Quarterly Report


   FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

x            Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended:
September 30, 2010
or
¨            Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from: ______to______

Commission file number: 1-10686

MANPOWER INC.
 (Exact name of registrant as specified in its charter)

 
Wisconsin
39-1672779
 
(State or other jurisdiction of incorporation)
(IRS Employer Identification No.)
     
 
100 Manpower Place
 
 
Milwaukee, Wisconsin
53212
 
(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number, including area code:   (414) 961-1000

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   x No   ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes   x No   ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer   x
Accelerated filer   ¨
Non-accelerated filer   ¨
Smaller reporting company   ¨
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   ¨ No   x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
   
Shares Outstanding
Class
   
at November 1, 2010
Common Stock, $.01 par value
 
81,567,149

 
 
 
 



MANPOWER INC. AND SUBSIDIARIES


INDEX



     
Page Number
 
PART I
     
Item 1
     
      3-4  
      5  
      6  
      7-19  
Item 2
    20-33  
Item 3
    33  
Item 4
    33  
           
PART II
       
Item 2
    34  
Item 5
    35  
Item 6
    36  
           
      37  
           
      38  




 
 
 
 
 
2
 
 
 

 
PART I - FINANCIAL INFORMATION


Item 1 – Financial Statements (unaudited)

MANPOWER INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)
(in millions)

ASSETS

   
September 30,
   
December 31,
 
   
2010
   
2009
 
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
598.3
   
$
1,014.6
 
Accounts receivable, less allowance for doubtful accounts of $115.1 and $118.3, respectively
   
3,890.9
     
3,070.8
 
Prepaid expenses and other assets
   
146.1
     
179.6
 
Future income tax benefits
   
73.9
     
67.4
 
Total current assets
   
4,709.2
     
4,332.4
 
                 
OTHER ASSETS:
               
Goodwill
   
1,257.5
     
959.1
 
Intangible assets, less accumulated amortization of $128.1 and $100.5, respectively
   
500.5
     
398.4
 
Other assets
   
374.6
     
347.5
 
        Total other assets
   
2,132.6
     
1,705.0
 
                 
PROPERTY AND EQUIPMENT:
               
Land, buildings, leasehold improvements and equipment
   
711.1
     
703.6
 
Less: accumulated depreciation and amortization
   
537.5
     
527.2
 
Net property and equipment
   
173.6
     
176.4
 
Total assets
 
$
7,015.4
   
$
6,213.8
 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



 
 
 
 
 
3
 
 
 

 
MANPOWER INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)
(in millions, except share and per share data)

LIABILITIES AND SHAREHOLDERS’ EQUITY


   
September 30,
   
December 31,
 
   
2010
   
2009
 
CURRENT LIABILITIES:
           
Accounts payable
 
$
1,293.5
   
$
944.4
 
Employee compensation payable
   
221.5
     
187.8
 
Accrued liabilities
   
516.0
     
465.9
 
Accrued payroll taxes and insurance
   
633.6
     
572.0
 
Value added taxes payable
   
502.5
     
391.2
 
Short-term borrowings and current maturities of long-term debt
   
24.6
     
41.7
 
Total current liabilities
   
3,191.7
     
2,603.0
 
                 
OTHER LIABILITIES:
               
Long-term debt
   
681.8
     
715.6
 
Other long-term liabilities
   
376.3
     
358.7
 
Total other liabilities
   
1,058.1
     
1,074.3
 
                 
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 108,084,961 and 104,397,965 shares, respectively
   
1.1
     
1.0
 
Capital in excess of par value
   
2,765.1
     
2,544.2
 
Retained earnings
   
1,165.8
     
1,109.6
 
Accumulated other comprehensive income
   
94.4
     
106.9
 
Treasury stock at cost, 26,620,163 and 25,821,405 shares, respectively
   
(1,260.8
)
   
(1,225.2
)
Total shareholders’ equity
   
2,765.6
     
2,536.5
 
Total liabilities and shareholders’ equity
 
$
7,015.4
   
$
6,213.8
 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



 
 
 
 
 
4
 
 
 

 
MANPOWER INC. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)
(in millions, except per share data)

   
3 Months Ended
   
9 Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenues from services
 
$
4,972.0
   
$
4,189.6
   
$
13,656.9
   
$
11,626.1
 
Cost of services
   
4,130.8
     
3,485.5
     
11,317.2
     
9,564.0
 
Gross profit
   
841.2
     
704.1
     
2,339.7
     
2,062.1
 
                                 
Selling and administrative expenses
   
732.3
     
664.6
     
2,119.1
     
2,002.2
 
Goodwill and intangible asset impairment charges
   
-
     
61.0
     
-
     
61.00
 
       Selling and administrative expenses
   
732.3
     
725.6
     
2,119.1
     
2,063.2
 
Operating profit (loss)
   
108.9
     
(21.5
)
   
220.6
     
(1.1
)
                                 
Interest and other expenses
   
8.4
     
29.3
     
33.2
     
52.0
 
Earnings (loss) before income taxes
   
100.5
     
(50.8
)
   
187.4
     
(53.1
)
                                 
Provision for income taxes
   
49.2
     
2.0
     
100.6
     
(14.8
)
Net earnings (loss)
 
$
51.3
   
$
(52.8
)
 
$
86.8
   
$
(38.3
)
Net earnings (loss) per share - basic
 
$
0.63
   
$
(0.67
)
 
$
1.08
   
$
(0.49
)
Net earnings (loss)  per share - diluted
 
$
0.62
   
$
(0.67
)
 
$
1.06
   
$
(0.49
)
Weighted average shares – basic
   
81.9
     
78.4
     
80.7
     
78.3
 
Weighted average shares – diluted
   
82.7
     
78.4
     
81.7
     
78.3
 
       
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



 
 
 
 
 
5
 


MANPOWER INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(in millions)
   
9 Months Ended
 
   
September 30,
 
   
2010
 
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES:
         
Net earnings (loss)
 
$
86.8
   
$
(38.3
) 
Adjustments to reconcile net earnings (loss) to net cash (used in) provided by operating activities:
               
Depreciation and amortization
   
80.2
     
72.8
 
Non-cash goodwill and intangible asset impairment charges
   
-
     
61.0
 
Deferred income taxes
   
(44.9
)
   
(12.1
)
Provision for doubtful accounts
   
22.0
     
20.9
 
Loss from sale of an equity investment
   
-
     
10.3
 
Share-based compensation
   
17.9
     
12.5
 
Excess tax benefit on exercise of stock options
   
(0.8
)
   
(0.1
)
Changes in operating assets and liabilities, excluding the impact of acquisitions:
               
Accounts receivable
   
(730.2
)
   
655.2
 
Other assets
   
17.9
     
(69.5
)
Other liabilities
   
494.7
     
(300.8
)
Cash (used in) provided by operating activities
   
(56.4
)
   
411.9
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Capital expenditures
   
(41.8
)
   
(27.0
)
Acquisitions of businesses, net of cash acquired
   
(260.6
)
   
(21.3
)
Proceeds from sale of an equity investment
   
-
     
13.3
 
Proceeds from sales of property and equipment
   
3.1
     
3.3
 
Cash used in investing activities
   
(299.3
)
   
(31.7
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES: 
               
Net change in short-term borrowings
   
(19.5
)
   
(25.1
)
Proceeds from long-term debt
   
1.4
     
146.4
 
Repayments of long-term debt
   
(1.0
)
   
(210.0
)
Proceeds from share-based awards
   
15.0
     
9.7
 
Excess tax benefit on exercise of stock options
   
0.8
     
0.1
 
Repurchases of common stock
   
(34.8
)
   
-
 
Dividends paid
   
(30.6
)
   
(29.0
)
Cash used in financing activities
   
(68.7
)
   
(107.9
)
                 
Effect of exchange rate changes on cash
   
8.1
     
54.3
 
Change in cash and cash equivalents
   
 (416.3
)
   
326.6
 
                 
Cash and cash equivalents, beginning of year
   
1,014.6
     
874.0
 
Cash and cash equivalents, end of period
 
$
598.3
   
$
1,200.6
 
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Interest paid
 
$
42.3
   
$
56.9
 
Income taxes paid
 
$
66.1
   
$
31.4
 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

 
6
 
 
 


MANPOWER INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)
For the Three Months and Nine Months Ended September 30, 2010 and 2009
(in millions, except share and per share data)


(1) Basis of Presentation and Accounting Policies

Basis of Presentation

Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although we believe that the disclosures are adequate to make the information presented not misleading. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements included in our 2009 Annual Report to Shareholders.

The information furnished reflects all adjustments that, in the opinion of management, were necessary for a fair statement of the results of operations for the periods presented. Such adjustments were of a normal recurring nature.

Revenues

During the fourth quarter of 2009, we determined that one of our subsidiaries within the Other EMEA segment prematurely recognized revenues related to a workforce solutions contract. These revenues were recorded on a cash-basis rather than being deferred and recognized over the performance period. Accordingly, we have restated our accompanying Consolidated Statement of Operations for both the three months and the nine months ended September 30, 2009 to defer certain amounts of revenue to future periods, net of income taxes. This restatement had no impact on cash flows under the contract and only affected the timing of when revenues are earned. The total revenues under this contract are expected to remain unchanged.

The effects of this restatement for the three months ended September 30, 2009 were as follows:

   
As previously
         
As
 
   
reported
   
Adjustment
   
restated
 
Revenues from services
 
$
4,192.1
   
$
(2.5
)
 
$
4,189.6
 
   Cost of services
   
3,485.5
     
-
     
3,485.5
 
Gross profit (loss)
   
706.6
     
(2.5
)
   
704.1
 
   Selling and administrative expenses
   
664.6
     
-
     
664.6
 
   Goodwill and intangible asset impairment charges
   
61.0
     
-
     
61.0
 
Selling and administrative expenses
   
725.6
     
-
     
725.6
 
Operating loss
   
(19.0
)
   
(2.5
)
   
(21.5
)
   Interest and other expense
   
29.3
     
-
     
29.3
 
Loss before income taxes
   
(48.3
)
   
(2.5
)
   
(50.8
)
   Provision for income taxes
   
 2.1
     
(0.1
)
   
 2.0
 
Net loss
 
$
 (50.4
)
 
$
(2.4
)
 
$
(52.8
)
Net loss per share – basic
 
$
(0.64
)
 
$
(0.03
)
 
$
(0.67
)
Net loss per share – diluted
 
$
(0.64
)
 
$
(0.03
)
 
$
(0.67
)
 

 
 
 
7
 
 
The effects of this restatement for the nine months ended September 30, 2009 were as follows:

   
As previously
         
As
 
   
reported
   
Adjustment
   
restated
 
Revenues from services
 
$
11,635.8
   
$
(9.7
)
 
$
11,626.1
 
   Cost of services
   
9,564.0
     
-
     
9,564.0
 
Gross profit (loss)
   
2,071.8
     
(9.7
)
   
2,062.1
 
   Selling and administrative expenses
   
2,002.2
     
-
     
2,002.2
 
   Goodwill and intangible asset impairment charges
   
61.0
     
-
     
61.0
 
Selling and administrative expenses
   
2,063.2
     
-
     
2,063.2
 
Operating profit (loss)
   
  8.6
     
(9.7
)
   
(1.1
)
   Interest and other expense
   
52.0
     
-
     
52.0
 
Loss before income taxes
   
(43.4
)
   
(9.7
)
   
(53.1
)
   Provision for income taxes
   
(14.6
)
   
(0.2
)
   
 (14.8
)
Net loss
 
$
(28.8
)
 
$
(9.5
)
 
$
(38.3
)
Net loss per share – basic
 
$
(0.37
)
 
$
(0.12
)
 
$
(0.49
)
Net loss per share – diluted
 
$
(0.37
)
 
$
(0.12
)
 
$
(0.49
)

Goodwill and Intangible Assets
 
In accordance with the current accounting guidance for goodwill and other intangible assets, we perform an annual impairment test of goodwill at our reporting unit level and indefinite-lived intangible assets at our unit of account level during the third quarter, or more frequently if events or circumstances change that would more likely than not reduce the fair value of our reporting units below their carrying value.
 
We performed our annual impairment test of our goodwill and indefinite-lived intangible assets during the third quarter of 2010.  There was no impairment of our goodwill or our indefinite-lived intangible assets recorded in the third quarter of 2010.
 
The accounting guidance requires a two-step method for determining goodwill impairment. In the first step, we determined the fair value of each reporting unit, generally by utilizing an income approach derived from a discounted cash flow methodology. For certain of our reporting units, a combination of the income approach (weighted 75%) and the market approach (weighted 25%) derived from comparable public companies was utilized. The income approach is developed from management’s forecasted cash flow data. Therefore, it represents an indication of fair market value reflecting management’s internal outlook for the reporting unit. The market approach utilizes the Guideline Public Company Method to quantify the respective reporting unit’s fair value based on revenue and earnings multiples realized by similar public companies. The market approach is more volatile as an indicator of fair value as compared to the income approach. We believe that each approach has its merits. However in the instances where we have utilized both approaches, we have weighted the income approach more heavily than the market approach because we believe that management’s assumptions generally provide greater insight into the reporting unit’s fair value.
 
Significant assumptions used in our annual goodwill impairment test during the third quarter of 2010 included: expected revenue growth rates, operating unit profit margins, and working capital levels; discount rates ranging from 9.7% to 21.2%; and a terminal value multiple. The discount rates were impacted favorably as compared to our previous valuations primarily by the utilization of a lower risk free rate in 2010. The expected future revenue growth rates and operating unit profit margins were determined after taking into consideration our historical revenue growth rates and operating unit profit margins, our assessment of future market potential, and our expectations of future business performance.
 
If the reporting unit’s fair value is less than its carrying value, we are required to perform a second step. In this step, we allocate the fair value of the reporting unit to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a “hypothetical” calculation to determine the implied fair value of the goodwill.  The impairment charge, if any, is measured as the difference between the implied fair value of the goodwill and its carrying value.
 
 
 
8
 
Under the current accounting guidance, we are also required to test our indefinite-lived intangible assets for impairment by comparing the fair value of the intangible asset with its carrying value. If the intangible asset’s fair value is less than its carrying value, an impairment loss would be recognized for the difference.
 

(2) New Accounting Standards

In October 2009, the FASB issued new accounting guidance on multiple-deliverable revenue arrangements. The new guidance amends the criteria for separating deliverables as well as how to measure and allocate consideration for multiple arrangements. The guidance also expands the disclosures related to a vendor’s multiple-deliverable revenue arrangements. The new guidance will be effective prospectively for our multiple-deliverable revenue arrangements entered into or materially modified in 2011. We are currently assessing the impact of the adoption of this guidance.


(3) Stock Compensation Plans

During the three months ended September 30, 2010 and 2009, we recognized share-based compensation expense of approximately $6.4 and $5.0, respectively, and $17.9 and $12.5 for the nine months ended September 30, 2010 and 2009, respectively. The expense relates to grants of stock options, deferred stock units, restricted stock units and performance share units. Consideration received from stock-based awards was $15.8 and $10.6 for the nine months ended September 30, 2010 and 2009, respectively. We recognize share-based compensation expense related to grants of share-based awards in Selling and Administrative Expenses on a straight-line basis over the service period of each award.


(4) Acquisitions

On April 5, 2010, we acquired COMSYS IT Partners, Inc. (“COMSYS”) from its existing shareholders. The value of the consideration for each outstanding share of COMSYS common stock was approximately $17.65, for a total enterprise value of $427.0, including debt of $47.1, which we repaid upon closing. The consideration was approximately 50% Manpower common stock (3.2 million shares with a fair value of $188.5 upon closing) and approximately 50% cash (consideration of $191.4). In addition, we incurred approximately $0.7 and $2.6 of transaction costs associated with the acquisition during the three and nine months ended September 30, 2010, respectively, which have been classified in Selling and Administrative Expenses.

 
 
9
 
The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date of April 5, 2010. We have finalized our allocation of the consideration transferred to the net assets acquired. We used various methodologies to assess the fair value of the assets and liabilities acquired. For our intangible assets associated with customer relationships, we utilized the multi-period excess-earnings method, a form of the income approach.  Some of the significant assumptions used in this valuation included: expected revenue growth rates, operating unit profit margins, capital charges representing 1.3% of revenues, and a 13% discount rate.

Cash and cash equivalents
 
$
0.9
 
Accounts receivable, net
   
207.0
 
Prepaid expenses and other assets
   
2.1
 
   Total current assets
   
210.0
 
         
Goodwill
   
281.6
 
Intangible assets
   
127.1
 
Other assets
   
50.5
 
Property and equipment
   
5.2
 
   Total assets
 
$
674.4
 
         
Accounts payable
 
$
135.9
 
Employee compensation payable
   
40.8
 
Accrued liabilities
   
14.3
 
   Total current liabilities
   
191.0
 
         
Other long-term liabilities
   
56.4
 
   Total liabilities assumed
   
247.4
 
   Net assets acquired
 
$
427.0
 

Of the $427.0 of net acquired assets, $127.1 was assigned to customer relationships and will be amortized over 14 years, using an accelerating method.

The remaining fair value of $281.6, which was not directly attributable to any specific assets or liabilities, was assigned to goodwill as part of the US reporting unit. Of the goodwill assigned, $19.9 is deductible for tax purposes.

Total consolidated amortization expense related to intangible assets for the remainder of 2010 is $11.4 and in each of the next five years is as follows: 2011- $38.4, 2012 - $34.4, 2013 - $27.9, 2014 - $22.9 and 2015 - $19.6.

 
 
10
 
The following unaudited pro forma information reflects the results of Manpower’s operations for the three and nine months ended September 30, 2010 and 2009 as if the COMSYS acquisition had been completed on January 1 st of each respective year. Pro forma adjustments have been made to illustrate the incremental impact on earnings of amortization expense related to the acquired intangible assets, lost interest income that would have been earned on the cash proceeds used to acquire COMSYS and the tax impact of these respective items.
 
   
3 Months Ended
   
9 Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
    2010    
2009
 
Revenues from services
                       
Pro forma
  $ 4,972.0     $ 4,346.9     $ 13,826.5     $ 12,102.9  
As reported
  $ 4,972.0     $ 4,189.6     $ 13,656.9     $ 11,626.1  
                                 
Net earnings (loss)
                               
Pro forma
  $ 51.3     $ (56.8 )   $ 80.9     $ (58.2 )
As reported
  $ 51.3     $ (52.8 )   $ 86.8     $ (38.3 )
                                 
Net earnings (loss) per share – diluted
                               
Pro forma
  $ 0.62     $ (0.70 )   $ 0.98     $ (0.71 )
As reported
  $ 0.62     $ (0.67 )   $ 1.06     $ (0.49 )

The unaudited pro forma information is provided for illustrative purposes only and does not represent what our consolidated results of operations would have been if the transaction had actually occurred as of January 1, 2010 or 2009 and does not represent our expected future consolidated results of operations.

From time to time, we acquire and invest in companies throughout the world, including franchises. Excluding COMSYS, the total cash consideration paid for acquisitions, net of cash acquired, for the nine months ended September 30 was $22.9 and $21.3 for 2010 and 2009, respectively.

 
(5) Reorganization Costs

We recorded reorganization costs of $8.1 in the first nine months of 2010 in Selling and Administrative Expenses, related to severances and office closures and consolidations in several countries. We also made payments of $14.7 relating to reorganization costs out of this and prior-year reserves. Since 2007, we have recorded reorganization costs totaling $87.2 (including $33.5, $37.2 and $8.4 recorded in 2009, 2008 and 2007, respectively). As of September 30, 2010, $72.6 has been paid out of these reserves. We expect a majority of the remaining $14.6 will be paid by the end of 2011. Changes in the reorganization liability balances for each reportable segment were as follows:
 
   
Americas (1)
   
France
   
 
EMEA (2)
   
Asia
Pacific
   
Right
Management
   
Jefferson
Wells
   
Total (2)
 
Balance, January 1, 2010
  $ 1.4     $ 5.7     $ 9.5     $ 1.5     $ 0.4     $ 2.7     $ 21.2  
Severance costs
    -       -       2.8       -       2.6       0.5       5.9  
Office closure costs
    1.0       1.2       -       -       -       -       2.2  
Costs paid or utilized
    (1.3 )     (3.1 )     (5.6 )     (1.4 )     (1.7 )     (1.6 )     (14.7 )
Balance, September 30, 2010
  $ 1.1     $ 3.8     $ 6.7     $ 0.1     $ 1.3     $ 1.6     $ 14.6  
 
(1)  
Balances related to United States were $1.2 as of January 1, 2010. In 2010, United States incurred $0.9 for office closure costs and paid $1.1, leaving a reorganization liability of $1.0 as of September 30, 2010.
(2)  
There were no outstanding balances related to Italy or Corporate as of January 1, 2010 and September 30, 2010.

See Note 15 to the Consolidated Financial Statements regarding future reorganization costs.
 
11
 

(6) Income Taxes

We recorded income tax expense, at an effective rate of 48.9%, for the three months ended September 30, 2010, as compared to an income tax expense, at an effective rate of -3.9%, for the three months ended September 30, 2009. The 2010 rate was favorably impacted by the overall mix of earnings, primarily an increase to non-U.S. income, but was unfavorably impacted by valuation allowances related to losses in certain non-U.S. entities and the repatriation of certain non-U.S. earnings, while the 2009 rate was unfavorably impacted by the nondeductibility of the goodwill impairment charges related to Jefferson Wells. The 2010 rate was also unfavorably impacted by $17.5 related to a French Business Tax, which has been classified as a component of income tax beginning in January 2010, in accordance with the current accounting guidance on income taxes. Prior to January 2010, the French Business Tax had been presented as a non-income tax and included as a component of Cost of Services. The French government changed the business tax from an asset-based tax to an income-based tax, thereby requiring the classification of this tax as an income tax effective January 1, 2010.

The 48.9% rate for the three months ended September 30, 2010 was higher than the U.S. Federal statutory rate of 35%, and we currently expect an annual effective tax rate of approximately 53% for the full year, due primarily to valuation allowances, other permanent items and the French Business Tax. Excluding the impact of the French Business Tax, our tax rate would be approximately 40% for the year, which is lower than the annual 2009 rate of 59.9% due to a favorable impact from changes in the mix of U.S. and non-U.S. earnings and no material nondeductible impairment charges in 2010.

We recorded an income tax expense, at an effective rate of 53.7%, for the first nine months of 2010, as compared to an income tax benefit, at an effective rate of 27.9%, for the first nine months of 2009. The 2010 rate was favorably impacted by the overall mix of earnings, primarily an increase to non-U.S. income, but was unfavorably impacted by valuation allowances related to losses in certain non-U.S. entities and the repatriation of certain non-U.S. earnings, while the 2009 rate was unfavorably impacted by the nondeductibility of the goodwill impairment charges related to Jefferson Wells. The 2010 rate was also unfavorably impacted by $47.6 related to a French Business Tax, which has been classified as a component of income tax beginning in January 2010, in accordance with the current accounting guidance on income taxes.
 
As of September 30, 2010, we had gross unrecognized tax benefits of $45.3 recorded in accordance with the current accounting guidance on uncertain tax positions and related tax benefits of $13.4. Our uncertain tax position accrual was related to various tax jurisdictions, including $3.1 of interest and penalties. As of December 31, 2009, we had gross unrecognized tax benefits of $44.4 and related tax benefits of $13.4. The net amount of $31.9 as of September 30, 2010 would favorably affect the effective tax rate if recognized. We do not expect our unrecognized tax benefits to change significantly over the next 12 months.
 
We conduct business globally and, as a result, we are routinely audited by the various tax jurisdictions in which we operate. Generally, the tax years that remain subject to tax examination are 2005 through 2009 for our major operations in the U.S., France, the United Kingdom and Italy. As of September 30, 2010, we are under audit in France, the U.S., Belgium, and Denmark, and we believe that the resolution of these audits will not have a material impact on earnings. There was no significant change in the total unrecognized tax benefits due to the settlement of audits, the expiration of statute of limitations, or for other items during the three and nine months ended September 30, 2010.

 
 
12
 
(7) Net Earnings (Loss) Per Share

The calculation of Net Earnings (Loss) Per Share – Basic and Net Earnings (Loss) Per Share – Diluted was as follows:
 
 
3 Months Ended
 
9 Months Ended
 
 
September 30,
 
September 30,
 
 
2010
 
2009
 
2010
 
2009
 
Net Earnings (Loss) Per Share – Basic:
               
Net earnings (loss) available to common shareholders
  $ 51.3     $ (52.8 )   $ 86.8     $ (38.3 )
Weighted-average common shares outstanding
    81.9       78.4       80.7       78.3  
    $ 0.63     $ (0.67 )   $ 1.08     $ (0.49 )
Net Earnings (Loss) Per Share – Diluted:
                               
Net earnings (loss) available to common shareholders
  $ 51.3     $ (52.8 )   $ 86.8     $ (38.3 )
Weighted-average common shares outstanding
    81.9       78.4       80.7       78.3  
Effect of stock-based awards
    0.8       -       1.0       -  
      82.7       78.4       81.7       78.3  
    $ 0.62     $ (0.67 )   $ 1.06     $ (0.49 )
 
There were 3.2 million stock-based awards excluded from the calculation of Net Earnings Per Share – Diluted for the three and nine months ended September 30, 2010, as the exercise price for these awards was greater than the average market price of the common shares during the period.  Due to the net loss for the three and nine months ended September 30, 2009, the assumed exercise of stock-based awards had an antidilutive effect and therefore were excluded from the computation of Net Loss Per Share – Diluted. There were 6.5 million of stock-based awards excluded from the calculation for the three and nine months ended September 30, 2009.

 
(8) Goodwill

Changes in the carrying value of goodwill by reportable segment and Corporate were as follows:
 
   
Americas
   
France
   
 
EMEA (1)
   
Asia Pacific
   
Right Management
   
Jefferson Wells
   
Corporate (2)
   
Total (3)
 
Balance, January 1, 2010
  $ 171.3     $ 7.1     $ 286.9     $ 58.9     $ 150.7     $ 2.1     $ 282.1     $ 959.1  
Goodwill acquired
    290.6       3.1       3.9       0.2       3.8       -       -       301.6  
Currency and other
    1.1       (0.3 )     (7.9 )     4.0       (0.1 )     -       -       (3.2 )
Balance, September 30, 2010
  $ 463.0     $ 9.9     $ 282.9     $ 63.1     $ 154.4     $ 2.1     $ 282.1     $ 1,257.5  

(1)  Balances related to Italy were $4.7 and $4.9 as of September 30, 2010 and December 31, 2009, respectively. The ($0.2) change represents a currency impact.
 
(2)  The majority of the Corporate balance relates to goodwill from our acquisitions of Right Management ($184.4) and Jefferson Wells ($88.2). For purposes of monitoring our total assets by segment, we do not allocate these balances to their respective reportable segments as this is commensurate with how we operate our business. We do, however, include these balances within the appropriate reporting units for our goodwill impairment testing. See table below for the breakout of goodwill balances by reporting unit.
 
(3)  Balances were net of accumulated impairment loss of $201.8 as of September 30, 2010 and December 31, 2009.
 
 
 
13
 
Goodwill balances by reporting unit were as follows:
   
September 30,
   
December 31,
 
   
2010
   
2009
 
United States
 
$
449.6
   
$
158.2
 
Right Management
   
338.8
     
335.1
 
Elan
   
124.1
     
128.6
 
Jefferson Wells
   
90.3
     
90.3
 
Netherlands (Vitae)
   
83.4
     
87.6
 
Other reporting units
   
171.3
     
159.3
 
Total goodwill
 
$
1,257.5
   
$
959.1
 

For information on our annual impairment test of goodwill, which is performed during the third quarter, see Note 1 to the Consolidated Financial Statements.

 
(9) Retirement Plans

The components of the net periodic benefit cost for our plans were as follows:
 
   
Defined Benefit Pension Plans
 
   
3 Months Ended
   
9 Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Service cost
 
$
2.2
   
$
3.0
   
$
6.6
   
$
8.5
 
Interest cost
   
3.6
     
3.6
     
10.8
     
10.4
 
Expected return on assets
   
(3.4
)
   
(3.2
)
   
(10.1
)
   
(9.4
)
Curtailment and settlement
   
-
     
-
     
-
     
(4.3
)
Other
   
(0.1
)
   
(0.4
)
   
(0.4
)
   
(1.0
)
Total benefit cost
 
$
2.3
   
$
3.0
   
$
6.9
   
$
4.2
 


   
Retiree Health Care Plan
 
   
3 Months Ended
   
9 Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Service cost
 
$
-
   
$
-
   
$
0.1
   
$
0.1
 
Interest cost
   
0.3
     
0.3
     
1.0
     
1.0
 
Other
   
-
     
(0.1
)
   
(0.1
)
   
(0.5
)
 Total benefit cost
 
$
0.3
   
$
0.2
   
$
1.0
   
$
0.6
 

During the three and nine months ended September 30, 2010, contributions made to our pension plans were $7.0 and $16.4, respectively, and contributions made to our retiree health care plan were $0.4 and $1.1, respectively. During 2010, we expect to make total contributions of $22.5 to our pension plans and to fund our retiree health care payments as incurred.
 
Effective January 1, 2009, we terminated our defined benefit plan in Japan and replaced it with a defined contribution plan, resulting in a curtailment and settlement gain of $4.3 in the nine months ended September 30, 2009.

 
 
14
 
(10) Shareholders’ Equity

The components of Comprehensive Income, net of tax, were as follows:

   
3 Months Ended
   
9 Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Net earnings (loss)
 
$
51.3
   
$
(52.8
)
 
$
86.8
   
$
(38.3
)
Other comprehensive income:
                               
Foreign currency translation gain (loss)
   
112.2
     
57.4
     
(14.5
)
   
115.2
 
Unrealized gain on investments
   
1.7
     
2.5
     
1.1
     
3.4
 
Reclassification to earnings of loss on derivatives
   
-
     
4.3
     
-
     
4.3
 
Unrealized gains on derivatives
   
-
     
-
     
-
     
0.3
 
Defined benefit pension plans
   
0.5
     
0.1
     
1.0
     
(0.5
)
Retiree health care plan
   
-
     
(0.1
)
   
(0.1
)
   
(0.4
)
Comprehensive income
 
$
165.7
   
$
11.4
   
$
74.3
   
$
84.0
 

The components of Accumulated Other Comprehensive Income, net of tax, were as follows:

   
September 30,
   
December 31,
 
   
2010
   
2009
 
Foreign currency translation gain
 
$
96.5
   
$
111.0
 
Unrealized gain on investments
   
7.7 
     
6.6
 
Defined benefit pension plans
   
(12.2
)
   
(13.2
)
Retiree health care plan
   
2.4
     
2.5
 
Accumulated other comprehensive income
 
$
94.4
   
$
      106.9
 

In August 2007, the Board of Directors authorized the repurchase of 5.0 million shares of our common stock, not to exceed a total price of $400.0. 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. During the nine months ended September 30, 2010, we repurchased 0.8 million shares of common stock at a total cost of $34.8, all of which was repurchased during the third quarter. No share repurchases were made during 2009. There were 0.2 million shares remaining available for repurchase under this authorization as of September 30, 2010, at a total price not to exceed $147.3.

On April 27, 2010, the Board of Directors declared a cash dividend of $0.37 per share, which was paid on June 15, 2010 to shareholders of record on June 3, 2010.
 
On October 26, 2010, the Board of Directors declared a cash dividend of $0.37 per share, which is payable on December 15, 2010 to shareholders of record on December 3, 2010.
 
 
 
15
 
(11) Interest and Other Expenses

Interest and Other Expenses consisted of the following:

   
3 Months Ended
   
9 Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Interest expense
 
$
10.0
   
$
21.5
   
$
33.6
   
$
48.5
 
Interest income
   
(1.2
)
   
(1.7
)
   
(4.2
)
   
(9.3
)
Foreign exchange (gain) loss
   
(0.3
)
   
(0.6
)
   
2.5
     
0.9
 
Miscellaneous (income) expense, net
   
(0.1
)
   
(0.2
)
   
1.3
     
1.6
 
Loss from sale of an equity investment
   
-
     
10.3
     
-
     
10.3
 
Interest and other expenses
 
$
8.4
   
$
29.3
   
$
33.2
   
$
52.0
 


(12) Derivative Financial Instruments and Fair Value Measurements

We are exposed to various risks relating to our ongoing business operations. The primary risks, which are managed through the use of derivative instruments, are foreign currency exchange rate risk and interest rate risk. In certain circumstances, we enter into foreign currency forward exchange contracts (“forward contracts”) to reduce the effects of fluctuating foreign currency exchange rates on our cash flows denominated in foreign currencies. Our exposure to market risk for changes in interest rates relates primarily to our Long-Term Debt obligations. We have historically managed interest rate risk through the use of a combination of fixed and variable rate borrowings and interest rate swap agreements. In accordance with current accounting guidance on derivative instruments and hedging activities, we record all of our derivative instruments as either an asset or liability measured at their fair value.

Substantially all of the €300.0 ($408.6) Notes and the €200.0 ($272.0) Notes were designated as economic hedges of our net investment in our foreign subsidiaries with a Euro functional currency as of September 30, 2010.

For derivatives designated as an economic hedge of the foreign currency exposure of a net investment in a foreign operation, the gain or loss associated with foreign currency translation is recorded as a component of Accumulated Other Comprehensive Income, net of taxes. As of September 30, 2010, we had a $63.7 loss included in Accumulated Other Comprehensive Income, net of taxes, as the net investment hedge was deemed effective.

Our forward contracts are not designated as hedges. Consequently, any gain or loss resulting from the change in fair value is recognized in the current period earnings. These gains or losses are offset by the exposure related to receivables and payables with our foreign subsidiaries and to interest due on our Euro-denominated notes, which is paid annually in June. We recorded a gain of $0.6 associated with our forward contracts in Interest and Other Expenses for the three months ended September 30, 2010, which offset the losses recorded for the items noted above. For the nine months ended September 30, 2010, we recorded a loss of $3.9 associated with our forward contracts.
 
 
 
16
 
The fair value measurements of those items recorded in our Consolidated Balance Sheets were as follows:
 
         
Fair Value Measurements Using
 
　
 
September 30, 2010
   
Quoted Prices in
Active Markets for Identical Assets
(Level 1)
   
Significant Other Observable Inputs
 (Level 2)
   
Significant
Unobservable Inputs
(Level 3)
 
Assets
                       
Available-for-sale securities
 
$
0.4
   
$
0.4
   
$
-
   
$
-
 
Deferred compensation plan assets
   
34.4
     
34.4
     
-
     
-
 
   
$
34.8
   
$
34.8
   
$
-
   
$
-
 

 
         
Fair Value Measurements Using
 
　
 
December 31, 2009
   
Quoted Prices in
Active Markets for Identical Assets
(Level 1)
   
Significant Other Observable Inputs
 (Level 2)
   
Significant
Unobservable Inputs
(Level 3)
 
Assets
                       
Available-for-sale securities
 
$
0.3
   
$
0.3
   
$
-
   
$
-
 
Deferred compensation plan assets
   
34.0
     
34.0
     
-
     
-
 
   
$
34.3
   
$
34.3
   
$
-
   
$
-
 
Liabilities
                               
Foreign currency forward contracts
 
$
0.5
   
$
-
   
$
0.5
   
$
-
 
 
The carrying value of Long-Term Debt approximates fair value, except for the Euro-denominated notes. The fair value of the Euro-denominated notes was $694.2 and $717.7 as of September 30, 2010 and December 31, 2009, respectively, compared to a carrying value of $680.6 and $714.6, respectively.


(13) Contingencies

In February 2009, the French Competition Council rendered its decision and levied a fine of €42.0 ($55.9) related to the competition investigation that began in November 2004, conducted by France’s Direction Generale de la concurrence, de la Consommation et de la Repression des Fraudes (“DGCCRF”), a body of the French Finance Minister that investigates frauds and competition violations. We had accrued for this fine as of December 31, 2008, paid this fine in April 2009 and appealed the Competition Council’s decision. In January 2010 we received notification that our appeal was denied and in March 2010, we again appealed the Competition Council’s decision to the Cour de Cassation.

 
 
17
 
(14) Segment Data

   
3 Months Ended
September 30,
   
9 Months Ended
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenues from Services:
                       
Americas:
                       
     United States (a)
 
$
752.1
   
$
409.8
   
$
1,880.2
   
$
1,157.9
 
     Other Americas
   
317.1
     
243.5
     
917.7
     
683.4
 
     
1,069.2
     
653.3
     
2,797.9
     
1,841.3
 
                                 
France
   
1,411.6
     
1,314.1
     
3,775.0
     
3,371.1
 
EMEA:
                               
     Italy
   
257.1
     
231.0
     
750.1
     
681.5
 
     Other EMEA (b)
   
1,548.0
     
1,379.3
     
4,361.3
     
3,894.0
 
     
1,805.1
     
1,610.3
     
5,111.4
     
4,575.5
 
                                 
Asia Pacific
   
555.7
     
427.9
     
1,558.9
     
1,259.3
 
Right Management
   
85.5
     
135.7
     
287.6
     
429.8
 
Jefferson Wells
   
44.9
     
48.3
     
126.1
     
149.1
 
     Consolidated (c)
 
$
4,972.0
   
$
4,189.6
   
$
13,656.9
   
$
11,626.1
 
                                 
Operating Unit Profit: (d)
                               
Americas:
                               
     United States
 
$
27.4
   
$
1.7
   
$
38.0
   
$
(15.4
)
     Other Americas
   
8.2
     
5.5
     
26.5
     
14.2
 
     
35.6
     
7.2
     
64.5
     
(1.2
)
                                 
France
   
25.0
     
10.6
     
35.1
     
15.8
 
EMEA:
                               
     Italy
   
11.4
     
8.6
     
31.7
     
16.8
 
     Other EMEA (b)
   
43.0
     
16.0
     
91.6
     
8.2
 
     
54.4
     
24.6
     
123.3
     
25.0
 
                                 
Asia Pacific
   
13.1
     
4.0
     
37.6
     
19.6
 
Right Management
   
-
     
21.2
     
20.3
     
92.6
 
Jefferson Wells
   
(1.5
)
   
(0.6
)
   
(9.3
)
   
(18.3
)
     
126.6
     
67.0
     
271.5
     
133.5
 
Corporate expenses
   
  (23.6
)
   
(21.1
)
   
(70.4
)
   
(56.6
)
Goodwill and intangible asset impairment charges
   
-
     
(61.0
)
   
-
     
(61.0
)
Intangible asset amortization expense (d)
   
(11.6
)
   
(6.4
)
   
(28.1
)
   
(17.0
)
Reclassification of French business tax (e)
   
17.5
     
-
     
47.6
     
-
 
         Operating profit (loss)
   
108.9
     
(21.5
)
   
220.6
     
(1.1
)
Interest and other expenses
   
8.4
     
29.3
     
33.2
     
52.0
 
     Earnings (loss) before income taxes
 
$
100.5
   
$
(50.8
)
 
$
187.4
   
$
(53.1
)
 

 
18
 
 
(a)  
The United States results include the results of COMSYS, which was acquired on April 5, 2010. For the three and nine months ended September 30, 2010, COMSYS recognized revenues of $193.0 and $375.3, respectively and Operating Unit Profit of $8.9 and $13.9, respectively. Integration costs of $3.4 and $8.1 were included within Operating Unit Profit for the three and nine months ended September 30, 2010, respectively. In the United States, where a majority of our franchises operate, Revenues from Services include fees received from the related franchise offices of $4.0 and $3.0 for the three months ended September 30, 2010 and 2009, and $9.9 and $7.4 for the nine months ended September 30, 2010 and 2009, respectively. These fees are primarily based on revenues generated by the franchise offices, which were $169.0 and $121.6 for the three months ended September 30, 2010 and 2009, respectively and $457.0 and $323.7 for the nine months ended September 30, 2010 and 2009, respectively.

(b)  
During the fourth quarter of 2009, we determined that our Other EMEA reportable segment prematurely recognized revenues related to a workforce solutions contract. These revenues were recorded on a cash-basis rather than being deferred and earned over the four-year performance period following the month the services were performed. Accordingly, we have restated our financial results for the three and nine months ended September 30, 2009 to defer certain amounts of revenue to future periods, net of income taxes. The impact was a $2.5 and $9.7 reduction of Revenues from Services and Operating Unit Profit for the three and nine months ended September 30, 2009, respectively. This restatement had no impact on cash flows under the contract and only affected the timing of when revenues are earned. The total revenues under this contract are expected to remain unchanged.

(c)
Our consolidated Revenues from Services include fees received from our franchise offices of $6.8 and $5.7 for the three months ended September 30, 2010 and 2009, respectively, and $17.2 and $16.6 for the nine months ended September 30, 2010 and 2009, respectively. These fees are primarily based on revenues generated by the franchise offices, which were $273.3 and $200.3 for the three months ended September 30, 2010 and 2009, respectively and $704.5 and $533.3 for the nine months ended September 30, 2010 and 2009, respectively.

(d)  
We evaluate segment performance based on Operating Unit Profit, which is defined as segment revenues less cost of services and branch and national headquarters operating costs. This profit measure does not include goodwill and intangible asset impairment charges or amortization of intangible assets related to acquisitions, interest and other income and expense amounts or income taxes. During the third quarter of 2010, we redefined Operating Unit Profit to also exclude intangible asset amortization related to acquisitions. Therefore, these costs are no longer included as operating costs within the reportable segments and Corporate Expenses, and all intangible asset amortization expense is now shown separately. All previously reported results have been restated to conform to the current year presentation.

(e)  
The French Business Tax, as disclosed in Note 6 to the Consolidated Financial Statements, is reported in Provision for Income Taxes rather than in Cost of Services, in accordance with the current accounting guidance on income taxes.  However, we view this tax as operational in nature. Accordingly, the financial information reviewed internally continues to include the French Business Tax within the Operating Unit Profit of our France reportable segment. Therefore, we have shown the amount of the French Business Tax above to be able to reconcile to our Earnings (Loss) before Income Taxes.


(15) Subsequent Events

In the fourth quarter of 2010, we expect to incur additional reorganization charges mainly through realignment of our Right Management and Jefferson Wells businesses. We are still working through the specific reorganization plans, but we expect the costs to consist of severance and office closure costs. As part of this realignment, our Jefferson Wells reportable segment will be placed under our Americas management structure. This will allow us to reduce our infrastructure costs and grow our market presence in the professional services and staffing business. Accordingly, our Jefferson Wells reportable segment will be reported within our United States operating segment as part of the Americas beginning in the fourth quarter of 2010.

We have evaluated other events and transactions occurring after the balance sheet date through our filing date and noted no events that are subject to recognition or disclosure.
 
 
 
 
19
 
 
 
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis has been revised for the effects of the restatement discussed in Note 1 to the Consolidated Financial Statements.

See financial measures on pages 28 and 29 for further information on constant currency and organic constant currency.

 
Operating Results - Three Months Ended September 30, 2010 and 2009

In the third quarter of 2010, we continued to see improvement in most of our markets. This allowed us to utilize our operating leverage and improve our operating results during the quarter over the prior year as well as sequentially. We also experienced a decline in our operating cash flows as our working capital needs increased as revenues grew. The improved operating leverage resulted from our being able to utilize excess capacity in the network to support the revenue growth without a similar increase in expenses. This leverage was possible as we made strategic cost reductions during the economic downturn which reduced the adverse impact of the economy during that period yet preserved capacity within our network to handle increased demand as we are experiencing during the current year period.

Client demand for employment services is dependent on the overall strength of the labor market and secular trends towards greater workforce flexibility within each of the countries in which we operate.  Improving economic growth typically results in increasing demand for labor, resulting in greater demand for our staffing services. During periods of increasing demand, we are able to improve our profitability and operating leverage as our current cost base can support some increase in business without a similar increase in selling and administrative expenses. During these periods, we generally see an increase in our working capital needs, resulting from an increase in our accounts receivable balance in line with the revenue growth, which may result in a decline in operating cash flows.

While we experienced growth in our businesses during the current period, the strength or duration of this growth will be dependent on whether the underlying economies continue to improve. Given the uncertainties of predicting economic trends, however, it is not possible to predict when we will return to prior revenue and earnings levels.

On April 5, 2010, we completed our previously announced acquisition of COMSYS IT Partners, Inc. (“COMSYS”) from its existing shareholders. The value of the consideration for each outstanding share of COMSYS common stock was approximately $17.65, for a total enterprise value of $427.0 million, including debt of $47.1 million, which we repaid upon closing. The consideration was approximately 50% Manpower common stock (3.2 million shares at a fair value of $188.5 million) upon closing and approximately 50% cash (consideration of $191.4 million). COMSYS’s operating results have been included within our consolidated results from April 5, 2010 and forward.

 
 
20
 
 
The following table presents selected consolidated financial data for the three months ended September 30, 2010 as compared to 2009.
 
 
 
(in millions, except per share data )
 
2010
   
2009
   
Variance
   
Constant Currency Variance
Revenues from services
 
$
4,972.0
   
$
4,189.6
     
18.7
%
   
24.1
% 
Cost of services
   
4,130.8
     
3,485.5
     
18.5
     
24.1
 
Gross profit
   
841.2
     
704.1
     
19.5
     
24.4
 
              Gross profit margin
   
  16.9%
     
  16.8%
                 
                                 
Selling and administrative expenses
   
732.3
     
664.6
     
10.2
     
14.4
 
Goodwill and intangible asset impairment charges
   
-
     
61.0
                 
Selling and administrative expenses
   
732.3
     
725.6
     
0.9
     
4.8
 
                                 
Operating profit (loss)
   
    108.9
     
    (21.5
)                
Operating profit (loss) margin
   
2.2%
     
-0.5%
                 
                                 
Interest and other expenses
   
8.4
     
29.3
     
(71.4
)
       
Earnings (loss) before income taxes
   
100.5
     
(50.8
)
               
                                 
Provision for income taxes
   
  49.2
     
2.0
 
               
Effective income tax rate
   
48.9%
     
-3.9%
                 
Net earnings (loss)
 
$
51.3
 
 
$
(52.8
)
               
Net earnings (loss) per share – diluted
 
$
0.62
 
 
$
(0.67
)
               
Weighted average shares – diluted
   
82.7
     
78.4
     
5.5
%
       
 
We continued to see stabilization and improvements in most markets with regard to our staffing business during the third quarter of 2010 as economic conditions continued to improve globally. Offsetting this trend, however, was a decrease in business volumes for both Right Management and Jefferson Wells. At Right Management, we saw a decline in demand for the counter-cyclical outplacement services as we expected to see with the improving economic conditions and growth in our staffing business. Jefferson Wells continues to show weak demand as companies remain hesitant to increase discretionary spend.

The year-over-year increase in Revenues from Services was primarily attributed to:

   o
increased demand for services in most of our markets, including the Americas, France, EMEA and Asia Pacific, where revenues increased 62.0%, 18.8%, 20.1% and 20.5%, respectively, on a constant currency basis. Included in the Americas’ results for the third quarter were revenues of $193.0 million associated with our acquisition of COMSYS. Excluding COMSYS and other acquisitions, the Americas’ revenue increased 31.3% and our consolidated revenues increased 19.3% on an organic constant currency basis;

   o
offset by the decreased demand for services for Right Management and Jefferson Wells, where revenues decreased 36.5% and 6.9%, respectively, on a constant currency basis; and
 
   o
a 5.4% decrease due to the impact of currency exchange rates.

 
 
21
 
 The year-over-year increase in Gross Profit Margin was primarily attributed to:
 
   o  
a 40 basis point (0.40%) increase due to a change in French law resulting in a reclassification of the French Business Tax from Cost of Services to the Provision for Income Taxes, effective January 1, 2010;

   o  
a 30 basis point (0.30%) increase due to an improvement in our temporary staffing gross margins resulting from the acquisition of COMSYS;
 
   o  
a 30 basis point (0.30%) increase due to the growth in our permanent recruitment gross profit which increased 62.7% in constant currency; and
 
   o  
a 10 basis point (0.10%) increase due to a change in mix of business services;
 
   o  
offset by a 100 basis point (-1.00%) decline due to the outplacement revenue decline of Right Management, where the gross profit margin is higher than our Company average.
 
The 0.9% increase in Selling and Administrative Expenses for the current quarter (4.8% increase in constant currency, or 1.9% decrease in organic constant currency) was attributed to:

   o  
the addition of COMSYS’s recurring selling and administrative costs as well as $3.4 million of integration costs and $6.9 million of intangible asset amortization expense as a result of the acquisition; and

   o  
an increase in our organic salary-related costs due to a 2% increase in headcount (to meet client demand in certain markets), as well as an increase in our variable incentive-based costs due to our improved operating results;

   o  
offset by having no asset impairment charge in third quarter of 2010 compared to the goodwill and intangible asset impairment charge of $61.0 million in the third quarter of 2009; and

   o  
a 3.9% decrease due to the impact of currency exchange rates.
 
Selling and Administrative Expenses as a percent of revenues decreased 2.6% (-260 basis points) in the third quarter of 2010 compared to 2009 due primarily to the leveraging of these expenses, as we experienced an increase in revenues of 18.7% (or 24.1% in constant currency) without a commensurate increase in expenses during the third quarter of 2010 as compared to 2009.

Interest and Other Expenses were $8.4 million for the third quarter of 2010 compared to $29.3 million for the same period in 2009. Net Interest Expense decreased $11.0 million in the third quarter to $8.8 million as we incurred $7.5 million of interest expense in the third quarter of 2009 related to the early extinguishment of our interest rate swap agreements and the amendment of our revolving credit facility. Translation gains in the third quarter of 2010 were $0.3 million compared to $0.6 million in the third quarter of 2009.  In the third quarter of 2009, we also incurred a $10.3 million loss related to a sale of an equity investment in Japan.

We recorded income tax expense, at an effective rate of 48.9%, for the three months ended September 30, 2010, as compared to an income tax expense, at an effective rate of -3.9%, for the three months ended September 30, 2009. The 2010 rate was favorably impacted by the overall mix of earnings, primarily an increase to non-U.S. income, but was unfavorably impacted by valuation allowances related to losses in certain non-U.S. entities and the repatriation of certain non-U.S. earnings, while the 2009 rate was unfavorably impacted by the nondeductibility of the goodwill impairment charges related to Jefferson Wells.  The 2010 rate was also unfavorably impacted by $17.5 related to a French Business Tax, which has been classified as a component of income tax beginning in January 2010, in accordance with the current accounting guidance on income taxes. Prior to January 2010, the French Business Tax had been presented as a non-income tax and included as a component of Cost of Services. The French government changed the business tax from an asset-based tax to an income-based tax, thereby requiring the classification of this tax as an income tax effective January 1, 2010.

 
 
22
 
The 48.9% rate for the three months ended September 30, 2010 was higher than the U.S. Federal statutory rate of 35%, and we currently expect an annual effective tax rate of approximately 53% for the full year, due primarily to valuation allowances, other permanent items and the French Business Tax. Excluding the impact of the French Business Tax, our tax rate would be approximately 40% for the year, which is lower than the annual 2009 rate of 59.9% due to a favorable impact from changes in the mix of U.S. and non-U.S. earnings and non-U.S. earnings and no material nondeductible impairment charges in 2010.

Net Earnings (Loss) Per Share – Diluted increased to earnings of $0.62 per share in the third quarter of 2010 compared to a loss of $0.67 per share in the third quarter of 2009. Exchange rates had a negative impact of $0.03 on Net Earnings (Loss) Per Share – Diluted. Weighted Average Shares – Diluted were 82.7 million for the third quarter of 2010 as compared to 78.4 million in the third quarter of 2009, an increase of 5.5%, due primarily to the issuance of 3.2 million shares as part of the COMSYS acquisition on April 5, 2010.
 

Operating Results - Nine Months Ended September 30, 2010 and 2009

The following table presents selected consolidated financial data for the nine months ended September 30, 2010 as compared to 2009.
 
 
(in millions, except per share data )
 
2010
   
2009
   
Variance
   
Constant Currency Variance
Revenues from services
 
$
13,656.9
   
$
11,626.1
     
17.5
%
   
18.0
% 
Cost of services
   
11,317.2
     
9,564.0
     
18.3
     
19.0
 
Gross profit
   
2,339.7
     
2,062.1
     
13.5
     
13.7
 
             Gross profit margin
   
  17.1%
     
  17.7%
                 
                                 
Selling and administrative expenses
   
2,119.1
     
2,002.2
     
5.8
     
5.8
 
Goodwill and intangible asset impairment charges
   
-
     
61.0
                 
Selling and administrative expenses
   
2,119.1
     
2,063.2
     
2.7
     
2.7
 
                                 
Operating profit (loss)
   
    220.6
     
    (1.1)
                 
Operating profit margin
   
1.6%
     
0.0%
                 
                                 
Interest and other expenses
   
33.2
     
52.0
     
(36.2
)
       
Earnings (loss) before income taxes