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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 2
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934: For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-10686
MANPOWER INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1672779
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5301 NORTH IRONWOOD ROAD
MILWAUKEE, WISCONSIN 53217
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 961-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of each class which registered
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates
of the registrant was $2,557,167,160 as of February 28, 2002. As of February
28, 2002, there were 76,265,501 of the registrant's shares of common stock
outstanding.
EXPLANATION OF AMENDMENT
Our Annual Report on Form 10-K for the fiscal year ended December 31,
2001 was reviewed by the Securities and Exchange Commission (the "Commission")
as part of their normal review process. In response to comments received from
the Commission, we filed Amendment No. 1 to our Form 10-K on September 3,
2002. In response to additional comments received from the Commission with
respect to Amendment No. 1 to our Form 10-K, we have further amended Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of that filing to add additional disclosure related to the impact
of acquisitions on our operating results for the years ended December 31, 2001
and 2000.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NATURE OF OPERATIONS
Manpower Inc. (the "Company") is a global staffing leader delivering
high-value staffing and workforce management solutions worldwide. Through a
systemwide network of over 3,900 offices in 61 countries, the Company provides
a wide range of human resource services including professional, technical,
specialized, office and industrial staffing; temporary and permanent employee
testing, selection, training and development; and organizational-performance
consulting.
The staffing industry is large and fragmented, comprised of thousands
of firms employing millions of people and generating billions in annual
revenues. It is also a highly competitive industry, reflecting several trends
in the global marketplace, notably increasing demand for skilled people and
consolidation among customers and in the industry itself.
The Company attempts to manage these trends by leveraging established
strengths, including one of the staffing industry's best-recognized brands;
geographic diversification; size and service scope; an innovative product mix;
and a strong customer base. While staffing is an important aspect of our
business, our strategy is focused on providing both the skilled employees our
customers need and high-value workforce management solutions.
Systemwide information referred to throughout this discussion
includes both Company-owned branches and franchises. The Company generates
revenues from sales of services by its own branch operations and from fees
earned on sales of services by its franchise operations. Systemwide sales
reflects sales of Company-owned branch offices and sales of franchise offices.
(See Note 1 to the Consolidated Financial Statements for further information.)
Systemwide Sales (in millions of U.S. dollars)
United States 3,114.8
France 3,766.4
United Kingdom 1,489.3
Other Europe 2,085.1
Other Countries 1,323.5
Systemwide Offices (as of December 31, 2001)
United States 1,121
France 985
United Kingdom 312
Other Europe 1,021
Other Countries 481
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
CONSOLIDATED RESULTS - 2001 COMPARED TO 2000
Systemwide sales decreased 5.3% to $11.8 billion in 2001 from $12.4
billion in 2000.
Revenues from services decreased 3.3%. Revenues were unfavorably
impacted during the year by changes in currency exchange rates, as the U.S.
Dollar strengthened relative to many of the functional currencies of the
Company's foreign subsidiaries. Revenues were flat at constant exchange rates.
Revenue growth in 2001 attributable to acquisitions was approximately $180
million. Revenues excluding acquisitions decreased 5.0%, or 1.3% on a constant
currency basis.
Operating profit declined 23.6% during 2001. As a percentage of
revenues, operating profit was 2.3% compared to 2.9% in 2000. This decrease in
operating profit margin reflects the de-leveraging of the business caused by
the slowing revenue growth coupled with the Company's continued investment in
certain expanding markets and strategic initiatives. Acquisitions did not have
a significant impact on operating profit, or operating profit as a percentage
of revenue, during the year.
Gross profit increased .5% during 2001, as the gross profit margin
improved 70 basis points (.7%) to 18.7% in 2001 from 18.0% in 2000. The
improved margin is due primarily to a change in business mix to higher value
services and to improved pricing in most major markets. The change in business
mix to higher value services came primarily from acquisitions. Gross profit
margin improvement attributable to acquisitions was 30 basis points (.3%)
during 2001. Gross profit growth from acquisitions was approximately $56
million. Excluding acquisitions, gross profit decreased 2.5% and increased
1.5% on a constant currency basis.
Acquisitions made during 2000 and 2001, in total, had revenues of
approximately 4% of 2001 consolidated revenues and accounted for approximately
5% of consolidated gross profit. Gross profit margin improvement attributable
to these acquisitions was 20 basis points (.2%) during 2001. They experienced
an operating loss of approximately 5% of consolidated operating profit.
Excluding goodwill amortization, the operating loss of these acquisitions was
less than 1% of consolidated operating profit.
Selling and administrative expenses increased 5.1% during 2001. As a
percent of Gross profit, these expenses were 87.9% in 2001 and 84.0% in 2000.
The increase in this percentage reflects the de-leveraging of the business, as
discussed above. The growth in Selling and administrative expenses declined
throughout the year, as the Company made a concerted effort to control costs
in response to the economic slowdown. Selling and administrative expenses were
flat in the fourth quarter of 2001 compared to the fourth quarter of 2000. The
Company added 235 offices during 2001 as it invested in expanding markets,
such as Italy, and in acquisitions.
Interest and other expenses decreased $6.1 million during 2001, due
primarily to a $4.5 million decrease in the loss on the sale of accounts
receivable and a $2.1 million decline in foreign exchange losses. The loss on
the sale of accounts receivable decreased in 2001 due to a decrease in the
average amount advanced under the U.S. Receivables Facility (the "Receivables
Facility"). (See Note 4 to the Consolidated Financial Statements for further
information.) Net interest expense was $28.8 million in 2001 compared to $27.7
million in 2000, as the effect of higher borrowings was offset by lower
interest rates. Other income and expenses were $5.4 million in 2001 and $6.0
million in 2000, and consist of bank fees, other non-operating expenses, and
in 2001, a gain on the sale of a minority-owned subsidiary and a write-down of
an investment.
The Company provided for income taxes at a rate of 37.1% in 2001
compared to 35.4% in 2000. The increase in the rate primarily reflects a shift
in taxable income to relatively higher tax-rate countries and an increase in
valuation allowances recorded against foreign net operating losses. The 2001
rate is different than the U.S. Federal statutory rate of 35% due to the
impact of higher foreign income tax rates, taxes on foreign repatriations and
non-deductible goodwill.
Net earnings per share, on a diluted basis, decreased 27.0% to $1.62
in 2001 compared to $2.22 in 2000. The 2001 earnings per share, on a diluted
basis, was negatively impacted by the lower currency exchange rates during the
year. At constant exchange rates, 2001 diluted earnings per share would have
been $1.72, a decrease of 22.5% from 2000. The weighted-average shares
outstanding declined less than 1% from 2000. On an undiluted basis, net
earnings per share was $1.64 in 2001 compared to $2.26 in 2000.
CONSOLIDATED RESULTS - 2000 COMPARED TO 1999
Systemwide sales increased 8.1% to $12.4 billion in 2000 from $11.5
billion in 1999. Revenues from services increased 11.0%.
Revenues from services increased 11.0%. Revenues were unfavorably
impacted during the year by changes in currency exchange rates, as the U.S.
Dollar strengthened relative to the functional currencies of the Company's
European subsidiaries. At constant exchange rates, the increase in revenues
would have been 20.8%.
Revenue growth in 2000 included approximately $260 million attributable to
acquisitions made during 2000. Revenues excluding acquisitions increased 8.3%,
or approximately 19% on a constant currency basis.
Operating profit increased 34.8% during 2000. Excluding the impact of
the $28.0 million of nonrecurring items recorded in 1999, related to employee
severance, retirement costs and other associated realignment costs, operating
profit increased 20.2%. As a percentage of revenues, operating profit,
excluding the non-recurring items, increased 30 basis points (.3%) to 2.9% in
2000. Acquisitions did not have a significant impact on operating profit, or
operating profit as a percentage of revenues, during the year.
Gross profit increased 14.2% during 2000, reflecting both the
increase in revenues and an improvement in the gross profit margin. The gross
profit margin improved to 18.0% in 2000 from 17.5% in 1999 due primarily to
the enhanced pricing in France and the Company's continued focus on
higher-margin business. Gross profit margin improvement attributable to
acquisitions was 10 basis points (.1%) during 2000. Gross profit growth from
acquisitions was approximately $50 million. Excluding acquisitions, gross
profit increased 11.3%, or 20.9% on a constant currency basis.
Selling and administrative expenses increased 10.9% during 2000.
Excluding the impact of the nonrecurring items recorded in 1999, Selling and
administrative expenses increased 13.1%. As a percent of Gross profit,
excluding nonrecurring items, these expenses were 84.0% in 2000 and 84.8% in
1999. This improvement was achieved despite the increased administrative costs
in France resulting from the 35-hour workweek instituted during 2000 and the
investments in Manpower Professional in the U.S. and new markets worldwide.
The Company opened more than 285 offices during 2000, with the majority being
opened throughout mainland Europe.
Interest and other expenses increased $21.0 million during 2000 due
primarily to higher net interest expense levels. Net interest expense was
$27.7 million in 2000 compared to $9.3 million in 1999. This increased expense
is due to higher borrowing levels required to finance the Company's
acquisitions, the share repurchase program and the ongoing investments in its
global office network.
The Company provided for income taxes at a rate of 35.4% in 2000
compared to 27.1% in 1999. The increase in the rate primarily reflects the
impact of the 1999 non-recurring items, including a one-time tax benefit of
$15.7 million related to the Company's dissolution of a non-operating
subsidiary. Without these nonrecurring items, the 1999 tax rate would have
been 35.5%. The 2000 rate is different than the U.S. Federal statutory rate
due to foreign repatriations, foreign tax rate differences, state income taxes
and net operating loss carryforwards which had been fully reserved for in
prior years.
Net earnings per share, on a diluted basis, increased 16.2% to $2.22
in 2000 compared to $1.91 in 1999. Excluding the nonrecurring items recorded
in 1999, diluted earnings per share was $1.92. The 2000 earnings per share, on
a diluted basis, was negatively impacted by the lower currency exchange rates
during the year. At constant exchange rates, 2000 diluted earnings per share
would have been $2.52, an increase of 31.9% over 1999. The weighted-average
shares outstanding decreased 2.0% for the year due to the Company's treasury
stock purchases. On an undiluted basis, net earnings per share was $2.26 in
2000, which compares to $1.95 in 1999, excluding the nonrecurring items.
SEGMENT RESULTS
The Company is organized and managed primarily on a geographical
basis. Each country has its own distinct operations, is managed locally by its
own management team and maintains its own financial reports. Each country
reports directly or indirectly through a regional manager, to a member of
executive management. Given this reporting structure, all of the Company's
operations have been segregated into the following segments - United States,
France, United Kingdom, Other Europe and Other Countries. (See Note 13 to the
Consolidated Financial Statements for further information.)
Revenues from Services (in Millions of U.S. Dollars)
United States 2,003.4
France 3,766.4
United Kingdom 1,489.3
Other Europe 1,939.4
Other Countries 1,285.3
United States -- Systemwide sales in the United States were $3.1
billion, a decrease of 18% from 2000. Revenues decreased 17% to $2.0 billion.
These declines reflect a significant decrease in demand for our services in
response to the deteriorating U.S. economy. The rate of revenue contraction
compared to prior year grew during the year, with revenues down 3% in the
first quarter and 25% in the fourth quarter. During the last five months of
the year, the contraction appeared to stabilize with revenues trailing prior
year by approximately 25%.
In response to the declining revenue trends, the U.S. organization
implemented a number of cost control initiatives. These initiatives resulted
in a 7% decrease in selling and administrative expenses in 2001, or a $48
million reduction on an annualized run-rate basis, beginning with the second
half of the year.
Despite these cost reduction initiatives, the rate of expense
reduction (-7%) lagged the decline in revenues (-17%) as management is
committed to preserving a quality network of offices which will be necessary
to fully benefit from anticipated revenue growth when the economy improves.
Operating profit decreased 65% to $29.5 million in 2001, while the
operating profit margin declined to 1.5% from 3.5% in 2000. This decline
primarily reflects the impact of the selling and administrative expense
de-leveraging caused by the revenue decline.
The Company acquired two U.S. franchises during the year, adding
approximately $38 million of revenue. The impact of these acquisitions on
Operating profit was negligible.
In Millions of U.S. Dollars
99 00 01
United States:
Revenue 2,250.5 2,413.5 2,003.4
Revenue growth 5.0% 7.0% (17.0)%
Operating profit 80.3 84.6 29.5
Operating profit growth 3.0% 5.0% (65.0)%
France -- Revenues in France decreased 2% in local currency to E4.2
billion ($3.8 billion) in 2001 from E4.3 billion ($3.9 billion) in 2000.
During the year the Company experienced slowing demand for its services as the
French economy continued to weaken. Revenue growth in the fourth quarter
contracted 11.0% from the prior year level.
Despite this decrease in revenues, our French organization was able
to achieve improved operating profit margins. Operating profit margins
improved to 3.6% in 2001, representing a 30 basis point (.3%) improvement over
2000 and a 90 basis point (.9%) improvement over 1999. Operating profit
increased 7% in local currency in 2001, following a 49% improvement in 2000.
These improvements are the result of enhanced pricing initiatives and
effective cost control in response to the slowing French economy.
In Millions of U.S. Dollars
99 00 01
France:
Revenue 3,775.1 3,939.2 3,766.4
Revenue growth 4.0% 4.0% (4.0)%
Operating profit 100.9 130.6 135.7
Operating profit growth 31.0% 29.0% 4.0%
United Kingdom --The United Kingdom segment includes Manpower which
provides services though 160 offices, Brook Street which provides services
through 126 offices and Elan, a specialty IT staffing business, which provides
services throughout Europe through 22 offices.
Revenues for the U.K. segment grew 8% in constant currency reaching
$1.5 billion for 2001. While demand for our services was not as strong in the
second half of the year, the U.K. economy was stronger than many of the other
markets in which the Company operates.
The gross profit margin improved substantially during the year,
increasing 190 basis points (1.9%). This reflects an improvement in business
mix to more higher-value services and enhanced pricing.
The operating profit margin declined 20 basis points (.2%) during the
year primarily as a result of expense de-leveraging in the second half of the
year as revenue levels began to trail the prior year.
In Millions of U.S. Dollars
99 00 01
United Kingdom
Revenue 1,170.3 1,453.1 1,489.3
Revenue growth 8.0% 24.0% 2.0%
Operating profit 40.2 46.2 44.5
Operating profit growth (5.0)% 15.0% (4.0)%
Other Europe -- Revenues in the Other Europe segment grew 7% in
constant currency during 2001, totaling $1.9 billion. The revenue growth rate
has slowed from prior year levels, reflecting the softening European economy
experienced during the last six months of the year.
Operating profit declined 12% in constant currency during 2001
primarily as a result of the de-leveraging effect caused by the slowing
revenue growth in many of the European countries, and the Company's continued
investment in faster growing markets, such as Italy. Operating profit
increases exceeded 14% in the Netherlands, Israel and Spain despite the
declining revenues in those countries.
During 2001, the Company opened almost 100 offices in the Other
Europe markets, most of which were in Italy. Over 700 offices have been opened
in the Other Europe markets during the past five years.
In Millions of U.S. Dollars
99 00 01
Other Europe:
Revenue 1,665.5 1,896.3 1,939.4
Revenue growth 29.0% 14.0% 2.0%
Operating profit 68.0 89.1 75.9
Operating profit growth 29.0% 31.0% (15.0)%
Other Countries -- Revenues in the Other Countries segment were $1.3
billion, increasing 22% in constant currency. The Company's largest operation
within this segment is Japan, which represents approximately 43% of the
segment's 2001 revenues. Revenues in Japan increased 34% in local currency, or
25% excluding acquisitions. This strong revenue growth was achieved despite
the weak economy as secular trends toward flexible staffing remain very
positive. The Company continues to invest in Japan and is well positioned to
take advantage of future growth opportunities. Also included in this segment
are Jefferson Wells International, Inc. ("Jefferson Wells") and The Empower
Group ("Empower"). Jefferson Wells, which was acquired in July 2001, is a
professional services provider of internal audit, accounting, technology and
tax services. It operates a network of offices throughout the United States
and Canada.
Empower, which was formed in 2000, provides added-value human
resource solutions and consulting services through a network of global
offices. During 2001, the Company added to the strength of its Empower service
offering with the integration of a number of smaller acquisitions. In total,
Jefferson Wells and the newly acquired Empower companies added over $90
million of revenue in 2001.
Operations in Mexico and Asia, excluding Japan, posted local currency
revenue growth of 11% and 42%, respectively, in 2001 while improving operating
profit margins. These results reflect the benefit of our continued investment
in these regions, where we added 33 offices during the past two years.
The operating profit margin for the segment overall declined during
the year, due to the economic softening in many of these markets along with
the Company's continued investments in this segment.
In Millions of U.S. Dollars
99 00 01
Other Countries:
Revenue 908.7 1,140.7 1,285.3
Revenue growth 40.0% 26.0% 13.0%
Operating profit 10.6 13.2 8.9
Operating profit growth (36.0)% 24.0% (32.0)%
CASH SOURCES
Excluding the impact of the Receivables Facility, cash provided by
operating activities was $281.0 million in 2001 and $212.9 million in 2000
compared to a $25.5 million use of cash in 1999. Including the impact of the
Receivables Facility, cash provided by operating activities was $136.0 million
in 2001 and $157.9 million in 2000 compared to a $.5 million use of cash in
1999. Changes in working capital significantly impacted cash flow. Cash
provided by changes in working capital, excluding the Receivables Facility,
was $59.8 million in 2001 compared to cash used to support working capital
needs during 2000 and 1999 of $31.0 million and $275.2 million, respectively.
The changes from 2000 to 2001 and from 1999 to 2000 are the result of the
Company's continued focus on working capital management, evidenced by a
reduction in consolidated Days Sales Outstanding (DSO) levels for much of 2001
and 2000. In addition, the change from 2000 to 2001 was also partially due to
the decrease in working capital needs because of the declining revenue levels.
Cash provided by operating activities before working capital changes was
$221.2 million, $243.9 million and $249.7 million during 2001, 2000 and 1999,
respectively.
Accounts receivable decreased to $1,917.8 million at December 31,
2001 from $2,094.4 million at December 31, 2000. This decrease is primarily
due to the declining revenue levels in many of our countries and a two-day
reduction in DSO on a consolidated basis. These declines were offset somewhat
by a $145.0 million reduction in the amount of accounts receivable sold under
the Receivables Facility. The accounts receivable balance is also impacted by
currency exchange rates. At constant exchange rates, the receivables balance
would have been $102.8 million higher than reported.
The Company records an Allowance for doubtful accounts as a reserve
against the outstanding Accounts receivable balance. This allowance is
calculated on a country-by-country basis with consideration for historical
write-off experience, the current aging of receivables and a specific review
for potential bad debts. The Allowance for doubtful accounts was $61.8 million
and $55.3 million at December 31, 2001 and 2000, respectively.
Net cash provided by borrowings was $313.0 million and $71.8 million
in 2001 and 2000, respectively. Borrowings in 2001 and 2000 were used for
acquisitions, investments in new and expanding markets, capital expenditures
and repurchases of the Company's common stock.
CASH USES
Capital expenditures were $87.3 million, $82.6 million and $74.7
million during 2001, 2000 and 1999, respectively. These expenditures are
primarily comprised of purchases of computer equipment, office furniture and
other costs related to office openings and refurbishments, as well as
capitalized software costs of $19.1 million, $6.9 million and $3.0 million in
2001, 2000 and 1999, respectively.
In July 2001, the Company acquired Jefferson Wells for total
consideration of approximately $174.0 million, including assumed debt. The
acquisition of Jefferson Wells was originally financed through the Company's
existing credit facilities.
In January 2000, the Company acquired Elan Group Ltd. for total
consideration of approximately $146.2 million, the remaining $30.0 million of
which was paid during 2001.
The Company has also acquired or invested in other companies
throughout the world. The total consideration paid for such transactions,
excluding the acquisitions of Jefferson Wells and Elan, was $95.8 million,
$56.2 million and $18.8 million in 2001, 2000 and 1999, respectively.
The Board of Directors has authorized the repurchase of 15 million
shares under the Company's share repurchase program. Share repurchases may be
made from time to time and may be implemented through a variety of methods,
including open market purchases, block transactions, privately negotiated
transactions, accelerated share repurchase programs, forward repurchase
agreements or similar facilities. At December 31, 2001, 9.0 million shares at
a cost of $253.1 million have been repurchased under the program, $3.3 million
of which were repurchased during 2001.
During September 2000, the Company entered into a forward repurchase
agreement to purchase shares of its common stock under its share repurchase
program. Under the agreement, over a two-year period, the Company is required
to repurchase a total of one million shares at a current price of
approximately $34 per share, which approximates the market price at the
inception of the agreement, plus a financing charge. The Company may choose
the method by which it settles the agreement (i.e., cash or shares). As of
December 31, 2001, 100,000 shares have been purchased under this agreement,
leaving 900,000 shares to be purchased by September 2002.
The Company paid dividends of $15.2 million, $15.1 million and $15.3
million in 2001, 2000 and 1999, respectively.
Cash and cash equivalents increased by $64.1 million in 2001 compared
to a decrease of $60.0 million in 2000 and an increase of $61.2 million in
1999.
The Company has aggregate commitments related to debt, the forward
repurchase agreement and operating leases as follows:
THERE-
In Millions of U.S. Dollars 2002 2003 2004 2005 2006 AFTER
Long-term debt 13.5 6.5 8.6 135.1 413.5 247.4
Short-term borrowings 10.2 - - - - -
Forward repurchase agreement 30.5 - - - - -
Operating leases 67.5 55.2 40.2 31.1 22.9 48.0
121.7 61.7 48.8 166.2 436.4 295.4
CAPITALIZATION
Total capitalization at December 31, 2001 was $1,649.1 million,
comprised of $834.8 million of debt and $814.3 million of equity. Debt as a
percentage of total capitalization was 51% at December 31, 2001 compared to
43% in 2000.
Total Capitalization (in Millions of U.S. Dollars)
97 98 99 00 01
Debt 172.0 360.5 489.0 557.5 834.8
Equity 617.5 668.9 650.6 740.4 814.3
Total capitalization 789.5 1,029.4 1,139.6 1,297.9 1,649.1
CAPITAL RESOURCES
In August 2001, the Company received $240.0 million in gross proceeds
related to the issuance of $435.4 million in aggregate principal amount at
maturity of unsecured zero-coupon convertible debentures, due August 17, 2021
(the "Debentures"). These Debentures were issued at a discount to yield an
effective interest rate of 3% per year and rank equally with all existing and
future senior unsecured indebtedness of the Company. Gross proceeds were used
to repay borrowings under the Company's unsecured revolving credit agreement
and advances under the Receivables Facility. There are no scheduled cash
interest payments associated with the Debentures.
The Debentures are convertible into shares of the Company's common
stock at an initial price of $39.50 per share if the closing price of the
Company's common stock on the New York Stock Exchange exceeds specified levels
or in certain other circumstances.
The Company may call the Debentures beginning August 17, 2004 for
cash at the issue price, plus accreted original issue discount. Holders of the
Debentures may require the Company to purchase the Debentures at the issue
price, plus accreted original issue discount, on the first, third, fifth,
tenth and fifteenth anniversary dates. The Company may purchase these
Debentures for either cash, the Company's common stock, or combinations
thereof.
The Company has E150.0 million in unsecured notes due March 2005 and
E200.0 million in unsecured notes due July 2006.
During November 2001, the Company entered into new revolving credit
agreements with a syndicate of commercial banks. The new agreements consist of
a $450.0 million five-year revolving credit facility (the "Five-year
Facility") and a $300.0 million 364-day revolving credit facility (the
"364-day Facility").
The revolving credit agreements allow for borrowings in various
currencies and up to $100.0 million of the Five-year Facility may be used for
the issuance of standby letters of credit. Outstanding letters of credit
totaled $65.5 million and $62.1 million as of December 31, 2001 and 2000,
respectively. Additional borrowings of $449.9 million were available to the
Company under these agreements at December 31, 2001.
The interest rate and facility fee on both agreements, and the
issuance fee paid for the issuance of letters of credit on the Five-year
Facility, vary based on the Company's debt rating and borrowing level.
Currently, on the Five-year Facility, the interest rate is LIBOR plus .725%
and the facility and issuance fees are .15% and .725%, respectively. On the
364-day Facility, the interest rate is LIBOR plus .75% and the facility fee is
..125%. The Five-year Facility expires in November 2006. The 364-day Facility
expires in November 2002.
The agreements require, among other things, that the Company comply
with a Debt-to-EBITDA ratio of less than 3.75 to 1 in 2002 (less than 3.25 to
1 beginning in March 2003) and a fixed charge ratio of greater than 2.00 to 1.
As defined in the agreement, the Company had a Debt-to-EBITDA ratio of 2.69 to
1 and a fixed charge ratio of 2.52 to 1 as of December 31, 2001.
Borrowings of $57.1 million were outstanding under the Company's
$125.0 million U.S. commercial paper program. Commercial paper borrowings,
which are backed by the Five-year Facility, have been classified as long-term
debt due to the availability to refinance them on a long-term basis under this
facility.
In addition to the above, the Company and some of its foreign
subsidiaries maintain separate lines of credit with local financial
institutions to meet working capital needs. As of December 31, 2001, such
lines totaled $163.0 million, of which $152.8 million was unused.
A wholly-owned U.S. subsidiary of the Company has an agreement to
sell, on an ongoing basis, up to $200.0 million of an undivided interest in
its accounts receivable. There were no receivables sold under this agreement
at December 31, 2001. Unless extended by amendment, the agreement expires in
December 2002. (See Note 4 to the Consolidated Financial Statements for
further information.)
The Company's principal ongoing cash needs are to finance working
capital, capital expenditures, acquisitions and the share repurchase program.
Working capital is primarily in the form of trade receivables, which
increase as revenues increase. The amount of financing necessary to support
revenue growth depends on receivable turnover, which differs in each market in
which the Company operates.
The Company believes that its internally generated funds and its
existing credit facilities are sufficient to cover its near-term projected
cash needs. With revenue increases or additional acquisitions or share
repurchases, additional borrowings under the existing facilities would be
necessary to finance the Company's cash needs.
SIGNIFICANT MATTERS AFFECTING RESULTS OF OPERATIONS
MARKET RISKS
The Company is exposed to the impact of foreign currency fluctuations
and interest rate changes.
EXCHANGE RATES
The Company's exposure to exchange rates relates primarily to its
foreign subsidiaries and its Euro and Yen denominated borrowings. For its
foreign subsidiaries, exchange rates impact the U.S. Dollar value of their
reported earnings, the Company's investments in the subsidiaries and the
inter-company transactions with the subsidiaries.
Approximately 80% and 90% of the Company's revenues and operating
profits, respectively, are generated outside of the United States, the
majority of which are in Europe. As a result, fluctuations in the value of
foreign currencies against the dollar may have a significant impact on the
reported results of the Company. Revenues and expenses denominated in foreign
currencies are translated into U.S. Dollars at the weighted average exchange
rate for the year. Consequently, as the value of the dollar strengthens
relative to other currencies in the Company's major markets, as it did in the
European markets during 2001, the resulting translated revenues, expenses and
operating profits are lower. Using constant exchange rates, 2001 revenues and
operating profits would have been approximately 3% and 4% higher than
reported, respectively.
Fluctuations in currency exchange rates also impact the U.S. Dollar
amount of Shareholders' equity of the Company. The assets and liabilities of
the Company's non-U.S. subsidiaries are translated into United States Dollars
at the exchange rates in effect at year-end. The resulting translation
adjustments are recorded in Shareholders' equity as a component of Accumulated
other comprehensive income (loss). The dollar was stronger relative to many of
the foreign currencies at December 31, 2001 compared to December 31, 2000.
Consequently, the Accumulated other comprehensive income (loss) component of
Shareholders' equity decreased $35.4 million during the year. Using the
year-end exchange rates, the total amount permanently invested in non-U.S.
subsidiaries at December 31, 2001 is approximately $1.6 billion.
As of December 31, 2001, the Company had $488.8 million of long-term
borrowings denominated in Euro ($397.6 million) and Yen ($91.2 million). These
borrowings provide a hedge of the Company's net investment in subsidiaries
with the related functional currencies. Since the Company's net investment in
these subsidiaries exceeds the respective amount of the borrowings, all
translation gains or losses related to these borrowings are included as a
component of Accumulated other comprehensive income (loss). The Accumulated
other comprehensive income (loss) component of Shareholders' equity increased
$32.0 million during the year due to the currency impact on these borrowings.
Although currency fluctuations impact the Company's reported results
and Shareholders' equity, such fluctuations generally do not affect the
Company's cash flow or result in actual economic gains or losses.
Substantially all of the Company's subsidiaries derive revenues and incur
expenses within a single country and consequently, do not generally incur
currency risks in connection with the conduct of their normal business
operations. The Company generally has few cross border transfers of funds,
except for transfers to the United States for payment of license fees and
interest expense on intercompany loans, and working capital loans made from
the United States to the Company's foreign subsidiaries. To reduce the
currency risk related to the loans, the Company may borrow funds under the
revolving credit agreements in the foreign currency to lend to the subsidiary,
or alternatively, may enter into a forward contract to hedge the loan. Foreign
exchange gains and losses recognized on any transactions are included in the
Consolidated Statements of Operations and historically have been immaterial.
The Company generally does not engage in hedging activities, except as
discussed above. As of December 31, 2001, there were no such hedges in place.
The only derivative instruments held by the Company were interest rate swap
agreements.
The Company holds a 49% interest in its Swiss franchise, which holds
an investment portfolio of approximately $73.5 million as of December 31,
2001. This portfolio is invested in a wide diversity of European and U.S. debt
and equity securities as well as various professionally managed funds. To the
extent that there are realized gains or losses related to this portfolio, the
Company's ownership share is included in its Consolidated Statements of
Operations.
INTEREST RATES
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's variable rate long-term debt obligations.
The Company has historically managed interest rates through the use of a
combination of fixed and variable rate borrowings and interest rate swap
agreements. Excluding the impact of the swap agreements, the Company has
$244.8 million in variable rate borrowings at a weighted-average interest rate
of 2.53% and $590.0 million in fixed rate borrowings at a weighted-average
interest rate of 4.74% as of December 31, 2001.
The Company has various interest rate swap agreements in order to fix
its interest costs on a portion of its Euro and Yen denominated variable rate
borrowings. The Euro interest rate swap agreements have a notional value of
E100.0 million ($89.0 million) which fix the interest rate, on a
weighted-average basis, at 5.7% and expire in 2010. The Yen interest rate swap
agreements have a notional value of Yen8,150.0 million ($61.8 million),
Yen4,000.0 million ($30.3 million) of which fixes the interest rate at .9% and
expires in 2003 and Yen4,150.0 million ($31.5 million) of which fixes the
interest rate at .8% and expires in 2006. The Company also had an interest
rate swap agreement that expired in January 2001, which fixed the interest
rate at 6.0% on $50.0 million of the Company's U.S. Dollar-based borrowings.
At December 31, 2001, including the impact of the interest rate swap
agreements, the Company effectively had $94.0 million and $740.8 million in
variable and fixed rate borrowings, respectively, at a weighted average
interest rate of 2.08% and 4.53%, respectively. The impact on interest expense
recorded during 2001 was not material.
A 21 basis point (.21%) move in interest rates on the Company's
variable rate borrowings (10% of the weighted average variable interest rate,
including the impact of the swap agreements) would have an immaterial impact
on the Company's earnings before income taxes and cash flows in each of the
next five years.
IMPACT OF ECONOMIC CONDITIONS
One of the principal attractions of using temporary staffing
solutions is to maintain a flexible supply of labor to meet changing economic
conditions, therefore, the industry has been and remains sensitive to economic
cycles. To help minimize the effects of these economic cycles, the Company
provides a wide range of human resource services including professional,
technical, specialized, office and industrial staffing; temporary and
permanent employee testing, selection, training, and development; and
organizational-development consulting. The Company believes that the breadth
of its operations and the diversity of its service mix cushions it against the
impact of an adverse economic cycle in any single country or industry.
However, adverse economic conditions in any of its three largest markets, as
was seen during much of 2001, would likely have a material impact on the
Company's consolidated operating results.
THE EURO
Twelve of the fifteen member countries of the European Union (the
"participating countries") have established fixed conversion rates between
their existing sovereign currencies (the "legacy currencies") and the Euro.
Beginning on January 1, 2002, Euro-denominated bills and coins were issued and
legacy currencies are being withdrawn from circulation. The Company has
significant operations in many of the participating countries. Since the
Company's labor costs and prices are generally determined on a local basis,
the impact of the Euro has been primarily related to making internal
information systems modifications to meet employee payroll, customer invoicing
and financial reporting requirements. Such modifications related to converting
currency values and to
operating in a dual currency environment during the transition period.
Modifications of internal information systems occurred throughout the
transition period and were mainly coordinated with other system-related
upgrades and enhancements. All modifications have now been completed. The
Company accounted for all such system modification costs in accordance with
its existing policy and such costs were not material to the Company's
Consolidated Financial Statements.
The Company did not experience any significant problems associated
with the conversion to the Euro currency on January 1, 2002 in any of the
participating countries.
LEGAL REGULATIONS AND UNION RELATIONSHIPS
The temporary employment services industry is closely regulated in
all of the major markets in which the Company operates except the United
States and Canada. Many countries impose licensing or registration
requirements, substantive restrictions on temporary employment services,
either on the temporary staffing company or the ultimate client company or
minimum benefits to be paid to the temporary employee either during or
following the temporary assignment. Countries also may restrict the length of
temporary assignments, the type of work permitted for temporary workers or the
occasions on which temporary workers may be used. Changes in applicable laws
or regulations have occurred in the past and are expected in the future to
affect the extent to which temporary employment services firms may operate.
These changes could impose additional costs or taxes, additional record
keeping or reporting requirements; restrict the tasks to which temporaries may
be assigned; limit the duration of or otherwise impose restrictions on the
nature of the temporary relationship (with the Company or the customer) or
otherwise adversely affect the industry.
In many markets, the existence or absence of collective bargaining
agreements with labor organizations has a significant impact on the Company's
operations and the ability of customers to utilize the Company's services. In
some markets, labor agreements are structured on a national or industry-wide
(rather than a company) basis. Changes in these collective labor agreements
have occurred in the past, are expected to occur in the future, and may have a
material impact on the operations of temporary staffing firms, including the
Company.
FORWARD-LOOKING STATEMENTS
Statements made in this Annual Report that are not statements of
historical fact are forward-looking statements. All forward-looking statements
involve risks and uncertainties. The information under the heading
"Forward-Looking Statements" in the Company's Annual Report on Form 10-K for
the year ended December 31, 2001, which is incorporated herein by reference,
provides cautionary statements identifying, for purposes of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, important
factors that could cause the Company's actual results to differ materially
from those contained in the forward-looking statements. Some or all of the
factors identified in the Company's Report on Form 10-K may be beyond the
Company's control. Forward-looking statements can be identified by words as
"expect", "anticipate", "intend", "plan", "may", "will", "believe", "seek",
"estimate", and similar expressions. The Company cautions that any
forward-looking statement reflects only the Company's belief at the time the
statement is made. The Company undertakes no obligation to update any
forward-looking statements to reflect subsequent events or circumstances.
ACCOUNTING CHANGES
Since June 1998, the Financial Accounting Standards Board ("FASB")
has issued SFAS Nos. 133, 137, and 138 related to "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133, as amended" or
"Statements"). These Statements establish 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. If the derivative is
designated as a fair value hedge, the changes in the fair value of the
derivative and of the hedged item attributable to the hedged risk are
recognized in earnings. If the derivative is designated as a cash flow hedge,
the effective portions of the changes in the fair value of the derivative are
recorded as a component of Accumulated other comprehensive income (loss) and
are recognized in the Consolidated Statements of Operations when the hedged
item affects earnings. Ineffective portions of changes in the fair value of
cash flow hedges are recognized in earnings.
On January 1, 2001, the Company adopted SFAS No. 133, as amended. As
a result of adopting this standard, the Company recognized the fair value of
all derivative contracts as a net liability of $3.4 million on the balance
sheet at January 1, 2001. This amount was recorded as an adjustment to
Shareholders' equity through Accumulated other comprehensive income (loss).
There was no impact on Net earnings.
During June 2001, the FASB issued SFAS No. 141, "Business
Combinations," which requires all business combinations completed subsequent
to June 30, 2001 to be accounted for using the purchase method. Although the
purchase method generally remains unchanged, this standard also requires that
acquired intangible assets should be separately recognized if the benefit of
the intangible assets are obtained through contractual or other legal rights,
or if the intangible assets can be sold, transferred, licensed, rented or
exchanged, regardless of the acquirer's intent to do so. Intangible assets
separately identified must be amortized over their estimated economic life.
This statement was adopted by the Company on July 1, 2001. The
Company has accounted for previous acquisitions under the purchase method and
the related excess of purchase price over net assets was mainly goodwill,
therefore, the adoption of this statement did not have a material impact on
the Consolidated Financial Statements.
During June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which prohibits the amortization of goodwill or
identifiable intangible assets with an indefinite life beginning January 1,
2002. In addition, goodwill or identifiable intangible assets with an
indefinite life resulting from business combinations completed between July 1,
2001 and December 31, 2001 are no longer required to be amortized. Rather,
goodwill will be subject to impairment reviews by applying a fair-value-based
test at the reporting unit level, which generally represents operations one
level below the segments reported by the Company. An impairment loss will be
recorded for any goodwill that is determined to be impaired.
The impairment testing provisions of this statement are effective for
the Company on January 1, 2002. Within six months of adoption, the Company
will perform an impairment test on all existing goodwill, which will be
updated at least annually. The Company has not yet determined the extent of
any impairment losses on its existing goodwill, however, any such losses are
not expected to be material to the Consolidated Financial Statements.
The non-amortization provisions of this statement related to goodwill
resulting from business combinations between July 1, 2001 and December 31,
2001 were adopted as of July 1, 2001. The remaining non-amortization
provisions of this statement were adopted as of January 1, 2002. Under the
provisions of this statement, $16.8 million of the 2001 Amortization of
intangible assets would not have been recorded.
SUBSEQUENT EVENT
On March 11, 2002, the Company settled its forward repurchase
agreement in cash by repurchasing the remaining 900,000 shares of common stock
at an aggregate amount of $30.7 million. A total of one million shares have
now been repurchased under this agreement, at a total cost of $34.0 million.
The Company has no remaining obligations under this agreement. See Note 1 to
the Company's Consolidated Financial Statements, included in its Annual Report
to Shareholders for the fiscal year ended December 31, 2001, for further
information about this agreement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
MANPOWER INC.
-------------------------------------
(Registrant)
Date: November 4, 2002 /s/ Michael J. Van Handel
-------------------------------------
Michael J. Van Handel
Executive Vice President,
Chief Financial Officer and Secretary
CERTIFICATIONS
I, Jeffrey A. Joerres, Chairman and Chief Executive Officer of Manpower
Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Manpower
Inc.; and
2. Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this annual report.
Date: November 4, 2002 /s/ Jeffrey A. Joerres
-------------------------------------
By: Jeffrey A. Joerres
Title: Chairman and
Chief Executive Officer
I, Michael J. Van Handel, Executive Vice President and Chief
Financial Officer of Manpower Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Manpower
Inc.; and
2. Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this annual report.
Date: November 4, 2002 /s/ Michael J. Van Handel
-------------------------------------
By: Michael J. Van Handel
Title: Executive Vice President and
Chief Financial Officer