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ManpowerGroup Inc. 10-Q Summary: Period Ended June 30, 2009

Business Context and Reporting Period

This filing is a Quarterly Report (Form 10-Q) for Manpower Inc. (now ManpowerGroup Inc.) for the three and six months ended June 30, 2009. The company is a global leader in employment services, operating approximately 4,100 offices in 82 countries. The reporting period reflects the severe impact of the global economic downturn on staffing demand, countered by growth in the company's counter-cyclical career transition services (Right Management).

Key Financial Metrics

Note: Operating cash flow is reported for the six-month period only in the summary table above.

Material Changes vs. Prior Period

• Revenue Decline: Revenues decreased 35.7% year-over-year for the quarter and 34.1% for the six months. On a constant currency basis, the declines were 26.6% and 24.3%, respectively. The decline was driven by reduced demand in staffing markets across the Americas, France, EMEA, and Asia Pacific.
• Profitability Compression: Operating profit plummeted 89.3% for the quarter and 91.9% for the six months. Operating margins contracted to 0.6% (quarter) and 0.4% (six months) from 3.5% and 3.0% in the prior year periods, due to expense deleveraging.
• Segment Performance:
  • Staffing Segments: Significant revenue declines were recorded in the U.S. (-23.9%), France (-43.8%), and EMEA (-40.2%).
  • Right Management: The career transition segment grew 35.9% (46.5% constant currency) for the quarter, benefiting from the economic slowdown.
  • Jefferson Wells: Revenues declined 36.5%, with the segment reporting an Operating Unit Profit margin of -21.0%.
• Cost Reductions: The company reduced its full-time equivalent employee base by 19% (6,400 employees) and closed 421 branches since September 2008. Reorganization charges of $19.9 million were recorded in the first half of 2009.
• Tax Impact: The effective tax rate was negative (-70.4% for the quarter, -338.8% for six months) due to discrete tax benefits related to the French competition case fine and valuation allowance reversals.

Guidance, Outlook, and Risks

• Outlook: Management expects businesses to return to growth when underlying economies improve but states it is not possible to predict when revenue and earnings will return to prior levels. Stabilization was noted in the U.S., France, and Italy, but other markets continued to decline.
• Liquidity and Debt Covenants: Cash and cash equivalents increased to $1.1 billion. However, management noted that based on current forecasts, they may not be able to maintain compliance with one or both financial covenants (Debt-to-EBITDA and fixed charge ratio) in the second half of 2009. They plan to seek waivers or amendments if necessary.
• Goodwill Impairment Risk: While no impairment was recorded in Q2 2009, management warned that continued volatility in stock prices or further revenue erosion could trigger a material impairment charge in the third quarter, specifically citing the Jefferson Wells reporting unit.
• Legal Contingency: The company paid a €42.0 million ($55.6 million) fine in April 2009 related to a French competition investigation and has appealed the decision.
• Credit Rating: Moody's placed the company's rating under review for a possible downgrade following the Q2 earnings release. The current rating is Baa2 (negative outlook).

Investor Verification Checklist

• Covenant Compliance: Verify the status of the Debt-to-EBITDA and fixed charge ratio covenants for the second half of 2009 and any subsequent waivers obtained.
• Goodwill Valuation: Monitor the Q3 2009 annual impairment test results, particularly for the Jefferson Wells and Right Management reporting units.
• Reorganization Costs: Track the remaining $27.6 million in reorganization reserves and the timeline for payments.
• French Competition Case: Follow the status of the appeal regarding the €42.0 million fine and potential additional liabilities.
• Revenue Stabilization: Assess whether the marginal improvements seen in the U.S., France, and Italy in early Q3 persist or if declines accelerate in other regions.