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Rating Action:

MOODY'S ASSIGNS Baa3 SR UNSECURED RATING TO MANPOWER INC.'S PROPOSED EURO NOTES AND AFFIRMS EXISTING RATINGS; OUTLOOK REMAINS STABLE

11 May 2005
MOODY'S ASSIGNS Baa3 SR UNSECURED RATING TO MANPOWER INC.'S PROPOSED EURO NOTES AND AFFIRMS EXISTING RATINGS; OUTLOOK REMAINS STABLE

EUR 300 million Issue To Be Sold Under SEC Rule 144A and Regulation S

New York, May 11, 2005 -- Moody's Investors Service assigned a Baa3 senior unsecured rating to Manpower Inc.'s ("Manpower") proposed notes, due 2012, and affirmed the company's existing ratings at Baa3. The rating outlook remains stable. These rating actions assume that expected proceeds of about EUR300 million (approximately US$389 million) will be used to refinance short term borrowings outstanding under the company's accounts receivable securitization facility, reduce debt outstanding under its revolving credit facility, and fund share repurchases, acquisitions and general corporate purposes.

The ratings affirmation recognizes the company's solid growth and earnings performance since fiscal 2003, and our expectation that free cash generation will strengthen compared to fiscal 2004, allowing the company to maintain debt protection measures within levels adequate for the rating category. For the 12 months ended March 31, 2005, EBIT margins improved to 2.6%, an increase of about 50 basis points since fiscal 2003, and cash flow from operations came in at $246 million, covering capital expenditures, acquisitions, dividends, and share repurchases about 1.4 times.

At the same time, fixed charge coverage rose to approximately 4.0 times, a modest improvement over fiscal 2003. However, we note that free cash flow plus 2/3rds rent to adjusted debt of around 10% remained modest for the rating category.

Moody's anticipates that issuance of the proposed euro notes will be slightly beneficial to the company's liquidity position because its extends the maturity profile of its long-term debt. On a pro-forma basis, total debt would have been approximately $810 million as of March 31, 2005, which is less than $902 million of debt at the end of fiscal year 2004. This pro-forma calculation accounts for the issuance of the proposed euro notes as well as the anticipated repayment of about $207 million of debt outstanding under the company's accounts receivable securitization and revolving credit facilities.

Manpower's liquidity position is bolstered by $397 million in cash available at the end of the first quarter 2005, sizeable free cash generation and appropriate availability under its committed credit facilities. Moody's notes that the company's free cash flow is seasonal because of working capital funding peaks in the second and third quarters.

The company maintains a 5-year, $625 million revolving credit facility that matures in October 2009, and a $200 million accounts receivable securitization facility, which we assume will be renewed before it expires in July 2005. Following the proposed issuance of the euro notes in late May, we estimate the average availability under the revolver at about $420 million, and anticipate that short term debt currently outstanding under the accounts securitization facility will be fully repaid.

The next major term debt maturity will occur in July 2006, when EUR200 million notes (about $260 million) will come due. We anticipate that the company will continue to build cash from operations enabling it to repay all or a portion of these notes.

The ratings also reflect Manpower's brand strength, leading market shares in Europe and the U.S., the positive growth fundamentals of the staffing industry given the global demand from companies to replace fixed cost permanent labor with less costly temporary staff, and slowly easing labor regulations internationally. In recent years, Manpower has increased its position in higher margin sectors of the industry, such as career transition services and organizational consulting (Right) and professional financial services (Jefferson Wells). This development has shown good results in fiscal 2004 and should help to increase consolidated operating margins.

Key credit concerns include the cyclical nature of the staffing business that causes earnings and margins to be volatile through economic cycles, low operating margins due to price competition among the top five largest staffing companies, low barriers to entry and a high level of local and national regulation. Moody's notes that selling, general and administrative expenses are less variable than the direct costs of sales in the staffing industry, so operating margins and earnings are dampened when revenue growth declines. A mitigating factor is that when economic growth declines, working capital needs decline, which offsets lower cash flow generation to some degree. Conversely, when economies grow, revenues also grow, which increases working capital needs. The increase in working capital needs can diminish the cash flow benefits of revenue growth, , which was the case in fiscal 2004.

The stable outlook reflects our expectation that overall industry trends will remain favorable and support growth in earnings and cash generation over the near to medium term. Moody's notes, that currently visibility for the remainder of fiscal 2005 is somewhat limited as hiring behavior by the company's customers has become more cautious in the first quarter. The outlook also anticipates that the investigation by French authorities of the company and certain of its competitors regarding alleged violations of European Union and French competition laws will have no material impact on Manpower's financial position.

In light of the severe impact the recession has had on earnings and credit measures, an upgrade is not likely in the near term. In the intermediate term an upgrade may be considered when EBIT margins recover to around 3%, fixed charge coverage improves to around 5.0 times and the ratio of free cash flow plus 2/3rds rent to adjusted debt exceeds 15%. An upgrade would also assumes that Moody's can gain comfort that the company can maintain an improved credit profile in the context of its strategic objectives, financial policy priorities and the normal cyclical patterns of the industry.

The rating outlook could be pressured if industry conditions weaken unexpectedly and result in a deterioration in total fixed charge coverage of approximately 3.0 times, or if the ratio of free cash flow plus 2/3rds rent to adjusted debt falls below 10% for an extended period.

Moody's notes that initial purchasers are offering the proposed notes inside the U.S. to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). In addition, the initial purchasers, through their selling agents, are offering the notes outside the U.S. to non-U.S. persons in reliance on Regulation S under the Securities Act. The proposed notes have not been and will not be registered under the Securities Act.

Based in Milwaukee, Wisconsin, Manpower, Inc. is a leading company in the global staffing industry, providing work force management services and solutions to customers through 4,300 offices in 68 countries. Sales for the twelve months ended March 31, 2005 were approximately $15.4 billion.

New York
Patrick Finnegan
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Sebastian Hofmeister
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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