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, 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. Class Shares Outstanding Common Stock at September 30, 1997 $.01 par value 81,143,932
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 - 8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 11 PART II - OTHER INFORMATION AND SIGNATURES 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 Sept. 30, Dec. 31, 1997 1996 CURRENT ASSETS: Cash and cash equivalents $ 157,035 $ 180,553 Accounts receivable, less allowance 1,484,207 1,167,468 for doubtful accounts of $38,120 and $33,526, respectively Prepaid expenses and other assets 62,950 42,913 Future income tax benefits 55,234 48,151 Total current assets 1,759,426 1,439,085 OTHER ASSETS: Investments in licensees 31,408 29,409 Other assets 165,754 162,390 Total other assets 197,162 191,799 PROPERTY AND EQUIPMENT: Land, buildings, leasehold improvements 311,291 302,547 and equipment Less: accumulated depreciation and 190,795 181,168 amortization Net property and equipment 120,496 121,379 Total assets $2,077,084 $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 Sept. 30, Dec. 31, 1997 1996 CURRENT LIABILITIES: Payable to banks $ 85,555 $ 24,375 Accounts payable 280,652 235,466 Employee compensation payable 64,934 60,222 Accrued liabilities 126,742 87,444 Accrued payroll taxes and insurance 230,424 195,194 Value added taxes payable 241,964 174,624 Income taxes payable 15,748 30,945 Current maturities of long-term debt 1,597 2,986 Total current liabilities 1,047,616 811,256 OTHER LIABILITIES: Long-term debt 171,399 100,848 Other long-term liabilities 239,251 239,453 Total other liabilities 410,650 340,301 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, -- -- authorized 25,000,000 shares, none issued Common stock, $.01 par value, authorized 828 822 125,000,000 shares, issued 82,759,932 and 82,206,446 shares, respectively Capital in excess of par value 1,590,502 1,579,868 Accumulated deficit (884,597) (998,230) Cumulative translation adjustments (30,687) 21,476 Treasury stock at cost, 1,616,000 and (57,228) (3,230) 101,700 shares, respectively Total stockholders' equity 618,818 600,706 Total liabilities and stockholders' $2,077,084 $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) 3 Months Ended 9 Months Ended September 30, September 30, 1997 1996 1997 1996 Revenues from services $1,973,020 $1,694,523 $5,286,238 $4,464,314 Cost of services 1,622,090 1,379,199 4,339,503 3,635,091 Gross profit 350,930 315,324 946,735 829,223 Selling and administrative 267,018 238,218 760,347 665,991 expenses Operating profit 83,912 77,106 186,388 163,232 Interest and other (income) 1,119 603 2,875 (8,381) expenses Earnings before income taxes 82,793 76,503 183,513 171,613 Provision for income taxes 30,102 24,087 63,331 57,400 Net earnings $ 52,691 $ 52,416 $ 120,182 $ 114,213 Net earnings per share $ .63 $ .63 $ 1.44 $ 1.37 Dividends declared per share -- -- $ .08 $ .07 Weighted average common shares 83,173 83,356 83,178 83,084 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 9 Months Ended September 30, September 30, 1997 1996 1997 1996 Systemwide Sales $2,420,387 $2,060,113 $6,461,083 $5,481,353 Systemwide information represents the total of Company- owned branches and franchises.
MANPOWER INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (in thousands) 9 Months Ended September 30, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings 120,182 114,213 Adjustments to reconcile net earnings to net cash by operating activities: Depreciation 27,787 23,848 Amortization of intangible 2,357 2,695 assets Deferred income taxes (7,083) 1,159 Provision for doubtful 10,661 9,777 accounts Gain on sale of securities -- (8,452) Changes in operating assets and liabilities: Accounts receivable (427,108) (233,054) Other assets (10,276) 12,431 Other liabilities 253,417 119,967 Cash (used) provided (30,063) 42,584 by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (62,573) (49,773) Purchases of businesses -- (32,200) Proceeds from the sale of property 1,351 977 and equipment Proceeds from sale of securities -- 8,452 Cash used in investing activities (61,222) (72,544) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in payable to banks 65,307 (8,087) Proceeds from long-term debt 71,903 13,663 Repayment of long-term debt (2,085) (1,501) Dividends paid (6,549) (5,739) Repurchase of common stock (53,998) -- Cash provided (used) by financing 74,578 (1,664) activities Effect of exchange rate changes on (6,811) (4,558) cash Net change in cash and cash (23,518) (36,182) equivalents Cash and cash equivalents, beginning 180,553 142,773 of period Cash and cash equivalents, end of $ 157,035 $ 106,591 period SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 7,389 $ 5,437 Income taxes paid $ 60,082 $ 57,700 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, 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 nine months ended September 30, 1997 and 1996, basic and diluted earnings per share would have been as follows: 3 Months Ended 9 Months Ended September 30, September 30, 1997 1996 1997 1996 As reported on Statements of $.63 $.63 $1.44 $1.37 Operations As calculated under SFAS No. 128 - Basic earnings per share $.64 $.64 $1.46 $1.40 Diluted earnings per share $.63 $.63 $1.44 $1.37 (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 Company has provided income taxes for the nine month period ended September 30, 1997 at a rate of 34.5%, which is equal to the estimated annual effective tax rate based on the currently available information. During the third quarter, the corporate income tax rate in France was increased from 36.6% to 41.6%, retroactive to January 1, 1997. The impact of this retroactive increase is fully reflected in the third quarter, resulting in a 36.4% tax rate for the quarter.
(5)Business Segment Data by Geographical Segment Geographical Segment information is as follows: 3 Months Ended 9 Months Ended September 30, September 30, 1997 1996 1997 1996 Revenues from Services: United States (a) $ 523,023 $ 468,397 $1,470,829 $1,303,514 France 773,947 690,073 1,951,744 1,703,031 United Kingdom 254,149 226,341 728,137 632,381 Other Europe 221,447 182,014 607,630 478,839 Other Countries 200,454 127,698 527,898 346,549 $1,973,020 $1,694,523 $5,286,238 $4,464,314 Earnings Before Income Taxes: United States $ 26,064 $ 25,877 $ 67,846 $ 63,855 France 32,611 29,441 63,629 54,535 United Kingdom 13,088 11,354 27,844 23,809 Other Europe 11,082 13,305 27,611 24,091 Other Countries 10,699 4,963 25,476 15,919 Other Corporate (9,632) (7,834) (26,018) (18,977) Expenses Operating Profit 83,912 77,106 186,388 163,232 Interest & Other (1,119) (603) (2,875) 8,381 Income (Expense) $ 82,793 $ 76,503 $ 183,513 $ 171,613 (a) Total systemwide sales in the United States, which include sales of Company-owned branches and franchises, were $874,744 and $776,585 for the three months ended September 30, 1997 and 1996, respectively, and $2,457,301 and $2,155,583 for the nine months ended September 30, 1997 and 1996, respectively.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results - Three Months Ended September 30, 1997 and 1996 Revenues increased 16.4% to $1,973.0 million for the third quarter of 1997. 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 26.7%. Volume, as measured by billable hours of branch operations, increased 23.7% in the quarter. All of the Company's major markets experienced revenue increases, including the United States (11.7 %), France (34.1% in French Francs) and Manpower-United Kingdom (9.7% 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 third quarter of 1997 from 81.4% in the third 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 12.1% for the quarter, but decreased as a percentage of revenue to 13.5% in the third quarter of 1997 from 14.1% in the third quarter of 1996. This decrease reflects the improved leveraging of overhead costs with volume growth in most of the Company's markets. Net interest and other expense was $1.1 million in the third quarter of 1997 compared to $603,000 in the third quarter of 1996. This increase is due to a higher net interest expense, offset by a decrease in translation losses. Net interest expense was $914,000 in the third quarter of 1997 compared to $181,000 in the third quarter of 1996, due primarily to higher worldwide borrowing levels. Translation losses were $81,000 in the third quarter of 1997 compared to $458,000 in the third quarter of 1996. The Company provided income taxes at a rate of 36.4% during the third quarter of 1997. This rate is higher than the estimated annual effective tax rate for 1997 because it includes the year-to-date impact of the corporate income tax rate increase in France. This tax increase was announced during the third quarter and is retroactive to January 1, 1997. (See Note 4 to Consolidated Financial Statements.) Net earnings per share was $.63 in the third quarter of 1997, equal to the net earnings per share in the third quarter of 1996. The 1997 earnings were negatively impacted $.10 per share due to the lower currency exchange rates and the increase in corporate income taxes in France. In addition, the 1996 earnings include $.05 per share of non-recurring income from European employment initiative credits. Without these items, earnings per share would have increased by more than 25%. Operating Results - Nine Months Ended September 30, 1997 and 1996 Revenues for the first nine months of 1997 increased 18.4% to $5,286.2 million. Revenues were unfavorably impacted by changes in currency exchange rates during the nine month period 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 25.7%. Volume, as measured by billable hours of branch operations, increased 24.5% for the nine month period. All of the Company's major markets experienced revenue increases, including the United States (12.8%), France (31.6% in French Francs) and Manpower-United Kingdom (12.1% in Pound Sterling). Cost of services, which consists of payroll and related expenses of temporary workers, increased as a percentage of revenues to 82.1% in the first nine months of 1997 from 81.4% in the first nine 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 14.2%, but decreased as a percentage of revenues to 14.4% in the first nine months of 1997 from 14.9% in the first nine months of 1996. This decrease reflects the improved leveraging of overhead costs with volume growth in most of the Company's markets. Net interest and other totaled $2.9 million of expense in the first nine months of 1997 compared to $8.4 million of income in the first nine months of 1996. During the second quarter of 1996, the Company recorded a non-recurring gain of $8.5 million from the sale of an equity interest. The remaining change is primarily due to changes in net interest, which was $1.6 million of expense in the first nine months of 1997 compared to $1.0 million of income in the first nine months of 1996. This change in net interest is primarily the result of higher worldwide borrowing levels. The Company provided income taxes at a rate of 34.5% which is equal to the expected annual effective rate for 1997, based on currently available information. This rate is higher than the annual effective rate in 1996 due to the increase in the corporate income tax rate in France. (See Note 4 to Consolidated Financial Statements.) Net earnings per share was $1.44 for the first nine months of 1997 compared to net earnings per share of $1.37 for the first nine months of 1996. The 1997 earnings were negatively impacted $.16 per share due to the lower currency exchange rates and the increase in the French corporate income tax rate. In addition, 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, and $.13 per share for the European employment initiative credits. Without these items, earnings per share for the nine month period would have increased by more than 30%. Liquidity and Capital Resources Cash used by operating activities was $30.1 million in the first nine months of 1997 compared to cash provided by operating activities of $42.6 million in the first nine months of 1996. The change reflects the increase in working capital requirements of $184.0 million in the first nine months of 1997 compared to $100.7 million in the first nine months of 1996. The significant revenue growth in France, where DSO is in excess of 70 days, is the primary reason for this increase. Cash provided by operating activities before the changes in working capital requirements was $153.9 million in the first nine months of 1997 compared to $143.3 million in the first nine months of 1996, due primarily to the increased earnings level in 1997. Capital expenditures were $62.6 million in the first nine months of 1997 compared to $49.8 million during the first nine months of 1996. These expenditures primarily consist of computer software and equipment and office furniture to be used in the branch office network. During the first nine 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 $32.2 million. There were no significant acquisitions during the first nine months of 1997. During 1996, the Company had cash proceeds of $8.5 million from the sale of its equity interests, as previously discussed. Net cash from additional borrowings was $135.1 million in the first nine months of 1997 compared to $4.1 million in the first nine months of 1996. The additional borrowings were primarily used to support the working capital growth in both years, and the repurchase of the Company's common stock in 1997. The Company repurchased 1.5 million shares of common stock during the first nine months of 1997, at a cost of $54.0 million. These shares were purchased under the 1996 Board of Directors' authorization which allows for the repurchase of up to 5 million shares of common stock. The Company paid cash dividends of $6.5 million during the first nine months of 1997 compared to cash dividends of $5.7 million during the first nine months of 1996.
Accounts receivable increased to $1,484.2 million at September 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 currency exchange rates during the first nine months which reduced receivables by $93.3 million. As of September 30, 1997, the Company had borrowings of $122.8 million and letters of credit of $59.0 million outstanding under its $275 million U.S. revolving credit facility, and borrowings of $45.0 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 September 30, 1997, such lines totaled $151.3 million, of which $65.7 million was unused. Item 3 - Quantitative and Qualitative Disclosures About Market Risk Not applicable
PART II - OTHER INFORMATION Item 5 - Other Information None Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 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 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)