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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended:
JUNE 30, 2003
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from: to
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Commission file number: 1-10686
MANPOWER INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1672779
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
5301 N. IRONWOOD ROAD
MILWAUKEE, WISCONSIN 53217
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 961-1000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark whether the Registrant is an accelerated filer
(as defined in rule 12b-2 of the Exchange Act).
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
SHARES OUTSTANDING
CLASS AT JUNE 30, 2003
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Common Stock, $.01 par value 77,725,977
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MANPOWER INC. AND SUBSIDIARIES
INDEX
Page
Number
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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.....................................17
Item 4 Controls and Procedures........................................................................18
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders............................................19
Item 5 Other Information..............................................................................19
Item 6 Exhibits and Reports on Form 8-K...............................................................20
FINANCIAL MEASURES.........................................................................................21-22
SIGNATURES ...................................................................................................23
EXHIBIT INDEX.................................................................................................24
2
PART I - FINANCIAL INFORMATION
Item 1 -- Financial Statements
MANPOWER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
ASSETS
JUNE 30, DECEMBER 31,
2003 2002
--------------- -------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 252.1 $ 284.0
Accounts receivable, less allowance for
doubtful accounts of $77.0 and $70.3, respectively 2,437.8 2,214.2
Prepaid expenses and other assets 84.6 76.0
Future income tax benefits 77.1 79.1
--------------- -------------
Total current assets 2,851.6 2,653.3
OTHER ASSETS:
Goodwill and other intangible assets, less accumulated
amortization of $49.4 and $46.7, respectively 556.6 545.7
Investments in licensees 61.8 60.5
Other assets 305.0 253.4
--------------- -------------
Total other assets 923.4 859.6
PROPERTY AND EQUIPMENT:
Land, buildings, leasehold improvements and equipment 569.2 533.4
Less: accumulated depreciation and amortization 385.1 344.6
--------------- -------------
Net property and equipment 184.1 188.8
--------------- -------------
Total assets $ 3,959.1 $ 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
JUNE 30, DECEMBER 31,
2003 2002
--------------- --------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 521.8 $ 447.0
Employee compensation payable 96.0 96.2
Accrued liabilities 313.9 295.7
Accrued payroll taxes and insurance 395.2 391.6
Value added taxes payable 343.4 309.0
Short-term borrowings and current maturities of long-term debt 15.4 22.8
--------------- --------------
Total current liabilities 1,685.7 1,562.3
OTHER LIABILITIES:
Long-term debt 813.5 799.0
Other long-term liabilities 351.2 340.5
--------------- --------------
Total other liabilities 1,164.7 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 87,671,177 and 87,043,956 shares, respectively .9 .9
Capital in excess of par value 1,710.1 1,696.2
Accumulated deficit (253.5) (289.7)
Accumulated other comprehensive income (loss) (65.0) (123.7)
Treasury stock at cost, 9,945,200 shares (283.8) (283.8)
--------------- --------------
Total shareholders' equity 1,108.7 999.9
--------------- --------------
Total liabilities and shareholders' equity $ 3,959.1 $ 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 6 MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2003 2002 2003 2002
--------- -------- ---------- --------
Revenues from services $ 3,013.4 $ 2,602.9 $ 5,692.1 $ 4,886.9
Cost of services 2,491.9 2,135.3 4,704.6 4,004.5
--------- --------- --------- ---------
Gross profit 521.5 467.6 987.5 882.4
Selling and administrative expenses 464.5 415.8 897.5 811.9
--------- --------- --------- ---------
Operating profit 57.0 51.8 90.0 70.5
Interest and other expense 9.2 9.6 17.8 17.6
--------- --------- --------- ---------
Earnings before income taxes 47.8 42.2 72.2 52.9
Provision for income taxes 18.7 16.5 28.2 20.3
--------- --------- --------- ---------
Net earnings $ 29.1 $ 25.7 $ 44.0 $ 32.6
========= ========= ========= =========
Net earnings per share $ .38 $ .34 $ .57 $ .43
========= ========= ========= =========
Net earnings per share -- diluted $ .37 $ .33 $ .56 $ .42
========= ========= ========= =========
Weighted average common shares 77.5 75.9 77.4 76.0
========= ========= ========= =========
Weighted average common shares -- diluted 78.3 77.5 78.2 77.6
========== ========= ========= =========
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)
6 MONTHS ENDED
JUNE 30,
-------------------------------
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES: -------------- --------------
Net earnings $ 44.0 $ 32.6
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 31.4 32.8
Amortization of discount on convertible debentures 3.8 3.6
Deferred income taxes 4.7 2.4
Provision for doubtful accounts 8.0 9.1
Changes in operating assets and liabilities:
Accounts receivable (76.5) (146.4)
Other assets (25.8) (4.8)
Other liabilities 28.1 108.8
-------------- --------------
Cash provided by operating activities 17.7 38.1
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (23.8) (31.0)
Acquisitions of businesses, net of cash acquired (2.5) (29.6)
Proceeds from the sale of property and equipment 2.5 1.5
-------------- --------------
Cash used by investing activities (23.8) (59.1)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term borrowings (7.8) 21.1
Proceeds from long-term debt 26.5 364.3
Repayment of long-term debt (63.2) (368.1)
Proceeds from stock option and purchase plans 13.9 26.1
Repurchases of common stock -- (30.7)
Dividends paid (7.8) (7.6)
-------------- --------------
Cash (used) provided by financing activities (38.4) 5.1
-------------- --------------
Effect of exchange rate changes on cash 12.6 19.1
-------------- --------------
Net (decrease) increase in cash and cash equivalents (31.9) 3.2
Cash and cash equivalents, beginning of year 284.0 245.8
-------------- --------------
Cash and cash equivalents, end of period $ 252.1 $ 249.0
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 14.2 $ 14.4
============== ==============
Income taxes paid $ 35.5 $ 46.7
============== ==============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
MANPOWER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 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 related to stock options 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 6 MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ---------
Net earnings, as reported $ 29.1 $ 25.7 $ 44.0 $ 32.6
Less: Total stock-based employee compensation
expense determined under the fair value
method for all awards, net of related tax effects (1.5) (1.0) (3.3) (1.7)
---------- ---------- ---------- ---------
Pro forma net earnings $ 27.6 $ 24.7 $ 40.7 $ 30.9
========== ========== ========== =========
Net earnings per share -- basic:
As reported $ .38 $ .34 $ .57 $ .43
Pro forma $ .36 $ .33 $ .53 $ .41
Net earnings per share -- diluted:
As reported $ .37 $ .33 $ .56 $ .42
Pro forma $ .36 $ .32 $ .53 $ .40
7
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 are 4.5 million shares of common stock available
for grant under this plan. Grants under this plan are determined on a basis
consistent with that of previously existing plans. We anticipate that grants to
directors will be modified to allow for deferred stock grants, rather than stock
options, in lieu of certain cash compensation. Deferred stock grants may be
settled in cash, shares of our common stock, or a combination thereof. We will
no longer make any grants under our 1994 Executive Stock Option and Restricted
Stock Plan.
During the second quarter of 2003, we recognized $.2 of expense, net of tax,
related to restricted stock grants.
Recently Issued Accounting Standards
During April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards ("SFAS") No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities," which amends and clarifies
financial accounting and reporting for certain derivative instruments. We do not
anticipate the adoption of this statement to have a material impact on our
consolidated financial statements, as we are not currently a party to derivative
financial instruments addressed by this standard.
During May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," which
establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. We do
not anticipate the adoption of this statement to have a material impact on our
consolidated financial statements, as we are not currently a party to such
instruments addressed by this standard.
(2) Income Taxes
We provided for income taxes during the first six months 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.
8
(3) Earnings Per Share
The calculations of Net earnings per share and Net earnings per share -- diluted
are as follows:
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net earnings per share:
Net earnings available to common shareholders $ 29.1 $ 25.7 $ 44.0 $ 32.6
Weighted average common shares outstanding 77.5 75.9 77.4 76.0
----------- ----------- ----------- -----------
$ .38 $ .34 $ .57 $ .43
=========== =========== =========== ===========
Net earnings per share -- diluted:
Net earnings available to common shareholders $ 29.1 $ 25.7 $ 44.0 $ 32.6
Weighted average common shares outstanding 77.5 75.9 77.4 76.0
Effect of dilutive stock options .8 1.6 .8 1.6
----------- ----------- ----------- -----------
78.3 77.5 78.2 77.6
----------- ----------- ----------- -----------
$ .37 $ .33 $ .56 $ .42
=========== =========== =========== ===========
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
683,000 and 12,000 of such shares excluded from the calculation for the three
months ended June 30, 2003 and 2002, respectively, and 2,405,000 and 50,000 of
such shares excluded from the calculation for the six months ended June 30, 2003
and 2002, respectively.
In addition, there were 6.1 million shares of common stock that were
contingently issuable under our Debentures for both the three and six month
periods ended June 30, 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 accreted value of the Debentures at the beginning of
the conversion period, as defined by the agreement or in certain other
circumstances. 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 $46 per share for the shares to be issuable.
(4) Accounts Receivable Securitization
During March 2003, our Japanese subsidiary had transferred their interests in
Yen3,006.0 ($25.5) of their accounts receivable under a securitization agreement
and during June 2003, they terminated this agreement and replaced it with an
overdraft facility. Upon termination, we were required to repay the entire
amount initially transferred, which is included in repayments of long-term debt
on our consolidated statements of cash flows for 2003.
During July 2003, we amended our Receivables Facility in the United States to
expire in July 2004. All other terms remain unchanged and as of June 30, 2003
there were no amounts advanced under this agreement.
(5) Derivative Financial Instruments
9
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 6 MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2003 2002 2003 2002
----------- ---------- ----------- ----------
Net earnings $ 29.1 $ 25.7 $ 44.0 $ 32.6
Other comprehensive income (loss):
Foreign currency translation adjustments 44.9 50.0 55.2 36.5
Unrealized gain (loss) on
available for sale securities -- net of tax 2.0 (.8) 2.3 (2.8)
Unrealized gain (loss) on derivative
financial instruments -- net of tax 4.0 (2.6) 1.2 (1.0)
----------- ---------- ----------- ----------
Comprehensive income (loss) $ 80.0 $ 72.3 $ 102.7 $ 65.3
=========== ========== =========== ==========
On April 29, 2003, the Board of Directors declared a cash dividend of $.10 per
share, which was paid on June 16, 2003 to shareholders of record on June 3,
2003.
(7) Interest and Other Expense (Income)
Interest and other expense (income) consists of the following:
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2003 2002 2003 2002
---------- ----------- ----------- -----------
Interest expense $ 10.4 $ 10.5 $ 20.4 $ 20.4
Interest income (2.1) (2.1) (4.5) (4.7)
Foreign exchange gains (.3) (.9) (1.5) (.7)
Miscellaneous, net 1.2 2.1 3.4 2.6
---------- ----------- ----------- -----------
Total $ 9.2 $ 9.6 $ 17.8 $ 17.6
========== =========== =========== ===========
10
(8) Segment Data
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ------------- -----------
Revenues from services:
United States (a) $ 483.9 $ 474.9 $ 947.4 $ 903.6
France 1,172.0 943.3 2,126.6 1,710.4
EMEA 951.2 830.1 1,837.6 1,594.3
Other Operations 406.3 354.6 780.5 678.6
------------ ------------ ------------- -----------
$ 3,013.4 $ 2,602.9 $ 5,692.1 $ 4,886.9
============ ============ ============= ===========
Operating unit profit:
United States $ 10.3 $ 8.3 $ 13.0 $ 3.4
France 41.9 32.7 68.8 54.9
EMEA 7.6 16.7 17.4 27.7
Other Operations 6.5 1.6 8.9 (.2)
------------ ------------ ------------- -----------
66.3 59.3 108.1 85.8
Corporate expenses 9.3 7.4 18.1 15.2
Amortization of other intangible assets -- .1 -- .1
Interest and other expense 9.2 9.6 17.8 17.6
------------ ------------ ------------- -----------
Earnings before income taxes $ 47.8 $ 42.2 $ 72.2 $ 52.9
============ ============ ============= ===========
(a) United States revenues above represent revenues from our Company-owned
branches only. U.S. Systemwide sales information is provided on page 22.
11
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operating Results - Three Months Ended June 30, 2003 and 2002
Revenues from services increased 15.8% to $3,013.4 million for the second
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 1.0%. Revenue growth in the
second quarter of 2003 attributable to acquisitions was approximately $5 million
or .2% of revenue. Systemwide sales were $3,301.6 million and $2,892.1 million
for the second quarter of 2003 and 2002, respectively. (See Financial Measures
on pages 21 and 22 for further information on constant currency and Systemwide
sales.)
Gross profit increased 11.6% to $521.5 million for the second quarter of 2003.
Gross profit margin was 17.3%, a decrease of 70 basis points (.7%) from the
second quarter of 2002. This decrease was attributable to changes in the
geographical mix of business, payroll tax and social cost increases, a change in
the service mix of business and pricing pressures experienced throughout the
world. Gross profit growth from acquisitions was minimal and had no impact on
gross profit margin.
Selling and administrative expenses increased 11.7% from the second quarter of
2002, to $464.5 million in the second quarter of 2003. This increase is
primarily due to the changes in exchange rates, as these expenses decreased 1.6%
on a constant currency basis. As a percent of revenues, Selling and
administrative expenses were 15.4% in the second quarter of 2003 compared to
16.0% in the second quarter of 2002. The improvement in this ratio is a result
of careful expense management in conjunction with growing revenues.
Operating profit increased 10.1% for the second quarter of 2003 compared to 2002
resulting in an operating profit margin of 1.9% in 2003 compared to 2.0% in
2002. On a constant currency basis, Operating profit decreased 8.5%.
Acquisitions did not have an impact on Operating profit.
Interest and other expense decreased $.4 million from the second quarter of 2002
to $9.2 million in the second quarter of 2003. Net interest expense decreased
$.1 million in the quarter to $8.3 million. Translation gains were $.3 million
in the second quarter of 2003 compared to $.9 million in the second quarter of
2002. Miscellaneous expenses, net decreased $.9 million and consist of bank fees
and other non-operating expenses and income.
We provided for income taxes during the second 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 12.1% to $.37 in the
second quarter of 2003 compared to $.33 in the second quarter of 2002. In
constant currency, Net earnings per share, on a diluted basis, decreased 9.1%.
The change in foreign currency exchange rates positively impacted Net earnings
per share, on a diluted basis, by approximately $.07 in the second quarter of
2003.
12
Segment Operating Results
United States
The United States experienced an increase in revenues of 1.9% for the second
quarter of 2003 compared to 2002, reflecting a decline in revenue growth from
the first quarter growth rate of 8.1%. Growth in the light industrial sector
slowed during the quarter (an increase of 1% in the second quarter compared to
growth of 13% in the first quarter), while we saw improvement in the office
sector and continued growth in the professional sector of 7% for the quarter.
Franchise acquisitions added 1.1% to revenue growth in the United States for the
quarter. Revenues for the first half of 2003 increased 4.8% from the same period
in the prior year (3.5% excluding franchise acquisitions). Systemwide sales were
$727.4 million and $724.3 million for the first quarter of 2003 and 2002,
respectively, and $1,415.3 million and $1,378.3 million for the first half of
2003 and 2002, respectively. (See page 22 for further information on Systemwide
sales in the United States.)
Operating unit profit ("OUP") margin in the United States was 2.1% and 1.7% for
the second quarter of 2003 and 2002, respectively, and 1.4% and .4% for the
first half of 2003 and 2002, respectively. The year-over-year improvement in OUP
margin during 2003 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 24.3% (.6% in Euro) during the second quarter of
2003 compared to 2002. This quarterly growth rate, in Euro, reflects a slowing
demand for services experienced throughout the quarter. It represents a decrease
from the growth rate of 1.6% experienced during the fist quarter of 2003 and
4.3% during the fourth quarter of 2002.
During the second quarter of 2003 and 2002, OUP margin in France was 3.6% and
3.5%, respectively. The OUP margin was 3.2% for the first half of 2003 and 2002.
Our continued cost control efforts offset a slight decline in the year-over-year
gross profit margin.
EMEA
In EMEA, which represents operations throughout Europe, the Middle East and
Africa (excluding France), revenues increased 14.6%, but declined 2.7% in
constant currency for the second quarter of 2003 compared to 2002. For the first
half of 2003, revenues for EMEA were 15.3% above prior year levels (down 2.1% in
constant currency). Positive year-over-year revenue variances were experienced
in Germany, Italy, Spain and our Brook Street operations, while negative
variances were experienced in The Netherlands, the Nordics and our Manpower UK
operations due to continued weakening in those markets.
OUP margin for EMEA was .8% and 2.0% for the second quarter of 2003 and 2002,
respectively, and .9% and 1.7% for the first half of 2003 and 2002,
respectively. The decline in OUP margin was primarily the result of decreased
gross profit margins due to changes in both the geographical and service mix of
business, higher social costs, and pricing pressures in The Netherlands.
13
Other Operations
Revenues of Other Operations increased 14.6% (9.5% in constant currency) during
the second quarter of 2003 compared to 2002. For the first six months of 2003,
revenue increased 15.0% from 2002 (11.1% in constant currency). The majority of
markets in this segment experienced revenue increases, in constant currency,
during the second quarter and the first half of 2003.
The OUP margin for Other Operations in the second quarter of 2003 and 2002 was
1.6% and .4%, respectively, and 1.1% and 0% in the first half of 2003 and 2002,
respectively. This improvement is the result of higher gross profit margins and
good cost control, particularly in Japan.
Operating Results - Six Months Ended June 30, 2003 and 2002
Revenues from services increased 16.5% to $5,692.1 million for the first half 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 2.1%. Revenue growth in the first half of
2003 attributable to acquisitions was approximately $13 million or .3% of
revenues. Systemwide sales were $6,241.0 million and $5,432.1 million for the
first half of 2003 and 2002, respectively. (See Financial Measures on pages 21
and 22 for further information on constant currency and Systemwide sales.)
Gross profit increased 11.9% to $987.5 million for the first half of 2003. Gross
profit margin was 17.3%, a decrease of 70 basis points (.7%) from the first half
of 2002. This decrease was attributable to changes in the geographical mix of
business, payroll tax and social cost increases, a change in the service mix of
business and pricing pressures experienced throughout the world. Gross profit
growth from acquisitions was approximately $1.5 million, which had no impact on
gross profit margin.
Selling and administrative expenses increased 10.5% from the first half of 2002,
to $897.5 million in the first half of 2003. This increase is primarily due to
the changes in exchange rates, as these expenses decreased 2.4% on a constant
currency basis. As a percent of revenues, Selling and administrative expenses
were 15.8% in the first half of 2003 compared to 16.6% in the first half of
2002. The improvement is a result of careful expense management in conjunction
with growing revenues.
Operating profit increased 27.7% for the first half of 2003 compared to 2002
resulting in an operating profit margin of 1.6% in 2003 compared to 1.4% in
2002. The increased Operating profit level primarily reflects the improved
leveraging of the business experienced during the first quarter of 2003. On a
constant currency basis, Operating profit increased 4.1%. Acquisitions did not
have an impact on Operating profit.
Interest and other expense increased $.2 million from the first half of 2002 to
$17.8 million in the first half of 2003. Net interest expense increased $.2
million in 2003 to $15.9 million. Translation gains were $1.5 million in the
first half of 2003 compared to $.7 million in the first half of 2002.
Miscellaneous expenses, net increased $.8 million in the first half of 2003
compared to 2002 and consist of bank fees and other non-operating expenses and
income.
We provided for income taxes during the first six months 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.
14
Net earnings per share, on a diluted basis, increased 33.3% to $.56 in the first
six months of 2003 compared to $.42 in 2002. In constant currency, Net earnings
per share, on a diluted basis, increased 2.4%. The change in foreign currency
exchange rates positively impacted Net earnings per share, on a diluted basis,
by approximately $.13 in 2003.
Liquidity and Capital Resources
Cash provided by operating activities was $17.7 million in the first half of
2003 compared to $38.1 million for the same period in 2002. This decrease mainly
reflects the changes in operating assets and liabilities due primarily to the
timing of vendor and payroll-related payments offset by a one-day improvement in
our year-over-year consolidated days sales outstanding ("DSO").
Capital expenditures were $23.8 million in the first half of 2003 compared to
$31.0 million during the first half 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 $44.5 million in the first half of 2003
compared to $17.3 million of net cash provided by borrowings during the first
half of 2002.
We have aggregate commitments related to debt repayments, operating leases and
other commitments of $1,245.9 million as of June 30, 2003 compared to $1,235.5
million as of December 31, 2002. This increase primarily reflects the impact of
changes in foreign currency exchange rates since December 31, 2002.
We also have entered into guarantee contracts and stand-by letters of credit
that total approximately $116.5 million and $111.1 million as of June 30, 2003
and December 31, 2002, respectively ($44.3 million and $39.4 million for
guarantees, respectively, and $72.2 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 under
these arrangements. Therefore, they have been excluded from our aggregate
commitments discussed above.
Accounts receivable increased to $2,437.8 million as of June 30, 2003 from
$2,214.2 million as of December 31, 2002. This increase is due to changes in
foreign currency exchange rates and higher seasonal business volume. At December
31, 2002 exchange rates, the June 30, 2003 balance would have been approximately
$155.0 million less than reported.
During March 2003, our Japanese subsidiary had transferred their interests in
Yen3,006.0 million ($25.5 million) of their accounts receivable under a
securitization agreement and during June 2003, they terminated this agreement
and replaced it with an overdraft facility. Upon termination, we were required
to repay the entire amount initially transferred, which is included in
repayments of long-term debt on our consolidated statements of cash flows for
2003.
During July 2003, we amended our Receivables Facility in the United States to
expire in July 2004. All other terms remain unchanged and as of June 30, 2003
there were no amounts advanced under this agreement. Currently, there is $200.0
million eligible to be advanced to us under this agreement.
15
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.
As of June 30, 2003, we had borrowings of $149.8 million and letters of credit
of $72.2 million outstanding under our Five-year Facility, and there were no
borrowings outstanding under our U.S. commercial paper program. Additional
borrowings of $510.3 million were available to us under our Five-year Facility
and 364-day Facility as of June 30, 2003.
We also maintain separate lines of credit with foreign financial institutions to
meet working capital needs of our foreign operations. As of June 30, 2003, such
lines totaled $229.8 million, of which $220.2 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 2.72 to 1 and a fixed charge ratio of 2.38 to 1 as of June 30, 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
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 six months of 2003, the results of certain of our specialized
operations were below the level forecasted during our most recent impairment
review. During the third quarter, we will perform our annual impairment review
for 2003.
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.
Legal Regulations
During 2002, the French government passed legislation related to various social
programs, including the 35-hour workweek, minimum working wage and social
contribution subsidies. At the time of filing our 2002 Annual Report to
Shareholders it was difficult to estimate the impact of these changes on our
future financial results. We estimated at the time that the maximum possible
impact of the legislation would be a reduction of euro 10 million in gross
profit in each of the second half of 2003 and the first half of 2004.
The rules surrounding these social programs have now been finalized and we do
not anticipate that there will be a material impact on our financial results in
either 2003 or 2004.
In 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
16
non-discrimination between temporary staff and permanent employees. The AWD is
no longer being discussed in the European Parliament, and it is not expected to
be passed in its current form, if at all. Given the uncertainty surrounding the
AWD, we cannot currently estimate the impact, if any, on the future results of
our European operations or our consolidated financial statements.
Recently Issued Accounting Standards
During April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards ("SFAS") No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities," which amends and clarifies
financial accounting and reporting for certain derivative instruments. We do not
anticipate the adoption of this statement to have a material impact on our
consolidated financial statements, as we are not currently a party to derivative
financial instruments addressed by this standard.
During May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," which
establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. We do
not anticipate the adoption of this statement to have a material impact on our
consolidated financial statements, as we are not currently a party to such
instruments addressed by this standard.
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.
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 material changes to the information
provided which would require additional disclosures as of the date of this
filing, except for the termination of our interest rate swap agreement with a
notional value of Yen4,000.0 million that was previously identified.
17
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. 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-15 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 as of the end of the period covered by this report.
There have been no changes in our internal control over financial reporting
identified in connection with the evaluation discussed above that occurred
during our last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
18
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On April 29, 2003, at our Annual Meeting of Shareholders (the "Annual Meeting")
our shareholders voted on proposals to: (1) elect three directors to serve until
2006 as Class I directors; (2) approve the 2003 Equity Incentive Plan of
Manpower Inc.; and (3) ratify the appointment of PricewaterhouseCoopers LLP as
our independent auditors for 2003. In addition, Willie D. Davis and Terry A.
Hueneke continued as Class II directors (term expiring 2004), and J. Thomas
Bouchard, Rozanne L. Ridgeway and Edward J. Zore continued as Class III
directors (term expiring 2005). The results of the proposals voted upon at the
Annual Meeting are as follows:
Broker
For Against Withheld Abstain Non-Vote
--- ------- -------- ------- --------
1. a) Election of Jeffery A. Joerres 64,200,146 -- 761,013 -- --
b) Election of Dennis Stevenson 41,221,430 -- 23,739,729 -- --
c) Election of John R. Walter 61,585,289 -- 3,375,870 -- --
2. Approval of the 2003 Equity Incentive
Plan of Manpower Inc. 41,336,927 19,408,954 -- 471,412 3,743,866
3. Ratification of PricewaterhouseCoopers
LLP as independent auditors 63,938,071 1,007,181 -- 15,907 --
Item 5 -- Other Information
The following audit-related and non-audit services performed or to be performed
for us by our independent auditors, PricewaterhouseCoopers, LLP were
pre-approved in accordance with our policy on non-audit services during the
second quarter:
(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;
(iii) assistance in the registration and issuance of securities; and
(iv) advisory services related to our Section 404 documentation.
(b) assistance in the preparation and filing of our international tax
returns;
(c) federal, state and international tax planning strategies; and
(d) transfer pricing documentation work.
19
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Terms and Conditions Regarding the Grant of Options in Lieu of
Cash Directors Fees to Non-Employee Directors Under 2003
Equity Incentive Plan of Manpower Inc.
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.
99.1 Certification of Jeffrey A. Joerres, Chairman and Chief
Executive Officer, pursuant to Section 13a-14(a) of the
Securities Exchange Act of 1934.
99.2 Certification of Michael J. Van Handel, Executive Vice
President and Chief Financial Officer, pursuant to Section
13a-14(a) of the Securities Exchane Act of 1934.
99.3 Statement of Jeffrey A. Joerres, Chairman and Chief Executive
Officer, pursuant to 18 U.S.C. ss. 1350.
99.4 Statement of Michael J. Van Handel, Executive Vice President
and Chief Financial Officer, pursuant to 18 U.S.C. ss. 1350.
(b) During the quarter ended June 30, 2003, we filed one current report on
Form 8-K dated June 12, 2003 with respect to Item 5 -- Other Events and
two current reports on Form 8-K dated April 15, 2003 with respect to Item
12 -- Results of Operations and Financial Condition.
20
FINANCIAL MEASURES
Constant Currency
Changes in our revenues and operating profits include the impact of changes in
foreign currency exchange rates. We provide "constant currency" calculations in
this Quarterly Report to remove this impact. We typically express year-over-year
variances that are calculated in 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.
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, 2003 JUNE 30, 2003
------------------------------------- ----------------------------------
Variance in Variance in
Reported Impact of Constant Reported Impact of Constant
Variance Currency Currency Variance Currency Currency
------------------------------------- ----------------------------------
(Unaudited)
Revenues from services:
France 24.3% 23.7% .6% 24.3% 23.2% 1.1%
EMEA 14.6 17.3 (2.7) 15.3 17.4 (2.1)
Other Operations 14.6 5.1 9.5 15.0 3.9 11.1
Manpower Inc. 15.8 14.8 1.0 16.5 14.4 2.1
Gross profit 11.6 14.0 (2.4) 11.9 13.7 (1.8)
Selling and administrative
expenses 11.7 13.3 (1.6) 10.5 12.9 (2.4)
Operating profit 10.1 18.6 (8.5) 27.7 23.6 4.1
Net earnings per share --
diluted 12.1 21.2 (9.1) 33.3 30.9 2.4
21
Systemwide Sales
Systemwide sales represents revenues from our branch offices plus the sales
activity of locations operating under a franchise agreement with us. We consider
Systemwide sales 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 sales 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 JUNE 30 (in millions)
--------------------------------------------------
CONSOLIDATED UNITED STATES
---------------------- ------------------------
2003 2002 2003 2002
-------- ---------- ---------- ----------
(Unaudited)
Revenue from services $3,013.4 $ 2,602.9 $ 483.9 $ 474.9
Less: Franchise fees 5.9 6.0 4.9 5.5
Add: Franchise sales 294.1 295.2 248.4 254.9
-------- ---------- ---------- ----------
Systemwide sales $3,301.6 $ 2,892.1 $ 727.4 $ 724.3
======== ========== ========== ==========
6 MONTHS ENDED JUNE 30 (in millions)
----------------------------------------------------
CONSOLIDATED UNITED STATES
---------------------- --------------------------
2003 2002 2003 2002
-------- ---------- ------------ ------------
(Unaudited)
Revenue from services $5,692.1 $ 4,886.9 $ 947.4 $ 903.6
Less: Franchise fees 11.9 12.3 10.1 10.4
Add: Franchise sales 560.8 557.5 478.0 485.1
-------- ---------- ----------- -----------
Systemwide sales $6,241.0 $ 5,432.1 $ 1,415.3 $ 1,378.3
======== ========== =========== ===========
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MANPOWER INC.
-------------------------------------------------
(Registrant)
Date: August 4, 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)
23
EXHIBIT INDEX
Exhibit No. Description
----------- ----------------------------------------------------
10.1 Terms and Conditions Regarding the Grant of Options
in Lieu of Cash Directors Fees to Non-Employee
Directors Under 2003 Equity Incentive Plan of
Manpower Inc.
12.1 Statement Regarding Computation of Ratio of
Earnings to Fixed Charges.
99.1 Certification of Jeffrey A. Joerres, Chairman and
Chief Executive Officer, pursuant to Section 13a-14
(a) of the Securities Exchange Act of 1934.
99.2 Certification of Michael J. Van Handel, Executive
Vice President and Chief Financial Officer, pursuant
to Section 13a-14(a) of the Securities Exchange Act
of 1934.
99.3 Statement of Jeffrey A. Joerres, Chairman and Chief
Executive Officer, pursuant to 18 U.S.C. ss. 1350.
99.4 Statement of Michael J. Van Handel, Executive Vice
President and Chief Financial Officer, pursuant to
18 U.S.C. ss. 1350.
24