ManpowerGroup 2004 Annual Report Download - page 45

MANPOWER INC. 2004 Annual Report43
to 2002, however the impact of this was offset by our Euro-denominated interest expense which was translated at higher
rates in 2003. Foreign exchange gains and losses primarily result from intercompany transactions between our foreign
subsidiaries and the United States. Such gains were $1.3 million and $1.8 million in 2003 and 2002, respectively.
Miscellaneous Expenses, Net, were $3.7 million in 2003 compared to $15.2 million in 2002. In the fourth quarter of
2002, we recorded a charge of $5.1 million ($2.9 million net of tax, or $0.04 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.”
We provided for income taxes at a rate of 38.0% in 2003. This rate is higher than the U.S. Federal statutory rate of
35% due primarily to the impact of higher foreign income tax rates and valuation reserves recorded against foreign net
operating losses. This rate is lower than the 2002 effective tax rate of 39.8% due to an increase in the foreign tax credits
used to offset the U.S. taxes on foreign earnings, offset somewhat by a shift in the mix of taxable income toward countries
with relatively higher tax rates.
Net Earnings Per Share – Diluted increased 19.0% to $1.69 in 2003 compared to $1.42 in 2002. Net Earnings Per
Share – Diluted in 2003 was positively impacted by the higher foreign currency exchange rates during the year. In constant
currency, 2003 Net Earnings Per Share – Diluted would have been $1.42, the same as 2002. On an undiluted basis,
Net Earnings Per Share was $1.77 in 2003 compared to $1.48 in 2002.
Segment Results
U.S. – The United States operation is comprised of 591
Company-owned branch offices and 345 stand alone franchise
offices. Revenues in the United States consist of sales of our
Company-owned branch offices and fees from our franchise oper-
ations. Revenues for the year were $2.0 billion, an increase of 4.9%,
and include franchise fees of $25.0 million. Franchise fees are
primarily based on revenues generated by the franchise network,
which were $1.2 billion in 2004.
Revenues in the United States accelerated through the first half
of the year, after beginning the year slightly below prior year levels.
Revenue growth stabilized in the second half of the year with
growth exceeding 6% in both the third and fourth quarters (exclud-
ing the impact of Transpersonnel, our trucking operation that was
disposed of in July 2004). Fueling this improving growth was an
increase in demand for our light industrial and industrial skilled staff, which represents approximately 48% of our U.S.
revenues. Revenue growth from placement of these skills increased nearly 20% from the prior year, reflecting an
improvement of the U.S. manufacturing sector. Revenue from office and specialty skills lagged the prior year, however,
the rate of contraction improved as we progressed through the year.
The Gross Profit Margin declined compared to the prior year due to increases in employment-related costs such as state
unemployment taxes and workers’ compensation. While we were able to recover a substantial portion of these increases
through higher bill rates, the competitive market environment did not allow us to fully recover all of these cost increases.
Selling and Administrative Expenses trended favorably downward 0.9% during the year, primarily due to a reduction in
personnel costs and branch office related costs. This cost reduction, combined with our revenue growth, reflects strong
gains in productivity and our ability to leverage excess capacity across our U.S. branch office network.
Operating Unit Profit for the year increased by 46.4% to $49.3 million. Our Operating Unit Profit Margin increased to
2.4% of revenues from 1.7%, as our productivity enhancements more than offset the decline in Gross Profit Margin.
MANAGEMENT’S DISCUSSION AND ANALYSIS
of financial condition and results of operations
2002
2003
2004
1,911.4 (-4.6%)
1,945.8 (+1.8%)
2,041.1 (+4.9%)
U.S. REVENUES
in millions ($)
2002
2003
2004
29.2 (-0.8%)
33.7 (+15.2%)
49.3 (+46.4%)
U.S. OPERATING UNIT PROFIT
in millions ($)