Business Context and Reporting Period
Company: Manpower Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 2001
Business Overview: Global provider of workforce solutions operating through company-owned branches and franchises. The company reported 76,038,169 shares of common stock outstanding as of September 30, 2001.
Key Financial Metrics
| Metric (in millions) | 3 Months Ended Sep 30, 2001 | 9 Months Ended Sep 30, 2001 | 9 Months Ended Sep 30, 2000 |
|---|---|---|---|
| Revenues from Services | $2,675.4 | $7,947.4 | $8,103.3 |
| Gross Profit | $504.6 | $1,477.6 | $1,431.1 |
| Gross Margin | 18.9% | 18.6% | 17.7% |
| Operating Profit | $68.4 | $183.2 | $216.1 |
| Net Earnings | $37.1 | $98.6 | $117.7 |
| Diluted EPS | $0.48 | $1.28 | $1.52 |
| Cash from Operations (9mo) | $57.6 (2001) vs $46.1 (2000) | ||
| Total Assets | $3,383.5 (Sep 30, 2001) | ||
| Total Debt (Short + Long Term) | $896.9 (Sep 30, 2001) | ||
| Cash and Equivalents | $232.9 (Sep 30, 2001) |
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased 5.2% in Q3 and 1.9% for the nine-month period compared to 2000. The decline was driven by a strengthening U.S. dollar (negative currency impact) and a significant 24.4% revenue drop in the U.S. due to economic slowdown. At constant exchange rates, nine-month revenues would have increased 3.1%.
- Profitability Pressure: Operating profit fell 28.7% in Q3 and 15.2% for the nine-month period. While gross margins improved by 90 basis points due to a shift to higher-value services, selling and administrative expenses increased as a percentage of gross profit (from 81.1% to 86.5% in Q3) due to de-leveraging from slower revenue growth.
- Acquisitions: The company acquired Jefferson Wells International, Inc. for approximately $174.0 million in July 2001, recording $153.4 million in goodwill. Total acquisition consideration for the nine months was $291.8 million (net of cash acquired).
- Debt Structure: In August 2001, the company issued $435.4 million in zero-coupon convertible debentures (due 2021) with gross proceeds of $240.0 million used to repay existing credit facilities. Long-term debt increased significantly from $491.6 million (Dec 2000) to $879.2 million (Sep 2001).
Outlook, Risks, and Management Commentary
- Market Conditions: Management cites continued economic slowdown in the U.S. and France, though constant currency revenue growth was observed in the U.K., Other Europe, and Other Countries segments.
- Cost Management: The company is actively controlling costs, with selling and administrative expenses as a percent of gross profit declining from 89.2% in Q1 to 86.5% in Q3.
- Accounting Changes: The company adopted SFAS No. 141 and 142 regarding business combinations and goodwill. Goodwill amortization will cease for new acquisitions effective July 1, 2001, and for all goodwill effective January 1, 2002, replaced by impairment testing.
- Liquidity: Cash provided by operating activities improved to $57.6 million for the nine months ended Sep 30, 2001, aided by a 2-day improvement in days sales outstanding (DSO). The company maintains significant unused credit capacity ($170.2 million) under foreign lines of credit.
- Risks: Forward-looking statements are subject to risks including foreign currency fluctuations, economic slowdowns, and the impact of new accounting standards on goodwill impairment testing.
Investor Verification Checklist
- U.S. Market Exposure: Verify the extent of the 24.4% revenue decline in the U.S. segment and its impact on future guidance.
- Convertible Debt Terms: Review the conversion triggers and accretion schedule for the $435.4 million zero-coupon debentures issued in August 2001.
- Goodwill Impairment: Monitor the upcoming adoption of SFAS No. 142 (Jan 1, 2002) and potential impairment charges on the $153.4 million goodwill from the Jefferson Wells acquisition and existing goodwill.
- Currency Hedging: Assess the effectiveness of foreign currency hedges given the significant negative impact of the strong dollar on reported revenues.
- Working Capital Trends: Confirm the sustainability of the 2-day improvement in DSO and its effect on future cash flow from operations.