Item 1. Financial Statements
Item 1 – Financial Statements (unaudited)
ManpowerGroup Inc.
Consolidated Balance Sheets (Unaudited)
(in millions)
ASSETS
March 31,
2021
December 31,
2020
Cash and cash equivalents
$
1,522.7
$
1,567.1
Accounts receivable, less allowance for doubtful accounts of
$ 124.1 and $ 128.1 , respectively
4,892.7
4,912.4
Prepaid expenses and other assets
208.9
186.9
Total current assets
6,624.3
6,666.4
Other Assets:
Goodwill
1,215.0
1,225.8
Intangible assets, less accumulated amortization of
$ 427.0 and $ 425.4 , respectively
240.4
248.6
Operating lease right-of-use assets
378.2
400.7
Other assets
660.0
651.6
Total other assets
2,493.6
2,526.7
Property and Equipment:
Land, buildings, leasehold improvements and equipment
599.0
614.7
Less: accumulated depreciation and amortization
472.4
479.6
Net property and equipment
126.6
135.1
Total assets
$
9,244.5
$
9,328.2
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
March 31,
2021
December 31,
2020
Current Liabilities:
Accounts payable
$
2,723.5
$
2,527.4
Employee compensation payable
205.7
231.8
Accrued liabilities
590.4
602.1
Accrued payroll taxes and insurance
692.1
752.0
Value added taxes payable
513.6
551.1
Short-term borrowings and current maturities of long-term debt
25.1
20.4
Total current liabilities
4,750.4
4,684.8
Other Liabilities:
Long-term debt
1,057.5
1,103.5
Long-term operating lease liability
285.3
305.1
Other long-term liabilities
773.9
781.2
Total other liabilities
2,116.7
2,189.8
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
117,725,183 and 117,555,991 shares, respectively
1.2
1.2
Capital in excess of par value
3,411.0
3,402.5
Retained earnings
3,450.8
3,388.8
Accumulated other comprehensive loss
( 437.8
)
( 397.3
)
Treasury stock at cost, 63,086,793 and 61,990,021 shares, respectively
( 4,058.9
)
( 3,954.2
)
Total ManpowerGroup shareholders’ equity
2,366.3
2,441.0
Noncontrolling interests
11.1
12.6
Total shareholders’ equity
2,377.4
2,453.6
Total liabilities and shareholders’ equity
$
9,244.5
$
9,328.2
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
March 31,
2021
2020
Revenues from services
$
4,924.4
$
4,619.1
Cost of services
4,156.3
3,895.1
Gross profit
768.1
724.0
Selling and administrative expenses
669.7
686.3
Operating profit
98.4
37.7
Interest and other expenses, net
5.4
20.5
Earnings before income taxes
93.0
17.2
Provision for income taxes
31.0
15.5
Net earnings
62.0
$
1.7
Net earnings per share – basic
$
1.12
$
0.03
Net earnings per share – diluted
$
1.11
$
0.03
Weighted average shares – basic
55.1
58.7
Weighted average shares – diluted
55.7
59.0
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ManpowerGroup Inc.
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in millions)
Three Months Ended
March 31,
2021
2020
Net earnings
$
62.0
$
1.7
Other comprehensive income (loss):
Foreign currency translation adjustments
( 96.5
)
( 84.9
)
Translation adjustments on derivative instruments, net of income taxes of $ 14.4 and $ 5.4 , respectively
49.6
10.7
Translation adjustments of long-term intercompany loans
5.6
1.5
Defined benefit pension plans and retiree health care plan, net of income taxes of $ 0.3 and $ 7.7 , respectively
0.8
1.3
Pension settlement related to a U.S. plan, net of income taxes of $( 3.9 ) for 2020
—
6.6
Total other comprehensive loss
( 40.5
)
( 64.8
)
Comprehensive income (loss)
$
21.5
$
( 63.1
)
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)
Three Months Ended
March 31,
2021
2020
Cash Flows from Operating Activities:
Net earnings
$
62.0
$
1.7
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
17.9
18.6
Non-cash operating lease right-of-use assets impairment
-
8.2
Deferred income taxes
( 10.6
)
( 5.0
)
Provision for doubtful accounts
5.2
5.2
Share-based compensation
7.5
4.6
Changes in operating assets and liabilities, excluding the impact of acquisitions:
Accounts receivable
( 94.5
)
378.3
Other assets
( 39.5
)
-
Other liabilities
192.9
( 230.6
)
Cash provided by operating activities
140.9
181.0
Cash Flows from Investing Activities:
Capital expenditures
( 12.7
)
( 9.1
)
Acquisition of businesses, net of cash acquired
( 7.1
)
-
Proceeds from the sale of investments, property and equipment
0.7
0.8
Cash used in investing activities
( 19.1
)
( 8.3
)
Cash Flows from Financing Activities:
Net change in short-term borrowings
4.9
( 9.6
)
Proceeds from long-term debt
0.1
0.3
Repayments of long-term debt
( 2.2
)
( 0.1
)
Payments of contingent consideration for acquisitions
( 5.8
)
-
Proceeds from share-based awards
1.7
10.0
Other share-based award transactions
( 4.6
)
( 6.5
)
Repurchases of common stock
( 100.1
)
( 63.8
)
Cash used in financing activities
( 106.0
)
( 69.7
)
Effect of exchange rate changes on cash
( 60.2
)
( 29.3
)
Change in cash and cash equivalents
( 44.4
)
73.7
Cash and cash equivalents, beginning of period
1,567.1
1,025.8
Cash and cash equivalents, end of period
$
1,522.7
$
1,099.5
Supplemental Cash Flow Information:
Interest Paid
$
4.8
$
6.0
Income taxes paid, net
$
19.8
$
19.8
Non-cash operating activity:
Right-of-use assets obtained in exchange for new operating lease liabilities
$
11.0
$
15.3
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, 2020
117,555,991
$
1.2
$
3,402.5
$
3,388.8
$
( 397.3
)
$
( 3,954.2
)
$
12.6
$
2,453.6
Net earnings
62.0
62.0
Other comprehensive loss
( 40.5
)
( 40.5
)
Issuances under equity plans
169,192
1.0
( 4.6
)
( 3.6
)
Share-based compensation expense
7.5
7.5
Repurchases of common stock
( 100.1
)
( 100.1
)
Noncontrolling interest transactions
( 1.5
)
( 1.5
)
Balance, March 31, 2021
117,725,183
$
1.2
$
3,411.0
$
3,450.8
$
( 437.8
)
$
( 4,058.9
)
$
11.1
$
2,377.4
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
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
7
Notes to Consolidated Financial Statements (Unaudited)
For the three months ended March 31, 2021 and 2020
(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 2020 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. The COVID-19 crisis began to negatively impact our business, operations and consolidated financial statements during the last two weeks of March 2020, with significant lockdown measures implemented by the end of March 2020 in our main markets in Europe and North America, as well as in certain other countries. We continued to experience the negative impacts of the COVID-19 crisis in the first quarter of 2021, particularly in Europe, which caused governments to impose more targeted and localized restrictions unlike the country-wide lockdowns and restrictions experienced in March 2020 and the second quarter of 2020. Although many markets strengthened throughout the first quarter of 2021, these restrictions had an adverse effect of curtailing economic activity in certain markets, affecting demand for our services. 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:
Three Months Ended March 31, 2021
Balance, December 31, 2020
$
128.1
Provisions charged to earnings
5.2
Write-offs
( 4.9
)
Translation adjustments
( 4.5
)
Reclassifications and other
0.2
Balance, March 31, 2021
$
124.1
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.
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.
We performed our annual impairment test of our goodwill and indefinite-lived intangible assets during the third quarter of 2020 and determined that there was no impairment of our goodwill or indefinite-lived intangible assets.
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 United Kingdom and Netherlands reporting units, both of which are part of the Northern Europe segment. The United Kingdom reporting unit had a fair value exceeding carrying value of approximately 12 %. Key assumptions included in the United Kingdom discounted cash flow valuation performed during the third quarter of 2020 were a discount rate of 11.5 %, a terminal value revenue growth rate of 1.0 %, and a terminal value OUP margin of 3.1 %. The Netherlands reporting unit had a fair value that exceeded its carrying value by approximately 3.3 %. Key assumptions included in the Netherlands discounted cash flow valuation performed during the third quarter of 2020 included a discount rate of 10.9 %, a terminal value revenue growth rate of 2.0 %, and a terminal value OUP margin of 3.5 %. Should the operations of the United Kingdom and Netherlands reporting units incur further decreases in the operating results, including declines in profitability and cash flow due to continued deterioration in macroeconomic, industry and market conditions, including uncertainty of the financial impacts from COVID-19, some or all of the recorded goodwill for the Netherlands or United Kingdom reporting units, which were $ 114.6 and $ 101.0 , respectively, as of March 31, 2021 could be subject to impairment.
While our other reporting units fair values exceeded 20 % or more of their respective carrying values, given the uncertainty of the financial impacts from the COVID-19 pandemic, there could be significant 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, 2021
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 was effective for us as of January 1, 2021 . The adoption of this guidance did not have a material impact 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
9
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 was effective for us as of January 1, 2021 . The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.
Recently Issued Accounting Standards
In March 2020, the FASB issued new guidance on accounting for contract modifications, including hedging relationships, due to the transition from LIBOR and other interbank offerings related to alternative reference interest rates. The guidance is effective upon issuance and can be applied to applicable contract modifications through December 31, 2022. We are currently assessing the impact of the transition from LIBOR to alternative reference interest rates. This adoption has not had 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.
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 March 31, 2021, 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 $ 35.1 at March 31, 2021 and $ 34.9 at December 31, 2020.
In the following table, revenue is disaggregated by service types for each of our reportable segments. See Note 2 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for descriptions of revenue service types.
3 Months Ended March 31,
2021
2020
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
$
510.1
$
28.8
$
28.5
$
41.4
$
608.8
$
518.7
$
30.1
$
25.0
$
37.1
$
610.9
Other Americas
374.9
9.9
6.1
3.2
394.1
379.5
12.4
5.5
2.7
400.1
885.0
38.7
34.6
44.6
1,002.9
898.2
42.5
30.5
39.8
1,011.0
Southern Europe:
France
1,084.0
86.5
12.8
5.6
1,188.9
998.3
78.1
12.5
4.9
1,093.8
Italy
381.5
7.7
9.7
3.9
402.8
307.1
8.7
8.2
3.7
327.7
Other Southern Europe
460.8
92.6
11.7
3.5
568.6
415.9
90.6
13.9
2.8
523.2
1,926.3
186.8
34.2
13.0
2,160.3
1,721.3
177.4
34.6
11.4
1,944.7
Northern Europe
1,018.8
64.8
29.5
20.7
1,133.8
949.6
70.9
31.3
16.7
1,068.5
APME
480.8
98.4
37.4
10.8
627.4
466.6
83.2
36.9
8.2
594.9
Total
$
4,310.9
$
388.7
$
135.7
$
89.1
$
4,924.4
$
4,035.7
$
374.0
$
133.3
$
76.1
$
4,619.1
10
In the following table, revenue is disaggregated by timing of revenue recognition for each of our reportable segments:
3 Months Ended March 31,
2021
2020
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
$
594.7
$
14.1
$
608.8
$
597.8
$
13.1
$
610.9
Other Americas
390.2
3.9
394.1
396.5
3.6
400.1
984.9
18.0
1,002.9
994.3
16.7
1,011.0
Southern Europe:
France
1,176.9
12.0
1,188.9
1,082.1
11.7
1,093.8
Italy
393.5
9.3
402.8
320.0
7.7
327.7
Other Southern Europe
558.9
9.7
568.6
511.5
11.7
523.2
2,129.3
31.0
2,160.3
1,913.6
31.1
1,944.7
Northern Europe
1,107.8
26.0
1,133.8
1,041.4
27.1
1,068.5
APME
607.9
19.5
627.4
575.3
19.6
594.9
Total
$
4,829.9
$
94.5
$
4,924.4
$
4,524.6
$
94.5
$
4,619.1
(4) Share-Based Compensation Plans
During the three months ended March 31, 2021 and 2020, we recognized share-based compensation expense of $ 7.5 and $ 4.6 , 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 $ 1.7 and $ 10.0 for the three months ended March 31, 2021 and 2020, respectively.
Our annual grant of share-based compensation generally takes place during the first quarter of each fiscal year. The number of shares granted to employees and members of our Board of Directors, and the weighted-average fair value per share for shares granted during the first quarter of 2021 and 2020 are presented in the table below:
For the Three Months Ended March 31,
2021
2020
Shares
Granted
(thousands)
Wtd.-Avg.
Per Share
Fair Value
Shares
Granted
(thousands)
Wtd.-Avg.
Per Share
Fair Value
Stock Options
130
$
22.83
156
$
18.95
Deferred Stock Units
12
90.18
11
97.10
Restricted Stock Units
197
85.66
188
86.47
Performance Share Units
203
84.34
119
85.25
Total Shares Granted
542
$
70.19
474
$
64.18
(5) Acquisitions
From time to time, we acquire and invest in companies throughout the world, including franchises. For the three months ended March 31, 2021, the total cash consideration paid for acquisitions, net of cash acquired, was $ 12.9 , which includes consideration payments for franchises in the United States and contingent consideration payments related to previous acquisitions. No cash consideration was paid for acquisitions for the three months ended March 31, 2020.
(6) Restructuring Costs
We did no t record any net restructuring costs during the three months ended March 31, 2021. We recorded net restructuring costs of $ 48.2 during the three months ended March 31, 2020, in selling and administrative expenses, primarily related to severances and office closures and consolidations in multiple countries and territories. During the three months ended March 31, 2021, we made payments of $ 13.8 out of our restructuring reserve that was created in 2020 and 2019. We expect a majority of the remaining $ 32.3 reserve will be paid by the end of 2021.
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Changes in the restructuring reserve by reportable segment and Corporate are shown below.
Americas ( 1)
Southern
Europe ( 2)
Northern
Europe
APME
Corporate
Total
Balance, January 1, 2021
$
1.9
$
3.5
$
40.7
$
—
$
—
$
46.1
Costs paid or utilized
( 0.5
)
( 1.1
)
( 12.2
)
—
—
( 13.8
)
Balance, March 31, 2021
$
1.4
$
2.4
$
28.5
$
—
$
—
$
32.3
(1)
Balances related to the United States were $ 1.4 and $ 0.9 as of December 31, 2020 and March 31, 2021, respectively.
(2)
Balances related to France were $ 0.6 and $ 0.5 as of December 31, 2020 and March 31, 2021. Balances related to Italy were $ 1.4 and $ 1.1 as of December 31, 2020 and March 31, 2021, respectively.
(7) Income Taxes
We recorded income tax expense at an effective rate of 33.3 % for the three months ended March 31, 2021, as compared to an effective rate of 90.2 % for the three months ended March 31, 2020. The 2021 rate was favorably impacted by the scheduled reduction in the French corporate tax rate to 27.5 %, the enacted 50 % reduction in the French business tax rate, and a higher level of pre-tax earnings. The 33.3% effective tax rate in the first quarter of 2021 was higher than the United States Federal statutory rate of 21 % primarily due to the French business tax, tax losses in certain countries for which we did not recognize a corresponding tax benefit due to valuation allowances, and the overall mix of earnings.
As of March 31, 2021, we had gross unrecognized tax benefits related to various tax jurisdictions, including interest and penalties, of $ 65.2 that would favorably impact the effective tax rate if recognized. As of December 31, 2020, we had gross unrecognized tax benefits related to various tax jurisdictions, including interest and penalties, of $ 64.5 . 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 2014 through 2021 for our major operations in France, Italy, the United Kingdom, and the United States. As of March 31, 2021, we are subject to tax audits in Austria, Denmark, France, Germany, Netherlands, Portugal, and the United States. We believe that the resolution of these audits will not have a material impact on earnings.
(8) Net Earnings Per Share
The calculations of net earnings per share - basic and net earnings per share - diluted were as follows:
3 Months Ended
March 31,
2021
2020
Net earnings available to common shareholders
$
62.0
$
1.7
Weighted-average common shares outstanding (in millions)
Weighted-average common shares outstanding - basic
55.1
58.7
Effect of dilutive securities - stock options
0.1
-
Effect of other share-based awards
0.5
0.3
Weighted-average common shares outstanding - diluted
55.7
59.0
Net earnings per share - basic
$
1.12
$
0.03
Net earnings per share - diluted
$
1.11
$
0.03
There were no shares and 0.6 million share-based awards excluded from the calculation of net earnings per share - diluted for the three months ended March 31, 2021 and 2020, respectively, because their impact was anti-dilutive.
12
(9) Goodwill and Other Intangible Assets
We have goodwill, finite-lived intangible assets and indefinite-lived intangible assets as follows:
March 31, 2021
December 31, 2020
Gross
Accumulated
Amortization
Net
Gross
Accumulated
Amortization
Net
Goodwill ( 1)
$
1,215.0
$
—
$
1,215.0
$
1,225.8
$
—
$
1,225.8
Intangible assets:
Finite-lived:
Customer relationships
$
467.4
$
408.9
$
58.5
$
473.0
$
403.8
$
69.2
Other
22.6
18.1
4.5
21.9
21.6
0.3
490.0
427.0
63.0
494.9
425.4
69.5
Indefinite-lived:
Tradenames ( 2)
52.0
—
52.0
52.0
—
52.0
Reacquired franchise rights
125.4
—
125.4
127.1
—
127.1
177.4
—
177.4
179.1
—
179.1
Total intangible assets
$
667.4
$
427.0
$
240.4
$
674.0
$
425.4
$
248.6
(1) Balances were net of accumulated impairment loss of $ 644.2 as of both March 31, 2021 and December 31, 2020.
(2) Balances were net of accumulated impairment loss of $ 139.5 as of both March 31, 2021 and December 31, 2020.
Total consolidated amortization expense related to intangible assets for the remainder of 2021 is expected to be $ 11.8 and in each of the next five years as follows: 2022- $ 13.1 , 2023- $ 10.6 , 2024- $ 8.3 , 2025 - $ 6.1 , 2026- $ 2.2 .
Changes in the carrying value of goodwill by reportable segment and Corporate were as follows:
Americas ( 1)
Southern
Europe ( 2)
Northern
Europe
APME
Corporate ( 3 )
Total
Balance, December 31, 2020
$
536.6
$
154.9
$
326.6
$
81.7
$
126.0
$
1,225.8
Acquisitions
2.9
—
—
—
—
2.9
Currency impact
0.5
( 7.0
)
( 4.9
)
( 2.3
)
—
( 13.7
)
Balance, March 31, 2021
$
540.0
$
147.9
$
321.7
$
79.4
$
126.0
$
1,215.0
(1) Balances related to the United States were $ 490.2 and $ 493.1 as of December 31, 2020 and March 31, 2021, respectively.
(2) Balances related to France were $ 73.3 and $ 70.4 as of December 31, 2020 and March 31, 2021, respectively. Balances related to Italy were $ 4.2 and $ 4.0 as of December 31, 2020 and March 31, 2021.
(3) 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 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:
March 31,
December 31,
2021
2020
United States
$
548.6
$
545.7
Netherlands
114.6
119.3
United Kingdom
101.0
100.2
France
70.4
73.3
Other reporting units
380.4
387.3
Total goodwill
$
1,215.0
$
1,225.8
13
(10) Retirement Plans
The components of the net periodic benefit cost (credit) for our plans were as follows:
3 Months Ended March 31,
Defined Benefit Pension Plans
Retiree Health Care Plan
2021
2020
2021
2020
Service cost
$
5.6
$
5.1
$
—
$
—
Interest cost
1.5
2.3
0.1
0.1
Expected return on assets
( 3.1
)
( 3.4
)
—
—
Settlement loss
-
10.2
—
—
Other
1.4
0.9
( 0.2
)
( 0.2
)
Total benefit cost (credit)
$
5.4
$
15.1
$
( 0.1
)
$
( 0.1
)
During the three months ended March 31, 2021, contributions made to our pension plans were $ 4.4 and contributions made to our retiree health care plan were $ 0.3 . During 2021, we expect to make total contributions of approximately $ 16.0 to our pension plans and to fund our retiree health care payments as incurred.
Pension Settlement
During the three months ended March 31, 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 standard PBGC audit was completed in March 2021, and 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.
(11) Shareholders’ Equity
The components of accumulated other comprehensive loss, net of tax, were as follows:
March 31,
December 31,
2021
2020
Foreign currency translation
$
( 168.6
)
$
( 72.1
)
Translation loss on derivative instruments, net of income tax benefit of $( 20.5 ) and $( 34.9 ), respectively
( 31.6
)
( 81.2
)
Translation loss on long-term intercompany loans
( 127.7
)
( 133.3
)
Defined benefit pension plans, net of income tax benefit of $( 37.9 ) and $( 38.2 ), respectively
( 110.4
)
( 111.4
)
Retiree health care plan, net of income taxes of $ 1.8 for both 2021 and 2020
0.5
0.7
Accumulated other comprehensive loss
$
( 437.8
)
$
( 397.3
)
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, net in our Consolidated Statements of Operations. We recorded income of $ 0.9 and expenses of $ 0.6 for the three months ended March 31, 2021 and 2020, respectively.
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 authorization 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 quarter of 2021, we repurchased a total of 1.1 million shares under the 2019 authorization at a cost of $ 100.1 . During the first quarter 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 . As of March 31, 2021, there were 2.3 million shares remaining authorized for repurchase under the 2019 authorization and no shares remaining authorized for repurchase under the 2018 authorization.
14
(12) Interest and Other Expenses, Net
Interest and other expenses, net consisted of the following:
3 Months Ended
March 31,
2021
2020
Interest expense
$
10.2
$
11.1
Interest income
( 3.1
)
( 3.7
)
Foreign exchange loss
2.5
3.1
Miscellaneous (income) expense, net (1)
( 4.2
)
10.0
Interest and other expenses, net
$
5.4
$
20.5
(1)
Miscellaneous expense, net for the three months ended March 31, 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.
(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.
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 ($ 468.5 ) notes due September 2022 and the € 500.0 ($ 582.6 ) notes due June 2026 were designated as a hedge of our net investment in our foreign subsidiaries with a Euro-functional currency as of March 31, 2021.
15
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 months ended March 31, 2021 and 2020 was as follows:
Gain (Loss) Recognized in Other Comprehensive Income
3 Months Ended March 31,
Instrument
2021
2020
Euro Notes
$
43.7
$
16.4
Cross-currency swaps
20.5
( 7.5
)
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 months ended March 31, 2021 and 2020:
Gain (Loss) Reclassified
Gain (Loss) Recognized in OCI
from AOCI into Income
3 Months Ended March 31,
Location of Gain (Loss) Reclassified
3 Months Ended March 31,
Instrument
2021
2020
from AOCI into Income
2021
2020
Cross-currency swaps
$
( 5.3
)
$
5.7
Interest and other expenses, net
$
5.2
$
5.7
We expect the net amount of pre-tax derivative gains included in AOCI at March 31, 2021 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.
16
Non-designated instruments
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 months ended March 31, 2021 was as follows:
Location of Gain (Loss)
Amount of Gain (Loss) Recognized in Income
Instrument
Recognized in Income
3 Months Ended March 31,
2021
2020
Foreign currency forward contracts
Interest and other expenses, net
$
( 6.9
)
$
( 0.2
)
The following tables present the fair value of derivative and non-derivative assets and liabilities on the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020:
Assets
March 31,
December 31,
Balance Sheet Location
2021
2020
Instruments designated as cash flow hedges:
Cross-currency swaps
Prepaid expenses and other assets
$
4.2
$
12.1
Instruments not designated as hedges:
Foreign currency forward contracts
Accounts receivable, net
—
1.0
Total instruments
$
4.2
$
13.1
Liabilities
March 31,
December 31,
Balance Sheet Location
2021
2020
Instruments designated as net investment hedges:
Euro Notes
Long-term debt
$
1,051.1
$
1,094.5
Cross-currency swaps
Accrued liabilities
10.1
30.5
Instruments not designated as hedges
Foreign currency forward contracts
Accrued liabilities
5.9
—
Total instruments
$
1,067.1
$
1,125.0
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 $ 1,112.2 and $ 1,159.1 as of March 31, 2021 and December 31, 2020, respectively, compared to a carrying value of $ 1,051.1 and $ 1,094.5 , respectively.
Our deferred compensation plan assets were $ 128.6 and $ 119.4 as of March 31, 2021 and December 31, 2020, 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).
17
(14) Leases
The components of lease expense were as follows:
3 Months Ended March 31,
2021
2020
Operating lease expense
$
35.5
$
36.0
Short-term lease expense
1.5
3.9
Other lease expense ( 1)
$
4.9
$
4.3
Total lease expense
$
41.9
$
44.2
(1)
Other lease expense includes variable lease expense and sublease income.
Other information related to leases was as follows:
3 Months Ended March 31,
Supplemental Cash Flow Information
2021
2020
Cash paid for amounts included in the measurement of operating lease liabilities
$
34.7
$
36.0
Operating ROU assets obtained in exchange for lease obligations
11.0
15.3
March 31,
December 31,
Supplemental Balance Sheet Information
2021
2020
Operating Leases
Operating lease ROU assets
$
378.2
$
400.7
Operating lease liabilities - current ( 1)
$
113.5
$
119.3
Operating lease liabilities - long-term
285.3
305.1
Total operating lease liabilities
$
398.8
$
424.4
(1)
Operating lease liabilities - current are included in accrued expenses on our Consolidated Balance Sheets.
March 31,
2021
2020
Weighted Average Remaining Lease Term
Operating leases
5.1 years
5.6 years
Weighted Average Discount Rate
Operating leases
2.9
%
3.0
%
Maturities of operating lease liabilities as of March 31, 2021 were as follows:
(In millions)
Period Ending March 31, 2021
Operating Leases
Remainder of 2021
$
95.6
2022
101.8
2023
75.0
2024
50.6
2025
34.2
2026
26.2
Thereafter
52.3
Total future undiscounted lease payments
$
435.7
Less imputed interest
$
( 36.9
)
Total operating lease liabilities
$
398.8
18
(15) Segment Data
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 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, and other services. Segment 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.
19
3 Months Ended March 31,
2021
2020
Revenues from services:
Americas:
United States (a)
$
608.8
$
610.9
Other Americas
394.1
400.1
1,002.9
1,011.0
Southern Europe:
France
1,188.9
1,093.8
Italy
402.8
327.7
Other Southern Europe
568.6
523.2
2,160.3
1,944.7
Northern Europe
1,133.8
1,068.5
APME
627.4
594.9
Consolidated (b)
$
4,924.4
$
4,619.1
Operating unit profit (loss): (c)
Americas:
United States
$
29.2
$
2.3
Other Americas
14.9
14.3
44.1
16.6
Southern Europe:
France
42.6
38.0
Italy
19.4
14.2
Other Southern Europe
11.4
0.8
73.4
53.0
Northern Europe
4.8
( 14.1
)
APME
18.8
16.9
141.1
72.4
Corporate expenses
( 37.2
)
( 27.8
)
Intangible asset amortization expense
( 5.5
)
( 6.9
)
Operating profit
98.4
37.7
Interest and other expenses, net
( 5.4
)
( 20.5
)
Earnings before income taxes
$
93.0
$
17.2
(a)
In the United States, revenues from services included fees received from the related franchise offices of $ 3.1 and $ 3.0 for the three months ended March 30, 2021 and 2020, respectively. These fees are primarily based on revenues generated by the franchise offices, which were $ 117.5 and $ 76.5 for the three months ended March 31, 2021 and 2020, respectively.
(b)
Our consolidated revenues from services include fees received from our franchise offices of $ 3.6 and $ 3.3 for the three months ended March 31, 2021 and 2020, respectively. These fees are primarily based on revenues generated by the franchise offices, which were $ 249.1 and $ 82.3 for the three months ended March 31, 2021 and 2020, 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.
20
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