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, 1997 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 June 30, 1997 Common Stock, 81,893,933 $.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 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 10 PART II - OTHER INFORMATION AND SIGNATURES Item 4 - Submission of Matters to a Vote of Security Holders 11 Item 5 - Other Information 12 Item 6 - Exhibits and Reports on Form 8-K 12 Signatures 13
PART I - FINANCIAL INFORMATION Item 1 - Financial Statements MANPOWER INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (in thousands) ASSETS June 30, Dec. 31, 1997 1996 CURRENT ASSETS: Cash and cash equivalents $ 116,080 $ 180,553 Accounts receivable, less allowance for doubtful accounts of $35,289 and 1,286,688 1,167,468 $33,526, respectively Prepaid expenses and other assets 57,281 42,913 Future income tax benefits 50,841 48,151 Total current assets 1,510,890 1,439,085 OTHER ASSETS: Investments in licensees 31,213 29,409 Other assets 171,600 162,390 Total other assets 202,813 191,799 PROPERTY AND EQUIPMENT: Land, buildings, leasehold improvements 302,621 302,547 and equipment Less: accumulated depreciation and amortization 184,629 181,168 Net property and equipment 117,992 121,379 Total assets $1,831,695 $1,752,263 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 June 30, Dec. 31, 1997 1996 CURRENT LIABILITIES: Payable to banks $ 49,152 $ 24,375 Accounts payable 263,651 235,466 Employee compensation payable 51,535 60,222 Accrued liabilities 95,361 87,444 Accrued payroll taxes and insurance 218,460 195,194 Value added taxes payable 173,174 174,624 Income taxes payable 13,457 30,945 Current maturities of long-term debt 1,264 2,986 Total current liabilities 866,054 811,256 OTHER LIABILITIES: Long-term debt 129,287 100,848 Other long-term liabilities 234,647 239,453 Total other liabilities 363,934 340,301 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, authorized 25,000,000 shares, -- -- none issued Common stock, $.01 par value, authorized 125,000,000 shares, 827 822 issued 82,661,233 and 82,206,446 shares, respectively Capital in excess of par value 1,589,014 1,579,868 Accumulated deficit (937,288) (998,230) Cumulative translation adjustments (26,452) 21,476 Treasury stock at cost, 767,300 and 101,700 shares, respectively (24,394) (3,230) Total stockholders' equity 601,707 600,706 Total liabilities and stockholders' 1,831,695 1,752,263 equity The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
MANPOWER INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) (in thousands, except per share data) <TABLE> <CAPTION> 3 Months Ended 6 Months Ended June 30, June 30, 1997 1996 1997 1996 <S> <C> <C> <C> <C> Revenues from services $1,792,216 $1,460,624 $3,313,218 $2,769,791 Cost of services 1,473,066 1,191,364 2,717,413 2,255,892 Gross profit 319,150 269,260 595,805 513,899 Selling and administrative 257,028 218,612 493,329 427,773 expenses Operating profit 62,122 102,476 50,648 86,126 Interest and other (income) 1,090 (8,773) 1,756 (8,984) expenses Earnings before income taxes 61,032 59,421 100,720 95,110 Provision for income taxes 20,140 20,819 33,229 33,313 Net earnings $40,892 $38,602 $67,491 $61,797 Net earnings per share $ .49 $ .46 $ .81 $ .74 Dividends declared per share $ .08 $ .07 $ .08 $ .07 Weighted average common shares 83,134 83,144 83,159 82,976 </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) 3 Months Ended 6 Months Ended June 30, June 30, 1997 1996 1997 1996 Systemwide Sales $2,190,112 $1,794,139 $4,040,696 $3,421,240 Systemwide information represents the total of Company-owned branches and franchises.
MANPOWER INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (in thousands) 6 Months Ended June 30, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 67,491 $ 61,797 Adjustments to reconcile net earnings to net cash by operating activities: Depreciation 18,006 15,378 Amortization of intangible 1,984 1,555 assets Deferred income taxes (2,690) 6,150 Provision for doubtful 6,702 5,862 accounts Gain on sale of securities -- (8,452) Changes in operating assets and liabilities: Accounts receivable (213,439) (94,743) Other assets (20,789) (1,264) Other liabilities 97,344 21,800 Cash Provided by (45,391) 8,083 operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (39,107) (33,436) Purchases of businesses -- (31,206) Proceeds from the sale of property and equipment 1,096 933 Proceeds from sale of securities -- 8,452 Cash used in investing activities (38,011) (55,257) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in payable to banks 28,298 (7,519) Proceeds from long-term debt 29,074 21,614 Repayment of long-term debt (1,711) (789) Dividends paid (6,549) (5,735) Repurchase of common stock (21,164) -- Cash used in financing activities 27,948 7,571 Effect of exchange rate changes on cash (9,019) (5,784) Net change in cash and cash (64,473) (45,387) equivalents Cash and cash equivalents, beginning 180,553 142,773 of period Cash and cash equivalents, end of period $116,080 $ 97,386 SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 4,230 $ 5,507 Income taxes paid $ 46,706 $ 34,715 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 Six Months Ended June 30, 1997 and 1996 (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, 1996. (2)Accounting Policies In February of 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share." This Statement revises the computation and presentation of earnings per share and will be adopted by the Company in the fourth quarter of 1997. Had the Company adopted this Statement for the six months ended June 30, 1997 and 1996, basic and diluted earnings per share would have been as follows: 3 Months Ended 6 Months Ended June 30, June 30, 1997 1996 1997 1996 As reported on Statements of Operations $.49 $.46 $.81 $.84 As calculated under SFAS No. 128- Basic earnings per share $.50 $.47 $.82 $.75 Diluted earnings per share $.49 $.46 $.81 $.74 (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 the information available as of June 30, 1997. The Company is currently assessing the impact of a corporate tax increase in France announced on July 22, 1997. This increase, retroactive to January 1, 1997, could result in a higher tax rate in the second half of 1997. (5)Dividend On April 28, 1997, the Company's Board of Directors declared a cash dividend of $.08 per share which was paid on June 16, 1997 to shareholders of record on May 28, 1997.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results - Three Months Ended June 30, 1997 and 1996 Second quarter 1997 revenues increased 22.7 % to $1,792.2 million. Revenues were unfavorably impacted 5.8% in the second quarter by currency exchange rates. Volume, as measured by billable hours of branch operations, increased 27.7% in the quarter. All of the Company's major markets experienced revenue increases, including the United States (14.7 %), France (33.6% in French Francs) and Manpower-United Kingdom (18.0% in Pound Sterling). Cost of services, which consists of payroll and related expenses of temporary workers, increased as a percentage of revenues to 82.2% in the second quarter of 1997 from 81.6% in the second quarter of 1996. During 1996, government employment incentive programs in certain of the Company's European markets reduced payroll taxes, resulting in the lower cost of services. Without the impact of these programs, cost of services as a percentage of revenues in 1996 is comparable to the 1997 amount. Selling and administrative expenses increased 17.6%, but decreased as a percentage of revenue to 14.3% in the second quarter of 1997 from 15.0% in the second quarter of 1996. This decrease reflects the improved leveraging of overhead costs with volume growth, primarily in France. Net interest and other was $1.1 million of expense in the second quarter of 1997 compared to income of $8.8 million in the second quarter of 1996. 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 difference between years is primarily due to changes in net interest, which was expense of $848,000 in the second quarter of 1997 compared to income of $534,000 in the second quarter of 1996. This change in net interest is primarily the result of an increase in interest expense caused by higher worldwide borrowing levels. The Company provided income taxes at an estimated rate of 33.0% which is equal to the expected annual effective rate for 1997, based on the information available at June 30, 1997, and the Company's effective income tax rate for 1996. The Company is currently assessing the impact of a corporate tax increase in France announced on July 22, l997. This increase, retroactive to January 1, 1997, could result in a higher tax rate in the second half of 1997. Net earnings per share was $.49 in the second quarter of 1997, compared to net earnings per share of $.46 in the second quarter of 1996. The 1996 earnings included non-recurring gains, net of taxes, of $.06 per share on the sale of the Company's equity interest discussed above. Operating Results - Six Months Ended June 30, 1997 and 1996 Revenues for the first six months of 1997 increased 19.6% to $3,313.2 million. Revenues were unfavorably impacted 5.5% during the first six months by currency exchange rates. Volume, as measured by billable hours of branch operations, increased 25.1% for the six month period. All of the Company's major markets experienced revenue increases, including the United States (13.5%), France (30.0% in French Francs) and Manpower-United Kingdom (13.5% in Pound Sterling). Cost of services, which consists of payroll and related expenses of temporary workers, increased as a percentage of revenues to 82.0% in the first six months of 1997 from 81.4% in the first six months of 1996. As discussed above, government employment incentive programs in certain of the Company's European markets reduced payroll taxes in 1996. Without the impact of these programs, cost of services as a percentage of revenues in 1996 is comparable to the 1997 amount.
Selling and administrative expenses increased 15.3%, but decreased as a percentage of revenues to 14.9% in the first six months of 1997 from 15.4% in the first six months of 1996. This decrease reflects the improved leveraging of overhead costs with volume growth, primarily in France. Net interest and other totaled $1.8 million of expense in the first six months of 1997 compared to $9.0 million of income in the first six months of 1996. As discussed above, the Company recorded an $8.5 million gain in the second quarter of 1996. The remaining change is primarily due to changes in net interest, which was $704,000 of expense in the first six months of 1997 compared to $1.2 million of income in the first six months of 1996. This change in net interest is primarily the result of an increase in interest expense caused by higher worldwide borrowing levels. The Company provided income taxes at an estimated rate of 33.0% which is equal to the expected annual effective rate of 1997, based on the information available at June 30, 1997, and the Company's effective income tax rate for 1996. The Company is currently assessing the impact of a corporate tax increase in France announced on July 22, 1997. This increase, retroactive to January 1, 1997 could result in a higher tax rate in the second half of 1997. Net earnings per share was $.81 for the first six months of 1997 compared to net earnings per share of $.74 for the first six months of 1996. The 1996 earnings included non-recurring gains, net of taxes, of $.06 per share on the sale of the Company's equity interest discussed above. Liquidity and Capital Resources Cash used by operating activities was $45.4 million in the first six months of 1997 compared to cash provided by operating activities of $8.1 million in the first six months of 1996. The change reflects the increase in working capital requirements of $136.9 million in the first six months of 1997 compared to $74.2 million in the first six months of 1996. Cash provided by operating activities before the changes in working capital requirements was $91.5 million in the first six months of 1997 compared to $82.3 million in the first six months of 1996, due primarily to the increased earnings level in 1997. Capital expenditures were $39.1 million in the first six months of 1997 compared to $33.4 million during the first six months of 1996. These expenditures primarily consist of computer software and equipment and office furniture to be used in the branch office network. During 1996, the Company had cash proceeds of $8.5 million from the sale of its equity interests discussed above. During the first six months of 1996, the Company acquired A Teamwork Sverige AB (subsequently renamed Manpower Teamwork Sverige AB), the largest employment services organization in Sweden, and several United States franchises. Total cash paid for these acquisitions, net of cash acquired, was $31.2 million. There were no significant acquisitions during the first six months of 1997. Net cash from additional borrowings was $55.7 million in the first six months of 1997 compared to $13.3 million in the first six months of 1996. The additional borrowings were used primarily to support the working capital growth in both years, and the repurchase of the Company's common stock in 1997. The Company repurchased 665,600 shares of stock during the first six months of 1997, at a cost of $21.2 million. These shares were purchased under the 1996 Board of Directors' authorization. Accounts receivable increased to $1,286.7 million at June 30, 1997 from $1,167.5 million at December 31, 1996. This change is due to the increased sales level in all of the Company's major markets, offset by the impact of foreign exchange rates during the first six months which reduced receivables by $82.7 million. As of June 30, 1997, the Company had borrowings of $74.2 million and letters of credit of $57.0 million outstanding under its $275 million U.S. revolving credit facility, and borrowings of $51.2 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 June 30, 1997, such lines totaled $148.7 million, of which $99.6 million was unused. On April 28, 1997, the Company's Board of Directors declared a cash dividend of $.08 per share which was paid on June 16, 1997 to shareholders of record on May 28, 1997. Item 3 - Quantitative and Qualitative Disclosures About Market Risk Not applicable
PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders On April 28, 1997, at the Company's Annual Meeting of Shareholders (the "Annual Meeting") the shareholders of the Company voted to: (1) Elect three directors to serve until 2000 as Class I directors, (2) increase the number of shares authorized under the Manpower 1990 Employee Stock Purchase Plan; (3) increase the number of shares authorized under the Manpower 1991 Directors Stock Option Plan; (4) approve an incentive bonus arrangement for the Company's Executive Vice President and Managing Director-International Operations; (5) approve an incentive bonus arrangement for the Company's Executive Vice President; and (6) ratify the appointment of Arthur Andersen LLP as the Company's independent auditors for 1997. In addition, Messrs. J. Ira Harris, Newton N. Minow, and Gilbert Palay continued as Class II directors (term expiring 1998), and Messrs. Jon F. Chait, Dudley J. Godfrey Jr., Marvin B. Goodman continued as Class III directors (term expiring 1999). The results of the proposals voted upon at the Annual Meeting are as follows: For Against Withheld Abstain Broker Non- Vote 1. a) Election of Audrey 70,789,122 - 747,478 - - Freedman b) Election of 70,767,219 - 769,381 - - Mitchell S. Fromstein c) Election of Dennis 70,783,641 - 752,959 - - Stevenson 2. Increase the number of shares authorized under the Manpower 1990 Employee Stock Purchase Plan. 70,912,816 553,320 - 70,464 - 3. Increase the number of Shares authorized under the Manpower 1991 Directors Stock Option Plan. 70,404,707 1,036,143 - 95,750 - 4. Approve an incentive bonus arrangement for the Company's Executive Vice President and Managing Director - International Operations. 68,762,022 2,652,318 - 122,260 - 5. Approve an incentive bonus arrangement for the Company's Executive Vice President. 68,766,231 2,651,669 - 118,700 - 6. Ratification of Arthur Andersen LLP as independent auditors. 71,400,584 79,734 - 56,282 -
Item 5 - Other Information None Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Manpower 1991 Directors Stock Option Plan, as amended 10.2 Amended and Restated Deferred Stock Plan of Manpower Inc. 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: August 13, 1997 /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)