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Rating Action:

MOODY'S DOWNGRADE MANPOWER'S SENIOR UNSECURED RATING TO Baa3; THE OUTLOOK IS STABLE.

13 Jun 2002
MOODY'S DOWNGRADE MANPOWER'S SENIOR UNSECURED RATING TO Baa3; THE OUTLOOK IS STABLE.

Approximately $693.6 Million of Debt Securities Affected.

New York, June 13, 2002 -- Moody's Investors Service downgraded the senior unsecured rating of Manpower, Inc. to Baa3 from Baa2 reflecting the negative impact of the economic downturn on the demand for temporary staffing that has caused a sharp decline in the company revenues, earnings, and operating margins, and the likelihood that industry conditions will remain challenging in 2002. The rating outlook is stable. This completes Moody's review of the company's rating that commenced on 5/1/02.

Ratings downgraded:

Convertible senior unsecured zero coupon debentures to Baa3 from Baa2

Senior unsecured Eurobonds to Baa3 from Baa2

Due to the recession and stress within specific industry segments that were large users of the company's temporary staffing services, Manpower's revenues and earnings began to weaken first in the U.S., and subsequently in France. The U.S. and France are Manpower's two largest markets and comprise abut 23% and 35% of normalized operating income. Although these markets are showing improving trends, results in 2002 are expected to remain negative on a year over year basis. Manpower's third largest single market, the U.K., has also been declining which is offsetting the improving trends in the U.S., and France to some degree. The company's selling, general and administrative expenses have not declined with the fall in revenues given the company's strategic decision to add new branches particularly in emerging markets, and to maintain existing branches due to the need to be ready to service demand on the rebound, and to possibly steal market share from weaker players.

Manpower made a debt financed strategic acquisition ($174 million) of a higher margin specialty financial services company, Jefferson Wells, just prior to the turn in the business cycle, and so, the company had higher than normal debt levels going into this down cycle that exacerbated the deterioration in its credit statistics. Moody's notes that Manpower's cost structure is higher than its two largest peers due to differences in business mix. Prior to the decline in business conditions, the company had made progress in reducing its cost structure evidenced by improving margins in 1999 and 2000. Additionally, management has put in place a cost containment recovery plan that will insure that cost controls remain in place as the business rebounds. With the acquisition of Jefferson Wells and the company's focus on cost controls, Moody's expects Manpower to continue to close some of the margin gap between itself and its peers over time. Some of the risk associated with the decline in earnings has been offset by a decline in working capital needs that has enabled the company to meet all of its capital spending, and dividends requirements from internally generated cash flow, and to build cash balances. However, Manpower's need for working capital will increase once business rebounds, offsetting some of the positive impact from earnings growth. This will result in a slower rebound in cash flow after changes in working capital, so that coverage measures will improve more quickly than leverage measures. The company has so far been able to maintain its gross margin (which was not achieved in the last recession) indicating that Manpower has maintained pricing discipline despite intense competition.

The stable rating outlook reflects the improving trends in some of the company's key markets, our expectation that cash flow from operations can support the ongoing working capital, capital expenditures and dividend requirements, and the view that the demand for temporary staffing will rebound as economic conditions improve.

The ratings reflect the industry's intense competitive conditions, low barriers to entry, and susceptibility to economic cycles. Manpower has significant working capital needs, especially during high growth periods that can diminish the cash flow benefits of such growth. Although the company maintains leading market shares in the United States and in Europe, operating margins remain low due to price competition and the company's decision to maintain its infrastructure through the downturn. Moody's ratings consider Manpower's brand strength, the positive growth fundamentals of the temporary staffing industry given the demand globally from corporations to replace fixed cost permanent labor with less costly temporary staff. Moody's also expects growth to be supported internationally as labor regulations are slowly eased. The quality of the company's receivables is sound, and well diversified. We expect Manpower to increase market share by further penetrating existing markets, as well as participating in continued industry consolidation through tuck-in acquisitions in the information technology, human resource solutions, and internet segments of the market.

Manpower has a zero coupon convertible security ($243 million) that can be put back to the company by investors in August 2002. Based upon the company's current stock price, it is not likely this security will be put. However, the company maintains an unused committed $450 million facility that matures in 2006, and a $300 million facility due in November 2002 that could be used to refinance these securities if put. Additionally, the company has the option to settle the put with shares of common stock.

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 3,900 offices in 61 countries. The firm annually provides employment to more than 2.0 million people worldwide and is an industry leader in employee assessment and training. Manpower also offers organizational performance consulting services worldwide through its independent operating division, The Empower Group.

New York
Linda Montag
Senior Vice President
Corporate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peggy Holloway
Vice President - Senior Analyst
Corporate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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