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, 1999 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, 1999 Common Stock, 79,145,307 $.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 - 9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 13 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 13 PART II - OTHER INFORMATION AND SIGNATURES Item 5 - Other Information 14 Item 6 - Exhibits and Reports on Form 8-K 14 Signatures 15
PART I - FINANCIAL INFORMATION Item 1 - Financial Statements MANPOWER INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands) ASSETS March 31, December 31, 1999 1998 (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 173,560 $ 180,456 Accounts receivable, less allowance for doubtful accounts of $39,264 and $39,504, respectively 1,504,488 1,674,729 Prepaid expenses and other assets 56,678 53,565 Future income tax benefits 50,852 52,812 Total current assets 1,785,578 1,961,562 OTHER ASSETS: Investments in licensees 34,285 33,055 Other assets 198,766 195,223 Total other assets 233,051 228,278 PROPERTY AND EQUIPMENT: Land, buildings, leasehold improvements and equipment 408,790 411,391 Less: accumulated depreciation and amortization 219,707 220,131 Net property and equipment 189,083 191,260 Total assets $2,207,712 $2,381,100 The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
MANPOWER INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share data) LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31, 1999 1998 (unaudited) CURRENT LIABILITIES: Payable to banks $ 25,324 $ 99,268 Accounts payable 393,578 347,864 Employee compensation payable 73,203 77,084 Accrued liabilities 151,734 154,428 Accrued payroll taxes and insurance 234,936 319,053 Value added taxes payable 258,168 291,720 Income taxes payable 18,862 17,563 Current maturities of long-term debt 3,574 4,076 Total current liabilities 1,159,379 1,311,056 OTHER LIABILITIES: Long-term debt 150,127 154,594 Other long-term liabilities 245,765 246,512 Total other liabilities 395,892 401,106 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 83,494,707 and 83,279,149 shares, respectively 835 833 Capital in excess of par value 1,606,946 1,602,721 Accumulated deficit (767,091) (787,699) Accumulated other comprehensive loss (59,227) (17,895) Treasury stock at cost, 4,349,400 shares (129,022) (129,022) Total stockholders' equity 652,441 668,938 Total liabilities and stockholders' equity $ 2,207,712 $ 2,381,100 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 March 31, 1999 1998 Revenues from services $ 2,175,236 $ 1,872,866 Cost of services 1,795,002 1,545,508 Gross profit 380,234 327,358 Selling and administrative expenses 343,442 290,595 Operating profit 36,792 36,763 Interest and other income (expense) (4,840) (3,144) Earnings before income taxes 31,952 33,619 Provision for income taxes 11,344 11,929 Net earnings $ 20,608 21,690 Net earnings per share $ .26 $ .27 Net earnings per share - diluted $ .26 $ .26 Weighted average common shares 79,044 80,557 Weighted average common shares-diluted 79,844 81,921 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 March 31, 1999 1998 Systemwide Sales $ 2,562,470 $2,276,913 Systemwide information represents the total of Company-owned branches and franchises.
MANPOWER INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (in thousands) 3 Months Ended March 31, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 20,608 $ 21,690 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 17,673 12,549 Deferred income taxes 530 (1,701) Provision for doubtful accounts 3,035 3,014 Changes in operating assets and liabilities: Accounts receivable 65,538 (2,920) Other assets (8,406) 2,573 Other liabilities (12,873) (8,694) Cash provided by operating activities 86,105 26,511 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (21,331) (28,188) Proceeds from the sale of property and equipment 682 609 Acquisitions of businesses, net of cash acquired (2,227) (1,803) Cash used by investing activities (22,876) (29,382) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in payable to banks (63,969) (19,940) Proceeds from long-term debt 132 16,917 Repayment of long-term debt (5,105) (349) Proceeds from stock option and purchase plans 4,228 7,232 Cash (used) provided by financing activities (64,714) 3,860 Effect of exchange rate changes on cash (5,411) 1,016 Net change in cash and cash equivalents (6,896) 2,005 Cash and cash equivalents, beginning of period 180,456 142,246 Cash and cash equivalents, end of period $173,560 $144,251 SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 3,897 $ 3,074 Income taxes paid $ 14,220 $ 14,458 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 Three Months Ended March 31, 1999 and 1998 (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 the Company's 1998 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. (2) Accounting Policies During the first quarter of 1999, the Company adopted the American Institute of Certified Public Accountants (`AICPA') Statement of Position (`SOP') 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" and the AICPA SOP 98-5, "Reporting on the costs of Start-up Activities." These statements did not have a material impact on the Company's Consolidated Financial Statements. In June of 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met, in which case, the gains or losses would offset the related results of the hedged item. This statement is effective for the Company beginning in 2000, but may be adopted earlier. The Company has not yet determined the timing or method of adoption or quantified the impact of adopting this statement. While the statement could increase volatility in earnings and other comprehensive income, it is not expected to have a material impact on the Consolidated Financial Statements due to the Company's limited use of derivative instruments.
(3) Earnings Per Share The calculations of net earnings per share and net earnings per share - diluted for the three months ended March 31 are as follows: 1999 1998 Net earnings per share: Net earnings available to $ 20,608 $ 21,690 common shareholders Weighted average common shares outstanding 79,044 80,557 $ .26 $ .27 Net earnings per share - diluted: Net earnings available to $ 20,608 $ 21,690 common shareholders Weighted average common shares 79,044 80,557 outstanding Effect of dilutive stock options 800 1,364 79,844 81,921 $ .26 $ .26 (4) Income Taxes The Company has provided income taxes for the three month period ended March 31, 1999 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 U.S. Federal statutory rate due to foreign tax rate differences and U.S. state income taxes. (5) Stockholders' Equity Total comprehensive income consists of net earnings and foreign currency translation adjustments and is as follows for the three months ended March 31: 1999 1998 Net earnings $ 20,608 $ 21,690 Foreign currency (41,332) (10,560) translation adjustments Total comprehensive income $(20,724) $ 11,130 (6) Interest Rate Swap The Company has 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 1999. As of March 31, 1999, the variable interest rate under the revolving credit agreement was 5.2%.
(7) Business Segment Data by Geographical Area Geographical segment information is as follows for the three months ended March 31: 1999 1998 Revenues from services: United States (a) $ 515,827 $ 499,073 France 828,023 721,389 United Kingdom 272,803 248,234 Other Europe 326,923 230,838 Other Countries 231,660 173,332 $ 2,175,236 $ 1,872,866 Operating unit profit: United States $ 13,318 $ 15,261 France 13,364 12,067 United Kingdom 6,870 7,393 Other Europe 9,359 6,118 Other Countries 3,392 7,156 Corporate Expenses (7,930) (9,997) Amortization of Intangible Assets (1,581) (1,235) Operating Profit 36,792 36,763 Interest & Other Income (Expense) (4,840) (3,144) Earnings before Income Taxes 31,952 33,619 (a) Total systemwide sales in the United States, which includes sales of Company-owned branches and franchises, was $850,391 and $831,250 for the three months ended March 31, 1999 and 1998, respectively. (8) Subsequent Events On April 26, 1999, the Company's Board of Directors declared a cash dividend of $.10 per share which is payable on June 14, 1999 to shareholders of record on June 2, 1999. Subsequent to March 31, 1999, the Company repurchased 406,800 shares of common stock at a cost of $9.5 million.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results - Three Months Ended March 31, 1999 and 1998 Revenues increased 16.1% to $2,175.2 million for the first quarter of 1999. Revenues were favorably impacted by changes in currency exchange rates during the first quarter of 1999 due to the weakening of the U.S. Dollar, as compared to the first quarter of 1998, 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 13.1%. Volume, as measured by billable hours of branch operations, increased 16.9% in the quarter. All of the Company's major markets experienced revenue increases, as measured in their local currencies, including the United States (3.4%), France (10.2%) and the United Kingdom (10.8%). The Company's Other Europe and Other Countries segements reported revenue increases, as measured in their local currencies, of 38% and 23%, respectively. Cost of services, which consists of payroll and related expenses of temporary workers, was 82.5% of revenues in the first quarter of 1999 and 1998. Gross margins in France increased during the first quarter, while gross margins in certain other foreign markets have decreased due to pricing pressures and a change in business mix. Selling and administrative expenses increased to 18.2% to $343.4 million in the quarter. This amount represents a decrease from the fourth quarter 1998 level and was achieved despite the Company's continued investments in new or expanding markets. Interest and other expense was $4.8 million in the first quarter of 1999 compared to $3.1 million in the first quarter of 1998. Net interest expense, plus the cost of the U.S. accounts receivable securitization program in 1999, was $4.0 million and $.9 million in the first quarter of 1999 and 1998, respectively. This higher 1999 expense was partially offset by lower translation losses and a lower level of other expenses compared to 1998. The Company provided income taxes at a rate of 35.5% during the first quarter of 1999, equal to the estimated annual effective tax rate for 1999. This rate is higher than the U.S. Federal statutory rate due to foreign tax rate differences and U.S. state income taxes. On a diluted basis, net earnings per share was $.26 in the first quarter of 1999 and 1998. The diluted weighted average shares decreased by 2.5% for the quarter due to the Company's treasury stock purchases and a smaller effect of dilutive stock options (see Note 3 to the Consolidated Financial Statements) because of the lower average share price during the quarter. Liquidity and Capital Resources Cash provided by operating activities was $86.1 million in the first quater of 1999 compared to $26.5 million in the first quarter of 1998. This increase in cash provided reflects the change in working capital requirements between periods, due to the lower revenue growth rates in many of the Company's major markets. Cash provided by changes in working capital was $44.3 million in the first quarter of 1999 compared to cash used by changes in working capital of $9.0 million in the first quarter of 1998. Cash provided by operating activities before the changes in working capital requirements was $41.8 million in the first quarter of 1999 compared to $35.5 million in the first quarter of 1998. Capital expenditures were $21.3 million in the first quarter of 1999 compared to $28.2 million during the first quarter of 1998. The 1998 expenditures include capitalized software of $7.4 million. The balance is comprised of purchases of computer equipment, office furniture and other costs related to office openings and refurbishments.
Net cash used to repay borrowings was $68.9 million and $3.4 million in the first quarter of 1999 and 1998, respectively. Accounts receivable decreased to $1,504.5 million at March 31, 1999 from $1,674.7 million at December 31, 1998. Of this decrease, $99.7 million is due to the change in exchange rates during the first quarter. The remaining decrease is primarily due to seasonality, as sales levels in the first quarter are typically lower than the fourth quarter. As of March 31, 1999, the Company had borrowings of $73.8 million and letters of credit of $49.5 million outstanding under its $415 million U.S. revolving credit facility, and borrowings of $72.1 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, 1999, such lines totaled $161.4 million, of which $136.1 million was unused. In April, the Company's Board of Directors also declared a cash dividend of $.10 per share which is payable on June 14, 1999 to shareholders of record on June 2, 1999. Year 2000 State of Readiness - In order to address Year 2000 compliance, the Company has initiated a comprehensive project designed to eliminate or minimize any business disruption associated with its information technology ("IT") and non-IT systems. In connection with this project, all significant Company subsidiaries have done systems assessments to determine what modifications will be required and detailed plans and timetables have been developed to complete and test the necessary remediation. Primarily due to changing customer requirements, the Company is in the process of converting and upgrading many of its IT systems, and these new IT systems are Year 2000 compliant. For those IT systems not otherwise being converted or upgraded, remediation efforts have been planned. In the U.S., initial remediation efforts are completed, and testing of this remediation is substantially complete. Any further remdiation needed as a result of the testing, and additional testing of the system interfaces, will continue through July of 1999. For all other significant subsidiaries, initial remediation is scheduled to be completed by June of 1999 and testing of the remediation is scheduled to be completed during the second and third quarters of 1999. The remediation or replacement of all critical non-IT systems is scheduled to be completed during the second and third quarters of 1999. The Company presently believes that with these conversions, upgrades and remediation efforts, all significiant Year 2000 Issues related to the Company's systems will be addressed. In addition, the Company is contacting significant vendors and customers to determine the extent to which the Company is vulnerable to those third parties' potential failure to remediate their own systems to address Year 2000 Issues. Despite the Company's diligence, there can be no guarantee that companies that the Company relies upon to conduct its day-to-day business will be compliant. Cost - To date, the Company has used both external and internal resources for the assessment, remediation and testing of its systems. As of March 31, 1999, approximately $6.5 million has been expensed for external resources. The total expense for external resources is currently estimated to be $10 million to $12 million. Hardware purchases directly related to the project, which are expensed as incurred, have been minimal as of March 31, 1999, and the Company does not expect any remaining hardware purchases to be significant. The cost of internal resources is aggregated with the Company's information technology cost centers. The total cost of the project is not expected to have a material impact on the Company's financial position, results of operations or cash flows. Risks - With respect to the risks associated with its systems, the Company believes that the most reasonably likely worst case scenario is that the Company will experience a number of minor system malfunctions and errors in the early days and weeks of the Year 2000. The Company does not expect these problems to have a material impact on the Company's ability to place and pay workers or invoice customers. With respect to the risks associated with third parties, the Company believes that the most reasonably likely worst case scenario is that some of the Company's vendors and customers will not be compliant. The Company believes that the number of such third parties will have been minimized by the Company's program of contacting significant vendors and larger customers. However, failure by these companies, or any governmental entities, to remediate their systems on a timely basis could have a material adverse effect on the Company. Contingency Plans - The Company is currently preparing to handle the most reasonably likely worst case scenarios described above. The Company is evaluating and developing contingency plans for these risks and is scheduled to have them completed by October of 1999. The Euro On January 1, 1999, eleven of the fifteen member countries of the European Union (the "participating countries") established fixed conversion rates between their existing sovereign currencies (the "legacy currencies") and the Euro and have agreed to adopt the Euro as their common legal currency. The legacy currencies will remain legal tender in the participating countries as denominations of the Euro between January 1, 1999 and January 1, 2002 (the "transition period"). During the transition period, public and private parties may pay for goods and services using either the Euro or the participating country's legacy currency. The Company is currently assessing the impact of the Euro in its business operations in all participating countries. In some countries, the Company has made system modifications to generate dual currency invoices, allowing customers to pay in either the legacy currency or in Euro. To date, the Company has not had significant customer requests for specific invoicing or reporting formats that are not handled by the current systems. However, modificatins will be necessary to convert database information to report information in either Euro or in both currencies. Such modifications will occur throughout the transition period and will be coordinated with other system-related upgrades and enhancements. The Company expenses all such system modification costs as incurred. To date, all modification costs have been minimal, and the Company currently does not expect significant costs related to future modifications. 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 and implement information systems * unanticipated technological changes, including obsolescence or impairment of information systems * 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 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 6 - Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Employment Agreement between Jeffrey A. Joerres and Manpower Inc. dated as of February 22, 1999 10.2 Severance Agreement between Jeffrey A. Joerres and Manpower Inc. dated as of February 22, 1999. 10.3 Employment Agreement between Michael J. Van Handel and Manpower Inc. dated as of February 22, 1999. 10.4 Severance Agreement between Michael J. Van Handel and Manpower Inc. dated as of February 22, 1999 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: May 14, 1999 /s/Michael J. Van Handel ------------------------ Michael J. Van Handel Senior Vice President Chief Financial Officer, Treasurer and Secretary (Signing on behalf of the Registrant and as the Principal Financial Officer and Principal Accounting Officer)