Business Context and Reporting Period
Company: Manpower Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 1998
Business Overview: Global employment services provider operating through company-owned branches and franchises. The company reported 80,755,067 shares of common stock outstanding as of June 30, 1998.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended June 30, 1998 | 6 Months Ended June 30, 1998 |
|---|---|---|
| Revenues from Services | $2,136,103 | $4,008,969 |
| Cost of Services | $1,775,718 | $3,321,226 |
| Gross Profit | $360,385 | $687,743 |
| Operating Profit | $44,935 | $81,698 |
| Net Earnings | $26,172 | $47,862 |
| Diluted EPS | $0.32 | $0.58 |
| Cash and Equivalents (End of Period) | $155,551 | $155,551 |
| Total Debt (Current + Long-term) | $351,700 | $351,700 |
Note: Total Debt calculated as Payable to banks ($121,018) + Current maturities of long-term debt ($1,326) + Long-term debt ($229,356).
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 19.2% for the quarter and 21.0% for the six months compared to 1997. At constant exchange rates, growth was 22.9% (quarter) and 25.9% (six months), indicating a negative impact from the strengthening U.S. Dollar.
- Volume Increase: Billable hours increased 15.7% for the quarter and 17.7% for the six months.
- Profitability Decline: Net earnings decreased 36% for the quarter and 29% for the six months compared to the prior year periods. Operating profit margins compressed due to higher costs.
- Cost Structure: Cost of services as a percentage of revenue rose to 83.1% (quarter) and 82.8% (six months) from 82.2% and 82.0% in 1997, primarily due to reduced payroll tax credits in France.
- Cash Flow: Cash used by operating activities improved significantly to $6.2 million (six months 1998) from $45.3 million used in 1997, driven by lower working capital requirements.
Outlook, Risks, and Management Commentary
- Market Expansion: Selling and administrative expenses increased due to significant investments in new markets, primarily in Europe, and infrastructure enhancements.
- Currency Impact: Management highlighted that currency exchange rates negatively impacted earnings by $0.02 per share (quarter) and $0.06 per share (six months).
- Year 2000 (Y2K) Issues: The company estimates total remediation costs between $7 million and $12 million, with approximately $2 million expensed to date. Management believes these costs will not materially impact financial results.
- Euro Conversion: The company is assessing the impact of the Euro introduction in 1999. Costs related to system modifications are expected to be expensed as incurred and are not anticipated to be material.
- Share Repurchases: No shares were repurchased in the first six months of 1998. However, subsequent to June 30, 1998, the company repurchased 514,600 shares for $13.9 million.
- IT Risks: The company has capitalized approximately $64 million in software development costs. Risks include potential delays or performance failures in new proprietary systems.
Investor Verification Checklist
- France Tax Credit Reduction: Verify the specific impact of the late 1997 French legislation on payroll tax credits on future margins.
- Currency Hedging: Assess the company's strategy to mitigate the impact of the strengthening U.S. Dollar on international revenues.
- Working Capital Trends: Monitor the sustainability of the improved cash flow from operations given the high growth in accounts receivable ($1.65 billion).
- Y2K and Euro Readiness: Confirm the timeline and budget adherence for Year 2000 remediation and Euro conversion system upgrades.
- Debt Levels: Review the utilization of the $415 million revolving credit facility and commercial paper program to ensure liquidity remains adequate for expansion.