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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:
MARCH 31, 2003
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 MARCH 31, 2003
-------- -------------------------
Common Stock, $.01 par value 77,362,893
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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.......................11-15
Item 3 Quantitative and Qualitative Disclosures About Market Risk...............15
Item 4 Controls and Procedures..................................................15
PART II OTHER INFORMATION
Item 5 Other Information........................................................16
Item 6 Exhibits and Reports on Form 8-K.........................................16
FINANCIAL MEASURES ....................................................................17-18
SIGNATURES .......................................................................19
CERTIFICATIONS ....................................................................20-21
EXHIBIT INDEX .......................................................................22
-2-
PART I - FINANCIAL INFORMATION
Item 1 -- Financial Statements
MANPOWER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
ASSETS
MARCH 31, DECEMBER 31,
2003 2002
------------- -------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 328.7 $ 284.0
Accounts receivable, less allowance for
doubtful accounts of $72.5 and $70.3, respectively 2,137.2 2,214.2
Prepaid expenses and other assets 80.9 76.0
Future income tax benefits 76.3 79.1
------------- -------------
Total current assets 2,623.1 2,653.3
OTHER ASSETS:
Goodwill and other intangible assets, less accumulated
amortization of $47.4 and $46.7, respectively 542.7 545.7
Investments in licensees 62.2 60.5
Other assets 272.4 253.4
------------- -------------
Total other assets 877.3 859.6
PROPERTY AND EQUIPMENT:
Land, buildings, leasehold improvements and equipment 543.7 533.4
Less: accumulated depreciation and amortization 360.2 344.6
------------- -------------
Net property and equipment 183.5 188.8
------------- -------------
Total assets $ 3,683.9 $ 3,701.7
============= =============
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
MARCH 31, DECEMBER 31,
2003 2002
------------- -------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 478.4 $ 447.0
Employee compensation payable 96.7 96.2
Accrued liabilities 263.9 295.7
Accrued payroll taxes and insurance 332.7 391.6
Value added taxes payable 306.0 309.0
Short-term borrowings and current maturities of long-term debt 19.8 22.8
------------- -----------
Total current liabilities 1,497.5 1,562.3
OTHER LIABILITIES:
Long-term debt 810.1 799.0
Other long-term liabilities 347.1 340.5
------------- -----------
Total other liabilities 1,157.2 1,139.5
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 87,308,093 and 87,043,956 shares, respectively .9 .9
Capital in excess of par value 1,702.8 1,696.2
Accumulated deficit (274.8) (289.7)
Accumulated other comprehensive income (loss) (115.9) (123.7)
Treasury stock at cost, 9,945,200 shares (283.8) (283.8)
------------- -----------
Total shareholders' equity 1,029.2 999.9
------------- -----------
Total liabilities and shareholders' equity $ 3,683.9 $ 3,701.7
============= ===========
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
MARCH 31,
-------------------
2003 2002
-------- --------
Revenues from services $2,678.7 $2,284.0
Cost of services 2,212.7 1,869.2
-------- --------
Gross profit 466.0 414.8
Selling and administrative expenses 433.0 396.1
-------- --------
Operating profit 33.0 18.7
Interest and other expense 8.6 8.0
-------- --------
Earnings before income taxes 24.4 10.7
Provision for income taxes 9.5 3.8
-------- --------
Net earnings $ 14.9 $ 6.9
======== ========
Net earnings per share $ .19 $ .09
======== ========
Net earnings per share -- diluted $ .19 $ .09
======== ========
Weighted average common shares 77.3 76.1
======== ========
Weighted average common shares -- diluted 77.9 77.3
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
5
MANPOWER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
3 MONTHS ENDED
MARCH 31,
------------------------------------
2003 2002
---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 14.9 $ 6.9
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 15.6 14.9
Amortization of discount on convertible debentures 1.9 1.8
Deferred income taxes 3.6 1.2
Provision for doubtful accounts 3.0 4.9
Changes in operating assets and liabilities:
Accounts receivable 124.6 40.0
Other assets (1.3) (12.1)
Other liabilities (103.1) (27.2)
---------------- -----------------
Cash provided by operating activities 59.2 30.4
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12.1) (14.1)
Acquisitions of businesses, net of cash acquired (.7) (21.5)
Proceeds from the sale of property and equipment 1.0 1.3
---------------- -----------------
Cash used by investing activities (11.8) (34.3)
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term borrowings (3.2) (2.9)
Proceeds from long-term debt 25.8 176.9
Repayment of long-term debt (36.2) (181.0)
Proceeds from stock option and purchase plans 6.6 9.2
Repurchases of common stock -- (30.7)
---------------- -----------------
Cash used by financing activities (7.0) (28.5)
---------------- -----------------
Effect of exchange rate changes on cash 4.3 (2.6)
---------------- -----------------
Net increase (decrease) in cash and cash equivalents 44.7 (35.0)
Cash and cash equivalents, beginning of year 284.0 245.8
---------------- -----------------
Cash and cash equivalents, end of period $ 328.7 $ 210.8
================ =================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 12.0 $ 11.8
================ =================
Income taxes paid $ 17.6 $ 24.4
================ =================
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 THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(IN MILLIONS, EXCEPT PER SHARE DATA)
(1) Basis of Presentation and Accounting Policies
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 2002 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.
Stock Compensation Plans
We account for all of our fixed stock option plans and our 1990 Employee Stock
Purchase Plan in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations. No stock-based employee
compensation expense is reflected in Net earnings as all options granted under
those plans had an exercise price equal to the market value of the underlying
common stock on the date of grant. The following table illustrates the effect on
Net earnings and Net earnings per share if we had applied the fair value
recognition provisions of SFAS No. 123 and 148 to stock-based employee
compensation.
3 MONTHS ENDED
MARCH 31,
----------------
2003 2002
------ ------
Net earnings, as reported $14.9 $ 6.9
Less: Total stock-based employee compensation expense determined under
the fair value method for all awards, net of related tax effects (1.8) (.8)
------- ------
Pro forma net earnings $13.1 $ 6.1
======= ======
Net earnings per share -- basic:
As reported $ .19 $ .09
Pro forma $ .17 $ .08
Net earnings per share -- diluted:
As reported $ .19 $ .09
Pro forma $ .17 $ .08
7
(2) Income Taxes
We provided for income taxes during the first quarter of 2003 at a rate of
39.0%, 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 the
impact of higher foreign income tax rates, valuation reserves recorded against
foreign net operating losses and U.S. taxes on foreign earnings. For the year
ended December 31, 2002 we provided for income taxes at a rate of 39.8%. The
estimated effective tax rate for 2003 is lower than the 2002 rate due to
estimated changes in the mix of taxable income between countries.
(3) Earnings Per Share
The calculations of Net earnings per share and Net earnings per share -- diluted
are as follows:
3 MONTHS ENDED
MARCH 31,
----------------
2003 2002
------ ------
Net earnings per share:
Net earnings available to common shareholders $ 14.9 $ 6.9
Weighted average common shares outstanding 77.3 76.1
------ ------
$ .19 $ .09
====== ======
Net earnings per share -- diluted:
Net earnings available to common shareholders $ 14.9 $ 6.9
Weighted average common shares outstanding 77.3 76.1
Effect of dilutive stock options .6 1.2
------ ------
77.9 77.3
------ ------
$ .19 $ .09
====== ======
The calculation of Net earnings per share -- diluted does not include certain
stock option grants because the exercise price for these options is greater than
the average market price of the common shares during the period. There were 2.6
million and .2 million of such shares excluded from the calculation for the
three months ended March 31, 2003 and 2002, respectively.
In addition, there were 6.1 million shares of common stock that were
contingently issuable under our Debentures for the three months ended March 31,
2003 and 2002. Such shares are excluded from the calculation of Net earnings per
share -- diluted based upon the terms of the Debentures and our intent to settle
any potential "put" of the Debentures 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.
The contingently issuable shares under the 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 the average
share price is 110% of the accredited value of the Debentures at the beginning
of the conversion period, as defined by the agreement or in certain other
circumstances. Given the accredited value of the Debentures at the beginning of
the current conversion period, the average share price, during the period, will
have to be approximately $46 per share for the shares to be issuable.
8
(4) Accounts Receivable Securitization
During March 2003, our Japanese subsidiary entered into a securitization of
accounts receivable agreement to transfer a maximum interest of Yen4,000.0
($33.9 at March 31, 2003) in their accounts receivable to a third-party. This
agreement expires in 2004. As a result of this transfer, our Japanese subsidiary
received cash and is required to make periodic interest payments at an annual
rate of .955%. As of March 31, 2003, there was an interest of Yen3,006.0 ($25.5)
transferred under this agreement. This amount was reflected as debt in our
consolidated balance sheets.
(5) Derivative Financial Instruments
During March 2003, we repaid Yen4,000.0 (approximately $34.0) that was
outstanding under our Five-year Facility as of December 31, 2002. In connection
with this repayment, we also terminated our interest rate swap agreement with a
notional value of Yen4,000.0, which was scheduled to expire in June 2003, for a
nominal amount.
(6) Shareholders' Equity
Comprehensive income (loss) consists of the following:
3 MONTHS ENDED
MARCH 31,
----------------
2003 2002
------ ------
Net earnings $ 14.9 $ 6.9
Other comprehensive income (loss):
Foreign currency translation adjustments 10.3 (13.5)
Unrealized gain (loss) on available for sale securities -- net of tax .3 (2.0)
Unrealized (loss) gain on derivative financial instruments -- net of tax (2.8) 1.6
------ ------
Comprehensive income (loss) $ 22.7 $ (7.0)
====== ======
On April 29, 2003, the Board of Directors declared a cash dividend of $.10 per
share, which is payable on June 16, 2003 to shareholders of record on June 3,
2003.
On April 29, 2003, our shareholders approved the 2003 Equity Incentive Plan of
Manpower Inc. Under this plan, all of our employees and directors are eligible
to receive stock options, stock appreciation rights, restricted stock, and
deferred stock grants. There will be 4.5 million shares of common stock
available for grant under this plan. Grants under this plan will be determined
on a basis consistent with that of previously existing plans. With the approval
of this plan, we will no longer make any grants under our 1994 Executive Stock
Option and Restricted Stock Plan.
(7) Interest and Other Expense (Income)
Interest and other expense (income) consists of the following:
3 MONTHS ENDED
MARCH 31,
----------------
2003 2002
------ ------
Interest expense $ 10.0 $ 9.9
Interest income (2.4) (2.6)
Foreign exchange (gains) losses (1.2) .2
Miscellaneous, net 2.2 .5
------ ------
Total $ 8.6 $ 8.0
====== ======
9
(8) Segment Data
3 MONTHS ENDED
MARCH 31,
------------------
2003 2002
-------- --------
Revenues from services:
United States (a) $ 463.5 $ 428.7
France 954.6 767.1
EMEA 886.4 764.2
Other Operations 374.2 324.0
-------- --------
$2,678.7 $2,284.0
======== ========
Operating unit profit:
United States $ 2.7 $ (4.9)
France 26.9 22.2
EMEA 9.8 11.0
Other Operations 2.4 (1.8)
-------- --------
41.8 26.5
Corporate expenses 8.8 7.8
Interest and other expense 8.6 8.0
-------- --------
Earnings before income taxes $ 24.4 $ 10.7
======== ========
(a) U.S. revenues above represent revenues from our Company-owned branches
only. U.S. Systemwide sales information is provided on page 18.
10
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operating Results - Three Months Ended March 31, 2003 and 2002
Revenues from services increased 17.3% to $2,678.7 million for the first quarter
of 2003 from the same period in 2002. Revenues were favorably impacted by
changes in foreign currency exchange rates during the period due to the
weakening of the U.S. Dollar relative to the currencies in most of our non-U.S.
markets. In constant currency, revenues increased 3.4%. Revenue growth in the
first quarter of 2003 attributable to acquisitions was approximately $7 million.
Excluding acquisitions, revenue increased 17.0%, or 3.1% on an organic constant
currency basis. Systemwide sales were $2,939.4 million and $2,540.0 million for
the first quarter of 2003 and 2002, respectively. (See Financial Measures on
pages 17 and 18 for further information on constant currency, organic constant
currency and Systemwide sales.)
Gross profit increased 12.3% to $466.0 million for the first quarter of 2003.
Gross profit margin was 17.4%, a decrease of 80 basis points (.8%) from the
first quarter of 2002. This decrease was primarily attributable to social cost
increases (related to state unemployment taxes in the United States and
subsidies in central European countries) and a change in business mix and
pricing pressures experienced throughout the world. Gross profit growth from
acquisitions was approximately $1 million, which had no impact on gross profit
margin. Excluding acquisitions, Gross profit increased 12.0%, or decreased 1.5%
on an organic constant currency basis.
Selling and administrative expenses increased 9.3% from the first quarter of
2002, to $433.0 million in the first quarter of 2003; however, these expenses
decreased 3.1% on a constant currency basis. As a percent of revenues, Selling
and administrative expenses were 16.2% in the first quarter of 2003 compared to
17.3% in the first quarter of 2002. As a percent of Gross profit, Selling and
administrative expenses were 92.9% in the first quarter of 2003 compared to
95.5% in the first quarter of 2002. These improving expense ratios are the
result of careful expense management in conjunction with growing revenues.
Operating profit increased 76.5% for the first quarter of 2003 compared to 2002
resulting in an operating profit margin of 1.2% in 2003 compared to .8% in 2002.
The increased Operating profit level reflects the improved leveraging of the
business. On a constant currency basis, Operating profit increased 38.8%.
Acquisitions did not have an impact on Operating profit.
Interest and other expense increased $.6 million from the first quarter of 2002
to $8.6 million in the first quarter of 2003. Net interest expense increased $.3
million in the quarter to $7.6 million. Translation gains were $1.2 million in
the first quarter of 2003 compared to a $.2 million loss in the first quarter of
2002. Miscellaneou s expenses, net increased $1.7 million in the quarter and
consist of bank fees and other non-operating expenses.
We provided for income taxes during the first quarter of 2003 at a rate of
39.0%, 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 the
impact of higher foreign income tax rates, valuation reserves recorded against
foreign net operating losses and U.S. taxes on foreign earnings. For the year
ended December 31, 2002 we provided for income taxes at a rate of 39.8%. The
estimated effective tax rate for 2003 is lower than the 2002 rate due to
estimated changes in the mix of taxable income between countries.
Net earnings per share, on a diluted basis, increased 111.1% to $.19 in the
first quarter of 2003 compared to $.09 in the first quarter of 2002. In constant
currency, Net earnings per share, on a diluted basis, increased 44.4%. The
higher foreign currency exchange rates positively impacted Net earnings per
share, on a diluted basis, by approximately $.06 in 2003.
11
Segment Operating Results
United States
The United States experienced an increase in revenues of 8.1% for the first
quarter of 2003 compared to 2002, due primarily to an improvement in customer
demand related to the Light Industrial and Professional sectors, however growth
rates slightly declined during the last few weeks of March. Franchise
acquisitions had a positive impact on revenue growth for the quarter. Excluding
these acquisitions, revenues increased 6.6% from the first quarter of 2002.
Systemwide sales were $687.9 million and $654.0 million for the first quarter of
2003 and 2002, respectively. (See page 18 for further information on Systemwide
sales in the United States.)
Operating unit profit ('OUP') margin in the United States was .6% and -1.1% for
the first quarter of 2003 and 2002, respectively. The year-over-year improvement
in OUP margin in the first quarter was due to the leveraging impact of the
increased revenue levels and the continued cost control efforts. The impact of
the cost control efforts was partially offset by a decrease in gross profit
margin, which resulted from higher state unemployment taxes and a shift in
business mix.
France
In France, revenues increased 24.4% (1.6% in Euro) during the first quarter of
2003 compared to 2002. Customer demand improved slightly during the first two
months of the first quarter of 2003 but slowed somewhat during March. This
quarterly growth rate, in Euro, is down slightly from that experienced in the
fourth quarter of 2002.
During the first quarter of 2003 and 2002, OUP margin in France was 2.8% and
2.9% respectively. A year-over-year gross profit margin decline was largely
offset by the effect of our continued cost control efforts. The gross profit
margin decline resulted primarily from changes in business mix and the continued
pricing pressures in the French market.
EMEA
In EMEA, which represents operations throughout Europe, the Middle East and
Africa (excluding France), revenues increased 16.0%, but declined 1.6% in
constant currency for the first quarter of 2003 compared to 2002. Revenues
declined in many of our northern European operations, but increased in most
central and southern European locations.
OUP margin for EMEA was 1.1% and 1.4% for the first quarter of 2003 and 2002,
respectively. The decline in OUP margin was a result of decreased gross profit
margins due to changes in both the geographical and service mix of business,
higher social costs, and continued pricing pressures, offset by cost savings.
Other Operations
Revenues of Other Operations increased 15.5% (12.9% in constant currency) during
the first quarter of 2003 compared to 2002. Revenue increases, in constant
currency, were experienced in virtually all markets throughout this segment.
The OUP margin for Other Operations in the first quarter of 2003 was .7%
compared to -.5% for the same period in 2002. This improvement is the result of
better leveraging, given the higher revenue levels and improved cost control.
12
Liquidity and Capital Resources
Cash provided by operating activities was $59.2 million in the first quarter of
2003 compared to $30.4 million for the first quarter of 2002. This increase is
mainly due to an improvement in our consolidated days sales outstanding ("DSO"),
offset by the timing of payroll tax payments. Cash provided by operating
activities before changes in working capital requirements was $39.0 million in
the first quarter of 2003 compared to $29.7 million in the first quarter of
2002. This increase is due primarily to the increased earnings levels in 2003.
Capital expenditures were $12.1 million in the first quarter of 2003 compared to
$14.1 million during the first quarter of 2002. These expenditures are primarily
comprised of purchases of computer equipment, office furniture and other costs
related to office openings and refurbishments, as well as capitalized software
costs.
Net cash used to repay borrowings was $13.6 million and $7.0 million in the
first quarter of 2003 and 2002, respectively.
We have aggregate commitments related to debt repayments, operating leases and
other commitments of $1,247.2 million as of March 31, 2003 compared to $1,235.5
million as of December 31, 2002. This increase primarily reflects the impact of
increased foreign currency exchange rates since December 31, 2002.
We also have entered into guarantee contracts and stand-by letters of credit
that total approximately $109.2 million and $111.1 million as of March 31, 2003
and December 31, 2002, respectively ($41.4 million and $39.4 million for
guarantees, respectively, and $67.8 million and $71.7 million for stand-by
letters of credit, respectively). The guarantees primarily relate to government
requirements for operating a temporary service company in certain countries,
operating leases, bank accounts and indebtedness. The stand-by letters of credit
relate to workers' compensation, operating leases and indebtedness. If certain
conditions were met under these arrangements, we would be required to satisfy
our obligation in cash. Due to the nature of these arrangements and our
historical experience, we do not expect to make any significant payments.
Therefore, they have been excluded from our aggregate commitments discussed
above.
Accounts receivable decreased to $2,137.2 million as of March 31, 2003 from
$2,214.2 million as of December 31, 2002. This decrease is due to seasonal
fluctuations, as the revenue levels in the first quarter are typically lower
than the fourth quarter offset by increased foreign currency exchange rates. At
December 31, 2002 exchange rates, the March 31, 2003 balance would have been
approximately $50.0 million less than reported.
During March 2003, our Japanese subsidiary entered into a securitization of
accounts receivable agreement to transfer a maximum interest of Yen4,000.0
million ($33.9 million at March 31, 2003) in their accounts receivable to a
third-party. This agreement expires in 2004. As a result of this transfer, our
Japanese subsidiary received cash and is required to make periodic interest
payments at an annual rate of .955%. As of March 31, 2003, there was an interest
of Yen3,006.0 million ($25.5 million) transferred under this agreement. This
amount was reflected as debt in our consolidated balance sheets.
During March 2003, we repaid Yen4,000.0 million (approximately $34.0 million)
that was outstanding under our Five-year Facility as of December 31, 2002. In
connection with this repayment, we also terminated our interest rate swap
agreement with a notional value of Yen4,000.0 million, which was scheduled to
expire in June 2003, for a nominal amount.
13
As of March 31, 2003, we had borrowings of $144.3 million and letters of credit
of $67.8 million outstanding under our Five-year Facility, and there were no
borrowings outstanding under our U.S. commercial paper program.
We also maintain separate lines of credit with foreign financial institutions to
meet working capital needs of our foreign operations. As of March 31, 2003, such
lines totaled $207.7 million, of which $193.7 million was unused.
Certain of our debt agreements require, among other things, that we comply with
a Debt-to-EBITDA ratio of less than 3.25 to 1 and a fixed charge ratio of
greater than 2.00 to 1. As defined in the agreements, we had a Debt-to-EBITDA
ratio of 2.76 to 1 and a fixed charge ratio of 2.39 to 1 as of March 31, 2003.
Based upon current forecasts, we expect to be in compliance with these covenants
throughout 2003.
Goodwill Impairment
In connection with SFAS No. 142, "Goodwill and Other Intangible Assets," we are
required to perform goodwill impairment reviews, at least annually, using a
fair-value-based approach. The majority of our goodwill results from our recent
acquisitions of Elan and Jefferson Wells, as well as the development of our
Empower operations.
We primarily use a discounted cash flow analysis in our impairment reviews to
estimate fair value. Significant assumptions used in this analysis include:
expected future revenue growth rates, operating unit profit margins, and working
capital levels; a discount rate; and a terminal value multiple. The revenue
growth rates and operating unit profit margins are based on our expectation of
future results.
Our operating results, including those of our more specialized operations,
continue to be negatively impacted by the worldwide economic conditions, and
during the first quarter of 2003, the results of certain of our specialized
operations were below the level forecasted during our most recent impairment
review. To the extent the results of these specialized operations continue to be
below their forecasted levels, or other factors develop, we may need to perform
an interim goodwill impairment review.
Lower earnings levels, or changes to other assumptions, could significantly
impact our estimate of the fair value of our reporting units. Such a change
could result in a goodwill impairment charge, which could have a significant
impact on the reportable segments that include the related acquisitions and 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,
2002, 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 Annual
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.
14
Item 3 -- Quantitative and Qualitative Disclosures About Market Risk
Our 2002 Annual Report on Form 10-K contains certain 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.
15
PART II - OTHER INFORMATION
Item 5 -- Other Information
The Audit Committee of our Board of Directors has approved the following
audit-related and non-audit services performed or to be performed for us by our
independent accountants, PricewaterhouseCoopers, LLP:
(a) audit-related services including:
(i) the provision of audits and reviews of pension and other retirement
plans and related consultation;
(ii) assistance and consultation regarding the application of accounting
principles; and
(iii) assistance in the registration and issuance of securities;
(b) assistance in the preparation and filing of our international tax
returns; and
(c) federal, state and international tax planning strategies.
Item 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits
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) We filed one current report on Form 8-K dated January 29, 2003 with
respect to Item 5 -- Other Events.
16
FINANCIAL MEASURES
Constant Currency
Changes in our revenues and operating profits include the impact of changes in
foreign currency exchange rates and acquisitions. We provide "constant currency"
and "organic constant currency" calculations in this Quarterly Report to remove
the impact of these items. We typically express year-over-year variances that
are calculated in constant currency and organic constant currency as a
percentage.
When we use the term "constant currency," it means that we have translated
financial data for a period into U.S. Dollars using the same foreign currency
exchange rates that we used to translate financial data for the previous period.
We believe that this calculation is a useful measure, indicating the actual
growth of our operations. Earnings from our subsidiaries are rarely repatriated
to the United States, and we typically do not incur significant gains or losses
on foreign currency transactions with our subsidiaries, therefore changes in
foreign currency exchange rates generally impact only reported earnings and not
our actual cash flow or economic condition.
When we use the term "organic constant currency," it means that we have further
removed the impact of acquisitions in the current period from our constant
currency calculation. We believe that this calculation is useful because it
allows us to show the actual growth of our pre-existing business. Constant
currency and organic constant currency percent variances, along with a
reconciliation of these amounts to certain of our reported results, are provided
below.
3 MONTHS ENDED MARCH 31, 2003
-----------------------------------------------------------------
IMPACT OF ORGANIC
VARIANCE IN ACQUISITIONS CONSTANT
REPORTED IMPACT OF CONSTANT (IN CONSTANT CURRENCY
VARIANCE CURRENCY CURRENCY CURRENCY) VARIANCE
-----------------------------------------------------------------
(Unaudited)
Revenues from services:
France 24.4% 22.8% 1.6 %
EMEA 16.0 17.6 (1.6)
Other Operations 15.5 2.6 12.9
Manpower Inc. 17.3 13.9 3.4 .3 % 3.1 %
Gross profit 12.3 13.5 (1.2) .3 (1.5)
Selling and administrative expenses 9.3 12.4 (3.1)
Operating profit 76.5 37.7 38.8
Net earnings per share -- diluted 111.1 66.7 44.4
17
Systemwide Sales
Systemwide information represents revenues from our branch offices plus the
sales activity of locations operating under a franchise agreement with us. We
consider Systemwide information to be important because it is a measure of the
total market share of all entities operating under our various brands. In the
United States, Systemwide information relates to entities operating under the
Manpower brand. Calculations of Systemwide sales on a consolidated basis and for
the United States are provided below.
3 MONTHS ENDED MARCH 31 (in millions)
-------------------------------------------------
CONSOLIDATED UNITED STATES
---------------------- -----------------------
2003 2002 2003 2002
--------- ---------- --------- ----------
(Unaudited)
Revenue from services $ 2,678.7 $ 2,284.0 $ 463.5 $ 428.7
Less: Franchise fees 6.0 6.4 5.2 4.9
Add: Franchise sales 266.7 262.4 229.6 230.2
--------- --------- -------- --------
Systemwide sales $ 2,939.4 $ 2,540.0 $ 687.9 $ 654.0
========= ========= ======== ========
18
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: May 2, 2003 /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)
19
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: May 2, 2003
/s/ Jeffrey A. Joerres
- -----------------------------------
Jeffrey A. Joerres
Chairman, Chief Executive Officer
20
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: May 2, 2003
/s/ Michael J. Van Handel
- -----------------------------------
Michael J. Van Handel
Executive Vice President,
Chief Financial Officer
21
EXHIBIT INDEX
Exhibit No. Description
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.
22