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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:
SEPTEMBER 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______
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
------ ---------
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in rule 12b-2 of the Exchange Act).
Yes X No
------ ---------
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 SEPTEMBER 30, 2002
------- --------------------------
Common Stock, $.01 par value 76,724,272
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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 - 11
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.....12 - 17
Item 3 Quantitative and Qualitative Disclosures about Market Risk.....................................18
Item 4 Controls and Procedures........................................................................18
PART II OTHER INFORMATION AND SIGNATURES
Item 5 Other Information..............................................................................19
Item 6 Exhibits and Reports on Form 8-K...............................................................19
SIGNATURES .............................................................................................20
CERTIFICATIONS ........................................................................................21 - 22
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MANPOWER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
ASSETS
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------------ -------------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 236.6 $ 245.8
Accounts receivable, less allowance for
doubtful accounts of $71.8 and $61.8, respectively 2,249.0 1,917.8
Prepaid expenses and other assets 80.9 77.0
Future income tax benefits 73.9 73.8
---------- ----------
Total current assets 2,640.4 2,314.4
OTHER ASSETS:
Intangible assets, less accumulated amortization of
$45.2 and $42.4, respectively 530.1 480.8
Investments in licensees 61.6 44.7
Other assets 236.2 204.7
---------- ----------
Total other assets 827.9 730.2
PROPERTY AND EQUIPMENT:
Land, buildings, leasehold improvements and equipment 501.3 465.4
Less: accumulated depreciation and amortization 316.3 271.4
---------- ----------
Net property and equipment 185.0 194.0
---------- ----------
Total assets $ 3,653.3 $ 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
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------------ ------------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 507.5 $ 382.1
Employee compensation payable 105.7 93.2
Accrued liabilities 283.3 234.9
Accrued payroll taxes and insurance 301.9 300.8
Value added taxes payable 326.4 255.9
Short-term borrowings and current maturities of long-term debt 29.9 23.7
----------- -----------
Total current liabilities 1,554.7 1,290.6
OTHER LIABILITIES:
Long-term debt 847.7 811.1
Other long-term liabilities 325.0 322.6
----------- -----------
Total other liabilities 1,172.7 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 86,669,472 and 85,173,961 shares, respectively .9 .9
Capital in excess of par value 1,690.3 1,644.9
Accumulated deficit (322.1) (387.6)
Accumulated other comprehensive income (loss) (159.4) (190.8)
Treasury stock at cost, 9,945,200 and 9,045,200 shares, respectively (283.8) (253.1)
----------- -----------
Total shareholders' equity 925.9 814.3
----------- -----------
Total liabilities and shareholders' equity $ 3,653.3 $ 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 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2002 2001 2002 2001
------------- ------------ ------------- ------------
Revenues from services $ 2,885.9 $ 2,675.4 $ 7,772.8 $ 7,947.4
Cost of services 2,373.6 2,170.8 6,378.1 6,469.8
----------- ----------- ---------- ----------
Gross profit 512.3 504.6 1,394.7 1,477.6
Selling and administrative expenses 435.1 436.2 1,247.0 1,294.4
----------- ----------- ---------- ----------
Operating profit 77.2 68.4 147.7 183.2
Interest and other expense 11.3 10.4 28.9 29.2
----------- ----------- ---------- ----------
Earnings before income taxes 65.9 58.0 118.8 154.0
Provision for income taxes 25.4 20.9 45.7 55.4
----------- ----------- ---------- ----------
Net earnings $ 40.5 $ 37.1 $ 73.1 $ 98.6
=========== =========== ========== ==========
Net earnings per share $ .53 $ .49 $ .96 $ 1.30
=========== =========== ========== ==========
Net earnings per share - diluted $ .52 $ .48 $ .94 $ 1.28
=========== =========== ========== ==========
Weighted average common shares 76.6 76.0 76.2 75.9
=========== =========== ========== ==========
Weighted average common shares - diluted 77.4 76.9 77.6 77.0
=========== =========== ========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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SUPPLEMENTAL SYSTEMWIDE INFORMATION (UNAUDITED)
(IN MILLIONS)
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
2002 2001 2002 2001
------------- ------------ ------------ ------------
Systemwide Sales $ 3,183.5 $ 3,000.2 $ 8,615.6 $ 8,955.4
============= ============ ============ ============
Systemwide information represents the total of Company-owned branches and
franchises.
5
MANPOWER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
9 MONTHS ENDED
SEPTEMBER 30,
--------------------------
2002 2001
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 73.1 $ 98.6
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 48.9 62.3
Deferred income taxes 3.0 (6.6)
Provision for doubtful accounts 15.2 15.4
Changes in operating assets and liabilities:
Amounts advanced under the Receivables Facility - (102.0)
Accounts receivable (172.8) 14.7
Other assets 26.2 (21.1)
Other liabilities 76.5 (3.7)
--------- ---------
Cash provided by operating activities 70.1 57.6
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (40.2) (66.6)
Acquisitions of businesses, net of cash acquired (31.2) (291.8)
Proceeds from the sale of property and equipment 2.2 4.7
--------- ---------
Cash used by investing activities (69.2) (353.7)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in payables to banks .5 (49.2)
Proceeds from long-term debt 567.4 879.4
Repayment of long-term debt (587.6) (473.8)
Proceeds from stock option and purchase plans 30.4 8.6
Repurchase of common stock (30.7) (3.3)
Dividends paid (7.6) (7.6)
--------- ---------
Cash (used) provided by financing activities (27.6) 354.1
Effect of exchange rate changes on cash 17.5 (6.8)
--------- ---------
Net change in cash and cash equivalents (9.2) 51.2
Cash and cash equivalents, beginning of period 245.8 181.7
--------- ---------
Cash and cash equivalents, end of period $ 236.6 $ 232.9
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 30.1 $ 33.5
========= =========
Income taxes paid $ 59.9 $ 96.6
========= =========
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 NINE MONTHS ENDED SEPTEMBER 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) Accounts Receivable Securitization
During July 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.
(3) Debt
Our exposure to market risk for changes in interest rates relates primarily to
our long-term debt obligations. We have historically managed interest rates
through the use of a combination of fixed and variable rate borrowings and
interest rate swap agreements.
During September 2002, we entered into derivative financial instruments to swap
our EURO 150.0 unsecured notes, at 6.25%, due March 2005 to floating U.S. LIBOR,
yielding an initial effective interest rate of 4.39%. These instruments expire
in March 2005.
We designate these interest rate swaps as a fair value hedge, offsetting changes
in the fair value of the notes due to fluctuations in interest rates. Changes in
the fair value hedge and the fair value of the notes throughout the contract
term will be reflected in the income statement. In addition, gains and losses
arising from foreign exchange fluctuations throughout the contract term on the
related derivative instruments will be recorded in the income statement,
offsetting the foreign exchange gain or loss recorded on the notes. As of
September 30, 2002, these instruments reduced interest expense by $.1.
During October 2002, we renewed our 364-day revolving credit facility with a
syndicate of commercial banks. The availability under this facility was reduced
from $300.0 to $285.0 and it now matures in October 2003. All other terms and
conditions remain unchanged.
(4) Acquisitions
During the first nine months of 2002, we acquired certain companies, primarily
U.S. franchises, and made other acquisition-related payments totaling $31.2. 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
(5) Income Taxes
We provided for income taxes during the third quarter of 2002 at a rate of
38.5%, based on our current estimate of the annual effective tax rate. 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 a rate of 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 various anticipated permanent book-tax differences.
(6) Earnings Per Share
The calculations of net earnings per share and net earnings per share - diluted
are as follows:
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net earnings per share:
Net earnings available to common shareholders $ 40.5 $ 37.1 $ 73.1 $ 98.6
Weighted average common shares outstanding 76.6 76.0 76.2 75.9
-------- -------- -------- --------
$ .53 $ .49 $ .96 $ 1.30
======== ======== ======== ========
Net earnings per share - diluted:
Net earnings available to common shareholders $ 40.5 $ 37.1 $ 73.1 $ 98.6
Weighted average common shares outstanding 76.6 76.0 76.2 75.9
Dilutive effect of stock options .8 .9 1.4 1.1
-------- -------- -------- --------
77.4 76.9 77.6 77.0
-------- -------- -------- --------
$ .52 $ .48 $ .94 $ 1.28
======== ======== ======== ========
The calculation of net earnings per share - diluted excludes shares related to
stock options on which the exercise prices were in excess of the average market
price for the respective period. There were .6 and 1.3 such shares excluded from
the calculation for the three months ended September 30, 2002 and 2001,
respectively, and .1 and 1.3 such shares excluded from the calculation for the
nine months ended September 30, 2002 and 2001, respectively.
In addition, there were 6.1 shares of common stock that were contingently
issuable under our convertible debentures for both 2002 and 2001. Such shares
are excluded from the calculation of earnings per share - diluted based upon the
terms of the convertible debentures and our intent to settle any potential "put"
of the convertible debentures in cash.
The contingently issuable shares under the convertible debentures will be
included in the calculation of net earnings per share - diluted when the shares
become issuable under the conversion feature of the debentures. This will occur
when, among other things, the average share price, is 110% of the accreted value
of the debentures at the beginning of the conversion period, as defined by the
agreement. Given the accreted value of the debentures at the beginning of the
current conversion period, the average share price, during the period, will have
to be approximately $45 per share for the shares to be issuable.
8
(7) Shareholders' Equity
Comprehensive income (loss) consists of the following:
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net earnings $ 40.5 $ 37.1 $ 73.1 $ 98.6
Other comprehensive income (loss) - net of tax:
Foreign currency translation adjustments 5.7 25.0 42.2 (25.5)
Unrealized gain (loss) on available for sale securities (2.4) (5.9) (5.2) (6.6)
Unrealized gain (loss) on derivative financial
instruments (4.6) (3.6) (5.6) (6.7)
-------- -------- --------- ---------
Comprehensive income (loss) $ 39.2 $ 52.6 $ 104.5 $ 59.8
======== ======== ========= =========
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.
On October 29, 2002, the Board of Directors declared a cash dividend of $.10 per
share which is payable on December 16, 2002 to shareholders of record on
December 3, 2002.
(8) Interest and Other Expense (Income)
Interest and other expense (income) consists of the following:
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Interest expense $ 11.5 $ 10.8 $ 31.9 $ 28.3
Interest income (1.9) (2.4) (6.6) (7.4)
Foreign exchange (gains) losses (.1) (.3) (.8) (.5)
Loss on sale of accounts receivable .1 1.1 .3 5.1
Miscellaneous, net 1.7 1.2 4.1 3.7
-------- -------- -------- --------
Total $ 11.3 $ 10.4 $ 28.9 $ 29.2
======== ======== ======== ========
9
(9) 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 test as of the date of adoption and for
our 2002 review and have determined that there are no impairments related to the
goodwill balances.
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 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Adjusted net earnings:
Reported net earnings $ 40.5 $ 37.1 $ 73.1 $ 98.6
Goodwill amortization - 3.9 - 10.5
---------- ---------- ---------- ----------
$ 40.5 $ 41.0 $ 73.1 $ 109.1
========== ========== ========== ==========
Adjusted net earnings per share - basic:
Reported net earnings $ .53 $ .49 $ .96 $ 1.30
Goodwill amortization - .05 - .14
---------- ---------- ---------- ----------
$ .53 $ .54 $ .96 $ 1.44
========== ========== ========== ==========
Adjusted net earnings per share - diluted:
Reported net earnings $ .52 $ .48 $ .94 $ 1.28
Goodwill amortization - .05 - .14
---------- ---------- ---------- ----------
$ .52 $ .53 $ .94 $ 1.42
========== ========== ========== ==========
10
(10) Segment Information
Segment information is as follows:
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues from services:
United States (a) $ 512.8 $ 482.4 $ 1,416.4 $ 1,552.2
France 1,103.3 991.5 2,813.7 2,879.3
United Kingdom 366.1 377.7 1,020.7 1,128.2
Other Europe 540.5 481.4 1,480.2 1,456.0
Other Operations (b) 363.2 342.4 1,041.8 931.7
---------- ---------- ---------- ----------
$ 2,885.9 $ 2,675.4 $ 7,772.8 $ 7,947.4
========== ========== ========== ==========
Operating Unit Profit:
United States $ 12.4 $ 8.6 $ 15.8 $ 29.0
France 40.6 37.2 95.5 98.9
United Kingdom 7.3 13.7 14.8 33.6
Other Europe 24.0 20.6 50.1 57.5
Other Operations 2.7 3.0 2.5 6.2
---------- ---------- ---------- ----------
$ 87.0 $ 83.1 $ 178.7 $ 225.2
Corporate expenses 9.8 10.2 30.9 29.9
Amortization of intangible assets - 4.5 .1 12.1
Interest and other expense 11.3 10.4 28.9 29.2
---------- ---------- ---------- ----------
Earnings before income taxes $ 65.9 $ 58.0 $ 118.8 $ 154.0
========== ========== ========== ==========
(a) Systemwide sales in the United States, which includes sales of
Company-owned branches and franchises, were $783.7 and $757.2 for the three
months ended September 30, 2002 and 2001, respectively, and $2,162.1 and
$2,420.2 for the nine months ended September 30, 2002 and 2001,
respectively.
(b) This segment, formerly Other Countries, has been renamed Other Operations
to more properly reflect the composition of the segment. There was no
change to the historical composition of the segment.
11
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Consolidated Operating Results - Three Months Ended September 30, 2002 and 2001
Revenues increased 7.9% to $2,885.9 million for the third quarter of 2002 from
the same period in 2001. Revenues were favorably impacted by changes in foreign
currency exchange rates during the third 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 increased
1.3%. Revenue growth in the third quarter of 2002 attributable to acquisitions
was approximately $25 million. Revenues excluding acquisitions increased 7.0%,
or .4% on a constant currency basis, in the third quarter of 2002 compared to
2001.
Gross profit increased 1.5% to $512.3 million for the third quarter of 2002
compared to 2001. Gross profit margin decreased 110 basis points (1.1%) from the
third quarter of 2001 to 17.8% in 2002. This decrease was primarily attributable
to an unfavorable change in business mix and pricing pressures experienced
throughout the world. Gross profit growth attributable to acquisitions was
approximately $6 million. Excluding acquisitions, gross profit increased .4%, or
decreased 5.9% on a constant currency basis, in the third quarter of 2002
compared to 2001. Acquisitions had no impact on the gross profit margin in the
third quarter of 2002.
Selling and administrative expenses, excluding goodwill amortization during the
third quarter of 2001, increased .7% to $435.1 million in the third quarter of
2002; however, these expenses decreased 4.9% on a constant currency basis. As a
percent of revenues, excluding goodwill amortization in 2001, selling and
administrative expenses were 15.1% in the third quarter of 2002 compared to
16.1% in the third quarter of 2001. As a percent of gross profit, excluding
goodwill amortization in 2001, selling and administrative expenses were 84.9% in
the third quarter of 2002 compared to 85.6% in the third quarter of 2001. The
decreased expense levels, on a constant currency basis, and the improved expense
trends 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 during the third quarter of 2002.
Operating profit increased 13.1% for the third quarter of 2002 compared to 2001
and operating profit, as a percent of revenues, was 2.7% and 2.6% for 2002 and
2001, respectively. Excluding goodwill amortization in 2001, operating profit
increased 6.2% from 2001 and decreased 4.2% on a constant currency basis.
Operating profit margin, excluding goodwill amortization in 2001, remained
unchanged as the decline in gross profit margin was offset by the improved
selling and administrative expense ratios. Acquisitions contributed
approximately $2 million to operating profit during the third quarter of 2002.
On an organic constant currency basis, excluding goodwill amortization in 2001,
operating profit decreased 6.8% in the third quarter of 2002 compared to 2001.
Interest and other expense increased $.9 million from the third quarter of 2001
to $11.3 million in the third quarter of 2002. Net interest expense, including
the loss on sale of accounts receivable, was $9.7 million in the third quarter
of 2002 compared to $9.5 million in the third quarter of 2001. This increase is
primarily a result of the stronger Euro exchange rate impacting our
Euro-denominated interest expense. Miscellaneous expenses, net, also increased
$.5 million from 2001 to 2002.
We provided for income taxes during the third quarter of 2002 at a rate of
38.5%, based on our current estimate of the annual effective tax rate. 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 a rate of 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 various anticipated permanent book-tax differences.
12
On a diluted basis, net earnings per share was $.52 in the third quarter of 2002
compared to $.48 in the third quarter of 2001. The diluted net earnings per
share for the third quarter of 2002 compared to 2001 was positively impacted by
$.07 due to changes in foreign currency exchange rates. Excluding the effect of
goodwill amortization, net earnings per share on a diluted basis was $.53 for
the third quarter of 2001.
Consolidated Operating Results - Nine Months Ended September 30, 2002 and 2001
Revenues decreased 2.2% to $7,772.8 million for the first nine months of 2002
compared to the same period in 2001. At constant foreign currency exchange
rates, revenues would have decreased 4.1%. The favorable impact from changes in
exchange rates experienced during the second and third quarters of 2002 was
slightly offset by an unfavorable impact in the first quarter of 2002. Revenue
growth for the first nine months of 2002 attributable to acquisitions was
approximately $155 million. Revenues excluding acquisitions decreased 4.1%, or
6.0% on a constant currency basis, for the first nine months of 2002 compared to
2001.
Gross profit decreased 5.6% to $1,394.7 million for the first nine months of
2002 compared to 2001. Gross profit margin decreased 70 basis points (.7%) from
the first nine months of 2001 to 17.9% in 2002. The year-over-year gross profit
margin declines experienced for the past two quarters are somewhat offset by
gains experienced during the first quarter of 2002. Gross profit growth
attributable to acquisitions was approximately $46 million. Excluding
acquisitions, gross profit decreased 8.7%, or decreased 10.7% on a constant
currency basis, for the first nine months of 2002 compared to 2001. Acquisitions
had a positive impact of 20 basis points (.2%) on gross profit margin for the
first nine months of 2002.
Selling and administrative expenses, excluding goodwill amortization during the
first nine months of 2001, decreased 2.8% to $1,247.0 million in the first nine
months of 2002 (4.2% on a constant currency basis). As a percent of revenues,
excluding goodwill amortization in 2001, selling and administrative expenses
were 16.0% in the first nine months of 2002 compared to 16.1% for the same
period in 2001. As a percent of gross profit, excluding goodwill amortization in
2001, selling and administrative expenses were 89.4% and 86.8% in the first nine
months of 2002 and 2001, respectively. The decline in the absolute level of
these expenses and the improvement as a percent of revenue are due primarily to
the continued cost control efforts and the increasing revenue levels in the
second and third quarters. The expenses as a percent of gross profit lags prior
year due to the decline in gross profit.
Operating profit decreased 19.4% for the first nine months of 2002 compared to
2001 and operating profit margin was 1.9% and 2.3% for 2002 and 2001,
respectively. Excluding goodwill amortization in 2001, operating profit
decreased 24.3% from 2001 (28.9% on a constant currency basis). This decrease
was due primarily to the lower revenue and gross profit levels in 2002 compared
to 2001 somewhat offset by the continued cost control efforts. Acquisitions
contributed approximately $3 million to operating profit during the first nine
months of 2002. On an organic constant currency basis, excluding goodwill
amortization in 2001, operating profit decreased 30.2% in the first nine months
of 2002 compared to 2001.
Interest and other expense decreased $.3 million from the first nine months of
2001 to $28.9 million in the first nine months of 2002. Net interest expense,
including the loss on sale of accounts receivable, was $25.6 million in the
first nine months of 2002 compared to $26.0 million in the first nine months of
2001. This decrease is primarily due to lower interest rates during 2002, offset
somewhat by the result of the stronger Euro exchange rate impacting our
Euro-denominated interest expense.
We provided for income taxes during the first nine months of 2002 at a rate of
38.5%, based on our current estimate of the annual effective tax rate. 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 a rate of 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 various anticipated permanent book-tax differences.
13
On a diluted basis, net earnings per share was $.94 in the first nine months of
2002 compared to $1.28 for the same period in 2001. The diluted net earnings per
share for the first nine months of 2002 compared to 2001 was positively impacted
by $.09 due to changes in foreign currency exchange rates. Excluding the effect
of goodwill amortization during the first nine months of 2001, net earnings per
share on a diluted basis, was $1.42.
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 determined compensation cost consistent with the
method of SFAS No. 123, our reported net earnings per share, on a diluted basis,
would be $.51 ($.01 less than the amount reported) and $.91 ($.03 less than the
amount reported) for the third quarter and first nine months of 2002,
respectively.
Segment Operating Results
United States
The United States experienced an increase in revenues of 6.3% for the third
quarter of 2002 compared to 2001 due to improved customer demand, especially in
the Light Industrial and Professional sectors. Franchise acquisitions had a
positive impact on revenue growth. Excluding these acquisitions, revenues
increased 2.5% from the third quarter of 2001. For the first nine months of 2002
compared to 2001, revenues decreased 8.7%, or 11.8% excluding acquisitions.
Operating unit profit (`OUP') margin in the United States was 2.4% and 1.8% for
the third quarter of 2002 and 2001, respectively, and 1.1% and 1.9% for the
first nine months of 2002 and 2001, respectively. The year-over-year increase in
OUP margin in the third quarter was due to the leveraging impact of the
increased revenue levels and the continued cost control efforts. The decrease in
OUP margin for the nine-month period was primarily a result of lower gross
profit levels caused by the decline in revenues during much of the period, and
lower gross profit margins.
France
In France, revenues increased .5% in Euro during the third quarter of 2002
compared to 2001 due to slightly improved customer demand. This represents the
second consecutive quarter of improved year-over-year revenue variances.
Revenues, for the first nine months of 2002 compared to 2001 were down 6.3% in
Euro.
During the third quarter of 2002 and 2001, OUP margin in France was 3.7% and
3.8% respectively. Year-over-year gross profit margin decreases were largely
offset by the effect of continued cost control efforts. OUP margin for the first
nine months of 2002, was 3.4%, consistent with that experienced in 2001.
United Kingdom
United Kingdom revenues during the third quarter of 2002, on a constant currency
basis, were 10.4% below the third quarter of 2001, which represents the
continued lower demand for workers in the United Kingdom, particularly in the IT
sector. On a constant currency basis, revenues decreased 12.2% during the first
nine 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
declines.
In the United Kingdom, OUP margin for the third quarter of 2002 was 2.0%
compared to 3.6% in 2001. The decrease was a direct result of the lower gross
profit levels. In the first nine months of 2002, OUP margin was 1.4% compared to
3.0% for 2001.
14
Other Europe
In Other Europe, revenues, on a constant currency basis, during the third
quarter of 2002 increased 1.5% from the same period in 2001. During the third
quarter of 2002, we continued to experience year-over-year growth in southern
Europe, offset by continued negative variances in central and northern Europe.
During the first nine months of 2002 compared to 2001, revenues, on a constant
currency basis, decreased 1.9%.
OUP margin in Other Europe was 4.4% and 4.3% for the third quarter of 2002 and
2001, respectively, and 3.4% and 4.0% for the first nine months of 2002 and
2001, respectively. The improved OUP margin for the third quarter was a result
of the increase in revenues, along with our cost control efforts. The decline in
OUP margin for the first nine months of 2002 was due primarily to lower gross
profit levels, as we had higher revenue growth in the countries with lower gross
profit margins.
Other Operations
Revenues of Other Operations increased 9.0%, on a constant currency basis,
during the third quarter of 2002 compared to 2001. Acquisitions did not have a
significant impact on the revenue growth experienced in the third quarter of
2002. During the first nine months of 2002 compared to 2001, revenues increased
16.9%, on a constant currency basis. Although acquisitions accounted for a
portion of this increase, Other Operations posted organic revenue growth of 6.4%
for the first nine months of 2002 compared to 2001.
In Other Operations, OUP margin for the third quarter of 2002 was .8% compared
to .9% for the same period in 2001. In the first nine months of 2002 and 2001,
OUP margin was .3% and .7%, respectively. The impact of higher gross profit
acquisitions has been offset by continued investments in this segment.
Liquidity and Capital Resources
Cash provided by operating activities was $70.1 million in the first nine months
of 2002 compared to $57.6 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 $70.1 million and $10.1 million for the
first nine months of 2002 and 2001, respectively. This change is primarily a
result of higher accounts receivable balances in 2002 compared to 2001, due to
increased revenue levels in 2002, offset by a three-day reduction in Days Sales
Outstanding. Cash provided by operating activities before changes in working
capital requirements was $140.2 million and $169.7 million in the first nine
months of 2002 and 2001, respectively. This decrease is a result of lower
earnings levels during 2002 compared to the same period in 2001.
Capital expenditures were $40.2 million in the first nine months of 2002
compared to $66.6 million during the first nine months of 2001. Capital
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. In general, expenditures during 2002 were lower
than 2001 levels due to fewer new office openings as a result of the economic
slowdown.
During the first nine months of 2002, we acquired certain companies, primarily
U.S. franchises, and made other acquisition-related payments totaling $31.2
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).
15
Net repayments of borrowings were $19.7 million for the first nine months of
2002 compared to net proceeds from borrowings of $356.4 million in the first
nine months of 2001. The net repayments in 2002 were a result of the lower level
of capital expenditures and acquisitions. The proceeds in 2001 mainly relate to
the issuance of our convertible debentures. The 2002 amounts shown as Proceeds
from long-term debt and Repayment of long-term debt relate primarily to
commercial paper borrowings.
As of September 30, 2002, we had aggregate commitments related to debt and
operating leases that totaled approximately $1,140.0 million. We had $1,130.2
million 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 offset by debt repayments made during the third quarter of 2002 and our
settlement of the forward repurchase agreement. 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 $2,249.0 million at September 30, 2002 from
$1,917.8 million at December 31, 2001. Changes in foreign currency exchange
rates during the first nine months of 2002 increased the receivable balance by
approximately $165 million. The remaining increase is a result of higher
business volume during the third quarter of 2002 compared to 2001. There were no
amounts advanced under the Receivables Facility as of September 30, 2002, or
December 31, 2001. As of September 30, 2001, there was $43.0 million advanced
under this facility.
During July 2002, we extended the 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.
As of September 30, 2002, we had borrowings of $199.1 million and letters of
credit of $71.7 million outstanding under our $450.0 million five-year credit
facility, and borrowings of $37.5 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
and intent to refinance them on a long-term basis under this facility.
During October 2002, we renewed our 364-day revolving credit facility with a
syndicate of commercial banks. The availability under this facility was reduced
from $300.0 million to $285.0 million and it now matures in October 2003. All
other terms and conditions remain unchanged.
Our $450.0 million five-year credit facility and $285.0 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 3.33 to 1 and a fixed
charge ratio of 2.22 to 1 as of September 30, 2002. Based upon current
forecasts, we do not expect to violate these covenants in the coming year.
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
September 30, 2002, such available lines totaled $184.6 million, of which $173.1
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. There were no debentures "put" to us on the first anniversary date and
the next "put" date is on the third anniversary date in 2004, which is also the
first date we may "call" the debentures. 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 would have a
dilutive effect on existing shareholders.
16
During June 2002, Moody's Corporation downgraded our credit rating one notch
from Baa2 to Baa3, and during October 2002, Standard & Poor's downgraded our
credit rating from BBB to BBB- while maintaining a negative outlook. As a result
of these actions, the facility fee and interest rate charged on our revolving
credit agreements increased by .05% and .175%, respectively. Given our current
debt levels, we estimate these increases will result in approximately $.2
million of additional total facility fees and interest expense in the fourth
quarter of 2002. These downgrades do not impact our ability to borrow under our
existing credit facilities.
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.
On October 29, 2002, the Board of Directors declared a cash dividend of $.10 per
share which is payable on December 16, 2002 to shareholders of record on
December 3, 2002.
Regulation
The French government is currently reviewing certain of their social programs,
including the 35-hour workweek, minimum working wage and social contribution
subsidies. As no specific changes to these regulations have been finalized, we
cannot currently estimate the impact, if any, on the future results of our
French operations or our consolidated financial statements.
In March 2002, the European Commission released proposed legislation, the Agency
Workers Directive ("AWD"), aimed at improving the quality of temporary staffing
work through a principle of non-discrimination between temporary staff and
permanent employees. AWD is currently being discussed by the European
Parliament, and once it is passed, the EU countries will have two years to
implement it. Given the uncertainty surrounding the final form of AWD and the
actual implementation timeframe, we cannot currently estimate the impact, if
any, on the future results of our EU 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 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 exposure to market risk for changes in interest rates relates primarily to
our long-term debt obligations. We have historically managed interest rates
through the use of a combination of fixed and variable rate borrowings and
interest rate swap agreements.
During September 2002, we entered into derivative financial instruments to swap
our EURO 150.0 million unsecured notes, at 6.25%, due March 2005 to floating
U.S. LIBOR, yielding an initial effective interest rate of 4.39%. These
instruments expire in March 2005.
We designate these interest rate swaps as a fair value hedge, offsetting changes
in the fair value of the notes due to fluctuations in interest rates. Changes in
the fair value hedge and the fair value of the notes throughout the contract
term will be reflected in the income statement. In addition, gains and losses
arising from foreign exchange fluctuations throughout the contract term on the
related derivative instruments will be recorded in the income statement,
offsetting the foreign exchange gain or loss recorded on the notes. As of
September 30, 2002, these instruments reduced interest expense by $.1 million.
Our 2001 Annual Report on Form 10-K contains certain other disclosures about
market risks affecting us. There have been no other material changes to the
information provided which would require additional disclosures as of the date
of this filing.
Item 4 - Controls and Procedures
We maintain a set of disclosure controls and procedures that are designed to
ensure that information required to be disclosed by us in the reports filed by
us under the Securities Exchange Act of 1934, as amended ("Exchange Act") is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms. Within the 90 days prior to the date of this
report, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chairman and Chief Executive
Officer and our Executive Vice President and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-14 of the Exchange Act. Based on that
evaluation, our Chairman and Chief Executive Officer and our Executive Vice
President and Chief Financial Officer concluded that our disclosure controls and
procedures are effective.
There have been no significant changes in our internal controls or other factors
that could significantly affect those controls subsequent to the conclusion of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
18
PART II - OTHER INFORMATION
Item 5 - Other Information
The Audit Committee of our Board of Directors has approved the following
non-audit services performed or to be performed for us by our independent
accountants, PricewaterhouseCoopers, LLP:
(a) assistance in the preparation and filing of our international tax
returns;
(b) federal, state and international tax planning strategies;
(c) audits of our employee benefit plans;
(d) assistance with filing a claim for an excise tax refund;
(e) quality assurance services related to our generation of remuneration
survey data; and
(f) additional non-audit services that are permitted under our policy
regarding non-audit services and that do not involve payments in
excess of $50,000 in the aggregate.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amended and Restated 364-Day Credit Agreement, dated as of
October 7, 2002, among Manpower Inc., the initial lenders named
therein, Citibank, N.A. and Salomon Smith Barney Inc.
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.
99.1 Statement of Jeffrey 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) The Company filed one report on Form 8-K dated August 13, 2002 with
respect to Item 5 - Other Events.
19
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: November 4, 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)
20
CERTIFICATION
I, Jeffrey A. Joerres, Chairman and Chief Executive Officer of Manpower Inc.,
certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Manpower Inc.;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Dated: November 4, 2002
/s/ Jeffrey A. Joerres
- ---------------------------------------------
Jeffrey A. Joerres
Chairman, Chief Executive Officer
21
CERTIFICATION
I, Michael J. Van Handel, Executive Vice President and Chief Financial Officer
of Manpower Inc., certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Manpower Inc.;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
(6) The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: November 4, 2002
/s/ Michael J. Van Handel
- ---------------------------------------------
Michael J. Van Handel
Executive Vice President,
Chief Financial Officer
22