2001 of EUR 724. Effective the first day of fiscal year 2002, the Company adopted Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets”, that requires that goodwill no longer be amortised to earnings.

3	Free-cash flow is a non-U.S. GAAP measure and is defined herein as cash-flow from operating activities minus capital expenditures, net.

Net debt is a non-U.S. GAAP measure and comprises short-term and long-term debt, and off-balance sheet debt of EUR 36, EUR 59 and EUR 74, in 2003, 2002, and 2001, respectively, relating to the securitisation of receivables, less cash and cash equivalents and short-term investments. There was no off balance sheet debt at the end of 2005 and 2004.

5	Basic earning per share including the impact of discontinued operations of EUR 0.16, EUR (0.01), and EUR (0.04) in 2004, 2003, and 2002, respectively, and the cumulative effect of change in accounting principle of EUR (0.02) in 2003. There were no discontinued operations in 2005 and 2001.

6	Diluted earning per share including the impact of discontinued operations of EUR 0.15, EUR (0.01), and EUR (0.04) in 2004, 2003, and 2002, respectively, and the cumulative effect of change in accounting principle of EUR (0.01) in 2003. There were no discontinued operations in 2005 and 2001.




Tickers

SWX/virt-x		ADEN
NYSE		ADO
Euronext		ADE
Reuters		ADEN.VX
Reuters (ADR)		ADO.N
Bloomberg		ADEn Vx
Bloomberg (ADR)		ADO US
ISIN		CH0012138605
ISIN (ADS)		US0067541054


Share price 2005

Year-end		60.60 CHF
Average		60.73 CHF

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		5		Board message

		7		A vision, a passion

		9		Market opportunities

		11		Global business lines

		27		Adecco around the world

		29		Investing in people

		33		Social commitments

		36		Corporate governance

		60		Financial review

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				Further developing our coaching and training activities for associates will become increasingly important. Outsourcing, already widely used to reduce labour costs by large corporations, will be more accessible to medium-sized companies as an on-site Adecco service offering. We are also adopting new approaches to further develop our managed services. As the beneficial impact of our activities becomes apparent we believe that more governments will revise their approach to public sector employment and to managing unemployment. Adecco’s experience in outplacement, assessment, training and coaching enables us to partner effectively in these areas for the benefit of society.				Board message A vision, a passion Market opportunities Global business lines Adecco around the world Investing in people Social commitments Corporate governance Financial review

				Our goals in 2006 Professional staffing services will be a key focus. To create a strong platform for growth, our existing operations in this area have been realigned into six global business lines defined by specific occupational fields, complementing our established office and industrial offer. All group companies and business lines will increasingly use the Adecco brand name. In 2006 the brand will benefit from significant advertising support as our portfolio of services expands. Building one strong name will deliver the best return on our marketing efforts as well as encouraging group cohesion and best practice sharing. We will also drive efficiency gains through further consolidating our back office operations. Ethics and corporate governance It is our firm belief that only proper moral and ethical conduct will allow our business to grow well in the long-term. As a business entirely concerned with people, impacting the personal well-being of so many associates around the world, we can never compromise on these standards, or the principles of sustainable business practice. We continue to foster all efforts to make Adecco synonymous in our industry with ethical conduct and sound corporate governance. Our thanks In closing we would like to recognise everyone that has contributed to Adecco’s first ten years of success, our colleagues, for their terrific dedication and energy; our clients and associates, without whom our business could not function; and our investors, whose support has been critical to our growth. Our thanks go to all of them for sharing our vision and helping to build Adecco as the world leader in work.

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Deep roots, strong foundations

Adecco is taking forward the vision of its founders, recognising the focal role for employment service providers in fast-moving, modern economies; we enable skills to flow where they are needed and free individuals to establish the patterns of work commitment that suit them best.

Today, Adecco is the world’s largest single provider of employment opportunities, helping companies everywhere optimise relationships with their most valuable resource – people.

Engineered for growth

Following the initial merger, strategic acquisitions have created new opportunities for economies of scale and organic growth in an industry expanding at several times the rate of GDP in most advanced economies.

Global expansion and local focus mean that insights and lessons learnt in one market are quickly re-applied and adapted to comparable ones. We are committed to benefiting our clients and associates through working smart as well as working hard. Innovation – originating in and shared amongst the global network – is the Adecco way. The momentum continues.

Freedom to flourish

Dramatic economic growth and rising demand for skills are opening up new growth opportunities in emerging markets such as India and China. A wave of responsible labour market deregulation, most notably in Japan, Italy, Germany and France, is expanding our spheres of activity.

The race is on to attract, inspire and retain the best people wherever they may be. Our role, successfully played, delivers a win-win-win for individuals, organisations and society at large.

Board message

A vision, a passion

Market opportunities

Global business lines

Adecco around the world

Investing in people

Social commitments

Corporate governance

Financial review

It’s about everyone

We provide employment services across virtually every business function, seniority level and age group. Our competence extends beyond temporary and permanent placement to genuine career partnership for individuals.

We are also committed to helping those people for whom finding work can be difficult due to limited skills or disabilities, enabling them to overcome those obstacles and obtain meaningful employment. We are transforming, driven by a shared mission, to be a global force for prosperity and for good.

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Sales, Marketing & Events

The most in-demand associates in these fields are increasingly specialised. New trends create fresh demand: for example, fast moving consumer goods clients seeking qualified support to execute simultaneous global product launches; or fast-growing companies using an outsourced sales force or promotion team to enter new markets.

In this dynamic area, our focus is on three main lines of competencies; Sales & Marketing – with main products as recruitment and selection of professionals and sales force outsourcing; Events & Promotions – with promotional teams outsourcing and customer events solutions; and Call Center Solutions with a focus on managed services. Adecco has real caliber across this range of skills – sourcing and training excellent associates to fulfil an exciting range of temporary and permanent opportunities for high profile clients in all major markets.

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In India we focus on the growth of professional staffing, providing flexibility in a market where client demand is growing strongly. As the economy booms, clients find skilled people increasingly hard to source directly. In this environment salaries for many functions are rising (at a rate of over 10% for graduates) and temporary positions offer comparable benefits to permanent roles, while lowering economic risk to employers.

Since its inception, Adecco has been present in the dynamic markets of China, Taiwan and Hong Kong. In China, where unskilled and semi-skilled workers number hundreds of millions, our focus is on professional and managerial associates. These are in short supply. We are well placed to both help associates find the best opportunities and clients to optimise their investment and returns on key people, thus supporting the rise in economic prosperity.

China is a challenging environment for most multinationals. Intense competition for people drives a high turnover of local staff, who can be easily tempted away by relatively small pay gains. Helping develop loyalty and sustained employer-employee relationships is part of our role here, one to which we bring extensive knowledge and experience.

Board message

A vision, a passion

Market opportunities

Global business lines

Adecco around the world

Investing in people

Social commitments

Corporate governance

Financial review

Across Russia, the rest of Eastern Europe and the Balkans, Adecco is building a fast growing network. Adecco’s growth is strongest in Russia and Poland, where large domestic markets are attracting significant foreign investment. Adecco is playing a key role in supporting multi-national clients near-shoring projects with a spectrum of services including temporary and permanent placement and outplacement support. Our client base is expanding across automotive, FMCG, logistics, call centre and IT segments.

Argentina, Brazil and Mexico are experiencing increasing GDP growth and provide a favourable environment for our industry. Adecco has been present in nearly all Latin American markets for many years. Most recently we have increased our focus on Brazil, ranked 5^thin the world by population size with 186 million people. Brazil’s rapid technological development represents a great opportunity for Adecco’s professional services.

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This provided the basis for the 2005 launch in Europe of the Adecco “Demographic Fitness Test”. This is a tool to analyse how well prepared client companies are to cope with demographic change and enable them to develop strategies to balance organisational demographics. The test provides a framework for action on five key dimensions: Career Management, Lifelong Learning, Knowledge Management, Health Management and Diversity Management.

Since 2000, Adecco USA has run the Renaissance programme (www. AdeccoUSA.com/Renaissance). This supports older workers who choose to return to work – offering benefit packages tailored to their needs and assignments that fit their lifestyle aspirations. The programme highlights to clients the value of older workers’ life experience, positive attitudes and strong work ethic. In 2005, the A.A.R.P. – an organisation dedicated to enhancing people’s quality of life as they age – recognised our positive role by making Adecco one of 13 featured employers on their website that is designed to help job-seekers find companies that appreciate mature workers.

Coaching and Mentoring

Adecco is increasingly involved in supporting professionals near the summit of business decision-making. Leadership Consulting – a coaching and mentoring service – is based upon fresh methodologies and is delivered by accomplished business professionals. As “continuous learning” changes from a mantra to mainstream business practice, this service is in increasing demand.

Investing in our own future leadership is an internal priority too. By the end of 2005, 230 Adecco managers, from 39 countries, had participated in the Adecco leadership programme that is run in conjunction with the IMD business school in Lausanne, Switzerland.

Board message

A vision, a passion

Market opportunities

Global business lines

Adecco around the world

Investing in people

Social commitments

Corporate governance

Financial review

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				In 2005, we also began a sustained effort to help the recovery of communities hit by the Asian Tsunami at the end of 2004. Our activities are aimed at making a difference “on the ground” through partnering local support groups in practical initiatives. In India, we helped fund 6 information centres in coastal villages that publicise work opportunities. In Indonesia, we have contributed to new houses, schools and the building of 20 fishing boats to enable normality to return and directly support work opportunities. Group management involvement has been a reflection of the sustained commitment of Adecco colleagues around the world. In early 2006, through the Adecco Volunteers programme, a group of forty colleagues from Australia, Belgium, Austria and Germany committed their time to help in local reconstruction and work generating projects in Banda Aceh, over a year after the original disaster.

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				Applicable standards This Corporate Governance disclosure reflects the requirements of the Directive on Information Relating to Corporate Governance, issued by the SWX Swiss Stock Exchange and entered into force on July 1, 2002. The principles and the more detailed rules of Adecco S.A.’s Corporate Governance are defined in Adecco S.A.’s Articles of Incorporation, the Internal Policies, and in the Charters of the Committees of the Board of Directors. Adecco S.A.’s principles take into account the recommendations set out in the Swiss Code of Best Practice for Corporate Governance applicable since July 1, 2002.
				Statements throughout this Corporate Governance discussion 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. Corporate Governance financial information is presented as of December 31, unless indicated otherwise, as the statutory fiscal year of Adecco S.A. is the calendar year. 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 2005, the Company’s fiscal year included 52 weeks ending December 31, 2005. In 2004, the Company’s fiscal year contained 53 weeks ending on January 2, 2005. The Company’s reporting currency is the Euro. Accordingly, the consolidated financial statements of the Company are provided in Euro. The financial statements of Adecco S.A. (Holding Company) are reported in Swiss francs. The Corporate Governance information included in this report is presented in Euro, except for information on shares, share capital, and dividends, which is provided in Swiss francs. Income, expenses, and cash flows are translated at the average exchange rates prevailing during the period, and assets and liabilities are translated at period-end exchange rates. The NYSE rules require foreign private issuers, such as Adecco S.A., to disclose any significant ways in which their Corporate Governance practices differ from the Corporate Governance practices followed by U.S. companies under the NYSE rules. This information is published on the Internet: www.nyse.adecco.com.

				1. Structure and shareholders
				1.1 Legal and management structure
				Adecco S.A. is a company limited by shares (société anonyme) organised under the laws of Switzerland with its registered office at Chéserex, Switzerland. The Company’s principal corporate office is the office of its management company, Adecco management & consulting S.A., at Sägereistrasse 10, Glattbrugg, Switzerland. Adecco S.A. is listed on the SWX Swiss Exchange (trading on virt-x, symbol ADEN, security number 1213860; ISIN CH0012138605) and on the Euronext Premier Marché (symbol ADE, security number 12819). Furthermore, Adecco S.A. has American Depository Receipts (ADRs) listed on the New York Stock Exchange (symbol ADO; ISIN US0067541054). As of December 31, 2005, the market capitalisation of Adecco S.A., based on the then outstanding number of shares and the closing price of shares on the SWX Swiss Exchange, amounted to approximately CHF 11.3 billion. On March 15, 2006, this market capitalisation amounted to approximately CHF 13.6 billion. The Company is the global leader in human resource services including temporary staffing and permanent placement, specialist and professional staffing, and career services consulting and outplacement. During 2005, these services were marketed and managed through three divisions: Adecco Staffing – which provided flexible temporary staffing and permanent placement services to a broad range of businesses and industries including the banking, electronics, retail, chemical/pharmaceutical, manufacturing, and telecommunications sectors; Ajilon Professional – which offered specialised temporary staffing, permanent placement, and consulting services, with particular emphasis in the areas of information technology, finance, accounting and legal, engineering, and high end clerical support; and LHH Career Services – which provided outplacement, restructuring, and talent solutions services. In January 2006, the division structure was replaced by a geographical structure combined with newly introduced global business lines through which the Group’s main professional services will now be marketed and managed: Adecco Finance & Legal; Adecco Engineering & Technical; Adecco Information Technology; Adecco Medical & Science; Adecco Sales, Marketing & Events; and Adecco Human Capital Solutions. The Company’s country heads continue to manage directly the industrial and office staffing business, while supporting the expansion of and driving efficiency across the global business lines at country level.


		Corporate Governance


				The Company provides services to businesses and organisations located throughout North America, Europe, Asia Pacific, Latin America, and Africa. As of January 1, 2006, Senior Management of the Company is composed as follows: – Klaus J. Jacobs, Chairman, Chief Executive Officer of the Company. – Jim Fredholm, Chief Financial Officer of the Company, Head of Global Business Line Adecco Finance & Legal. – Jean-Manuel Bullukian, Chief Information Officer, Head of Global Business Line Adecco Information Technology and Head of Global Business Line Adecco Engineering & Technical. – Thomas Flatt, Chief Human Resources Officer, Head of Global Business Line Adecco Medical & Science. – Jan-Pieter Gommers, Head of Global Business Line Adecco Sales, Marketing & Events. – Ekkehard Kuppel, Head of Global Business Line Adecco Human Capital Solutions. – Gonzalo Fernández-Castro, Chief Marketing & Business Development Officer.

				The Company comprises numerous legal entities around the world, mainly organised along the business lines. The major consolidated subsidiaries are listed on page 127 of this Annual Report. No subsidiary of the Company is listed on a Stock Exchange; however, certain subsidiaries have issued convertible notes, as described further in this section.

				1.2 Significant shareholders As of December 31, 2005, the total number of shareholders directly registered with Adecco S.A. was 17,999. The major shareholders and their shareholdings were disclosed as follows (for all disclosures see http://www.swx.com): – 42,804,180 shares representing 22.8% of the total Adecco S.A. registered share capital, excluding 12,000,000 registered shares acquired subject to certain conditions precedent that are to be transferred to the group by June 30, 2007, were held by a group consisting of Jacobs Holding AG (formerly KJ Jacobs AG), Zurich, Switzerland, which represents the group and whose own shares and participation certificates are held by Jacobs Foundation and by the association Jacobs Familienrat (both Zurich, Switzerland), Jacobs Venture AG, Baar, Switzerland, Triventura AG, Baar, Switzerland, Klaus J. Jacobs, Renata I. Jacobs, Lavinia Jacobs, Nicolas Jacobs, Philippe Jacobs, and Nathalie Jacobs (“the Group”). The members of the Group have entered into a voting trust agreement and have agreed on an understanding regarding the potential future acquisition of Adecco S.A. shares by Jacobs Venture AG. Jacobs Holding AG does not hold any shares outside the Group. See the respective updated disclosure published in the “Swiss Official Gazette of Commerce” (SHAB No. 245, December 16, 2005). – 22,188,580 shares representing 11.8% of the total Adecco S.A. registered share capital, including 12,000,000 registered shares sold subject to certain conditions precedent that are to be transferred to the above mentioned group by June 30, 2007 were held by Akila Finance S.A., Luxem- bourg, which is owned and controlled by Philippe Foriel-Destezet. See the respective disclosure published in the “Swiss Official Gazette of Commerce” (SHAB No. 245, December 16, 2005). – As mentioned above, subject to certain conditions precedent, the above mentioned Group represented by Jacobs Holding AG is entitled and obliged to acquire from Akila Finance S.A., Luxembourg, an additional 12,000,000 shares representing 6.4% of the total Adecco S.A. registered share capital to be transferred by June 30, 2007; the voting rights attached to these shares remain with Akila Finance S.A. until their transfer. – As per November 1, 2005, 9,258,434 shares representing 4.9% of the total Adecco S.A. registered share capital were held under discretionary management by The Capital Group Companies, Inc., on behalf of funds managed by Capital Research and Management Company, and clients managed by Capital Guardian Trust Company, Capital International Limited, Capital International Inc. and Capital International S.A. The shareholding was reported to have decreased from 5.1%. See the respective disclosure published in the “Swiss Official Gazette of Commerce” (SHAB No. 220, November 11, 2005).

				Furthermore, Adecco S.A. has received the following additional notices on disclosures of shareholders according to Article 20 of the Swiss Stock Exchange Act: – Deutsche Bank AG, Germany, together with various subsidiaries, has disclosed on December 16, 2005 (1) to hold under a Bilateral Equity Linked Contract between themselves and Jacobs Venture AG a call option to acquire up to 10,294,665 shares (5.5%) during the term of the contract, granted by Jacobs Venture AG; (2) to have granted under the same contract to Jacobs Venture AG a put option to sell up to 32,170,829 shares (17.2%) at the maturity of the contract and (3) to currently hold 2,492,043 shares (1.3%) in the course of its ordinary trading and asset management activities. Deutsche Bank AG, Germany, has further mentioned that Sonata Securities S.A., Luxembourg, (“Sonata”) intends to issue bonds in the total amount of CHF 767,300,000 due 2010 exchangeable into shares of Adecco S.A. The proceeds will be used to acquire a limited


Corporate Governance


				recourse instrument from Deutsche Bank AG on the same terms. In connection with these arrangements and, in particular, to enable Deutsche Bank AG to obtain the shares deliverable under the limited recourse instrument, Deutsche Bank AG has entered into a contract with Jacobs Venture AG containing the call option for 10,294,665 Adecco S.A. shares and the put option for 32,170,829 Adecco S.A. shares. The proceeds obtained by Deutsche Bank AG under the limited recourse instrument are passed on to Jacobs Venture AG in order to finance the acquisition of Adecco S.A. shares. For further detail, see the respective disclosure of Deutsche Bank AG as published in the “Swiss Official Gazette of Commerce” (SHAB No. 249, December 22, 2005, and No. 7, January 11, 2006). – A disclosure notice has been provided by Sonata on December 29, 2005, according to which (1) Sonata has the right to exchange the notes owned by it for up to 10,294,665 (5.5%) Adecco S.A. shares during the term of the notes and (2) that Deutsche Bank AG has the right – in certain circumstances and subject to additional legal requirements relating to the enforcement of security interests – to deliver to Sonata up to 32,170,829 Adecco S.A. shares (17.2%) in satisfaction of Deutsche Bank AG’s obligations under the notes. Deutsche Bank would only be in a position to exercise their right if there is an event of default under the bilateral equity linked contract between Jacobs Venture AG and Deutsche Bank AG dated as of December 6, 2005. Sonata intended to issue on December 30, 2005 CHF 767,300,000 1.5 percent collateralised equity-linked limited liability obligations bonds due 2010 exchangeable for ordinary shares of Adecco S.A. The proceeds of the issuance of the bonds will be used to acquire the notes. For further detail see the respective disclosure of Sonata as published in the “Swiss Official Gazette of Commerce” (SHAB No. 7, January 11, 2006). These bonds have been issued before December 31, 2005.

				As of December 31, 2005, Adecco S.A. is not aware of any person or legal entity, other than those stated above, that directly or indirectly owned more than 5% of Adecco S.A.’s shares with voting rights, whether or not such rights may be exercised. Adecco S.A. is not aware of shareholders’ agreements, other than those described above, between its shareholders pertaining to Adecco S.A. shares held. According to Art. 20 of the Swiss Stock Exchange Act, any investor who directly, indirectly or together with another person acquires, holds or disposes of Adecco S.A. shares, for his own account, and thereby attains, falls below, or exceeds the thresholds of 5, 10, 20, 331/3, 50 or 662/3% of the voting rights, whether or not such rights may be exercised, must notify Adecco S.A. and the Disclosure Office of the SWX Swiss Exchange. Such notification must be made no later than four trading days after the obligation to disclose arises. Adecco S.A.’s management is also under an obligation to publish the disclosure no later than two trading days after receipt.
				1.3 Cross-shareholdings and shareholdings in listed companies As of December 31, 2005, there were no cross-shareholdings exceeding 5% of a party’s share capital and Adecco S.A. was not a major shareholder of any listed company. On January 9, 2006, the Company announced that it had entered into an agreement to acquire approximately 29% of DIS Deutscher Industrie Service AG (“DIS”) total shares outstanding at a price per share of EUR 54.50, subject to regulatory approval. At the same time, the Company also announced its intention to launch a voluntary public tender offer for the remaining shares at the same price. The tender offer was launched on February 6, 2006. On February 13, 2006, an agreement was reached with certain shareholders to purchase an additional 38% of DIS shares (some of which were subject to regulatory approval) at a price of EUR 58.50 per share, thereby increasing the tender offer price to EUR 58.50 per share. Regulatory approval was obtained from the European Union on March 3, 2006 and on March 8, 2006 the tender offer was concluded. As a result of the various agreements, purchase of shares on the open market, and the tender offer, the Company’s total shareholding in DIS amounts to approximately 83% as of March 22, 2006.
				2. Capital structure 2.1 Share capital As of December 31, 2005, Adecco S.A.’s issued share capital amounted to CHF 187,607,395 divided into 187,607,395 fully paid registered shares with a nominal value of CHF 1 each.
				2.2 Authorised and conditional capital Adecco S.A. has no authorised capital in the sense of the Swiss Code of Obligations. Conditional capital of up to 5,822,915 shares (approximately CHF 5.8 million) is reserved for the exercise of option rights granted to employees and members of the Board of Directors of Adecco S.A. or of its affiliated companies. The subscription rights of shareholders as well as the option subscription rights of the shareholders are excluded. The exercise conditions depend on the respective underlying stock option plan; the share capital will only be increased if and when the holder of the option exercises such stock option.


		Corporate Governance

Conditional capital of up to 15,400,000 shares (CHF 15.4 million) is reserved for the exercise of option or conversion rights granted in relation to financial instruments such as bonds or similar debt instruments of Adecco S.A. or its affiliates. The subscription rights of the shareholders regarding the subscription of the shares are excluded. 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. Part of this conditional capital is reserved for the convertible debt issued by Adecco Financial Services (Bermuda) Ltd. (see section 2.7 “Convertible notes and options”).

For details on the terms and conditions of the issuance/creation of shares under conditional capital, see Art. 3ter, and 3quater of the Articles of Incorporation; Internet: www.aoi.adecco.com.

2.3 Changes in capital

Adecco S.A.’s capital structure as of the dates indicated below was as follows:


	Issued shares		Authorised capital		Conditional capital				Reserves¹	Retained earnings Amount
In CHF millions, except shares	Shares	Amount	Shares	Amount	Shares		Amount		Amount	Retained earnings Amount


30.12.2002	186,869,980	186.9	19,000,000	19.0	21,960,330		22.0		1,981	1,544
Changes	288,420	0.3			(288,420	)	(0.3	)	15	969
28.12.2003	187,158,400	187.2	19,000,000	19.0	21,671,910		21.7		1,996	2,513
Changes	190,715	0.2			(190,715	)	(0.2	)	1	352
2.1.2005	187,349,115	187.4	19,000,000	19.0	21,481,195		21.5		1,997	2,865
Changes	258,280	0.3	Lapsed	Lapsed	(258,280	)	(0.3	)	102	909
31.12. 2005	187,607,395	187.6	–	–	21,222,915		21.2		2,099	3,774


1 Reserves includes both the general reserve and the reserve for treasury shares.

Details of Adecco S.A.’s general reserves and retained earnings are included in Note 4 to the Adecco S.A. (Holding Company) Notes to financial statements.

Additional information and exact wording can be found in the Articles of Incorporation of Adecco S.A. (Internet: www.aoi.adecco.com).

2.4 Shares and participation certificates

Adecco S.A.’s shares have a par value of CHF 1 each. All shares are fully paid-up registered shares and bear the same dividend and voting rights. Pursuant to Art. 7 of the Articles of Incorporation (Internet: www.aoi.adecco.com), the right to vote and all other rights associated with a registered share may only be exercised by a shareholder, usufructuary or nominee who is registered in the share register as the shareholder, usufructuary or nominee with right to vote. Some interests in shares are held by investors in the form of American Depository Receipts (“ADRs”).

As of December 31, 2005, there were no outstanding participation certificates.

2.5 Bonus certificates

Adecco S.A. has not issued bonus certificates (“Genussscheine”).

2.6 Limitations on registration, nominee registration, and transferability

Each Adecco S.A. share represents one vote.

Acquirers of registered shares are recorded in the share register as shareholders with the right to vote upon request, provided that they declare explicitly to have acquired the registered shares in their own name and for their own account (Art. 4 sec. 2 of the Articles of Incorporation; Internet: www.aoi.adecco.com). Upon such declaration, any person or entity will be registered with the right to vote.

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 (see Art. 4 sec. 3 of the Articles of Incorporation;


Corporate Governance

Internet: www.aoi.adecco.com). The Board of Directors may grant exemptions to this registration restriction (see Art. 4 sec. 6 of the Articles of Incorporation; Internet: www.aoi.adecco.com). In 2005, there were no such exemptions granted.

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 together to circumvent the regulations concerning the nominees (especially as syndicates), are treated as one nominee respectively as one person within the meaning of paragraph 3 of this article (see Art. 4 sec. 4 of the Articles of Incorporation; Internet: www.aoi.adecco.com).

For further information regarding the procedure and conditions for cancelling statutory privileges and limitations on transferability of shares, see the Articles of Incorporation; Internet: www.aoi.adecco.com.

2.7 Convertible notes and options

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, 2013. 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 October 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 have 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 94.50. If all bonds are converted, Adecco S.A. would issue an additional 9,523,810 shares (Art. 3quater of the Articles of Incorporation; Internet: www.aoi.adecco.com). If not converted, the Company will pay a redemption price of up to 116.05% of the principal amount of the bonds.

The Company has several stock option plans whereby employees and members of the Board of Directors receive options to purchase shares. There are global and country-specific plans in place.

Certain options granted under the plans are tradeable at the SWX Swiss Exchange (virt-x). 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 in the public market or exercising the option to receive an Adecco S.A. share. If the option holder chooses to sell the option in the public market, the options may be held by a non-employee or non-director of the Company. The trading and valuation of the tradeable options is managed by a Swiss bank.

The purpose of the plans is to furnish incentives to selected employees and directors, to encourage employees to continue employment with the Company, and to align the interests of selected employees and directors with those of the shareholders. Upon exercise of options, Adecco S.A. may deliver either shares from its conditional capital, of which up to 5,822,915 shares are reserved for this purpose, or treasury shares bought back in the public market.

The Nomination & Compensation Committee is responsible for making proposals, based upon the recommendations of Senior Management, to the Board of Directors regarding the individuals to whom options shall be granted, the size of the option grant for each optionee, the conditions, the exercise price, and the grant date. The Board of Directors must approve all the option grants as well as the conditions thereof. The exercise price for one share is generally fixed at or above the fair market value at the date of grant. Depending on the conditions of the plans, options vest with certain waiting periods of up to five years and are subsequently exercisable over a number of years. All options may be exercised and tradeable options may be sold at any time within the exercise period except for limitations set forth in the Company Insider Trading Statement of Policy and by regulatory authorities. During 2005, no stock options were granted to directors, officers or employees of the Company.

Except under certain circumstances, unvested options granted under a plan lapse upon termination of employment or Board of Directors membership. The Board of Directors may modify, amend, suspend, or discontinue the plans.


		Corporate Governance


Options outstanding as of December 31, 2005:

Exercise price per share (in CHF)	Number	Weighted-average remaining life (in years)	Weighted-average exercise price per share (in CHF)

43–53	904,515	1.1	51
54–84	4,725,333	4.4	66
85–107	4,817,232	2.7	90
108–170	588,816	2.5	109
171–298	9,450	2.0	176
43–298	11,045,346	3.3	78



For further details, see Note 11 in the Notes to consolidated financial statements. 3. Board of Directors Areas of responsibility of the Board of Directors and the management are defined by law and by the Articles of Incorporation of Adecco S.A. (Internet: www.aoi.adecco.com). As of December 31, 2005, the Board of Directors of Adecco S.A. consisted of nine members. Under Swiss law, a majority of the members of the Board of Directors of a Swiss company must be citizens of Switzerland or an EU or EFTA country and be domiciled in Switzerland. Adecco S.A. has been granted an exemption from this requirement. 3.1 Biographies of members of the Board of Directors The following table sets forth the name, year of birth, entry date and terms of office, nationality, professional education, and principal positions of those individuals who served as members of the Board of Directors as of December 31, 2005: Jakob Baer (1944) – Member of the Board of Directors, Chairman of the Audit Committee, and member of the Corporate Governance Committee (all since October 1, 2004); term of office ends on the day of the General Meeting of Shareholders 2006. – Swiss nationality. – Graduated Dr. iur. from the University of Bern, Switzerland. – Mr. Baer was member of the KPMG Switzerland executive team from 1992 until 1994, from then until September 30, 2004, KPMG Switzerland’s Chief Executive and member of KPMG’s European and International Leadership Board. Non-executive Board member of Swiss Re¹, Switzerland, Allreal Holding AG¹, Switzerland, Emmentalische Mobiliar-Versicherungs-Gesellschaft, and of IFBC – Integrated Financial Business Consulting AG, all Switzerland. Jürgen Dormann (1940) – Vice-Chairman of the Board of Directors since November 2005, member of the Board of Directors, and member of the Nomination & Compensation Committee since June 2004; term of office ends on the day of the General Meeting of Shareholders 2006. – German nationality. – Masters degree in Economics from the University of Heidelberg, Germany. – Mr. Dormann held a series of positions with Hoechst AG and held the position of Chief Executive Officer from 1994 until 1999. In 1999, Mr. Dormann was appointed Chairman of the Management Board of Aventis and in May 2002, was elected Chairman of the Supervisory Board of Aventis. With the creation of Sanofi-Aventis in 2004 he was elected Vice-Chairman of Sanofi-Aventis¹. A member of the Board of ABB Ltd.¹, Switzerland, since 1998, he became ABB’s Chairman of the Board in 2001 and served as Chief Executive Officer from 2002 to 2004. Mr. Dormann is a member of the Board of Directors of IBM¹, USA, and of BG-Group¹, UK. Philippe Foriel-Destezet (1935) – Member of the Board of Directors since August 1996, Co-Chairman of the Board of Directors from June 2004 until November 2005; term of office ends on the day of the General Meeting of Shareholders 2006. – French nationality. – Graduated from HEC Paris; Chevalier de la Légion d’Honneur. – Founder of Ecco S.A. in France in 1964. Joint Chairman of the Board of Directors of Adecco S.A. from August 1996 to April 2002. – Board memberships: Akila Finance S.A., Luxembourg (Chairman).


Corporate Governance

Klaus J. Jacobs²(1936)

– Chairman of the Board of Directors and Chief Executive Officer since November 2005, member and Co-Chairman of the Board of Directors from June 2004 until November 2005; term of office ends on the day of the General Meeting of Shareholders 2006.

– Swiss nationality.

– Dr. h.c. from the University of Basel, Switzerland.

– Chairman of ADIA from 1992 to 1996, member and Joint Chairman of the Board of Directors of Adecco S.A. from August 1996 to April 2002.

– Board memberships: member of the Board of Jacobs Foundation.

– Member of the World Scout Foundation, co-founder and member of the National Park of Hohe Tauern.

Philippe Marcel (1953)

– Member of the Board of Directors since April 2002; term of office ends on the day of the General Meeting of Shareholders 2006.

– French nationality.

– Graduated from EM Lyon (Ecole de Management) in France.

– As a member of the Board of Directors, Mr. Marcel performed executive functions until September 2004. Until his appointment to the Board of Directors in 2002, he was a member of the Senior Management team of the Company. In the Executive Committee, Mr. Marcel was Zone Manager for France, Morocco and South Africa. He was Chairman of Adecco South Africa and Adecco Morocco and CEO of Adecco France.

– Board memberships: Adecco France (Chairman), April Group¹, France (member), GL Events¹, France (member).

Francis Mer (1939)

– Member of the Board of Directors, Chairman of the Corporate Governance Committee, and member of the Nomination & Compensation Committee (all since June 2004); term of office ends on the day of the General Meeting of Shareholders 2006.

– French nationality.

– Graduated from the Ecole Polytechnique; Commandeur de la Légion d’Honneur.

– Mr. Mer joined St. Gobain Group in 1970 and was appointed Chairman and Chief Executive Officer of Pont-au-Mousson S.A. in 1982.

– Chairman of the steel group Usinor Sacilor from 1986 until 2002 and Chairman of Eurofer from 1990 until 1997. Co-Chairman of the Board of Arcelor¹in 2002. From 1997 to 1998, Chairman of the International Iron and Steel Institute.

– Board memberships: Alstom S.A.¹, France (from 2005), Inco Ltd.¹, Canada (from 2005), Rhodia SA¹, France, member of the Supervisory Board from 2004.

– French Minister of Economy, Finance and Industry from May 2002 until March 2004.

– Fondation pour l’Innovation Politique, France, Member of the Supervisory Board.

Thomas O’Neill (1945)

– Member of the Board of Directors and member of the Audit Committee (both since June 2004); term of office ends on the day of the General Meeting of Shareholders 2006.

– Canadian nationality.

– Graduated from Queen’s University in Kingston, Ontario, with a Bachelor of Commerce degree in 1967 and received his Chartered Accountant designation in 1970, FCA designation in 1987. Honorary LLD from Queen’s University Kingston, Canada in 2005.

– In 1967, Mr. O’Neill joined the audit staff of Price Waterhouse in Toronto and became a partner of Price Waterhouse in 1978. From 1990 to 1996, Mr. O’Neill acted as Chief Operating Officer, and from 1996 to 1998 as Chief Executive Officer for Price Waterhouse, Canada. From 1998 to 2000, he was CEO of the new PricewaterhouseCoopers LLP in Canada and served as a member of PwC’s Global Oversight Board. In 2000, he assumed the role of Chief Operating Officer of the PricewaterhouseCoopers LLP global organisation. He assumed the role of Chief Executive Officer of PwC Consulting (global) in January 2002. In May 2002, Mr. O’Neill was appointed Chairman of PwC Consulting (global), a role that he held until October 2002, when the business was acquired by IBM.

– Board memberships: BCE Inc.¹, Canada; Dofasco Inc.¹(until February 21, 2006), Canada; Loblaw Companies Ltd.¹, Canada; Nexen Inc.¹, Canada; Ontario Teachers’ Pension Plan.

– Not-for-profit board memberships include: Queen’s University Kingston, Canada (Vice-Chairman) and St. Michael’s Hospital, Canada (member).

1 Listed company.

2 Executive member of the Board of Directors since November 2005.


		Corporate Governance

David Prince (1951)

– Member of the Board of Directors, member of the Audit Committee, and member of the Corporate Governance Committee (all since June 2004); term of office ends on the day of the General Meeting of Shareholders 2006.

– British nationality.

– Awarded management trainee scholarship with British Gas and attended Business School in the U.K.

– Associate member of CIMA.

– Early career included four years at Cable & Wireless in both general management and group marketing roles before going on to spend some 12 years working in the Hong Kong telecommunications market, where Mr. Prince held a variety of Senior Management and public company board positions.

– From 1994 to 2000, he was Group Finance Director and later Deputy CEO of Hong Kong Telecom.

– In 2000, Mr. Prince went on to join PCCW plc as Group CFO before becoming Group Finance Director of Cable & Wireless in 2002.

– Board memberships: Member of the Board of Directors and Chairman of the Audit Committee for ARK Therapeutics¹, U.K. Member of the Board of Directors of SmarTone Telecommunications Holdings Ltd.¹, Hong Kong.

Peter V. Ueberroth (1937)

– Member of the Board of Directors and Chairman of the Nomination & Compensation Committee (both since June 2004); term of office ends on the day of the General Meeting of Shareholders 2006.

– U.S. nationality.

– Graduated San Jose University, California. Awarded the French Légion d’Honneur and received the Olympic Order-Gold from the International Olympic Committee.

– In 1962, founded First Travel Corporation.

– From 1980 to 1984, Mr. Ueberroth served as President of the Los Angeles Olympic Organizing Committee (LAOOC).

– He served as the sixth Commissioner of Major League Baseball from 1984 to 1989.

– Mr. Ueberroth served as Co-Chairman of Doubletree Corporation from 1993 to 2000 and since 1999 has served as owner and Co-Chairman of the Pebble Beach Company.

– Since 1990, he has acted as the Managing Director of Contrarian Group, Inc. (investments in small and medium-size companies, taking management roles and providing strategic guidance).

– Board memberships: Chairman of the Board of Ambassadors International (AMIE)¹, USA; member of the Board of Directors of The Coca-Cola Company¹, USA; and of Hilton Hotels Corporation¹, USA.

– Chairman 2005 United States Olympic Committee.

1 Listed company.

3.2 Other activities and vested interests of the Board of Directors

Except those described in section 3.1, no permanent management/consultancy functions for significant domestic or foreign interest groups and no official functions or political posts are held by the members of the Board of Directors of Adecco S.A. The Board of Directors assesses independence of its members.

With the exception of Klaus J. Jacobs (CEO since November 2005), all members of the Board of Directors are non-executive. The members of the Board of Directors do not have important business connections with Adecco S.A. or with any of its subsidiaries or affiliates.

A family member of the Chairman & CEO, Mr. Klaus J. Jacobs, is a partner with the law firm White & Case. Adecco S.A. from time to time procures legal services from said firm. The fee charged is based on the amount of time spent by the firm.

In addition, 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.

3.3 Cross-involvement

Cross-involvements at the level of the Board of Directors of Adecco S.A. and other listed companies exist according to the information provided in the table under 3.1 “Biographies of members of the Board of Directors”.


Corporate Governance

3.4 Elections and terms of office

Pursuant to the Articles of Incorporation, the Board of Directors consists of five to nine members (Art. 20 sec. 1 of the Articles of Incorporation; Internet: www.aoi.adecco.com). Members of the Board of Directors are elected for a term of office of one year, until the date of the next General Meeting of Shareholders, and may be re-elected for successive terms (Art. 20 sec. 2 and 3 of the Articles of Incorporation; Internet: www.aoi.adecco.com). Adecco S.A.’s Articles of Incorporation do not limit the number of terms a member may be re-elected to the Board of Directors. Candidates to be elected or re-elected to the Board of Directors are proposed by the Board of Directors to the General Meeting of Shareholders.

3.5 Internal organisation structure

The Board of Directors holds the ultimate decision-making authority of Adecco S.A. for all matters except those reserved by law or the Articles of Incorporation to the shareholders. It determines the overall strategy of the Company and supervises Senior Management. The Board of Directors operates under the direction of the Chairman and the Vice-Chairman who are appointed by the Board of Directors. Currently, the Board of Directors is composed of one executive and eight non-executive members. The agenda of the Board of Directors meetings is set by the Chairman. Any member of the Board of Directors may request that an item be included on the agenda. Members of the Board of Directors are provided, in advance of meetings, with adequate materials to prepare for the items on the agenda. The Board of Directors recognises the importance of being fully informed on material matters involving the Company and seeks to ensure that it has sufficient information to make appropriate decisions through inviting members of Senior Management to report on their areas of responsibility, conducting regular meetings of the respective committees with the management, and retaining outside consultants and external auditors in order to review the business, as well as through regular distribution of important information to its members. Decisions are taken by the Board of Directors as a whole, with the support of its three committees described below (the Audit Committee, the Corporate Governance Committee, and the Nomination & Compensation Committee). However, if a member has a personal interest in a matter, other than an interest in his capacity as a shareholder of Adecco S.A., the member of the Board of Directors has to abstain from voting. Amongst others, the Board of Directors has established Statements of Policy on Insider Trading as well as on Conflicts of Interest. The compliance with all Statements of Policy is closely monitored. Each committee has a written charter outlining its duties and responsibilities. Committee members are provided, in advance of meetings, with adequate materials to prepare for the items on their agenda.

Attendance at meetings & phone conferences during 2005:


	Full Board of Directors	Audit Committee	Corporate Governance Committee	Nomination & Compensation Committee

Number of meetings & phone conferences	14	12	4	4
Jakob Baer	13	12	4
Jürgen Dormann	12			4
Philippe Foriel-Destezet	13	11 ³	4 ³	4 ³
Klaus J. Jacobs	14	9 ¹	3 ¹	4 ¹
Philippe Marcel	13			3 ²
Francis Mer	13		4	4
Thomas O’Neill	11	12
David Prince	14	12	4
Peter V. Ueberroth	10			3

1 Guest ex officio, without voting right; 2 Guest, without voting right; 3 Guest ex officio, without voting right, until November 2005



				The Board of Directors has discussed and assessed its own and its members’ performance. The Board was found to be efficiently and appropriately organised.


		Corporate Governance


				3.5.1 Audit Committee (“AC”) The AC’s primary responsibility is to assist the Board of Directors in carrying out its responsibilities as they relate to the Company’s accounting policies, internal controls, and financial reporting practice, thus overseeing management regarding the:
				– integrity of the Company’s financial statements and other financial reporting and disclosure to any governmental or regulatory body and to the public and other users thereof;
				– systems of internal accounting and financial and disclosure controls;
				– performance of the Company’s internal audit function;
				– qualifications, engagement, compensation, independence, and performance of the Company’s independent auditors, their conduct of the annual audit and interim reviews, and their engagement for any other services (see also Section 8 “Auditors”); and
				– the Company’s compliance with legal and regulatory requirements relating to accounting, auditing, financial reporting and disclosure, or other financial matters.

				The AC held 12 meetings and phone conferences during the full year 2005. For specific subjects, the CEO represents Senior Management in the meetings. The head of Internal Audit and the lead partner of the external auditors typically participate in the meetings.

				As of December 31, 2005, the members of the AC were:


						Name		Position
						Jakob Baer		Chairman of the AC
						Thomas O’Neill		Member
						David Prince		Member

3.5.2 Corporate Governance Committee (“CGC”)

The CGC’s primary responsibility is to assist the Board of Directors in carrying out its responsibilities as they relate to Corporate Governance principles. The CGC is charged with developing and recommending appropriate Corporate Governance principles and independence rules to the Company as well as reviewing and reassessing such principles and rules to ensure that they remain relevant and in line with legal and stock exchange requirements. Recommendations as to best practice are also reviewed to ensure compliance.

The CGC held 4 meetings in 2005. For specific subjects, the CEO represents Senior Management in the meetings.

As of December 31, 2005, the members of the CGC were:


						Name		Position
						Francis Mer		Chairman of the CGC
						Jakob Baer		Member
						David Prince		Member


Corporate Governance


						Name		Position
						Peter V. Ueberroth		Chairman of the NCC
						Jürgen Dormann		Member
						Francis Mer		Member


				3.6 Responsibilities of the Board of Directors and Senior Management In addition to the determination of the overall strategy of the Company and the supervision of Senior Management, the Board of Directors addresses key matters such as acquisitions, long-term financial commitments, management structure, risk management, budget approval, compensation policy, corporate identity policy, guidelines, and policy statements. The Board of Directors approves the strategy of the Company and the annual financial plans developed by Senior Management. With support of the AC, it reviews and approves the statutory financial statements of Adecco S.A. and the consolidated accounts of the Company. The Board of Directors also considers other matters of strategic importance to the Company. Subject to the powers reserved to the Board of Directors set out above, the Board of Directors has delegated the day-to-day business to the Senior Management of the Company. The Senior Management is responsible for the development and execution of the strategic and financial plans as approved by the Board of Directors. The Chief Executive Officer represents the overall interests of the Company vis-à-vis third parties.

				3.7 Information and control instruments vis-à-vis Senior Management The Board of Directors’ instruments of information and control vis-à-vis Senior Management consist of the following main elements:
				– management information systems, which include the monthly reporting on performance, budget, and the assessment of extraordinary events; and
				– Internal Audit, reporting to the Chairman of the Audit Committee, which includes regular reporting on risk management matters.

				The CEO, or if so instructed by the CEO, the CFO, regularly informs the Board of Directors about all matters which are relevant for the exercise of the competencies of the Board of Directors and its committees. Extraordinary events have to be reported immediately in writing. In addition, the Chief Financial Officer provides to all members of the Board of Directors monthly detailed financial results and quarterly results of the Company within 20 to 30 working days following the end of each monthly reporting period or the end of each quarterly reporting period. Each member of the Board of Directors may ask the CEO or the CFO for information on the course of the business of the Company and on individual business transactions at any time. The Board of Directors supervises Senior Management and monitors its performance through reporting and controlling processes. Internal Audit assists the Board of Directors in exercising its controlling and supervisory duties.


		Corporate Governance



				4. Senior Management 4.1 Members of Senior Management The following table sets forth the name, year of birth, year of entry to the Company, nationality, professional education, and principal positions of those individuals who served as members of Senior Management of the Company as of January 1, 2006.

				Klaus J. Jacobs (1936)
				– Chairman & Chief Executive Officer of the Company since November 2005 (before: Co-Chairman of the Board of Directors). See short biography in section 3.1 “Biographies of members of the Board of Directors”.

				Jim Fredholm (1952)
				– Chief Financial Officer of the Company since June 2004, Head of Global Business Line Adecco Finance & Legal since January 2006.
				– U.S. nationality.
				– Graduated from the University of Texas in the U.S. with a Bachelor of Business Administration in Accounting and Finance. A U.S. Certified Public Accountant since 1981.
				– Previously with Deutsche Post World Net (“DPWN”), Mr. Fredholm served for seven years, most recently as Managing Director of the STAR Programme, and Global Integration Officer of DHL. Chief Financial Officer of the Swiss listed global logistics group DANZAS from 1997 until 2002. Between 1987 and 1997, Mr. Fredholm worked in senior financial positions based in London for several British companies including Grand Metropolitan and Somerfield. Prior to 1987, Mr. Fredholm worked in the high-tech industry in several international finance roles based in Germany, the U.K. and the U.S.

				Jean-Manuel Bullukian (1964)
				– Chief Information Officer, Head of Global Business Line Adecco Information Technology and Head of Global Business Line Adecco Engineering & Technical since January 2006.
				– President and Chief Operating Officer of the Ajilon Professional division January to December 2005.
				– French nationality.
				– Holds a Master degree in Business Administration from ESSEC, France.
				– From 2002 to 2004, Global Head of Transformation Consulting Capgemini; from 2001 to 2002, European Head of Supply Chain Capgemini.

				Ekkehard Kuppel (1962)
				– Head of Global Business Line Adecco Human Capital Solutions since January 2006.
				– President and Chief Operating Officer of LHH Career Services division from February to December 2005.
				– German nationality.
				– Dr. oec. (University of St. Gallen), DEA (Paris Dauphine), Master in Engineering (University of Karlsruhe).
				– From 2002 to 2004, Managing Director KJ Jacobs AG, Zurich (now Jacobs Holding AG); from 2000 to 2002, CEO 20 Minuten Holding, Zurich; and from 1992 to 2000, Principal at McKinsey & Company, Buenos Aires and Munich.

				Thomas Flatt (1967)
				– Chief Human Resources Officer since October 2004 and Head of Global Business Line Adecco Medical & Science since January 2006.
				– Swiss nationality.
				– Graduated in Medicine at University of Basel (Switzerland), Doctorate in medical computer sciences, MBA INSEAD (Fontainebleau, France).
				– Resident in surgery department in two Swiss hospitals 1991 to 1995; Project Manager at the Boston Consulting Group 1995 to 2000; various senior management positions with Swisscom, member of Group Executive Committee 2000 to 2003.
				– Currently member of the board of directors of Abraxas AG, President of SwissICT (Swiss IT association).


Corporate Governance


				Jan-Pieter Gommers (1966)
				– Head of Global Business Line Adecco Sales, Marketing & Events since January 2006.
				– Dutch nationality.
				– Holds a degree in Marketing from the Dutch Institute of Marketing and a degree in Communication.
				– From 1988 to 1997, with 3M in various marketing functions.
				– From 1997 to 2000, Randstad Work Solutions: Responsible for marketing and business development of the professional business division Europe. During 2000 to 2004, acting as an independent consultant. With Adecco since 2004 as sales and marketing director for Adecco Netherlands.

				Gonzalo Fernández-Castro (1973)
				– Chief Marketing & Business Development Officer since January 2006.
				– Chief Marketing Officer from March to December 2005.
				– Chief of Staff from July 2004 to March 2005.
				– Argentinean nationality.
				– MBA Harvard Business School; Industrial Engineer ITBA.
				– Previously with KJ Jacobs AG (now Jacobs Holding AG), Zurich, Switzerland as Investment Manager overseeing its equity participation in Adecco (2002 to 2004).
				– Founding partner of LID Group (Venture Capital) in Argentina and Brazil (1999 to 2001), and consultant at McKinsey & Company (1997 to 1999).

				As per end of December 2005, Senior Management consisted of the following individuals: Klaus J. Jacobs, Jim Fredholm, Sergio Picarelli, Ekkehard Kuppel, and Jean-Manuel Bullukian.

				4.2 Other activities and vested interests Except those described above in 4.1 “Members of Senior Management”, no further permanent management/consultancy functions for significant domestic or foreign interest groups and no official functions or political posts are held by the members of Senior Management of Adecco S.A.

				4.3 Management contracts There are no significant management contracts between the Company and external providers of services.

				5. Compensation, shareholdings, and loans
				5.1 The Company’s compensation philosophy
				The Company’s compensation philosophy seeks to recognise and reward performance. Taking into consideration both individual and business unit contributions, the programmes are designed to attract, retain, motivate, and reward employees in order to achieve the Company’s financial and strategic objectives and also to ensure that the total compensation opportunity is internally equitable and externally competitive.
				The Company’s compensation programme for Senior Management includes the following five key components:
				– base salary
				– short-term incentive (bonus)
				– long-term incentive
				– social charges, pension plan contributions, and fringe benefits
				– transitional arrangements (special conditions for assignments abroad)

				The compensation of Senior Management is authorised by the full Board of Directors, after recommendation by the NCC.


		Corporate Governance


Corporate Governance


in EUR (exept shares) Name and position	Term of office in 2005	Base salary	Bonus	Other	Total	Shareholding as of 31.12.2005



Members of the Board of Directors
Klaus J. Jacobs Chairman & CEO Co-Chairman	since Nov. 2005 until Nov. 2005				–	7,000,000¹

Jürgen Dormann Vice-Chairman Board member	since Nov. 2005 until Nov. 2005	193,842			193,842	6,801

Philippe Foriel-Destezet Board member Co-Chairman	since Nov. 2005 until Nov. 2005				–	1²

Jakob Baer	since Jan. 2005	290,763			290,763	2,062

Philippe Marcel	since Jan. 2005	400,734		8,284	409,018	134,450⁴

Francis Mer	since Jan. 2005	290,763			290,763	1

Thomas O’Neill	since Jan. 2005	193,842			193,842	2,001

David Prince	since Jan. 2005	193,842			193,842	1

Peter V. Ueberroth	since Jan. 2005	290,763			290,763	1


Members of Senior Management
Klaus J. Jacobs CEO	see above

Jim Fredholm CFO	since Jan. 2005	441,799	581,623	130,330	1,153,752	–

Sergio Picarelli COO Adecco Staffing	since Jan. 2005 until Dec. 2005	484,606	203,682	71,103	759,391	50

Jean-Manuel Bullukian COO Ajilon Professional	since Jan. 2005	361,955	361,955	12,183	736,093	–

Ekkehard Kuppel³ COO LHH Career Services	since Feb. 2005	313,917	102,736	14,618	431,271	–

Jérôme Caille (CEO until November 2005)	until Nov. 2005	874,229	969,212	2,017,771	3,861,212	28,449

Ray Roe³	until Jan. 2005	34,901	39,472	10,388	84,761	–

Shares are included in the total shares held by a group to which Klaus J. Jacobs is a member. Further, see section 1.2.

Further, see section 1.2 regarding shares held by Akila Finance S.A., Luxembourg.

Compensation received in the fiscal year 2005 for activities as member of the Senior Management only, i.e. excluding compensation received in relation to other positions prior or after such activity as member of the Senior Management.

Of which 79,080 shares were held by members of Philippe Marcel’s family and 15,420 were held by an investment company in which Philippe Marcel has a 50% ownership and parties related to Philippe Marcel have a participation as well.

Corporate Governance


Year of grant	Last year of expiry	Strike price (CHF)	Granted	Exercised	Lapsed	Held	Held by Philippe Marcel	Held by Sergio Picarelli¹

1997	2006	43.00	1,200	(960)		240		240
1998	2008	53.30	176,000	(70,600)		105,400	105,000	400
1999	2008	102.20	144,300		(48,134)	96,166	95,866	300
2000	2009	108.00	1,000		(200)	800		800
2001	2009	85.27	425,000			425,000	250,000	175,000
2002	2010	60.00	87,500			87,500		87,500
2003	2011	60.00	100,000			100,000	100,000
2004	n.a.	n.a.
2005	n.a.	n.a.
Total			935,000	(71,560)	(48,334)	815,106	550,866	264,240


1 Sergio Picarelli relinquished his function as a member of Senior Management in December 2005.

The other members of the Board of Directors or Senior Management have not been granted and did not hold stock options during 2005 or as of December 31, 2005, respectively.

One option entitles the holder to purchase one Adecco S.A. share under the conditions as out-lined 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 section 2.7 “Convertible notes and options”.

For additional information on stock options, see section 2 “Capital structure”.


Corporate Governance


				5.7 Additional fees and remunerations No additional fees (including consultancy honorariums [fees], other contracts/agreements) or other remuneration for services performed during 2005 were conferred by the Company to members of the Board of Directors and closely linked parties or to members of Senior Management and closely linked parties.

				5.8 Loans granted to governing bodies (Board of Directors, Senior Management, closely linked parties) The Company, as of December 31, 2005, has no guarantees or loans outstanding or advances or credits granted to members of the Board of Directors or to members of Senior Management, including parties closely linked to such persons.

				5.9 Highest total sum of compensation and stock option allotments conferred to a member of the Board of Directors during 2005 The highest total sum of compensation conferred to a member of the Board of Directors during 2005 amounted to EUR 0.4 million. Neither shares nor stock options were allotted to members of the Board of Directors during 2005.

				6. Shareholders’ rights See also the Articles of Incorporation (Internet: www.aoi.adecco.com).

				Information rights Swiss law allows any shareholder to obtain information from the Board of Directors during the General Meeting of Shareholders provided no preponderant interests of Adecco S.A., including business secrets, are at stake and the information requested is required for the exercise of shareholders’ rights. Shareholders may only obtain access to the books and records of Adecco S.A. if authorised by the Board of Directors or the General Meeting of Shareholders. Should Adecco S.A. refuse to provide the information requested, shareholders may seek a court order to gain access to such information. In addition, if the shareholders’ inspection and information rights prove to be insufficient, each shareholder may petition the General Meeting to appoint a special commissioner who shall examine certain specific transactions or any other facts in a so-called special inspection. If the General Meeting approves such a request, Adecco S.A. or any shareholder may within 30 days ask the court of competent jurisdiction at Adecco S.A.’s registered office to appoint a special commissioner. Should the General Meeting deny such a request, one or more shareholders who hold at least 10% of the equity capital, or shares with an aggregate nominal value of at least CHF 2 million, may petition the court of competent jurisdiction to appoint a special commissioner. Such request must be granted and a special commissioner appointed if such court finds prima facie evidence that the Board of Directors breached the law or did not act in accordance with Adecco S.A.’s Articles of Incorporation. The costs of the investigation are generally allocated to Adecco S.A. and only in exceptional cases to the petitioner(s).

				Dividend payment 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. CO). Any remaining net profits may be distributed as dividends, pursuant to a shareholders’ resolution. A claim for payment of dividends declared is time-barred after a period of five years.
				The payment and amount of dividends on Adecco S.A. shares are subject to the recommendation of Adecco S.A.’s Board of Directors and the approval of the holders of Adecco S.A. shares at the General Meeting of Shareholders. The method for determining the amounts of capital, reserves, and retained earnings for purposes of determining allowable dividend or retention of reserves is fixed in accordance with Swiss law.


		Corporate Governance


				Liquidation and dissolution The Articles of Incorporation do not limit Adecco S.A.’s duration. Adecco S.A. may be dissolved and liquidated at any time by a resolution of a General Meeting of Shareholders taken by at least two-thirds of the votes allocated to all issued shares (Art. 27 of the Articles of Incorporation; Internet: www.aoi.adecco.com). Under Swiss law, Adecco S.A. may also be dissolved by a court order upon the request of holders of Adecco S.A. shares representing at least 10% of Adecco S.A.’s share capital who assert significant grounds for the dissolution of Adecco S.A. The court may also grant other relief. The court may at all times upon request of a shareholder or obligee decree the dissolution of Adecco S.A. if the required corporate bodies are missing. Adecco S.A. may also be dissolved by adjudication of bankruptcy. Swiss law requires that any net proceeds from a liquidation of Adecco S.A., after all obligations to its creditors have been satisfied, be used first to repay the nominal equity capital of Adecco S.A. Thereafter, any remaining proceeds are to be distributed to the holders of Adecco S.A. shares in proportion to the nominal value of those Adecco S.A. shares. Further capital calls by Adecco S.A. Adecco S.A.’s share capital is fully paid up. Hence, the shareholders have no liability to provide further capital to Adecco S.A. Pre-emptive rights Under Swiss law, holders of Adecco S.A. shares have pre-emptive rights to subscribe to any issuance of new Adecco S.A. shares in proportion to the nominal amount of Adecco S.A. shares held by that holder. A resolution adopted at a General Meeting with a supermajority may suspend these pre-emptive rights for significant and material reasons only. Pre-emptive rights may also be excluded or limited in accordance with Adecco S.A.’s Articles of Incorporation (Internet: www.aoi.adecco.com).
				6.1 Voting rights and representation restrictions For further details see section 2.6 “Limitations on registration, nominee registration, and transferability”. Pursuant to the Articles of Incorporation, a shareholder may be represented by (i) the shareholder’s legal representative, (ii) a third person who need not be a shareholder with written proxy, (iii) a corporate body of Adecco S.A., (iv) an independent proxy, or (v) a depository (Art. 17 sec. 2 of the Articles of Incorporation). At a General Meeting of Shareholders, votes are taken by poll.
				6.2 Legal and statutory quorums There is no provision either in the Articles of Incorporation or under Swiss law requiring a quorum to be present for a General Meeting of Shareholders except for the one according to Art. 27 of the Articles of Incorporation and those implemented in the new Merger Act. The General Meeting shall constitute a quorum regardless of the number of shareholders present and regardless of the number of shares represented (Art. 18 sec. 1 of the Articles of Incorporation; Internet: www.aoi.adecco.com). Holders of an absolute majority of Adecco S.A. shares represented in the General Meeting must vote in favour of a resolution in order for such a resolution to be adopted. In addition, based on the Articles of Incorporation, in order to adopt resolutions regarding:
				– changes to Adecco S.A.’s corporate purposes;
				– the creation of shares with privileged voting rights;
				– restrictions on the transferability of registered shares;
				– an authorised or conditional increase in Adecco S.A.’s equity capital;
				– an increase in Adecco S.A.’s equity capital by recourse to equity, against contribution in kind,or for the acquisition of assets and the granting of special benefits;
				– restriction or elimination of subscription rights;
				– relocation of Adecco S.A.’s domicile; or
				– dissolution of Adecco S.A. without liquidation


Corporate Governance


		Corporate Governance


Corporate Governance

9. Information policy

Adecco S.A. Annual General Meeting of Shareholders

The Annual General Meeting of Shareholders for the fiscal year 2005 is planned to be held on May 23, 2006, at Beaulieu Lausanne Centre de Congrès et d’Expositions, in Lausanne, Switzerland. The venue details will be published in the “Swiss Official Gazette of Commerce” (“Schweizerisches Handelsamtsblatt”) at least 20 days before the meeting.

Adecco S.A. provides quarterly media releases on the Company’s consolidated and divisional results.

Further information

For ordering a free copy of this Annual Report and for further information, see the contact addresses as listed on the inside back cover of the Annual Report (Internet: http://contacts.adecco.com).

Adecco S.A. is subject to the informational requirements of the U.S. Securities Exchange Act of 1934, as amended. In accordance with these requirements, Adecco S.A. files an Annual Report on Form 20-F with and furnishes other information to the U.S. Securities and Exchange Commission (“SEC”). Copies of the Company’s reports and other information may be inspected and copied at the SEC’s Public Reference Room at 100 F. Street, N.E., Washington D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at +1-800-SEC-0330. The SEC maintains an internet site that contains other reports and other information regarding the Company and other issuers that file electronically with the SEC. The address of the SEC internet site is www.sec.gov.

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				Financial Review

				Adecco Group

		61		Operating and financial review and prospects

		78		Selected financial information

		79		Consolidated financial statements

		84		Notes to consolidated financial statements

		119		Report of the group auditors

				Adecco S.A. (Holding Company)

		120		Financial statements

		122		Notes to financial statements

		126		Report of the statutory auditors

		127		Major consolidated subsidiaries


		Financial Review

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In millions, except share and per share amounts


				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.
				During 2005, the Company’s services were marketed and managed through three divisions: Adecco Staffing, Ajilon Professional, and LHH Career Services. In January 2006, the division structure was replaced by a geographical structure combined with newly introduced global business lines, through which the Company’s main professional services will now be marketed and managed: Adecco Finance & Legal; Adecco Engineering & Technical; Adecco Information Technology; Adecco Medical & Science; Adecco Sales, Marketing & Events; and Adecco Human Capital Solutions. The Company’s country heads continue to manage directly the industrial and office staffing business, while supporting the expansion of and driving efficiency across the global professional business lines at the country level.

				1.1 Business and industry background
				The Company is the global leader in human resource services including temporary staffing and permanent placement, specialist and professional staffing, and career services consulting and outplacement. The Company’s network of 6,600 branches and over 33,000 full-time equivalent employees in over 70 countries and territories at the end of 2005 connects 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 both the needs of small and large business clients as well as those of qualified 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, 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 and the underlying basis for its diverse staffing and human resource services network. Anticipating trends in demand is also important to managing 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 2005 Divisional structure Adecco Staffing
				Adecco Staffing provided flexible temporary staffing and permanent placement services to a broad range of businesses and industries, including the banking, electronics, retail, chemical/ pharmaceutical, manufacturing and telecommunications sectors.

				Ajilon Professional
				Ajilon Professional offered specialised temporary staffing, permanent placement, and consulting services, with particular emphasis in the areas of information technology, finance, accounting and legal, engineering, and high-end clerical support.


Financial Review


				LHH Career Services LHH Career Services provided outplacement, restructuring, and talent solutions services. In 2005, the Adecco Staffing, Ajilon Professional and LHH Career Services divisions generated 88%, 11% and 1% of total revenues, respectively. In 2004, the Adecco Staffing, Ajilon Professional and LHH Career Services divisions contributed 89%, 10% and 1%, respectively, of total revenues. Within the divisions during 2005 management was principally organised by region, defined as North America (United States and Canada), Europe (primarily France, the United Kingdom, Belgium, Germany, Italy, the Netherlands, Spain and Switzerland), Asia Pacific (primarily Japan and Australia), and the Rest of World (primarily Latin America).

				1.3 2005 service lines Revenues and gross profits derived from temporary staffing totalled 94% and 81% in 2005, respectively, compared to 94% and 83% in 2004, respectively. 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. Temporary associates’ salaries and wages comprised 77% and 76% of total temporary staffing direct costs of services in 2005 and 2004, respectively. Social charges and benefits for the Company’s associates accounted for 20% and 21% of total temporary staffing direct costs of services in 2005 and 2004, respectively. Revenues and gross profits derived from outsourcing, outplacement, and permanent placement services totalled 6% and 19% in 2005, respectively, compared to 6% and 17% in 2004, respectively. The terms of outsourcing 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 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.

				1.4 Key performance indicators We monitor operational results through a number of key performance indicators 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 within a service line.
				– Pay rate – an average hourly payroll rate including social charges for temporary staffing services indicating current costs within a service line.
				– Temporary hours sold – the volume, reported on an hourly basis, of temporary staffing services sold.
				– Temporary associates – the yearly average of the weekly number of associates placed in temporary staffing positions.
				– Client base – the yearly average of the weekly number of active clients with whom the Company is working.
				– 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 – the number of full-time employees.
				– Branches – the number of locations where the Company performs human resource services.


		Financial Review

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In millions, except share and per share amounts


				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 foreign subsidiaries are translated into Euro, which the Company adopted as its reporting currency in 2003 in recognition of the significance of the Euro to the Company’s operations. In 2005, 52% 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 2005, the average exchange rate for the U.S. dollar, British pound, Japanese yen, and Swiss franc, which comprised 18%, 9%, 8% and 2% of total revenues, respectively, weakened against the Euro. On the contrary, the average exchange rate for the Australian dollar and Canadian dollar, which each comprised 2% of total revenues, strengthened against the Euro. With the exception of the Swiss franc, the year-end currency exchange rates for currencies used in translating the Company’s consolidated balance sheet, including the U.S. dollar, Japanese yen, British pound, Canadian dollar, and Australian dollar, strengthened against the Euro.

				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 are constant currency comparisons and net debt. These measures are used in addition to and in conjunction with results presented in accordance with U.S. GAAP.
				Constant currency comparisons and net debt measures 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 constant currency comparisons and net debt 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 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.

				2.2 Net debt Management monitors outstanding debt obligations by calculating net debt. Net debt comprises short-term and long-term debt (and off balance sheet debt, to the extent there is any) less cash and cash equivalents and short-term investments.


Financial Review


				The following table reconciles net debt to the most directly comparable financial measures calculated in accordance with U.S. GAAP:


In EUR	31.12. 2005	2.1. 2005



Net debt
Short-term debt and current maturities of long-term debt	550	230
Off balance sheet debt¹
Long-term debt, less current maturities	722	1,272
Subtotal	1,272	1,502
Less:
Cash and cash equivalents	468	879
Short-term investments	380	324
Net debt	424	299

As of December 31, 2005 and January 2, 2005, respectively, there was no off balance sheet debt


				3. Operating results 3.1 Overview 2005 saw a strengthening of the overall business environment and continued growth in demand for staffing and human resource services. Countries undergoing favourable regulatory changes, such as Germany and Japan, experienced strong growth. Demand for outplacement services declined during 2005 as demand for these services weakens during a period of economic strength. The Company’s strategic focus during 2005 was on organic growth through the strengthening of current operations and expansion of the branch network while maintaining tight cost control. The Company concluded 2005 with the following financial highlights: – revenues grew 6 % to EUR 18,303; – operating income increased 16 % to EUR 614; – net income increased 37 % to EUR 453.

				During 2005, the Company made strategic acquisitions in an effort to expand its service offering and to gain market share in existing markets and to develop new markets. This strategy was illustrated in the first quarter of 2005, when the Company announced its investment in Altedia, a leading human resources consulting company in France, which strengthens the LHH Career Services operations. In the second quarter, the Company acquired the Spanish human resources service company Humangroup, which clearly secured the number one temporary staffing market position in Iberia. The addition of StaffWise Legal in the third quarter in the U.S. further strengthens the Company’s professional expertise in the legal market.

				3.2 Revenues Revenues increased 6 % to EUR 18,303 in 2005. This growth was driven primarily by a temporary staffing volume increase as temporary hours sold rose 6% to 1,162 million. During 2005, permanent placement and outsourcing revenues grew at a significantly faster rate than outsourcing revenues thus underscoring the general economic upswing. Permanent placement revenues grew 24 % to EUR 256.
				Currency fluctuations had a minimal impact on 2005 revenues. The fiscal year 2005 included 52 weeks compared to 53 weeks in 2004. In 2005, the Company recognised an increase in revenues of 8 %, excluding the impact of the additional week reported in 2004. The additional week in 2004 added approximately EUR 214 or 1% to revenues.


		Financial Review

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In millions, except share and per share amounts


				The divisional breakdown of revenues is presented below:


			% variance		% variance (2004 52 weeks)
In EUR	2005 (52 weeks)	2004 (53 weeks)	EUR	Constant Currency	EUR	Constant Currency



Divisional breakdown of revenues
Adecco Staffing	16,085	15,287	5	5	7	7
Ajilon Professional	2,026	1,797	13	13	14	15
LHH Career Services	192	155	24	26	25	27
Adecco Group	18,303	17,239	6	6	8	8

Adecco Staffing division

Within the Adecco Staffing division, 5 % revenue growth was driven by an increase of 6 % in temporary hours sold. Permanent placement revenues increased by 32 % to EUR 132. The geographical distribution of total Adecco Staffing division revenues is illustrated below:


			% variance				% variance (2004 52 weeks)
In EUR	2005 (52 weeks)	2004 (53 weeks)	EUR		Constant Currency		EUR		Constant Currency



Adecco Staffing division revenues
France	6,113	6,066	1		1		2		2
Italy	1,034	965	7		7		8		8
Iberia	874	668	31		31		33		33
Benelux	815	744	10		10		11		11
United Kingdom	804	742	8		9		9		10
Other Europe	1,466	1,214	21		20		23		21
Europe	11,106	10,399	7		7		8		8

United States	2,536	2,701	(6	)	(5	)	(5	)	(4	)
Other North America	180	170	6				7		1
North America	2,716	2,871	(5	)	(5	)	(4	)	(4	)

Japan	1,305	1,187	10		13		11		14
Other Asia Pacific	463	432	7		4		8		5
Asia Pacific	1,768	1,619	9		10		10		12

Rest of World	495	398	24		21		26		23

Total Adecco Staffing	16,085	15,287	5		5		7		7

Adecco Staffing Europe

Europe’s revenues rose 7 % to EUR 11,106 in 2005. This overall growth was primarily due to a temporary staffing volume increase as temporary hours sold rose 4 % to 605 million. Additionally temporary staffing services bill rates increased by 2 %.

In France, revenues increased 1% to EUR 6,113 in 2005. Temporary hours sold decreased by 2 % and bill rates increased by 3 %. Year on year the client base also increased by 3 %. Italy recorded revenue growth of 7 % to EUR 1,034 in 2005 as temporary hours sold increased 5 %. In Iberia, revenues grew 31 % boosted by the acquisition of Humangroup to EUR 874 in 2005. Excluding the acquisition, Iberia’s revenues increased 8 %. In the Benelux countries, revenues increased by 10 % to EUR 815 in 2005 resulting from a temporary hours sold increase of 10 %. U.K. revenues grew 8 %, or 9 % in constant currency, to EUR 804 in 2005 as temporary hours sold increased 5 % and bill rates grew 4 %. In the other European countries, Germany achieved strong revenue growth of 13 % to EUR 365 in 2005, reflecting a 16 % growth in temporary hours


Financial Review


	2005	2004	% variance		% variance (2004 52 weeks)
In EUR	(52 weeks)	(53 weeks)	EUR	Constant Currency	EUR	Constant Currency


Ajilon Professional division revenues
United Kingdom	766	681	13	14	14	15

Other Europe	221	192	15	15	17	17

Europe	987	873	13	14	15	15



United States	658	591	11	12	13	14

Other North America	129	107	20	13	23	15

North America	787	698	13	12	14	14



Asia Pacific	252	226	11	10	13	12



Total Ajilon Professional	2,026	1,797	13	13	14	15

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In millions, except share and per share amounts

Financial Review

LHH Career Services division

Within the LHH Career Services division, revenue distribution is illustrated below:


	2005	2004	% variance				% variance (2004 52 weeks)
In EUR	(52 weeks)	(53 weeks)	EUR		Constant Currency		EUR		Constant Currency



LHH Career Services division revenues
Europe	81	26	218		218		222		223
North America	111	129	(14	)	(13	)	(14	)	(12	)
Total LHH Career Services	192	155	24		26		25		27

LHH Career Services experienced an increase in revenues of 24%, and 26% in constant currency, to EUR 192 in 2005. This increase is due to the acquisition of Altedia. Excluding Altedia, revenues decreased by 12% in constant currency reflecting the counter-cyclical effect of economic recovery on outplacement services – as the economy strengthens, fewer layoffs occur and the demand for outplacement services decreases.

3.3 Gross profit

Gross profit increased 7%, and 8% in constant currency, to EUR 3,086 in 2005. Gross margin improved 20 basis points (“bp”) to 16.9% versus 2004.

The gross margin percentages by service line shows that the temporary staffing gross margin of 14.5% decreased by 10 bp from 2004 to 2005. In 2005, permanent placement activity contributed 130 bp to the Company’s gross margin, an increase of 30 bp compared to 2004. The contribution of outplacement to the Company’s gross margin remained stable at 80 bp. Altedia compensated for the continued difficult trading conditions in the outplacement market.

The contributors to the Company’s gross margin by service lines are as follows:


In %	2005	2004



Gross margin contributors by service lines
– Temporary Staffing	14.5	14.6
– Adecco	14.1	14.2
– Ajilon	0.4	0.4
– Permanent Placement	1.3	1.0
Temporary Staffing & Permanent Placement	15.8	15.6
Other	0.3	0.3
Outplacement	0.8	0.8
Adecco Group	16.9	16.7


				Gross profit was also affected by past changes in social legislation in France, the adoption of which resulted in the lower social security charges. The Company established provisions to cover the risk of non-compliance with the various legislation. The results of audits by local governments, the expiration of the statutes of limitation and better historical information led to a change in estimate that resulted in a reduction of provisions. This provision reduction amounted to EUR 11 and EUR 38 in 2005 and 2004, respectively.


Financial Review


	FTE employees		% variance	Branches		% variance
	2005	2004	% variance	2005	2004	% variance



Divisional breakdown (Yearly average)
Adecco Staffing	26,577	23,831	12	5,823	5,433	7
Ajilon Professional	4,069	3,627	12	493	468	5
LHH Career Services	1,209	825	47	147	111	33
Corporate	571	398	44
Adecco Group	32,426	28,681	13	6,463	6,012	8

The following table shows the average FTE employees and the average branches by region:


	FTE employees			Branches
	2005	2004	% variance	2005	2004	% variance



Regional breakdown (Yearly average)
Europe	20,717	18,280	13	4,267	3,904	9
North America	6,388	5,848	9	1,591	1,593
Asia Pacific	3,365	3,102	9	343	292	17
Rest of World	1,956	1,451	35	262	223	18
Adecco Group	32,426	28,681	13	6,463	6,012	8

Marketing expenses increased 1% to EUR 93 in 2005. Bad debt expense decreased by EUR 13 to EUR 12 which reflects the positive effects of the continued focus on collections and of improvements in customer operations.

In 2004, SG & A was reduced by a change in estimate of French payroll liability provisions of EUR 13. In 2005 there was no such reduction.

3.5 Operating income

Operating income increased 16 %, to EUR 614 in 2005. Operating income margin improved 30 bp to 3.4 % in 2005 compared to 2004. The costs associated with the 2003 financial reporting delay reduced operating income margin in 2004 by 50 bp. Excluding these costs, operating income in 2004 was EUR 613.


		Financial Review

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In millions, except share and per share amounts


				The breakdown of operating income is presented in the following table:


							% variance
In EUR	2005		% of revenues	2004		% of revenues	EUR		Constant Currency



Operating income
Adecco Staffing	626		3.9	622		4.1	1		1
Ajilon Professional	107		5.3	86		4.8	25		25
LHH Career Services	18		9.3	26		17.0	(32	)	(30	)
Total divisions	751		4.1	734		4.3	2		2

Costs associated with 2003 financial reporting delay				(83	)
Stock-based compensation expense	(11	)		(20	)
Corporate expenses	(123	)		(100	)
Amortisation of intangibles	(3	)		(1	)
Adecco Group	614		3.4	530		3.1	16		16


Financial Review


				3.7 Other income/(expenses), net Other income/(expenses), net, which includes interest income, foreign exchange gains and losses, and other non-operating income/(expenses), net, were EUR 43 in 2005 compared to EUR 8 in 2004. In the fourth quarter 2005, the Company realised a EUR 42 gain on the divestment of a minority holding in Professional Services Industries Holding, Inc. (“PSI”). The Company incurred EUR 13 hedging costs in 2005, which was EUR 7 higher than in 2004.

				3.8 Provision for income taxes The provision for income taxes decreased by EUR 24 to EUR 150 in 2005 compared to EUR 174 in 2004. The effective tax rate for the fiscal year 2005 was 24.8 % compared with 36.5 % last year. The main contributing elements supporting this improvement are: the absence of expenses associated with the 2003 financial reporting delay, which received a lower tax benefit; the successful resolution of a number of prior years’ tax audits; and changes in tax legislation. The benefits from these favourable events during 2005 amounted to EUR 32.

				3.9 Net income Net income for 2005 increased by 37 % to EUR 453, compared to EUR 332 in 2004. Basic EPS was EUR 2.43 for 2005 compared with EUR 1.77 for 2004. In the fourth quarter of 2005, the sale of a minority holding in PSI was completed, which added EUR 31, net of taxes, to the 2005 net income in addition to the EUR 32 income tax benefits from favourable events during 2005. In 2004 a gain on the sale of jobpilot of EUR 30 and the costs associated with the financial reporting delay of EUR 83, or EUR 76, net of tax, is included in the 2004 net income.

				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. These indicators remain broadly positive for the staffing services market in 2006.
				Demand for more flexible staffing and human resource solutions is expected as the global economy improves. While it is anticipated that the cyclical nature of the temporary staffing markets will continue, we believe that usage of temporary general and speciality staffing services will increase. Demand for permanent placement is also expected to increase with the continued economic upturn and outplacement services demand is expected to improve due to an anticipated increase in merger and acquisition activity.
				The trend towards more favourable regulation of labour markets is continuing.
				The Company therefore remains committed to its objective of growth, at or above market rates. At the same time management is confident that the focus on key geographical regions combined with the global professional business line organisations will allow the Company to improve profitability. Further, the Company plans to intensify efforts to enhance its return on invested capital by further emphasising its value-based management incentives system.

				5. Subsequent events As of 2006, the Company has a new organisational structure as described in the Introduction section of this Annual Report. Further, the Company plans to streamline its back offices to one per country and to concentrate its investments in one brand for both general staffing and professional services.
				On January 9, 2006, the Company announced that it had entered into an agreement to acquire approximately 29 % of DIS Deutscher Industrie Service AG (“DIS”) total shares outstanding at a price per share of EUR 54.50, subject to regulatory approval. At the same time, the Company also announced its intention to launch a voluntary public tender offer for the remaining shares at the same price. The tender offer was launched on February 6, 2006. On February 13, 2006, an agreement was reached with certain shareholders to purchase an additional 38 % of DIS shares (some of which were subject to regulatory approval) at a price of EUR 58.50 per share, thereby increasing the tender offer price to EUR 58.50 per share. Regulatory approval was obtained from the European Union on March 3, 2006 and on March 8, 2006 the tender offer was concluded. As a result of the various agreements, purchase of shares on the open market and the tender offer, the Company’s total shareholding in DIS amounts to approximately 83 % as of March 22, 2006. Total acquisition costs for the 83 % shareholding are estimated to be EUR 580.


		Financial Review

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In millions, except share and per share amounts


In EUR	2005		2004



Summary of cash flows information
Net cash from operating activities of continuing operations	298		542
Net cash from/(used in) investing activities of continuing operations	(241	)	113
Net cash used in financing activities of continuing operations	(478	)	(407	)


				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 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. Therefore, there is typically not a direct relationship between the timing of cash receipts and disbursements. Cash and cash equivalents and short-term investments decreased by a total of EUR 355 to EUR 848 at the end of 2005. The decrease was mainly due to the repayment of debt, cost of acquisitions, payment of dividends, purchase of treasury shares, and capital expenditures. In 2005, cash flows from operating activities of continuing operations decreased by EUR 244 compared to 2004. This decrease is primarily attributable to the overall net increase in accounts receivable exceeding the overall net increase in accounts payable and accrued expenses. The additional week in 2004, which affected the timing of cash collections from our clients and timing of payments, had a positive impact on 2004 cash flows but consequently negatively impacted 2005. DSO remained at 60 days for the full year 2005. The Company’s capital expenditures amounted to EUR 68 in both 2005 and 2004. Additionally, during 2005, the Company made several acquisitions. 100% of the total Altedia shares outstanding were acquired through an 85% owned subsidiary, for a total purchase price, net of cash acquired, of EUR 91 while Humangroup was acquired for a total purchase price, net of cash acquired, of EUR 57. During 2005, the Company invested EUR 41, on a net basis, in short-term investments, whereas in 2004 net proceeds amounted to EUR 110. During 2005 and 2004, the Company repaid EUR 249 and EUR 336 of long-term debt, respectively. Further, in 2005 and 2004 dividend payments to shareholders were EUR 122 and EUR 86, respectively. Cash settlements of derivative instruments resulted in a net outflow of EUR 44 in 2005 and a net inflow of EUR 107 in 2004.


Financial Review


				6.2 Additional Capital Resources As of December 31, 2005, the Company’s total capital resources amounted to EUR 3,448, comprising EUR 1,272 in debt and EUR 2,176 in equity, excluding treasury stock. Long-term debt was EUR 722 as of December 31, 2005 and EUR 1,272 as of January 2, 2005 and includes long-term notes, convertible notes, convertible bonds, and bonds. The borrowings, which are unsubordinated and unsecured, are denominated in Swiss francs, U.S. dollars, and Euros and have maturity dates ranging from 2006 to 2013. During 2005, the Company reduced its short and long-term debt including foreign currency effect by EUR 230. Net debt increased by EUR 125 to EUR 424 as of December 31, 2005. This increase was mainly due to the following: the purchase of Altedia and Humangroup combined with dividend payments, the purchase of treasury shares, and capital expenditures offset by operating cash flow of EUR 298. Net debt is defined as short-term and long-term debt, off balance sheet debt less cash and cash equivalents and short-term investments. There was no off balance sheet debt as of year-end 2005 and 2004. To support short-term working capital and borrowing requirements, as of December 31, 2005, the Company had lines of credit amounting to EUR 316 of which EUR 26 was used. 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. The credit facility was entered into for general corporate purposes including refinancing of advances 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, 2005 and January 2, 2005, there were no outstanding borrowings under the credit facility. As of December 31, 2005, the Company had EUR 416 available under the credit facility after utilising EUR 164 in the form of letters of credit. 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, 2005, the Company was in compliance with all financial covenants. For further details regarding financing arrangements see Note 8 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 original maturities of 12 months or less. The Company’s current cash and cash equivalents and short-term investments are invested primarily within Europe, with 16 % invested in Switzerland and 70 % invested in other European countries. There are no restrictions on the transferability of these funds among entities within the Company. See Note 4 to consolidated financial statements for a further discussion of short-term investments. 6.3 Contractual Obligations The Company’s contractual obligations are presented in the following table:


In EUR	Total	2006	2007	2008	2009	2010	Thereafter


Payments due by period
Short-term debt obligations	26	26
Long-term debt obligations	1,246	524	1	122			599
Interest on long-term debt obligations	124	37	7	7			73
Operating leases	496	136	107	85	65	47	56
Total	1,892	723	115	214	65	47	728

Short-term debt obligations consist of bank overdrafts and borrowings outstanding under the lines of credit. Long-term debt obligations consist primarily of EUR 363 and USD 190 of guaranteed notes both due and paid in March 2006 as well as EUR 599 of guaranteed convertible debt due 2013. These debt instruments were issued in part 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.

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In millions, except share and per share amounts

Financial Review


				As of December 31, 2005, the Company’s commitments to acquire equipment amounted to EUR 2 while commitments under various marketing arrangements amounted to EUR 7 and other vendor arrangements amounted to EUR 5.

				6.4 Additional funding requirements
				On January 9, 2006, the Company announced that it had entered into an agreement to acquire approximately 29 % of DIS total shares outstanding at a price per share of EUR 54.50, subject to regulatory approval. At the same time, the Company also announced its intention to launch a voluntary public tender offer for the remaining shares at the same price. The tender offer was launched on February 6, 2006. On February 13, 2006, an agreement was reached with certain shareholders to purchase an additional 38 % of DIS shares (some of which were subject to regulatory approval) at a price of EUR 58.50 per share, thereby increasing the tender offer price to EUR 58.50 per share. Regulatory approval was obtained from the European Union on March 3, 2006 and on March 8, 2006 the tender offer was concluded. As a result of the various agreements, purchase of shares on the open market and the tender offer, the Company’s total shareholding in DIS amounts to approximately 83 % as of March 22, 2006. Total acquisition costs for the 83 % shareholding are estimated to be EUR 580.
				To finance the acquisition of DIS and fulfill payment of the net purchase price in connection with the voluntary public tender offer, the Company entered into an agreement on January 13, 2006 for a EUR 695 term loan facility under which the Company is entitled to request credit lines with terms of up to 6 months within 180 days after signing of the credit agreement. Interest on the facility is charged at EURIBOR plus a margin of 0.275 %. The Company has an option to extend the 180 day period by 12 months.
				The Company plans for approximately EUR 90 to be invested in fixed assets for existing operations including planned branch openings in 2006.
				Further planned cash outflows include payment of contractual obligations disclosed in the above table and distribution of dividends for 2005 in the amount of CHF 1.00 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 186,097,645 and conditional shares of 21,222,915 is CHF 207. Payment of dividends is subject to approval by the Annual General Meeting of shareholders.
				The Company has entered into certain guarantee contracts and standby letters of credit that total EUR 874, including those letters of credit issued under the multicurrency revolving credit facility. 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 U.S. 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.

				6.5 Off balance sheet arrangements

				The Company formerly maintained a securitisation agreement for certain U. K. receivables. On May 13, 2004, the Company elected to repay the outstanding balance of EUR 37, and the external debt financing of the U. K. securitisation agreement was terminated. Accordingly, as of December 31, 2005 and January 2, 2005, there were no off balance sheet arrangements.

				6.6 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 and covering multiple years. Ultimate outcomes of these audits could, in a future period, have a significant impact on cash flows.
				Based upon currently 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.

				6.7 Credit ratings

				The Company’s most current credit rating from Moody’s is Baa3 with positive outlook and from Standard & Poor’s is BBB– with positive outlook. Both ratings are investment grade.

Financial Review


				7. Financial risk management
				7.1 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. 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 13 to 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 United States, the United Kingdom, 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. During 2004, the Company restructured the financing of its investments in U.S. operations and entered into forward foreign currency contracts to hedge a portion of the Company’s exposure to fluctuations in the U.S. dollar against the Swiss franc. These contracts were closed during the course of 2005. Additional discussion of forward contracts is located in Note 13 to consolidated financial statements.

				8. Controls and compliance

				The Company is committed to maintaining the highest standards of ethical business conduct. The Company has a Chief Compliance and Business Ethics Officer who oversees worldwide compliance practices and business ethics and reports to the Board of Directors. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in reports the Company files or submits is recorded, processed, summarised, and reported within the time periods specified in the applicable rules and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There has been no change in the Company’s internal control over financial reporting that occurred during the period covered by this Annual Report, which has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. As a result of Section 404 of Sarbanes-Oxley and the rules issued thereunder, the Company will be required to include in its Annual Report on Form 20-F for its 2006 fiscal year a report on management’s assessment of the effectiveness of the Company’s internal control over financial reporting. The Company’s independent auditors will also be required to attest to and report on management’s assessment.

				9. 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 change of circumstances and 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, the Audit Committee, and the independent auditors. The Company’s significant accounting policies are disclosed in Note 1 to the consolidated financial statements.


		Financial Review

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In millions, except share and per share amounts


Financial Review


				lectible. As of December 31, 2005 and January 2, 2005, the Company had recorded an allowance for doubtful accounts of EUR 126 and EUR 135, respectively. Bad debt expense of EUR 12 and EUR 25 was recorded in 2005 and 2004, respectively.

				9.3 Income taxes

				The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. 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 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 inter-company 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. 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.

				9.4 Impairment of goodwill

				The carrying value of goodwill 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 November 1. 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 may be impaired. In step one of the 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 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. Determining the fair value of a reporting unit and, if necessary, its assets and liabilities requires that the Company 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. In 2005 and 2004, no impairment loss was recognised. 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.

				9.5 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.

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In millions, except share and per share amounts

Financial Review


Financial Review

LOGO

In millions, except share and per share information


For the fiscal years (in EUR)	2005 (52 weeks)		2004 (53 weeks)		2003 (52 weeks)		2002 (52 weeks)		2001 (52 weeks)



Statements of operations
Revenues	18,303		17,239		16,226		17,085		18,034
Operating income¹	614		530		509		454		48
Income/(loss) from continuing operations	453		302		308		250		(282	)
Income/(loss) from discontinued operations			30		(3	)	(8	)
Net income/(loss)	453		332		305		242		(282	)

As of (in EUR)	31.12.2005		2.1.2005		28.12.2003		29.12.2002		30.12.2001



Balance sheets
Cash and cash equivalents and short-term investments	848		1,203		968		209		376
Trade accounts receivable, net	3,659		3,149		2,947		2,899		3,130
Goodwill²	1,434		1,196		1,241		1,421		1,543
Total assets	6,839		6,441		6,316		5,826		6,297

Short-term debt and current maturities of long-term debt	550		230		377		227		671
Accounts payable and accrued expenses	3,287		3,025		2,772		2,809		2,913
Long-term debt, less current maturities	722		1,272		1,479		1,334		1,382
Total liabilities	4,702		4,666		4,769		4,487		5,090
Total shareholders’ equity	2,117		1,773		1,547		1,339		1,206

For the fiscal years (in EUR)	2005 (52 weeks)		2004 (53 weeks)		2003 (52 weeks)		2002 (52 weeks)		2001 (52 weeks)



Cash flows from continuing operations
Cash flows from operating activities	298		542		453		442		929
Cash flows from/(used in) investing activities	(241	)	113		(432	)	(181	)	(348	)
Cash flows from/(used in) financing activities	(478	)	(407	)	357		(407	)	(526	)

Other indicators
Capital expenditures, net	68		67		52		100		192
Net debt³	424		299		924		1,411		1,751

As of	31.12.2005		2.1.2005		28.12.2003		29.12.2002		30.12.2001



Additional statistics
Number of employees at end of year (approximate)	35,000		30,000		28,000		29,000		30,000

Operating income includes amortisation of intangible assets of EUR 3, EUR 1, EUR 6, EUR 4, and EUR 6 for 2005, 2004, 2003, 2002, and 2001, respectively. It also includes amortisation of goodwill of EUR 724 for 2001.

Effective the first day of fiscal year 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, that requires that goodwill no longer be amortised to earnings.

Net debt is a non-U.S. GAAP measure and comprises short-term and long-term debt, and off balance sheet debt of EUR 36, EUR 59 and EUR 74, in 2003, 2002, and 2001, respectively, relating to the securitisation of receivables, less cash and cash equivalents and short-term investments. There was no off balance sheet debt at the end of 2005 and 2004. For a reconciliation of net debt to the most comparable U.S. GAAP measure, see page 63 and 64.


		Financial Review

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In millions, except share and per share information


As of (in EUR)		31.12. 2005		2.1. 2005



Assets
Current assets:
– Cash and cash equivalents		468		879
– Short-term investments	Note 4	380		324
– Trade accounts receivable, net	Note 5	3,659		3,149
– Other current assets	Note 15	298		260
Total current assets		4,805		4,612

Property, equipment, and leasehold improvements, net	Note 6	240		261
Other assets	Note 15	312		364
Intangible assets, net	Note 2, 7	48		8
Goodwill	Note 2, 7	1,434		1,196
Total assets		6,839		6,441



Liabilities and shareholders’ equity
Liabilities
Current liabilities:
– Accounts payable and accrued expenses:
– Accounts payable		183		152
– Accrued salaries and wages		851		758
– Accrued payroll taxes and employee benefits		834		764
– Accrued sales and value added taxes		513		487
– Accrued income taxes	Note 15	328		341
– Other accrued expenses		578		523
– Total accounts payable and accrued expenses		3,287		3,025
– Short-term debt and current maturities of long-term debt	Note 8	550		230
Total current liabilities		3,837		3,255

Long-term debt, less current maturities	Note 8	722		1,272
Other liabilities	Note 15	143		139
Total liabilities		4,702		4,666

Minority interests		20		2

Shareholders’ equity
Common shares	Note 10	117		116
Additional paid-in capital		2,045		2,026
Treasury stock, at cost	Note 10	(59	)	(1	)
Accumulated deficit		(25	)	(356	)
Accumulated other comprehensive income/(loss), net	Note 10	39		(12	)
Total shareholders’ equity		2,117		1,773
Total liabilities and shareholders’ equity		6,839		6,441

The accompanying notes are an integral part of these consolidated financial statements.


Financial Review

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In millions, except share and per share information


For the fiscal years (in EUR)		2005 (52 weeks)		2004 (53 weeks)		2003 (52 weeks)



Revenues	Note 17	18,303		17,239		16,226
Direct costs of services		(15,217	)	(14,365	)	(13,469	)
Gross profit		3,086		2,874		2,757
Selling, general and administrative expenses		(2,469	)	(2,343	)	(2,242	)
Amortisation of intangible assets	Note 7	(3	)	(1	)	(6	)
Operating income	Note 17	614		530		509
Interest expense		(52	)	(62	)	(70	)
Other income/(expenses), net	Note 14	43		8
Income applicable to minority interests		(2	)
Income before income taxes, discontinued operations, and cumulative effect of change in accounting principle		603		476		439
Provision for income taxes	Note 15	(150	)	(174	)	(128	)
Income from continuing operations and before cumulative effect of change in accounting principle		453		302		311
Income/(loss) from discontinued operations	Note 3			30		(3	)
Cumulative effect of change in accounting principle, net of tax						(3	)
Net income		453		332		305

Basic earnings per share data:
– Continuing operations		2.43		1.61		1.66
– Discontinued operations				0.16		(0.01	)
– Cumulative effect of change in accounting principle						(0.02	)
Basic earnings per share	Note 16	2.43		1.77		1.63

Basic weighted-average shares	Note 16	186,599,019		187,074,416		186,744,214
Diluted earnings per share data:
– Continuing operations		2.34		1.54		1.63
– Discontinued operations				0.15		(0.01	)
– Cumulative effect of change in accounting principle						(0.01	)
Diluted earnings per share	Note 16	2.34		1.69		1.61

Diluted weighted-average shares	Note 16	196,546,937		201,328,174		195,777,267

The accompanying notes are an integral part of these consolidated financial statements.


		Financial Review

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In millions, except share and per share information


For the fiscal years (in EUR)	2005 (52 weeks)		2004 (53 weeks)		2003 (52 weeks)



Cash flows from operating activities of continuing operations
Net income	453		332		305
Adjustments to reconcile net income to cash flows from operating activities of continuing operations:
– (Income)/loss from discontinued operations			(30	)	3
– Depreciation and amortisation	109		120		142
– Bad debt expense	12		25		44
– Stock-based compensation	11		20		6
– Deferred tax provision/(benefit)	14		(3	)	65
– Other charges	(16	)	14		25

Changes in operating assets and liabilities, net of acquisitions:
– Trade accounts receivable	(357	)	(281	)	(219	)
– Accounts payable and accrued expenses	80		318		94
– Other assets and liabilities	(8	)	27		(12	)
Cash flows from operating activities of continuing operations	298		542		453



Cash flows from/(used in) investing activities of continuing operations
Capital expenditures	(68	)	(68	)	(54	)
Proceeds from sale of property and equipment			1		2
Acquisition of Altedia, net of cash acquired	(91	)
Acquisition of Humangroup, net of cash acquired	(57	)
Purchase of available-for-sale securities	(164	)	(84	)	(178	)
Purchase of term deposits	(327	)	(84	)	(225	)
Proceeds from sale of available-for-sale securities	206		82
Proceeds from sale of term deposits	244		196
Proceeds from sale of PSI	42
Cash settlements on derivative instruments	(9	)	93		31
Other acquisition and investing activities, net	(17	)	(23	)	(8	)
Cash flows from/(used in) investing activities of continuing operations	(241	)	113		(432	)


Financial Review


For the fiscal years (in EUR)	2005 (52 weeks)		2004 (53 weeks)		2003 (52 weeks)



Cash flows from/(used in) financing activities of continuing operations
Net decrease in short-term debt	(23	)	(11	)	(167	)
Borrowings on long-term debt, net of issuance costs					580
Repayment of long-term debt	(249	)	(336	)	(74	)
Dividends paid to shareholders	(122	)	(86	)	(75	)
Common stock options exercised	9		7		9
Cash settlements on derivative instruments	(35	)	14		76
(Purchase)/proceeds from sale of treasury shares	(58	)	5		1
Other financing activities					7
Cash flows from/(used in) financing activities of continuing operations	(478	)	(407	)	357




Net proceeds from sale of discontinued operations			64

Effect of exchange rate changes on cash	10		2		(21	)

Net increase/(decrease) in cash and cash equivalents	(411	)	314		357



Cash and cash equivalents:
– Beginning of year	879		565		208
– End of year	468		879		565


Supplemental disclosures
Supplemental disclosures of cash paid
Cash paid for interest	42		49		63
Cash paid for income taxes	169		117		134

Supplemental disclosures of non-cash investing activities
Stock received in the sale of jobpilot			24
Asset retirement obligations	3		(3	)	12


				The accompanying notes are an integral part of these consolidated financial statements.


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In millions, except share and per share information


In EUR	Common shares	Additional paid-in capital	Treasury stock, at cost		Accumulated deficit		Accumulated other compre- hensive income/ (loss), net		Total shareholders’ equity


December 30, 2002	116	1,978	(6	)	(832	)	83		1,339



Comprehensive income:
Net income					305				305
Other comprehensive income/(loss), net of tax
– Currency translation adjustment							(41	)	(41	)
– Unrealised gain on cash flow hedging activities							3		3
– Minimum pension liability adjustment							(2	)	(2	)
– Changes in available-for-sale securities							2		2
Total comprehensive income									267
Stock-based compensation		6							6
Common stock options exercised		9							9
Treasury stock transactions			1						1
Cash dividends, CHF 0.60 per share					(75	)			(75	)

December 28, 2003	116	1,993	(5	)	(602	)	45		1,547



Comprehensive income:
Net income					332				332
Other comprehensive income/(loss), net of tax
– Currency translation adjustment							(57	)	(57	)
– Unrealised gain on cash flow hedging activities							3		3
– Minimum pension liability adjustment							(5	)	(5	)
– Changes in available-for-sale securities							2		2
Total comprehensive income									275
Stock-based compensation		25							25
Common stock options exercised		7							7
Treasury stock transactions		1	4						5
Cash dividends, CHF 0.70 per share					(86	)			(86	)

January 2, 2005	116	2,026	(1	)	(356	)	(12	)	1,773



Comprehensive income:
Net income					453				453
Other comprehensive income/(loss), net of tax
– Currency translation adjustment							44		44
– Unrealised loss on cash flow hedging activities							(1	)	(1	)
– Minimum pension liability adjustment							6		6
– Changes in available-for-sale securities							2		2
Total comprehensive income									504
Stock-based compensation		11							11
Common stock options exercised	1	8							9
Treasury stock transactions			(58	)					(58	)
Cash dividends, CHF 1.00 per share					(122	)			(122	)

December 31, 2005	117	2,045	(59	)	(25	)	39		2,117


The accompanying notes are an integral part of these consolidated financial statements.


Financial Review

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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 personnel services to businesses and organisations worldwide. During 2005, the Company’s services were marketed and managed through three divisions: Adecco Staffing, Ajilon Professional, and LHH Career Services. The Adecco Staffing division provided flexible temporary staffing and permanent placement services to a broad range of businesses and industries, including the banking, electronics, retail, chemical/pharmaceutical, and telecommunications sectors. The Ajilon Professional division offered specialised temporary staffing, permanent placement, and consulting services, with particular emphasis in the areas of information technology, finance, accounting and legal, engineering, and high-end clerical support. The LHH Career Services division provided outplacement, restructuring, and talent solutions services.
				Prior to the sale of jobpilot GmbH and subsidiaries (“jobpilot”), the Company provided services through a fourth division: e-HR Services & Others, which provided online recruitment advertising. On April 22, 2004, the jobpilot operations were sold, and accordingly the operating results, assets and liabilities and cash flows related to jobpilot have been reclassified as discontinued operations in the consolidated financial statements.
				In January 2006, the division structure was replaced by a geographical structure combined with newly introduced global business lines through which the Company’s main professional services will now be marketed and managed: Adecco Finance & Legal; Adecco Engineering & Technical; Adecco Information Technology; Adecco Medical & Science; Adecco Sales, Marketing & Events; and Adecco Human Capital Solutions. The Company’s country heads continue to manage directly the industrial and office staffing business, while supporting the expansion of and driving efficiency across the global professional business lines at the country level.
				The Company provides services to businesses and organisations located throughout North America, Europe, Asia Pacific, Latin America, and Africa.

				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 2005, the Company’s fiscal year included 52 weeks ending December 31, 2005. In 2004 and 2003, the Company’s fiscal year contained 53 weeks ending January 2, 2005 and 52 weeks ending December 28, 2003, respectively.

				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. The Swiss franc is the currency of stock option grants since it is the functional currency of the parent company, Adecco S.A.

				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. Business transactions denominated in foreign currencies are recorded in the statements of operations at the rate applicable on the date of the transaction or the monthly average rate.


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In millions, except share and per share information


				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 Interpretation No. 46(R), “Consolidation of Variable Interest Entities, an interpretation of ARB 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 interests, within the consolidated statements of operations. All significant 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%) and for which fair market value is not readily determinable. The accounting policy for other types of investments is described within this note under short-term investments.

				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, 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 programmes, the adoption of which resulted in the recognition of a lower social security charge. The Company establishes provisions to cover the risk of non-compliance with these programmes as well as for other French social security related risks. The results of audits by local authorities, expiration of the statutes of limitation, and availability of better historical information led to a significant change in estimate that resulted in a reduction of provisions of EUR 11 in 2005, EUR 51 in 2004, and EUR 94 in 2003, which has been included in the determination of 2005, 2004, and 2003 operating income in the accompanying consolidated statements of operations. These changes resulted in an increase to 2005 basic and diluted earnings per share, net of tax, of EUR 0.04 and EUR 0.04, respectively, an increase to 2004 basic and diluted earnings per share, net of tax, of EUR 0.18 and EUR 0.17, respectively, and an increase to 2003 basic and diluted earnings per share, net of tax, of EUR 0.32 and EUR 0.31, respectively.

				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. Allowances are established for estimated discounts, rebates, and other adjustments. 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 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 revenues are recognised upon rendering of the service. The Company presents revenues and the related direct costs of services in accordance with Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent” (“EITF Issue No. 99-19”). 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 and subcontracts to others, the revenues are reported on a net basis.


Financial Review


				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 93, EUR 92, and EUR 82, in 2005, 2004, and 2003, respectively. These costs are included in selling, general and administrative expenses and are expensed as incurred.

				Stock-based compensation
				The Company utilises the fair value method of accounting for stock-based compensation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Upon adoption of SFAS No. 123 at the beginning of 2003, the Company elected to use the prospective method to recognise stock-based compensation expense in accordance with SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS No. 148”). Accordingly, the Company will continue to use the intrinsic value method prescribed by Accounting Principles Board Opinion (“APB “) No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations in accounting for employee stock options granted prior to 2003 until the adoption of the revised SFAS No. 123, “Share-Based Payment” (“SFAS No. 123(R)”) on January 1, 2006. The impact of SFAS No. 123(R) is described within this note under new accounting standards. Stock options are generally awarded to employees with exercise prices that are equal to or higher than the market price of the Company’s stock on the date of grant. For employee stock options issued under APB No. 25 prior to the adoption of SFAS No. 123, the Company generally did not record compensation expense for such options except, for example, in circumstances when a modification to the outstanding option was made which required a new measurement date. Had compensation expense for the Company’s stock-based compensation plans, which were accounted for in accordance with APB No. 25, been determined based on the fair value method at the grant dates for awards under those plans consistent with SFAS No. 123, the Company’s pro forma net income and earnings per share would have changed as follows:


In EUR	2005		2004		2003



Pro forma net income and earnings per share
Net income, as reported	453		332		305

Stock-based employee compensation expense included in reported net income, net of tax	8		20		6
Total stock-based employee compensation expense determined under the fair value based method for all awards, net of tax	(20	)	(54	)	(59	)
Pro forma net income	441		298		252



Basic earnings per share:
– As reported	2.43		1.77		1.63
– Pro forma	2.37		1.59		1.35
Diluted earnings per share:
– As reported	2.34		1.69		1.61
– Pro forma	2.28		1.52		1.34


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In millions, except share and per share information


				The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model and the following weighted-average assumptions:


	2004		2003


Expected lives (in years)	6.5		5.7
Risk-free interest rate	2.48	%	2.05	%
Expected volatility	48	%	49	%
Expected dividend yield	1	%	1	%


				There were no options granted during 2005. The weighted-average fair value of options granted in 2004 and 2003 was CHF 26 (EUR 17) and CHF 33 (EUR 22) per option, respectively. In 2004, all options granted were granted above the market price while in 2003, all stock options were granted at the market price on the date of grant. The Black-Scholes valuation model is used to determine the fair value of options in accordance with U.S. GAAP. 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.

				Cash equivalents
				Cash equivalents consist of highly liquid instruments having an original maturity at the date of purchase of three months or less.

				Short-term investments
				Short-term investments consist mainly of short and medium-term bank deposits, investments in debt and equity securities, and investment funds. The Company classifies its investments in debt securities, equity securities with quoted market prices, and investment funds as available-for-sale securities. Available-for-sale securities are carried at fair value with unrealised gains and losses reported as components of accumulated other comprehensive income/(loss), net, in shareholders’ equity. However, for the portion of the security that is being hedged under a fair value hedge, the unrealised gains and losses are reported as a component of other income/ (expenses), net, in the accompanying consolidated statements of operations. An impairment charge is recorded in the statement of operations for declines in fair value below the cost of an individual investment that are deemed to be other-than-temporary. The Company judges whether a decline in value is temporary based on the length of time that fair market value has been below cost combined with the severity of the decline.

				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 (“AICPA”) 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,


Financial Review


				and leasehold improvements. 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.

				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 contractual lease period and any renewal periods that are deemed to be reasonably assured. 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. Goodwill and indefinite-lived intangible assets are not amortised. Rather the carrying values of goodwill and indefinite-lived intangible assets are tested annually for impairment. Goodwill is tested on a reporting unit level using a two-step impairment test. In step one of the 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 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. The Company performed its annual impairment testing in 2005, 2004, and 2003 and determined there to be no impairment.

				Definite-lived intangible assets
				In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), purchased identifiable intangible assets are capitalised at fair value as of the acquisition date. Intangible assets with definite lives are amortised on a straight-line basis over the estimated period in which benefits will be received, which ranges from two 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. In 2005, 2004, and 2003 no significant impairment charges related to long-lived assets including definite-lived intangible assets were recorded.

				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 allowance is recorded against deferred tax assets in those cases when realisation is more unlikely than not. Tax assets


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In millions, except share and per share information


				and liabilities are not offset unless attributable to the same tax jurisdiction and netting is possible according to law. 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.

				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 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 re-measured to fair value, regardless of the purpose or intent for holding the derivative instruments. The method of recognising the resulting gain or loss is dependent on whether the derivative instruments contract is designated to hedge a specific risk and qualifies for hedge accounting. The Company designates derivative instruments, which qualify as hedges for accounting purposes, as (a) a hedge of the fair value of a recognised asset, liability, or unrecognised firm commitment (fair value hedge), (b) a hedge of a forecasted transaction or variability in expected future cash flows of recognised assets or liabilities (cash flow hedge), or (c) a hedge of a net investment. When a derivative instrument is designated as a hedging instrument, the Company formally documents the relationship between the derivative instrument and the hedged item; this includes the strategy and risk management objective for undertaking the hedge and the formal method that will be used to measure and assess the effectiveness of the hedge. A hedge is considered effective if, at inception and during its life, the Company can expect the derivative instrument to offset changes in the fair value, cash flows, or net investment on the hedged item within a range of 80–125 %, and this is supported by actual results. The amount by which the derivative instrument does not fully offset either the changes in cash flows or fair value on the hedged item is called hedge ineffectiveness and recognised immediately in earnings, as are any gains and losses on the derivative instrument that are excluded from the assessment of hedge effectiveness. The Company terminates hedge accounting if it is determined that the hedge is no longer effective, the derivative is sold or exercised, or the hedged item is sold or repaid. 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. The changes in fair value of the hedged item are recorded as an adjustment to its carrying amount on the consolidated balance sheets. If a fair value hedge for monetary items is terminated, the changes in fair value booked as an adjustment to the carrying amount of the hedge item are amortised to earnings over the remaining life. For non-monetary hedged items there is no such amortisation. If the hedged item has been sold, the adjustment is recognised immediately 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 forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivative instruments is immediately recognised in earnings. If a cash flow hedge is terminated and the originally hedged items are still considered probable of occurring, the gains and losses initially recognised in shareholders’ equity remain there until the hedged item impacts earnings, at which point they are transferred to the corresponding earnings line item. If the hedged items are no longer probable of occurring, amounts recognised in shareholders’ equity are immediately transferred to 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.


Financial Review


				The Company has designated certain foreign currency contracts and cross-currency interest rate swaps as fair value hedges. Any cash flow impact on settlement of these contracts is classified within the consolidated statements of cash flows according to the nature of the hedged item. The Company has designated certain foreign currency contracts related to subsidiary funding and external debt as cash flow hedges. Any cash flow impact on settlement of these contracts is classified as cash flows from financing activities. Cash flow impact on settlement of derivative contracts designated as net investment hedges is classified as cash flows from investing activities. 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 accompanying statements of operations. Any cash flow impact on settlement of these contracts is classified as cash flows from investing activities.

				Variable interest entities
				In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51” (the “Interpretation” or “FIN 46”). FIN 46 requires the consolidation of variable interest entities (“VIE”) 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. Previously, entities were generally consolidated by an enterprise that had a controlling financial interest through ownership of a majority voting interest in the entity. In December 2003, the FASB issued a revision of the Interpretation (“FIN 46(R)”), which codified both the proposed modifications and other decisions previously issued through certain FASB Staff Positions and superseded the original Interpretation to include: (1) deferring the effective date of the Interpretation’s provisions for certain variable interests, (2) providing additional scope exceptions for certain other variable interests, (3) clarifying the impact of troubled debt restructurings on the requirement to reconsider (a) whether an entity is a VIE or (b) which party is the primary beneficiary of a VIE, and (4) revising Appendix B of the original Interpretation to provide additional guidance on what constitutes a variable interest. FIN 46(R) was required to be applied in the preparation of financial statements of public entities that have interests in special purpose entities for periods ending after December 15, 2003, and for all other types of variable interest entities in financial statements for periods ending after March 15, 2004.
				The Company established several Rabbi trusts. It was determined that these trusts are variable interest entities, in which the Company is the primary beneficiary, and are therefore subject to consolidation by the Company. The adoption of FIN 46(R) did not materially change the accounting treatment for these trusts.

				Asset retirement obligations
				The Company accounts for asset retirement obligations (“ARO”) in accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”). Accordingly, AROs associated with the retirement of a tangible long-lived asset are recorded as liabilities in the earlier of the period when incurred or the period in which the amount of obligation is reasonably estimable, with an associated increase in the carrying amount of the long-lived asset. The cost of the tangible asset, which in the case of the Company is typically a leasehold improvement, along with the initially recognised asset retirement cost, is depreciated over the estimated life of the asset. The ARO is recorded at fair value, and accretion expense is recognised over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash outflows discounted at the Company’s credit-adjusted risk-free interest rate. The adoption of SFAS No. 143, as of the first day of 2003, resulted in a cumulative adjustment, net of tax, of EUR 3, recorded as cumulative effect of change in accounting principle in the accompanying consolidated statements of operations.


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In millions, except share and per share information

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” (“SFAS No. 146”). 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 recognised and measured initially at fair value but only recorded when a contract is formally terminated in accordance with the contract term, or the Company ceases using the right conveyed by the contract.

New accounting standards

In December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment”, (“Statement 123(R)”), which is a revision of Statement 123. Statement 123(R) supersedes Opinion 25, and amends FASB Statement No. 95, “Statement of Cash Flows” (“SFAS No. 95”). Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) generally requires share-based payments to employees, including grants of employee stock options and purchases under employee stock purchase plans, to be recognised in the statement of operations based on their fair values. Pro forma disclosure of fair value recognition will no longer be an alternative. Statement 123(R) permits public companies to adopt its requirements using one of two methods: the modified prospective method or the modified restrospective method.

On April 14, 2005, the Securities and Exchange Commission announced that the Statement 123(R) effective transition date will be extended to annual periods beginning after June 15, 2005.

The Company adopted the fair-value-based method of accounting for stock-based compensation effective the first day of 2003, using the “prospective method” described in SFAS No. 148.

The Company adopted SFAS No. 123(R) on January 1, 2006 using the “modified prospective method”. Accordingly, compensation cost for awards granted to employees prior to January 1, 2006 and which remain unvested as of that date will be recorded based on the requirements of SFAS No. 123 while the compensation cost for awards granted subsequent to January 1, 2006 will be based on the requirements of SFAS 123(R). Such treatment will not have a material impact on the accounting for option grants which were granted on or after the first day of 2003 and will only result in expense being taken on unvested options granted prior to 2003. Compensation cost for awards granted subsequent to January 1, 2006 will be based on the requirements of SFAS 123(R). Currently, the Company uses the Black-Scholes model to estimate the value of stock options granted to employees and expects to continue to use this acceptable option valuation model upon the required adoption of SFAS No. 123(R).

The Company expects this method to increase compensation expense related to stock options granted prior to 2003 and estimates the impact to be EUR 3 for 2006. SFAS No. 123(R) also requires that the benefits of tax deductions in excess of recognised compensation expense be reported as a financing cash flow, rather than as an operating cash flow as prescribed under current accounting rules. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after the effective date. While the Company cannot estimate those amounts in the future (because they depend on, among other things, when employees exercise stock options), no significant amounts of operating cash flows from tax benefits were recognised in 2005, 2004 and 2003, respectively.


Financial Review

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”). SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Previously, most voluntary changes in accounting principles were required to be recognised as a cumulative effect adjustment within net income of the period of the change. SFAS No. 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the Statement does not change the transition provisions of any existing accounting pronouncements. We do not believe adoption of SFAS No. 154 will have a material effect on our consolidated financial position, results of operations or cash flows.

Other disclosures required by Swiss law:


In EUR	31.12.2005	2.1.2005



Other balance sheet disclosures
Prepayments and accrued income	41	35
Non-current assets	2,034	1,829
Accruals and deferred income	3,083	2,863
Pension liabilities, non-current	29	30
In EUR	2005	2004



Other statements of operations disclosures
Personnel expenses	1,649	1,446


				The fire insurance value of the property, equipment and leasehold improvements amounts to EUR 608 and EUR 565 as of December 31, 2005 and January 2, 2005, respectively.


		Financial Review

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In millions, except share and per share information

Note 2 – Acquisitions

In March 2005, the Company acquired, through a 70 % owned subsidiary (“Adecia”), 50.5 % of the outstanding share capital (49.0 % of the voting rights) of Altedia from its founders at a cash purchase price of EUR 19 per share. Adecia then launched a tender offer to purchase the remaining shares of Altedia at a cash purchase price of EUR 19 per share. The tender offer was financed by a loan from the Company in the amount of EUR 57. By July 2005, Adecia had acquired 100 % of Altedia as a result of the completed tender offer for a purchase price of EUR 91, net of EUR 8 cash acquired. In November 2005, the Company increased its shareholding in Adecia to 85 % via conversion of the EUR 57 loan to equity. As a result of the acquisition, approximately EUR 87 and EUR 27 of goodwill and intangible assets, respectively, were recorded. Altedia is a human resources consulting company with operations in Europe that specialises in the fields of reorganisation, career transition and social engineering, human capital, and external communication. The terms of the Adecia shareholder arrangement give the Company the right to purchase from the founders and the founders the right to sell to the Company the 15 % minority interest in Adecia at a price based on the three-year average EBITDA beginning in 2008.

In June 2005, the Company acquired 100 % of the outstanding share capital of Humangroup, a Spanish human resources services company, for a cash purchase price of EUR 57, net of cash acquired. As a result of the acquisition, approximately EUR 51 and EUR 11, of goodwill and intangible assets, respectively, were recorded. Humangroup offers staffing services and outsourcing solutions in Spain.

In addition, during 2005, the Company completed several other minor acquisitions for aggregate cash consideration of EUR 14. During 2004, the Company completed several minor acquisitions for aggregate consideration of EUR 28.

The following table illustrates the aggregate impact of the 2005 and 2004 acquisitions:


In EUR	2005		2004





Impact of acquisitions
Net tangible assets acquired	13		7
Identified intangible assets	42		6
Goodwill	146		17
Deferred tax liability	(14	)	(2	)
Minority Interest	(17	)
Total consideration	170		28


Financial Review

Note 4 – Short-term investments

The fair values of the Company’s short-term investments, by classification, as of December 31, 2005 and January 2, 2005, are as follows:


	31. 12. 2005			2. 1. 2005
In EUR	Cost	Gross unrealised gains	Estimated fair value	Cost	Gross unrealised gains	Estimated fair value



Short-term investments
Funds	159	4	163	132	2	134
Debt Securities	10		10	48		48
Equity Securities	6	2	8	25	1	26
Total available-for-sale securities	175	6	181	205	3	208

Total term bank deposits	199	–	199	116	–	116

Total short-term investments	374	6	380	321	3	324


		Financial Review

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In millions, except share and per share information


				Note 5 – Trade accounts receivable


In EUR	31. 12. 2005		2. 1. 2005





Trade accounts receivable
Trade accounts receivable	3,785		3,284
Allowance for doubtful accounts	(126	)	(135	)
Trade accounts receivable, net	3,659		3,149


				Note 6 – Property, equipment, and leasehold improvements


In EUR	31.12.2005		2.1.2005
	Gross	Accumulated depreciation	Gross	Accumulated depreciation



Property, equipment, and leasehold improvements
Land and buildings	51	16	48	14
Furniture, fixtures and office equipment	141	109	125	96
Computer equipment and software	566	452	525	386
Leasehold improvements	205	146	188	129
Total property, equipment, and leasehold improvements	963	723	886	625


				Depreciation expense was EUR 106, EUR 119, and EUR 136, for 2005, 2004, and 2003, respectively.


Financial Review


				Note 7 – Goodwill and intangible assets
				The changes in the carrying amount of goodwill for the years ended December 31, 2005 and January 2, 2005, are as follows:


In EUR	Adecco Staffing		Ajilon Professional		LHH Career Services		Total


Changes in goodwill
December 29, 2003	762		461		18		1,241


Goodwill acquired during year	10		7				17
Other changes			(1	)			(1	)
Currency translation adjustment	(50	)	(9	)	(2	)	(61	)
January 2, 2005	722		458		16		1,196


Goodwill acquired during year	54		5		87		146
Other changes	1				(1	)
Currency translation adjustment	50		39		3		92
December 31, 2005	827		502		105		1,434


				The carrying amount of other intangible assets at December 31, 2005 and January 2, 2005, are as follows:


	31.12.2005			2.1.2005
In EUR	Gross	Accumulated amortisation		Gross	Accumulated amortisation


Intangible assets
Marketing (Trademarks)	45	(14	)	14	(13	)
Customer base	22	(7	)	8	(4	)
Contract	2	(1	)	2
Other	2	(1	)	3	(2	)
Total intangible assets	71	(23	)	27	(19	)

None of the intangible assets have a residual value. The estimated aggregate amortisation expense related to definite-lived intangible assets for the next five years is EUR 5 for 2006, EUR 4 for each of the years 2007 and 2008, EUR 3 in 2009, and EUR 2 in 2010.

The carrying amount of indefinite-lived intangible assets was EUR 30 and EUR 2 as of December 31, 2005 and January 2, 2005, respectively. Indefinite-lived intangible assets consist mainly of trademarks.


		Financial Review

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In millions, except share and per share information


In EUR	Principal at maturity	Maturity	Fixed interest rate		31.12.2005		2.1.2005



Long-term debt
Guaranteed zero-coupon convertible bond	CHF 1,044	2013			599		595
Multicurrency revolving credit facility	EUR 580	2008
Guaranteed notes	EUR 363	2006	6.0	%	363		406
USD Olsten guaranteed notes	USD 190	2006	7.0	%	160		146
EUR Olsten guaranteed notes	EUR 122	2008	6.0	%	122		122
Bonds	CHF 223	2005	4.0	%			195
Other					2		10
					1,246		1,474
Less current maturities					(524	)	(202	)
Long-term debt, less current maturities					722		1,272


Financial Review


				The facility was renegotiated and amended as of July 2005. The new interest rate is based on LIBOR, or EURIBOR for drawings denominated in Euro, plus an amended margin between 0.275% and 0.475% depending on certain debt-to-EBITDA ratios and an amended utilisation fee of 0.05% if the drawings exceed 50% of the facility. The amended commitment fee is 35% of the applicable margin. In addition, the facility contains two one-year extension options, which are exercisable at the discretion of the lending banks. As of December 31, 2005 and January 2, 2005, the Company had EUR 416 and EUR 406, respectively, available under the facility after utilising EUR 164 and EUR 174, respectively, in the form of letters of credit.
				Guaranteed notes
				In March 2001, Adecco Financial Services (Bermuda) Ltd. issued notes with a principal amount of EUR 400, which were used to refinance existing indebtedness and for general corporate purposes. The notes are unconditionally and irrevocably guaranteed by Adecco S.A. on an unsecured and unsubordinated basis. Interest is paid annually on the nominal amount. During the first half of 2005, the Company repurchased notes having a par value of EUR 37. No loss was incurred on repurchase. The remaining notes were repaid in March 2006.
				Olsten guaranteed notes
				In connection with the March 2000 Olsten acquisition, the Company assumed Olsten’s outstanding USD 200 (EUR 146) senior notes on which interest is paid semi-annually on the principal amount. In January 2005, the Company repurchased senior notes having a par value of USD 10 (EUR 7). The loss incurred on repurchase was insignificant. The remaining notes were repaid in March 2006.
				Additionally, in connection with the 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.
				Bonds
				In July 1997, the Company issued, for general corporate purposes, CHF 300 (EUR 195) unsecured bonds due in 2005. The bonds paid interest at 4% annually in July. In January and February 2005, the Company repurchased bonds having a par value of CHF 10 (EUR 6) and CHF 67 (EUR 43), respectively. The loss incurred on the repurchase of EUR 1 due to the difference between par and market value at repurchase was included in interest expense in the consolidated statements of operations. The remaining principal balance of CHF 223 (EUR 144) became due and was repaid on July 7, 2005.

				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, 2005, the Company was in compliance with all financial covenants.

				Payments of long-term debt are due as follows:

In EUR

2006

2007

2008

2009

2010

Thereafter

Total

524

122

599

1,246


		Financial Review

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In millions, except share and per share information


				Note 9 – Asset retirement obligations
				For the years ended December 31, 2005 and January 2, 2005, changes to the aggregate carrying amount of asset retirement obligations were as follows:


In EUR	31.12.2005		2.1.2005



Asset retirement obligations
ARO, beginning of year	11		14



Liabilities incurred	3		1
Liabilities settled	(1	)	(1	)
Accretion expense
Revisions in the estimated cash flows			(3	)
ARO, end of year	13		11

Outstanding
shares

Treasury
shares

Issued
shares¹

Authorised
capital

Conditional
capital

Authorised
shares

Changes in components of authorised shares

December 30, 2002

186,697,162

172,818

186,869,980

19,000,000

21,960,330

227,830,310

Common stock options exercised

288,420

(288,420

)

Treasury stock transactions

4,146

(4,146

)

December 28, 2003

186,989,728

168,672

187,158,400

19,000,000

21,671,910

227,830,310

Common stock options exercised

190,715

(190,715

)

Treasury stock transactions

149,797

(149,797

)

January 2, 2005

187,330,240

18,875

187,349,115

19,000,000

21,481,195

227,830,310

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, 2005

186,097,645

1,509,750

187,607,395

–

21,222,915

208,830,310

shares at CHF 1 par value


Financial Review

The Company had 5,822,915 and 6,081,195 common shares reserved for issuance of common shares to employees and directors upon the exercise of stock options as of December 31, 2005 and January 2, 2005, respectively. Additionally, 15,400,000 common shares were reserved for issuance of financial instruments, such as convertible bonds as of December 31, 2005 and January 2, 2005.

In June 2005, cash dividends for 2004 of CHF 1.00 per share, totalling EUR 122, 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 2005, the Board of Directors of Adecco S.A. will propose a dividend of CHF 1.00 per share outstanding for the approval of shareholders at the Annual General Meeting of Shareholders.

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 2,008 and CHF 1,996 at December 31, 2005 and January 2, 2005, respectively, and is generally not available for distribution.

Accumulated other comprehensive income/(loss), net

The components of accumulated other comprehensive income/(loss), net of tax, are as follows:


In EUR	31.12.2005		2.1.2005


Accumulated other comprehensive income/(loss), net
Currency translation adjustment	41		(3	)
Unrealised gain/(loss) on cash flow hedging activities			1
Minimum pension liability adjustment	(5	)	(11	)
Unrealised gain/(loss) on available-for-sale securities	3		1
Accumulated other comprehensive income/(loss), net	39		(12	)


		Note 11 – Stock-based compensation
		As of December 31, 2005, the Company had options and tradeable options outstanding relating to its common shares under several existing plans and plans assumed in the Olsten acquisition. Under these plans, options vest and become exercisable in instalments, generally on a rateable basis up to four years beginning on the date of the grant or one year after the date of grant, and have a contractual life of three to ten years.
		Certain options granted under the plans are tradeable on the SWX Swiss Exchange (virt-x). The options are granted to employees or directors of the Company and give the optionee a choice of selling the option on the public market or exercising the option to receive an Adecco S.A. share. If the option holder chooses to sell the option on the public market, the options may be held by a non-employee or non-director of the Company. As of December 31, 2005, January 2, 2005, and December 28, 2003, the number of stock options sold to the market were 1,086,662, 674,862, and 411,658, respectively. The trading and valuation of the tradeable options is managed by a Swiss bank.
		During 2005 and 2004, respectively, the terms of 2,416 and 461,634 options to employees were modified to allow such options to continue to vest and remain exercisable until expiry in the event that the employee was terminated. As a result of these modifications compensation expense of less than EUR 1 and EUR 2 was recorded in selling, general and administrative expenses during 2005 and 2004, respectively. In 2003, no options were modified.


	Options outstanding at December 31, 2005 (in CHF)			Options exercisable at December 31, 2005 (in CHF)
Exercise price per share	Number of shares	Weighted-average remaining life (in years)	Weighted-average exercise price per share	Number of shares	Weighted-average exercise price per share

43– 53	904,515	1.1	51	904,515	51
54– 84	4,725,333	4.4	66	3,931,855	65
85–107	4,817,232	2.7	90	4,817,232	90
108–170	588,816	2.5	109	588,816	109
171– 298	9,450	2.0	176	9,450	176
43–298	11,045,346	3.3	78	10,251,868	78

100


		Financial Review

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In millions, except share and per share information


In CHF	Number of shares		Exercise price per share	Weighted- average exercise price per share



Summary of stock option plans
December 30, 2002	14,074,568		17–298	80


Granted	2,208,400		60– 79	76
Exercised	(288,420	)	17– 65	51
Forfeited	(350,018	)	43–298	86
Expired	(17,630	)	17– 60	43

December 28, 2003	15,626,900		17–298	80


Granted	10,000		79	79
Exercised	(190,715	)	17– 60	51
Forfeited	(1,290,227	)	43–298	88
Expired	(289,739	)	17–248	40

January 2, 2005	13,866,219		43–298	80


Granted
Exercised	(321,480	)	43– 60	51
Forfeited	(1,863,294	)	43–298	73
Expired	(636,099	)	43–298	103

December 31, 2005	11,045,346		43–298	78


				For the year ended December 31, 2005, the total stock options exercised include 63,200 stock options for which Adecco S.A. common shares were issued in January 2006 and are therefore not included in outstanding common shares at December 31, 2005.

101


Financial Review


				Note 12 – 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 55, EUR 46, and EUR 31 in connection with defined contribution plans in 2005, 2004, and 2003, respectively, and an expense of EUR 36, EUR 33, and EUR 26 in connection with the Italian employee termination indemnity arrangement in 2005, 2004, and 2003, respectively. As of December 31, 2005 and January 2, 2005, the provision for the termination indemnity recorded in other liabilities was EUR 24 and EUR 18, respectively. The Company sponsors a non-qualified defined contribution plan in the U.S. 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, 2005 and January 2, 2005, the assets held in the Rabbi Trust amounted to EUR 36 and EUR 29, respectively. The pension liability totalled EUR 51 and EUR 41 at December 31, 2005 and January 2, 2005, 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 accumulated benefit obligation or the net assets attributable to these plans. Consequently, these plans have been reported as defined contribution plans. Contributions made to those plans during 2005, 2004, and 2003 amounted to EUR 5, EUR 4, and EUR 3, respectively.

				Defined benefit plans
				The Company sponsors defined benefit plans principally in Switzerland, the Netherlands, the U.K., and the U.S. 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. In 2005, the Company changed the measurement date for the Swiss defined benefit plan to September 30. The Company believes that the change of measurement date is a preferable change as it allows time for management to plan and execute its review of benefit programme results for completeness and accuracy. The measurement date for the other major defined benefit plans continues to be December 31. Plan assets are recorded at fair value, and consist primarily of marketable equity securities, fixed income instruments, and real estate. Effective from October 1, 2003, the defined benefit pension plan in Japan was converted to a defined contribution plan. The loss recognised on curtailment of the defined benefit plan was not significant to the operations of the Company. Effective December 31, 2004, a defined benefit plan in Norway was discontinued and replaced by a defined contribution plan for all non-retired employees. The loss recognised on this curtailment and partial settlement was not significant to the operations of the Company.
				The components of pension expense, net, for the defined benefit plans are:


	Swiss plan						Non-Swiss plans
In EUR	2005		2004		2003		2005		2004		2003



Components of pension expense
Service cost	8		7		6		5		4		8
Interest cost	2		2		2		5		5		3
Expected return on plan assets	(3	)	(3	)	(2	)	(5	)	(4	)	(3	)
Amortisation of net loss							3		1		1
Pension expense, net	7		6		6		8		6		9

102


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In millions, except share and per share information


				The following table provides a reconciliation of the changes in the benefit obligations, the change in 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	31.12.2005		2.1.2005		31.12.2005		2.1.2005



Pension liabilities and assets
Projected benefit obligation, beginning of period	66		60		91		77


Service cost	8		7		5		4
Interest cost	2		2		5		5
Participant contributions	7		6		1		1
Actuarial loss	8		1		2		14
Plan amendments					(5	)	(4	)
Benefits paid	(15	)	(9	)	(2	)	(2	)
Curtailments and settlements							(3	)
Acquisitions					1
Foreign currency translation	(1	)	(1	)	2		(1	)
Projected benefit obligation, end of period	75		66		100		91


Plan assets, beginning of period	65		58		59		52


Actual return of assets	7		3		9		6
Employer contributions	8		7		4		5
Participant contributions	7		6		1		1
Benefits paid	(15	)	(9	)	(2	)	(2	)
Curtailments and settlements							(3	)
Foreign currency translation	(1	)			1
Plan assets, end of period	71		65		72		59


Funded status of the plan	(4	)	(1	)	(28	)	(32	)
Contribution from measurement date to fiscal year-end	2
Unrecognised actuarial loss	4		2		9		20
Amount recognised, net	2		1		(19	)	(12	)


Accumulated benefit obligation, end of period	70		66		92		79

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. For plans with a PBO in excess of the fair value of plan assets as of December 31, 2005 and January 2, 2005, the total PBO was EUR 129 and EUR 157, respectively, and the fair value of the plan assets was EUR 96 and EUR 124, respectively.

The measure of whether a pension plan is underfunded for financial accounting purposes is based on a comparison of the accumulated benefit obligation (“ABO”) to the fair value of plan assets and amounts accrued for such benefits in the balance sheets. The ABO is the actuarial present value of benefits attributable to employee service rendered to date, but excluding the effects of estimated future pay increases. 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, as of December 31, 2005 and January 2, 2005, the aggregated ABO was EUR 117 and EUR 145, respectively, and the fair value of the plan assets of those plans was EUR 96 and EUR 124, respectively.

103


Financial Review


				The amounts recognised in the consolidated balance sheets as of December 31, 2005 and January 2, 2005, were:


	Swiss plan			Non-Swiss plan
In EUR	31.12.2005	2.1.2005		31.12.2005		2.1.2005



Recognised pension liability
Prepaid benefit cost	2	1		3		6
Pension liabilities		(2	)	(30	)	(30	)
Accumulated other comprehensive loss		2		8		12
Amount recognised, net	2	1		(19	)	(12	)


				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 %	2005	2004	2003	2005	2004	2003



Weighted-average actuarial assumptions
Discount rate	3.0	3.5	3.5	4.1	4.9	5.8
Rate of increase in compensation levels	2.0	1.5	1.0	2.4	2.7	3.5
Expected long-term rate of return on plan assets	5.0	4.8	4.8	5.8	6.0	6.5

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 risk premium of equity investments above risk-free rates of return. Long-term historical rates of return are adjusted when appropriate to reflect recent developments.

The Swiss and Non-Swiss pension plans’ target weighted-average asset allocations at December 31, 2005, and the actual weighted-average asset allocations at the measurement dates, by asset category, are as follows:

Swiss plan

Non-Swiss plans

Target
allocation

Actual allocation

Target
allocation

Actual allocation

In %

range

31.12.2005

2.1.2005

range

31.12.2005

2.1.2005

Weighted-average asset allocations

Equity securities

30–50

25–40

Debt securities

20–60

50–70

Real estate

10–20

0–10

Other

0–35

0–5

Total

100

104


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In millions, except share and per share information


				Future benefits payments, which reflect expected future service, are estimated as follows:


In EUR	Swiss plan	Non-Swiss plans



Future benefits payments
2006	23	2
2007	4	2
2008	4	2
2009	3	2
2010	4	2
Years 2011–2015	17	20

Note 13 – 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 U.S. 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 long-term notes in various currencies as well as purchased short-term investments. 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 volatility of earnings. 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.

105


Financial Review


				Fair value of financial instruments
				The following table shows the carrying value and the fair value of financial instruments:


	31.12.2005		2.1.2005
In EUR	Carrying value	Fair value	Carrying value	Fair value



Financial instruments other than derivative instruments
Current assets:
Cash and cash equivalents	468	468	879	879
Available-for-sale securities	181	181	208	208
Term bank deposits	199	199	116	116
Trade accounts receivable, net	3,659	3,659	3,149	3,149
Current liabilities:
Accounts payable	183	183	152	152
Short-term debt	26	26	28	28
Current maturities of long-term debt	524	527	202	205
Non-current liabilities:
Long-term debt	722	732	1,272	1,279


Derivative instruments
Current assets:
Foreign currency contracts	3	3	11	11
Swaps (cross-currency interest rate)	6	6
Non-current assets:
Swaps (interest rate and cross-currency interest rate)			69	69
Current liabilities:
Foreign currency contracts	9	9
Swaps (interest rate and cross-currency interest rate)	6	6	6	6
Other	1	1
Non-current liabilities:
Swaps (interest rate and cross-currency interest rate)	6	6	15	15


				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

				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.

				– Term bank deposits

				The carrying amount approximates the fair value given the short maturity of such instruments.

				– Trade accounts receivable, net

				The carrying amount approximates the fair value given the short maturity of such instruments.

				– Accounts payable

				The carrying amount approximates the fair value given the short maturity of such instruments.

				– Short-term debt

				The carrying amount approximates the fair value given the short maturity of such instruments.

				– 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.

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In millions, except share and per share information


				– 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 8 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.
				– Interest rate and cross-currency interest rate swaps
				The fair value for interest rate and cross-currency interest rate swaps is calculated using the present value of future cash flows based on quoted market information.
				– Other instruments
				The fair value for these derivative instruments is based on information obtained from financial institutions.
				Fair value hedges
				The Company has entered into various cross-currency interest rate swap agreements to mitigate certain foreign currency and interest rate risks on specific external debt. The main currency exposure being hedged is the Euro against the Swiss franc.
				Cross-currency interest rate swap agreements that contain a receipt of fixed interest rate payments and payment of floating interest rate payments have been designated as fair value hedges. The contracts outstanding have an original contract period of up to five years and expire in 2006.
				Net gains and losses on changes in fair values of hedged assets and liabilities attributable to the hedged risk as well as on the derivative instruments designated as fair value hedges are recognised in earnings, as foreign exchange gain/(loss), net, in the accompanying consolidated statements of operations. There was no significant net gain or loss recognised during 2005, 2004, or 2003 due to ineffectiveness in fair value hedge relationships. There was no gain or loss excluded from the assessment of hedge effectiveness of the fair value hedges.
				The Company has also entered into foreign currency forward contracts to mitigate foreign currency risks on specific available-for-sale securities. The main currency exposures being hedged are the Euro and the U.S. dollar against the Swiss franc.
				Foreign currency forward contracts to sell the U.S. dollar and the Euro and buy Swiss francs have been designated as fair value hedges. The contracts outstanding have an original contract period of less than one year and expire in 2006.
				Net gains and losses on changes in fair values of hedged assets attributable to the hedged risk as well as on the derivative instruments designated as fair value hedges are recognised in earnings, as foreign exchange gain/(loss), net. There was no significant net gain or loss recognised during 2005 and 2004 due to ineffectiveness in fair value hedge relationships. The net loss excluded from the assessment of hedge effectiveness of the fair value hedges amounted to EUR 3 in 2005 and was not significant during 2004 and 2003.
				Cash flow hedges
				The Company has entered into cross-currency interest rate swap agreements and foreign currency contracts to mitigate certain foreign currency and interest rate risks on specific external debt and subsidiary funding. The main currency exposure being hedged is the Euro against the Swiss franc.
				Cross-currency interest rate swap agreements which contain receipt of fixed interest payments in one currency and payment of fixed interest rate payments in another currency are designated as cash flow hedges. The contracts outstanding have an original contract period of up to five years and expire in 2006.
				Net gains and losses on the derivative instruments that are designated and qualify as cash flow hedges are reported in a separate component of accumulated other comprehensive income/(loss), net, in the accompanying consolidated balance sheets and statements of changes in shareholders’ equity to the extent the hedge is effective. These amounts will subsequently be reclassified into earnings in the same period as the hedged items affect earnings. The Company recorded in 2005 a net gain of EUR 1, in 2004 a net gain of EUR 3, and in 2003 a net gain of EUR 4 in foreign exchange gain/(loss), net, due to ineffectiveness in cash flow hedge relationships. There was no significant gain or loss excluded from the assessment of hedge effectiveness of the cash flow hedges. 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.

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				Net investment hedges
				During 2004, the Company restructured the financing of its investment in U.S. operations and entered into forward foreign currency contracts to hedge a portion of the Company’s exposure to fluctuations in the U.S. dollar against the Swiss franc. All net investment hedges were terminated by September 2005.
				Net gains and losses on the derivative instruments were recorded in a separate component of accumulated other comprehensive income/(loss), net, in the accompanying consolidated statements of changes in shareholders’ equity to the extent the hedge was effective. These amounts will subsequently be reclassified into earnings in the same period as the investment is sold or otherwise disposed. 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. During 2004, the net gain included in other comprehensive income/(loss) was EUR 10. No reclassifications of losses reported in accumulated other comprehensive income/(loss), net, into earnings are expected within the next 12 months. There was no significant net gain or loss 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 during 2004 was not significant. Net loss excluded from the assessment of hedge effectiveness was recorded in foreign exchange gain/(loss), net.
				Other hedge activities
				The Company has entered into certain derivative contracts that are not designated or do not qualify as hedges under SFAS No. 133. 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. In addition, the Company has also entered into various cross-currency interest rate swaps and interest rate options. 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 7, EUR 9, and EUR 12 in 2005, 2004, and 2003, respectively.
				During 2003, in connection with its repurchase of EUR 60 of guaranteed convertible bonds issued by Adecco Finance BV, the Company entered into an agreement containing an interest rate swap and a right (the “right”) which gave the seller of the bonds the right to require the Company to reissue the bonds for their nominal value. The right and the interest rate swap matured in 2004. The interest rate swap and the right were considered derivative instruments under SFAS No. 133 and were recorded at fair value in earnings. During 2004, the Company recorded in other non-operating income/(expense), net, a net gain of EUR 2 and during 2003, a net loss of EUR 2 in connection with these derivative instruments.
				In 1992, a subsidiary of the Company issued U.S. dollar denominated perpetual debt that was subsequently restructured under a structured finance agreement (the “arrangement”). Under this arrangement, the Company is committed to pay to investors interest on the perpetual debt nominal value (USD 100) at LIBOR plus 1% until 2007. 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. These swap transactions mature in various years ending in 2007. Prior to the issuance of SFAS No. 133, the arrangement was considered debt and was recorded in long-term debt at the present value of future payments under the arrangement. Upon the adoption of SFAS No. 133, the structure of the arrangement was considered a derivative instrument and as such, the value of the payments under the arrangement and the related swap transactions have been reclassified to other liabilities and valued at fair value. Changes in the fair value of the derivative instruments are recorded on a periodic basis in earnings as interest expense. The fair value of the arrangement as of December 31, 2005, and as of January 2, 2005, was EUR 13 and EUR 20, respectively. The arrangement requires the Company to repay 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.
				During 2005, 2004, and 2003, the Company recorded a net loss of EUR 0, EUR 1, and EUR 1 in each respective year in connection with the arrangement.

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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, available-for-sale securities, 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. As of December 31, 2005, the Company had receivables in the amount of EUR 41 due from Siciliana Servizi Emergenza S.p.A. (“Si.s.e.”), an Italian agency of the Red Cross. Of this amount EUR 34 was past due at year-end. The Company has not established an allowance for doubtful accounts as it believes the amount to be fully collectible.
				To minimise counterparty exposure on derivative instruments, the Company enters into derivative contracts with several large multinational banks and limits the exposure in combinations with the short-term investments with each counterparty.

				Note 14 – Other income/(expenses), net
				For the years 2005, 2004, and 2003, other income/(expenses), net, consist of the following:


In EUR	2005		2004		2003





Other income/(expenses), net
Foreign exchange gain/(loss), net	(14	)	(7	)	(9	)
Interest income	16		15		11
Other non-operating income/(expenses), net	41				(2	)
Other income/(expenses), net	43		8		–


				In October 2005, the Company sold its non-controlling interest in Professional Services Industries Holding Inc. (“PSI”) for EUR 45. The investment in PSI was acquired by the Company in conjunction with its acquisition of Adia S.A. in 1996. 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, as a result of the transaction. This gain resulted in an increase in basic and diluted earnings per share, net of tax, of EUR 0.17 and EUR 0.16, respectively. Recognition of EUR 3 placed in escrow pending resolution of indemnity matters and to cover purchase accounting adjustments has been deferred until receipt.

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Note 15 – 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 from continuing operations before income tax in Switzerland totalled EUR 219, EUR 156, and EUR 192 in 2005, 2004, and 2003, respectively. Foreign source income amounted to EUR 384, EUR 320, and EUR 247 in 2005, 2004, and 2003, respectively. The provision for income taxes consists of the following for the fiscal years:


In EUR	2005		2004		2003





Provision for income taxes
Current tax provision/(benefit):
Domestic	8		20		(3	)
Foreign	128		157		66
Total current tax provision	136		177		63



Deferred tax provision/(benefit):
Domestic	16		7		5
Foreign	(2	)	(10	)	60
Total deferred tax provision/(benefit)	14		(3	)	65


Total provision for income taxes	150		174		128


				The difference between the provision for income taxes for income from continuing operations and the weighted-average tax rate is reconciled as follows for the fiscal years:


In EUR	2005		2004	2003





Tax rate reconciliation
Income taxed at weighted-average tax rate	131		114	108
Items taxed at other than weighted-average tax rate	18		42	(56	)
Non-deductible expenses	4		10	18
Net change in valuation allowance	(6	)	5	63
Other, net	3		3	(5	)
Total provision for income taxes	150		174	128


				In 2005, “items taxed at other than weighted-average tax rate” include an increase in the tax provisions for new tax risks of EUR 30 in various countries including the U.S. where the Company and its predecessors are currently under examination for the tax years 1995–2000. The latter was offset by a reduction in the tax provision of EUR 32 relating to the successful resolution during the year of the prior years’ tax audits, changes in legislation, and other changes in events, which resulted in a reassessment of tax risks primarily in Australia, the Netherlands, and France. In 2004, this item included EUR 34 for the net increase of tax provisions, mainly in the U.S. and France. In 2003, this item included EUR 48 decrease of tax provisions. The 2003 reduction of tax provisions was mainly due to the successful resolution during the year of prior years’ tax audits, settlements of disputes with tax authorities, changes in events during the year which resulted in the reassessments of tax risks, and the expiration of the statutes of limitations in certain countries, partially offset by the increase related to current year tax risks.
				In addition, the reconciling item “items taxed at other than weighted-average tax rate”, above includes EUR 8, EUR 8, and EUR 11 in 2005, 2004, and 2003, respectively, for the non-refundable withholding taxes on cross-border intercompany transactions.

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In millions, except share and per share information


In EUR	31.12.2005		2.1.2005





Temporary differences
Net operating loss carryforwards	163		148
Tax credits	65		57
Depreciation	12		7
Deferred compensation and accrued employee benefits	95		77
Accrued expenses	46		47
Financial amortisation in excess of tax amortisation	36		51
Intercompany transactions	50		66
Other	38		35
Gross deferred tax assets	505		488



Valuation allowance	(156	)	(148	)
Deferred tax assets, net	349		340



Depreciation	(5	)	(10	)
Intangible asset basis in excess of tax	(8	)
Accrued expenses	(10	)	(13	)
Tax amortisation in excess of financial amortisation	(16	)	(12	)
Undistributed earnings of foreign subsidiaries	(9	)	(11	)
Other	(17	)	(8	)
Deferred tax liabilities	(65	)	(54	)



Deferred tax assets, net of deferred tax liabilities	284		286

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In EUR	2006	2007	2008 D	2009	2010	Thereafter	No expiry	Total

	2	3	16	9	9	233	195	467

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In millions, except share and per share information


				Note 16 – Earnings per share
				The following table sets forth the computation of basic and diluted earnings per share.


	2005		2004		2003
In EUR (except number of shares)	Basic	Diluted	Basic	Diluted	Basic		Diluted



Numerator
Income from continuing operations and before cumulative effect of accounting change	453	453	302	302	311		311
Effect of assumed conversion of convertible debt		7		9			10
Income from continuing operations and before cumulative effect of accounting change for earnings per share calculation	453	460	302	311	311		321
Income/(loss) from discontinued operations			30	30	(3	)	(3	)
Cumulative effect of accounting change					(3	)	(3	)
Net income available for earnings per share calculation	453	460	332	341	305		315




Denominator
Weighted-average shares	186,599,019	186,599,019	187,074,416	187,074,416	186,744,214		186,744,214
Incremental shares for assumed conversions:
– Guaranteed convertible bonds and notes		9,523,810		13,503,774			8,570,530
– Employee compensation related shares, including options		424,108		749,984			462,523
Total average equivalent shares	186,599,019	196,546,937	187,074,416	201,328,174	186,744,214		195,777,267




Per share amounts
Income from continuing operations and before cumulative effect of accounting change	2.43	2.34	1.61	1.54	1.66		1.63
Income/(loss) from discontinued operations			0.16	0.15	(0.01	)	(0.01	)
Cumulative effect of accounting change					(0.02	)	(0.01	)
Net earnings per share	2.43	2.34	1.77	1.69	1.63		1.61


				Incremental shares relating to stock options of 9,013,344, 10,730,261, and 12,521,469 in 2005, 2004, and 2003, respectively, were excluded from the computation of diluted net income per share as the effect would have been anti-dilutive.

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				Note 17 – Segment reporting
				During 2005, the Company managed its operations based on three separate lines of business: the Adecco Staffing division, the Ajilon Professional division, and the LHH Career Services division. From May 2002, when jobpilot was acquired, until April 2004, when jobpilot was disposed of, the Company had a fourth division, e-HR Services & Others. The operating results, assets and liabilities, and cash flows related to the sold business have been classified as discontinued operations as discussed in Note 1 and Note 3.
				The Company evaluates the performance of its reportable segments based on operating income before amortisation, which is defined as the amount of income or loss from continuing operations before cumulative effect of change in accounting principle, income taxes, interest expense, other income/(expenses), net, income applicable to minority interests, and amortisation of intangible assets. The reconciliation between operating income before amortisation and net income is presented below.

				The Company’s three reportable segments were:
				– the Adecco Staffing division, which provided flexible temporary staffing and permanent placement services to a broad range of businesses and industries, including the banking, electronics, retail, chemical/pharmaceutical, manufacturing and telecommunications sectors; – the Ajilon Professional division, which offered specialised temporary staffing, permanent placement, and consulting services, with particular emphasis in the areas of information technology, finance, accounting and legal, engineering, and high-end clerical support; and
				– LHH Career Services division, which provided outplacement, restructuring, and talent solutions services.

				Corporate items consist of certain assets and expenses which are separately managed at the corporate level.
				Approximately 94 % of the Company’s revenues in 2005, 2004, and 2003 were related to temporary staffing. The remaining portion relates to permanent placements and other services.
				The accounting principles used for the segment reporting are those used by the Company. Intersegmental revenues are not material in any of the years presented.

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In millions, except share and per share information


In EUR	Adecco Staffing		Ajilon Professional		LHH Career Services		Corporate		Total



2003 segment reporting
Revenues	14,336		1,678		212				16,226
Depreciation	(90	)	(14	)	(3	)	(29	)	(136	)
Operating income before amortisation	502		57		68		(112	)	515
Amortisation of intangible assets							(6	)	(6	)
Operating income									509
Interest expense, and other income/(expenses), net							(70	)	(70	)
Income applicable to minority interests
Provision for income taxes							(128	)	(128	)
Income from continuing operations									311
Income/(loss) from discontinued operations									(3	)
Cumulative effect of change in accounting principle							(3	)	(3	)
Net income									305


Capital expenditures¹	(37	)	(10	)	(3	)	(4	)	(54	)
Segment assets from continuing operations	4,145		807		58		1,232		6,242
Segment assets from discontinued operations									74
Long-lived assets²	359		35		8		64		466


In EUR	Adecco Staffing		Ajilon Professional		LHH Career Services		Corporate		Total



2004 segment reporting
Revenues	15,287		1,797		155				17,239
Depreciation	(79	)	(12	)	(3	)	(25	)	(119	)
Operating income before amortisation	622		86		26		(203	)	531
Amortisation of intangible assets							(1	)	(1	)
Operating income									530
Interest expense, and other income/(expenses), net							(54	)	(54	)
Income applicable to minority interests
Provision for income taxes							(174	)	(174	)
Income from continuing operations									302
Income/(loss) from discontinued operations									30
Net income									332



Capital expenditures¹	(43	)	(18	)	(3	)	(4	)	(68	)
Segment assets from continuing operations	4,352		840		47		1,202		6,441
Segment assets from discontinued operations
Long-lived assets²	270		39		6		31		346

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In EUR	Adecco Staffing		Ajilon Professional		LHH Career Services		Corporate		Total



2005 segment reporting
Revenues	16,085		2,026		192				18,303
Depreciation	(74	)	(13	)	(4	)	(15	)	(106	)
Operating income before amortisation	626		107		18		(134	)	617
Amortisation of intangible assets							(3	)	(3	)
Operating income									614
Interest expense, and other income/(expenses), net							(9	)	(9	)
Income applicable to minority interests							(2	)	(2	)
Provision for income taxes							(150	)	(150	)
Income from continuing operations									453
Income/(loss) from discontinued operations
Net income									453

Capital expenditures¹	(41	)	(15	)	(3	)	(9	)	(68	)
Segment assets from continuing operations	4,897		976		189		777		6,839
Segment assets from discontinued operations
Long-lived assets²	259		45		12		28		344

1 Capital expenditures presented exclude discontinued operations, which were not significant. 2 Long-lived assets include fixed assets and other non-current assets. Long-lived assets from discontinued operations were EUR 10 in 2003.

Segment information by geographical areas is as follows:
In EUR	North America²		Europe^3,4		Asia Pacific		Rest of world		Total



Revenues by geographical area
2003	3,849		10,334		1,653		390		16,226
2004	3,698		11,298		1,845		398		17,239
2005	3,614		12,174		2,020		495		18,303


Long-lived assets by geographical area¹
2003	114		297		50		5		466
2004	99		192		50		5		346
2005	111		183		45		5		344

1 Long-lived assets include fixed assets and other non-current assets. Long-lived assets from discontinued operations were EUR 10 in 2003. 2 Consists primarily of operations in the U.S. 3 Consists primarily of operations in France, U.K., Belgium, Germany, Italy, the Netherlands, Spain, and Switzerland. 4 Includes France’s revenues of EUR 6,290, EUR 6,172, and EUR 5,771, and long-lived assets of EUR 79, EUR 90, and EUR 105 in 2005, 2004, and 2003, respectively.

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In millions, except share and per share information


In EUR	2006	2007	2008	2009	2010	Thereafter	Total

	136	107	85	65	47	56	496


				The Company’s commitments to acquire equipment amount to EUR 2, commitments under various marketing sponsorship agreements amount to EUR 7, and other vendor commitments amount to EUR 5 as of December 31, 2005.
				Guarantees
				The Company has entered into certain guarantee contracts and standby letters of credit that total EUR 874, including those letters of credit issued under the multicurrency revolving credit facility. 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 U.S. 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.
				Securities class action lawsuits
				Class action lawsuits in the U.S. against Adecco S.A. and certain of its current and former directors and officers, which were commenced following the Company’s January 2004 announcement of a delay in the release of its 2003 consolidated financial statements, are pending. The lawsuits, which have been consolidated, allege violations of Sections 10(b) and 20(a) of the U.S. 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. After the U.S. District Court for the Southern District of California dismissed the plaintiffs’ consolidated complaint without prejudice on May 16, 2005, the plaintiffs filed an amended complaint. The Defendants filed a motion to dismiss in response to the amended consolidated complaint. That motion was heard on January 30, 2006 and was taken under submission by the court. The Company believes that there is no merit to the allegations and will continue to defend itself vigorously. However, there can be no assurance that the resolution of this matter will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.
				U.S. state unemployment tax reviews
				In the U.S., the Company, like other companies, incurs costs for unemployment taxes based on taxable wages (which include the wages of its temporary staff) and tax rates notified by each state. Certain states have advised the Company that they are reviewing the unemployment tax rates applied by the Company as a result of certain past changes in structure in the U.S. As of this date, the Company has not received any assessments from these states. However, the Company anticipates that it will receive assessments from these states. It is possible that other states will initiate similar reviews. As of December 31, 2005, the Company has reserved EUR 9 for potential assessments. Liability, if any, will depend on resolution of future assessments. There can be no assurance that, when finally resolved, the total liability arising from state unemployment

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				tax reviews will not exceed the amount of the reserve or be material to the Company’s consolidated financial position, results of operations, or cash flows. The Company intends to evaluate and, as appropriate, contest any such assessment.
				French antitrust investigation
				In November 2004, the French competition authority (DGCCRF) commenced an investigation concerning alleged anti-competitive practices in France by Adecco Travail Temporaire SASU, a French subsidiary of the Company. At this stage, the Company is unable to predict whether the outcome of this matter will have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.
				Note 19 – Subsequent events
				On January 9, 2006, the Company announced that it had entered into an agreement to acquire approximately 29 % of DIS Deutscher Industrie Service AG (“DIS”) total shares outstanding at a price per share of EUR 54.50, subject to regulatory approval. At the same time, the Company also announced its intention to launch a voluntary public tender offer for the remaining shares at the same price. The tender offer was launched on February 6, 2006. On February 13, 2006, an agreement was reached with certain shareholders to purchase an additional 38 % of DIS shares (some of which were subject to regulatory approval) at a price of EUR 58.50 per share, thereby increasing the tender offer price to EUR 58.50 per share. Regulatory approval was obtained from the European Union on March 3, 2006 and on March 8, 2006 the tender offer was concluded. As a result of the various agreements, purchase of shares on the open market, and the tender offer, the Company’s total shareholding in DIS amounts to approximately 83 % as of March 22, 2006. Total acquisition costs for the 83 % shareholding are estimated to be EUR 580.
				To finance the acquisition of DIS and fulfill payment of the net purchase price in connection with the voluntary public offer, the Company entered into an agreement on January 13, 2006 for a EUR 695 term loan facility under which the Company is entitled to request credit lines with terms of up to 6 months within 180 days after signing of the credit agreement. Interest on the facility is charged at EURIBOR plus a margin of 0.275%. The Company has an option to extend the 180 day period by 12 months.

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In millions, except share and per share information


As of December 31 (in CHF)	2005		2004





Assets
Current assets:
– Cash and cash equivalents	122		636
– Short-term investments	509		340
– Receivables from subsidiaries	45		23
– Receivables from third parties	5		3
– Accrued income, prepaid expenses and withholding taxes	23		37
Total current assets	704		1,039

Non-current assets:
– Investments in subsidiaries	6,523		5,633
– Loans to subsidiaries	1,160		1,487
– Provisions on investments in and loans to subsidiaries	(1,137	)	(1,154	)
– Treasury shares	91		1
– Intangible assets	75		103
– Financial assets	3		126
Total non-current assets	6,715		6,196

Total assets	7,419		7,235




Liabilities and shareholders’ equity

Liabilities
Current liabilities:
– Amounts due to subsidiaries	119		97
– Amounts due to third parties	26		42
– Short-term debt			300
– Accrued liabilities	66		59
Total current liabilities	211		498

Non-current liabilities:
– Long-term debt to subsidiaries	986		1,527
– Provisions and non-current liabilities	161		161
Total non-current liabilities	1,147		1,688

Total liabilities	1,358		2,186

Shareholders’ equity
Share capital	188		187
General reserve	2,008		1,996
Reserve for treasury shares	91		1
Retained earnings	3,774		2,865
Total shareholders’ equity	6,061		5,049

Total liabilities and shareholders’ equity	7,419		7,235

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In millions, except share and per share information


For the fiscal years ended December 31 (in CHF)	2005		2004



Operating income
Royalties and license fees	410		393
Dividends from subsidiaries	1,249		122
Gain on sale of investments	28		25
Release of provision on loans	16
Interest income from subsidiaries	51		117
Other income	27		132
Total operating income	1,781		789




Operating expenses
Interest expense to subsidiaries	(34	)	(28	)
Interest expense to third parties	(4	)	(13	)
Provisions on loans to subsidiaries			(13	)
Taxes	(34	)	(39	)
Financial expense	(64	)	(10	)
Other expenses (including depreciation of CHF 20 in 2005 and CHF 33 in 2004)	(459	)	(211	)
Total operating expenses	(595	)	(314	)



Net income for the year	1,186		475

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In millions, except share and per share information


				Note 1 – Contingent liabilities


In CHF	31.12.2005	31.12.2004



Contingent liabilities
Guarantees	2,718	2,725
Letters of comfort	135	156
	2,853	2,881


				Adecco S.A. has irrevocably and unconditionally guaranteed the zero-coupon convertible bonds of CHF 900 due 2013 issued by Adecco Financial Services (Bermuda) Ltd. (“AFS”), a 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 94.50. As a consideration for granting the above right AFS has paid to Adecco S.A. consideration of CHF 101 on December 15, 2003.
				Adecco S.A. has irrevocably and unconditionally guaranteed the notes of EUR 400 (CHF 622) issued by AFS.
				On December 15, 2004, Adecco S.A. reduced its irrevocable and unconditional guarantees from CHF 80 to CHF 40 and from USD 100 (CHF 131) to USD 40 (CHF 52) in respect to derivative financial instrument transactions executed by AFS.
				Adecco S.A. has guaranteed the amount of CHF 143 utilised from the revolving credit facility in the form of letters of credit as of December 31, 2005.
				Adecco S.A. has guaranteed the outstanding notes of USD 200 (CHF 262) assumed by Adecco U.S. following the acquisition of the Olsten Group and the outstanding notes of EUR 122 (CHF 190) issued by Adecco Olsten, BV Holdings.
				Approximately CHF 379 of the credit facilities issued to several subsidiaries in Europe, North America, South America, Asia, and Australia have been guaranteed. Additionally, Adecco S.A. has provided guarantees and letters of comfort amounting to CHF 243 relating to government requirements for operating a temporary staffing business and to operating leases of its subsidiaries mainly in the U.S., France, and Spain.

				Note 2 – Outstanding bonds


In CHF	31.12.2005	31.12.2004



Outstanding bonds
4.0 % due July 7, 2005		300


In CHF	Total cost		Number		Purchase/sale price (average per share)	Highest price per share	Lowest price per share



Registered treasury shares
At January 1, 2004	9		168,672



Disposed of during the year	(9	)	(161,361	)	61	61	61
Acquired during the year	1		11,564		57	57	57

At December 31, 2004	1		18,875



Disposed of during the year	(1	)	(9,195	)	60	65
Acquired during the year	91		1,500,070		60	61	60

At December 31, 2005	91		1,509,750

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		Financial Review

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In millions, except share and per share information


				Note 4 – Shareholders’ equity

In CHF

Share
capital

General
reserve

Reserve for
treasury shares

Retained
earnings

Total

Shareholders’ equity

January 1, 2005

187

1,996

2,865

5,049

Dividend distribution

(187

)

(187

)

Share capital increase

Net movement on reserve for treasury shares

(90

)

Net income for the year

1,186

December 31, 2005

188¹

2,008

3,774

6,061

1 187,607,395 common shares at CHF 1 par value


				On May 26, 2005, Adecco S.A. held its Annual General Meeting of Shareholders in Lausanne.

				Conditional shares
				As of December 31, 2005, Adecco S.A. had conditional capital under Art. 3quater of the Articles of Incorporation of Adecco S.A. of 15,400,000 shares, for a maximum aggregate amount of CHF 15,400,000 for issue of a maximum of 15,400,000 registered shares, which shall be fully paid up 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.
				Adecco S.A. had 5,822,915 and 6,081,195 common shares reserved for issuance of common shares to employees and directors upon the exercise of stock options as of December 31, 2005, and December 31, 2004, respectively under Art. 3ter 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 grants to the employees and to the members of the Board of Directors of Adecco S.A. or of its affiliated companies.
				During 2005, Adecco S.A. issued 258,280 shares for stock options exercised for a total amount value of CHF 13.

				Authorised shares
				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 million) in connection with special capital market transactions, such as acquisitions. In accordance with Swiss statutory law, such authorisation ceased on April 16, 2005 (see Art. 3bis of the Articles of Incorporation of Adecco S.A.). At the Annual General Meeting of Shareholders held on May 26, 2005, the authorisation was not extended.

				Note 5 – Significant shareholders
				As of December 31, 2005, the total number of shareholders directly registered with Adecco S.A. was 17,999. The major shareholders and their shareholdings were disclosed as follows (for all disclosures see http://www.swx.com):
				– 42,804,180 shares representing 22.8 % of the total Adecco S.A. registered share capital, excluding 12,000,000 registered shares acquired subject to certain conditions precedent that are to be transferred to the group by June 30, 2007, were held by a group consisting of Jacobs Holding AG (formerly KJ Jacobs AG), Zurich, Switzerland, which represents the group and whose own shares and participation certificates are held by Jacobs Foundation and by the association Jacobs Familienrat (both Zurich, Switzerland), Jacobs Venture AG, Baar, Switzerland, Triventura AG, Baar, Switzerland, Klaus J. Jacobs, Renata I. Jacobs, Lavinia Jacobs, Nicolas Jacobs, Philippe Jacobs, and Nathalie Jacobs (“the Group”). The members of the Group have entered into a voting trust agreement and have agreed on an understanding regarding the potential future acquisition of Adecco S.A. shares by Jacobs Venture AG. Jacobs Holding AG does not hold any shares outside the Group. See the respective updated disclosure published in the “Swiss Official Gazette of Commerce” (SHAB No. 245, December 16, 2005).

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Financial Review


				– 22,188,580 shares representing 11.8 % of the total Adecco S.A. registered share capital, including 12,000,000 registered shares sold subject to certain conditions precedent that are to be transferred to the above mentioned group by June 30, 2007 were held by Akila Finance S.A., Luxembourg, which is owned and controlled by Philippe Foriel-Destezet. See the respective disclosure published in the “Swiss Official Gazette of Commerce” “(SHAB No. 245, December 16, 2005).
				– As mentioned above, subject to certain conditions precedent, the above mentioned Group represented by Jacobs Holding AG is entitled and obliged to acquire from Akila Finance S.A., Luxembourg, an additional 12,000,000 shares representing 6.4% of the total Adecco S.A. registered share capital to be transferred by June 30, 2007; the voting rights attached to these shares remain with Akila Finance S.A. until their transfer.
				– As per November 1, 2005, 9,258,434 shares representing 4.9 % of the total Adecco S.A. registered share capital were held under discretionary management by The Capital Group Companies, Inc., on behalf of funds managed by Capital Research and Management Company, and clients managed by Capital Guardian Trust Company, Capital International Limited, Capital International Inc. and Capital International S.A. The shareholding was reported to have decreased from 5.1%. See the respective disclosure published in the “Swiss Official Gazette of Commerce” (SHAB No. 220, November 11, 2005).

				Furthermore, Adecco S.A. has received the following additional notices on disclosures of shareholders according to Article 20 of the Swiss Stock Exchange Act:
				– Deutsche Bank AG, Germany, together with various subsidiaries, has disclosed on December 16, 2005 (1) to hold under a Bilateral Equity Linked Contract between themselves and Jacobs Venture AG a call option to acquire up to 10,294,665 shares (5.5 %) during the term of the contract, granted by Jacobs Venture AG; (2) to have granted under the same contract to Jacobs Venture AG a put option to sell up to 32,170,829 shares (17.2 %) at the maturity of the contract and (3) to currently hold 2,492,043 shares (1.3 %) in the course of its ordinary trading and asset management activities. Deutsche Bank AG, Germany, has further mentioned that Sonata Securities S.A., Luxembourg, (“Sonata”) intends to issue bonds in the total amount of CHF 767,300,000 due 2010 exchangeable into shares of Adecco S.A. The proceeds will be used to acquire a limited recourse instrument from Deutsche Bank AG on the same terms. In connection with these arrangements and, in particular, to enable Deutsche Bank AG to obtain the shares deliverable under the limited recourse instrument, Deutsche Bank AG has entered into a contract with Jacobs Venture AG containing the call option for 10,294,665 Adecco S.A. shares and the put option for 32,170,829 Adecco S.A. shares. The proceeds obtained by Deutsche Bank AG under the limited recourse instrument are passed on to Jacobs Venture AG in order to finance the acquisition of Adecco S.A. shares. For further detail, see the respective disclosure of Deutsche Bank AG as published in the “Swiss Official Gazette of Commerce” (SHAB No. 249, December 22, 2005, and No. 7, January 11, 2006).
				– A disclosure notice has been provided by Sonata on December 29, 2005, according to which (1) Sonata has the right to exchange the notes owned by it for up to 10,294,665 (5.5 %) Adecco S.A. shares during the term of the notes and (2) that Deutsche Bank AG has the right – in certain circumstances and subject to additional legal requirements relating to the enforcement of security interests – to deliver to Sonata up to 32,170,829 Adecco S.A. shares (17.2 %) in satisfaction of Deutsche Bank AG’s obligations under the notes. Deutsche Bank would only be in a position to exercise their right if there is an event of default under the bilateral equity linked contract between Jacobs Venture AG and Deutsche Bank AG dated as of December 6, 2005. Sonata intended to issue on December 30, 2005 CHF 767,300,000 1.5 percent collateralised equity-linked limited liability obligations bonds due 2010 exchangeable for ordinary shares of Adecco S.A. The proceeds of the issuance of the bonds will be used to acquire the notes. For further detail see the respective disclosure of Sonata as published in the “Swiss Official Gazette of Commerce” (SHAB No. 7, January 11, 2006). These bonds have been issued before December 31, 2005.

				As of December 31, 2005, Adecco S.A. is not aware of any person or legal entity, other than those stated above, that directly or indirectly owned more than 5 % of Adecco S.A.’s shares with voting rights, whether or not such rights may be exercised. Adecco S.A. is not aware of shareholders’ agreements, other than those described above, between its shareholders pertaining to Adecco S.A. shares held.

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In millions, except share and per share information

Financial Review


				Note 6 – Restriction regarding the distribution of dividends
				The general reserve must be at least 20 % of the share capital of Adecco S.A. because this is the minimum amount required by Swiss law.
				Note 7 – Contingencies
				Securities class action lawsuits
				Class action lawsuits in the U.S. against Adecco S.A. and certain of its current and former directors and officers, which were commenced following the Company’s January 2004 announcement of a delay in the release of its 2003 consolidated financial statements, are pending. The lawsuits, which have been consolidated, allege violations of Sections 10(b) and 20(a) of the U.S. 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. After the U.S. District Court for the Southern District of California dismissed the plaintiffs’ consolidated complaint without prejudice on May 16, 2005, the plaintiffs filed an amended complaint. The Defendants filed a motion to dismiss in response to the amended consolidated complaint. That motion was heard on January 30, 2006 and was taken under submission by the court. The Company believes that there is no merit to the allegations and will continue to defend itself vigorously. However, there can be no assurance that the resolution of this matter will not have a material adverse effect on Adecco S.A.’s financial position, results of operations, or cash flows.
				Note 8 – Proposed appropriation of available earnings


In CHF	2005		2004





Proposed appropriation of available earnings
Available earnings of previous year	2,865		2,513
Profit for the year	1,186		475
Net movement on treasury share provision	(90	)	8
Dividend distribution	(187	)	(131	)
Total available earnings	3,774		2,865


Proposed dividend of CHF 1.00 per registered share¹	(207	)	(228	)
Proposed balance to be carried forward	3,567		2,637


				1 This amount represents the maximum amount of dividends payable based on the total number of shares issued (excluding treasury shares) of 186,097,645 and conditional shares of 21,222,915, which were not in circulation as of December 31, 2005.

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Financial Review

Zurich, March 22, 2006

126


		Financial Review

Name of Legal Entity

Country

Jurisdiction

of Legal Entity

Ownership

Type¹

Currency
of Share
Capital

Share

Capital in
thousands

Major consolidated subsidiaries

Adecco Argentina S.A.

Argentina

Buenos Aires

100%

ARS

44,526

Adecco Recursos Humanos Argentina S.A.

Argentina

Buenos Aires

99%

ARS

Adecco Industrial Pty Ltd

Australia

Melbourne

100%

AUD

Adecco Australia Pty Ltd

Australia

Melbourne

100%

H/O

AUD

1,150

Icon Recruitment Pty Ltd

Australia

Melbourne

100%

AUD

24,469

TAD Pty Ltd

Australia

Melbourne

100%

AUD

Adecco Personnel Services NV

Belgium

Brussels

100%

EUR

651

Adecco Coordination Center NV

Belgium

Brussels

100%

EUR

1,332,468

Adecco Financial Services (Bermuda) Ltd.

Bermuda

Hamilton

100%

USD

Adecco Employment Services Limited

Canada

Toronto

100%

H/O

CAD

Ajilon Canada Inc.

Canada

Toronto

100%

CAD

14,884

Roevin Technical People Ltd

Canada

Edmonton

100%

CAD

801

Adecco A/S

Denmark

Frederiksberg

100%

DKK

10,000

Adecco Travail Temporaire SASU

France

Villeurbanne

100%

EUR

66,451

ADIA SAS

France

Villeurbanne

100%

EUR

83,293

Quick Medical Service SA

France

Villeurbanne

100%

EUR

230

Ajilon Sales & Marketing SAS

France

Villeurbanne

100%

EUR

668

Ajilon Engineering SA

France

Villeurbanne

100%

EUR

673

Heracles Interim Sarl

France

Villeurbanne

100%

EUR

Ajilon IT Consulting SAS

France

Villeurbanne

100%

EUR

638

Altedia SA

France

Paris

100%

EUR

2,997

Adecco Holding France SASU

France

Villeurbanne

100%

EUR

601,200

Adecco Personaldienstleistungen GmbH

Germany

Fulda

100%

EUR

Adecco Outsourcing GmbH

Germany

Fulda

100%

EUR

102

Adecco Italia SpA

Italy

Milan

100%

EUR

2,976

Adecco Ltd

Japan

Tokyo

100%

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%

EUR

227

Adecco Olsten Holding BV

Netherlands

Utrecht

100%

EUR

Adecco Norge AS

Norway

Oslo

100%

NOK

50,000

Adecco TT SA Empresa

De Trabajo Temporal

Spain

Madrid

100%

EUR

1,759

Alta Gestion SA

Empresa De Trabajo Temporal

Spain

Madrid

100%

EUR

6,420

Atlas Servicios Empresariales S.A.U.

Spain

Madrid

100%

EUR

Horecca Staffing Services

Empresa De Trabajo Temporal S.A.U.

Spain

Madrid

100%

EUR

180

Adecco Sweden AB

Sweden

Stockholm

100%

SEK

3,038

Adecco Ressources Humaines SA

Switzerland

Lausanne

100%

CHF

7,000

Adecco SA

Switzerland

Chéserex

CHF

187,349

Adecco Management & Consulting SA

Switzerland

Lausanne

100%

CHF

500

Adecco UK Limited

United Kingdom

Borehamwood

100%

GBP

15,000

Ajilon (UK) Ltd

United Kingdom

London

100%

GBP

Office Angels Limited

United Kingdom

London

100%

GBP

2,657

Roevin Management Services Ltd

United Kingdom

Altrincham

100%

GBP

Adecco USA, Inc.

United States

Wilmington

100%

USD

Ajilon LLC

United States

Wilmington

100%

USD

n/a²

Ajilon Professional Staffing LLC

United States

Wilmington

100%

USD

n/a²

Olsten Staffing Services Corp.

United States

Wilmington

100%

USD

Lee Hecht Harrison LLC

United States

Wilmington

100%

USD

n/a²

PAYWISE, Inc.

United States

Wilmington

100%

USD

TAD PGS, Inc.

United States

Wilmington

100%

USD

Adecco Inc.

United States

Wilmington

100%

USD

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.

127


		Registered office
		Adecco S.A. (Holding)
		CH 1275 Chéserex

		Contact details:
		Adecco Management & Consulting SA
		Sägereistrasse 10
		PO Box
		CH 8152 Glattbrugg
		T+41 44 878 88 88
		F+41 44 829 88 88

		Corporate Communications
		T+41 44 878 88 32
		F+41 44 829 88 39 press.office@adecco.com

		Investor Relations
		T+41 44 878 89 25
		F+41 44 829 89 24 investor.relations@adecco.com http://investor.adecco.com

		Adecco on the Internet www.adecco.com


		Imprint
		Publisher: Adecco Management & Consulting S.A., Glattbrugg

		Design: Gottschalk+Ash Int’l

		Photos: Markus Senn, Biel; Jonas Kuhn, Zürich; Lena Amuat, Zürich

		Print: Linkgroup, Zürich

		Photo locations
		Klinik Hirslanden, Zürich

		Jacobs AG, Zürich

		Hallenstadion, Zürich

		March 2006

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		ADECCO SA
		(Registrant)

Dated: 29 March 2006	By:	/s/ Jim Fredholm
		Jim Fredholm
		Chief Financial Officer

Dated: 29 March 2006	By:	/s/ Hans R. Brütsch
		Hans R. Brütsch
		Corporate Secretary