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Business Context and Reporting Period

Company: Manpower Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 2005
Business Overview: Manpower Inc. provides staffing and human resources services globally. The company operates through segments including United States, France, EMEA (Europe, Middle East, Africa), Jefferson Wells (technology risk management), Right (career transition and organizational consulting), and Other Operations.

Key Financial Metrics

Note: Total Debt for Q1 2005 calculated as Short-term borrowings ($215.6M) + Long-term debt ($411.8M).

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 12.7% year-over-year. On a constant currency basis, revenue grew 8.8%, and on an organic constant currency basis, it grew 9.2%. Growth was driven by increased demand in EMEA, Jefferson Wells, and Other Operations.
• Profitability: While Operating Profit increased 11.2%, Net Earnings decreased 18.6% to $32.2 million. The decline in Net Earnings is primarily attributed to the absence of a $14.2 million non-operating gain in Q1 2004 (from the sale of an equity interest in a European internet job board) and higher interest expenses.
• Margins: Gross Profit Margin decreased 40 basis points to 18.1%, impacted by pricing pressures in France and EMEA, and higher social costs in Germany and Norway. Selling and Administrative expenses as a percentage of revenue improved to 16.5% from 16.8%.
• Debt Reduction: The company retired €150.0 million notes ($198.4 million) in March 2005 and redeemed Zero Coupon Convertible Debentures. Approximately $336.4 million of the debentures were redeemed for cash, while $98.8 million was converted into common stock.
• Segment Performance: Jefferson Wells revenues surged 83.7% due to demand for Sarbanes-Oxley compliance services. The Right segment saw a slight decline in constant currency revenue due to lower demand for career transition services as economies improved.

Guidance, Outlook, and Risks

• Accounting Changes: The company will adopt SFAS No. 123(R) regarding share-based payments in the first quarter of 2006, which will require recognizing stock-based compensation as an expense based on fair value. This is expected to impact future net earnings.
• Tax Repatriation: Management is evaluating the impact of the American Jobs Creation Act of 2004 on the repatriation of foreign earnings. A final assessment is expected by June 2005.
• Capital Allocation: The Board authorized a $250 million share repurchase program in October 2004. As of March 31, 2005, $47.2 million had been spent, with approximately 3.9 million shares remaining available. A cash dividend of $0.20 per share was declared on April 26, 2005.
• Liquidity: The company maintains a $625 million revolving credit agreement and a $625 million U.S. Receivables Facility. As of March 31, 2005, the Debt-to-EBITDA ratio was 1.26 to 1, well within the covenant limit of 3.25 to 1.
• Risks: Forward-looking statements are subject to risks including foreign currency exchange rate fluctuations, changes in demand for staffing services, and the impact of new accounting standards.

Investor Verification Checklist

• Non-Recurring Items: Verify the impact of the $14.2 million non-operating gain in Q1 2004 to accurately assess year-over-year earnings trends.
• Debt Structure: Confirm the details of the convertible debenture redemption and the resulting increase in share count (1.38 million shares issued) and its dilutive effect.
• Constant Currency Metrics: Review the "organic constant currency" growth rates (9.2% for revenue) to understand underlying business performance excluding currency and acquisition impacts.
• Future Expense Recognition: Monitor the implementation of SFAS 123(R) in Q1 2006, which will likely reduce reported net earnings due to the expensing of stock options.
• Segment Margins: Investigate the specific pricing pressures and social cost increases in the France and EMEA segments that contributed to the gross margin decline.