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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 1
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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
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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 ("Commission") as
part of their normal review process. In response to comments received from the
Commission, we have 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.
Acquisitions had a favorable impact of 1.3% on 2001 consolidated revenues, on a
constant currency basis.
2
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.
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.
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 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%. The increase in
revenue includes the impact of acquisitions made during 2000. Organic constant
currency revenue growth was approximately 19%.
Operating profit increased 34.8% during 2000. Excluding the impact of
the $28.0 million of nonrecurring items recorded in 1999, related to employee
severances, 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.
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.
3
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.
ACQUISITIONS
Year Ended December 31, 2001
Included in the 2001 consolidated operating results is the impact of
acquisitions. Revenue growth in 2001 attributable to acquisitions was less than
2% of 2001 consolidated revenues, and gross margin improvement attributable to
these acquisitions was 30 basis points (.3%). The impact on operating profit of
these acquisitions was not significant.
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. 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.
Year Ended December 31, 2000
Included in the 2000 consolidated operating results is the impact of
acquisitions. Revenue growth attributable to acquisitions was less than 2.5% of
consolidated revenues, and gross margin improvement attributable to these
acquisitions was 10 basis points (.1%). These acquisitions did not have a
significant impact on consolidated operating profit.
4
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)%
5
France -- Revenues in France decreased 2% in local currency to (Euro)
4.2 billion ($3.8 billion) in 2001 from (Euro) 4.3 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.
6
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.
7
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.
8
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 (Euro) 150.0 million in unsecured notes due March 2005
and (Euro) 200.0 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.
9
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.
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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
(Euro) 100.0 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 (Yen) 8,150.0 million ($61.8 million), (Yen)
4,000.0 million ($30.3 million) of which fixes the interest rate at .9% and
expires in 2003 and (Yen) 4,150.0 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.
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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.
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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.
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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: September 3, 2002 /s/ Michael J. Van Handel
------------------------------------
Michael J. Van Handel
Executive Vice President, Chief
Financial Officer and Secretary
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