Item 1. Financial Statements
Item 1 – Financial Statements (unaudited)
ManpowerGroup Inc.
Consolidated Balance Sheets (Unaudited)
(in millions)
ASSETS
June 30,
2020
December 31,
2019
Cash and cash equivalents
$
1,438.6
$
1,025.8
Accounts receivable, less allowance for doubtful accounts of
$ 117.7 and $ 113.5 , respectively
4,224.6
5,273.1
Prepaid expenses and other assets
229.5
185.6
Total current assets
5,892.7
6,484.5
Other Assets:
Goodwill
1,178.2
1,260.1
Intangible assets, less accumulated amortization of
$ 401.6 and $ 389.4 , respectively
255.1
268.6
Operating lease right-of-use asset
409.1
448.5
Other assets
588.1
618.8
Total other assets
2,430.5
2,596.0
Property and Equipment:
Land, buildings, leasehold improvements and equipment
593.9
605.5
Less: accumulated depreciation and amortization
457.5
462.2
Net property and equipment
136.4
143.3
Total assets
$
8,459.6
$
9,223.8
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
3
ManpowerGroup Inc.
Consolidated Balance Sheets (Unaudited)
(in millions, except share and per share data)
LIABILITIES AND SHAREHOLDERS’ EQUITY
June 30,
2020
December 31,
2019
Current Liabilities:
Accounts payable
$
2,243.5
$
2,474.9
Employee compensation payable
161.7
206.4
Accrued liabilities
499.6
545.4
Accrued payroll taxes and insurance
572.8
649.7
Value added taxes payable
419.5
504.0
Short-term borrowings and current maturities of long-term debt
40.5
61.0
Total current liabilities
3,937.6
4,441.4
Other Liabilities:
Long-term debt
1,014.3
1,012.4
Long-term operating lease liability
308.5
336.7
Other long-term liabilities
656.4
671.8
Total other liabilities
1,979.2
2,020.9
Shareholders’ Equity:
ManpowerGroup 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
117,499,079 and 117,190,883 shares, respectively
1.2
1.2
Capital in excess of par value
3,388.0
3,370.6
Retained earnings
3,368.2
3,494.1
Accumulated other comprehensive loss
( 479.1
)
( 441.0
)
Treasury stock at cost, 59,446,363 and 58,517,128 shares, respectively
( 3,752.3
)
( 3,681.9
)
Total ManpowerGroup shareholders’ equity
2,526.0
2,743.0
Noncontrolling interests
16.8
18.5
Total shareholders’ equity
2,542.8
2,761.5
Total liabilities and shareholders’ equity
$
8,459.6
$
9,223.8
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
4
ManpowerGroup Inc.
Consolidated Statements of Operations (Unaudited)
(in millions, except per share data)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Revenues from services
$
3,742.2
$
5,373.1
$
8,361.3
$
10,418.0
Cost of services
3,165.5
4,502.7
7,060.6
8,742.8
Gross profit
576.7
870.4
1,300.7
1,675.2
Selling and administrative expenses, excluding goodwill impairment charges
559.9
675.6
1,246.2
1,374.9
Goodwill impairment charges
66.8
64.0
66.8
64.0
Selling and administrative expenses
626.7
739.6
1,313.0
1,438.9
Operating (loss) profit
( 50.0
)
130.8
( 12.3
)
236.3
Interest and other expenses (income), net
5.8
( 70.2
)
26.3
( 58.3
)
(Loss) earnings before income taxes
( 55.8
)
201.0
( 38.6
)
294.6
Provision for income taxes
8.6
73.7
24.1
113.8
Net (loss) earnings
( 64.4
)
$
127.3
$
( 62.7
)
$
180.8
Net (loss) earnings per share – basic
$
( 1.11
)
$
2.12
$
( 1.07
)
$
3.00
Net (loss) earnings per share – diluted
$
( 1.11
)
$
2.11
$
( 1.07
)
$
2.98
Weighted average shares – basic
58.2
60.0
58.5
60.3
Weighted average shares – diluted
58.2
60.4
58.5
60.7
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ManpowerGroup Inc.
Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
(in millions)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Net (loss) earnings
$
( 64.4
)
$
127.3
$
( 62.7
)
$
180.8
Other comprehensive income (loss):
Foreign currency translation adjustments
37.3
32.9
( 47.6
)
2.3
Reclassification of currency translation adjustment to income related to disposition of partially held equity interest
—
( 32.5
)
—
( 32.5
)
Translation adjustments on derivative instruments, net of income taxes of $( 5.3 ), $( 3.1 ), $ 0.1 and $ 2.0 , respectively
( 9.3
)
( 11.1
)
1.4
6.3
Translation adjustments of long-term intercompany loans
( 1.9
)
( 4.2
)
( 0.4
)
6.8
Defined benefit pension plans and retiree health care plan, net of income taxes of $( 0.1 ), $ 0.0 , $ 7.6 and $ 0.1 , respectively
0.6
0.2
1.9
0.4
Pension settlement related to a U.S. plan, net of income taxes of $( 3.9 )
—
—
6.6
—
Total other comprehensive income (loss)
26.7
( 14.7
)
( 38.1
)
( 16.7
)
Comprehensive (loss) income
$
( 37.7
)
$
112.6
$
( 100.8
)
$
164.1
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
5
ManpowerGroup Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in millions)
Six Months Ended
June 30,
2020
2019
Cash Flows from Operating Activities:
Net (loss) earnings
$
( 62.7
)
$
180.8
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation and amortization
37.0
39.0
Noncash gain on disposition of previously held equity interest
-
( 80.4
)
Noncash goodwill and other impairment charges
71.3
64.0
Deferred income taxes
( 7.9
)
13.7
Provision for doubtful accounts
10.9
11.5
Share-based compensation
11.5
12.9
Changes in operating assets and liabilities, excluding the impact of acquisitions:
Accounts receivable
988.3
( 120.9
)
Other assets
( 27.2
)
81.3
Other liabilities
( 425.1
)
75.2
Cash provided by operating activities
596.1
277.1
Cash Flows from Investing Activities:
Capital expenditures
( 18.9
)
( 24.0
)
Acquisition of businesses, net of cash acquired
-
114.7
Proceeds from the sale of subsidiaries, investments, property and equipment
0.8
8.0
Cash (used in) provided by investing activities
( 18.1
)
98.7
Cash Flows from Financing Activities:
Net change in short-term borrowings
( 17.8
)
( 3.0
)
Proceeds from long-term debt
1.1
7.6
Repayments of long-term debt
( 0.1
)
( 0.1
)
Payments of contingent consideration for acquisitions
( 1.7
)
( 22.8
)
Proceeds from share-based awards and sale of subsidiaries
6.8
5.5
Payments to noncontrolling interest
( 0.8
)
( 2.1
)
Other share-based award transactions
( 6.6
)
( 7.3
)
Repurchases of common stock
( 63.8
)
( 101.0
)
Dividends paid
( 63.2
)
( 65.2
)
Cash used in financing activities
( 146.1
)
( 188.4
)
Effect of exchange rate changes on cash
( 19.1
)
( 8.9
)
Change in cash and cash equivalents
412.8
178.5
-
Cash and cash equivalents, beginning of period
1,025.8
591.9
Cash and cash equivalents, end of period
$
1,438.6
$
770.4
Supplemental Cash Flow Information:
Interest Paid
$
21.2
$
21.4
Income taxes paid, net
$
59.5
$
74.8
Non-cash operating activity:
Right-of-use assets obtained in exchange for new operating lease liabilities
$
26.0
$
69.7
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
6
ManpowerGroup Inc.
Consolidated Statements of Shareholders' Equity (Unaudited)
(in millions, except share and per share data)
ManpowerGroup Shareholders
Common Stock
Shares
Issued
Par Value
Capital in
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Non-
Controlling
Interests
Total
Balance, December 31, 2019
117,190,883
$
1.2
$
3,370.6
$
3,494.1
$
( 441.0
)
$
( 3,681.9
)
$
18.5
$
2,761.5
Net earnings
1.7
1.7
Other comprehensive loss
( 64.8
)
( 64.8
)
Issuances under equity plans
293,298
5.9
( 6.4
)
( 0.5
)
Share-based compensation expense
4.6
4.6
Repurchases of common stock
( 63.8
)
( 63.8
)
Noncontrolling interest transactions
0.3
0.3
Balance, March 31, 2020
117,484,181
$
1.2
$
3,381.1
$
3,495.8
$
( 505.8
)
$
( 3,752.1
)
$
18.8
$
2,639.0
Net loss
( 64.4
)
( 64.4
)
Other comprehensive income
26.7
26.7
Issuances under equity plans
14,898
( 0.2
)
( 0.2
)
Share-based compensation expense
6.9
6.9
Dividends
( 63.2
)
( 63.2
)
Noncontrolling interest transactions
( 2.0
)
( 2.0
)
Balance, June 30, 2020
117,499,079
$
1.2
$
3,388.0
$
3,368.2
$
( 479.1
)
$
( 3,752.3
)
$
16.8
$
2,542.8
ManpowerGroup Shareholders
Common Stock
Shares
Issued
Par Value
Capital in
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Non-
Controlling
Interests
Total
Balance, December 31, 2018
116,795,899
$
1.2
$
3,337.5
$
3,157.7
$
( 399.8
)
$
( 3,471.7
)
$
73.6
$
2,698.5
Net earnings
53.5
53.5
Other comprehensive loss
( 2.0
)
( 2.0
)
Issuances under equity plans
247,325
0.4
( 5.3
)
( 4.9
)
Share-based compensation expense
4.6
4.6
Repurchases of common stock
( 101.0
)
( 101.0
)
Noncontrolling interest transactions
0.5
0.7
1.2
Balance, March 31, 2019
117,043,224
$
1.2
$
3,343.0
$
3,211.2
$
( 401.8
)
$
( 3,578.0
)
$
74.3
$
2,649.9
Net earnings
127.3
127.3
Other comprehensive loss
( 14.7
)
( 14.7
)
Issuances under equity plans
120,244
3.9
( 1.9
)
2.0
Share-based compensation expense
8.3
8.3
Dividends
( 65.2
)
( 65.2
)
Repurchases of common stock
-
Noncontrolling interest transactions
( 0.8
)
( 12.3
)
( 13.1
)
Balance, June 30, 2019
117,163,468
$
1.2
$
3,354.4
$
3,273.3
$
( 416.5
)
$
( 3,579.9
)
$
62.0
$
2,694.5
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
7
Notes to Consolidated Financ ial Statements (Unaudited)
For the three and six months ended June 30, 2020 and 2019
(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 United States Generally Accepted Accounting Principles ("GAAP") 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 2019 Annual Report on Form 10-K.
The information furnished reflects all adjustments that, in the opinion of management, were necessary for a fair statement of the Consolidated Financial Statements for the periods presented. Such adjustments were of a normal recurring nature, unless otherwise disclosed.
COVID-19
The global spread of COVID-19, which was declared a global pandemic by the World Health Organization in March 2020, has created significant volatility, uncertainty and global macroeconomic disruption. Our business, operations and consolidated financial statements for the three and six months ended June 30, 2020 were significantly negatively impacted by the COVID-19 crisis. By the end of March, significant lockdown measures had been implemented in our main markets in Europe and North America, as well as in certain other countries. As the second quarter of 2020 drew to a close, indications were that the impact of the COVID-19 crisis had been contained in many parts of the world, and economies had begun to slowly reopen. However, some countries in Latin America and parts of the United States continue to deal with the COVID-19 crisis at elevated levels. Continued uncertainty remains as to the future impact of the pandemic on global and local economies.
We are continuing to monitor and assess the impacts of the COVID-19 pandemic and we expect that our financial condition, liquidity and future results of operations will continue to be adversely affected. However, we cannot predict with certainty what the impact will be on future periods. For further information on the impacts of COVID-19 on our business, operations and financial results, see Part I, Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Allowance for Doubtful Accounts
We have an allowance for doubtful accounts recorded as an estimate of the accounts receivable that may not be collected. This allowance is calculated on an entity-by-entity basis with consideration of historical write-off experience, age of receivables, market conditions, and a specific review for potential bad debts. Items that affect this balance mainly include bad debt expense and the write-off of accounts receivable balances.
A rollforward of our allowance for doubtful accounts is shown below:
Six Months Ended June 30, 2020
Balance, December 31, 2019
$
113.5
Provisions charged to earnings
10.8
Write-offs
( 9.6
)
Translation adjustments
( 0.8
)
Reclassifications and other
3.8
Balance, June 30, 2020
$
117.7
Leases
We determine whether a contract is or contains a lease at contract inception. Right-of-use (“ROU”) assets and long-term lease liabilities are presented as separate line items on our Consolidated Balance Sheets. Current operating lease liabilities are included in accrued expenses on our Consolidated Balance Sheets.
8
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. As the rate implicit in the lease is not readily determinable in most of our leases, we use our incremental borrowing rate. We determine our incremental borrowing rate at the commencement date using our unsecured borrowing rate, adjusted for collateralization , lease term, economic environment, currency and other factors. ROU assets are recognized at commencement date at the value of the related lease liabilities, adjusted for any prepayments, lease incentives received, and initial direct costs incurred. Our lease terms include options to renew or not terminate the lease when it is reasonably certain that we will exercise that option.
Lease expenses for operating leases are recognized on a straight-line basis over the lease term and recorded in selling and administrative expenses on the Consolidated Statements of Operations.
Payroll Tax Credit
In April 2019, we sold a portion of our French payroll tax credits earned in 2018 for net proceeds of $ 103.5 (€ 92.0 ). We derecognized these receivables and the additional interest upon the sale date as the terms of the agreement are such that the transaction qualifies for sale treatment in accordance with the accounting guidance on the transfer and servicing of assets. The discount on the sale of these receivables was recorded in cost of services as a reduction of the payroll tax credits.
Goodwill Impairment
In accordance with the accounting guidance on goodwill, we perform an annual impairment test of goodwill at our reporting unit 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 evaluate the recoverability of goodwill utilizing an income approach that estimates the fair value of the future discounted cash flows to which the goodwill relates. This approach reflects management’s internal outlook of the reporting units, which is believed to be the best determination of value due to management’s insight and experience with the reporting units. Significant assumptions used in our goodwill impairment tests include: expected future revenue growth rates, operating unit profit margins, working capital levels, discount rates, and a terminal value multiple.
During the second quarter of 2019, we determined that it was more likely than not that the fair value of the Germany reporting unit was below its carrying amount and performed an interim goodwill impairment test. As a result of the interim test, we wrote down the carrying value of the Germany reporting unit to its estimated fair value and recognized a non-cash impairment charge loss of $ 60.2 during the second quarter of 2019. As of the date of our last annual impairment test, performed during the third quarter of 2019, the fair value of each reporting unit was at least 20 % in excess of the respective reporting unit’s carrying value with the exception of the Germany reporting unit.
For the second quarter of 2020, in connection with the preparation of our quarterly financial statements, we assessed the changes in circumstances that occurred during the quarter to determine if it was more likely than not that the fair value of any reporting unit was below its carrying amount. We identified several factors related to our Germany reporting unit that led us to conclude that it was more likely than not that the fair value of the reporting unit was below its carrying amount. These factors included sustained operating losses resulted from the ongoing decline and increased uncertainty in the outlook of the manufacturing sector, particularly the automotive sector in Germany, coupled with the significant implications of COVID-19. Our German business has not experienced the improvement in the rate of revenue decline as the second quarter progressed that many of our other European markets have experienced, and if we continue to experience sustained revenue declines and operating losses we may have to consider further actions to optimize our business structure.
As we determined that it was more likely than not that the fair value of the Germany reporting unit was below its carrying amount, we performed an interim impairment test on this reporting unit as of June 30, 2020. As a result of our interim test, we recognized a non-cash impairment loss of $ 66.8 . The Germany reporting unit is included in the Northern Europe segment. The goodwill impairment charge resulted from reductions in the estimated fair value for our Germany reporting unit based on lower expectations for future revenue, profitability and cash flows as compared to the expectations of the 2019 annual goodwill impairment test and our quarterly assessments in the intervening periods due to the factors discussed above.
9
W e determined the fair value of the Germany reporting unit by utilizing an income approach derived from a discounted cash flow methodology. The income approach is developed from management’s forecasted cash flow data. Significant assumptions used in our interim goodwill impairment test included: future expected revenue growth rates, operating unit profit margins, working capital levels, discount rate, and a terminal value multiple.
We have also experienced declines in the operating results of our reporting units apart from our Germany reporting unit during the six months ended June 30, 2020 as a result of the impact from the COVID-19 pandemic on the global economy; however, as of the end of the first half of 2020 and the date of this filing, we do not believe that it is more likely than not that the fair value of our reporting units are below their carrying value. However, given the uncertainty of the financial impacts from the COVID-19 pandemic, there may be further decreases in the operating results of our reporting units for a sustained period, which may result in a recognition of goodwill impairment that could be material to the Consolidated Financial Statements.
(2) Recent Accounting Standards
Accounting Standards Effective as of January 1, 2020
In June 2016, the FASB issued new accounting guidance on financial instruments. The new guidance requires application of an impairment model known as the current expected credit loss (“CECL”) model to certain financial instruments. Using the CECL model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions, and forecasted information rather than the previous methodology of delaying recognition of credit losses until it is probable that loss has been incurred. The new guidance was effective for us as of January 1, 2020. The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.
In August 2018, the FASB issued new guidance on disclosures related to fair value measurements. The guidance is intended to improve the effectiveness of the notes to financial statements by facilitating clearer communication, and it includes multiple new, eliminated and modified disclosure requirements. The guidance was effective for us as of January 1, 2020. The adoption of this guidance had no impact on our Consolidated Financial Statements.
In August 2018, the FASB issued new guidance on the accounting for internal-use software. The guidance aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The guidance was effective for us as of January 1, 2020. The adoption of this guidance had no impact on our Consolidated Financial Statements.
In August 2018, the FASB issued new guidance on disclosures related to defined benefit plans. The guidance amends the current disclosure requirements to add, remove and clarify disclosure requirements for defined benefit pension and other postretirement plans. The guidance was effective for us as of January 1, 2020. The adoption of this guidance had no impact on our Consolidated Financial Statements .
Recently Issued Accounting Standards
In December 2019, the FASB issued new guidance on income taxes. The guidance removes certain exceptions to the general income tax accounting principles, and clarifies and amends existing guidance to facilitate consistent application of the accounting principles. The new guidance is effective for us as of January 1, 2021. We are assessing the impact of the adoption of this guidance on our Consolidated Financial Statements.
In January 2020, the FASB issued new guidance on equity method investments. The guidance clarifies the interactions between the existing accounting standards on equity securities, equity method and joint ventures, and derivatives and hedging. The new guidance addresses accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The new guidance is effective for us as of January 1, 2021. We do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.
(3) Revenue Recognition
For certain client contracts where we recognize revenues over time, we recognize the amount that we have the right to invoice, which corresponds directly to the value provided to the client of our performance to date.
10
We do not disclose the amount of unsatisfied performance obligations for client contracts with an original expected length of one year or less and those client contracts for which we recognize revenues at the amount to which we have the right to invoice for services performed. We have other contracts with revenues expected to be recognized subsequent to June 30, 2020 , related to remaining performance obligations, which are not material.
We record accounts receivable when our right to consideration becomes unconditional. Contract assets primarily relate to our rights to consideration for services provided that they are conditional on satisfaction of future performance obligations. We record contract liabilities (deferred revenue) when payments are made or due prior to the related performance obligations being satisfied. The current portion of our contract liabilities is included in accrued liabilities in our Consolidated Balance Sheets. We do not have any material contract assets or long-term contract liabilities.
Our deferred revenue was $ 37.3 at June 30, 2020 and $ 44.5 at December 31, 2019.
In the following table, revenue is disaggregated by service types for each of our reportable segments. See Note 3 to the Consolidated Financial Statements in our 2019 Annual Report on Form 10-K for descriptions of revenue service types.
3 Months Ended June 30,
2020
2019
Staffing
and
Interim
Outcome-
Based
Solutions
and
Consulting
Permanent
Recruitment
Other
Total
Staffing
and
Interim
Outcome-
Based
Solutions
and
Consulting
Permanent
Recruitment
Other
Total
Americas:
United States
$
429.0
$
30.5
$
15.8
$
40.6
$
515.9
$
551.3
$
38.4
$
24.1
$
38.9
$
652.7
Other Americas
307.2
7.3
3.1
3.1
320.7
392.8
13.3
6.2
3.2
415.5
736.2
37.8
18.9
43.7
836.6
944.1
51.7
30.3
42.1
1,068.2
Southern Europe:
France
663.4
62.5
7.4
2.7
736.0
1,345.7
58.4
13.6
7.6
1,425.3
Italy
255.0
5.0
4.8
3.7
268.5
365.2
11.9
10.7
6.6
394.4
Other Southern Europe
380.6
75.0
7.5
3.2
466.3
471.9
83.7
16.0
3.0
574.6
1,299.0
142.5
19.7
9.6
1,470.8
2,182.8
154.0
40.3
17.2
2,394.3
Northern Europe
768.3
64.4
19.6
13.4
865.7
1,050.8
88.3
38.2
16.8
1,194.1
APME
450.6
81.7
28.2
8.6
569.1
582.0
75.3
50.1
9.1
716.5
Total
$
3,254.1
$
326.4
$
86.4
$
75.3
$
3,742.2
$
4,759.7
$
369.3
$
158.9
$
85.2
$
5,373.1
6 Months Ended June 30,
2020
2019
Staffing
and
Interim
Outcome-
Based
Solutions
and
Consulting
Permanent
Recruitment
Other
Total
Staffing
and
Interim
Outcome-
Based
Solutions
and
Consulting
Permanent
Recruitment
Other
Total
Americas:
United States
$
947.7
$
60.6
$
40.8
$
77.7
$
1,126.8
$
1,080.0
$
73.3
$
47.0
$
75.6
$
1,275.9
Other Americas
686.7
19.7
8.6
5.8
720.8
778.2
25.8
12.0
6.5
822.5
1,634.4
80.3
49.4
83.5
1,847.6
1,858.2
99.1
59.0
82.1
2,098.4
Southern Europe:
France
1,661.7
140.6
19.9
7.6
1,829.8
2,570.2
117.1
28.1
16.0
2,731.4
Italy
562.1
13.7
13.0
7.4
596.2
695.2
21.7
20.6
13.3
750.8
Other Southern Europe
796.5
165.6
21.4
6.0
989.5
818.9
164.3
30.2
7.5
1,020.9
3,020.3
319.9
54.3
21.0
3,415.5
4,084.3
303.1
78.9
36.8
4,503.1
Northern Europe
1,717.9
135.3
50.9
30.1
1,934.2
2,104.2
179.8
76.3
34.3
2,394.6
APME
917.2
164.9
65.1
16.8
1,164.0
1,165.4
146.1
93.8
16.6
1,421.9
Total
$
7,289.8
$
700.4
$
219.7
$
151.4
$
8,361.3
$
9,212.1
$
728.1
$
308.0
$
169.8
$
10,418.0
11
In the following table, revenue is disaggregated by timing of revenue recognition for each of our reportable segments:
3 Months Ended June 30,
2020
2019
Services
transferred
over time
Services
transferred
at a point
in time
Total
Services
transferred
over time
Services
transferred
at a point
in time
Total
Americas:
United States
$
507.6
$
8.3
$
515.9
$
639.0
$
13.7
$
652.7
Other Americas
318.8
1.9
320.7
411.2
4.3
415.5
826.4
10.2
836.6
1,050.2
18.0
1,068.2
Southern Europe:
France
729.5
6.5
736.0
1,412.6
12.7
1,425.3
Italy
264.1
4.4
268.5
384.6
9.8
394.4
Other Southern Europe
460.0
6.3
466.3
561.4
13.2
574.6
1,453.6
17.2
1,470.8
2,358.6
35.7
2,394.3
Northern Europe
848.6
17.1
865.7
1,160.8
33.3
1,194.1
APME
553.5
15.6
569.1
683.3
33.2
716.5
Total
$
3,682.1
$
60.1
$
3,742.2
$
5,252.9
$
120.2
$
5,373.1
6 Months Ended June 30,
2020
2019
Services
transferred
over time
Services
transferred
at a point
in time
Total
Services
transferred
over time
Services
transferred
at a point
in time
Total
Americas:
United States
$
1,105.4
$
21.4
$
1,126.8
$
1,249.2
$
26.7
$
1,275.9
Other Americas
715.3
5.5
720.8
814.2
8.3
822.5
1,820.7
26.9
1,847.6
2,063.4
35.0
2,098.4
Southern Europe:
France
1,811.6
18.2
1,829.8
2,705.0
26.4
2,731.4
Italy
584.1
12.1
596.2
731.6
19.2
750.8
Other Southern Europe
971.5
18.0
989.5
995.8
25.1
1,020.9
3,367.2
48.3
3,415.5
4,432.4
70.7
4,503.1
Northern Europe
1,890.0
44.2
1,934.2
2,328.2
66.4
2,394.6
APME
1,128.8
35.2
1,164.0
1,360.2
61.7
1,421.9
Total
$
8,206.7
$
154.6
$
8,361.3
$
10,184.2
$
233.8
$
10,418.0
(4) Share-Based Compensation Plans
During the three months ended June 30, 2020 and 2019, we recognized share-based compensation expense of $ 6.9 and $ 8.3 , respectively, and $ 11.5 and $ 12.9 for the six months ended June 30, 2020 and 2019, respectively. The expense relates to stock options, deferred stock, restricted stock and performance share units. We recognize share-based compensation expense in selling and administrative expenses on a straight-line basis over the service period of each award. Consideration received from share-based awards was $ 6.8 and $ 5.3 for the six months ended June 30, 2020 and 2019, respectively.
(5) Acquisitions
From time to time, we acquire and invest in companies throughout the world, including franchises. For the six months ended June 30, 2020, the total cash consideration paid for acquisitions, net of cash acquired, was $ 1.7 , which represents a deferred consideration payment related to a previous acquisition.
On April 3, 2019, we acquired the remaining 51 % controlling interest in our Swiss franchise (“Manpower Switzerland”) to obtain full ownership of the entity. Additionally, as part of the purchase agreement we acquired the remaining 20 % interest in Experis AG. Manpower Switzerland provides contingent staffing services under our Manpower brand in the four main language regions in Switzerland. Both Manpower Switzerland and Experis AG are reported in our Southern Europe segment. The aggregate cash consideration paid was $ 212.7 as of June 30, 2019 and was funded through cash on hand. Of the total consideration paid, $ 58.3 was for the acquired interests and the remaining $ 154.4 was for cash and cash equivalents. The total cash impact of the acquisition was an
12
inflow of $ 104.8 , net of cash acquired of $ 317.5 . The acquisition of the remaining interest of Experis AG was accounted for as an equity transaction as we previously consolidated the entity.
In connection with the business combination, we recognized a one-time, non-cash gain on the disposition of our previously held equity interest in Manpower Switzerland of $ 80.4 , which is included within interest and other expenses (income), net on the Consolidated Statements of Operations. Of the $ 80.4 , $ 32.5 represented the reclassification of foreign currency translation adjustments related to the previously held equity interest, from accumulated other comprehensive income.
Excluding Manpower Switzerland and Experis AG, the total cash consideration paid for acquisitions, net of cash acquired, was $ 17.7 for the six months ended June 30, 2019. This balance represents contingent consideration payments related to previous acquisitions, of which $ 13.0 had been recognized as a liability at the acquisition date.
(6) Restructuring Costs
We recorded net restructuring costs of $ 48.2 and $ 41.4 during the six months ended June 30, 2020 and 2019, respectively, in selling and administrative expenses, primarily related to severances and office closures and consolidations in multiple countries and territories. As a result of the adoption of the new accounting guidance on leases as of January 1, 2019, the office closure costs of $ 8.2 during the six months ended June 30, 2020 were recorded as an impairment to the operating lease right-of-use asset and, thus, are not included in the restructuring reserve balance as of June 30, 2020. The costs paid, utilized or transferred out of our restructuring reserve were $ 32.1 during the six months ended June 30, 2020. We expect a majority of the remaining $ 23.4 reserve will be paid by the end of 2020.
Changes in the restructuring reserve by reportable segment and Corporate are shown below.
Americas (1)
Southern
Europe (2)
Northern
Europe
APME
Corporate
Total
Balance, December 31, 2019
$
0.4
$
0.7
$
6.2
$
—
$
—
$
7.3
Severance costs
4.7
11.8
19.3
1.0
0.2
37.0
Office closure and other costs
8.1
1.3
0.2
1.6
—
11.2
Costs paid, utilized or transferred out
( 10.5
)
( 12.0
)
( 7.0
)
( 2.6
)
—
( 32.1
)
Balance, June 30, 2020
$
2.7
$
1.8
$
18.7
$
-
$
0.2
$
23.4
(1)
Balances related to the United States were $ 0.3 and $ 2.1 as of December 31, 2019 and June 30, 2020, respectively.
(2)
France had no restructuring reserve as of both December 31, 2019 and June 30, 2020. Balances related to Italy were $ 0.3 and $ 0.6 as of December 31, 2019 and June 30, 2020, respectively.
(7) Income Taxes
We recorded income tax expense on a pre-tax loss resulting in a negative effective rate of 15.4 % for the three months ended June 30, 2020, as compared to an income tax expense on pre-tax earnings resulting in an effective rate of 36.7 % for the three months ended June 30, 2019. The 2020 rate was negative due to a pre-tax loss that primarily resulted from the impact from the goodwill impairment charge, related to our Germany reporting unit, which was non-deductible. The 2020 rate was also unfavorably impacted by the relatively low level and mix of pre-tax (losses) earnings, tax losses in certain countries for which we did no t recognize a corresponding tax benefit due to valuation allowances, and the French business tax. The French business tax had a more significant unfavorable impact in the quarter due to French pre-tax earnings decreasing at a greater rate than revenues, which is the primary basis for the tax calculation. The negative effective tax rate of 15.4 % for the three months ended June 30, 2020 was significantly different than the United States Federal statutory rate of 21 % primarily due to the factors noted above.
We recorded income tax expense on a pre-tax loss resulting in a negative effective rate of 62.4 % for the six months ended June 30, 2020, as compared to an income tax expense on pre-tax earnings resulting in an effective rate of 38.6 % for the six months ended June 30, 2019. The 2020 rate was negative due to a pre-tax loss that primarily resulted from the impact from the goodwill impairment charge, related to our Germany reporting unit, which was non-deductible. The 2020 rate was also unfavorably impacted by the relatively low level and mix of pre-tax earnings, restructuring costs and tax losses in certain countries for which we did no t recognize a corresponding tax benefit due to valuation allowances, and the French business tax. The negative effective tax rate of 62.4 % for the
13
six months ended June 30, 2020 was significantly different than the United States Federal statutory rate of 21 % primarily due to the factors noted above, partially offset by a discrete favorable benefit for the successful appeal of a non-United States tax ruling.
As of June 30, 2020, we had gross unrecognized tax benefits related to various tax jurisdictions, including interest and penalties, of $ 70.3 that would favorably impact the effective tax rate if recognized. As of December 31, 2019, we had gross unrecognized tax benefits related to various tax jurisdictions, including interest and penalties, of $ 69.5 . We do not expect our unrecognized tax benefits to change significantly over the next 12 months.
We conduct business globally in various countries and territories. We are routinely audited by the tax authorities of the various tax jurisdictions in which we operate. Generally, the tax years that could be subject to examination are 2013 through 2020 for our major operations in France, Germany, Japan, the United Kingdom and the United States. As of June 30, 2020, we are subject to tax audits in Austria, Belgium, Canada, Denmark, Germany, Israel and the United States. We believe that the resolution of these audits will not have a material impact on earnings.
(8) Net (Loss) Earnings Per Share
The calculations of net (loss) earnings per share - basic and net earnings per share - diluted were as follows:
3 Months Ended
6 Months Ended
June 30,
June 30,
2020
2019
2020
2019
Net (loss) earnings available to common shareholders
$
( 64.4
)
$
127.3
$
( 62.7
)
$
180.8
Weighted-average common shares outstanding (in millions)
Weighted-average common shares outstanding - basic
58.2
60.0
58.5
60.3
Effect of dilutive securities - stock options
—
0.1
—
0.1
Effect of other share-based awards
—
0.3
—
0.3
Weighted-average common shares outstanding - diluted
58.2
60.4
58.5
60.7
Net (loss) earnings per share - basic
$
( 1.11
)
$
2.12
$
( 1.07
)
$
3.00
Net (loss) earnings per share - diluted
$
( 1.11
)
$
2.11
$
( 1.07
)
$
2.98
Due to the net loss for the three months and six months ended June 30, 2020, the assumed exercise of share-based awards had an anti-dilutive effect and therefore was not included in the calculations of net loss per share – diluted for the three months and six months ended June 30, 2020. There were 1.1 million and 0.4 million share-based awards excluded from the calculation of net (loss) earnings per share - diluted for the three months ended June 30, 2020 and 2019, respectively, and 0.9 million and 0.4 million share-based awards excluded from the calculation of net (loss) earnings per share - diluted for the six months ended June 30, 2020 and 2019, respectively, because their impact was anti-dilutive.
(9) Goodwill and Other Intangible Assets
We have goodwill, finite-lived intangible assets and indefinite-lived intangible assets as follows:
June 30, 2020
December 31, 2019
Gross
Accumulated
Amortization
Net
Gross
Accumulated
Amortization
Net
Goodwill (1)
$
1,178.2
$
—
$
1,178.2
$
1,260.1
$
—
$
1,260.1
Intangible assets:
Finite-lived:
Customer relationships
$
459.0
$
386.7
$
72.3
$
460.5
$
375.7
$
84.8
Other
20.7
14.9
5.8
20.9
13.7
7.2
479.7
401.6
78.1
481.4
389.4
92.0
Indefinite-lived:
Tradenames (2)
52.0
—
52.0
52.0
—
52.0
Reacquired franchise rights
125.0
—
125.0
124.6
—
124.6
177.0
—
177.0
176.6
—
176.6
Total intangible assets
$
656.7
$
401.6
$
255.1
$
658.0
$
389.4
$
268.6
14
(1) Balances were net of accumulated impairment loss of $ 644.2 and $ 577.4 as of June 30, 2020 and December 31, 2019, respectively.
(2) Balances were net of accumulated impairment loss of $ 139.5 as of both June 30, 2020 and December 31, 2019.
Total consolidated amortization expense related to intangible assets for the remainder of 2020 is expected to be $ 12.9 and in each of the next five years as follows: 2021- $ 15.9 , 2022- $ 12.7 , 2023- $ 10.0 , 2024 - $ 7.7 , 2025- $ 5.8 .
Changes in the carrying value of goodwill by reportable segment and Corporate were as follows:
Americas (1)
Southern
Europe (2)(3 )
Northern
Europe (3)
APME
Corporate (4)
Total
Balance, December 31, 2019
$
535.6
$
144.8
$
374.6
$
79.1
$
126.0
$
1,260.1
Currency impact
( 2.2
)
—
( 11.0
)
( 1.9
)
—
( 15.1
)
Impairment Charge
—
—
( 66.8
)
—
—
( 66.8
)
Balance, June 30, 2020
$
533.4
$
144.8
$
296.8
$
77.2
$
126.0
$
1,178.2
(1) Balances related to the United States were $ 490.3 and $ 490.2 as of December 31, 2019 and June 30, 2020, respectively.
(2) Balances related to France were $ 67.3 and $ 67.4 as of December 31, 2019 and June 30, 2020, respectively. Balances related to Italy were $ 4.6 and $ 3.8 as of December 31, 2019 and June 30, 2020.
(3) The impairment charge of $ 66.8 relates to our Germany reporting unit, which was recorded during the second quarter of 2020. See Note 1 to the Consolidated Financial Statements for further information.
(4) The majority of the Corporate balance relates to goodwill attributable to our acquisitions of Right Management ($ 62.1 ) and Jefferson Wells ($ 55.5 ). Jefferson Wells is now part of the United States reporting unit. For purposes of monitoring our total assets by segment, we do not allocate the Corporate balance to the 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.
Goodwill balances by reporting unit were as follows:
June 30,
December 31,
2020
2019
United States
$
545.7
$
545.8
Netherlands
109.7
109.5
United Kingdom
90.9
97.3
France
67.4
67.3
Right Management
62.1
62.1
Germany
—
67.2
Other reporting units
302.4
310.9
Total goodwill
$
1,178.2
$
1,260.1
15
(10) Retirement Plans
The components of the net periodic benefit cost (credit) for our plans were as follows:
Defined Benefit Pension Plan
3 Months Ended
6 Months Ended
June 30,
June 30,
2020
2019
2020
2019
Service cost
$
5.1
$
4.3
$
10.2
$
6.8
Interest cost
2.3
3.2
4.6
6.3
Expected return on assets
( 3.2
)
( 3.6
)
( 6.6
)
( 5.9
)
Settlement loss
—
—
10.2
—
Other
0.7
0.4
1.6
0.9
Total benefit cost
$
4.9
$
4.3
$
20.0
$
8.1
Retiree Health Care Plan
3 Months Ended
6 Months Ended
June 30,
June 30,
2020
2019
2020
2019
Interest cost
$
0.1
$
0.2
$
0.2
$
0.3
Prior service credit
( 0.2
)
( 0.2
)
( 0.4
)
( 0.4
)
Total benefit credit
$
( 0.1
)
$
—
$
( 0.2
)
$
( 0.1
)
During the three and six months ended June 30, 2020, contributions made to our pension plans were $ 5.0 and $ 11.0 , respectively, and contributions made to our retiree health care plan were $ 0.3 and $ 0.6 , respectively. During 2020, we expect to make total contributions of approximately $ 17.0 to our pension plans and to fund our retiree health care payments as incurred.
Pension Settlement
During the six months ended June 30, 2020, we fully settled our United States Qualified Retirement Plan (the “Plan”) liability. We purchased annuities of $ 19.2 and settled lump sum payments of $ 3.2 from the Plan in January and February 2020, respectively. The completion of lump sum payments in February and transfer of remaining participants to the Pension Benefit Guarantee Corporation (PBGC) in March triggered final settlement of the plan. Upon settlement of the pension liability, we reclassified the related pension losses of $ 6.6 , net of tax, recorded in accumulated other comprehensive loss to the Consolidated Statements of Comprehensive (Loss) Income. The total amount of the required payout to plan participants was determined based on employee elections and market conditions at the time of settlement. The remaining plan assets of $ 16.6 which were in excess of the pension liability upon settlement will be utilized to fund future qualified 401(k) plan contributions following the conclusion of the standard PBGC audit.
(11) Shareholders’ Equity
The components of accumulated other comprehensive loss, net of tax, were as follows:
June 30,
December 31,
2020
2019
Foreign currency translation
$
( 308.1
)
$
( 260.5
)
Translation gain on derivative instruments, net of income taxes of $( 9.0 ) and $( 9.1 ), respectively
14.5
13.1
Translation loss on long-term intercompany loans
( 121.9
)
( 121.5
)
Defined benefit pension plans, net of income taxes of $( 35.2 ) and $( 30.9 ), respectively
( 65.3
)
( 74.1
)
Retiree health care plan, net of income taxes of $ 2.2 and $ 1.6 , respectively
1.7
2.0
Accumulated other comprehensive loss
$
( 479.1
)
$
( 441.0
)
16
Noncontrolling Interests
Noncontrolling interests, reported in total shareholders' equity in our Consolidated Balance Sheets, represent amounts related to majority-owned subsidiaries in which we have a controlling financial interest. Net earnings attributable to these noncontrolling interests are recorded in interest and other expenses in our Consolidated Statements of Operations. We recorded a benefit of $ 0.4 and an expense of $ 0.1 for the three months ended June 30, 2020 and 2019, respectively, and a benefit of $ 1.0 and an expense of $ 1.1 for the six months ended June 30, 2020 and 2019, respectively.
Dividends
The Board of Directors declared a semi-annual dividend of $ 1.09 per share on both May 8, 2020 and May 10, 2019 . The 2020 dividends were paid on June 15, 2020 to shareholders of record as of June 1, 2020 . The 2019 dividends were paid on June 14, 2019 to shareholders of record on June 3, 2019 .
Share Repurchases
In August 2019, the Board of Directors authorized the repurchase of 6.0 million shares of our common stock, with terms consistent with the previous authorizations. This authorization is in addition to the August 2018 Board authorizations to purchase 6.0 million shares of our common stock each. Share repurchases may be made from time to time through a variety of methods, including open market purchases, block transactions, privately negotiated transactions or similar facilities. During the first six months of 2020, we repurchased a total of 0.9 million shares comprised of 0.8 million shares under the 2018 authorization and 0.1 million shares under the 2019 authorization, at a total cost of $ 63.8 . The repurchases in the first half of 2020 all occurred within the first quarter of 2020. During the first six months of 2019, we repurchased a total of 1.2 million shares at a cost of $ 101.0 under the 2018 authorization. As of June 30, 2020, there were 5.9 million shares remaining authorized for repurchase under the 2019 authorization and no shares remaining authorized for repurchase under the 2018 authorization.
(12) Interest and Other Expenses (Income), Net
Interest and other expenses (income), net consisted of the following:
3 Months Ended
6 Months Ended
June 30,
June 30,
2020
2019
2020
2019
Interest expense
$
10.4
$
11.2
$
21.5
$
21.4
Interest income
( 3.1
)
( 1.1
)
( 6.8
)
( 2.6
)
Foreign exchange loss (gain)
0.5
( 0.5
)
3.6
2.4
Miscellaneous (income) expense, net (1)
( 2.0
)
( 79.8
)
8.0
( 79.5
)
Interest and other expenses (income), net
$
5.8
$
( 70.2
)
$
26.3
$
( 58.3
)
(1)
Miscellaneous (income) expense, net for the six months ended June 30, 2020 includes a $ 10.2 pension settlement loss related to one of our United States plans. See Note 10 to the Consolidated Financial Statements for further information. Miscellaneous (income) expense, net for the three and six months ended June 30, 2019 includes an $ 80.4 gain related to our acquisition of the remaining controlling interest in Manpower Switzerland. See Note 5 to the Consolidated Financial Statements for further information.
(13) Derivative Financial Instruments and Fair Value Measurements
Derivative Financial Instruments
We are exposed to various market risks relating to our ongoing business operations. The primary market risks, which are managed using 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”) and cross-currency swaps 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.
17
Net Investment Hedges
We use cross-currency swaps, forward contracts and a portion of our foreign currency denominated debt, a non-derivative financial instrument, to protect the value of our net investments in certain of our foreign subsidiaries. For derivative instruments that are designated and qualify as hedges of our net investments in foreign operations, the changes in fair values of the derivative instruments are recognized in foreign currency translation, a component of accumulated other comprehensive income (“AOCI”), to offset the changes in the values of the net investments being hedged. For non-derivative financial instruments that are designated and qualify as hedges of net investments in foreign operations, the change in the carrying value of the designated portion of the non-derivative financial instrument due to changes in foreign currency exchange rates is recorded in foreign currency translation adjustments.
The € 400.0 ($ 448.2 ) notes due September 2022 and the € 500.0 ($ 557.3 ) notes due June 2026 were designated as a hedge of our net investment in our foreign subsidiaries with a Euro-functional currency as of June 30, 2020.
In September 2019, we entered into a cross-currency swap agreement that net converts fixed-rate Swiss franc (“CHF”) payments to fixed-rate United States dollar payments. This swap was designated as a net investment hedge of our foreign subsidiary with CHF functional currency.
The effect of our net investment hedges on AOCI for the three and six months ended June 30, 2020 and 2019 was as follows:
Gain (Loss) Recognized in Other Comprehensive Income
3 Months Ended June 30,
6 Months Ended June 30,
Instrument
2020
2019
2020
2019
Euro Notes
$
( 18.3
)
$
( 13.9
)
$
( 1.9
)
$
8.5
Cross-currency swaps
9.9
—
2.4
—
18
Cash Flow Hedges
We use cross-currency swaps to hedge the changes in cash flows of certain of our foreign currency denominated debt due to changes in foreign currency exchange rates. For our cross-currency swaps, we record the change in carrying value of the foreign currency denominated debt due to changes in exchange rates into earnings each period. The changes in fair value of the cross-currency swap derivatives are recorded in AOCI with an immediate reclassification into earnings for the change in fair value attributable to fluctuations in foreign currency exchange rates.
In April 2019, we entered into a cross-currency swap agreement to convert our intercompany fixed-rate, CHF denominated note, including the annual interest payment and the payment of remaining principal at maturity, to a fixed-rate Euro denominated note. The economic effect of the swap agreement is to eliminate the uncertainty of cash flows in CHF associated with the note by fixing the principal at € 202.3 with a fixed annual interest rate of 1.256 %. This hedging arrangement has been designated as a cash flow hedge. The swap matures in April 2022, which matches the term of the intercompany note. Gains and losses from the hedge offset the changes in the value of principal and interest payments as a result of changes in foreign exchange rates. In September 2019 we entered into a cross-currency swap agreement to convert an additional intercompany fixed-rate CHF note, including the annual interest payment and the payment of remaining principal at maturity, to a fixed-rate Euro denominated note. The economic effect of the swap is identical to the original April 2019 swap, and fixes the principal of € 55.4 with a fixed interest rate of 1.143 %. The swap matures in September 2022, which matches the term of the intercompany note.
We assessed the hedging relationship at the inception of the hedge in order to determine whether the derivatives that are used in the hedging transaction are highly effective in offsetting the cash flows of the hedged item and will continue to assess the relationship on an ongoing basis. We use the hypothetical derivative method in conjunction with regression analysis using a third-party valuation to measure effectiveness of our cross-currency swap agreement.
The following tables present the impact that changes in the fair values of derivatives designated as cash flow hedges had on other comprehensive income (“OCI”), AOCI and earnings for the three and six months ended June 30, 2020 and 2019:
(Loss) Gain Reclassified
(Loss) Gain Recognized in OCI
from AOCI into Income
3 Months Ended June 30,
Location of (Loss) Gain Reclassified
3 Months Ended June 30,
Instrument
2020
2019
from AOCI into Income
2020
2019
Cross-currency swaps
$
( 0.9
)
$
5.0
Interest and other expenses (income), net
$
( 1.0
)
$
5.4
(Loss) Gain Reclassified
(Loss) Gain Recognized in OCI
from AOCI into Income
6 Months Ended June 30,
Location of (Loss) Gain Reclassified
6 Months Ended June 30,
Instrument
2020
2019
from AOCI into Income
2020
2019
Cross-currency swaps
$
4.8
$
5.0
Interest and other expenses (income), net
$
4.7
$
5.4
We expect the net amount of pre-tax derivative gains included in AOCI at June 30, 2020 to be reclassified into earnings within the next 12 months will not be significant. The actual amount that will be reclassified to earnings over the next 12 months will vary due to future currency exchange rates.
Non-designated instruments
19
We also use certain derivatives, which are not designated as hedging instruments, as economic hedges of foreign currency and interest rate exposure. For our forward contracts that are not designated as hedges, any gain or loss resulting from the change in fair value is recognized in 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 and September. The effect of our forward contracts that are not designated as hedging instruments on the consolidated statements of operations for the three and six months ended June 30, 2020 was as follows:
Location of Gain
Amount of Gain Recognized in Income
Instrument
Recognized in Income
3 Months Ended June 30,
6 Months Ended June 30,
2020
2019
2020
2019
Foreign currency forward contracts
Interest and other expenses (income), net
$
0.5
$
9.1
$
0.3
$
9.2
The following tables present the fair value of derivative and non-derivative assets and liabilities on the Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019:
Assets
June 30,
December 31,
Balance Sheet Location
2020
2019
Instruments designated as cash flow hedges:
Cross-currency swaps
Prepaid expenses and other assets
$
15.7
$
9.7
Total instruments
$
15.7
$
9.7
Liabilities
June 30,
December 31,
Balance Sheet Location
2020
2019
Instruments designated as net investment hedges:
Euro Notes
Long-term debt
$
1,005.5
$
1,002.9
Cross-currency swaps
Accrued liabilities
4.1
6.0
Total instruments
$
1,009.6
$
1,008.9
Fair Value Measurements
The carrying value of the long-term debt approximates fair value, except for the Euro-denominated notes, because the interest rates are variable and reflect current market rates. The fair value of the Euro-denominated notes, as observable at commonly quoted intervals (Level 2 inputs), was $ 1,033.2 and $ 1,062.5 as of June 30, 2020 and December 31, 2019, respectively, compared to a carrying value of $ 1,005.5 and $ 1,002.9 , respectively.
Our deferred compensation plan assets were $ 103.8 and $ 107.3 as of June 30, 2020 and December 31, 2019 respectively. We determine the fair value of these assets, comprised of publicly traded securities, by using market quotes as of the last day of the period (Level 1 inputs).
We measure the fair value of the foreign currency forward contracts and cross-currency swaps at the value based on either directly or indirectly observable inputs from third parties (Level 2 inputs).
(14) Leases
The components of lease expense were as follows:
Three Months Ended June 30,
6 Months Ended June 30,
2020
2019
2020
2019
Operating lease expense
$
35.6
$
35.0
$
71.6
$
69.7
Short-term lease expense
3.3
6.0
7.2
12.1
Other lease expense (1)
$
4.2
$
4.8
$
8.5
$
9.9
Total lease expense
$
43.1
$
45.8
$
87.3
$
91.7
(1)
Other lease expense includes variable lease expense and sublease income.
20
Other information related to leases was as follows:
6 Months Ended June 30,
Supplemental Cash Flow Information
2020
2019
Cash paid for amounts included in the measurement of operating lease liabilities
$
71.6
$
64.8
Operating ROU assets obtained in exchange for lease obligations
26.0
69.7
June 30,
December 31,
Supplemental Balance Sheet Information
2020
2019
Operating Leases
Operating lease ROU assets
$
409.1
$
448.5
Operating lease liabilities - current (1)
$
113.4
$
122.1
Operating lease liabilities - long-term
308.5
336.7
Total operating lease liabilities
$
421.9
$
458.8
(1)
Operating lease liabilities - current are included in accrued expenses on our Consolidated Balance Sheets.
Weighted Average Remaining Lease Term
Operating leases
5.5 years
Weighted Average Discount Rate
Operating leases
3.1
%
Maturities of operating lease liabilities as of June 30, 2020 were as follows:
(In millions)
Period Ending June 30, 2020
Operating Leases
Remainder of 2020
$
67.0
2021
109.5
2022
84.6
2023
58.5
2024
41.9
2025
28.1
Thereafter
73.2
Total future undiscounted lease payments
$
462.8
Less imputed interest
$
( 40.9
)
Total operating lease liabilities
$
421.9
(15) Segment Data
Effective January 1, 2020, our segment reporting was realigned due to our Right Management business being combined with each of our respective country business units. Accordingly, our former reportable segment, Right Management, is now reported within each of our respective reportable segments. All previously reported results have been restated to conform to the current year presentation.
We are organized and managed primarily on a geographic basis. Each country and business unit generally has its own distinct operations and management team, providing services under our global brands, and maintains its own financial reports. We have an executive sponsor for each global brand who is responsible for ensuring the integrity and consistency of delivery locally. Each operation reports directly or indirectly through a regional manager, to a member of executive management. Given this reporting structure, we operate using the following reporting segments: Americas, which includes United States and Other Americas; Southern Europe, which includes France, Italy and Other Southern Europe; Northern Europe; and APME.
The Americas, Southern Europe, Northern Europe and APME segments derive a significant majority of their revenues from our staffing and interim services. The remaining revenues within these segments are derived from our outcome-based solutions and consulting services, permanent recruitment services, outplacement services, talent management services, and other services. Segment
21
revenues represent sales to external clients. We provide services to a wide variety of clients, none of which individually comprise a significant portion of revenues for us as a whole. Due to the nature of our business, we generally do not have export sales.
3 Months Ended June 30,
6 Months Ended June 30,
2020
2019
2020
2019
Revenues from services:
Americas:
United States (a)
$
515.9
$
652.7
$
1,126.8
$
1,275.9
Other Americas
320.7
415.5
720.8
822.5
836.6
1,068.2
1,847.6
2,098.4
Southern Europe:
France
736.0
1,425.3
1,829.8
2,731.4
Italy
268.5
394.4
596.2
750.8
Other Southern Europe
466.3
574.6
989.5
1,020.9
1,470.8
2,394.3
3,415.5
4,503.1
Northern Europe
865.7
1,194.1
1,934.2
2,394.6
APME
569.1
716.5
1,164.0
1,421.9
Consolidated (b)
$
3,742.2
$
5,373.1
$
8,361.3
$
10,418.0
Operating unit profit (loss): (c)
Americas:
United States
$
9.2
$
37.7
$
11.5
$
54.3
Other Americas
10.5
17.8
24.8
33.0
19.7
55.5
36.3
87.3
Southern Europe:
France
( 2.5
)
75.7
35.5
131.0
Italy
11.0
29.8
25.2
50.1
Other Southern Europe
3.6
18.1
4.4
29.1
12.1
123.6
65.1
210.2
Northern Europe
0.3
25.6
( 13.8
)
27.5
APME
18.0
29.7
34.9
50.3
50.1
234.4
122.5
375.3
Corporate expenses
( 26.6
)
( 31.9
)
( 54.4
)
( 59.8
)
Goodwill impairment charges
( 66.8
)
( 64.0
)
( 66.8
)
( 64.0
)
Intangible asset amortization expense
( 6.7
)
( 7.7
)
( 13.6
)
( 15.2
)
Operating (loss) profit
( 50.0
)
130.8
( 12.3
)
236.3
Interest and other (expenses) income, net
( 5.8
)
70.2
( 26.3
)
58.3
(Loss) earnings before income taxes
$
( 55.8
)
$
201.0
$
( 38.6
)
$
294.6
(a)
In the United States, revenues from services included fees received from the related franchise offices of $ 2.4 and $ 3.7 for the three months ended June 30, 2020 and 2019, respectively, and $ 5.4 and $ 7.3 for the six months ended June 30, 2020 and 2019, respectively. These fees are primarily based on revenues generated by the franchise offices, which were $ 122.3 and $ 154.3 for the three months ended June 30, 2020 and 2019, respectively, and $ 198.8 and $ 311.2 for the six months ended June 30, 2020 and 2019, respectively.
(b)
Our consolidated revenues from services include fees received from our franchise offices of $ 2.8 and $ 4.1 for the three months ended June 30, 2020 and 2019, respectively, and $ 6.1 and $ 9.7 for the six months ended June 30, 2020 and 2019, respectively. These fees are primarily based on revenues generated by the franchise offices, which were $ 128.1 and $ 163.2 for the three months ended June 30, 2020 and 2019, respectively, and $ 210.4 and $ 406.2 for the six months ended June 30, 2020 and 2019, respectively.
(c)
We evaluate segment performance based on operating unit profit (“OUP”), which is equal to 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 intangibles related to acquisitions, corporate expenses, interest and other income and expense amounts or income taxes.
22
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.