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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended:
JUNE 30, 2002
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from: to
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Commission file number: 1-10686
MANPOWER INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1672779
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
5301 N. IRONWOOD ROAD
MILWAUKEE, WISCONSIN 53217
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 961-1000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
SHARES OUTSTANDING
CLASS AT JUNE 30, 2002
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Common Stock, $.01 par value 76,546,107
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MANPOWER INC. AND SUBSIDIARIES
INDEX
Page
Number
------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Consolidated Balance Sheets ......................................................3 - 4
Consolidated Statements of Operations.................................................5
Consolidated Statements of Cash Flows.................................................6
Notes to Consolidated Financial Statements.......................................7 - 10
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations ........................................... 11 - 16
Item 3 Quantitative and Qualitative Disclosures About Market Risk.......................................17
PART II OTHER INFORMATION AND SIGNATURES
Item 4 Submission of Matters to a Vote of Security Holders..............................................18
Item 5 Other Information...........................................................................18 - 19
Item 6 Exhibits and Reports on Form 8-K.................................................................19
SIGNATURES ...............................................................................................20
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MANPOWER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
ASSETS
JUNE 30, DECEMBER 31,
2002 2001
-------------- -------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 249.0 $ 245.8
Accounts receivable, less allowance for
doubtful accounts of $68.4 and $61.8, respectively 2,226.8 1,917.8
Prepaid expenses and other assets 78.7 77.0
Future income tax benefits 74.5 73.8
-------- --------
Total current assets 2,629.0 2,314.4
OTHER ASSETS:
Intangible assets, less accumulated amortization of
$45.1 and $42.4, respectively 528.5 480.8
Investments in licensees 59.9 44.7
Other assets 229.1 204.7
-------- --------
Total other assets 817.5 730.2
PROPERTY AND EQUIPMENT:
Land, buildings, leasehold improvements and equipment 505.1 465.4
Less: accumulated depreciation and amortization 310.1 271.4
-------- --------
Net property and equipment 195.0 194.0
-------- --------
Total assets $3,641.5 $3,238.6
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
3
MANPOWER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
JUNE 30, DECEMBER 31,
2002 2001
---------- ----------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 546.8 $ 382.1
Employee compensation payable 98.6 93.2
Accrued liabilities 273.2 234.9
Accrued payroll taxes and insurance 294.2 300.8
Value added taxes payable 298.4 255.9
Short-term borrowings and current maturities of long-term debt 175.0 23.7
-------- --------
Total current liabilities 1,686.2 1,290.6
OTHER LIABILITIES:
Long-term debt 743.8 811.1
Other long-term liabilities 329.1 322.6
-------- --------
Total other liabilities 1,072.9 1,133.7
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized 25,000,000 shares,
none issued -- --
Common stock, $.01 par value, authorized 125,000,000 shares,
issued 86,491,307 and 85,173,961 shares, respectively .9 .9
Capital in excess of par value 1,686.0 1,644.9
Accumulated deficit (362.6) (387.6)
Accumulated other comprehensive income (loss) (158.1) (190.8)
Treasury stock at cost, 9,945,200 and 9,045,200 shares, respectively (283.8) (253.1)
-------- --------
Total shareholders' equity 882.4 814.3
-------- --------
Total liabilities and shareholders' equity $3,641.5 $3,238.6
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
4
MANPOWER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------------
2002 2001 2002 2001
------------- ------------ ------------- ------------
Revenues from services $ 2,602.9 $ 2,620.1 $ 4,886.9 $ 5,272.0
Cost of services 2,135.3 2,131.0 4,004.5 4,299.0
--------- --------- --------- ---------
Gross profit 467.6 489.1 882.4 973.0
Selling and administrative expenses 415.8 426.4 811.9 858.2
--------- --------- --------- ---------
Operating profit 51.8 62.7 70.5 114.8
Interest and other expense 9.6 8.6 17.6 18.8
--------- --------- --------- ---------
Earnings before income taxes 42.2 54.1 52.9 96.0
Provision for income taxes 16.5 19.5 20.3 34.5
--------- --------- --------- ---------
Net earnings $ 25.7 $ 34.6 $ 32.6 $ 61.5
========= ========= ========= =========
Net earnings per share $ .34 $ .46 $ .43 $ .81
========= ========= ========= =========
Net earnings per share - diluted $ .33 $ .45 $ .42 $ .80
========= ========= ========= =========
Weighted average common shares 75.9 75.8 76.0 75.8
========= ========= ========= =========
Weighted average common shares - diluted 77.5 76.9 77.6 76.9
========= ========= ========= =========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
SUPPLEMENTAL SYSTEMWIDE INFORMATION (UNAUDITED)
(IN MILLIONS)
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
2002 2001 2002 2001
------------- ------------ ------------ ------------
Systemwide Sales $ 2,892.1 $ 2,944.1 $ 5,432.1 $ 5,955.2
========== ========== ========== ==========
Systemwide information represents the total of Company-owned branches
and franchises.
5
MANPOWER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
6 MONTHS ENDED
JUNE 30,
---------------------
2002 2001
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 32.6 $ 61.5
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 32.8 37.1
Deferred income taxes 2.4 (4.2)
Provision for doubtful accounts 9.1 10.1
Changes in operating assets and liabilities:
Amounts advanced under the Receivables Facility -- (80.0)
Accounts receivable (146.4) 28.3
Other assets 19.3 (40.8)
Other liabilities 88.3 50.1
------ ------
Cash provided by operating activities 38.1 62.1
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (31.0) (43.9)
Acquisitions of businesses, net of cash acquired (29.6) (96.1)
Proceeds from the sale of property and equipment 1.5 3.2
------ ------
Cash used by investing activities (59.1) (136.8)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in payables to banks 21.1 (25.0)
Proceeds from long-term debt 364.3 220.4
Repayment of long-term debt (368.1) (116.2)
Proceeds from stock option and purchase plans 26.1 7.4
Repurchase of common stock (30.7) (3.3)
Dividends paid (7.6) (7.6)
------ ------
Cash provided by financing activities 5.1 75.7
------ ------
Effect of exchange rate changes on cash 19.1 (13.0)
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Net change in cash and cash equivalents 3.2 (12.0)
Cash and cash equivalents, beginning of period 245.8 181.7
------ ------
Cash and cash equivalents, end of period $249.0 $169.7
====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 14.4 $ 16.8
====== ======
Income taxes paid $ 46.7 $ 71.2
====== ======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
MANPOWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN MILLIONS, EXCEPT PER SHARE DATA)
(1) Basis of Presentation
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission, although we believe that the disclosures are
adequate to make the information presented not misleading. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in our 2001 Annual Report to Shareholders.
The information furnished reflects all adjustments that, in the opinion of
management, are necessary for a fair statement of the results of operations for
the periods presented. Such adjustments are of a normal recurring nature.
(2) Debt
Our unsecured zero-coupon convertible debentures, due August 17, 2021
("Debentures"), allow holders of the Debentures to require us to repurchase
these Debentures at the issue price, plus accreted original issue discount, on
the first, third, fifth, tenth and fifteenth anniversary dates. We have the
option to settle this obligation in cash, common stock, or a combination
thereof. As indicated in our press release dated July 17, 2002, we have formally
elected to settle any "put" on the first anniversary date in cash. Under the
current economic environment, we do not anticipate that the Debentures will be
"put" on the first anniversary date. However, if a "put" does become likely for
a substantial amount of the Debentures, we may alter the terms of the agreement
with the holders of the Debentures to prevent a "put." Our intent is to settle
any future "put" in cash. In the event of a significant change in the economic
environment, we may choose to settle a future "put" with common stock, which may
have a dilutive effect on existing shareholders.
Due to our ability to refinance a portion of these Debentures on a long-term
basis, in the event of a "put," under our existing credit facilities, $124.3 of
the $246.3 carrying value has been classified as long term debt on June 30,
2002. Amounts available under our existing credit agreements are calculated
using the period end foreign currency exchange rates, which are subject to
change.
(3) Acquisitions
During the first half of 2002, we acquired certain companies, primarily U.S.
franchises, and made other acquisition-related payments totaling $29.6, the
majority of which was recorded as goodwill in the United States segment. In
addition, during June 2002, we acquired an equity interest in one of our U.S.
franchises in exchange for $15.0 of our common stock (approximately 390,000
shares).
7
(4) Income Taxes
We provided for income taxes during the second quarter of 2002 at a rate of
39.1%, which resulted in an income tax provision for the first half of 2002 of
38.5%. Based on information currently available, we estimate that our annual
effective tax rate will be 38.5%. This rate is higher than the U.S. Federal
statutory rate of 35% due primarily to foreign repatriations and higher foreign
tax rates. For the year ended December 31, 2001, excluding the effect of
goodwill amortization, we provided for income taxes at 35.1%. The estimated
effective tax rate for 2002 is higher than the 2001 rate due to changes in the
mix of taxable income between countries and other permanent items.
(5) Earnings Per Share
The calculations of net earnings per share and net earnings per share - diluted
are as follows:
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net earnings per share:
Net earnings available to common shareholders $ 25.7 $ 34.6 $ 32.6 $ 61.5
Weighted average common shares outstanding 75.9 75.8 76.0 75.8
------ ------ ------ ------
$ .34 $ .46 $ .43 $ .81
====== ====== ====== ======
Net earnings per share - diluted:
Net earnings available to common shareholders $ 25.7 $ 34.6 $ 32.6 $ 61.5
Weighted average common shares outstanding 75.9 75.8 76.0 75.8
Dilutive effect of stock options 1.6 1.1 1.6 1.1
------ ------ ------ ------
77.5 76.9 77.6 76.9
------ ------ ------ ------
$ .33 $ .45 $ .42 $ .80
====== ====== ====== ======
The calculation of net earnings per share - diluted excludes shares related to
stock options with exercise prices in excess of the average market price for
the respective period. There were .0 and .9 such shares excluded from the
calculation for the three months ended June 30, 2002 and 2001, respectively, and
..1 and .8 such shares excluded from the calculation for the six months ended
June 30, 2002 and 2001, respectively.
In addition, there were 6.1 shares of common stock that were contingently
issuable under our Debentures for both the three- and six-month periods ended
June 30, 2002. Such shares are excluded from the calculation of earnings per
share - diluted based upon the terms of the Debentures and our intent to settle
any potential "put" of the Debentures in cash.
8
(6) Shareholders' Equity
Comprehensive income (loss) consists of the following:
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2002 2001 2002 2001
------- ------- ------- -------
Net earnings $25.7 $34.6 $32.6 $61.5
Other comprehensive income (loss) - net of tax:
Foreign currency translation adjustments 50.0 (12.9) 36.5 (50.5)
Unrealized gain (loss) on available for sale securities (.8) 1.3 (2.8) (.7)
Unrealized gain (loss) on derivative financial
instruments (2.6) 2.2 (1.0) (3.1)
----- ----- ----- -----
Comprehensive income (loss) $72.3 $25.2 $65.3 $ 7.2
===== ===== ===== =====
On April 30, 2002, the Board of Directors declared a cash dividend of $.10 per
share which was paid on June 14, 2002 to shareholders of record on June 3, 2002.
(7) Interest and Other Expense (Income)
Interest and other expense (income) consists of the following:
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2002 2001 2002 2001
------ ------ ------ ------
Interest expense $10.5 $8.7 $20.4 $17.4
Interest income (2.1) (2.4) (4.7) (5.0)
Foreign exchange gains (.9) (.9) (.7) (.2)
Loss on sale of accounts receivable .1 1.7 .2 4.0
Miscellaneous, net 2.0 1.5 2.4 2.6
----- ---- ----- -----
Total $ 9.6 $8.6 $17.6 $18.8
===== ==== ===== =====
(8) Goodwill and Other Intangible Assets
During June 2001, the Financial Accounting Standards Board (`FASB') issued
Statement of Financial Accounting Standards (`SFAS') No. 142, "Goodwill and
Other Intangible Assets," which prohibits the amortization of goodwill or
identifiable intangible assets with an indefinite life. We adopted this
statement on January 1, 2002.
This statement requires goodwill impairment reviews to be performed at least
annually by applying a fair-value-based test at the reporting unit level, which
generally represents operations one level below the segments that we report. The
first step in this test is to compare each reporting unit's estimated fair value
to its carrying value. If the reporting unit's estimated fair value is in excess
of its carrying value, the test is complete and no impairment is recorded.
However, if the reporting unit's estimated fair value is less than its carrying
value, additional procedures are performed to determine if any impairment of
goodwill exists. The calculation of estimated fair value required us to make
estimates and assumptions about future operating results, which may differ from
actual amounts. We have completed the first step of this test and have
determined that there are no impairments.
9
A summary of net earnings and net earnings per share, as if we had accounted for
goodwill under SFAS No. 142 as of January 1, 2001, is as follows:
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -----------------------
2002 2001 2002 2001
----------- ---------- ---------- ----------
Adjusted net earnings:
Reported net earnings $ 25.7 $ 34.6 $ 32.6 $ 61.5
Goodwill amortization, net of tax - 3.4 - 6.6
----------- --------- ---------- ----------
$ 25.7 $ 38.0 $ 32.6 $ 68.1
=========== ========= ========== ==========
Adjusted net earnings per share - basic:
Reported net earnings $ .34 $ .46 $ .43 $ .81
Goodwill amortization, net of tax - .04 - .09
----------- --------- ---------- ----------
$ .34 $ .50 $ .43 $ .90
=========== ========= ========== ==========
Adjusted net earnings per share - diluted:
Reported net earnings $ .33 $ .45 $ .42 $ .80
Goodwill amortization, net of tax - .04 - .09
----------- --------- ---------- ----------
$ .33 $ .49 $ .42 $ .89
=========== ========= ========== ==========
10
(9) Segment Information
Segment information is as follows:
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
2002 2001 2002 2001
---------- ---------- ---------- -----------
Revenues from services:
United States (a) $ 474.9 $ 523.5 $ 903.6 $1,069.8
France 943.3 948.6 1,710.4 1,887.8
United Kingdom 332.4 369.6 654.6 750.5
Other Europe 497.7 475.3 939.7 974.6
Other Operations (b) 354.6 303.1 678.6 589.3
-------- -------- -------- --------
$2,602.9 $2,620.1 $4,886.9 $5,272.0
======== ======== ======== ========
Operating Unit Profit:
United States $ 8.3 $ 12.2 $ 3.4 $ 20.4
France 32.7 35.4 54.9 61.7
United Kingdom 4.3 10.2 7.5 19.9
Other Europe 15.6 17.7 26.1 37.0
Other Operations 1.6 1.1 (.2) 3.0
-------- -------- -------- --------
62.5 76.6 91.7 142.0
Corporate expenses 10.6 10.0 21.1 19.6
Amortization of intangible assets .1 3.9 .1 7.6
Interest and other expense 9.6 8.6 17.6 18.8
-------- -------- -------- --------
Earnings before income taxes $ 42.2 $ 54.1 $ 52.9 $ 96.0
======== ======== ======== ========
(a) Systemwide sales in the United States, which includes sales of
Company-owned branches and franchises, were $721.4 and $801.5
for the three months ended June 30, 2002 and 2001,
respectively, and $1,378.3 and $1,663.0 for the six months
ended June 30, 2002 and 2001, respectively.
(b) This segment, formerly Other Countries, has been renamed Other
Operations to more properly reflect the makeup of the segment.
There was no change to the historical makeup of the segment.
(10) Accounts Receivable Securitization
Subsequent to June 30, 2002, we extended our Receivables Facility to expire in
July 2003 and this agreement may be extended further with the financial
institution's consent. There were no other significant changes made to the terms
of this agreement.
11
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Consolidated Operating Results - Three Months Ended June 30, 2002 and 2001
Revenues decreased .7% to $2,602.9 million for the second quarter of 2002 from
the same period in 2001. Revenues were favorably impacted by changes in foreign
currency exchange rates during the second quarter of 2002 compared to 2001 due
to the weakening of the U.S. dollar relative to the currencies in most of our
non-U.S. markets. At constant exchange rates, revenues would have decreased
3.3%. On an organic constant currency basis, revenues declined 5.7% in the
second quarter of 2002 compared to 2001.
Gross profit decreased 4.4% to $467.6 million for the second quarter of 2002
compared to 2001. Gross profit margin decreased 70 basis points (.7%) from the
second quarter of 2001 to 18.0% in 2002. This decrease was attributable to a
number of factors including an increase in social costs in the United States and
France, and an unfavorable change in business mix and pricing pressures
experienced throughout the world. On an organic constant currency basis, gross
profit decreased 11.4% in the second quarter of 2002 compared to 2001.
Acquisitions had a 40 basis point (.4%) favorable impact on the gross profit
margin in the second quarter of 2002.
Selling and administrative expenses, excluding goodwill amortization during the
second quarter of 2001, decreased 1.6% to $415.8 million in the second quarter
of 2002. As a percent of revenues, excluding goodwill amortization in 2001,
selling and administrative expenses were 16.0% in the second quarter of 2002
compared to 16.1% in the second quarter of 2001. The decrease in expense levels
and the improved expense trend are the result of our cost control initiatives
implemented in all countries during the past year and the leveraging impact of
our increasing revenue levels throughout 2002. As a percent of gross profit,
excluding goodwill amortization in 2001, selling and administrative expenses
were 88.9% in the second quarter of 2002 compared to 86.4% in the second quarter
of 2001. These trends are a result of the lower gross profit levels.
Operating profit decreased 17.4% for the second quarter of 2002 compared to 2001
and operating profit, as a percent of revenues, was 2.0% and 2.4% for 2002 and
2001, respectively. Excluding goodwill amortization in 2001, operating profit
decreased 22.1% from 2001 (26.8% on a constant currency basis). This decrease
was primarily due to the decline in the gross profit margin levels in 2002
compared to 2001. On an organic constant currency basis, excluding goodwill
amortization in 2001, operating profit decreased 28.6% in the second quarter of
2002 compared to 2001.
Interest and other expense increased $1.0 million from the second quarter of
2001 to $9.6 million in the second quarter of 2002. Net interest expense,
including the loss on sale of accounts receivable, was $8.5 million in the
second quarter of 2002 compared to $8.0 million in the second quarter of 2001.
This increase is primarily due to higher borrowing levels resulting from
acquisitions made over the past year. These higher borrowing levels are somewhat
offset by lower interest rate levels. Miscellaneous expenses, net, also
increased $.5 million from 2001 to 2002.
We provided for income taxes during the second quarter of 2002 at a rate of
39.1%, which resulted in an income tax provision for the first half of 2002 of
38.5%. Based on information currently available, we estimate that our annual
effective tax rate will be 38.5%. This rate is higher than the U.S. Federal
statutory rate of 35% due primarily to foreign repatriations and higher foreign
tax rates. For the year ended December 31, 2001, excluding the effect of
goodwill amortization, we provided for income taxes at 35.1%. The estimated
effective tax rate for 2002 is higher than the 2001 rate due to changes in the
mix of taxable income between countries and other permanent items.
12
On a diluted basis, net earnings per share was $.33 in the second quarter of
2002 compared to $.45 in the second quarter of 2001. The diluted net earnings
per share for the second quarter of 2002 compared to 2001 was positively
impacted by $.03 due to changes in foreign currency exchange rates. Excluding
the effect of goodwill amortization during the second quarter of 2001, net
earnings per share on a diluted basis, was $.49.
Consolidated Operating Results - Six Months Ended June 30, 2002 and 2001
Revenues decreased 7.3% to $4,886.9 million for the first six months of 2002
compared to the same period in 2001. At constant foreign currency exchange
rates, revenues would have decreased 6.8%. An unfavorable impact from changes in
exchange rates experienced during the first quarter of 2002 was offset by a
favorable impact experienced during the second quarter of 2002. On an organic
constant currency basis, revenues declined 9.3% in the first half of 2002
compared to 2001.
Gross profit decreased 9.3% to $882.4 million for the first six months of 2002
compared to 2001. Gross profit margin decreased 40 basis points (.4%) from the
first six months of 2001 to 18.1% in 2002. The gross profit margin gains
experienced during the first quarter of 2002 compared to 2001 were offset by
margin declines experienced during the second quarter of 2002. On an organic
constant currency basis, gross profit decreased 13.2% in the first half of 2002
compared to 2001 and the gross profit margin in 2002 was 17.7%, excluding
acquisitions.
Selling and administrative expenses, excluding goodwill amortization during the
first half of 2001, decreased 4.6% to $811.9 million in the first half of 2002.
As a percent of revenues, excluding goodwill amortization in 2001, selling and
administrative expenses were 16.6% in the first half of 2002 compared to 16.1%
in the first half of 2001. As a percent of gross profit, excluding goodwill
amortization in 2001, selling and administrative expenses were 92.0% and 87.4%
in the first half of 2002 and 2001, respectively. This increase in the expense
ratios is due primarily to the results of the first quarter of 2002, which
reflected the continued deleveraging of business, caused by the lower revenue
levels. In the second quarter of 2002, we experienced increasing revenue levels
along with continued cost control, resulting in improved expense ratios.
Operating profit decreased 38.6% for the first half of 2002 compared to 2001 and
operating profit, as a percent of revenues, was 1.4% and 2.2% for 2002 and 2001,
respectively. Excluding goodwill amortization in 2001, operating profit
decreased 42.4% from 2001 (43.7% on a constant currency basis). This decrease
was due to lower gross profit levels in 2002 compared to 2001 coupled with the
deleveraging experienced during the first three months of 2002 due to the lower
revenue levels. On an organic constant currency basis, excluding goodwill
amortization in 2001, operating profit decreased 44.5% in the first half of 2002
compared to 2001.
Interest and other expense decreased $1.2 million from the first six months of
2001 to $17.6 million in the first six months of 2002. Net interest expense,
including the loss on sale of accounts receivable, was $15.9 million in the
first six months of 2002 compared to $16.4 million in the first six months of
2001. This decrease is primarily due to lower interest rates during 2002, offset
somewhat by higher borrowing levels resulting from acquisitions made over the
prior year. Translation gains were $.7 million during the first half of 2002
compared to $.2 million in 2001.
We provided for income taxes during the first half of 2002 at a rate of 38.5%.
Based on information currently available, we estimate that our annual effective
tax rate will be 38.5%. This rate is higher than the U.S. Federal statutory rate
of 35% due primarily to foreign repatriations and higher foreign tax rates. For
the year ended December 31, 2001, excluding the effect of goodwill amortization,
we provided for income taxes at 35.1%. The estimated effective tax rate for 2002
is higher than the 2001 rate due to changes in the mix of taxable income between
countries and other permanent items.
13
On a diluted basis, net earnings per share was $.42 in the first half of 2002
compared to $.80 in the first half of 2001. The diluted net earnings per share
for the first half of 2002 compared to 2001 was positively impacted by $.02 due
to changes in foreign currency exchange rates. Excluding the effect of goodwill
amortization during the first half of 2001, net earnings per share on a diluted
basis, was $.89.
We currently account for all of our fixed stock option plans and the 1990
Employee Stock Purchase Plan in accordance with APB Opinion No. 25 and related
Interpretations. Accordingly, no compensation cost related to these plans has
been charged to earnings. If we had determined compensation cost consistent with
the method of SFAS No. 123, our reported net earnings per share, on a diluted
basis, was $.32 and $.40 for the second quarter and first half of 2002,
respectively.
Segment Operating Results
United States
The United States experienced a decrease in revenues of 9.3% for the second
quarter of 2002 compared to 2001 due to lower customer demand resulting from the
economic slowdown. However, year-over-year revenue growth trends, especially in
the Light Industrial sector, continued to improve throughout the period.
Franchise acquisitions had a positive impact on revenue variances. Excluding
these acquisitions, revenues declined 12.7% from the second quarter of 2001. For
the first six months of 2002 compared to 2001, revenues decreased 15.5%, or
18.6% excluding acquisitions.
Operating unit profit (`OUP'), as a percent of revenues, in the United States
was 1.7% and 2.3% for the second quarter of 2002 and 2001, respectively, and .4%
and 1.9% for the first six months of 2002 and 2001, respectively. The
year-over-year OUP percentage decline in the second quarter was mainly due to
lower gross profit levels. The decrease in OUP percentage for the six-month
period was primarily due to the deleveraging experienced by the lower revenue
levels.
France
In France, on a local currency basis, revenues contracted 5.6% during the second
quarter of 2002 compared to 2001 due to lower customer demand resulting from the
economic slowdown. This decline is an improvement from the first quarter of
2002, where revenues, on a local currency basis, declined 14.1% compared to the
first quarter of 2001. Revenues, on a local currency basis, for the first six
months of 2002 compared to 2001 were down 9.8%.
During the second quarter of 2002 and 2001, OUP, as a percent of revenues, in
France was 3.5% and 3.7% respectively. Year-over-year gross profit margin
decreases were largely offset by the effect of continued cost control efforts.
OUP, as a percent of revenue, for the first half of 2002 was relatively
consistent with that experienced in 2001.
United Kingdom
United Kingdom revenues during the second quarter of 2002, on a constant
currency basis, were 12.8% below the second quarter of 2001, which represents
the continued lower demand for workers in the United Kingdom. On a constant
currency basis, revenues decreased 13.1% during the first six months of 2002
compared to 2001. During the second quarter of 2002, there was a reduction in
contact center business with three of our more significant customers in the
United Kingdom, causing part of the year-over-year revenue decline.
In the United Kingdom, OUP as a percent of revenues, for the second quarter of
2002 was 1.3% compared to 2.7% in 2001. The decrease was a direct result of the
lower gross profit levels. In the first half of 2002, OUP as a percent of
revenues, was 1.1% compared to 2.7% for 2001.
14
Other Europe
In Other Europe, revenues, on a constant currency basis, during the second
quarter of 2002 were consistent with that of the same period in 2001. During the
second quarter of 2002, we experienced positive year-over-year growth in
southern Europe, offset by continued negative variances in central and northern
Europe. During the first six months of 2002 compared to 2001, revenues, on a
constant currency basis, decreased 3.5%.
OUP, as a percent of revenues, in Other Europe was 3.1% and 3.7% for the second
quarter of 2002 and 2001, respectively, and 2.8% and 3.8% for the first six
months of 2002 and 2001, respectively. The year-over-year OUP percentage
decrease is mainly a result of lower gross profit levels, as we had higher
revenue growth in the countries with lower gross profit margins. This decline
was partially offset by lower selling and administrative expenses as a result of
our cost control efforts.
Other Operations
Revenues of Other Operations increased 21.0%, on a constant currency basis,
during the second quarter of 2002 compared to 2001. Although recent acquisitions
accounted for a majority of the increase, Other Operations posted organic
revenue growth of 6.8% in constant currency. Revenues increased 21.5%, on a
constant currency basis, during the first six months of 2002 compared to 2001,
5.2% of which was organic.
In Other Operations, OUP as a percent of revenues, for the second quarter of
2002 was .4%, which is consistent with that of the prior year. In the first six
months of 2002 and 2001, the OUP percentage was 0% and .5%, respectively. The
impact of higher gross profit acquisitions has been offset by continued
investments in this segment.
Acquisitions
Three Months Ended June 30, 2002
The consolidated operating results for the second quarter of 2002 include the
impact of recent acquisitions. Revenue growth in the period attributable to
acquisitions was less than 2.5% of consolidated revenues, and gross margin
improvement attributable to these acquisitions was 40 basis points (.4%). These
acquisitions contributed less than 2.5% of the consolidated operating profit.
Six Months Ended June 30, 2002
The consolidated operating results for the first six months of 2002 include the
impact of recent acquisitions. Revenue growth in the period attributable to
acquisitions was less than 3% of consolidated revenues, and these acquisitions
accounted for 40 basis points (.4%) of gross margin improvement. These
acquisitions contributed less than 1.5% of the consolidated operating profit.
Three Months Ended March 31, 2002
The consolidated operating results for the first quarter of 2002 include the
impact of recent acquisitions. Revenue growth in the quarter attributable to
acquisitions was approximately 3.0% of consolidated revenues. These acquisitions
accounted for 40 basis points (.4%) of gross margin improvement, however there
was no significant impact on operating profit.
15
Liquidity and Capital Resources
Cash provided by operating activities was $38.1 million in the first six months
of 2002 compared to $62.1 million for the same period in 2001. Excluding the
changes in amounts advanced under the Receivables Facility, cash used by changes
in working capital requirements was $38.8 million for the first half of 2002
compared to $37.6 million in cash provided during 2001. This change is primarily
a result of higher accounts receivable balances in 2002 compared to 2001 due to
the change in revenue growth trends, offset by a one day reduction in Days Sales
Outstanding (`DSO'). Cash provided by operating activities before changes in
working capital requirements was $76.9 million and $104.5 million in the first
half of 2002 and 2001, respectively. This decrease is a result of lower earnings
levels in 2002.
Capital expenditures were $31.0 million in the first half of 2002 compared to
$43.9 million during the first half of 2001. In general, expenditures during
2002 were lower than 2001 levels due to fewer new office openings as a result of
the economic slowdown. These expenditures were primarily comprised of purchases
of computer equipment, office furniture and other costs related to office
openings and refurbishments, as well as capitalized software costs.
During the first half of 2002, we acquired certain companies, primarily U.S.
franchises, and made other acquisition-related payments totaling $29.6 million.
In addition, during June 2002, we acquired an equity interest in one of our U.S.
franchises in exchange for $15.0 million of our common stock (approximately
390,000 shares).
Net cash provided by borrowings was $17.3 million and $79.2 million in the six
months of 2002 and 2001, respectively. This decrease relates to the decreased
level of capital expenditures and acquisitions. The amounts shown as Proceeds
from long-term debt and Repayment of long-term debt relate primarily to
commercial paper borrowings.
As of June 30, 2002, we had aggregate commitments related to debt and operating
leases that totaled $1.2 billion. We had $1.1 billion in aggregate commitments
related to debt, operating leases and the forward repurchase agreement as of
December 31, 2001. This increase was due primarily to an increase in foreign
currency exchange rates over the respective period. During March 2002, we
repurchased the remaining 900,000 shares of common stock under the forward
repurchase agreement at a cost of $30.7 million. No further obligations exist
under this agreement.
Accounts receivable increased to $2,226.8 million at June 30, 2002 from $1,917.8
million at December 31, 2001. Changes in foreign currency exchange rates during
the first half of 2002 increased the receivable balance by approximately $163
million. The remaining increase is a result of higher business volume. There
were no amounts advanced under the Receivables Facility as of June 30, 2002, or
December 31, 2001. As of June 30, 2001, there was $65.0 million advanced under
this facility.
As of June 30, 2002, we had borrowings of $197.1 million and letters of credit
of $71.5 million outstanding under our $450.0 million five-year credit facility,
and borrowings of $57.1 million outstanding under our U.S. commercial paper
program. Commercial paper borrowings, which are backed by the five-year credit
facility, have been classified as long-term debt due to the availability to
refinance them on a long-term basis under this facility.
Our $450.0 million five-year credit facility and $300.0 million 364-day
revolving credit facility require, among other things, that we comply with a
Debt-to-EBITDA ratio of less than 3.75 to 1 throughout 2002 (less than 3.25 to 1
beginning in March 2003) and a fixed charge ratio of greater than 2.00 to 1. As
defined in the agreement, we had a Debt-to-EBITDA ratio of 3.52 to 1 and a fixed
charge ratio of 2.22 to 1 as of June 30, 2002. Based upon our forecasts for the
remainder of the year, we believe we will remain in compliance with these
covenants.
16
We and some of our foreign subsidiaries maintain separate lines of credit with
foreign financial institutions to meet short-term working capital needs. As of
June 30, 2002, such lines totaled $179.0 million, of which $144.6 million was
unused.
Our unsecured zero-coupon convertible debentures, due August 17, 2021
("Debentures"), allow holders of the Debentures to require us to repurchase
these Debentures at the issue price, plus accreted original issue discount, on
the first, third, fifth, tenth and fifteenth anniversary dates. We have the
option to settle this obligation in cash, common stock, or a combination
thereof. As indicated in our press release dated July 17, 2002, we have formally
elected to settle any "put" on the first anniversary date in cash. Under the
current economic environment, we do not anticipate that the Debentures will be
"put" on the first anniversary date. However, if a "put" does become likely for
a substantial amount of the Debentures, we may alter the terms of the agreement
with the holders of the Debentures to prevent a "put." Our intent is to settle
any future "put" in cash. In the event of a significant change in the economic
environment, we may choose to settle a future "put" with common stock, which may
have a dilutive effect on existing shareholders.
During June 2002, Moody's Corporation downgraded our credit rating one notch
from Baa2 to Baa3. During April 2002, Standard & Poor's (`S&P') changed our
credit rating outlook from neutral to negative, and then in August 2002, S&P
issued a press release indicating that we have been put on "CreditWatch" with
negative implications, which may result in our credit rating being downgraded
later this year. Our current rating with S&P is BBB and according to the press
release, "the downgrade potential is limited to one notch, to the BBB- level."
The results of these actions did not have a significant impact on our credit
facilities, however if S&P does downgrade our rating to BBB-, the facility fee
and interest rate charged on our revolving credit agreements will increase by
..05% and .175%, respectively. Given our current debt levels, these increases
will not significantly impact our total facility fees and interest expense.
Subsequent to June 30, 2002, we extended our Receivables Facility to expire in
July 2003 and this agreement may be extended further with the financial
institution's consent. There were no other significant changes made to the terms
of this agreement.
On April 30, 2002, the Board of Directors declared a cash dividend of $.10 per
share which was paid on June 14, 2002 to shareholders of record on June 3, 2002.
Regulation
During July 2002, the French government announced that they would be reviewing
certain of their social programs later this year, including the 35-hour
workweek, minimum working wage and social contribution subsidies. As no specific
changes have been announced, we cannot currently estimate the impact, if any, on
the future results of our French operations or our consolidated financial
statements.
Forward-Looking Statements
Statements made in this quarterly report that are not statements of historical
fact are forward-looking statements. All forward-looking statements involve
risks and uncertainties. The information under the heading "Forward-Looking
Statements" in our Annual Report on Form 10-K for the year ended December 31,
2001, which information is incorporated herein by reference, provides cautionary
statements identifying, for purposes of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, important factors that could
cause our actual results to differ materially from those contained in the
forward-looking statements. Some or all of the factors identified in our Report
on Form 10-K may be beyond our control. Forward-looking statements can be
identified by words such as "expect", "anticipate", "intend", "plan", "may",
"will", "believe", "seek", "estimate", and similar expressions. We caution you
that any forward-looking statement reflects only our belief at the time the
statement is made. We undertake no obligation to update any forward-looking
statements to reflect subsequent events or circumstances.
17
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
Our 2001 Annual Report on Form 10-K contains certain disclosures about market
risks affecting the Company. There have been no material changes to the
information provided which would require additional disclosures as of the date
of this filing.
18
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On April 30, 2002, at the Company's Annual Meeting of Shareholders (the "Annual
Meeting") the shareholders of the Company voted on proposals to: (1) elect three
directors to serve until 2005 as Class III directors; (2) approve a
performance-based incentive compensation arrangement for the Company's Chief
Executive Officer and the Company's Chief Financial Officer; and (3) approve a
shareholder proposal on non-audit services. In addition, Dennis Stevenson, John
R. Walter and Jeffrey A. Joerres continued as Class I directors (term expiring
2003), and J. Ira Harris, Terry A. Hueneke and Willie D. Davis continued as
Class II directors (term expiring 2004). Dudley J. Godfrey, Jr. and Marvin B.
Goodman, whose terms as Class III directors expired at the Annual Meeting, did
not stand for re-election. The results of the proposals voted upon at the Annual
Meeting are as follows:
Broker
For Against Withheld Abstain Non-Vote
--- ------- -------- ------- --------
1. a) Election of J. Thomas Bouchard 64,539,696 - 1,173,720 - -
b) Election of Rozanne L. Ridgway 64,992,435 - 720,981 - -
c) Election of Edward J. Zore 64,539,304 - 1,174,112 - -
2. Approval of performance-based incentive
compensation arrangement for the Company's
Chief Executive Officer and the Company's
Chief Financial Officer 63,804,145 1,763,314 - 145,957 -
3. Approval of a shareholder proposal on
non-audit services 10,911,293 49,196,281 - 808,108 4,797,734
Item 5 - Other Information
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and
our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 were
reviewed by the SEC as part of their normal review process. As a result of the
SEC's review, we have added additional disclosure to our Management's Discussion
and Analysis of Financial Condition and Results of Operations (`MD&A')
discussing the impact of acquisitions on our operating results in each of the
quarters and first six months of this year. We will also file a Form 10-K/A for
the fiscal year ended December 31, 2001 to add the following discussion in MD&A
related to the impact of acquisitions on our operating results for the years
ended December 31, 2001 and 2000:
19
Year Ended December 31, 2001
Included in the 2001 consolidated operating results is the impact of
acquisitions. Revenue growth in 2001 attributable to acquisitions was
less than 2% of 2001 consolidated revenues, and gross margin
improvement attributable to these acquisitions was 30 basis points
(.3%). The impact on operating profit of these acquisitions was not
significant.
Acquisitions made during 2000 and 2001, in total, had revenues of
approximately 4% of 2001 consolidated revenues and accounted for
approximately 5% of consolidated gross profit. They experienced an
operating loss of approximately 5% of consolidated operating profit.
Excluding goodwill amortization, the operating loss of these
acquisitions was less than 1% of consolidated operating profit.
Year Ended December 31, 2000
Included in the 2000 consolidated operating results is the impact of
acquisitions. Revenue growth attributable to acquisitions was less than
2.5% of consolidated revenues, and gross margin improvement
attributable to these acquisitions was 10 basis points (.1%). These
acquisitions did not have a significant impact on consolidated
operating profit.
20
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
--------
10.1 Employment Agreement between Barbara Beck and Manpower Inc.
dated as of December 18, 2001.
10.2 Description of Bonus Arrangement for Yoav Michaely.
10.3 Description of Bonus Arrangement for Jean-Pierre Lemonnier.
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.
99.1 Statement of Jeffery A. Joerres, Chairman and Chief Executive
Officer, pursuant to 18 U.S.C. ss. 1350.
99.2 Statement of Michael J. Van Handel, Executive Vice President
and Chief Financial Officer, pursuant to 18 U.S.C. ss. 1350.
(b) We filed one current report on Form 8-K dated April 16, 2002 with respect
to Item 4 - Changes in Registrant's Certifying Accountant.
21
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.
MANPOWER INC.
---------------------------------------------
(Registrant)
Date: August 13, 2002 /s/ Michael J. Van Handel
---------------------------------------------
Michael J. Van Handel
Executive Vice President, Chief Financial
Officer and Secretary (Signing on behalf of
the Registrant and as the Principal
Financial Officer and Principal Accounting
Officer)
22