1 ================================================================================ 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, 1998 -------------- 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 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, 1998 ----------- ------------------ Common Stock, 80,620,606 $.01 par value ================================================================================ 1
2 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 - 9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations........ 10 - 12 Item 3 - Quantitative and Qualitative Disclosures About Market Risk.................................... 12 PART II - OTHER INFORMATION AND SIGNATURES Item 5 - Other Information.................................... 12 Item 6 - Exhibits and Reports on Form 8-K..................... 12 Signatures ....................................................... 13 2
3 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements MANPOWER INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS) ASSETS <TABLE> <CAPTION> MARCH 31, DEC. 31, 1998 1997 ---- ---- <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $ 144,251 $ 142,246 Accounts receivable, less allowance for doubtful accounts of $36,192 and $38,019, respectively 1,412,525 1,437,378 Prepaid expenses and other assets 57,105 60,164 Future income tax benefits 48,402 47,113 ----------- ---------- Total current assets 1,662,283 1,686,901 OTHER ASSETS: Investments in licensees 33,234 32,763 Other assets 201,481 190,990 ----------- ---------- Total other assets 234,715 223,753 PROPERTY AND EQUIPMENT: Land, buildings, leasehold improvements and equipment 341,133 324,770 Less: accumulated depreciation and amortization 195,954 188,394 ----------- ---------- Net property and equipment 145,179 136,376 ----------- ---------- Total assets $ 2,042,177 $2,047,030 =========== ========== </TABLE> The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 3
4 MANPOWER INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA) LIABILITIES AND STOCKHOLDERS' EQUITY <TABLE> <CAPTION> MARCH 31, DEC. 31, 1998 1997 ---- ---- <S> <C> <C> CURRENT LIABILITIES: Payable to banks $ 48,227 $ 69,848 Accounts payable 305,866 271,064 Employee compensation payable 57,777 68,416 Accrued liabilities 109,022 108,615 Accrued payroll taxes and insurance 210,701 248,605 Value added taxes payable 217,803 223,538 Income taxes payable 11,780 13,303 Current maturities of long-term debt 1,312 1,288 ----------- ---------- Total current liabilities 962,488 1,004,677 OTHER LIABILITIES: Long-term debt 206,302 189,786 Other long-term liabilities 237,431 235,004 ----------- ---------- Total other liabilities 443,733 424,790 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, authorized 25,000,000 shares, none issued -- -- Common stock, $.01 par value, authorized 125,000,000 shares, issued 83,053,006 and 82,778,873 shares, respectively 831 828 Capital in excess of par value 1,597,964 1,590,704 Accumulated deficit (826,505) (848,195) Cumulative translation adjustments (51,248) (40,688) Treasury stock at cost, 2,432,400 shares (85,086) (85,086) ----------- ---------- Total stockholders' equity 635,956 617,563 ----------- ---------- Total liabilities and stockholders' equity $ 2,042,177 $2,047,030 =========== ========== </TABLE> The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 4
5 MANPOWER INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> 3 MONTHS ENDED MARCH 31, 1998 1997 ---- ---- <S> <C> <C> Revenues from services $1,872,866 $1,521,002 Cost of services 1,545,508 1,244,347 ---------- ---------- Gross profit 327,358 276,655 Selling and administrative expenses 290,595 236,301 ---------- ---------- Operating profit 36,763 40,354 Interest and other Income (expense) (3,144) (666) ---------- ---------- Earnings before income taxes 33,619 39,688 Provision for income taxes 11,929 13,089 ---------- ---------- Net earnings $ 21,690 $ 26,599 ========== ========== Net earnings per share $ .27 $ .32 ========== ========== Net earnings per share - assuming dilution $ .26 $ .32 ========== ========== Weighted average common shares 80,557 81,846 ========== ========== Weighted average common shares - assuming dilution 81,921 83,558 ========== ========== </TABLE> The accompanying notes to consolidated financial statements are an integral part of these statements. MANPOWER INC. AND SUBSIDIARIES SUPPLEMENTAL SYSTEMWIDE INFORMATION (UNAUDITED) (IN THOUSANDS) <TABLE> <CAPTION> 3 MONTHS ENDED MARCH 31, 1998 1997 ---- ---- <S> <C> <C> Systemwide Sales $2,276,913 $1,850,584 ========== ========== </TABLE> Systemwide information represents the total of Company-owned branches and franchises. 5
6 MANPOWER INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) <TABLE> <CAPTION> 3 MONTHS ENDED MARCH 31, 1998 1997 ---- ---- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 21,690 $ 26,599 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 12,549 9,872 Deferred income taxes (1,701) (344) Provision for doubtful accounts 1,840 2,844 Changes in operating assets and liabilities: Accounts receivable (1,746) (35,986) Other assets 770 (12,030) Other liabilities (1,462) 29,745 ---------- ---------- Cash provided by operating activities 31,940 20,700 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (28,188) (18,016) Proceeds from the sale of property and equipment 609 690 ---------- ---------- Cash used in investing activities (27,579) (17,326) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in payable to banks (19,940) (4,862) Proceeds from long-term debt 16,917 23,664 Repayment of long-term debt (349) (312) Repurchase of common stock -- (21,164) ---------- ---------- Cash used in financing activities (3,372) (2,674) ---------- ---------- Effect of exchange rate changes on cash 1,016 (979) ---------- ---------- Net change in cash and cash equivalents 2,005 (279) Cash and cash equivalents, beginning of period 142,246 180,553 ---------- ---------- Cash and cash equivalents, end of period $ 144,251 $ 180,274 ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 3,074 $ 1,741 ========== ========== Income taxes paid $ 14,458 $ 14,785 ========== ========== </TABLE> The accompanying notes to consolidated financial statements are an integral part of these statements. 6
7 MANPOWER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) (1) Basis of Presentation Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company believes 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 th Company's latest annual report on Form 10-K for the year ended December 31, 1997. (2) Accounting Policies During the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This statement establishes standards for the reporting and display of comprehensive income and its components. Comprehensive income is the total of net earnings and all other nonowner changes in stockholders' equity. Total comprehensive income for the three months ended March 31, 1998 and 1997 is as follows: <TABLE> <CAPTION> 3 Months Ended March 31, 1998 1997 ---- ---- <S> <C> <C> Net earnings $ 21,690 $ 26,599 Change in cumulative translation adjustments (10,560) (31,562) ---------- --------- Total comprehensive income (loss) $ 11,130 $ (4,963) ========== ========= </TABLE> In March of 1998 the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This statement is effective for the Company beginning in 1999 and is not expected to have a material impact on the Consolidated Financial Statements. (3) Interest Rate Swap In January of 1998, the Company entered into an interest rate swap agreement, expiring in 2001, to fix the interest rate at 6.0% on $50,000 of the Company's borrowings under the revolving credit agreement. This swap agreement had an immaterial impact on the recorded interest expense during the first quarter of 1998. As of March 31, 1998, the variable interest rate under the revolving credit agreement was 5.9%. 7
8 (4) Operational Results 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. (5) Earnings Per Share During 1997 the Company adopted SFAS No. 128, "Earnings per Share." As a result, the Company's reported earnings per share for the three months ended March 31, 1997 have been restated. The calculation of net earnings per share and net earnings per share - assuming dilution for the three months ended March 31, 1998 and 1997, is as follows: <TABLE> <CAPTION> 3 Months Ended March 31, 1998 1997 ---- ---- <S> <C> <C> Net earnings per share: Net earnings available to common shareholders $ 21,690 $ 26,599 Weighted average common shares outstanding 80,557 81,846 ---------- --------- $ .27 $ .32 ========== ========= Net earnings per share - assuming dilution: Net earnings available to common shareholders $ 21,690 $ 26,599 Weighted average common shares outstanding 80,557 81,846 Effect of dilutive stock options 1,364 1,712 ---------- --------- 81,921 83,558 ---------- --------- $ .26 $ .32 ========== ========= </TABLE> (6) Income Taxes The Company has provided income taxes for the three month period ended March 31, 1998 at a rate of 35.5%, which is equal to the estimated annual effective tax rate based on the currently available information. This rate is higher than the effective tax rate for 1997 of 34.2% due to the increase in the corporate income tax rate in France in 1997, from 36.6% to 41.6%, and a reduction in the utilization of net operating loss carryforwards. 8
9 (7) Business Segment Data by Geographical Segment Geographical segment information is as follows: <TABLE> <CAPTION> 3 Months Ended March 31, 1998 1997 ---- ---- <S> <C> <C> Revenues from Services: United States (a) $ 499,073 $ 447,401 France 721,389 514,386 United Kingdom 248,234 231,618 Other Europe 230,838 180,951 Other Countries 173,332 146,646 ----------- ----------- $ 1,872,866 $ 1,521,002 =========== =========== Earnings before Income Taxes: United States $ 15,261 $ 17,198 France 12,067 10,774 United Kingdom 7,393 6,734 Other Europe 6,118 5,634 Other Countries 7,156 6,849 Other Corporate Expenses (11,232) (6,835) ----------- ----------- Operating Profit 36,763 40,354 Interest & Other Income (Expense) (3,144) (666) ----------- ----------- $ 33,619 $ 39,688 =========== =========== </TABLE> (a) Total systemwide sales in the United States, which include sales of Company-owned branches and franchises, was $831,250 and $732,250 for the three months ended March 31, 1998 and 1997, respectively. (8) Subsequent Events On April 23, 1998, the Company's Board of Directors declared a cash dividend of $.09 per share payable June 15, 1998 to shareholders of record on June 3, 1998. 9
10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results - Three Months Ended March 31, 1998 and 1997 Revenues increased 23.1% to $1,872.9 million for the first quarter of 1998. Revenues were unfavorably impacted by changes in currency exchange rates during the quarter due to the strengthening of the U.S. Dollar relative to the currencies in most of the Company's non-U.S. markets. At constant exchange rates, the increase in revenues would have been 29.5%. Volume, as measured by billable hours of branch operations, increased 24.1% in the quarter. All of the Company's major markets experienced revenue increases, including the United States (11.5 %), France (52.8% in French Francs) and Manpower-United Kingdom (7.2% in Pounds Sterling). Cost of services, which consists of payroll and related expenses of temporary workers, increased as a percentage of revenues to 82.5% in the first quarter of 1998 from 81.8% in the first quarter of 1997. In certain of the Company's European markets, government employment incentive programs are in place to encourage employment by providing a credit against payroll taxes otherwise payable. In France, legislation was enacted in late 1997 that reduced the amount of such payroll tax credits beginning in January of 1998. This reduction is the primary reason for the increased cost of services in 1998. Selling and administrative expenses remained constant between years, at 15.5% of revenues, despite significant investment in new markets and global infrastructure improvements. Interest and other expense was $3.1 million in the first quarter of 1998 compared to $666,000 in the first quarter of 1997. This increase is due to a $1.1 million increase in net interest expense and a $734,000 increase in translation losses. Net interest expense increased in the quarter as a result of higher borrowing levels to finance the share repurchase program. The increase in translation losses is due to losses recognized on the translation of the net assets of our operations in highly inflationary economies. The Company provided income taxes at a rate of 35.5% during the first quarter of 1998, equal to the estimated annual effective tax rate for 1998. This rate is slightly higher than the annual effective tax rate for 1997 due to the increase in the French corporate income tax rate (see Note 6 to Consolidated Financial Statements) and a reduction in the utilization of net operating loss carryforwards. On a diluted basis, net earnings per share was $.26 in the first quarter of 1998, compared to $.32 per share in the first quarter of 1997. The 1998 earnings were negatively impacted $.05 per share due to the lower currency exchange rates in the first quarter of 1998 compared to the first quarter of 1997 and $.01 per share due to the increase in the effective tax rate discussed above. Liquidity and Capital Resources Cash provided by operating activities was $31.9 million in the first three months of 1998 compared to $20.7 million in the first three months of 1997. The increase in cash provided reflects a decrease in working capital requirements between periods, partially offset by a lower earnings level in 1998. Cash provided by operating activities before the changes in working capital requirements was $34.3 million in the first three months of 1998 compared to $39.0 million in the first three months of 1997. Capital expenditures were $28.2 million in the first three months of 1998 compared to $18.0 million during the first three months of 1997. These expenditures include capitalized software of $7.4 million and $8.6 million in the first three months of 1998 and 1997, respectively. The balance is comprised of purchases of computer equipment, office furniture and other costs related to office openings and refurbishments. 10
11 Net cash used to retire borrowings was $3.4 million in the first three months of 1998 compared to net cash provided by additional borrowings of $18.5 million in the first three months of 1997. The additional borrowings in 1997 were primarily used to support the working capital growth and the repurchase of the Company's common stock. The Company repurchased 665,600 shares of common stock during the first three months of 1997, at a cost of $21.2 million. No shares were repurchased during the first three months of 1998. Accounts receivable decreased to $1,412.5 million at March 31, 1998 from $1,437.4 million at December 31, 1997. This change is primarily due to the impact of currency exchange rates during the first three months of 1998, which reduced receivables by $25.9 million. At constant exchange rates, accounts receivable increased $1.0 million. As of March 31, 1998, the Company had borrowings of $159.6 million and letters of credit of $52.0 million outstanding under its $415 million U.S. revolving credit facility, and borrowings of $44.0 million outstanding under its U.S. commercial paper program. The commercial paper borrowings have been classified as long-term debt due to the availability to refinance them on a long-term basis under the revolving credit facility. The Company and some of its foreign subsidiaries maintain separate lines of credit with foreign financial institutions to meet short-term working capital needs. As of March 31, 1998, such lines totaled $145.9 million, of which $97.7 million was unused. On April 23, 1998, the Company's Board of Directors declared a cash dividend of $.09 per share which will be paid on June 15, 1998 to shareholders of record on June 3, 1998. Forward-Looking Statements Certain information included or incorporated by reference in this filing and identified by use of the words 'expects,' 'believes,' 'plans' or the like constitutes forward-looking statements, as such term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In addition, any information included or incorporated by reference in future filings by the Company with the Securities and Exchange Commission, as well as information contained in written material, releases and oral statements issued by or on behalf of the Company may include forward-looking statements. All statements which address operating performance, events or developments that the Company expects or anticipates will occur or future financial performance are forward-looking statements. These forward-looking statements speak only as of the date on which they are made. They rely on a number of assumptions concerning future events and are subject to a number of risks and uncertainties, many of which are outside of the Company's control, that could cause actual results to differ materially from such statements. These risks and uncertainties include, but are not limited to: * Material changes in the demand from larger customers, including customers with which the Company has national or global arrangements * availability of temporary workers or increases in the wages paid to these workers * competitive market pressures, including pricing pressures * ability to successfully invest in technology developments * changes in customer attitudes toward the use of staffing services * government or regulatory policies adverse to the employment services industry * general economic conditions in international markets * interest rate and exchange rate fluctuations 11
12 The Company disclaims any obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Item 3 - Quantitative and Qualitative Disclosures About Market Risk The Company's annual report on Form 10-K contains certain disclosures about market risks affecting the Company. There have been no material changes to the information provided which would require additional disclosures as of the date of this filing. PART II - OTHER INFORMATION Item 5 - Other Information On April 12, 1998, Audrey Freedman, a director of the Company since 1991, died. The vacancy created by Ms. Freedman's death has not yet been filled by the Board of Directors. The Board of Directors currently consists of Mitchell S. Fromstein, Jon F. Chait, Dudley J. Godfrey, Jr., Marvin B. Goodman, J. Ira Harris, Terry A. Hueneke, Newton N. Minow, Gilbert Palay and Dennis Stevenson. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 10.1 1991 Executive Stock Option and Restricted Stock Plan of Manpower Inc. (Amended and Restated Effective February 23, 1998). 10.2 1994 Executive Stock Option and Restricted Stock Plan of Manpower Inc. (Amended and Restated Effective February 23, 1998). 27 Financial Data Schedule (b) Reports on Form 8-K - None 12
13 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 15, 1998 /s/ Michael J. Van Handel --------------------------------------------- Michael J. Van Handel Vice President Chief Accounting Officer & Treasurer (Signing on behalf of the Registrant and as Principal Accounting Officer) 13