EXHIBIT 13
2002 ANNUAL REPORT TO SHAREHOLDERS
[FRONT COVER]
[PHOTO]
At the speed of work
[INSIDE FRONT COVER]
2002 was a difficult year for markets, companies and people around the world.
[PHOTO]
unemployment
As the world economy continued to languish, a growing number of people found
themselves searching for work.
[PHOTO]
budget cuts
Capital expenditures and projects were shelved or postponed for another year, as
budgets were stretched to their limits.
[PHOTO]
lower profits
Profit margins were sacrificed as companies slashed prices to compete for market
share.
[PHOTO]
weak demand
Small business owners fought to keep their restaurants and stores open as demand
continued to decline and expenses became more difficult to manage.
1
[PHOTO]
liquidation
Competition in some industries was dramatically reduced as businesses closed
their doors.
[PHOTO]
reform
The U.S. Securities and Exchange Commission began sweeping reforms to protect
investors.
[PHOTO]
declining stock value
When the economic recovery did not occur mid-year as some had predicted, it
became clear that many investors would be disappointed at the performance of
their portfolios.
[PHOTO]
uncertainty
Mixed economic news led to a high level of uncertainty among business managers,
as they struggled to predict what the next few months would bring.
Regardless of what happens in the world economy, Manpower is moving forward.
[PHOTO]
partnerships
Motorola and Honeywell expanded their partnerships with Manpower in 2002 to
advance quality and efficiency gains that we have achieved together across their
contingent workforce in multiple countries.
2
[PHOTO]
flexibility
In times of economic uncertainty, Manpower provides its greatest value to its
400,000 customers by enabling them to add or reduce staff quickly to meet
inconsistent workforce requirements.
[PHOTO]
efficiency
At the speed of a mouseclick, a client can order 100 employees or contractors
through our e-commerce tools. These efficiency tools are more important than
ever as HR managers find themselves with fewer staff members and need to
streamline processes to manage the increased workload.
[PHOTO]
outsourcing
Customers worldwide are increasingly outsourcing the assessment and selection of
candidates to Manpower to enable their staff to focus on core business
functions.
[PHOTO]
ability
Manpower believes that everyone deserves the opportunity to work. United
Cerebral Palsy is one of many partners worldwide that we collaborate with to
assist people with special needs in overcoming the obstacles to employment, and
earning a sustainable role in the workforce.
[PHOTO]
expansion
While holding down costs, we maintained our infrastructure, and expanded our
network into Turkey and Nicaragua in 2002. Manpower is now serving customers and
providing jobs in 63 countries with 3,900 offices.
3
[PHOTO]
development
A world leader in training today's workforce, Manpower enables its 1.6 million
temporary and contract employees to e-learn free of charge through its online
Global Learning Center, which provides more than 1,800 courses, including IT
certifications and management classes.
[PHOTO]
opportunity
Forty percent of Manpower temporary employees and contractors gain permanent
positions with our customers. In a negative business climate, we offer a means
to propel many unemployed people back into the workforce more rapidly.
[PHOTO]
progress
Manpower continued to make progress on our core strategies throughout the year,
despite the many potential distractions in the marketplace. We increased
efficiency, expanded our range of services and found new ways to help our
customers conquer today's HR challenges.
In 2002, the speed of work moved faster and faster as companies were faced with
more challenges and fewer people to manage them. Manpower was there to make the
world of work better for our 400,000 customers and the 1.6 million people we
placed on assignment.
[PHOTO]
4
To our shareholders -
We entered 2002 anticipating an economic recovery -- it didn't happen. We also
anticipated progress at Manpower -- it did happen. We took action to further our
stated strategies and we emerged from 2002 stronger, leaner and with an even
higher level of confidence regarding our leadership position in the industry.
Our systemwide sales were $11.8 billion with revenues of $10.6 billion.
Our operating profit was $235 million. We strengthened our balance sheet,
generating $228 million in cash flow from operations, of which $115 million was
used to reduce our debt levels. We also shaved an additional day from the
collection time of our receivables.
We were disciplined throughout the year on expenses. We implemented a
cost containment program that institutionalized the management of our key
expense drivers, while allowing room for investment in important initiatives and
infrastructure to feed our continued growth.
Our team in France deserves to be recognized for another stellar
performance, with an increase of nearly 6% in operating unit profit. Completing
the year with an operating unit profit margin of 3.7% is a very strong
performance, particularly given the weak economic backdrop.
The strength of our performance relative to our primary competition,
and the market in general, was rewarded by our shareholders. Our shares finished
the year 16% above the S&P 500 Index in 2002. Over the last three years,
Manpower's shares outperformed the S&P 500 by 29%.
21
Today more than ever, we operate in a world where speed is of the
essence. It is during these difficult times that work "speeds up" as everyone
tries to do more with fewer resources. And it is at times like these that our
customers look to us for innovation and answers. In the core of our business we
were able to enhance our relationships with our customers by providing them with
flexibility, efficiency and the high quality service that they rely on us to
deliver.
We have played an integral role with many of our major customers to
streamline their work processes, enhance their productivity and position them
positively for the future. By offering a broader array of stand-alone services,
we have been able to align more effectively with the continuing move toward
outsourcing core HR functions like assessment, screening, permanent placement or
sourcing, orientation and training to produce results for our global and local
customers worldwide.
In 2002, across the world, we succeeded in broadening our base of
non-contract customers, which is an extremely important accomplishment for us in
order to balance and complement the contractual work that we do for our major
accounts. Our ability to produce profitable growth rests on our geographic and
service offering diversification. The broadening of our base of customers is
integral to our ability to catapult ahead during more robust economic times.
Moving forward is also about productivity and efficiency. Throughout
the year, we worked diligently on our efficiency strategy. We reduced our SG&A
to 15.8% of revenue and we did this in
22
a way that we are confident is sustainable. Our work on improving the intake
process for our candidates and the successful pilot of our new front office
system in Europe are just a few of the efficiency improvements that we
accomplished in 2002.
Our e-commerce tools continue to be implemented across major accounts
in various countries, as our customers recognize the efficiency and convenience
that we can provide to them through technology that is designed specifically for
our industry. Approximately $700 million of our global sales were transacted in
10 countries by more than 50 customers who utilized our e-procurement tools. We
will continue to offer innovation to our customers through technology solutions
that are designed for use at both local and global levels, with a combination of
both built and bought solutions.
Our specialty lines of business are also fundamental to our long-term
business strategy, and we continued to invest in expanding these brands in 2002
because we are confident in their long-term prospects. Jefferson Wells
International, our financial professional services firm, was a solid business
model prior to the issue of auditor independence arising in the U.S.
marketplace, and now it is even more so. We have expanded our office network for
Jefferson Wells by 50% and invested in both practice methodology and personnel
in 2002. We also continued our expansion of Elan, our IT staffing firm, into
five more countries in 2002, for a total of 16 countries across Europe and Asia
Pacific. We are now deriving 35% of Elan's total revenue from mainland Europe,
furthering our diversification objective.
23
In all facets of our business throughout 2002, we stayed true to our
course. We put aggressive plans in place to strengthen our relationship with our
customers, diversify our revenue, improve productivity and efficiency, leverage
technology and, at all times, remain passionate about how we approach the
market. Simply put -- we know who we are. During times when financial results
are difficult to deliver, it is easy to stray from course and lose direction. It
is our focus, coupled with execution, which produces results for our customers
and shareholders.
2003 may turn out to look much like 2002 -- a recovery within sight,
but a recovery that doesn't materialize. Or, in the more likely scenario, demand
for our services will be spurred on by a recovery, and the progress that we have
made in 2002 will be leveraged to improve our returns to our shareholders.
Regardless of which direction the economic winds blow, we are entering
2003 with confidence that our geographic diversification, cost structure and
expanded service offerings can weather any storm, as we have proven for two
years, and more importantly, that we can continue to make progress.
I could not write this letter without addressing the topics of investor
confidence and social responsibility, which have had a high profile in 2002. You
can be assured that Manpower operates with the highest level of integrity -- and
it is not because we want to be fashionable; it is a deep part of our heritage.
We are also proud of our history of responsible corporate citizenship, and we
have decided to expand on this topic on the following pages to provide you with
more detailed information about our performance.
24
On a global scale, it is clear that there is great opportunity for our
industry to grow, as only a handful of countries have more than 1% of their
working population in flexible employment environments, while all mature markets
are over 2%. This means that, as the world labor markets mature, we have the
potential to double our business in nearly every country in our network. The
long-term outlook for our industry in general, and Manpower in particular, is
very exciting. Not many industries can say this.
2003 may bring another year of challenging economic circumstances, but
I assure you that Manpower will not be standing still. We are focused. We are a
strong company. And we refuse to be distracted by short-term circumstances, as
we strive to reach our goals. Throughout all of the countries and subsidiaries
in our global network, we will continue to make progress "at the speed of work."
Thank you to all of our employees worldwide, whose hard work and
dedication make all of our achievements possible. I also want to thank Ira
Harris, who retired from our board, for his 11 years of service as a director.
/s/ Jeffrey A. Joerres
Jeffrey A. Joerres
Chairman, CEO & President
February 7, 2003
25
Corporate Social Responsibility
"For Manpower, social responsibility is about creating opportunities for all
people to participate in the workforce."
Corporate Social Responsibility is not a new topic to Manpower. For more than
five decades, we have been a responsible employer and, because of our role in
the labor market, we have been uniquely positioned to help countless people
develop job skills and gain employment. For Manpower, social responsibility is
about creating opportunities for all people to participate in the workforce.
Our first formal workforce development programs began back in 1964 with
YouthPower, which provided a bridge to employment for young people who had
difficulty finding work; and our first diversity program which focused on
improving job opportunities for African Americans in our home town of Milwaukee.
These programs marked the beginning of our unparalleled industry leadership in
contributing to the sustainability of the communities where we live and work.
Today, Working Links in the UK is a cornerstone of Manpower's workforce
development programs. Founded in April 2000, it has achieved outstanding
success, with a total of 24,000 people who had been unemployed for a year or
more moving from welfare to sustainable employment. During 2002 alone, 13,000
long-term unemployed people benefited from the activities of Working Links.
"During 2002 alone, 13,000 long-term unemployed people benefited from the
activities of Working Links."
In the US, TechReach is Manpower's innovative training, certification
and job placement program, which continues to provide a gateway to high-wage
technical careers for more and more unemployed and underemployed people each
year. There are now 45 individual TechReach programs running in 20 states, which
help people to move from poverty into new career paths that provide sufficient
income to support their families.
Many other workforce development programs are running successfully in
countries around the globe including Argentina, Belgium, Mexico, Morocco,
Singapore and Spain.
Training and skills development have always been, and continue to be,
key elements of Manpower's business. This is exemplified in Manpower France
where 40,000 people received training and acquired skills in 2002 ranging from
basic literacy to IT proficiency. Of these, 2,115 received work-study contracts
enabling them to acquire a recognized qualification while working. Manpower
France also obtained job assignments for 2,081 disabled individuals. Out of our
1,000 branch offices in France, 723 placed on assignment at least one person
with a disability.
"Out of our 1,000 branch offices in France, 723 placed on assignment at least
one person with a disability."
As part of our commitment to skills development and inclusiveness in
the labor market, Manpower is particularly focused on providing employment
opportunities to people with disabilities. In addition to Manpower France's
efforts, other examples of our programs include: a client partnership in
Colombia that provides job opportunities to mentally and physically disabled
people; a partnership program in Korea to assess and train physically challenged
people; a partnership program in Uruguay for people with motor disabilities;
programs in Mexico and Argentina that provide job opportunities to people with
sensory and physical disabilities; and programs that focus on the integration of
disabled people into work environments in Belgium, Germany and Norway.
Over the years, many have acclaimed Manpower's approach. The
International Labor Organization (ILO) has cited Manpower as a "best practice"
organization on many occasions, recognizing our innovative training programs and
leadership in embracing a diverse workforce.
26
During 2002, Manpower's CSR activities and responsible business
practices received a variety of awards and accolades. For example, in Uruguay,
we received the Solidarity Link Award from the Honorary National Commission of
the Disabled, in recognition of our work to support disabled people. In Spain,
Manpower was awarded the prestigious "iV Award of Economy and Business on
Prevention of Labor Risks" by the Catalonian Government. And in Sweden, our
Mission Manpower program, which provides non-profit organizations with the
skilled workers they need free of charge, won the Swedish national sponsorship
award, and was awarded the silver medal in the European competition.
Manpower was also honored in Fortune Magazine's prestigious list of
America's Most Admired Companies, where we were rated the number one staffing
company based on interviews with 10,000 business executives, corporate board
members and securities analysts. We earned the number one position in our
industry across all eight measures of corporate reputation, including: social
responsibility, innovativeness, quality of management, employee talent, quality
of products and services, financial soundness, use of corporate assets and
long-term investment value.
While it is always an honor to be publicly recognized, we are most
gratified by helping individuals to make a positive change in their lives. Every
day, we witness the impact of helping people find employment -- this is what
really counts. When we add to this the benefits that embracing social
responsibility and providing job opportunities bring to the business community
and to local, regional, national and international economies, then we have a
very powerful story indeed.
[PHOTO]
27
Financial Highlights
Revenue from Services
in millions
[CHART]
[DATA]
98 99 00 01 02
$8,814.3 $9,770.1 $10,842.8 $10,483.8 $10,610.9
Operating Profit
in millions
[CHART]
[DATA]
98 99 00 01 02
$130.4 $230.6 $311.0 $237.6 $234.8
Systemwide Sales (a)
in millions
[CHART]
[DATA]
98 99 00 01 02
$10,523.4 $11,511.4 $12,444.9 $11,779.1 $11,764.9
Systemwide Offices (a)
[CHART]
[DATA]
98 99 00 01 02
3,189 3,396 3,685 3,920 3,932
a) Systemwide information represents revenues from our branch offices plus the
sales activity of locations operating under a franchise agreement with us. We
consider Systemwide information to be important because it is a measure of the
total market share of all entities operating under our various brands.
Systemwide sales is calculated as follows:
In millions 1998 1999 2000 2001 2002
Revenues from services $ 8,814.3 $9,770.1 $10,842.8 $10,483.8 $10,610.9
Less: Franchise fees 37.8 37.7 37.4 28.1 25.8
Add: Franchise sales 1,746.9 1,779.0 1,639.5 1,323.4 1,179.8
Systemwide sales $10,523.4 $11,511.4 $12,444.9 $11,779.1 $11,764.9
28
Financial Contents
Management's Discussion and Analysis 30
Report of Independent Accountants 44
Report of Independent Public Accountants 45
Consolidated Statements of Operations 46
Consolidated Balance Sheets 47
Consolidated Statements of Cash Flows 48
Consolidated Statements of Shareholders' Equity 49
Notes to Consolidated Financial Statements 50
Quarterly Data (unaudited) 71
Financial Measures 72
Selected Financial Data 73
Corporate Information 74
Principal Operating Units and Worldwide Offices 76
29
Management's Discussion and Analysis
of financial condition and results of operations
Nature of Operations
Manpower Inc. is a world leader in the staffing industry, delivering high-value
workforce management solutions through a systemwide network of over 3,900
offices in 63 countries. We provide a wide range of human resource services
including professional, technical, specialized, office and industrial staffing;
temporary and permanent employee testing, selection, training and development;
internal audit, accounting, technology and tax services; and
organizational-performance consulting.
The staffing industry is large and fragmented, comprised of thousands of firms
employing millions of people and generating billions of U.S. Dollars 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.
We 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.
Constant Currency
Changes in our revenues and operating profits include the impact of changes in
foreign currency exchange rates and acquisitions. We provide "constant currency"
and "organic constant currency" calculations in this Annual Report to remove the
impact of these items. We typically express year-over-year variances that are
calculated in constant currency and organic constant currency as a percentage.
When we use the term "constant currency," it means that we have translated
financial data for a period into U.S. Dollars using the same foreign currency
exchange rates that we used to translate financial data for the previous period.
We believe that this calculation is a useful measure, indicating the actual
growth of our operations. Earnings from our subsidiaries are rarely repatriated
to the United States, and we typically do not incur significant gains or losses
on foreign currency transactions with our subsidiaries, therefore changes in
foreign currency exchange rates impact only reported earnings and not our actual
cash flow or economic condition.
When we use the term "organic constant currency," it means that we have further
removed the impact of acquisitions in the current period from our constant
currency calculation. We believe that this calculation is useful because it
allows us to show the actual growth of our pre-existing business.
Constant currency and organic constant currency percent variances, along with a
reconciliation of these amounts to certain of our reported results, are included
on page 72.
30
Results of Operations-- Years Ended December 31, 2002, 2001 and 2000
Consolidated Results - 2002 compared to 2001
Revenues from services increased 1.2%. Revenues were favorably impacted during
the year by changes in foreign currency exchange rates, as the U.S. Dollar
weakened relative to many of the functional currencies of our foreign
subsidiaries. Revenues decreased 2.0% in constant currency. Revenue growth in
2002 attributable to acquisitions was approximately $163 million. Excluding
acquisitions, revenues decreased .3%. On an organic constant currency basis,
revenues decreased 3.6%.
Gross profit decreased 2.4% during 2002, as the gross profit margin declined 70
basis points (.7%) to 18.0% in 2002 from 18.7% in 2001. The lower margin is due
primarily to changes in business mix, pricing pressures and a decrease in our
permanent placement business, caused by the economic slowdown. Gross profit
margin improvement attributable to acquisitions was 20 basis points (.2%) during
2002. Gross profit growth from acquisitions was approximately $47 million.
Excluding acquisitions, Gross profit decreased 4.8%. On an organic constant
currency basis, Gross profit decreased 8.0%.
Selling and administrative expenses decreased 2.5% during 2002. As a percent of
revenues, Selling and administrative expenses were 15.8% in 2002 compared to
16.4% in 2001 (16.2% in 2001 excluding goodwill amortization). This decrease is
due primarily to a continuation of cost control efforts throughout all of our
markets in response to the lower revenue levels since late 2001. As a percent of
Gross profit, these expenses were 87.7% in 2002 and 87.9% in 2001 (87.0%
excluding goodwill amortization). The increase as a percent of Gross profit,
compared to 2001 excluding goodwill amortization, was mainly a result of the
lower Gross profit levels in 2002.
Operating profit declined 1.2% during 2002 resulting in an operating profit
margin of 2.2% compared to 2.3% for 2001 (2.4% excluding goodwill amortization).
This decrease in operating profit margin resulted as our cost control efforts
did not fully compensate for the Gross profit declines. Acquisitions made during
2002 increased Operating profit by approximately $1 million during 2002.
Interest and other expenses is comprised of interest, foreign exchange gains and
losses, the loss on sale of accounts receivable, and other miscellaneous
non-operating expenses. In total, Interest and other expenses increased $7.1
million from 2001 to 2002. Net interest expense was $33.4 million in 2002
compared to $28.8 million in 2001, as average borrowing levels were higher
throughout 2002 compared to 2001 and our Euro denominated interest expense was
translated at higher rates in 2002. Foreign exchange gains and losses primarily
result from the translation of intercompany transfers between foreign
subsidiaries and the United States and we experienced a gain of $1.8 million in
2002 compared to a loss of $.2 million in 2001. The loss on the sale of accounts
receivable decreased in 2002 from 2001 as there were only minimal amounts
advanced under the Receivables Facility during 2002. (See note 4 to the
consolidated financial statements for further information.)
Miscellaneous expenses, net, increased $9.4 million in 2002 from 2001. In the
fourth quarter of 2002, we recorded a charge of $5.1 million ($2.9 million net
of tax, or $.04 per share) related to a writedown of equity security investments
where the decline in market value was determined to be other-than-temporary, as
defined by Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Debt and Equity Securities." During 2001, miscellaneous
expenses included a gain on the sale of a minority-owned subsidiary offset by a
writedown of an investment.
We provided for income taxes at a rate of 39.8% in 2002 compared to 37.1% in
2001 (35.1% excluding goodwill amortization). The increase in the rate primarily
reflects a shift in taxable income to relatively higher tax-rate countries, an
increase in valuation reserves recorded against foreign net operating losses and
a decrease in the foreign tax credits used to offset the U.S. taxes on foreign
earnings. The 2002 rate is different than the U.S. Federal statutory rate of 35%
due to the impact of higher foreign income tax rates, valuation reserves
recorded against foreign net operating losses and U.S. taxes on foreign
earnings.
Net earnings per share, on a diluted basis, decreased 9.9% to $1.46 in 2002
compared to $1.62 in 2001 ($1.81 excluding goodwill amortization). The 2002 Net
earnings per share, on a diluted basis, was positively impacted by the higher
foreign currency exchange rates during the year. In constant currency, 2002
diluted Net earnings per share would have been $1.29, a decrease of 20.4% from
2001 (a decrease of 28.7% excluding goodwill amortization). The weighted-average
shares outstanding declined less than 1% from 2001. On an undiluted basis, Net
earnings per share was $1.48 in 2002 compared to $1.64 in 2001 ($1.83 excluding
goodwill amortization).
31
Consolidated Results-- 2001 Compared to 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 our foreign subsidiaries.
Revenues were flat in constant currency. Revenue growth in 2001 attributable to
acquisitions was approximately $180 million. Excluding acquisitions, revenues
decreased 5.0%. On an organic constant currency basis, revenues decreased 1.3%.
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. The change in business mix to higher
value services came primarily from acquisitions. Gross profit margin improvement
attributable to acquisitions was 30 basis points (.3%) during 2001. Gross profit
growth from acquisitions was approximately $56 million. Excluding acquisitions,
Gross profit decreased 2.5%. On an organic constant currency basis, Gross profit
increased 1.5%.
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. Gross profit margin improvement attributable to these
acquisitions was 20 basis points (.2%) during 2001. 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.
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. The growth in
Selling and administrative expenses declined throughout the year, as we 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. We added 235 net offices during 2001 as we invested
in expanding markets, such as Italy, and in acquisitions.
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 our continued investment in certain expanding
markets and strategic initiatives. Acquisitions did not have a significant
impact on Operating profit, or operating profit margin, during the year.
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 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, and
other non-operating expenses. During 2001 the amount also included a gain on the
sale of a minority-owned subsidiary and a writedown of an investment.
We 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, U.S. taxes on foreign earnings 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 Net earnings per share, on a diluted basis,
was negatively impacted by the lower currency exchange rates during the year. In
constant currency, 2001 diluted Net 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.
32
Segment Results
We are organized and managed primarily on a geographic basis. Each country
primarily has its own distinct operations, is managed locally by its own
management team and maintains its own financial reports. Each operation reports
directly, or indirectly through a regional manager, to a member of executive
management. Given this reporting structure, all of our operations have been
segregated into the following segments: United States; France; EMEA (Europe,
Middle East and Africa, excluding France) and Other Operations.
EMEA represents a combination of operations historically included in segments
referred to as United Kingdom and Other Europe. In addition, central costs for
EMEA which historically have been included in corporate expense are now included
in the determination of Operating unit profit. For comparison purposes,
historical amounts have been restated to be consistent with the current
presentation.(See note 15 to the consolidated financial statements for further
information.)
Revenue from Services Operating Unit Profit
in millions In millions
[PIE CHART] [PIE CHART]
[DATA] [DATA]
United States France EMEA Other Operations United States France EMEA Other Operations
$1,911.4 $3,848.2 $3,434.9 $1,416.4 $29.2 $143.6 $83.0 $6.6
18.0% 36.3% 32.4% 13.3% 11.1% 54.7% 31.7% 2.5%
United States -- Revenues for the year were $1.9 billion, a decline of 4.6%
during 2002. Systemwide sales in the United States were $2.9 billion in 2002,
down 6.7% from the prior year (See United States Systemwide Sales Reconciliation
on page 72 for further information.) The U.S. operations began the year with
very weak demand for our services, but customer demand improved throughout the
course of the year as the economy improved. We began 2002 with first quarter
revenue 21.5% behind 2001 and finished the year with revenue growth above 2001
levels by 9.7% in the fourth quarter. As is typical in periods of economic
recovery, demand for our light industrial skills was the first to improve which
was followed by increasing demand for office and professional skills.
The gross profit margin declined slightly compared to the prior year reflecting
a modest shift in business mix toward higher volume, lower gross profit margin
accounts and a somewhat weaker pricing environment.
Selling and administrative expenses declined 7.7% in 2002 as the full impact of
expense control initiatives implemented in 2001 were realized. Expense levels
remained stable throughout the course of the year as our existing office
infrastructure was able to support higher revenue levels in the second half of
the year without incremental overhead costs. This operational expense leveraging
in a growing revenue environment is a core part of our strategy in returning to
normalized operating unit profit margins in the U.S.
Operating unit profit for 2002 was $29.2 million compared to $29.5 million in
2001. The operating unit profit margin for the year was also stable at 1.5%.
Importantly, however, the operating unit profit margin in the second half of
2002 significantly exceeded the 2001 level, at 2.6% compared to 1.0%, due to the
expense leveraging on improved revenue growth.
During the course of 2002, we acquired six franchises in the U.S. which added
approximately $57 million of revenue and approximately $3 million of Operating
unit profit.
U.S. Revenues U.S. Operating Unit Profit
in millions in millions
[CHART] [CHART]
[DATA] [DATA]
00 01 02 00 01 02
$2,413.5 $2,003.4 $1,911.4 $84.6 $29.5 $29.2
+7.2% -17.0% -4.6% +5.4% -65.2% -.8%
33
France -- Revenues in France were Euro 4.1 billion ($3.8 billion) down 3.8% in
Euro from 2001 (2.2% increase as reported). Similar to the U.S., however,
customer demand for our services improved throughout the year. We began 2002 in
France with revenues trailing 2001 by 14.1% in the first quarter, and finished
2002 with revenues in the fourth quarter up 4.3% over the prior year. This
improving revenue growth trend, however, appeared to weaken as we exited 2002
and began 2003.
Gross profit margins in France declined slightly during the year due to a
combination of geographic business mix and a weaker pricing environment. This
decline in gross profit margin was more than offset by good expense controland
expense leveraging in an improving revenue growth environment.
Operating unit profit was Euro 149.7 million ($143.6 million), down only 1.6% in
Euro for the year (5.8% increase as reported). The operating unit profit margin
improved for the fourth consecutive year, rising to 3.7%.
The French government recently passed legislation related to certain social
programs, including the 35-hour work week, minimum working wage and social
contribution subsidies. Implementation guidelines have not yet been finalized
for the legislation, and therefore it is difficult to estimate the impact of
these changes on our future financial results. Currently, we estimate that the
maximum impact is a reduction of Euro 10 million in Gross profit during the
second half of 2003 and Euro 10 million during the first half of 2004. We
presently do not anticipate a negative impact beyond the first half of 2004.
France Revenues France Operating Unit Profit
in millions in millions
[CHART] [CHART]
[DATA] [DATA]
00 01 02 00 01 02
$3,939.2 $3,766.4 $3,848.2 $130.6 $135.7 $143.6
+4.3% -4.4% +2.2% +29.4% +3.9% +5.8%
EMEA -- The EMEA segment includes our operations in Europe, the Middle East and
Africa (excluding France). The largest operations included in the segment are
located in Germany, Italy, the Netherlands, Norway, Spain, Sweden and the United
Kingdom.
EMEA revenues increased .2% over the prior year but were down 4.9% in constant
currency. Within the segment, revenue growth varied dramatically with revenues
in Spain and Italy up 27.0% and 15.8%, respectively, and revenues in most of the
other operations in the segment declining in the weak economic environment.
The gross profit margin declined from 2001 levels due to a change in the
geographic mix of our business. Operations throughout southern Europe, which
have relatively lower gross profit margins, had higher revenue growth rates. In
addition, decreased permanent placement fees in the United Kingdom, and
continued pricing pressures throughout the segment, contributed to lower gross
profit margin levels.
The decline in Gross profit was partially offset by cost reductions and
improving productivity. This resulted in operating unit profit margins of 2.4%
for 2002 compared to 3.1% for 2001. Despite these cost reductions, we continued
to invest in the expanding markets throughout southern Europe and in our Elan
operations; expanding our Elan service offerings to five more countries in
mainland Europe and Asia Pacific.
EMEA Revenues EMEA Operating Unit Profit
in millions in millions
[CHART] [CHART]
[DATA] [DATA]
00 01 02 00 01 02
$3,349.4 $3,428.7 $3,434.9 $122.1 $106.0 $83.0
+18.1% +2.4% +.2% +31.0% -13.3% -21.6%
34
Other Operations -- The Other Operations segment includes our Manpower
operations in the Asia Pacific region, Canada, Mexico and South America, as well
as 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 organizational-performance consulting
services through a network of global offices.
Revenues of our Other Operations were $1.4 billion in 2002, an increase of 10.2%
(14.9% in constant currency and 7.3% on an organic constant currency basis).
Revenues in the Asia Pacific region increased 6.0%, as positive growth was
experienced in Japan and Australia, the two largest operations in this region.
We continue to invest in new offices in Japan and are well positioned to take
advantage of expected future growth opportunities with further deregulation of
Japan's temporary labor market.
Operating unit profit for 2002 declined to $6.6 million from $8.9 million in
2001. The operating unit profit margin remained below 1.0%, reflecting difficult
economic conditions and our continued investment in the expansion of new service
offerings and new office openings. This includes additional investment in
Jefferson Wells' network, which expanded its offices by 50%, to 36 locations.
Other Operations Revenues Other Operations
in millions Operating Unit Profit
[CHART] in millions
[CHART]
[DATA] [DATA]
00 01 02 00 01 02
$1,140.7 $1,285.3 $1,416.4 $13.2 $8.9 $6.6
+25.5% +12.7% +10.2% +24.4% -31.8% -27.1%
Cash Sources and Uses
Cash used to fund our operations is primarily generated through operating
activities and our existing credit facilities. We believe that our internally
generated funds and our existing credit facilities are sufficient to cover our
near-term projected cash needs.
Our principal ongoing cash needs are to finance working capital, capital
expenditures and acquisitions. 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 we operate.
During 2002, Cash provided by operating activities was $227.9 million, compared
to $136.0 million for 2001 and $157.9 million for 2000. Better working capital
management during 2002 was offset by lower earnings levels and an increase in
accounts receivable during the last quarter of 2002, compared to the previous
year, due to revenue increases. Despite this increase in accounts receivable, we
were still able to reduce our consolidated days sales outstanding ("DSO") by
approximately one day compared to 2001. This reduction improves upon the
progress made during 2001 to reduce DSO levels by two days from the 2000 level.
Cash provided by operating activities during 2001 and 2000 was negatively
impacted by a reduction in the amounts advanced under the Receivables Facility.
Accounts receivable increased to $2,214.2 million as of December 31, 2002 from
$1,917.8 million as of December 31, 2001. This increase is primarily due to the
increased foreign currency exchange rates from 2001 to 2002 for a majority of
our foreign operations. At constant exchange rates, the 2002 accounts receivable
balance would have been approximately $250 million less than reported. The
remaining increase is a result of higher revenue levels during the last quarter
of 2002 compared to 2001.
35
One of our wholly-owned U.S. subsidiaries has an agreement to transfer, on an
ongoing basis, up to $200.0 million of an interest in its accounts receivable.
Prior to November 2002, transfers of accounts receivable qualified as a sale and
the related amount of accounts receivable was removed from our consolidated
balance sheets. The terms of this agreement were amended during November 2002 in
such a way to no longer qualify as a sale of accounts receivable. Accordingly,
any future advances under this agreement will be reflected as debt on our
consolidated balance sheets. No amounts were advanced under this facility as of
December 31, 2002 and 2001. (See note 4 to the consolidated financial statements
for further information.)
Capital expenditures were $58.5 million, $87.3 million and $82.6 million during
2002, 2001 and 2000, 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
$17.7 million, $19.1 million and $6.9 million in 2002, 2001 and 2000,
respectively.
From time to time, we acquire and invest in companies throughout the world,
including U.S. franchises. The total cash consideration for such transactions
was $33.5 million, $295.9 million and $172.4 million in 2002, 2001 and 2000,
respectively. Included in the 2001 and 2000 amounts are payments for Jefferson
Wells (acquired in July 2001 for $174.0 million) and Elan (acquired in January
2000 for $146.2 million, of which $30.0 million was paid in 2001). In addition,
during 2002, we acquired ownership interests in certain U.S. franchises in
exchange for approximately 592,000 shares of our common stock, which had an
aggregate market value of $21.9 million at the dates of acquisition.
Net repayments of borrowings were $115.0 million for 2002 compared to net
borrowings of $313.0 million and $71.8 million for 2001 and 2000, respectively.
During 2002, we used excess cash to pay down borrowings under various
facilities, a majority of which occurred during the fourth quarter. Net
borrowings in 2001 and 2000 were used for acquisitions, investments in new and
expanding markets, capital expenditures and repurchases of our common stock.
Proceeds from long-term debt and Repayments of long-term debt include activity
related to our commercial paper program.
During 1996 and 1998, the Board of Directors authorized the repurchase of a
total of 15 million shares of our common stock. 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. As of December 31, 2002, 9,945,200 shares at a cost of $283.8
million have been repurchased. During March 2002, 900,000 shares at a cost of
$30.7 million were repurchased to settle a forward repurchase agreement entered
into in September 2000.
During 2002, the Board of Directors declared two cash dividends for a total of
$.20 per share which were paid in 2002 to shareholders of record on certain
dates. Our total dividend payments were $15.3 million, $15.2 million and $15.1
million in 2002, 2001 and 2000, respectively.
We have aggregate commitments of $1,235.5 million related to debt repayments,
operating leases and certain other commitments as follows:
In Millions 2003 2004 2005 2006 2007 thereafter
Long-term debt $ 6.2 $254.9 $159.5 $384.5 $ - $ .1
Short-term borrowings 16.6 - - - - -
Operating leases 110.8 87.4 67.2 46.9 31.5 65.9
Other 3.2 .8 - - - -
$136.8 $343.1 $226.7 $431.4 $31.5 $66.0
36
We also have entered into certain guarantee contracts and stand-by letters of
credit that total approximately $111.1 million ($39.4 million for guarantees and
$71.7 million for stand-by letters of credit). The guarantees primarily relate
to government requirements for operating a temporary service company in certain
countries, operating leases, bank accounts and indebtedness. The stand-by
letters of credit relate to workers' compensation, operating leases and
indebtedness. If certain conditions were met under these arrangements, we would
be required to satisfy our obligation in cash. Due to the nature of these
arrangements and our historical experience, we do not expect to make any
significant payments. Therefore, they have been excluded from the preceding
table.
Capital Resources
Total capitalization as of December 31, 2002 was $1,821.7 million, comprised of
$821.8 million in debt and $999.9 million in equity. Debt as a percentage of
total capitalization was 45% as of December 31, 2002 compared to 51% in 2001.
Total Capitalization
in millions
[CHART]
[DATA]
98 99 00 01 02
Debt $258.0 $ 489.0 $ 557.5 $ 834.8 $ 821.8
Equity $668.9 $ 650.6 $ 740.4 $ 814.3 $ 999.9
Total Capitalization $926.9 $1,139.6 $1,297.9 $1,649.1 $1,821.7
We have $435.4 million in aggregate principal amount at maturity of unsecured
zero-coupon convertible debentures, due August 17, 2021 ("Debentures"), with a
carrying value of $250.0 million as of December 31, 2002. These Debentures were
issued at a discount to yield an effective interest rate of 3% per year, and
they rank equally with all of our existing and future senior unsecured
indebtedness. Gross proceeds of $240.0 million were used to repay borrowings
under our unsecured revolving credit agreement and advances under the
Receivables Facility during 2001. There are no scheduled cash interest payments
associated with the Debentures.
The Debentures are convertible into shares of our common stock at an initial
price of $39.50 per share, if the closing price of our common stock on the New
York Stock Exchange exceeds specified levels or in certain other circumstances.
Holders of the Debentures may require us to purchase these Debentures at the
issue price, plus accreted original issue discount, on the first, third, fifth,
tenth and fifteenth anniversary dates. We have the option to settle this
obligation in cash, common stock, or a combination thereof. There were no
Debentures "put" to us on the first anniversary date and the next "put" date is
on the third anniversary date, August 2004, which is also the first date we may
"call" the Debentures. Our intent is to settle any future "put" in cash. In the
event of a significant change in the economic environment, we may choose to
settle a future "put" with common stock, which would have a dilutive effect on
existing shareholders.
We have Euro 150.0 million in unsecured notes due March 2005, at 6.25%, and
Euro 200.0 million in unsecured notes due July 2006, at 5.63%. (See Significant
Matters Affecting Results of Operations and notes 6 and 13 to the consolidated
financial statements for further information.)
We have revolving credit agreements with a syndicate of commercial banks. The
agreements consist of a $450.0 million five-year revolving credit facility (the
"Five-year Facility") and a $285.0 million 364-day revolving credit facility
(the "364-day Facility"). The Five-year Facility expires in November 2006.
During October 2002, we renewed our 364-day Facility with a syndicate of
commercial banks. The availability under this facility was reduced from $300.0
million to $285.0 million and it now matures in October 2003. All other terms
and conditions remain unchanged.
37
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
stand-by letters of credit. Outstanding letters of credit totaled $71.7 million
and $65.5 million as of December 31, 2002 and 2001, respectively. Additional
borrowings of $488.9 million were available to us under these agreements as of
December 31, 2002. (See Significant Matters Affecting Results of Operations and
note 6 to the consolidated financial statements for further information.)
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
our debt rating and borrowing level. Currently, on the Five-year Facility, the
interest rate is LIBOR plus .9% and the facility and issuance fees are .2% and
..9%, respectively. On the 364-day Facility, the interest rate is LIBOR plus
..925% and the facility fee is .175%.
The agreements require, among other things, that we comply with a Debt-to-EBITDA
ratio of less than 3.75 to 1 (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 agreements, we
had a Debt-to-EBITDA ratio of 2.87 to 1 and a fixed charge ratio of 2.34 to 1 as
of December 31, 2002. Based upon current forecasts, we expect to be in
compliance with these covenants throughout the coming year.
Borrowings of $.7 million were outstanding under our $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 our intent and
ability torefinance them on a long-term basis under this facility.
In addition to the above, we maintain separate lines of credit with foreign
financial institutions to meet working capital needs of our foreign operations.
As of December 31, 2002, such lines totaled $193.7 million, of which $177.1
million was unused.
During June 2002, Moody's Corporation downgraded our credit rating from Baa2 to
Baa3, and during October 2002, Standard & Poor's downgraded our credit rating
from BBB to BBB- while maintaining a negative outlook. As a result of these
actions, the interest rate and facility fee increased by .175% and .05%,
respectively, on both our Five-year Facility and 364-day Facility. These
increases resulted in approximately $.2 million of additional total interest and
facility fees expense during 2002. These actions do not impact our ability to
borrow under our existing credit facilities.
Application of Critical Accounting Policies
The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States requires us to make estimates
and assumptions that affect the reported amounts. A discussion of the more
significant estimates follows. Management has discussed the development,
selection and disclosure of these estimates and assumptions with the Audit
Committee of our Board of Directors.
Allowance for Doubtful Accounts
We have an allowance for doubtful accounts recorded as an estimate of the
accounts receivable balance that may not be collected. This allowance is
calculated on an entity-by-entity basis with consideration for historical
write-off experience, the current aging of receivables and a specific review for
potential bad debts. Items that affect this balance mainly include bad debt
expense and write-offs of accounts receivable balances.
Bad debt expense, which increases our allowance for doubtful accounts, is
recorded as an operating expense in our consolidated statements of operations
and was $18.2 million, $23.8 million and $21.7 million for 2002, 2001 and 2000,
respectively. Factors that would cause this provision to increase primarily
relate to increased bankruptcies by our customers and other difficulties
collecting amounts billed. On the other hand, an improved write-off experience
and aging of receivables would result in a decrease to the provision.
Write-offs, which decrease our allowance for doubtful accounts, are recorded as
a reduction to our accounts receivable balance and were $18.4 million, $18.2
million, and $12.2 million for 2002, 2001 and 2000, respectively.
38
Employment Related Items
The employment of temporary workers and permanent staff throughout the world
results in the recognition of liabilities related to defined benefit pension
plans, self-insured workers' compensation, and government subsidies that require
us to make estimates and assumptions in determining the proper reserve levels.
We sponsor several qualified and nonqualified pension plans covering permanent
employees. The most significant plans are located in the United States, France,
the United Kingdom, Japan and other European countries. We record annual expense
relating to these plans according to the accounting rules generally accepted in
the United States. These calculations include various actuarial assumptions such
as discount rates, expected rate of return on plan assets, compensation
increases and employee turnover rates. We review the actuarial assumptions on an
annual basis and make modifications to the assumptions as necessary. (See note 8
to the consolidated financial statements for further information.)
In the United States, we are self-insured in most states for workers'
compensation claims for our temporary workers. Based on historical payment
experience and current employee demographics, we determine the proper reserve
balance using an actuarial valuation. Our reserve for such claims as of December
31, 2002 was $109.0 million. The workers' compensation expense is recorded as a
component of Cost of services. A significant increase in claims or changes in
laws may require us to record more expense related to workers' compensation. On
the other hand, significantly improved claim experience may result in a lower
annual expense level.
In France, we receive government subsidies as a result of various social
programs, mainly related to the 35-hour work week legislation. These subsidies
are remitted to our customers in certain circumstances, and as a result we are
required to make an estimate for the amount that will be remitted. We make that
estimate based on our historical experience including related trends. To the
extent that our experience differs from our estimate, we will need to make
adjustments to our reserve balance, which will impact the results of our French
operation. In addition, future changes to laws governing these subsidies may
require us to revise our estimates, which may significantly impact our
consolidated financial statements.
Income Taxes
We account for income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes." Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and net operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. We record a valuation allowance against deferred tax
assets for which utilization of the asset is not likely.
Our judgment is required in determining our deferred tax assets and liabilities,
and any valuation allowances recorded. Our net deferred tax assets may need to
be adjusted in the event that tax rates are modified, or our estimates of future
taxable income change, such that deferred tax assets or liabilities are expected
to be recovered or settled at a different tax rate than currently estimated. In
addition, valuation allowances may need to be adjusted in the event that our
estimate of future taxable income changes from the amounts currently estimated.
We provide for income taxes on a quarterly basis based on an estimated annual
tax rate. In determining this rate, we make estimates about taxable income for
each of our locations worldwide, as well as the tax rate that will be in effect
for each location. To the extent these estimates change during the year, or that
actual results differ from these estimates, our estimated annual tax rate may
change between quarterly periods and may differ from the actual effective tax
rate for the year.
39
Goodwill Impairment
In connection with our adoption of SFAS No. 142, "Goodwill and Other Intangible
Assets," we are required to perform goodwill impairment reviews using a
fair-value-based approach. (See notes 1 and 5 to the consolidated financial
statements for further information.) The majority of our goodwill results from
our recent acquisitions of Elan and Jefferson Wells, as well as the development
of our Empower operations.
We primarily use a discounted cash flow analysis in our impairment reviews to
estimate fair value. Significant assumptions used in this analysis include:
expected future revenue growth rates, operating unit profit margins, and working
capital levels; a discount rate; and a terminal value multiple. The revenue
growth rates and operating unit profit margins are based on our expectation of
future results. As previously discussed, our operating results, including those
of our more specialized operations, have been negatively impacted by the
worldwide economic conditions. Accordingly, if our expectations of future
operating results change, or if there are changes to other assumptions, our
estimate of the fair value of our reporting units could change significantly.
Such a change could result in a goodwill impairment charge, which could have a
significant impact on the reportable segments that include the related
acquisitions and our consolidated financial statements.
Significant Matters Affecting Results of Operations
MARKET RISKS
We are exposed to the impact of foreign currency fluctuations and interest rate
changes.
EXCHANGE RATES
Our exposure to foreign currency exchange rates relates primarily to our foreign
subsidiaries and our Euro and Yen denominated borrowings. For our foreign
subsidiaries, exchange rates impact the U.S. Dollar value of our reported
earnings, our investments in the subsidiaries and the intercompany transactions
with the subsidiaries.
Approximately 80% of our revenues and profits are generated outside of the
United States, with approximately 50% generated from our European operations
that use the Euro as their functional currency. As a result, fluctuations in the
value of foreign currencies against the U.S. Dollar, particularly the Euro, may
have a significant impact on our reported results. 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
U.S. Dollar changes relative to the currencies of our major markets, our
reported results vary. During 2002, the U.S. Dollar weakened relative to many of
the currencies of our major markets. In constant currency, 2002 revenues and
operating profits would have been approximately 3.2% and 7.3% lower than
reported, respectively. During 2001 and 2000, the U.S. Dollar strengthened
relative to many of the currencies of our major markets, resulting in translated
revenues and profits that were lower than those calculated in constant currency.
Fluctuations in currency exchange rates also impact the U.S. Dollar amount of
our Shareholders' equity. The assets and liabilities of our non-U.S.
subsidiaries are translated into U.S. 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 U.S.
Dollar weakened relative to many of the foreign currencies as of December 31,
2002 compared to December 31, 2001. Consequently, the Accumulated other
comprehensive income (loss) component of Shareholders' equity decreased $75.3
million during the year. Using the year-end exchange rates, the total amount
permanently invested in our non-U.S. subsidiaries as of December 31, 2002 is
approximately $1.9 billion.
40
As of December 31, 2002, we had $543.0 million of long-term borrowings
denominated in Euro ($474.3 million) and Yen ($68.7 million). Euro and Yen
denominated borrowings totaling $383.8 million as of December 31, 2002, have
been designated as a hedge of our net investment in subsidiaries with the
related functional currencies. Since our 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 $72.0 million during the year due to
the currency impact on these borrowings. As a result of certain derivative
financial instruments that we entered into during September 2002, all
translation gains and losses on the Euro 150.0 million ($159.2 million as of
December 31, 2002) unsecured notes due March 2005 are recorded in the
consolidated statements of operations. These amounts are offset by changes in
the fair value of the related derivative instruments. (See note 13 to the
consolidated financial statements for further information.)
Although currency fluctuations impact our reported results and Shareholders'
equity, such fluctuations generally do not affect our cash flow or result in
actual economic gains or losses. Substantially all of our 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. We generally have 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 between
the United States and our foreign subsidiaries. To reduce the currency risk
related to the intercompany loans and repayments, we may borrow funds under the
revolving credit agreements in the foreign currency to lend to the subsidiary,
or alternatively, we may enter into a forward contract to hedge the loan or
repayment. Similarly, we may enter into a forward contract to hedge other
significant intercompany payments. Foreign exchange gains and losses recognized
on any such transactions are included in the consolidated statements of
operations and historically have been immaterial. We generally do not engage in
hedging activities, except as discussed herein. We did not have any such forward
contracts as of December 31, 2002.
INTEREST RATES
Our exposure to market risk for changes in interest rates relates primarily to
our variable rate long-term debt obligations. We have 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, we have $191.0 million in variable rate borrowings at a
weighted-average interest rate of 2.82% and $630.8 million in fixed rate
borrowings at a weighted-average interest rate of 4.77% as of December 31, 2002.
We have various interest rate swap agreements in order to fix our interest costs
on a portion of our Euro and Yen denominated variable rate borrowings. The Euro
interest rate swap agreements, with a notional value of Yen 100.0 million
($105.0 million) 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 ($68.7 million), Yen 4,000.0 million ($33.7 million) of
which fixes the interest rate at .9% and expires in June 2003 and Yen 4,150.0
million ($35.0 million) of which fixes the interest rate at .8% and expires in
2006.
During September 2002, we entered into derivative financial instruments to swap
our Euro 150.0 million ($159.2 million) unsecured notes, at 6.25%, due March
2005, to floating U.S. LIBOR, yielding an initial effective interest rate of
4.39%. These instruments expire in March 2005.
As of December 31, 2002, including the impact of the swap agreements outlined
above, we effectively had $176.6 million and $645.2 million in variable and
fixed rate borrowings, respectively, at a weighted-average interest rate of
4.27% and 4.12%, respectively. These swap agreements had an immaterial impact on
Interest expense during 2002 and 2001.
A 43 basis point (.43%) move in interest rates on our variable rate borrowings
(10% of the weighted-average variable interest rate, including the impact of the
swap agreements) would have an immaterial impact on our Earnings before income
taxes and cash flows in each of the next five years.
41
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, we provide a wide range of
human resource services including professional, technical, specialized, office
and industrial staffing; temporary and permanent employee testing, selection,
training, and development; internal audit, accounting, technology and tax
services; and organizational-performance consulting. We believe that the breadth
of our operations and the diversity of our service mix cushions us against the
impact of an adverse economic cycle in any single country or industry. However,
adverse economic conditions in any of our three largest markets, as was seen
during much of 2001 and 2002, would have a material impact on our consolidated
operating results.
THE EURO
We have significant operations in many of the twelve European Union member
countries that adopted the Euro on January 1, 2002. Since our labor costs and
prices are generally determined on a local basis, the impact of converting to
the Euro currency 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. We accounted for all such system modification costs in accordance
with our existing policy. Such costs were not material to our consolidated
financial statements.
LEGAL REGULATIONS
The temporary employment services industry is closely regulated in all of the
major markets in which we operate 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.
Regulations 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
us 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 our operations and the
ability of customers to utilize our 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 us.
The French government recently passed legislation related to certain social
programs, including the 35-hour work week, minimum working wage and social
contribution subsidies. Implementation guidelines have not yet been finalized
for the legislation, and therefore, it is difficult to estimate the impact of
these changes on our future financial results. Currently, we estimate that the
maximum impact is a reduction of Euro 10 million in Gross profit during the
second half of 2003 and Euro 10 million during the first half of 2004. We
presently do not anticipate a negative impact beyond the first half of 2004.
In March 2002, the European Commission released proposed legislation, the Agency
Workers Directive ("AWD"), aimed at improving the quality of temporary staffing
work through a principle of non-discrimination between temporary staff and
permanent employees. The AWD is currently being discussed by the European
Parliament, and once it is passed, the EU countries will have two years to
implement it. Given the uncertainty surrounding the final form of the AWD and
the actual implementation timeframe, we cannot currently estimate the impact, if
any, on the future results of our EU operations or our consolidated financial
statements.
42
RECENTLY ISSUED ACCOUNTING STANDARDS
During January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities," which
clarifies the consolidation and disclosure requirements related to variable
interests in a variable interest entity. A variable interest entity is an entity
for which control is achieved through means other than voting rights. The
consolidation provisions of this Interpretation are effective immediately for
interests created after January 31, 2003. For interests created before February
1, 2003, we are required to adopt the consolidation provisions no later than
July 1, 2003. We adopted the disclosure provisions of this Interpretation for
the year ended December 31, 2002. We are still evaluating the consolidation
provisions of this Interpretation, however, we do not expect them to have a
material impact on our consolidated financial statements.
During December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," which provides for alternative
methods of transition for a voluntary change to the fair-value-based method of
accounting for stock-based compensation. In addition, SFAS No. 148 amends the
disclosure requirements for both annual and interim financial statements. We
adopted the disclosure provisions of SFAS No. 148 on December 31, 2002 and we
continue to account for our stock-based compensation under APB Opinion No. 25.
(See notes 1 and 7 to the consolidated financial statements for further
information.)
During November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," which clarifies the required disclosures
in interim and annual financial statements about obligations under certain
guarantees. It also requires the recognition, at the date of inception of a
guarantee, of a liability for the fair value of the obligation. The initial
recognition and measurement provisions of this Interpretation are effective for
guarantees issued or modified after December 31, 2002. We adopted the disclosure
requirements as of December 31, 2002. We have not historically been required to
make any payments related to guarantees and we do not expect to do so in the
future. Therefore, we do not believe the initial recognition provisions of this
Interpretation will have a material impact on our consolidated financial
statements.
During June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which requires that a liability for a cost
associated with an exit or disposal activity be recognized, at fair value, when
the liability is incurred rather than at the time an entity commits to a plan.
The provisions of SFAS No. 146 are effective for exit or disposal activities
initiated by us after December 31, 2002. We do not expect the adoption of SFAS
No. 146 to have a significant impact on our 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, and we adopted SFAS No. 142 on January 1, 2002.
SFAS No. 142 also requires goodwill impairment reviews to be performed at least
annually by applying a fair-value-based test at the reporting unit level, which
generally represents operations one level below the segments that we report. We
have completed the tests as of the date of adoption and for our 2002 review and
have determined that there are no impairments. (See notes 1 and 5 to the
consolidated financial statements for further information.)
FORWARD-LOOKING STATEMENTS
Statements made in this Annual Report that are not statements of historical fact
are forward-looking statements. All forward-looking statements involve risks and
uncertainties. The information under the heading "Forward-Looking Statements" in
our Annual Report on Form 10-K for the year ended December 31, 2002, which
information is incorporated herein by reference, provides cautionary statements
identifying, for purposes of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, important factors that could cause our
actual results to differ materially from those contained in the forward-looking
statements. Some or all of the factors identified in our Annual Report on Form
10-K may be beyond our control. Forward-looking statements can be identified by
words such as "expect," "anticipate," "intend," "plan," "may," "will,"
"believe," "seek," "estimate," and similar expressions. We caution that any
forward-looking statement reflects only our belief at the time the statement is
made. We undertake no obligation to update any forward-looking statements to
reflect subsequent events or circumstances.
43
Report of Independent Accountants
To the Board of Directors and Shareholders of Manpower Inc.:
In our opinion, the accompanying consolidated balance sheet as of December 31,
2002 and the related consolidated statements of operations, cash flows and
shareholders' equity present fairly, in all material respects, the financial
position of Manpower Inc. and its subsidiaries as of December 31, 2002, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The consolidated financial
statements of Manpower Inc. and its subsidiaries as of December 31, 2001 and for
each of the two years in the period ended December 31, 2001, before the
revisions described in notes 5 and 15, were audited by other independent
accountants who have ceased operations. Those independent accountants expressed
an unqualified opinion on those financial statements in their report dated
January 28, 2002.
As disclosed in note 5 to the consolidated financial statements, effective
January 1, 2002, the Company changed the manner in which it accounts for
goodwill and other intangible assets upon the adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
As discussed above, the consolidated financial statements of Manpower Inc. and
its subsidiaries as of December 31, 2001 and for each of the two years in the
period ended December 31, 2001 were audited by other independent accountants who
have ceased operations. As described in note 5, these consolidated financial
statements have been revised to include the transitional disclosures required by
Statement of Financial Accounting Standards No. 142. Also, as described in note
15, these consolidated financial statements have been restated to conform to the
composition of reportable segments and measurement of segment operating unit
profit as of and for the year ended December 31, 2002. We audited the
adjustments in the transitional disclosures in note 5. We also audited the
adjustments described in note 15 that were applied to restate the 2001 and 2000
segment disclosures. In our opinion, all such adjustments are appropriate and
have been properly applied. However, we were not engaged to audit, review, or
apply any procedures to the 2001 and 2000 consolidated financial statements of
the Company other than with respect to such adjustments and, accordingly, we do
not express an opinion or any other form of assurance on the 2001 and 2000
consolidated financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
January 28, 2003
44
Report of Independent Public Accountants
The following report is a copy of a report previously issued by Arthur Andersen
LLP and has not been reissued by Arthur Andersen LLP.
As described in note 5, we have revised our consolidated financial statements as
of December 31, 2001 and for each of the two years in the period ended December
31, 2001 to include the transitional disclosures required by SFAS No. 142,
"Goodwill and Intangible Assets." Also, as described in note 15, we have
restated these consolidated financial statements to conform with the composition
of reportable segments and measurement of Operating unit profit as of and for
the year ended December 31, 2002.
The Arthur Andersen LLP report does not extend to these revisions to the 2001
and 2000 consolidated financial statements. These revisions to the 2001 and 2000
consolidated financial statements were reported on by PricewaterhouseCoopers
LLP, as stated in their report appearing on the preceding page.
To the Board of Directors and Shareholders of Manpower Inc.:
We have audited the accompanying consolidated balance sheets of Manpower Inc. (a
Wisconsin corporation) and subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of operations, cash flows and shareholders'
equity for each of the three years in the period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Manpower Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 28, 2002
45
Consolidated Statements of Operations
in millions, except per share data
YEAR ENDED December 31
2002 2001 2000
Revenues from services $ 10,610.9 $ 10,483.8 $ 10,842.8
Cost of services 8,700.5 8,527.3 8,896.1
Gross profit 1,910.4 1,956.5 1,946.7
Selling and administrative expenses 1,675.6 1,718.9 1,635.7
Operating profit 234.8 237.6 311.0
Interest and other expense 46.8 39.7 45.8
Earnings before income taxes 188.0 197.9 265.2
Provision for income taxes 74.8 73.4 94.0
Net earnings $ 113.2 $ 124.5 $ 171.2
Net earnings per share $ 1.48 $ 1.64 $ 2.26
Net earnings per share - diluted $ 1.46 $ 1.62 $ 2.22
The accompanying notes to consolidated financial statements are an integral part
of these statements.
46
Consolidated Balance Sheets
in millions, except share data
December 31
2002 2001
Assets
Current Assets
Cash and cash equivalents $ 284.0 $ 245.8
Accounts receivable, less allowance for doubtful
accounts of $70.3 and $61.8, respectively 2,214.2 1,917.8
Prepaid expenses and other assets 76.0 77.0
Future income tax benefits 79.1 73.8
Total current assets 2,653.3 2,314.4
Other Assets
Goodwill and other intangible assets,
less accumulated amortization of $46.7 and $42.4, respectively 545.7 480.8
Investments in licensees 60.5 44.7
Other assets 253.4 204.7
Total other assets 859.6 730.2
Property and Equipment
Land, buildings, leasehold improvements and equipment 533.4 465.4
Less: accumulated depreciation and amortization 344.6 271.4
Net property and equipment 188.8 194.0
Total assets $ 3,701.7 $ 3,238.6
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 447.0 $ 382.1
Employee compensation payable 96.2 93.2
Accrued liabilities 295.7 234.9
Accrued payroll taxes and insurance 391.6 300.8
Value added taxes payable 309.0 255.9
Short-term borrowings and current maturities of long-term debt 22.8 23.7
Total current liabilities 1,562.3 1,290.6
Other Liabilities
Long-term debt 799.0 811.1
Other long-term liabilities 340.5 322.6
Total other liabilities 1,139.5 1,133.7
Shareholders' Equity
Preferred stock, $.01 par value, authorized 25,000,000 shares, none issued - -
Common stock, $.01 par value, authorized 125,000,000 shares,
issued 87,043,956 and 85,173,961 shares, respectively .9 .9
Capital in excess of par value 1,696.2 1,644.9
Accumulated deficit (289.7) (387.6)
Accumulated other comprehensive income (loss) (123.7) (190.8)
Treasury stock at cost, 9,945,200 and 9,045,200 shares, respectively (283.8) (253.1)
Total shareholders' equity 999.9 814.3
Total liabilities and shareholders' equity $ 3,701.7 $ 3,238.6
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
47
Consolidated Statements of Cash Flows
in millions
YEAR ENDED December 31
2002 2001 2000
Cash Flows from Operating Activities
Net earnings $ 113.2 $ 124.5 $ 171.2
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 65.4 80.2 66.8
Amortization of discount on convertible debentures 7.3 2.7 --
Deferred income taxes (0.2) (7.3) (15.8)
Provision for doubtful accounts 18.2 23.8 21.7
Change in operating assets and liabilities:
Amounts advanced under the Receivables Facility -- (145.0) (55.0)
Accounts receivable (54.4) 217.3 (261.2)
Other assets 41.6 (69.1) (32.6)
Other liabilities 36.8 (91.1) 262.8
Cash provided by operating activities 227.9 136.0 157.9
Cash Flows from Investing Activities
Capital expenditures (58.5) (87.3) (82.6)
Acquisitions of businesses, net of cash acquired (33.5) (295.9) (172.4)
Proceeds from the sale of property and equipment 5.3 16.1 7.3
Cash used by investing activities (86.7) (367.1) (247.7)
Cash Flows from Financing Activities
Net change in short-term borrowings 4.9 (49.1) (76.4)
Proceeds from long-term debt 653.2 1,089.9 259.3
Repayments of long-term debt (773.1) (727.8) (111.1)
Proceeds from stock option and purchase plans 29.4 13.6 10.0
Repurchases of common stock (30.7) (3.3) (20.0)
Dividends paid (15.3) (15.2) (15.1)
Cash (used) provided by financing activities (131.6) 308.1 46.7
Effect of exchange rate changes on cash 28.6 (12.9) (16.9)
Net increase (decrease) in cash and cash equivalents 38.2 64.1 (60.0)
Cash and cash equivalents, beginning of year 245.8 181.7 241.7
Cash and cash equivalents, end of year $ 284.0 $ 245.8 $ 181.7
Supplemental Cash Flow Information
Interest paid $ 33.2 $ 38.0 $ 27.1
Income taxes paid $ 96.3 $ 117.9 $ 83.2
The accompanying notes to financial statements are an integral part of these
statements.
48
Consolidated Statements of Shareholders' Equity
in millions, except per share data
ACCUMULATED
CAPITAL IN OTHER
COMMON EXCESS OF ACCUMULATED COMPREHENSIVE TREASURY
STOCK PAR VALUE DEFICIT INCOME (LOSS) STOCK TOTAL
Balance, December 31, 1999 $ .8 $ 1,621.4 $ (653.0) $ (88.8) $ (229.8) $ 650.6
Comprehensive Income:
Net earnings 171.2
Foreign currency translation (50.6)
Unrealized loss on investments, net of tax (5.7)
Total comprehensive income 114.9
Issuances under option and purchase plans - 10.0 10.0
Dividends ($.20 per share) (15.1) (15.1)
Repurchases of common stock (20.0) (20.0)
Balance, December 31, 2000 .8 1,631.4 (496.9) (145.1) (249.8) 740.4
Comprehensive Income:
Net earnings 124.5
Foreign currency translation (35.4)
Unrealized loss on derivatives, net of tax (5.7)
Unrealized loss on investments, net of tax (2.8)
Reclassification adjustment for losses
included in net earnings, net of tax 5.7
Minimum pension liability adjustment,
net of tax (7.5)
Total comprehensive income 78.8
Issuances under option and purchase plans .1 13.5 13.6
Dividends ($.20 per share) (15.2) (15.2)
Repurchases of common stock (3.3) (3.3)
Balance, December 31, 2001 .9 1,644.9 (387.6) (190.8) (253.1) 814.3
Comprehensive Income:
Net earnings 113.2
Foreign currency translation 75.3
Unrealized loss on derivatives, net of tax (6.6)
Unrealized loss on investments, net of tax (5.8)
Reclassification adjustment for losses
included in net earnings, net of tax 5.1
Minimum pension liability adjustment,
net of tax (.9)
Total comprehensive income 180.3
Issuances for franchise acquisitions - 21.9 21.9
Issuances under option and purchase plans - 29.4 29.4
Dividends ($.20 per share) (15.3) (15.3)
Repurchases of common stock (30.7) (30.7)
Balance, December 31, 2002 $ .9 $ 1,696.2 $ (289.7) $ (123.7) $ (283.8) $ 999.9
The accompanying notes to consolidated financial statements are an integral part
of these statements.
49
Notes to Consolidated Financial Statements
in millions, except per share data
01. Summary of Significant Accounting Policies
Nature of Operations
Manpower Inc. is a global staffing leader with over 3,900 systemwide offices in
63 countries. Our largest operations, based on revenues, are located in the
United States, France and the United Kingdom. We provide a wide range of human
resource services, including professional, technical, specialized, office and
industrial staffing; temporary and permanent employee testing, selection,
training and development; internal audit, accounting, technology and tax
services; and organizational-performance consulting. We provide services to a
wide variety of customers, none of which individually comprise a significant
portion of revenues within a given geographic region or for us as a whole.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Basis of Consolidation
The consolidated financial statements include our accounts and the accounts of
all of our subsidiaries. For subsidiaries in which we have an ownership interest
of 50% or less, but more than 20%, the consolidated financial statements reflect
our ownership share of those earnings using the equity method of accounting.
These investments are included as Investments in licensees in the consolidated
balance sheets. Included in Shareholders' equity as of December 31, 2002 are
$40.8 of unremitted earnings from investments accounted for using the equity
method. All significant intercompany accounts and transactions have been
eliminated in consolidation.
During January 2003, the Financial Accounting Standards Board ("FASB"), issued
Interpretation No. 46, "Consolidation of Variable Interest Entities," which
clarifies the consolidation and disclosure requirements related to variable
interests in a variable interest entity. A variable interest entity is an entity
for which control is achieved through means other than voting rights. The
consolidation provisions of this Interpretation are effective immediately for
interests created after January 31, 2003. For interests created before February
1, 2003, we are required to adopt the consolidation provisions no later than
July 1, 2003. We adopted the disclosure provisions of this Interpretation for
the year ended December 31, 2002. We are still evaluating the consolidation
provisions of this Interpretation, however, we do not expect them to have a
material impact on our consolidated financial statements.
Revenues
We generate revenues from sales of services by our own branch operations and
from fees earned on sales of services by our franchise operations. Revenues from
services are recognized as the services are rendered and revenues from franchise
fees are recognized as earned. Franchise fees, which are included in Revenues
from services, were $25.8, $28.1 and $37.4 for the years ended December 31,
2002, 2001 and 2000, respectively.
Advertising Costs
We generally expense production costs of advertising as they are incurred.
Advertising expenses were $30.8, $40.1 and $44.0 in 2002, 2001 and 2000,
respectively.
50
Income Taxes
We account for income taxes in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases, and net operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. We record a
valuation allowance against deferred tax assets for which utilization of the
asset is not likely.
Accounts Receivable Securitization
We account for the securitization of accounts receivable in accordance with SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Accordingly, transfers of receivables are
evaluated for sale accounting treatment and if such a transfer qualifies as a
sale under SFAS No. 140, the related receivable balance is removed from our
consolidated balance sheets and the loss related to the transfer is recorded as
other expense. If the transfer of receivables does not qualify for sale
accounting, the related receivable balance remains on our consolidated balance
sheet, the corresponding advance is recorded as debt and the related cost of the
transaction is recorded as interest expense. (See note 4 for further
information.)
Intangible Assets
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 and we adopted SFAS No. 142 on January 1, 2002.
SFAS No. 142 also requires goodwill impairment reviews to be performed at least
annually by applying a fair-value-based test at the reporting unit level, which
generally represents operations one level below the segments that we report. The
first step in this test is to compare each reporting unit's estimated fair value
to its carrying value. If the reporting unit's estimated fair value is in excess
of its carrying value, the test is complete and no impairment is recorded.
However, if the reporting unit's estimated fair value is less than its carrying
value, additional procedures are performed to determine if any impairment of
goodwill exists. We have completed the tests as of the date of adoption and for
our 2002 review and have determined that there are no impairments.
We primarily use a discounted cash flow analysis in our impairment reviews to
estimate fair value. Significant assumptions used in this analysis include:
expected future revenue growth rates, operating unit profit margins, and working
capital levels; a discount rate; and a terminal value multiple. The revenue
growth rates and operating unit profit margins are based on our expectation of
future results. If our expectations of future operating results change, or if
there are changes to other assumptions, our estimate of the fair value of our
reporting units could change significantly. Such a change could result in a
goodwill impairment charge, which could have a significant impact on the
reportable segments that include the related acquisitions and our consolidated
financial statements.
Prior to our adoption of SFAS No. 142, goodwill was amortized on a straight-line
basis over its useful life, which was estimated based on the facts and
circumstances surrounding each individual acquisition, not to exceed twenty
years. In accordance with the provisions of SFAS No. 141, "Business
Combinations," goodwill resulting from business combinations completed
subsequent to June 30, 2001 was not amortized.
In addition to goodwill, we have amortizable intangible assets and intangible
assets that do not require amortization, which were immaterial as of December
31, 2002 and 2001. Amortization expense related to the amortizable intangible
assets was immaterial in 2002, 2001 and 2000.
51
Marketable Securities
We account for our security investments under SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," and have determined that all
such investments are classified as available-for-sale. Accordingly, unrealized
gains and unrealized losses that are determined to be temporary, net of related
income taxes, are included in Accumulated other comprehensive income (loss),
which is a separate component of Shareholders' equity. Realized gains and
losses, and unrealized losses determined to be other-than-temporary, are
recorded in our consolidated statements of operations. As of December 31, 2002,
our available-for-sale investments had a market value of $3.9 and an adjusted
cost basis of $7.0.
We hold a 49% interest in our Swiss franchise, which maintains an investment
portfolio with a market value of $84.5 as of December 31, 2002. This portfolio
is comprised of a wide variety of European and U.S. debt and equity securities
as well as various professionally-managed funds, all of which are classified as
available-for-sale. Our net share of realized gains and losses, and declines in
value determined to be other-than-temporary are included in our consolidated
statements of operations. Our share of net unrealized gains and unrealized
losses that are determined to be temporary related to these investments are
included in Accumulated other comprehensive income (loss), with the offsetting
amount increasing or decreasing our investment in the franchise.
Capitalized Software
We capitalize purchased software as well as internally developed software.
Internal software development costs are capitalized from the time the internal
use software is considered probable of completion until the software is ready
for use. Business analysis, system evaluation, selection and software
maintenance costs are expensed as incurred. Capitalized software costs are
amortized using the straight-line method over the estimated useful life of the
software. We regularly review the carrying value of all capitalized software and
recognize a loss when the carrying value is considered unrealizable. The net
capitalized software balance of $38.1 and $26.0 as of December 31, 2002 and
2001, respectively, is included in Other assets in the consolidated balance
sheets. Capitalized software costs amortized to expense were $4.7 for 2002.
Property and Equipment
A summary of property and equipment as of December 31 is as follows:
2002 2001
Land $ 2.1 $ 1.8
Buildings 27.1 24.4
Furniture, fixtures and autos 182.1 170.9
Computer equipment 142.8 124.7
Leasehold improvements 179.3 143.6
$533.4 $465.4
Property and equipment are stated at cost and are depreciated using primarily
the straight-line method over the following estimated useful lives: buildings -
up to 40 years; leasehold improvements - lesser of life of asset or lease term;
furniture and equipment - 3 to 15 years. Expenditures for renewals and
betterments are capitalized whereas expenditures for repairs and maintenance are
charged to income as incurred. Upon sale or disposition of properties, the
difference between the unamortized cost and the proceeds is recorded as either a
gain or a loss and is included in our consolidated statements of operations.
52
Derivative Financial Instruments
We account for our derivative instruments in accordance with SFAS Nos. 133, 137,
and 138 related to "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133, as amended"). Derivative instruments are recorded on
the balance sheet as either an asset or liability measured at their 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
recognized in the consolidated statements of operations when the hedged item
affects earnings. Ineffective portions of changes in the fair value of hedges
are recognized in earnings. We adopted SFAS No. 133, as amended, on January 1,
2001.
Foreign Currency Translation
The financial statements of our non-U.S. subsidiaries have been translated in
accordance with SFAS No. 52, "Foreign Currency Translation." Under SFAS No. 52,
asset and liability accounts are translated at the current exchange rate and
income statement items are translated at the weighted-average exchange rate for
the year. The resulting translation adjustments are recorded as a component of
Accumulated other comprehensive income (loss), which is included in
Shareholders' equity. In accordance with SFAS No. 109, no deferred taxes have
been recorded related to the cumulative translation adjustments.
Certain foreign currency denominated borrowings are accounted for as a hedge of
our net investment in our subsidiaries with the related functional currencies.
Since our net investment in these subsidiaries exceeds the amount of the related
borrowings, all translation gains or losses related to these borrowings are
included as a component of Accumulated other comprehensive income (loss).
Shareholders' Equity
The Board of Directors authorized the repurchase of a total of 15,000,000 shares
of our common stock during 1996 and 1998. 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. As of December 31, 2002, 9,945,200 shares at a cost of $283.8 have
been repurchased. During March 2002, 900,000 shares at a cost of $30.7 were
repurchased to settle a forward repurchase agreement entered into in September
2000. A total of 1,000,000 shares were repurchased under the forward repurchase
agreement at a total cost of $34.0.
Statement of Cash Flows
We consider all highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents.
Stock Compensation Plans
During December 2002, the Financial Accounting Standards Board (FASB), issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," which provides for alternative methods of transition for a
voluntary change to the fair-value-based method of accounting for stock-based
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123, "Accounting for Stock-Based Compensation," to require more
prominent disclosure in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results.
53
We account for all of our fixed stock option plans and our 1990 Employee Stock
Purchase Plan in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations. No stock-based employee
compensation expense is reflected in Net earnings as all options granted under
those plans had an exercise price equal to the market value of the underlying
common stock on the date of grant. The following table illustrates the effect on
Net earnings and Net earnings per share if we had applied the fair value
recognition provisions of SFAS No. 148 to stock-based employee compensation.
YEAR ENDED December 31
2002 2001 2000
Net earnings
Net earnings, as reported $113.2 $124.5 $171.2
Less: Total stock-based employee compensation
expense determined under the fair value method
for all awards, net of related tax effects 4.5 5.1 3.3
Pro forma net earnings $108.7 $119.4 $167.9
Net earnings per share
Basic - as reported $ 1.48 $ 1.64 $ 2.26
Basic - pro forma $ 1.43 $ 1.58 $ 2.22
Diluted - as reported $ 1.46 $ 1.62 $ 2.22
Diluted - pro forma $ 1.40 $ 1.56 $ 2.18
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2002, 2001 and 2000, respectively: risk-free
interest rates of 4.6%, 4.6% and 5.8%; expected volatility of 28.4%, 17.7% and
19.2%; dividend yield of .5% in all years; and expected lives of 6.4 years, 7.2
years and 5.8 years. The weighted-average fair value of options granted was
$10.86, $7.16 and $6.46 in 2002, 2001 and 2000, respectively.
Recently Issued Accounting Standards
During June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which requires that a liability for a cost
associated with an exit or disposal activity be recognized, at fair value, when
the liability is incurred rather than at the time an entity commits to a plan.
The provisions of SFAS No. 146 are effective for exit or disposal activities
initiated by us after December 31, 2002. We do not expect the adoption of SFAS
No. 146 to have a significant impact on our consolidated financial statements.
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02. Earnings Per Share
The calculation of Net earnings per share for the years ended December 31, is as
follows:
2002 2001 2000
Net earnings available to common shareholders $113.2 $124.5 $171.2
Weighted-average common shares outstanding (in millions) 76.4 75.9 75.9
$ 1.48 $ 1.64 $ 2.26
The calculation of Net earnings per share - diluted for the years ended December
31, is as follows:
2002 2001 2000
Net earnings available to common shareholders $113.2 $124.5 $171.2
Weighted-average common shares outstanding (in millions) 76.4 75.9 75.9
Effect of dilutive securities - stock options (in millions) 1.3 1.1 1.2
77.7 77.0 77.1
$ 1.46 $ 1.62 $ 2.22
The calculation of Net earnings per share - diluted for the years ended December
31, 2002, 2001 and 2000 does not include certain stock option grants because the
exercise price for these options is greater than the average market price of the
common shares during that year. The number, exercise prices and weighted-average
remaining life of these antidilutive options is as follows:
2002 2001 2000
Shares (in thousands) 207 1,218 535
Exercise price ranges $36 - $41 $32 - $41 $35 - $41
Weighted-average remaining life 5.6 years 7.4 years 8.0 years
In addition, there were 6.1 million shares of common stock that were
contingently issuable under our convertible debentures for both 2002 and 2001.
Such shares are excluded from the calculation of Net earnings per share -
diluted based upon the terms of the convertible debentures and our intent to
settle any potential "put" of the convertible debentures in cash. In the event
of a significant change in the economic environment, we may choose to settle a
future "put" with common stock, which would have a dilutive effect on existing
shareholders.
The contingently issuable shares under the convertible debentures will be
included in the calculation of Net earnings per share - diluted when the shares
become issuable under the conversion features of the debentures. This will occur
when the average share price is 110% of the accreted value of the debentures at
the beginning of the conversion period, as defined by the agreement or in
certain other circumstances. Given the accreted value of the debentures at the
beginning of the current conversion period, the average share price, during the
period, will have to be approximately $45 per share for the shares to be
issuable.
55
03. Income Taxes
The provision for income taxes consists of:
YEAR ENDED December 31
2002 2001 2000
Current
United States:
Federal $ 3.4 $ 11.3 $ 24.0
State (.3) (.3) 1.8
Foreign 61.0 75.2 86.4
Total current 64.1 86.2 112.2
Deferred
United States:
Federal 8.0 (10.4) (9.5)
State .7 .4 -
Foreign 2.0 (2.8) (8.7)
Total deferred 10.7 (12.8) (18.2)
Total provision $ 74.8 $ 73.4 $ 94.0
A reconciliation between taxes computed at the United States Federal statutory
tax rate of 35% and the consolidated effective tax rate is as follows:
YEAR ENDED December 31
2002 2001 2000
Income tax based on statutory rate $ 65.8 $ 69.3 $ 92.8
Increase (decrease) resulting from:
Foreign tax rate differences 4.5 3.6 5.0
Tax effect of foreign earnings .7 (2.3) (1.6)
Change in valuation reserve 5.6 .6 (4.0)
State income taxes - - 1.2
Other, net (1.8) 2.2 .6
Total provision $ 74.8 $ 73.4 $ 94.0
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Deferred income taxes are recorded on temporary differences at the tax rate
expected to be in effect when the temporary differences reverse. Temporary
differences, which gave rise to the deferred tax assets as of December 31, are
as follows:
2002 2001
Current Future Income Tax Benefits
Accrued payroll taxes and insurance $ 17.8 $ 19.8
Employee compensation payable 18.1 16.6
Pension and postretirement benefits 8.9 8.5
Other 36.7 30.4
Valuation allowance (2.4) (1.5)
79.1 73.8
Noncurrent Future Income Tax Benefits
Accrued payroll taxes and insurance 27.6 27.4
Pension and postretirement benefits 28.4 27.1
Net operating losses and other 90.3 22.9
Valuation allowance (31.0) (26.2)
115.3 51.2
Total future tax benefits $194.4 $125.0
The noncurrent future income tax benefits have been classified as Other assets
in the consolidated balance sheets.
We have U.S. Federal and foreign net operating loss carryforwards totaling
$139.1 that expire as follows: 2003 - $.1, 2004 - $.1, 2005 - $1.6, 2006 - $1.7,
2007 - $.8, 2008 and thereafter - $91.5 and $43.3 with no expiration. We have
U.S. State net operating loss carryforwards totaling $170.2 that expire as
follows: 2004 - $61.4, 2005 - $67.7, 2006 - $11.6, 2007 - $7.6, 2008 and
thereafter - $21.9. We have recorded a deferred tax asset of $53.9 as of
December 31, 2002, for the benefit of these net operating losses. Realization of
this asset is dependent on generating sufficient taxable income prior to the
expiration of the loss carryforwards. A valuation allowance of $27.3 has been
recorded as of December 31, 2002, as management believes that realization of
certain loss carryforwards is unlikely.
Pretax income of foreign operations was $162.9, $163.6 and $174.8 in 2002, 2001
and 2000, respectively. United States income taxes have not been provided on
unremitted earnings of foreign subsidiaries that are considered to be
permanently invested. If such earnings were remitted, foreign tax credits would
substantially offset any resulting United States income tax. As of December 31,
2002, the estimated amount of unremitted earnings of the foreign subsidiaries
totaled approximately $260.
04. Accounts Receivable Securitization
We and certain of our U.S. subsidiaries have an agreement (the "Receivables
Facility") with a financial institution whereby we transfer on a continuous
basis an interest in all eligible trade accounts receivable. Pursuant to the
Receivables Facility, we formed Ironwood Capital Corporation, a wholly owned,
special purpose, bankruptcy-remote subsidiary ("ICC") that is fully consolidated
in our financial statements. ICC was formed for the sole purpose of transferring
receivables that we and certain of our subsidiaries generate. Under the
Receivables Facility, we and certain of our subsidiaries, irrevocably and
without recourse, transfer all of our accounts receivable to ICC. ICC, in turn,
has transferred and, subject to certain conditions, may from time to time
transfer, an undivided interest in these receivables and is permitted to receive
advances of up to $200.0 for the transfer of such undivided interest. The
agreement expires in November 2003 and it may be extended further with the
financial institution's consent.
57
During November 2002, we amended our Receivables Facility to allow ICC the
ability to repurchase, in full or in part, the accounts receivable it
transferred to the third party. Therefore, this transfer does not qualify for
sale accounting, and accordingly, the receivables transferred to the third party
will remain on our consolidated balance sheet with the corresponding advance
being recorded as debt. Prior to the November 2002 amendment, any transfers of
receivables qualified for sale accounting, and therefore the related receivable
balance was removed from the consolidated balance sheets. No amounts were
advanced under this facility as of December 31, 2002 and 2001.
Costs associated with the transfer of receivables primarily relate to the
discount and fees associated with the amounts advanced. During 2002, 2001 and
2000, such costs were $.4, $5.3 and $9.8, respectively, and were recorded as
other expenses in the consolidated statements of operations. No amounts were
advanced during December of 2002, therefore this agreement had no impact on
Interest expense during 2002.
05. Goodwill and Other Intangible Assets
On January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible
Assets," which prohibits the amortization of goodwill and identifiable
intangible assets with an indefinite life. A summary of Net earnings and Net
earnings per share, as if we had accounted for goodwill under SFAS No. 142 as of
January 1, 2000, is as follows:
YEAR ENDED December 31
2002 2001 2000
Adjusted net earnings
As reported $113.2 $124.5 $171.2
Goodwill amortization, net of tax - 14.8 11.6
$113.2 $139.3 $182.8
Adjusted net earnings per share
As reported $ 1.48 $ 1.64 $ 2.26
Goodwill amortization, net of tax - .19 .15
$ 1.48 $ 1.83 $ 2.41
Adjusted net earnings per share - diluted
As reported $ 1.46 $ 1.62 $ 2.22
Goodwill amortization, net of tax - .19 .15
$ 1.46 $ 1.81 $ 2.37
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Changes in the carrying value of goodwill by reportable segment are as follows
for the year ended December 31, 2002:
Other
United States EMEA Operations Total
Balance, beginning of year $ 51.4 $171.4 $257.5 $480.3
Goodwill acquired throughout the year 28.4 3.9 14.6 46.9
Currency impact and other - 16.1 2.0 18.1
Balance, end of year $ 79.8 $191.4 $274.1 $545.3
There were no reductions to goodwill as a result of dispositions during 2002.
06. Debt
Information concerning Short-term borrowings as of December 31, is as follows:
2002 2001
Short-term borrowings $16.6 $10.2
Weighted-average interest rates 4.0% 5.0%
We maintain separate lines of credit with foreign financial institutions to meet
working capital needs of our foreign operations. As of December 31, 2002, such
lines totaled $193.7, of which $177.1 was unused. We have no significant
compensating balance requirements or commitment fees related to these lines.
A summary of Long-term debt as of December 31, is as follows:
2002 2001
Zero-coupon convertible debentures $250.0 $242.7
Euro denominated notes due July 2006 210.1 177.9
Euro denominated notes due March 2005 159.2 133.4
Revolving credit agreement:
Euro denominated borrowings, at a rate of 4.0% and 4.2%, respectively 105.0 86.3
Yen denominated borrowings, at a rate of 1.0% and .8%, respectively 68.7 91.2
Commercial paper, maturing within 90 days, at weighted-average
interest rates of 1.9% and 2.3%, respectively .7 57.1
Other 11.5 36.0
805.2 824.6
Less - current maturities 6.2 13.5
Long-term debt $799.0 $811.1
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Convertible Debentures
We have $435.4 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 they rank equally with all of our existing and future senior
unsecured indebtedness. Gross proceeds of $240.0 were used to repay borrowings
under our unsecured revolving credit agreement and advances under the
Receivables Facility during 2001. The unamortized discount was $185.4 and $192.7
as of December 31, 2002 and 2001, respectively. During 2002 and 2001, $7.3 and
$2.7, respectively, of the discount was amortized to Interest expense in the
consolidated statements of operations. There are no scheduled cash interest
payments associated with the Debentures.
The Debentures are convertible into shares of our common stock at an initial
price of $39.50 per share if the closing price of our common stock on the New
York Stock Exchange exceeds specified levels, or in certain other circumstances.
We 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 us to purchase the Debentures at the issue price, plus accreted original
issue discount, on the first, third, fifth, tenth and fifteenth anniversary
dates. We may purchase these Debentures for either cash, common stock, or a
combination thereof. There were no Debentures "put" to us on the first
anniversary date and the next "put" date is on the third anniversary date,
August 2004. Our intent is to settle any future "put" in cash. In the event of a
significant change in the economic environment, we may choose to settle a future
"put" with common stock, which would have a dilutive effect on existing
shareholders.
Euro Notes
We have two Euro denominated unsecured notes with a face value of Euro 200.0 and
Euro 150.0. The Euro 200.0 notes are due July 2006 and have scheduled annual
interest payments at a rate of 5.63%. The Euro 150.0 notes are due March 2005
and have scheduled annual interest payments at a rate of 6.25%. (See note 13 for
further information.)
Revolving Credit Agreements
We have revolving credit agreements with a syndicate of commercial banks. The
agreements consist of a $450.0 five-year revolving credit facility (the
"Five-year Facility") and a $285.0 364-day revolving credit facility (the
"364-day Facility"). The Five-year Facility expires in November 2006. During
October 2002, we renewed our 364-day Facility with a syndicate of commercial
banks. The availability under this facility was reduced from $300.0 to $285.0
and it matures in October 2003. All other terms and conditions remain unchanged.
The revolving credit agreements allow for borrowings in various currencies and
up to $100.0 of the Five-year Facility may be used for the issuance of stand-by
letters of credit. Outstanding letters of credit totaled $71.7 and $65.5 as of
December 31, 2002 and 2001, respectively. Additional borrowings of $488.9 were
available to us under these agreements as of December 31, 2002.
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
our debt rating and borrowing level. Currently, on the Five-year Facility, the
interest rate is LIBOR plus .9% and the facility and issuance fees are .2% and
..9%, respectively. On the 364-day Facility, the interest rate is LIBOR plus
..925% and the facility fee is .175%.
Our Five-year Facility and 364-day Facility require, among other things, that we
comply with a Debt-to-EBITDA ratio of less than 3.75 to 1 (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 agreements, we had a Debt-to-EBITDA ratio of 2.87 to 1 and a
fixed charge ratio of 2.34 to 1 as of December 31, 2002.
Borrowings of $.7 were outstanding under our commercial paper program.
Commercial paper borrowings, which are backed by the Five-year Facility, have
been classified as Long-term debt due to our intent and ability to refinance
them on a long-term basis under this facility.
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Swap Agreements
We have entered into various interest rate swap agreements to manage our
interest rate and currency risk associated with our debt instruments. (See note
13 for further information.)
Fair Value of Debt
The carrying value of Long-term debt approximates fair value, except for the
Euro denominated notes and the Debentures, which had a fair value, as determined
by quoted market prices, as of December 31, as follows:
2002 2001
Euro denominated notes $372.7 $312.4
Zero-coupon convertible debentures 267.1 255.0
Debt Maturities
The maturities of Long-term debt payable within each of the four years
subsequent to December 31, 2003 are as follows: 2004 - $254.9, 2005 - $159.5,
2006 - $384.5 and 2007 - $0 and thereafter - $.1. For purposes of this
presentation, the Debtentures due in 2021 are reflected as maturing in 2004 as
the next "put" date is in August 2004.
07. Stock Compensation Plans
Fixed Stock Option Plans
All of our full-time employees are eligible to receive stock options, stock
appreciation rights and restricted stock and our non-employee directors are
eligible to receive stock options under our 1994 Executive Stock Option and
Restricted Stock Plan. As of December 31, 2002, we had approximately 2,393,000
shares of common stock remaining available for grant under this plan.
The options, stock appreciation rights and restricted stock are granted to
eligible employees at the discretion of a committee appointed by the Board of
Directors. All options have generally been granted at a price equal to the fair
market value of our common stock at the date of grant. The grant price per share
pursuant to a stock appreciation right is determined by the committee. The
committee also determines the period during which options and stock appreciation
rights are exercisable. Generally, options are granted with a vesting period of
up to four years and expire ten years from the date of grant. As of December 31,
2002, no stock appreciation rights were outstanding.
All of our non-employee directors may receive an option to purchase shares of
our common stock in lieu of cash compensation. The number of shares covered by
the option is determined pursuant to a formula set forth in procedures adopted
under the 1994 plan. The directors may also receive an annual option grant as
additional compensation for board service. The per share purchase price for each
option awarded is equal to the fair market value of our common stock at the date
of grant. Options are exercisable for the vested portion during the director's
tenure and a limited period thereafter.
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The value of restricted stock granted is charged to equity and amortized to
expense over the restriction period. There were no restricted shares granted
during 2002, and 24,301 restricted shares were granted during 2001. As of
December 31, 2002 there were 4,000 restricted shares that had not vested.
In addition to the stock option plan discussed above, we have the Savings
Related Share Option Scheme for United Kingdom employees with at least one year
of service. As of December 31, 2002, there were approximately 816,000 shares of
common stock remaining available for grant under this plan. The employees are
offered the opportunity to obtain an option for a specified number of shares of
common stock at not less than 85% of their market value on the day prior to the
offer to participate in the plan. Options vest after either three, five or seven
years, but may lapse earlier. Funds used to purchase the shares are accumulated
through specified payroll deductions over a 60-month period.
Information related to options outstanding under our plans, and the related
weighted-average exercise prices as of and for the years ended December 31, is
as follows:
2002 2001 2000
SHARES SHARES SHARES
(000) PRICE (000) PRICE (000) PRICE
Options outstanding, beginning of period 5,437 $ 26 5,341 $ 25 4,371 $ 23
Granted 1,645 34 722 31 1,385 30
Exercised (1,211) 21 (357) 16 (279) 19
Expired or cancelled (230) 36 (269) 28 (136) 32
Options outstanding, end of period 5,641 $ 29 5,437 $ 26 5,341 $ 25
Options exercisable, end of period 2,991 $ 27 3,280 $ 24 2,268 $ 21
Options outstanding as of December 31, 2002 are as follows:
Options outstanding Options exercisable
weighted- weighted-
average weighted- average
remaining average exercise
shares contractual exercise shares price
Exercise Prices (000) life price (000) price
$10-$20 493 2.3 $ 16 493 $ 16
21-25 1,037 6.1 22 764 23
26-30 1,443 7.4 29 839 29
31-41 2,668 8.2 34 895 35
5,641 7.0 $ 29 2,991 $ 27
Other Stock Plans
We have reserved 2,250,000 shares of common stock for issuance under the 1990
Employee Stock Purchase Plan, of which 672,000 shares remained available for
future issuance as of December 31, 2002. Under the plan, designated Manpower
employees meeting certain service requirements may purchase shares of our common
stock through payroll deductions. These shares may be purchased at the lesser of
85% of their fair market value at the beginning or end of each year. During
2002, 2001 and 2000, employees purchased 136,000, 67,000 and 80,000 shares,
respectively, under the plan.
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08. Retirement Plans
Defined Benefit Plans
We sponsor several qualified and nonqualified pension plans covering
substantially all permanent employees. The reconciliation of the changes in the
plans' benefit obligations and the fair value of plan assets and the statement
of the funded status of the plans are as follows:
U.S. PLANS NON-U.S. PLANS
2002 2001 2002 2001
Change in Benefit Obligation
Benefit obligation, beginning of year $ 40.7 $ 43.3 $ 67.5 $ 60.1
Service cost .1 .2 3.5 3.2
Interest cost 2.9 3.0 3.8 3.3
Actuarial (gain) loss 3.3 (2.5) (.6) 5.6
Plan participant contributions - - .6 .7
Benefits paid (3.4) (3.3) (1.6) (2.8)
Currency exchange rate changes - - 7.9 (2.6)
Benefit obligation, end of year $ 43.6 $ 40.7 $ 81.1 $ 67.5
Change in Plan Assets
Fair value of plan assets, beginning of year $ 32.9 $ 30.4 $ 47.3 $ 51.0
Actual return on plan assets (.7) 4.1 (3.9) (2.9)
Plan participant contributions - - .6 .7
Company contributions 1.9 1.7 3.4 3.4
Benefits paid (3.4) (3.3) (1.6) (2.8)
Currency exchange rate changes - - 4.8 (2.1)
Fair value of plan assets, end of year $ 30.7 $ 32.9 $ 50.6 $ 47.3
Funded Status
Funded status of plan $ (12.9) $ (7.8) $ (30.5) $ (20.2)
Unrecognized net (gain) loss (3.8) (11.4) 28.1 19.7
Unrecognized prior service cost - - .2 .3
Unrecognized transitional asset (.1) (.3) .2 .1
Net amount recognized $ (16.8) $ (19.5) $ (2.0) $ (.1)
Amounts Recognized
Accrued benefit liability $ (16.8) $ (19.8) $ (14.9) $ (11.7)
Intangible asset - - .3 .5
Accumulated other comprehensive loss - .3 12.6 11.1
Net amount recognized $ (16.8) $ (19.5) $ (2.0) $ (.1)
The accumulated benefit obligation exceeded the fair value of plan assets for
one of the U.S. defined benefit pension plans and two of the non-U.S. defined
benefit plans as of December 31, 2002.
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The components of the net periodic benefit cost for all plans are as follows:
YEAR ENDED December 31
2002 2001 2000
Service cost $ 3.6 $ 3.4 $ 4.5
Interest cost 6.7 6.3 6.0
Expected return on assets (5.7) (5.5) (5.7)
Amortization of:
unrecognized gain (.2) (.7) (.1)
unrecognized transitional asset (.2) (.2) (.2)
Curtailment loss - - 3.7
Total benefit cost $ 4.2 $ 3.3 $ 8.2
The weighted-average assumptions used in the measurement of the benefit
obligation are as follows:
U.S. PLANS NON-U.S. PLANS
2002 2001 2002 2001
Discount rate 6.5% 7.5% 5.2% 5.4%
Expected return on assets 8.5% 8.5% 6.1% 6.1%
Rate of compensation increase 5.0% 6.0% 3.9% 4.1%
Projected salary levels utilized in the determination of the projected benefit
obligation for the pension plans are based upon historical experience. The
unrecognized transitional asset is being amortized over the estimated remaining
service lives of the employees. Plan assets are primarily comprised of common
stocks, professionally-managed equity and bond funds, and U.S. and U.K.
government and agency securities.
Retiree Health Care Plan
We provide medical and dental benefits to certain eligible retired employees in
the United States. Due to the nature of the plan, there are no plan assets. The
reconciliation of the changes in the plan's benefit obligation and the statement
of the funded status of the plan are as follows:
2002 2001
Benefit obligation, beginning of year $ 20.5 $ 22.5
Service cost .3 .4
Interest cost 1.3 1.3
Actuarial gain (.5) (2.5)
Benefits paid (1.0) (1.2)
Benefit obligation, end of year 20.6 20.5
Unrecognized net gain 7.8 8.2
Accrued liability recognized $ 28.4 $ 28.7
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The discount rate used in the measurement of the benefit obligation was 6.5% and
7.5% in 2002 and 2001. The components of net periodic benefit cost (gain) for
this plan are as follows:
YEAR ENDED December 31
2002 2001 2000
Service cost $ .3 $ .4 $ .7
Interest cost 1.3 1.3 1.7
Amortization of unrecognized gain (1.0) (.9) (.3)
Curtailment gain - - (4.1)
$ .6 $ .8 $ (2.0)
The health care cost trend rate was assumed to be 12.0% for 2002, decreasing
gradually to 5.5% for the years 2009 and beyond. Assumed health care cost trend
rates have a significant effect on the amounts reported. A one-percentage point
change in the assumed health care cost trend rate would have the following
effects:
1% INCREASE 1% DECREASE
Effect on total of service and interest cost components $.2 $(.2)
Effect on postretirement benefit obligation 2.5 (2.2)
Curtailments
On February 29, 2000, we froze all benefits in each of our U.S. defined benefit
pension plans. We also offered a voluntary early retirement package and certain
other benefits to eligible employees. These benefits are expected to be paid
from the respective defined benefit pension plans. In addition, we no longer
provide medical and dental benefits under our U.S. retiree health care plan to
certain employees retiring after March 1, 2000. The net impact of these plan
changes was not material to the consolidated financial statements.
Defined Contribution Plans
We have defined contribution plans covering substantially all permanent U.S.
employees. Employees may elect to contribute a portion of their salary to the
plans and we match a portion of their contributions up to a maximum percentage
of the employee's salary. In addition, profit sharing contributions are made if
a targeted earnings level is reached in the U.S. The total expense was $3.4,
$2.9 and $3.2 for 2002, 2001 and 2000, respectively. As of December 31, 2002,
less than 3% of the plans' assets were invested in our common stock.
09. Accumulated Other Comprehensive Income (Loss)
The components of Accumulated other comprehensive income (loss), net of tax, are
as follows:
December 31
2002 2001 2000
Foreign currency translation $ (99.5) $ (174.8) $ (139.4)
Unrealized loss on investments (3.5) (2.8) (5.7)
Unrealized loss on derivatives (12.3) (5.7) -
Minimum pension liability adjustment (8.4) (7.5) -
$ (123.7) $ (190.8) $ (145.1)
65
10. Leases
We lease property and equipment primarily under operating leases. Renewal
options exist for substantially all leases. Future minimum payments, by year and
in the aggregate, under noncancelable operating leases with initial or remaining
terms of one year or more consist of the following as of December 31, 2002:
YEAR
2003 $110.8
2004 87.4
2005 67.2
2006 46.9
2007 31.5
Thereafter 65.9
Total minimum lease payments $409.7
Rental expense for all operating leases was $148.3, $136.6 and $118.0 for the
years ended December 31, 2002, 2001 and 2000, respectively.
11. Interest and Other Expense
Interest and other expense consists of the following:
YEAR ENDED December 31
2002 2001 2000
Interest expense $ 42.4 $ 39.1 $ 35.0
Interest income (9.0) (10.3) (7.3)
Foreign exchange (gains) losses (1.8) .2 2.3
Loss on sale of accounts receivable .4 5.3 9.8
Miscellaneous, net 14.8 5.4 6.0
Interest and other expense $ 46.8 $ 39.7 $ 45.8
In the fourth quarter of 2002, we recorded a charge of $5.1 related to a
writedown of equity security investments where the decline in market value was
determined to be other-than-temporary, as defined by SFAS No. 115, "Accounting
for Certain Debt and Equity Securities." During 2001, miscellaneous expenses
included a gain on the sale of a minority-owned subsidiary offset by a writedown
of an investment.
12. Acquisitions of Businesses
From time to time, we acquire and invest in companies throughout the world,
including U.S. franchises. The total cash consideration for such transactions
was $33.5, $295.9 and $172.4 in 2002, 2001 and 2000, respectively, the majority
of which was recorded as goodwill. In addition, we acquired ownership interests
in certain U.S. franchises in exchange for approximately 592,000 shares of our
common stock, which had an aggregate market value of $21.9 at the dates of
acquisition.
In July 2001, we acquired Jefferson Wells International, Inc. ("Jefferson
Wells"), a professional services provider of internal audit, accounting,
technology and tax services, for total consideration of approximately $174.0,
including assumed debt. The acquisition of Jefferson Wells was originally
financed through our existing credit facilities. Jefferson Wells operates a
network of offices throughout the United States and Canada. Approximately $153.4
was recorded as goodwill. No other significant intangible assets were recorded.
66
In January 2000, we acquired Elan Group Ltd. ("Elan"), a European specialty IT
staffing company with significant operations in the U.K. and 15 other countries
throughout the world. The total consideration paid for Elan was approximately
$146.2, of which $30.0 was paid in 2001. This transaction was accounted for as a
purchase, and the excess of the purchase price over the fair value of net assets
acquired was recorded as goodwill ($126.2 as of December 31, 2002).
13. Derivative Financial Instruments
Foreign Currency Exchange Rate Risk Management
In certain circumstances, we enter into foreign currency forward exchange
contracts to reduce the effects of fluctuating foreign currency exchange rates
on cash flows with foreign subsidiaries. All such contracts entered into during
2002 were designated as cash flow hedges and were considered highly effective,
as defined by SFAS No. 133, as amended. No such contracts existed as of December
31, 2002.
Our Five-year Facility borrowings of Euro 100.0 ($105.0) and Yen 8,150 ($68.7),
and the Euro 200.0 ($210.1) in unsecured notes, have been designated and are
effective as economic hedges of our net investment in our foreign subsidiaries
with the related functional currencies. Therefore, all translation gains or
losses related to these borrowings are recorded as a component of Accumulated
other comprehensive income (loss).
During September 2002, we entered into derivative financial instruments to swap
our Euro 150.0 ($159.2) unsecured notes, at 6.25% due March 2005, to floating
U.S. LIBOR, yielding an initial effective interest rate of 4.39%. These
instruments expire in March 2005. Gains and losses arising from foreign exchange
fluctuations throughout the contract term on the derivative instruments are
recorded in the consolidated statements of operations, offsetting the foreign
exchange gain or loss recorded on the notes.
Interest Rate Risk Management
Our exposure to market risk for changes in interest rates relates primarily to
our Long-term debt obligations. We have historically managed interest rates
through the use of a combination of fixed and variable rate borrowings and
interest rate swap agreements.
As previously mentioned, we entered into derivative instruments to swap our
Euro 150.0 ($159.2) unsecured notes, at 6.25% due March 2005, to floating U.S.
LIBOR, yielding an initial effective interest rate of 4.39%. We designate these
interest rate swaps as a fair value hedge, offsetting changes in the fair value
of the notes due to fluctuations in interest rates. Changes in the fair value
hedge and the fair value of the notes throughout the contract term will be
reflected in the consolidated statements of operations. During 2002, these
instruments had an immaterial impact on Interest expense. Any ineffectiveness on
the swaps is recorded in the consolidated statements of operations and was
immaterial for 2002.
We have two Yen denominated interest rate swap agreements. One has a notional
value of Yen 4,000.0 ($33.7) to fix the interest rate at .9% and expires in June
2003, and one has a notional value of Yen 4,150.0 ($35.0) to fix the interest
rate at .8% and expires in 2006. In addition, we have various interest rate swap
agreements to fix our interest costs on a portion of our Euro denominated
variable rate borrowings. The Euro interest rate swap agreements have a notional
value of Euro 100.0 ($105.0) which fix the interest rate, on a weighted-average
basis, at 5.7% and expire in 2010. Such contracts have been designated as cash
flow hedges and were considered highly effective, as defined by SFAS No. 133, as
amended, as of December 31, 2002. For the years ended December 31, 2002 and
2001, these instruments had an immaterial impact on Interest expense.
We also had an interest rate swap agreement that expired in January 2001. This
agreement fixed the interest rate at 6.0% on $50.0 of our U.S. Dollar-based
borrowings and it had an immaterial impact on Interest expense in 2001.
67
14. Contingencies
Litigation
We are involved in a number of lawsuits arising in the ordinary course of
business which will not, in the opinion of management, have a material effect on
our results of operations, financial position or cash flows.
Guarantees
During November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," which clarifies the required disclosures
in interim and annual financial statements about obligations under certain
guarantees. It also clarifies the recognition, at the date of inception of a
guarantee, of a liability for the fair value of the obligation. The initial
recognition and measurement provisions of this Interpretation are effective for
guarantees issued or modified after December 31, 2002. We adopted the disclosure
requirements as of December 31, 2002. Due to the nature of our current
arrangements and our historical experience, we do not believe the initial
recognition provisions of this Interpretation will have a material impact on our
consolidated financial statements.
We have entered into certain guarantee contracts and stand-by letters of credit
that total $111.1 ($39.4 for guarantees and $71.7 for stand-by letters of
credit). The guarantees primarily relate to government requirements for
operating a temporary service company in certain countries, operating leases,
bank accounts and indebtedness. The stand-by letters of credit relate to
workers' compensation, operating leases and indebtedness. If certain conditions
were met under these arrangements, we would be required to satisfy our
obligation in cash.
15. Segment Data
We are organized and managed primarily on a geographic basis. Each country
primarily has its own distinct operations, is managed locally by its own
management team and maintains its own financial reports. Each operation reports
directly, or indirectly through a regional manager, to a member of executive
management. Given this reporting structure, all of our operations have been
segregated into the following segments: United States; France; EMEA (Europe,
Middle East and Africa, excluding France) and Other Operations.
EMEA represents a combination of operations historically included in segments
referred to as United Kingdom and Other Europe. This combination aligns with how
we now manage our foreign operations. In addition, central costs for EMEA which
historically have been included in corporate expense are now included in the
determination of Operating unit profit. For comparison purposes, historical
amounts have been restated to be consistent with the current presentation.
Each segment derives a significant majority of its revenues from the placement
of temporary workers. The remaining revenues are derived from other human
resource services, including temporary and permanent employee testing,
selection, training and development; internal audit, accounting, technology and
tax services; and organizational-performance consulting. Segment revenues
represent sales to external customers primarily within a single segment. Due to
the nature of our business, we do not have export or intersegment sales. We
provide services to a wide variety of customers, none of which individually
comprise a significant portion of revenue within a segment, geographic region or
for us as a whole. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. We evaluate
performance based on Operating unit profit, which is equal to segment revenues
less direct costs and branch and national headquarter operating costs. This
profit measure does not include nonrecurring items, goodwill amortization,
interest and other income and expense amounts or income taxes. Total assets for
the segments are reported after the elimination of investments in subsidiaries
and intercompany accounts.
68
YEAR ENDED December 31
2002 2001 2000
Revenues from Services(a)
United States (b) $ 1,911.4 $ 2,003.4 $ 2,413.5
France 3,848.2 3,766.4 3,939.2
EMEA 3,434.9 3,428.7 3,349.4
Other Operations (c) 1,416.4 1,285.3 1,140.7
$ 10,610.9 $ 10,483.8 $ 10,842.8
Operating Unit Profit
United States $ 29.2 $ 29.5 $ 84.6
France 143.6 135.7 130.6
EMEA 83.0 106.0 122.1
Other Operations 6.6 8.9 13.2
262.4 280.1 350.5
Corporate expenses 27.5 25.5 26.2
Amortization of goodwill and other intangible assets .1 17.0 13.3
Interest and other expense 46.8 39.7 45.8
Earnings before income taxes $ 188.0 $ 197.9 $ 265.2
Depreciation and Amortization Expense
United States $ 10.9 $ 14.4 $ 16.0
France 15.4 13.6 11.8
EMEA 26.9 26.7 23.5
Other Operations 11.0 9.3 6.5
$ 64.2 $ 64.0 $ 57.8
Earnings from Investments in Licensees
United States $ (.2) $ (.1) $ (.1)
EMEA 3.5 1.5 2.0
Other Operations (.4) (.6) (.5)
$ 2.9 $ .8 $ 1.4
a) Supplemental geographic information is as follows:
2002 2001 2000
United States $2,063.9 $2,003.4 $2,413.5
United Kingdom 1,287.4 1,489.3 1,453.1
Total Foreign 8,547.0 8,480.4 8,429.3
Note: The amount reported above for France is also on a geographic basis.
b) U.S. revenues above represent revenues from our Company-owned branches only.
U.S. Systemwide sales information is provided on page 72.
c) This segment, formerly Other Countries, has been renamed Other Operations to
more properly reflect the composition of the segment. There was no change to the
historical composition of the segment.
69
As of and for the Year Ended December 31
2002 2001 2000
Total Assets
United States $ 731.2 $ 644.5 $ 384.8
France 1,218.7 1,017.5 1,204.6
EMEA 1,153.5 1,044.5 1,112.9
Other Operations 480.7 423.6 255.1
Corporate(a) 117.6 108.5 84.2
$ 3,701.7 $ 3,238.6 $ 3,041.6
Investments in Licensees
United States $ 14.7 $ .4 $ .6
EMEA 39.9 38.2 38.5
Other Operations 5.9 6.1 2.7
$ 60.5 $ 44.7 $ 41.8
Long-Lived Assets(b)
United States $ 57.0 $ 48.4 $ 40.1
France 72.3 63.8 57.6
EMEA 73.0 77.2 88.4
Other Operations 28.6 31.1 17.6
Corporate .6 .6 1.3
$ 231.5 $ 221.1 $ 205.0
Additions to Long-Lived Assets
United States $ 23.4 $ 25.9 $ 15.0
France 13.3 24.2 22.2
EMEA 17.0 27.7 31.9
Other Operations 7.3 10.9 15.0
Corporate .5 .2 .7
$ 61.5 $ 88.9 $ 84.8
a) Corporate assets include assets that are not used in the operations of any
segment.
b) Supplemental geographic information is as follows:
2002 2001 2000
United States $62.7 $49.0 $41.4
United Kingdom 30.8 33.2 30.7
Total Foreign 168.8 172.1 163.6
Note: The amount reported above for France is also on a geographic basis.
70
Quarterly Data (unaudited)
in millions, except per share data
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
Year Ended December 31, 2002
Revenues from services $ 2,284.0 $ 2,602.9 $ 2,885.9 $ 2,838.1 $10,610.9
Gross profit 414.8 467.6 512.3 515.7 1,910.4
Net earnings 6.9 25.7 40.5 40.1 113.2
Net earnings per share $ .09 $ .34 $ .53 $ .52 $ 1.48
Net earnings per share - diluted $ .09 $ .33 $ .52 $ .52 $ 1.46
Dividends per share $ - $ .10 $ - $ .10 $ .20
Market price:
High $ 40.06 $ 42.97 $ 38.64 $ 38.00
Low 32.85 36.00 28.14 25.00
Year Ended December 31, 2001
Revenues from services $ 2,651.9 $ 2,620.1 $ 2,675.4 $ 2,536.4 $10,483.8
Gross profit 483.9 489.1 504.6 478.9 1,956.5
Net earnings 26.8 34.6 37.1 26.0 124.5
Net earnings per share $ .35 $ .46 $ .49 $ .34 $ 1.64
Net earnings per share - diluted $ .35 $ .45 $ .48 $ .34 $ 1.62
Dividends per share $ - $ .10 $ - $ .10 $ .20
Market price:
High $ 37.56 $ 35.77 $ 32.71 $ 34.68
Low 27.95 27.57 24.35 25.00
71
Financial Measures
Constant Currency and Organic Constant Currency Reconciliation
Certain constant currency and organic constant currency percent variances are
discussed throughout this Annual Report. A reconciliation to the percent
variances calculated based on our financial results are provided below.
(See Constant Currency on page 30 for further information.)
Impact of Organic
Variance in Acquisitions Constant
Reported Impact of Constant (in constant Currency
Variance Currency Currency Currency) Variance
Year Ended December 31, 2002
Revenues from services
France 2.2% 6.0% (3.8)%
EMEA .2 5.1 (4.9)
Other Operations 10.2 (4.7) 14.9 7.6% 7.3%
Manpower Inc. 1.2 3.2 (2.0) 1.6 (3.6)
Gross profit - Manpower Inc. (2.4) 3.2 (5.6) 2.4 (8.0)
Operating unit profit
France 5.8 7.4 (1.6)
EMEA (21.6) 6.2 (27.8)
Other Operations (27.1) 6.6 (33.7)
Operating profit - Manpower Inc. (1.2) 7.3 (8.5)
Net earnings per share - diluted (9.9) 10.5 (20.4)
Year Ended December 31, 2001
Revenues from services - Manpower Inc. (3.3)% (3.7)% .4% 1.7% (1.3)%
Gross profit - Manpower Inc. .5 (4.0) 4.5 3.0 1.5
Net earnings per share - diluted (27.0) (4.5) (22.5)
United States Systemwide Sales Reconciliation
Systemwide information represents revenue from our branch offices plus the sales
activity of locations operating under a franchise agreement with us. We consider
Systemwide information to be important because it is a measure of the total
market share of all entities operating under the Manpower brand in the United
States. Systemwide sales in the United States is calculated as follows:
YEAR ENDED December 31
In millions 2002 2001 2000
Revenues from services $ 1,911.4 $ 2,003.4 $ 2,413.5
Less: Franchise fees 21.7 24.1 32.5
Add: Franchise sales 1,015.8 1,135.5 1,433.9
Systemwide sales $ 2,905.5 $ 3,114.8 $ 3,814.9
72
Selected Financial Data
in millions, except per share data
AS OF AND FOR THE YEAR ENDED December 31
2002 2001 2000 1999 1998
Operations Data
Revenues from services $ 10,610.9 $ 10,483.8 $ 10,842.8 $ 9,770.1 $ 8,814.3
Gross profit 1,910.4 1,956.5 1,946.7 1,704.9 1,503.0
Write-down of capitalized software - - - - (92.1)
Operating profit (a) 234.8 237.6 311.0 230.6 130.4
Net earnings (a) 113.2 124.5 171.2 150.0 75.7
Per Share Data
Net earnings (a) $ 1.48 $ 1.64 $ 2.26 $ 1.94 $ .94
Net earnings - diluted(a) 1.46 1.62 2.22 1.91 .93
Dividends .20 .20 .20 .20 .19
Balance Sheet Data
Total assets $ 3,701.7 $ 3,238.6 $ 3,041.6 $ 2,718.7 $ 2,391.7
Long-term debt 799.0 811.1 491.6 357.5 154.6
The notes to consolidated financial statements should be read in conjunction
with the above summary.
a) On January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible
Assets," which prohibits the amortization of goodwill and identifiable
intangible assets with an indefinite life. (See notes 1 and 5 to the
consolidated financial statements for further information.)
73
Corporate Information
International Headquarters
P.O. Box 2053
5301 N. Ironwood Rd.
Milwaukee, WI 53201 USA
+1.414.961.1000
www.manpower.com
Transfer Agent and Registrar
Mellon Investor Services, L.L.C.
P.O. Box 3315
South Hackensack, NJ 07606 USA
Www.melloninvestor.com
Stock Exchange Listing
NYSE Symbol: MAN
Investor Relations Website
The most current corporate and investor information
can be found on the Manpower Inc. corporate website
at www.manpower.com. Interested individuals may also
choose to receive Manpower press releases and other
information via e-mail by subscribing to our E-mail
Alert service at www.investor.manpower.com.
Governance
Information on Manpower's corporate governance
structure and policies can be found online at
Www.manpower.com in the section titled, "About
Manpower."
Form 10-K
A copy of Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31,
2002 is available without charge and can be
requested online at www.investor.manpower.com or by
writing to:
Michael J. Van Handel
Manpower Inc.
P.O. Box 2053
5301 N. Ironwood Rd.
Milwaukee, WI 53201 USA
Annual Meeting of Shareholders
April 29, 2003 at 9:00 a.m.
Marcus Center for the Performing Arts
929 N. Water St.
Milwaukee, WI 53202 USA
Shareholders
As of February 18, 2003, Manpower Inc. common stock
was held by 7,474 record holders.
74
Directors
Jeffrey A. Joerres
Chairman, CEO and President
Manpower Inc.
J. Thomas Bouchard 1,2*
Retired Senior Vice President, Human Resources
IBM
Willie D. Davis 1,3
President
All Pro Broadcasting Inc.
Terry A. Hueneke
Retired Executive Vice President
Manpower Inc.
Rozanne L. Ridgway 2
Former U.S. Assistant Secretary of State
for Europe and Canada
Dennis Stevenson
Chairman
HBOS plc and Pearson plc
John R. Walter 2,3*
Retired President and COO
AT&T Corp.
Former Chairman, President and CEO
R.R. Donnelley & Sons
Edward J. Zore 1*,3
President and CEO
Northwestern Mutual
Board Committees
1 Audit Committee
2 Executive Compensation Committee
3 Nominating and Governance Committee
* Denotes Committee Chair
Management
Jeffrey A. Joerres
Chairman, CEO and President
Michael J. Van Handel
Executive Vice President and Chief Financial Officer
Barbara J. Beck
Executive Vice President
United States and Canadian Operations
Jean-Pierre Lemonnier
Executive Vice President
France and Region
Yoav Michaely
Executive Vice President
Europe, Middle East and Africa (excluding France)
David Arkless
Senior Vice President
Corporate Affairs
Richard B. Davidson
Senior Vice President
Global Chief Information Officer
Iain Herbertson
Senior Vice President
Asia Pacific
Tammy Johns
Senior Vice President
Global Sales
Robert W. Lincoln, Jr.
Senior Vice President
Global Human Resources
Dominique Turcq
Senior Vice President
Strategic Planning
Michael Lynch
Vice President
International Support and General Counsel
75
Principal Operating Units and Worldwide Offices
Manpower Inc. provides a full range of staffing solutions to more than 400,000
customers per year through its 3,900 offices in 63 countries (see below for
list). [MANPOWER LOGO]
Brook Street Bureau is a fully-owned subsidiary of Manpower Inc. in the United
Kingdom. Its core business is the supply of temporary, permanent and contract
staff to office, secretarial and light industrial positions. [BROOK STREET
BUREAU PLC LOGO]
Elan Group Ltd., a fully-owned subsidiary of Manpower Inc., is headquartered in
London and is a leading provider of IT staffing solutions in 16 countries across
Europe and Asia Pacific: Australia, Belgium, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Italy, the Netherlands, New Zealand, Norway, Spain, Sweden,
Switzerland and the United Kingdom. [ELAN LOGO]
The Empower Group, also headquartered in London, is an independent operating
division of Manpower Inc. that provides organizational-performance consulting
services to multi-national corporations worldwide. The Empower Group has
operations in 12 countries: Australia, China (PRC), Hong Kong, Malaysia, New
Zealand, Norway, Singapore, Sweden, Switzerland, Taiwan, the United Kingdom and
the United States.
[THE EMPOWER GROUP LOGO]
Jefferson Wells International, Inc., a fully-owned subsidiary of Manpower Inc.,
is a rapidly growing professional services provider of internal audit,
accounting, technology and tax services in the United States and Canada.
[JEFFERESON WELLS INTERNATIONAL LOGO]
[GLOBAL MAP]
Manpower Operations - Argentina, Australia, Austria, Belgium, Bolivia, Brazil,
Canada, Chile, China (PRC), Colombia
Costa Rica, Czech Republic, Denmark, Ecuador, El Salvador, Finland, France,
Germany, Greece, Guadeloupe, Guatemala
Honduras, Hong Kong, Hungary, India, Ireland, Israel, Italy, Japan, Korea,
Luxembourg, Malaysia, Martinique, Mexico
Monaco, Morocco, Netherlands, New Caledonia, New Zealand, Nicaragua, Norway,
Panama, Paraguay, Peru, Philippines
Poland, Portugal, Puerto Rico, Reunion, Russia, Singapore , South Africa, Spain,
Sweden, Switzerland, Taiwan, Thailand
Tunisia, Turkey, United Kingdom, United States, Uruguay, Venezuela
Design: SamataMason
Photography: Greg Miller / Victor John Penner / Stephen Wilkes
Printing: Blanchette Press
76
[INSIDE BACK COVER]
[BLANK]
[BACK COVER]
MANPOWER
International Headquarters
P.O. Box 2053
5301 N. Ironwood Rd.
Milwaukee, WI 53201 USA
+1.414.961.1000
www.manpower.com
AR-106 (03/03)(C)2003 Manpower Inc.
77