SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended: SEPTEMBER 30, 1996 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 September 30, 1996 - --------------- ---------------------- Common Stock, 82,084,729 $.01 par value
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 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations............8 - 10 PART II - OTHER INFORMATION AND SIGNATURES Item 5 - Other Information..........................................10 Item 6 - Exhibits and Reports on Form 8-K...........................10 Signatures............................................................11
PART I - FINANCIAL INFORMATION Item 1 - Financial Statements MANPOWER INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (in thousands) ASSETS Sept. 30, Dec. 31, 1996 1995 CURRENT ASSETS: [S] Cash and cash equivalents $ 106,591 $ 142,773 Accounts receivable, less allowance for doubtful accounts of $34,832 and $32,901, respectively 1,231,337 1,043,694 Prepaid expenses and other assets 36,918 39,224 Future income tax benefits 50,458 51,617 Total current assets 1,425,304 1,277,308 OTHER ASSETS: Investments in licensees 31,702 31,591 Other assets 145,557 100,868 Total other assets 177,259 132,459 PROPERTY AND EQUIPMENT: Land, buildings, leasehold improvements and equipment 289,997 267,526 Less: accumulated depreciation and amortization 177,125 159,507 Net property and equipment 112,872 108,019 Total assets $1,715,435 $1,517,786 The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
MANPOWER INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (in thousands, except share data) LIABILITIES AND STOCKHOLDERS' EQUITY Sept. 30, Dec. 31, 1996 1995 CURRENT LIABILITIES: Payable to banks $ 28,048 $ 37,559 Accounts payable 219,816 219,794 Employee compensation payable 59,899 56,630 Accrued liabilities 109,609 72,325 Accrued payroll taxes and insurance 229,143 195,376 Value added taxes payable 199,485 167,937 Income taxes payable 17,130 25,286 Current maturities of long-term debt 3,157 1,408 Total current liabilities 866,287 776,315 OTHER LIABILITIES: Long-term debt 72,124 61,783 Other long-term liabilities 216,526 224,695 Total other liabilities 288,650 286,478 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 82,084,729 and 81,153,023 shares, respectively 821 812 Capital in excess of par value 1,574,753 1,564,305 Accumulated deficit (1,038,076) (1,148,223) Cumulative translation adjustments 23,000 38,099 Total stockholders' equity 560,498 454,993 Total liabilities and stockholders' equity $1,715,435 $ 1,517,786 The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
<TABLE> <CAPTION> MANPOWER INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) (in thousands, except per share data) 3 Months Ended 9 Months Ended September 30, September 30, 1996 1995 1996 1995 <S> <C> <C> <C> <C> REVENUES FROM SERVICES $1,694,523 $1,520,900 $4,464,314 $4,091,631 COST AND EXPENSES Cost of services 1,379,199 1,242,250 3,635,091 3,350,936 Selling and administrative expenses 238,218 204,133 665,991 584,747 Interest and other (income) expenses, net 603 2,422 (8,381) 8,446 Earnings before income taxes 76,503 72,095 171,613 147,502 PROVISION FOR INCOME TAXES 24,087 27,050 57,400 56,024 Net earnings $ 52,416 $ 45,045 $ 114,213 $ 91,478 Dividends declared per share $ -- $ -- $ .07 $ .06 Net earnings per share $ .63 $ .59 $ 1.37 $ 1.20 Weighted average common shares 83,356 76,535 83,084 76,228 </TABLE> The accompanying notes to consolidated financial statements are an integral part of these statements.
MANPOWER INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (in thousands) 9 Months Ended Sept. 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $114,213 $ 91,478 Adjustments to reconcile net earnings to net cash provided by operating activities: Amortization of intangible assets 2,695 2,725 Depreciation 23,848 18,504 Deferred income taxes 1,159 (10,066) Provision for doubtful accounts 9,777 9,357 Changes in operating assets and liabilities: Accounts receivable (233,054) (280,832) Other assets (6,663) 4,907 Other liabilities 119,967 132,400 Cash provided by operating activities 31,942 (31,527) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of businesses, net of cash acquired (32,200) -- Purchases of property and equipment (30,679) (29,060) Proceeds from the sale of property and equipment 977 2,180 Cash used in investing activities (61,902) (26,880) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in payable to banks (8,087) 19,205 Proceeds from long-term debt 13,663 34,845 Repayment of long-term debt (1,501) (1,393) Dividends paid (5,739) (4,507) Cash used in financing activities (1,664) 48,150 Effect of exchange rate changes on cash (4,558) 3,856 Net change in cash and cash equivalents (36,182) (6,401) Cash and cash equivalents, beginning of period 142,773 82,049 Cash and cash equivalents, end of period $106,591 $ 75,648 SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 5,437 $ 10,123 Income taxes paid $ 57,700 $ 58,912 The accompanying notes to consolidated financial statements are an integral part of these statements.
MANPOWER INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) For the Nine Months Ended September 30, 1996 and 1995 (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 the Company's latest annual report on Form 10-K for the year ended December 31, 1995. (2)Accounting Policies Intangible assets consist primarily of trademarks and the excess of cost over the fair value of net assets acquired. Trademarks are amortized on a straight-line basis over their useful lives. The excess of cost over the fair value of net assets acquired is amortized on a straight-line basis over its useful life, estimated based on the facts and circumstances surrounding each individual acquisition, ranging from five to twenty years. (3)Operational Results The information furnished reflects all adjustments which, 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. (4)Income Taxes The provision for income taxes has been computed using the estimated annual effective tax rate, based on currently available information. (5)Unsecured Revolving Credit Agreement On April 1, 1996, the Company entered into a $275 million unsecured revolving credit agreement which includes a $60 million commitment to be used exclusively for standby letters of credit. The interest rate and facility fee payable on the total line vary based upon the Company's financial performance, debt rating, and borrowing level, and are currently at LIBOR plus .225% and .125%, respectively. The facility matures on May 15, 1999, but may be extended for an additional two years with the lenders' consent. The agreement requires, among other things, that the Company comply with minimum tangible net worth levels and interest coverage and debt-to-capitalization ratios. This agreement replaced the Company's $240 million unsecured revolving credit agreement. (6)Interest and Other Expenses The Company recorded an $8.5 million gain on proceeds received in April from an equity interest and note related to the sale of Blue Arrow Personnel Services Limited in 1991. The Company had previously deferred recognition of the equity interest and the note due to uncertainties regarding their eventual realization. (7)Acquisitions of Businesses During the first nine months of 1996, the Company acquired Teamwork Sverige AB, the largest employment services organization in Sweden, and several United States franchises. The consolidated financial statements include the operating results of each business from the date of acquisition. Pro forma results of operations have not been presented because the effects of these acquisitions were not significant. The total consideration for these acquisitions was $38.7 million.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results - Three Months Ended September 30, 1996 and 1995 Third quarter 1996 revenues increased 11.4% to $1,694.5 million. Revenues were negatively impacted 2.1% due to changes in currency exchange rates between years. Volume, as measured by billable hours of branch operations, increased 11.2% in the quarter. Almost all of the Company's major markets experienced revenue increases, including the United States (16.1%), Manpower-United Kingdom (7.5% in Pound Sterling) and France (9.0% in French Francs). Cost of services, which consists of payroll and related expenses of temporary workers, decreased as a percentage of revenues to 81.4% in the third quarter of 1996, from 81.7% in the third quarter of 1995. This decrease is primarily attributable to a decrease in payroll tax and insurance costs in certain of the Company's major markets. Selling and administrative expenses increased as a percentage of revenue to 14.1% in the third quarter of 1996, from 13.4% in 1995. This increase is primarily due to the decline in revenue growth in France without a proportional decline in expense growth. Excluding the impact of changes in foreign currency, selling and administrative expenses increased 18.8% for the quarter. Net interest and other was $603,000 of expense in the third quarter of 1996, compared to $2.4 million of expense in the third quarter of 1995. This change is primarily the result of a decrease in net interest expense to $0.2 million in the third quarter of 1996, from $3.1 million in the third quarter of 1995. This decrease is due to lower worldwide borrowing levels as the Company converted its subordinated convertible debentures in October of 1995 and a slight increase in investment income. The Company provided income taxes at an estimated rate of 31.5% during the third quarter of 1996. This rate reflects an adjustment made during the quarter to record the nine-month provision at the expected annual effective rate for 1996. The Company's effective income tax rate for 1995 was 38.5%. Operating Results - Nine Months Ended September 30, 1996 and 1995 Revenues for the first nine months of 1996 increased 9.1% to $4.5 million. Revenues were negatively impacted 2.2% for the nine-month period due to changes in currency exchange rates between years. Volume, as measured by billable hours of branch operations, increased 8.5% for the nine-month period. Almost all of the Company's major markets experienced revenue increases, including the United States (13.7%), Manpower-United Kingdom (10.4% in Pound Sterling), and France (3.1% in French Francs). The low revenue growth in France reflects the low growth rates in the first and second quarters, which were expected after the record revenue levels of 1995 and the economic slowdown in France which started in late 1995. Cost of services, which consists of payroll and related expenses of temporary workers, decreased as a percentage of revenues to 81.4% in 1996 from 81.9% in 1995. This decrease is primarily attributable to a decrease in payroll tax and insurance costs in certain of the Company's major markets. Selling and administrative expenses increased as a percentage of revenues to 14.9% in the first nine months of 1996, from 14.3% in 1995. This increase is primarily due to the decline in revenue growth in France without a proportional decline in expense growth. Excluding the impact of changes in foreign currency, selling and administrative expenses increased 16.4% for the nine-month period. Net interest and other was $8.4 million of income in the first nine months of 1996, compared to $8.4 million of expense in the first nine months of 1995. During the second quarter of 1996, the Company recorded an
$8.5 million gain on proceeds received from an equity interest and note related to the sale of Blue Arrow Personnel Services Limited in 1991. The Company had previously deferred recognition of the equity interest and the note due to uncertainties regarding their eventual realization. The remaining change in net interest and other is primarily due to the change in net interest, which was $1.0 million of income in the first nine months of 1996 compared to $7.2 million of expense in the first nine months of 1995. This change is due to lower worldwide borrowing levels as the Company converted its subordinated convertible debentures in October of 1995 and an increase in investment income. The Company provided income taxes at an estimated rate of 33% which is equal to the expected annual effective rate for 1996. The Company's effective income tax rate for 1995 was 38.5%. Liquidity and Capital Resources Cash provided by operating activities was $31.9 million in the first nine months of 1996, compared to cash used by operating activities of $31.5 million in the first nine months of 1995. The change reflects the higher earnings level in 1996 and a lesser increase in working capital requirements in the first nine months of 1996 compared to the first nine months of 1995. Cash provided by operating activities before working capital changes was $151.7 million in the first nine months of 1996, compared to $112.0 million in 1995. During the first nine months of 1996, the Company acquired Teamwork Sverige AB, the largest employment services organization in Sweden, and several United States franchises. The total cash consideration paid for these acquisitions, net of cash acquired, was $32.2 million. The Company increased its capital expenditures to $30.7 million in the first nine months of 1996, from $29.1 million during the first nine months of 1995. These expenditures primarily consist of computer equipment and office furniture used in the branch office network. During the first nine months of 1996, the Company had net additional borrowings of $4.1 million compared to $52.7 million in the first nine months of 1995. The additional borrowings were primarily used to support working capital growth. Accounts receivable increased $187.6 million to $1,231.3 million at September 30, 1996, from $1,043.7 million at December 31, 1995. The change represents a $34.1 million decrease due to the change in foreign exchange rates, offset by a general increase in receivables due to the higher sales level in the Company's major markets during the third quarter of 1996 as compared to the fourth quarter of 1995. During the first nine months of 1996, the Company expended the remaining $2.7 million of reserves related to the strategic restructuring plan started in 1989. These reserves were used to cover general operating costs and lease costs of properties vacated under the restructuring plan. On April 1, 1996, the Company entered into a $275 million unsecured revolving credit agreement which includes a $60 million commitment to be used exclusively for standby letters of credit. The interest rate and facility fee payable on the total line vary based upon the Company's financial performance, debt rating, and borrowing level, and are currently at LIBOR plus .225% and .125%, respectively. The facility matures on May 15, 1999, but may be extended for an additional two years with the lenders' consent. The agreement requires, among other things, that the Company comply with minimum tangible net worth levels and interest coverage and debt-to-capitalization ratios. This agreement replaced the Company's $240 million unsecured revolving credit agreement. As of September 30, 1996, the Company had borrowings of $32.9 million outstanding under its $275 million U.S. revolving credit facility, and borrowings of $34.6 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. In addition, 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 September 30, 1996, such lines totaled $166.5 million, of which $138.5 million was unused. PART II - OTHER INFORMATION Item 5 - Other Information None 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 August 6, 1996.) 10.2 1994 Executive Stock Option and Restricted Stock Plan ofManpower Inc.(Amended and Restated effective August 6, 1996.) 27 Financial Data Schedule (b) Reports on Form 8-K - None
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MANPOWER INC. (Registrant) Date: November 14, 1996 /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)