ManpowerGroup 2004 Annual Report Download - page 44

2004 Annual Report MANPOWER INC.42
We provided for income taxes at a rate of 33.5% in 2004 and 38.0% in 2003. Included in the 2004 rate is the impact
of the non-operating gains recorded in the first quarter and the reversal of an $8.0 million tax contingency reserve in
the third quarter. Excluding these items, our rate for 2004 would have been 36.0%. This rate is higher than the U.S.
Federal statutory rate of 35% due to higher foreign income tax rates and $9.5 million of taxes recorded on the unremitted
earnings of foreign subsidiaries, offset by the tax benefits, including the reversal of $16.7 million of valuation allowances,
of certain internal corporate restructurings and transactions.
Net Earnings Per Share – Diluted increased 53.3% to $2.59 in 2004 compared to $1.69 in 2003. In constant currency,
Net Earnings Per Share – Diluted increased 45.0%. The higher foreign currency exchange rates positively impacted Net
Earnings Per Share – Diluted by approximately $0.14 in 2004. On an undiluted basis, Net Earnings Per Share was $2.76
in 2004 compared to $1.77 in 2003.
During September 2004, the Emerging Issues Task Force (“EITF”) issued Issue No. 04-8, “The Effect of Contingently
Convertible Debt on Diluted Earnings Per Share”(“EITF 04-8”), which requires the effect of contingently convertible
debt securities with a market price trigger to be included in the calculation of diluted earnings per share, using the “if-
converted” method, regardless of whether the market price trigger has been met. EITF 04-8 also requires restatement
of previously reported earnings. Our convertible debentures, issued August 2001, have such a feature, and therefore
we have restated Net Earnings Per Share – Diluted for all periods since the issuance. (See note 3 to the consolidated
financial statements for further information.)
Consolidated Results – 2003 compared to 2002
Revenues from Services increased 14.8% to $12.2 billion. Revenues were favorably impacted during the year by
changes in foreign currency exchange rates due to the weakening of the U.S. Dollar relative to the currencies in most of
our non-U.S. markets. In constant currency, revenues increased 2.2%. Revenue growth in 2003 attributable to acquisitions
was approximately $21.3 million or 0.2% of revenue. On an organic constant currency basis, revenues increased by
2.0%. This growth rate is a result of increased activity in the Other Operations segment with stable revenue levels in the
other markets.
Gross Profit increased 11.9% to $2.1 billion during 2003. The Gross Profit Margin declined 50 basis points (.5%) to
17.5% in 2003 from 18.0% in 2002. This decrease was attributable to higher payroll taxes and social costs, increased
pricing pressures throughout the world, changes in the service mix of business (from higher margin service lines to
lower margin service lines) and changes in the geographical mix of business (as revenue growth in countries with lower
Gross Profit Margins, such as France, was higher than in some countries with higher Gross Profit Margins). Gross
Profit growth from acquisitions was approximately $2.5 million and had an insignificant impact on Gross Profit Margin.
Selling and Administrative Expenses increased 12.1% during 2003. This increase is primarily due to the changes in
exchange rates, as these expenses increased only 0.6% on a constant currency basis. As a percent of revenues,
Selling and Administrative Expenses were 15.4% in 2003 compared to 15.8% in 2002. This improvement is a result of
continued productivity gains and careful expense management in conjunction with growing revenues.
Operating Profit increased 9.9% during 2003, however on a constant currency basis, Operating Profit declined 6.6%.
The Operating Profit Margin was 2.1% compared to 2.2% for 2002. The Operating Profit level primarily reflects the
improved leveraging of the business offset by the Gross Profit Margin declines. Acquisitions made during 2003
decreased Operating Profit by approximately $0.2 million. Excluding the impact of acquisitions, Operating Profit
increased 9.8% during 2003, however on an organic constant currency basis, Operating Profit decreased 6.6%.
Acquisitions had no impact on Operating Profit Margin in 2003.
Interest and Other Expense is comprised of interest, foreign exchange gains and losses, and other miscellaneous non-
operating income and expenses. In total, Interest and Other Expense decreased $11.0 million from 2002 to 2003. Net
interest expense was $33.4 million in 2003 and 2002. Average borrowing levels were lower throughout 2003 compared
MANAGEMENT’S DISCUSSION AND ANALYSIS
of financial condition and results of operations