EX-13 8 exhibit_13.htm 2014 ANNUAL REPORT TO SHAREHOLDERS. exhibit_13.htm
Exhibit 13
 
   
   
 TABLE OF CONTENTS  
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
  TABLE OF CONTENTS
   
   
  22 Management’s Discussion & Analysis
  50 Management Report on Internal Control Over Financial Reporting
  51 Reports of Independent Registered Public Accounting Firm
  53 Consolidated Statements of Operations
  53 Consolidated Statements of Comprehensive Income
  54 Consolidated Balance Sheets
  55 Consolidated Statements of Cash Flows
  56 Consolidated Statements of Shareholders’ Equity
  57 Notes to Consolidated Financial Statements
  91 Selected Financial Data
  91 Performance Graph
  92 Principal Operating Units
  93 Corporate Information
     
     
     
 
 
22  
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS OVERVIEW
ManpowerGroup Inc. is a world leader in innovative workforce solutions and services. Our global network of 3,000 offices in 80 countries and territories allows us to meet the needs of our global, multinational and local clients across all major industry segments. We develop solutions that drive organizations forward, accelerate individual success and help build more sustainable communities. We power the world of work.
 
2014 Segment
Revenues
($ in millions)
 
(Pie chart) 
 
2014 Segment
Operating Unit Profit
($ in millions)
 
(Pie Chart) 
 
By offering a comprehensive range of workforce solutions and services, we help companies at varying stages in their evolution increase productivity, improve strategy, quality and efficiency, and reduce costs across their workforce to achieve their business goals. ManpowerGroup’s suite of innovative workforce solutions and services includes:
 
· Recruitment and Assessment — By leveraging our trusted brand, industry knowledge and expertise, we identify the right talent in the right place to help our clients quickly access the people they need when they need them. Through our industry-leading assessments, we gain a deeper understanding of the people we serve to correctly identify candidates’ potential, resulting in a better cultural match.
   
· Training and Development — Our unique insights into evolving employer needs and our expertise in training and development help us prepare candidates and associates to succeed in today’s competitive marketplace. We offer an extensive portfolio of training courses and leadership development solutions that help clients maximize talent and optimize performance.
   
· Career Management — We understand the human side of business to help individuals and organizations unleash human potential to enhance skills, increase effectiveness and successfully manage career changes and workforce transitions.
   
· Outsourcing — We provide clients with outsourcing services related to human resources functions primarily in the areas of large-scale recruiting and workforce-intensive initiatives that are outcome-based, thereby sharing in the risk and reward with our clients.
   
· Workforce Consulting — We help clients create and align their workforce strategy to achieve their business strategy, increase business agility and flexibility, and accelerate personal and business success.
 
This comprehensive and diverse business mix helps us to partially mitigate the cyclical effects of the national economies in which we operate. Our family of brands and offerings includes:
 
· Manpower — We are a global leader in contingent staffing and permanent recruitment. We provide businesses with rapid access to a highly qualified and productive pool of candidates to give them the flexibility and agility they need to respond to changing business needs.
   
· Experis — We are a global leader in professional resourcing and project-based solutions. With operations in over 55 countries and territories, we delivered 51 million hours of professional talent in 2014 specializing in Information Technology (IT), Engineering, Finance and Accounting, and Healthcare.
   
· Right Management — We are a global leader in career and talent development. Through our innovative and proprietary process, we leverage our expertise in employee assessment, leader development, career management and workforce transition and outplacement to increase productivity and optimize business performance.
   
· ManpowerGroup Solutions — ManpowerGroup Solutions is a leader in outcome-based, talent-driven solutions. Our offerings include best-in-class Talent Based Outsourcing (TBO), TAPFIN — Managed Service Provider (MSP) and Recruitment Process Outsourcing (RPO).
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
ManpowerGroup  |  Annual Report 2014   23
 
Our leadership position allows us to be a center for quality employment opportunities for people at all points in their career paths. In 2014, the 3.4 million people whom we connected to opportunities and purpose worked to help our more than 400,000 clients meet their business objectives. Seasoned professionals, skilled laborers, temporary to permanent, parents returning to work, seniors wanting to supplement pensions, previously unemployed youth and disabled individuals all turn to the ManpowerGroup companies for employment possibilities. Similarly, governments in the nations in which we operate look to us to help provide employment opportunities and training to assist the unemployed in gaining the skills they need to enter the workforce. We provide a bridge to experience and employment, and help to build more sustainable communities.
 
Our industry is large and fragmented, comprised of thousands of firms employing millions of people and generating billions of United States dollars in annual revenues. It is also a highly competitive industry, reflecting several trends in the global marketplace, notably increasing demand for skilled people and consolidation among clients and in the employment services industry itself.
 
We manage these trends by leveraging established strengths, including one of the employment services industry’s most recognized and respected brands; geographic diversification; size and service scope; an innovative product mix; and a strong client base. While staffing is an important aspect of our business, our strategy is focused on providing both the skilled employees our clients need and high-value workforce management, outsourcing and consulting solutions.
 
Client demand for workforce solutions and services is dependent on the overall strength of the labor market and secular trends toward greater workforce flexibility within each of the countries and territories in which we operate. Improving economic growth typically results in increasing demand for labor, resulting in greater demand for our staffing services. During periods of increasing demand, we are generally able to improve our profitability and operating leverage as our current cost base can support some increase in business without a similar increase in selling and administrative expenses.
 
Correspondingly, during periods of weak economic growth or economic contraction, the demand for our staffing services typically declines. When demand drops, our operating profit is typically impacted unfavorably as we experience a deleveraging of our selling and administrative expense base as expenses may not decline at the same pace as revenues. In periods of economic contraction, we may have more significant expense deleveraging, as we believe it is prudent not to reduce selling and administrative expenses to levels that could negatively impact the long-term potential of our branch network and brands.
 
The nature of our operations is such that our most significant current asset is accounts receivable, with an average days sales outstanding of approximately 55 days based on the markets where we do business. Our most significant current liabilities are payroll related costs, which are generally paid either weekly or monthly. As the demand for our services increases, we generally see an increase in our working capital needs, as we continue to pay our associates on a weekly or monthly basis while the related accounts receivable are outstanding for much longer, which may result in a decline in operating cash flows. Conversely, as the demand for our services declines, we generally see a decrease in our working capital needs, as the existing accounts receivable are collected and not replaced at the same level, resulting in a decline of our accounts receivable balance, with less of an effect on current liabilities due to the shorter cycle time of the payroll related items. This may result in an increase in our operating cash flows; however, any such increase would not be sustainable in the event that an economic downturn continued for an extended period.
 
Our career management services are counter-cyclical to our staffing services, which helps to offset the impact of an economic downturn on our overall financial results.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations 
 
 
24  
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Due to our industry’s sensitivity to economic factors, the inherent difficulty in forecasting the direction and strength of the economy and the short-term nature of staffing assignments, it is difficult to forecast future demand for our services with certainty. As a result, we monitor a number of economic indicators, as well as recent business trends, to predict future revenue trends for each of our reportable segments. Based upon these anticipated trends, we determine what level of personnel and office investments are necessary to take full advantage of growth opportunities.
Our business is organized and managed primarily on a geographic basis, with Right Management currently operating as a separate global business unit. Each country and business unit generally have their own distinct operations and management team, providing services under our global brands. 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, all of our operations have been segregated into the following reporting segments: Americas, which includes United States and Other Americas; Southern Europe, which includes France, Italy and Other Southern Europe; Northern Europe; APME (Asia Pacific Middle East); and Right Management.
The Americas, Southern Europe, Northern Europe and APME segments derive a significant majority of their revenues from the placement of contingent workers. The remaining revenues within these segments are derived from other workforce solutions and services, including recruitment and assessment, training and development, and ManpowerGroup Solutions. ManpowerGroup Solutions includes TBO, MSP and RPO. Right Management’s revenues are derived from career management and workforce consulting services. Segment revenues represent sales to external clients. Due to the nature of our business, we generally do not have export sales. We provide services to a wide variety of clients, none of which individually comprises a significant portion of revenues for us as a whole or for any segment.
FINANCIAL MEASURES — CONSTANT CURRENCY AND ORGANIC CONSTANT CURRENCY
Changes in our financial results include the impact of changes in foreign currency exchange rates and acquisitions. We provide “constant currency” and “organic constant currency” calculations in this report to remove the impact of these items. We express year-over-year variances that are calculated in constant currency and organic constant currency as a percentage.
When we use the term “constant currency,” it means that we have translated financial data for a period into United States dollars using the same foreign currency exchange rates that we used to translate financial data for the previous period. We believe that this calculation is a useful measure, indicating the actual growth of our operations. We use constant currency results in our analysis of subsidiary or segment performance. We also use constant currency when analyzing our performance against that of our competitors. Substantially all of our subsidiaries derive revenues and incur expenses within a single country and, consequently, do not generally incur currency risks in connection with the conduct of their normal business operations. Changes in foreign currency exchange rates primarily impact reported earnings and not our actual cash flow unless earnings are repatriated.
When we use the term “organic constant currency,” it means that we have further removed the impact of acquisitions in the current period from our constant currency calculation. We believe that this calculation is useful because it allows us to show the actual growth of our pre-existing business.
 
The constant currency and organic constant currency financial measures are used to supplement those measures that are in accordance with United States Generally Accepted Accounting Principles (“GAAP”). These Non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other
 
 
 

 

 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
ManpowerGroup  |  Annual Report 2014   25
 
companies may calculate such financial results differently. These Non-GAAP financial measures are not measurements of financial performance under GAAP, and should not be considered as alternatives to measures presented in accordance with GAAP.
Constant currency and organic constant currency percent variances, along with a reconciliation of these amounts to certain of our reported results, are included on pages 36 and 37.
RESULTS OF OPERATIONS — YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
 
Client demand for workforce solutions and services is dependent on the overall strength of the labor market and secular trends toward greater workforce flexibility within each of the countries and territories in which we operate. Improving economic growth typically results in increasing demand for labor, resulting in greater demand for our staffing services and solutions. During periods of increased demand, as we saw in 2014, we are generally able to improve our profitability and operating leverage as our cost base can support some increase in business without a similar increase in selling and administrative expenses.
 
In 2014, we experienced revenue growth in most of our markets as the global economy continued to stabilize. The improving economic conditions contributed to our consolidated revenue growth of 2.5% (4.0% in constant currency) in 2014 compared to 2013, as we maintained a steady trend of improvement throughout 2014, from constant currency revenue growth of 3.0% in the first quarter to a 4.8% increase in the fourth quarter. We saw this similar trend in many of the markets within our staffing segments as we saw solid growth on the whole across the Americas and Europe, with APME showing a slight decline. Our staffing/interim business showed solid growth in 2014, along with a 13.3% constant currency increase in our permanent recruitment business and growth in all of our ManpowerGroup Solutions offerings. At Right Management, we continued to experience revenue declines as the demand for our counter-cyclical outplacement services decreased 9.8% in constant currency and revenues from our talent management services increased slightly in constant currency.
 
Our gross profit margin in 2014 compared to 2013 increased due to expansion of our staffing/interim gross profit margin and growth in our permanent recruitment business, partially offset by declining demand for our higher-margin Right Management outplacement services and decreased margins in our other offerings. Our staffing/interim gross profit margin improvement in 2014 compared to 2013 reflects strong price discipline, focused pricing initiatives, and additional payroll tax credits related to the Credit d’Impôt pour la Compétitivité et l’Emploi (“CICE”) in France. For additional information on the CICE payroll tax credit, see the Employment-Related Items section of Management’s Discussion and Analysis.
 
Our profitability improved in 2014, with operating profit up 40.6%, or 43.5% in constant currency, and operating profit margin up 100 basis points compared to 2013. Included in 2013 was $89.4 million of restructuring charges as a result of our simplification and cost recalibration plan that began in the fourth quarter of 2012. Excluding these charges, our operating profit was up 22.2% in constant currency and 50 basis points compared to 2013. Our simplification and cost recalibration plan initiatives have resulted in a lower cost base for the company as we streamlined our organization. We continue to monitor expenses closely to ensure we maintain the full benefit of these actions while investing appropriately to support the growth in the business. During 2014, we added recruiters and certain other staff to support the increased demand for our services. We have also seen an increase in our variable incentive costs due to the improved profitability. Even with these investments, we saw improved operational leverage in 2014 as we were able to support the higher revenue level without a similar increase in expenses.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
26  
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consolidated Results — 2014 Compared to 2013
 
The following table presents selected consolidated financial data for 2014 as compared to 2013.
 
                      Variance in     Variance in  
                Reported     Constant     Organic Constant  
(in millions, except per share data)   2014     2013     Variance     Currency     Currency  
Revenues from services     $ 20,762.8     $ 20,250.5       2.5 %     4.0 %     3.6 %
Cost of services     17,274.6       16,883.8       2.3       3.8          
Gross profit     3,488.2       3,366.7       3.6       5.2       4.1  
Gross profit margin     16.8     16.6 %                        
Selling and administrative expenses     2,768.3       2,854.8       (3.0 )     (1.6 )     (2.6 )
Selling and administrative expenses as a % of revenues     13.3 %     14.1 %                        
Operating profit     719.9       511.9       40.6       43.5       41.3  
Operating profit margin     3.5 %     2.5 %                        
Net interest expense     31.5       33.4                          
Other expenses     6.8       3.0                          
Earnings before income taxes     681.6       475.5       43.4       45.9          
Provision for income taxes     254.0       187.5       35.5                  
Effective income tax rate     37.3 %     39.4 %                        
Net earnings   $ 427.6     $ 288.0       48.5       51.4          
Net earnings per share — diluted   $ 5.30     $ 3.62       46.4       49.2          
Weighted average shares — diluted     80.7       79.6       1.5 %                
 
The year-over-year increase in revenues from services of 2.5% (4.0% in constant currency and 3.6% in organic constant currency) was attributed to:
 
· increased demand for services in several of our markets within Southern Europe and Northern Europe, where revenues increased 3.8% (3.8% in constant currency and 3.6% in organic constant currency) and 5.4% (5.7% in constant currency and 4.4% in organic constant currency), respectively. This included revenue increases in our larger markets of France and Italy of 1.3% (1.2% in constant currency) and 8.4% (8.5% in constant currency and 8.1% in organic constant currency), respectively, as we experienced stabilization in France, and improving demand in Italy, for much of the period. We also experienced organic constant currency revenue growth in Spain, the United Kingdom, and the Netherlands of 24.2%, 12.7%, and 5.1%, respectively; and
   
· revenue increase in the United States of 4.0% driven by growth in our larger national accounts and in the small/medium-sized business within our Manpower business as well as solid growth in our MSP and RPO offerings within the ManpowerGroup Solutions business; partially offset by
   
· revenue decrease in APME of 4.9% (–0.1% in constant currency and –0.6% in organic constant currency) primarily due to a decrease in our staffing/interim business in Japan as we were challenged to recruit candidates in a tight labor market even though we experienced gradual improvement in demand for our staffing/interim services, and in China where legislative changes restricted the use of temporary employment and we recently experienced a softer demand in the market;
   
· decreased demand for outplacement services at Right Management, where these revenues decreased 10.2% (–9.8% in constant currency); and
   
· our acquisitions in Southern Europe, Northern Europe and APME, which combined to add 0.4% of revenue growth to our consolidated results.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
ManpowerGroup  |  Annual Report 2014   27
 
The year-over-year 20 basis point (0.20%) increase in gross profit margin was primarily attributed to:
   
· a 20 basis point (0.20%) favorable impact from the improvement in our staffing/interim margin as increases in Southern Europe and APME were partially offset by a decrease in Northern Europe, while the Americas remained flat; and
   
· a 20 basis point (0.20%) favorable impact resulting from a 13.3% constant currency increase in our permanent recruitment business; partially offset by
   
· a 10 basis point (–0.10%) unfavorable impact from decreased demand for our higher-margin outplacement services at Right Management; and
   
· a 10 basis point (–0.10%) decline from our other business offerings, primarily a result of costs related to a contract termination.
 
The 3.0% decline in selling and administrative expenses in 2014 (–1.6% in constant currency and –2.6% in organic constant currency) was attributed to:
 
· a decrease in restructuring costs with zero in 2014 and $89.4 million in 2013, comprised of $18.0 million in the Americas, $7.8 million in Southern Europe, $39.0 million in Northern Europe, $6.2 million in APME, $14.0 million at Right Management and $4.4 million in corporate expenses;
   
· a 7.7% decrease in lease and office-related costs because we closed over 200 offices in 2014 as a result of office consolidations and delivery model changes; and
   
· a decrease in other non-personnel related costs, excluding the lease and office-related costs noted above, as a result of the simplification and cost recalibration actions taken; partially offset by
   
· legal costs of $9.0 million recorded in the United States related to a settlement agreement (see the Employment-Related Items section of Management’s Discussion and Analysis for additional information);
   
· a 1.2% increase in organic salary-related costs primarily from an increase in our variable incentive-based costs due to improved operating results; and
   
· the additional recurring selling and administrative costs incurred as a result of the acquisitions in Southern Europe, Northern Europe and APME.
 
Selling and administrative expenses as a percent of revenues decreased 80 basis points (–0.80%) in 2014. The change in selling and administrative expense as a percent of revenues primarily consisted of:
 
· a 50 basis point (–0.50%) favorable impact due to the decrease of restructuring costs noted above; and
   
· a 30 basis point (–0.30%) favorable impact due to the decrease of non-personnel related costs: –20 basis points due to the decrease in our lease and office-related costs and –10 basis points due to the decrease in other non-personnel related costs primarily as a result of the simplification and cost recalibration actions taken.
 
Interest and other expenses are comprised of interest, foreign exchange gains and losses and other miscellaneous non-operating income and expenses. Interest and other expenses were $38.3 million in 2014 compared to $36.4 million in 2013. Net interest expense decreased $1.9 million in 2014 to $31.5 million from $33.4 million in 2013 due to lower debt levels as we repaid our €200 million Notes in June 2013 with cash. Other expenses were $6.8 million in 2014 compared to $3.0 million in 2013. Translation gains in 2014 were $2.2 million compared to translation losses of $2.3 million in 2013. The translation gains in 2014 were primarily due to payments received in Venezuela in foreign currencies other than Venezuelan Bolivar Fuerte and translated at favorable exchange rates other than the official exchange rate and translation gains resulting from intercompany transactions between our foreign subsidiaries and the United States. Miscellaneous expenses, net were $9.0 million in 2014 compared to $0.7 million in 2013. This increase in net expenses is primarily related to the earnings in a few of our equity investments and a loss on sale of an equity investment in the United States in 2014.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
28  
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We recorded an income tax expense at an effective rate of 37.3% in 2014, as compared to an effective rate of 39.4% in 2013. The 2014 rate was favorably impacted by a change in the overall mix of earnings, primarily an increase in non-U.S. income, and a deemed repatriation. The 37.3% effective tax rate was higher than the United States Federal statutory rate of 35% due primarily to the French business tax, repatriations, valuation allowances and other permanent items.
 
Net earnings per share — diluted was $5.30 in 2014 compared to $3.62 in 2013. Foreign currency exchange rates unfavorably impacted net earnings per share — diluted by approximately $0.10 in 2014.
 
Weighted average shares — diluted increased 1.5% to 80.7 million in 2014 from 79.6 million in 2013. This increase was due to shares issued as a result of exercises and vesting of share-based awards in 2014 and the dilutive effect of share-based awards because of the increase in our average share price, partially offset by the impact of share repurchases completed in 2014.
Consolidated Results — 2013 Compared to 2012
 
The following table presents selected consolidated financial data for 2013 as compared to 2012.
 
                      Variance in     Variance in  
                Reported     Constant     Organic Constant  
(in millions, except per share data)   2013     2012     Variance     Currency     Currency  
Revenues from services   $ 20,250.5     $ 20,678.0       (2.1 )%     (2.1 )%     (2.4 )%
Cost of services     16,883.8       17,236.0       (2.0 )     (2.0 )        
Gross profit     3,366.7       3,442.0       (2.2 )     (2.1 )     (2.4 )
Gross profit margin     16.6 %     16.6 %                        
Selling and administrative expenses     2,854.8       3,030.3       (5.8 )     (5.7 )     (6.0 )
Selling and administrative expenses as a % of revenues     14.1 %     14.7 %                        
Operating profit     511.9       411.7       24.3       24.3       23.8  
Operating profit margin     2.5 %     2.0 %                        
Net interest expense     33.4       35.2       (5.0 )                
Other expenses     3.0       8.1       (63.0 )                
Earnings before income taxes     475.5       368.4       29.1       28.9          
Provision for income taxes     187.5       170.8       9.8                  
Effective income tax rate     39.4 %     46.4 %                        
Net earnings   $ 288.0     $ 197.6       45.8       46.4          
Net earnings per share — diluted   $ 3.62     $ 2.47       46.6       47.0          
Weighted average shares — diluted     79.6       80.1       (0.7 )%                
The year-over-year decrease in revenues from services of 2.1% (–2.1% in constant currency and –2.4% in organic constant currency) was attributed to:
 
· decreased demand for services in several of our markets within the Americas, Southern Europe and Northern Europe, where revenues decreased 1.9% (–0.5% in constant currency), 0.2% (–3.6% in constant currency and –3.9% in organic constant currency) and 0.6% (–1.7% in constant currency and –2.3% in organic constant currency), respectively;
   
· revenue declines in our larger markets of France and Italy of 5.8% (–6.0% in organic constant currency) and 0.3% in constant currency, respectively, due to the current economic environments in those countries;
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
ManpowerGroup  |  Annual Report 2014   29
 
· revenue decline in the United States of 1.4% primarily due to a decrease in our larger strategic account client revenues because of softening demand, a large client project in our Manpower business line that concluded in the first quarter of 2013 and strong price discipline on new business opportunities;
   
· revenue decrease in APME of 10.3% (–1.4% in constant currency) primarily due to the decline in demand for our staffing/ interim services, resulting from two fewer billing days and legislative changes in China that restricted the use of temporary employment and to a decline in our TBO revenues due to the loss of a Japanese client; and
   
· decreased demand for talent management services at Right Management, where these revenues decreased 7.1% (–6.6% in constant currency); partially offset by
   
· our acquisitions of two entities in April 2012, one in Southern Europe and one in the Americas, and one entity in April 2013 in Northern Europe, which combined to add 0.3% of revenue growth to our consolidated results.
 
The gross profit margin remained flat year-over-year as the 10 basis point (0.10%) favorable impact from the improvement in our staffing/interim margin was offset by a 10 basis point (0.10%) unfavorable impact resulting from the 7.3% year-over-year decline in our permanent recruitment business. Our staffing/interim margins improved slightly in 2013 as the increases in the United States and Southern Europe, due to the benefit of the CICE payroll tax credit, were offset by lower gross profit margins in many European and APME markets and a social security reserve recorded in France.
 
The 5.8% decline in selling and administrative expenses in 2013 (–5.7% in constant currency and –6.0% in organic constant currency) was attributed to:
 
· a 6.1% decrease in our organic salary-related costs, because of lower headcount;
   
· a 6.3% decrease in lease costs because we closed over 300 offices in 2013, as a result of office consolidations and delivery model changes;
   
· a decrease in legal costs in 2013 compared to 2012, primarily related to the $10 million settlement agreement in 2012 in connection with a lawsuit involving allegations regarding the Company’s vacation pay practices in Illinois; and
   
· a 10.5% decrease in non-personnel related costs, excluding legal and lease costs noted above, as a result of the simplification and cost recalibration actions taken in the fourth quarter of 2012 and during 2013; partially offset by
   
· restructuring costs of $89.4 million in 2013 compared to restructuring costs of $48.8 million in 2012, comprised of $9.8 million in the Americas, $3.8 million in Southern Europe, $13.2 million in Northern Europe, $0.7 million in APME, $10.9 million at Right Management and $10.4 million in corporate expenses; and
   
· the additional recurring selling and administrative costs as a result of the acquisitions in Southern Europe, Northern Europe and the Americas.
 
Selling and administrative expenses as a percent of revenues decreased 60 basis points (–0.60%) in 2013 compared to 2012. The change in selling and administrative expense as a percent of revenues consists of:
 
· a 50 basis point (–0.50%) favorable impact due to the decrease in our organic salary-related costs and lease costs;
   
· a 20 basis point (–0.20%) favorable impact due to the decrease of non-personnel related costs, excluding legal and lease costs noted above, as a result of the simplification and cost recalibration actions taken; and
   
· a 10 basis point (–0.10%) favorable impact due to the decrease in legal costs as noted above; partially offset by
   
· a 20 basis point (0.20%) increase due to the restructuring costs of $89.4 million in 2013 compared to $48.8 million in 2012.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
30  
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest and other expenses are comprised of interest, foreign exchange gains and losses and other miscellaneous non-operating income and expenses. Interest and other expenses were $36.4 million in 2013 compared to $43.3 million in 2012. Net interest expense decreased $1.8 million in 2013 to $33.4 million from $35.2 million in 2012 due to lower debt levels as we repaid our €200 million Notes in June 2013 with cash. Other expenses were $3.0 million in 2013 compared to $8.1 million in 2012. This decrease is due partly to the increase in equity investment income in 2013 compared to 2012, primarily related to a gain on sale of investments by our minority-owned Swiss Franchise recorded in 2013.
 
We recorded an income tax expense at an effective rate of 39.4% for 2013, as compared to an effective rate of 46.4% for 2012. The 2013 rate was favorably impacted by a change in the overall mix of earnings, primarily an increase in non-U.S. income, utilization of net operating losses, and by the reinstatement of the United States Federal Work Opportunity Tax Credit (“WOTC”). The WOTC was retroactively reinstated to January 1, 2012 as part of the American Taxpayer Relief Act, which was enacted on January 2, 2013. We recognized the $7.0 million tax benefit related to 2012 during the first quarter of 2013, the period during which the law was enacted. The American Taxpayer Relief Act also extended the WOTC through December 31, 2013. The 39.4% rate is higher than the U.S. Federal statutory rate of 35% due primarily to the French business tax and other permanent items.
 
Net earnings per share — diluted was $3.62 in 2013 compared to $2.47 in 2012. Foreign currency exchange rates unfavorably impacted net earnings per share — diluted by approximately $0.01 in 2013.
 
Weighted average shares — diluted decreased 0.7% to 79.6 million in 2013 from 80.1 million in 2012. This decrease is the result of the full-year impact of share repurchases we made in 2012, partially offset by an increase in the dilutive effect of share-based awards due to the exercises in 2013 and the increase in our share price.
Segment Results
 
We evaluate performance based on operating unit profit (“OUP”), which is equal to segment revenues less direct costs and branch and national headquarters operating costs. This profit measure does not include goodwill and intangible asset impairment charges or amortization of intangible assets related to acquisitions, interest and other income and expense amounts or income taxes.
 
Americas — The Americas segment is comprised of 678 Company-owned branch offices and 180 stand-alone franchise offices. In the Americas, revenues from services increased 1.6% (5.4% in constant currency) in 2014 compared to 2013. In the United States, revenues from services increased 4.0% in 2014 compared to 2013. The revenue increase in the United States was attributable to growth in our larger national accounts and in the small/ medium-sized business within our Manpower business and solid growth in our MSP and RPO offerings within the ManpowerGroup Solutions business. These increases were partially offset by a decrease in revenues from our larger global accounts. In Other Americas, revenues from services declined 3.0% (8.0% increase in constant currency) in 2014 compared to 2013. We experienced constant currency revenue growth in Mexico, Canada, Argentina due to inflation, Colombia and Brazil of 0.1%, 1.8%, 18.3%, 40.0%, and 9.5%, respectively.
 
Americas Revenues
($ in millions)
 
 (Bar Chart)
 
 Americas Operating Unit Profit
($ in millions)
 
(Bar Chart)
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
ManpowerGroup  |  Annual Report 2014   31
 
In 2013, revenues from services decreased 1.9% (–0.5% in constant currency) compared to 2012. In the United States, revenues from services declined 1.4% in 2013 compared to 2012. The revenue decline in the United States was attributable to a decline in staffing/interim services in the Manpower and Experis business lines due to softening demand from our larger strategic accounts in 2013 compared to 2012, a large client project in our Manpower business line that concluded in the first quarter of 2013 and strong price discipline by selectively accepting new business opportunities. These declines were partially offset by an increase in ManpowerGroup Solutions revenues of 14.2% and an increase in our permanent recruitment revenues of 4.4% in the United States in 2013 compared to 2012. In Other Americas, revenues from services declined 2.7% (1.2% increase in constant currency and 1.1% increase in organic constant currency) in 2013 compared to 2012, with a revenue decline in Argentina of 12.7%, partially offset by revenue increases in Canada of 1.8% (4.0% in organic constant currency) and Mexico of 2.5%.
 
Gross profit margin was flat in 2014 compared to 2013 as the favorable impact from improved Experis interim margins, resulting from strong price discipline by selectively accepting new business opportunities and effectively managing the pay bill gap with our clients, offset by business mix changes in our Manpower staffing revenue as growth came from some of our lower-margin business and pricing pressures within the small/medium-sized business in the United States. In 2013, gross profit margin increased due to the favorable impact of improved staffing/interim gross profit margin resulting from stronger pricing discipline in the United States, as well as continued growth in our ManpowerGroup Solutions and permanent recruitment businesses.
 
In 2014, selling and administrative expenses decreased 3.0% (–0.3% in constant currency). We experienced declines in non-personnel related costs as a result of the simplification and cost recalibration actions taken in 2013 and $18.0 million of restructuring costs recorded in 2013 that did not recur in 2014, that was offset by $9.0 million of legal costs recorded in 2014 and an increase in salary-related costs, because of an increase in our variable incentive-based costs due to improved operating results and higher headcount to support increased revenues. In 2013, selling and administrative expenses decreased 5.6% (–4.5% in constant currency) due to $10.0 million of legal costs incurred in 2012 and declines in salary-related and lease costs as a result of the cost recalibration actions, partially offset by an increase in restructuring costs to $18.0 million recorded in 2013 compared to $9.8 million in 2012.
 
OUP margin in the Americas was 4.0%, 3.2% and 2.4% for 2014, 2013 and 2012, respectively. In the United States, OUP margin was 4.1%, 3.4% and 2.0% in 2014, 2013 and 2012, respectively. The margin increase in 2014 in the United States was due to the decrease in restructuring costs and better operational leverage, as we were able to support an increase in revenues without a similar increase in expenses, partially offset by the legal costs noted above. Other Americas OUP margin was 3.8%, 2.8% and 3.2% in 2014, 2013 and 2012, respectively. The increase in the Other Americas OUP margin in 2014 was due to the declines in restructuring costs and in salary-related and lease costs as a result of the simplification and cost recalibration actions taken in 2013, partially offset by a decline in the gross profit margin in 2014 compared to 2013. The margin increase in the Americas in 2013 was primarily due to the United States, as a result of declines in salary-related and lease costs from the cost recalibration actions, the 2012 legal costs and the improvement in the gross profit margin as noted above, partially offset by the increase in restructuring costs in both the United States and Other Americas.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
32  
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southern Europe — In 2014, revenues from services in Southern Europe, which includes operations in France and Italy, increased 3.8% (3.8% in constant currency and 3.6% in organic constant currency) compared to 2013. In 2014, revenues from services increased 1.2% in constant currency in France (which represents 71.3% of Southern Europe’s revenues) and increased 8.1% in organic constant currency in Italy (which represents 15.7% of Southern Europe’s revenues). The increase in France was due primarily to market share gains in a stabilizing market. The increase in Italy was mostly due to increased demand for our Manpower staffing services as clients opted for more flexible labor solutions given the current economic conditions and a 27.4% constant currency increase in the permanent recruitment business, partially offset by three fewer billing days in 2014 compared to 2013. In Other Southern Europe, revenues from services increased 13.3% (13.7% in constant currency and 12.2% in organic constant currency) in 2014 compared to 2013 driven by the revenue increase in Spain due to improving economic conditions and clients acquired from a local competitor in July 2013.
Southern Europe Revenues
($ in millions)
(Bar Chart) 
Southern Europe Operating Unit Profit
($ in millions)
 
 (Bar Chart)
 
In 2013, revenues from services in Southern Europe decreased 0.2% (–3.6% in constant currency and –3.9% in organic constant currency) compared to 2012. In 2013, revenues from services decreased 6.0% in organic constant currency in France and decreased 0.3% in constant currency in Italy. The decrease in France was due primarily to softening demand in the staffing/interim business and a 23.5% decline in constant currency in the permanent recruitment business. The decrease in Italy was due to a slight decrease in our staffing/interim services. In Other Southern Europe, revenues from services increased 12.5% (7.9% in constant currency and 6.1% in organic constant currency) in 2013 compared to 2012 driven by the revenue increase in Portugal, due to increased demand in the Manpower staffing and ManpowerGroup Solutions businesses, and in Spain, due mostly to an acquisition of some clients from a local competitor in July 2013.
 
Gross profit margin increased in 2014 compared to 2013 due to strong price discipline, enhanced CICE payroll tax credits in France and an increase in our permanent recruitment business, partially offset by the continued pricing pressures in some markets. In 2013, gross profit margin increased compared to 2012 due primarily to the CICE payroll tax credit in France, which was partially offset by the additional social security reserve recorded in France in 2013, the decrease in our permanent recruitment business, and pricing pressures in the small/medium-sized business in France and in Italy that unfavorably impacted staffing/interim gross margins.
 
In 2014, selling and administrative expenses decreased 0.1% (–0.1% in constant currency and –0.2% in organic constant currency) compared to 2013. The decrease was due to the decline in non-personnel related costs as a result of the simplification and cost recalibration actions taken in 2013 and the $7.8 million of restructuring costs incurred in 2013 that did not recur in 2014, partially offset by an increase in organic salary-related costs, because of an increase in our variable incentive-based costs due to improved operating results. In 2013, selling and administrative expenses decreased 3.8% (–6.9% in constant currency and –7.2% in organic constant currency) compared to 2012 primarily related to the decrease in organic salary-related costs due to lower headcount, partially offset by an increase in restructuring costs to $7.8 million recorded in 2013 compared to $3.8 million in 2012 and the additional recurring selling and administrative costs resulting from the 2012 Damilo acquisition in France.
 
OUP margin in Southern Europe was 4.8%, 3.7% and 2.6% for 2014, 2013 and 2012, respectively. OUP margin increased in 2014 primarily due to France, where the OUP margin was 5.1%, 3.8%, and 2.4% in 2014, 2013 and 2012, respectively. France’s margin increase in 2014 was due to the improvement in our gross profit margin and improved operational leverage as we were able to support the higher revenue level with lower expenses. Italy’s OUP margin was 5.4%, 4.9% and 4.3% in
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
ManpowerGroup  |  Annual Report 2014   33
 
2014, 2013 and 2012, respectively. Italy’s margin increase in 2014 was due to our ability to effectively manage selling and administrative expenses while revenues increased, partially offset by the decrease in our gross profit margin and the impact of three fewer billing days. Other Southern Europe’s OUP margin was 2.3%, 1.4% and 1.3% in 2014, 2013 and 2012, respectively. Other Southern Europe’s margin increased in 2014 as we were able to support an increase in revenues without a similar increase in expenses. The margin increase in Southern Europe in 2013 was due to the improvement in France’s gross profit margin and the decrease in salary-related costs due to lower headcount, partially offset by the increase in restructuring costs in 2013 compared to 2012.
 
Northern Europe — In Northern Europe, which includes operations in the United Kingdom, the Nordics, Germany and the Netherlands (comprising 35.0%, 20.6%, 11.9%, and 9.9%, respectively, of Northern Europe’s revenues), revenues from services increased 5.4% (5.7% in constant currency and 4.4% in organic constant currency) in 2014 as compared to 2013. We experienced organic constant currency revenue growth in the United Kingdom and the Netherlands of 12.7% and 5.1%, respectively. The increase in revenues from services was primarily attributable to the increase in our staffing/interim business, as a result of the improving economic conditions in a majority of our larger Northern European markets, and a 22.2% constant currency increase (7.5% in organic constant currency) in our permanent recruitment business mostly due to 92.6% constant currency growth (33.7% in organic constant currency) in the United Kingdom.
Northern Europe Revenues
($ in millions)
(Bar Chart) 
Northern Europe Operating Unit Profit
($ in millions)
(Bar Chart) 
 
In 2013, revenues from services in Northern Europe decreased 0.6% (–1.7% in constant currency and –2.3% in organic constant currency) primarily attributable to the 8.2% decline in constant currency in our Experis business line, which saw softening demand for IT services among our larger clients, in both our interim and permanent recruitment businesses.
Gross profit margin decreased in 2014 compared to 2013 due to the decline in our staffing/interim margins as a result of business mix changes in our staffing/interim revenue as higher growth came from our lower-margin markets, general pricing pressures in several markets and client contract termination costs, partially offset by the increase in our permanent recruitment business. In 2013, gross profit margin decreased due to the decline in our staffing/interim margins as we experienced lower bench utilization in our Manpower business line in Sweden and new collective labor agreements and higher holiday pay costs in Germany, encountered general pricing pressures in several markets, and saw a 9.8% decrease in constant currency in our permanent recruitment business.
Selling and administrative expenses decreased 2.8% (–2.2% in constant currency and –4.8% in organic constant currency) in 2014 compared to 2013. The decrease in selling and administrative expenses was due primarily to the $39.0 million of restructuring costs incurred in 2013 that did not recur in 2014 and a decrease in lease costs as a result of the simplification and cost recalibration actions taken, partially offset by the additional recurring selling and administrative costs resulting from acquisitions and an increase in organic salary-related costs, because of an increase in our variable incentive-based costs due to improved operating results and higher headcount to support increased revenues. In 2013, selling and administrative expenses decreased 3.8% (–5.3% decrease in constant currency and –5.9% in organic constant currency) compared to 2012 due primarily to lower headcount, which reduced compensation-related expenses such as salaries and variable incentive-based costs, lower lease costs, and the additional cost savings from the simplification and cost recalibration actions, partially offset by an increase in restructuring costs to $39.0 million in 2013 compared to $13.2 million in 2012 and the additional recurring selling and administrative costs resulting from an acquisition in April 2013.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
34  
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OUP margin for Northern Europe was 3.3%, 2.4% and 2.8% in 2014, 2013 and 2012, respectively. The increase in 2014 was the result of better operational leverage, as we were able to support the higher revenue levels with lower expenses, partially offset by a decline in the gross profit margin. The OUP margin declined in 2013 as the decrease in compensation-related expenses and lease costs as well as additional cost savings from the simplification and cost recalibration actions was not enough to offset the decrease in the gross profit margin and the increase in restructuring costs in 2013.
 
APME — Revenues from services decreased 4.9% (–0.1% in constant currency and –0.6% in organic constant currency) in 2014 compared to 2013. In Japan (which represents 36.0% of APME’s revenues), revenues from services decreased 9.3% (–1.7% in constant currency) as we were challenged to recruit candidates in a tight labor market even though we experienced gradual improvement in demand for our staffing/interim services, partially offset by the increase of 10.5% in constant currency in the permanent recruitment business. In Australia (which represents 22.8% of APME’s revenues), revenues from services were down 7.7% (–1.0% in constant currency and –2.3% in organic constant currency) in 2014 compared to 2013 due to the decreased demand for our staffing/interim services, partially offset by a 13.0% increase in constant currency in the permanent recruitment business. The remaining revenue decrease in APME is due to the staffing/ interim revenue decline in China as a result of legislative changes that restricted the use of temporary employment and a general softening of demand in the market.
 
APME Revenues
($ in millions)
 
(Bar Chart) 
APME Operating Unit Profit
($ in millions)
 
(Bar Chart) 
 
In 2013, revenues from services for APME decreased 10.3% (–1.4% in constant currency) compared to 2012. In Japan, revenues from services decreased 3.7% in constant currency in 2013 due primarily to soft demand for our staffing/interim services as a result of legislative changes and fewer billing days in 2013 compared to 2012, and the run-off of a large TBO client contract that began to wind down in early 2013, partially offset by a 31.7% increase in constant currency in the permanent recruitment business. In Australia, revenues from services were down 6.6% in constant currency compared to 2012 due to the decreased demand for interim services in our Experis business line, partially offset by an increase in the permanent recruitment business.
 
Gross profit margin increased in 2014 compared to 2013 due to an increase of 8.3% in constant currency in our permanent recruitment business. In 2013, gross profit margin decreased due to a decrease in our staffing/interim gross profit margin from modest pricing pressures and change in business mix, as well as the 5.3% decline in constant currency in our permanent recruitment business.
 
Selling and administrative expenses decreased 8.0% (–3.0% in constant currency and –4.3% in organic constant currency) in 2014 compared to 2013 related to reduced organic salary-related expenses due to lower headcount, a decrease in lease and office-related costs as a result of the simplification and cost recalibration actions taken in 2013 and $6.2 million of restructuring costs incurred in 2013 that did not recur in 2014, partially offset by the additional recurring selling and administrative costs resulting from acquisitions. In 2013, selling and administrative expenses decreased 10.4% (–1.6% in constant currency) compared to 2012 related to reduced compensation-related expenses such as salaries and variable incentive-based costs due to lower headcount, partially offset by an increase in restructuring costs to $6.2 million recorded in 2013 compared to $0.7 million in 2012.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
ManpowerGroup  |  Annual Report 2014   35
 
OUP margin for APME was 3.6%, 2.9%, and 3.3% in 2014, 2013 and 2012, respectively. The OUP margin increase in 2014 was due to the increase in our gross profit margin as well as the decrease in salary-related expenses, lease and office-related costs, and restructuring costs. The decrease in 2013 was due to the decrease in our gross profit margin, increase in restructuring costs and the impact of fewer billing days, partially offset by the decrease in salary-related costs due to lower headcount.
 
Right Management — Right Management is a leading global provider of talent and career management (also known as outplacement services) workforce solutions, operating in 139 offices in more than 50 countries and territories.
 
In 2014, revenues from services decreased 7.1% (–6.7% in constant currency) due to the 10.2% decrease (–9.8% in constant currency) in our outplacement services as we experienced softer demand in many of our markets due to the counter-cyclical nature of this business. Our talent management business experienced a slight decrease of 0.5% (0.1% increase in constant currency) in 2014 compared to 2013.
 
In 2013, revenues from services decreased 3.6% (–2.1% in constant currency) due to the 7.1% (–6.6% in constant currency) decline in demand for our talent management business. Our counter-cyclical outplacement services remained flat in constant currency in 2013 compared to 2012.
Right Management Revenues
($ in millions)
(Bar Chart) 
Right Management Operating Unit Profit
($ in millions)
(Bar Chart) 
 
Gross profit margin decreased in 2014 compared to 2013 due to margin deterioration in the outplacement business and the change in business mix as the lower-margin talent management business represented a greater percentage of the revenue mix, partially offset by the increase in the talent management business gross profit margin. In 2013, gross profit margin decreased due to the margin deterioration in both the outplacement business and talent management business, partially offset by the change in business mix as the higher-margin outplacement business represented a greater percentage of the revenue mix.
 
In 2014, selling and administrative expenses decreased 16.7% (–16.1% in constant currency) compared to 2013 due to the cost savings from more efficient delivery solutions and the simplification and cost recalibration actions favorably impacting expense levels, as well as the $14.0 million of restructuring costs incurred in 2013 that did not recur in 2014. In 2013, selling and administrative expenses decreased 8.5% (–7.5% in constant currency) compared to 2012 due to the cost savings from the simplification and cost recalibration actions, partially offset by an increase in restructuring costs to $14.0 million in 2013 compared to $10.9 million in 2012.
 
OUP margin for Right Management was 11.4%, 6.4% and 4.1% for 2014, 2013 and 2012, respectively. The OUP margin for 2014 improved due to the decrease in selling and administrative expenses as a result of the cost savings from more efficient delivery solutions and the simplification and cost recalibration actions and the decrease in restructuring costs, partially offset by the decline in the gross profit margin. The OUP margin for 2013 improved due to the decrease in selling and administrative expenses from the cost savings from the simplification and cost recalibration actions, partially offset by the decrease in the gross profit margin and the increase in restructuring costs in 2013.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
36  
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL MEASURES — CONSTANT CURRENCY AND ORGANIC CONSTANT CURRENCY RECONCILIATION
 
Certain constant currency and organic constant currency percent variances are discussed throughout this annual report. A reconciliation of these Non-GAAP percent variances to the percent variances calculated based on our annual GAAP financial results is provided below. (See Constant Currency and Organic Constant Currency on pages 24 and 25 for further information.)
 
                            Impact of      Organic   
    Reported                 Variance in     Acquisitions      Constant   
Amount represent 2014   Amount     Reported     Impact of     Constant     (in Constant     Currency  
Percentages represent 2014 compared to 2013   (in millions)     Variance     Currency     Currency     Currency)     Variance  
Revenues from Services                                    
Americas:                                    
United States   $ 3,086.4       4.0 %     %     4.0 %     %     4.0 %
Other Americas     1,497.3       (3.0 )     (11.0 )     8.0             8.0  
      4,583.7       1.6       (3.8 )     5.4             5.4  
Southern Europe:                                                
France     5,351.6       1.3       0.1       1.2             1.2  
Italy     1,178.8       8.4       (0.1 )     8.5       0.4       8.1  
Other Southern Europe     979.3       13.3       (0.4 )     13.7       1.5       12.2  
      7,509.7       3.8             3.8       0.2       3.6  
Northern Europe     6,048.1       5.4       (0.3 )     5.7       1.3       4.4  
APME     2,327.1       (4.9 )     (4.8 )     (0.1 )     0.5       (0.6 )
Right Management     294.2       (7.1 )     (0.4 )     (6.7 )           (6.7 )
ManpowerGroup   $ 20,762.8       2.5 %     (1.5 )%     4.0 %     0.4 %     3.6 %
Gross Profit — ManpowerGroup   $ 3,488.2       3.6 %     (1.6 )%     5.2 %     1.1 %     4.1 %
Operating Unit Profit                                                
Americas:                                                
United States   $ 125.4       25.7 %     %     25.7 %     %      25.7 %
Other Americas     56.2       27.9       (12.5 )     40.4             40.4  
      181.6       26.4       (3.8 )     30.2             30.2  
Southern Europe:                                                
France     275.5       38.5       (0.2 )     38.7             38.7  
Italy     64.2       19.3       (0.5 )     19.8       1.6       18.2  
Other Southern Europe     22.0       83.9       (0.9 )     84.8       8.8       76.0  
      361.7       36.7       (0.3 )     37.0       0.7       36.3  
Northern Europe     198.1       41.8       (3.1 )     44.9       6.9       38.0  
APME     84.2       19.0       (6.2 )     25.2       2.5       22.7  
Right Management     33.5       64.1       0.4       63.7             63.7  
Operating Profit — ManpowerGroup   $ 719.9       40.6 %     (2.9 )%     43.5 %     2.2 %     41.3 %
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
ManpowerGroup  |  Annual Report 2014   37
 
                            Impact of     Organic  
    Reported                 Variance in     Acquisitions     Constant  
Amount represent 2013   Amount     Reported     Impact of     Constant     (in Constant     Currency  
Percentages represent 2013 compared to 2012   (in millions)     Variance     Currency     Currency     Currency)     Variance  
Revenues from Services                                                
Americas:                                                
United States   $ 2,967.0       (1.4 )%     %     (1.4 )%     %     (1.4 )%
Other Americas     1,543.2       (2.7 )     (3.9 )     1.2       0.1       1.1  
      4,510.2       (1.9 )     (1.4 )     (0.5 )     0.1       (0.6 )
Southern Europe:                                                
France     5,284.9       (2.6 )     3.2       (5.8 )     0.2       (6.0 )
Italy     1,087.6       2.9       3.2       (0.3 )           (0.3 )
Other Southern Europe     864.5       12.5       4.6       7.9       1.8       6.1  
      7,237.0       (0.2 )     3.4       (3.6 )     0.3       (3.9 )
Northern Europe     5,738.8       (0.6 )     1.1       (1.7 )     0.6       (2.3 )
APME     2,447.7       (10.3 )     (8.9 )     (1.4 )           (1.4 )
Right Management     316.8       (3.6 )     (1.5 )     (2.1 )           (2.1 )
ManpowerGroup   $  20,250.5       (2.1 )%     %     (2.1 )%     0.3 %     (2.4 )%
Gross Profit — ManpowerGroup   $ 3,366.7       (2.2 )%     (0.1 )%     (2.1 )%     0.3 %     (2.4 )%
Operating Unit Profit                                                
Americas:                                                
United States   $ 99.8       64.2 %     %     64.2 %     %     64.2 %
Other Americas     43.9       (13.1 )     (1.6 )     (11.5 )     0.6       (12.1 )
      143.7       29.0       (0.8 )     29.8       0.3       29.5  
Southern Europe:                                                
France     198.9       53.4       5.4       48.0       (0.1 )     48.1  
Italy     53.8       18.5       3.7       14.8             14.8  
Other Southern Europe     11.9       18.1       6.5       11.6       9.3       2.3  
      264.6       42.9       5.0       37.9       0.5       37.4  
Northern Europe     139.7       (12.6 )     0.5       (13.1 )     0.6       (13.7 )
APME     70.8       (22.0 )     (8.7 )     (13.3 )           (13.3 )
Right Management     20.4       52.3       (7.3 )     59.6             59.6  
Operating Profit — ManpowerGroup   $ 511.9       24.3 %     %     24.3 %     0.5 %     23.8 %
 
 
CASH SOURCES AND USES
 
Cash used to fund our operations is primarily generated through operating activities and provided by our existing credit facilities. We believe that our available cash and our existing credit facilities are sufficient to cover our cash needs for the foreseeable future. We assess and monitor our liquidity and capital resources globally. We use a global cash pooling arrangement, intercompany lending, and some local credit lines to meet funding needs and allocate our capital resources among our various entities. As of December 31, 2014, we had $513.2 million of cash held by foreign subsidiaries that was not available to fund domestic operations unless repatriated. We anticipate cash repatriations to the United States from certain foreign subsidiaries and have provided for deferred taxes related to those foreign earnings not considered to be
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
38  
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
permanently invested. As of December 31, 2014 and 2013, we identified approximately $452.8 million and $264.3 million, respectively, of non-United States earnings that are not permanently invested. Related to these non-United States earnings that may be remitted, we recorded a deferred tax liability of $53.1 million and $16.7 million as of December 31, 2014 and 2013, respectively. This deferred tax liability increased as of December 31, 2014 from December 31, 2013 due to the 2014 non-United States earnings that are not permanently invested, which had a higher tax cost due to lower foreign tax credits.
Our principal ongoing cash needs are to finance working capital, capital expenditures, debt payments, interest expense, share repurchases, dividends and acquisitions. Working capital is primarily in the form of trade receivables, which generally increase as revenues increase. The amount of financing necessary to support revenue growth depends on receivables turnover, which differs in each market where we operate.
Cash provided by operating activities was $306.2 million, $396.7 million and $331.6 million for 2014, 2013 and 2012, respectively. The decrease in cash generated from operating activities in 2014 from 2013 was primarily attributable to the increase in the CICE receivable, which by law is not collectible for three years. In 2013, we sold a portion of the 2013 receivable for net proceeds of $104.0 million. We also saw increased working capital needs in 2014 as a result of the growth in the business. The increase in 2013 compared to 2012 was primarily attributable to the higher operating earnings in 2013. Changes in operating assets and liabilities utilized $314.2 million of cash in 2014, primarily due to the increase in the CICE receivable, as compared to $50.9 million in 2013 and $13.8 million in 2012.
Accounts receivable decreased to $4,134.5 million as of December 31, 2014 from $4,277.9 million as of December 31, 2013, primarily due to the change in exchange rates, partially offset by increased business volume. Utilizing exchange rates as of December 31, 2013, the December 31, 2014 balance would have been approximately $417.6 million higher than reported.
Capital expenditures were $51.5 million, $44.7 million and $72.0 million during 2014, 2013 and 2012, respectively. These expenditures were primarily comprised of purchases of computer equipment, office furniture and other costs related to office openings and refurbishments, as well as capitalized software costs of $3.4 million, $0.5 million and $3.3 million in 2014, 2013 and 2012, respectively.
From time to time, we acquire and invest in companies throughout the world, including franchises. The total cash consideration paid for acquisitions, net of cash acquired, for the years ended December 31, 2014, 2013 and 2012 was $32.0 million, $46.3 million and $49.0 million, respectively. Goodwill and intangible assets resulting from the 2014 acquisitions, the majority of which took place in the Netherlands and the United Kingdom, were $39.4 million and $10.1 million, respectively, as of December 31, 2014. Goodwill and intangible assets resulting from the 2013 acquisitions, the majority of which took place in the United Kingdom and Norway, were $52.2 million and $10.1 million as of December 31, 2013, respectively.
In 2012, we acquired Damilo Group (“Damilo”), a French firm specializing in IT design solutions, for total consideration, net of cash acquired, of €21.2 ($28.0) million. Goodwill arising from this transaction was €30.8 ($40.6) million. The assumed liabilities and acquired assets, net of goodwill, related intangible assets and cash arising from the transaction were €33.8 ($44.6) million and €17.9 ($23.6) million, respectively. The related intangible assets were €5.0 ($6.8) million and €4.2 ($5.1) million as of December 31, 2013 and December 31, 2014, respectively.
Net debt borrowings were $13.4 million for 2014, as compared to net payments of $271.3 million in 2013 and net borrowings of $41.7 million in 2012. In June 2013, we paid off our €200.0 million 4.75% Notes with available cash upon maturity. We use excess cash to pay down borrowings under facilities when appropriate.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
ManpowerGroup  |  Annual Report 2014   39
 
We currently have authorization from our board of directors to repurchase 8.0 million shares of our common stock. Share repurchases may be made from time to time through a variety of methods, including open market purchases, block transactions, privately negotiated transactions, accelerated share repurchase programs, forward repurchase agreements or similar facilities. We repurchased 2.0 million shares at a cost of $143.5 million in 2014. No repurchases were made in 2013. In 2012, we repurchased a total of 3.6 million shares under previous authorizations at a total cost of $138.2 million. As of December 2014, there were 6.0 million shares remaining authorized for repurchase under this authorization and no shares remaining under any previous authorizations.
We have aggregate commitments of $1,343.1 million related to debt, operating leases, severances and office closure costs, and certain other commitments, as follows:
 
(in millions)   Total     2015     2016–2017     2018–2019     Thereafter  
Long-term debt including interest   $ 491.7     $ 21.0     $ 38.6     $ 432.1     $  
Short-term borrowings     43.3       43.3                    
Operating leases     611.3       160.6       212.5       118.8       119.4  
Severances and other office closure costs     12.9       9.2       2.8       0.9        
Other     183.9       72.6       74.5       11.0       25.8  
    $ 1,343.1     $ 306.7     $ 328.4     $ 562.8     $ 145.2  
 
Our liability for unrecognized tax benefits, including related interest and penalties, of $29.4 million is excluded from the commitments above as we cannot determine the years in which these positions might ultimately be settled.
We recorded net restructuring costs of $89.4 million and $48.8 million in 2013 and 2012, respectively, in selling and administrative expenses, primarily related to severances and office closures and consolidations in multiple countries. These expenses are net of reversals of previous accruals resulting mainly from larger-than-estimated cost savings from subleasing and lease buyouts. During 2014, we made payments of $35.5 million out of our restructuring reserve. We expect a majority of the remaining $12.9 million reserve will be paid by the end of 2015. (See Note 1 to the Consolidated Financial Statements for further information.)
We have entered into guarantee contracts and stand-by letters of credit that total approximately $172.6 million and $156.5 million as of December 31, 2014 and 2013, respectively ($126.8 million and $118.2 million for guarantees, respectively, and $45.8 million and $38.3 million for stand-by letters of credit, respectively). Guarantees primarily relate to bank accounts, operating leases and indebtedness. The stand-by letters of credit relate to workers’ compensation, operating leases and indebtedness. If certain conditions were met under these arrangements, we would be required to satisfy our obligation in cash. Due to the nature of these arrangements and our historical experience, we do not expect to make any significant payments under these arrangements. Therefore, they have been excluded from our aggregate commitments identified above. The cost of these guarantees and letters of credit was $1.9 million and $1.8 million in 2014 and 2013, respectively. 
Total Capitalization
($ in millions)
(Bar chart) 
 
Total capitalization as of December 31, 2014 was $3,412.1 million, comprised of $469.1 million in debt and $2,943.0 million in equity. Debt as a percentage of total capitalization was 14%, 15% and 24% as of December 31, 2014, 2013 and 2012, respectively. The decrease in 2013 in debt as a percentage of total capitalization is primarily due to the repayment of the euro-denominated notes with available cash.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
40  
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Euro Notes
 
We have €350.0 million aggregate principal amount 4.50% notes due June 22, 2018 (the “€350.0 million Notes”), which were issued at a price of 99.974% to yield an effective interest rate of 4.505%. Interest on the €350.0 million Notes is payable in arrears on June 22 of each year. The €350.0 million Notes are unsecured senior obligations and rank equally with all of our existing and future senior unsecured debt and other liabilities. We may redeem the €350.0 million Notes, in whole but not in part, at our option at any time for a redemption price determined in accordance with the term of the €350.0 million Notes. The €350.0 million Notes also contain certain customary non-financial restrictive covenants and events of default.
When the €350.0 million Notes mature, we plan to repay the amount with available cash, borrowings under our $600.0 million revolving credit facility or a new borrowing. The credit terms, including interest rate and facility fees, of any replacement borrowings will be dependent upon the condition of the credit markets at that time. We currently do not anticipate any problems accessing the credit markets should we decide to replace the €350.0 million Notes.
The €350.0 million Notes have been designated as a hedge of our net investment in subsidiaries with a euro-functional currency. Since our net investment in these subsidiaries exceeds the respective amount of the designated borrowings, translation gains or losses related to these borrowings are included as a component of accumulated other comprehensive (loss) income. (See Significant Matters Affecting Results of Operations and Notes 7 and 12 to the Consolidated Financial Statements for further information.)
Revolving Credit Agreement
 
On October 15, 2013, we amended and restated our Five-Year Credit Agreement (“the Amended Agreement”) with a syndicate of commercial banks. The Amended Agreement allows for borrowing of $600.0 million in various currencies, and up to $150.0 million may be used for the issuance of stand-by letters of credit. The Amended Agreement terminates on October 15, 2018 but permits the termination date of the facility to be extended by an additional year twice during the term of the Amended Agreement. We had no borrowings under this facility as of December 31, 2014 or 2013. Outstanding letters of credit issued under the Amended Agreement totaled $1.0 million and $0.9 million as of December 31, 2014 and 2013, respectively. Additional borrowings of $599.0 million and $599.1 million were available to us under the facility as of December 31, 2014 and 2013, respectively.
Under the Amended Agreement, a credit ratings-based pricing grid determines the facility fee and the credit spread that we add to the applicable interbank borrowing rate on all borrowings. At our current credit rating, the annual facility fee is 17.5 basis points paid on the entire $600.0 million facility and the credit spread is 107.5 basis points on any borrowings. A downgrade from both credit rating agencies would unfavorably impact our facility fees and result in additional costs ranging from approximately $0.3 million to $0.6 million annually.
The Amended Agreement contains customary restrictive covenants pertaining to our management and operations, including limitations on the amount of subsidiary debt that we may incur and limitations on our ability to pledge assets, as well as financial covenants requiring, among other things, that we comply with a leverage ratio (net Debt-to-EBITDA) of not greater than 3.5 to 1 and a fixed charge coverage ratio of not less than 1.5 to 1. The Amended Agreement also contains customary events of default, including, among others, payment defaults, material inaccuracy of representations and warranties, covenant defaults, bankruptcy or involuntary proceedings, certain monetary and non-monetary judgments, change of control and customary ERISA defaults.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
ManpowerGroup  |  Annual Report 2014   41
 
As defined in the Amended Agreement, we had a net Debt-to-EBITDA ratio of 0.21 to 1 (compared to the maximum allowable ratio of 3.5 to 1) and a Fixed Charge Coverage ratio of 4.25 to 1 (compared to the minimum required ratio of 1.5 to 1) as of December 31, 2014. Based on our current forecast, we expect to be in compliance with our financial covenants for the next 12 months.
Other
 
In addition to the previously mentioned facilities, we maintain separate bank credit lines with financial institutions to meet working capital needs of our subsidiary operations. As of December 31, 2014, such uncommitted credit lines totaled $331.9 million, of which $286.2 million was unused. Under the Amended Agreement, total subsidiary borrowings cannot exceed $300.0 million in the first, second and fourth quarters, and $600.0 million in the third quarter of each year. Due to these limitations, additional borrowings of $254.3 million could have been made under these lines as of December 31, 2014.
In April 2014, Standard and Poor’s raised our credit rating to BBB from BBB–, while maintaining the stable outlook. In December 2014, Moody’s Investors Services upgraded our long-term debt rating to Baa2 from Baa3 while changing the ratings outlook to stable from positive. The rating agencies use a proprietary methodology in determining their ratings and outlook which includes, among other things, financial ratios based upon debt levels and earnings performance. Both of the current credit ratings are investment grade.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
 
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts. A discussion of the more significant estimates follows. Management has discussed the development, selection and disclosure of these estimates and assumptions with the Audit Committee of our Board of Directors.
Allowance for Doubtful Accounts
 
We have an allowance for doubtful accounts recorded as an estimate of the accounts receivable balance that may not be collected. This allowance is calculated on an entity-by-entity basis with consideration for historical write-off experience, the current aging of receivables and a specific review for potential bad debts. Items that affect this balance mainly include bad debt expense and write-offs of accounts receivable balances.
Bad debt expense, which increases our allowance for doubtful accounts, is recorded as a selling and administrative expense and was $18.9 million, $24.1 million and $29.2 million for 2014, 2013 and 2012, respectively. Factors that would cause this provision to increase primarily relate to increased bankruptcies by our clients and other difficulties collecting amounts billed. On the other hand, an improved write-off experience and aging of receivables would result in a decrease to the provision.
Write-offs, which decrease our allowance for doubtful accounts, are recorded as a reduction to our accounts receivable balance and were $15.8 million, $26.4 million and $23.2 million for 2014, 2013 and 2012, respectively.
Employment-Related Items
 
The employment of contingent workers and permanent staff throughout the world results in the recognition of liabilities related to defined benefit pension plans, self-insured workers’ compensation, social program remittances and payroll tax audit exposures that require us to make estimates and assumptions in determining the proper reserve levels. These reserves involve significant estimates or judgments that are material to our financial statements.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
42  
 
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Defined Benefit Pension Plans
 
We sponsor several qualified and nonqualified pension plans covering permanent employees. The most significant plans are located in the United Kingdom, the United States, the Netherlands, France and Norway. Annual expense relating to these plans is recorded in selling and administrative expenses and is estimated to be approximately $12.5 million in 2015, compared to $12.6 million, $11.8 million and $12.6 million in 2014, 2013 and 2012, respectively. Included in the 2013 expense was a $2.3 million curtailment gain resulting from an amendment to a defined benefit plan in the Netherlands. Effective January 1, 2013, the Netherlands’ defined benefit plan was frozen, and the participants were transitioned to a defined contribution plan.
The calculations of annual pension expense and the pension liability required at year-end include various actuarial assumptions such as discount rates, expected rate of return on plan assets, compensation increases and employee turnover rates. We review the actuarial assumptions on an annual basis and make modifications to the assumptions as necessary. We review market data and historical rates, on a country-by-country basis, to check for reasonableness in setting both the discount rate and the expected return on plan assets. We determine the discount rate based on an index of high-quality corporate bond yields and matched-funding yield curve analysis as of the end of each fiscal year. The expected return on plan assets is determined based on the expected returns of the various investment asset classes held in the plans. We estimate compensation increases and employee turnover rates for each plan based on the historical rates and the expected future rates for each respective country. Changes to any of these assumptions will impact the level of annual expense recorded related to the plans.
We used a weighted-average discount rate of 3.9% for the United States plans and 2.9% for non-United States plans in determining the estimated pension expense for 2015. These rates compare to the weighted-average discount rate of 4.6% for the United States plans and 4.1% for non-United States plans we used in determining the estimated pension expense for 2014, and reflect the current interest rate environment. Absent any other changes, a 25 basis point increase and decrease in the weighted-average discount rate would impact 2015 consolidated pension expense by approximately $0.1 million and $1.0 million for the United States plans and non-United States plans, respectively. We have selected a weighted-average expected return on plan assets of 5.5% for the United States plans and 3.2% for the non-United States plans in determining the estimated pension expense for 2015. The comparable rates used for the calculation of the 2014 pension expense were 6.0% and 4.5% for the United States plans and non-United States plans, respectively. A 25 basis point change in the weighted-average expected return on plan assets would impact 2015 consolidated pension expense by approximately $0.1 million for the United States plans and $0.9 million for the non-United States plans. Changes to these assumptions have historically not been significant in any jurisdiction for any reporting period, and no significant adjustments to the amounts recorded have been required in the past or are expected in the future. (See Note 8 to the Consolidated Financial Statements for further information.)
United States Workers’ Compensation
 
In the United States, we are under a self-insured retention program in most states covering workers’ compensation claims for our contingent workers. We determine the proper reserve balance using an actuarial valuation, which considers our historical payment experience and current employee demographics. Our reserve for such claims as of December 31, 2014 and 2013 was $79.8 million and $75.3 million, respectively. Workers’ compensation expense is recorded as a component of cost of services.
There are two main factors that impact workers’ compensation expense: the number of claims and the cost per claim. The number of claims is driven by the volume of hours worked, the business mix which reflects the type of work performed (for example, office and professional work has fewer claims than industrial work), and the safety of the environment where
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
ManpowerGroup  |  Annual Report 2014   43
 
the work is performed. The cost per claim is driven primarily by the severity of the injury, related medical costs and lost-time wage costs. A 10% change in the number of claims or cost per claim would impact workers’ compensation expense in the United States by approximately $2.9 million.
Historically, we have not had significant changes in our assumptions used in calculating our reserve balance or significant adjustments to our reserve level. We continue our focus on safety, which includes training of contingent workers and client site reviews. Given our current claims experience and cost per claim, we do not expect a significant change in our workers’ compensation reserve in the near future.
Social Program Remittances and Payroll Tax Audit Exposure
 
On a routine basis, various governmental agencies in some of the countries and territories in which we operate audit our payroll tax calculations and our compliance with other payroll-related regulations. These audits focus primarily on documentation requirements and our support for our payroll tax remittances. Due to the nature of our business, the number of people that we employ, and the complexity of some payroll tax regulations, we may have some adjustments to the payroll tax remittances as a result of these audits.
We make an estimate of the additional remittances that may be required on a country-by-country basis, and record the estimate as a component of cost of services or selling and administrative expenses, as appropriate. Each country’s estimate is based on the results of past audits and the number of years that have not yet been audited, with consideration for changing business volumes and changes to the payroll tax regulations. To the extent that our actual experience differs from our estimates, we will need to make adjustments to our reserve balance, which will impact the results of the related operation and the operating segment in which it is reported. Other than France, we have not had any significant adjustments to the amounts recorded as a result of any payroll tax audits, and we do not expect any significant adjustments to the recorded amounts in the near term.
In particular, the French government has various social programs that are aimed at reducing the cost of labor and encouraging employment, particularly for low-wage workers, through the reduction of payroll taxes (or social contribution). Due to the number of new programs or program changes, and the complexity of compliance, we may have adjustments to the amount of reductions claimed as a result of the audits.
In France, we currently maintain a reserve related to these programs for 2007 through 2014, which has been estimated based on the results of past audits, changes in business volumes and the assessments related to the audit of 2009 through 2011. While some adjustment may be appropriate as we finalize the audits, we do not expect any significant adjustments to the recorded amount in the near term.
We experienced a significant increase in client claims against us in France during the second quarter of 2013, requesting refunds for various payroll tax subsidies that we had received dating back to 2003 related to our French temporary associates. In March 2014, the French Supreme Court ruled in our favor on this matter, confirming that, as a matter of law, the benefit of the payroll tax subsidies belongs to the direct employer of the temporary associates. We do not expect to incur any losses as all of these claims have now been withdrawn as a result of this ruling.
The French government passed legislation effective January 1, 2013 to improve the competitiveness and reduce employment costs by offering payroll tax credits to most French and foreign enterprises subject to corporate tax in France. This law, Credit d’Impôt pour la Compétitivité et l’Emploi (“CICE”), provides credits based on a percentage of wages paid to employees receiving less than two-and-a-half times the French minimum wage. The payroll tax credit is equal to 4% of eligible wages in 2013 and 6% of eligible wages in 2014 and beyond. We have used, and intend to use, the credit to invest
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
44  
 
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
in employment opportunities and to improve our competitiveness, as required by the law. Due to the complexity of compliance with this law, we may have adjustments to the payroll tax credit amount as a result of any audits. The CICE credit is accounted for as a reduction of our cost of services in the period earned, and has had a favorable impact on our consolidated gross profit margin, as well as margins in France and Southern Europe.
The payroll tax credit is creditable against our current French income tax payable, with any remaining amount being paid after three years. Given the amount of our current income taxes payable, we would generally receive the vast majority of the CICE credits after the three-year period. In December 2013, we entered into an agreement to sell a portion of the credits earned in 2013 for net proceeds of $104.0 million. We derecognized these receivables upon the sale as the terms of the agreement are such that the transaction qualifies for sale treatment according to the accounting guidance on the transfer and servicing of assets. The discount on the sale of this receivable was recorded as a reduction of the payroll tax credits in cost of services. We received the cash from the sale in December 2013, which improved our operating cash flows in the fourth quarter of 2013.
Deferred Revenue
 
We recognize revenues under the current accounting guidance on revenue recognition. The accounting guidance generally provides that revenues for time-based services be recognized over the average length of the services being provided. For the outplacement line of business, we recognize revenues from individual programs and for larger projects over the estimated period in which services are rendered to candidates. In our consulting business, revenues are recognized upon the performance of the service under the consulting service contract. For performance-based contracts, we defer recognizing revenues until the performance criteria have been met.
The amounts billed for outplacement, consulting services and performance-based contracts in excess of the amount recognized as revenues are recorded as deferred revenue and included in accrued liabilities for the current portion and other long-term liabilities for the long-term portion in our Consolidated Balance Sheets.
Significant factors impacting deferred revenue are the type of programs and projects sold and the volume of current billings for new programs and projects. Over time, an increasing volume of new billings will generally result in higher amounts of deferred revenue, while decreasing levels of new billings will generally result in lower amounts of deferred revenue. As of December 31, 2014 and 2013, the current portion of deferred revenue was $35.5 million and $48.5 million, respectively, and the long-term portion of deferred revenue was zero and $10.0 million, respectively. The decrease in these amounts is primarily related to a client contract that ended in 2014.
Income Taxes
 
We account for income taxes in accordance with the accounting guidance on income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We record a valuation allowance against deferred tax assets for which utilization of the asset is not likely.
The accounting guidance related to uncertain tax positions requires an evaluation process for all tax positions taken that involves a review of probability for sustaining a tax position. If the probability for sustaining a tax position is more likely than not, which is a 50% threshold, then the tax position is warranted and the largest amount that would be realized upon ultimate settlement is recognized. An uncertain tax position, one which does not meet the 50% threshold, will not be recognized in the financial statements.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
ManpowerGroup  |  Annual Report 2014   45
 
Our judgment is required in determining our deferred tax assets and liabilities, and any valuation allowances recorded. Our net deferred tax assets may need to be adjusted in the event that tax rates are modified, or our estimates of future taxable income change, such that deferred tax assets or liabilities are expected to be recovered or settled at a different tax rate than currently estimated. In addition, valuation allowances may need to be adjusted in the event that our estimate of future taxable income changes from the amounts currently estimated. We have unrecognized tax benefits related to items in various countries and territories. To the extent these items are settled for an amount different than we currently expect, the unrecognized tax benefit will be adjusted.
We provide for income taxes on a quarterly basis based on an estimated annual tax rate. In determining this rate, we make estimates about taxable income for each of our largest locations worldwide, as well as the tax rate that will be in effect for each location. To the extent these estimates change during the year, or actual results differ from these estimates, our estimated annual tax rate may change between quarterly periods and may differ from the actual effective tax rate for the year.
Goodwill and Indefinite-Lived Intangible Asset Impairment
 
In accordance with the accounting guidance on goodwill and other intangible assets, we perform an annual impairment test of goodwill at our reporting unit level and indefinite-lived intangible assets at our unit of account level during the third quarter, or more frequently if events or circumstances change that would more likely than not reduce the fair value of our reporting units below their carrying value.
We performed our annual impairment test of our goodwill and indefinite-lived intangible assets during the third quarter of 2014, 2013 and 2012, and there was no impairment of our goodwill or our indefinite-lived intangible assets as a result of our annual tests.
Significant assumptions used in our annual goodwill impairment test during the third quarter of 2014 included: expected future revenue growth rates, operating unit profit margins, working capital levels, discount rates ranging from 11.7% to 17.8%, and a terminal value multiple. The expected future revenue growth rates and operating unit profit margins were determined after taking into consideration our historical revenue growth rates and operating unit profit margins, our assessment of future market potential, and our expectations of future business performance.
The table below provides our reporting units’ estimated fair values and carrying values, determined as part of our annual goodwill impairment test performed in the third quarter, representing approximately 76% of our consolidated goodwill balance as of September 30, 2014.
 
                      Right        
(in millions)   France     United States     United Kingdom     Management     Netherlands  
Estimated fair values   1,389.6     $ 1,287.6     $ 506.3     $ 294.4     $ 193.9  
Carrying values     661.8       940.8       297.9       129.0       130.9  
 
SIGNIFICANT MATTERS AFFECTING RESULTS OF OPERATIONS
Market Risks
 
We are exposed to the impact of foreign currency exchange rate fluctuations and interest rate changes.
Exchange Rates — Our exposure to foreign currency exchange rates relates primarily to our foreign subsidiaries and our euro-denominated borrowings. For our foreign subsidiaries, exchange rates impact the United States dollar value of our reported earnings, our investments in the subsidiaries and the intercompany transactions with the subsidiaries.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
46  
 
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Approximately 85% of our revenues and profits are generated outside of the United States, with approximately 46% generated from our European operations with a euro-functional currency. As a result, fluctuations in the value of foreign currencies against the United States dollar, particularly the euro, may have a significant impact on our reported results. Revenues and expenses denominated in foreign currencies are translated into United States dollars at the monthly weighted-average exchange rates for the year. Consequently, as the value of the United States dollar changes relative to the currencies of our major markets, our reported results vary.
Throughout 2014, the United States dollar fluctuated, but generally strengthened, against many of the currencies of our major markets. Revenues from services in constant currency were approximately 1.5% higher than reported revenues in 2014. In 2013, the fluctuations in currencies resulted in no impact to our consolidated revenues from services. In both 2014 and 2013, a change in the strength of the United States dollar by 10% would have impacted our revenues from services by approximately 8.5% from the amounts reported.
During January 2015, the United States dollar strengthened by approximately 10% against certain currencies. If rates remain at this level, we will see a significant unfavorable impact on our reported revenues.
Fluctuations in currency exchange rates also impact the United States dollar amount of our shareholders’ equity. The assets and liabilities of our non-United States subsidiaries are translated into United States dollars at the exchange rates in effect at year-end. The resulting translation adjustments are recorded in shareholders’ equity as a component of accumulated other comprehensive (loss) income. The United States dollar strengthened relative to many foreign currencies as of December 31, 2014 compared to December 31, 2013. Consequently, shareholders’ equity decreased by $229.6 million as a result of the foreign currency translation as of December 31, 2014. If the United States dollar had strengthened an additional 10% as of December 31, 2014, resulting translation adjustments recorded in shareholders’ equity would have decreased by approximately $174.8 million from the amounts reported.
As of December 31, 2013, the United States dollar had weakened relative to many foreign currencies compared to December 31, 2012. Consequently, shareholders’ equity increased by $43.0 million as a result of the foreign currency translation as of December 31, 2013. If the United States dollar had weakened an additional 10% as of December 31, 2013, resulting translation adjustments recorded in shareholders’ equity would have increased by approximately $85.5 million from the amounts reported.
Although currency fluctuations impact our reported results and shareholders’ equity, such fluctuations generally do not affect our cash flow or result in actual economic gains or losses. Substantially all of our subsidiaries derive revenues and incur expenses within a single country and, consequently, do not generally incur currency risks in connection with the conduct of their normal business operations. We generally have few cross-border transfers of funds, except for transfers to the United States for payment of license fees and interest expense on intercompany loans, working capital loans made between the United States and our foreign subsidiaries, dividends from our foreign subsidiaries, and payments between certain countries and territories for services provided. To reduce the currency risk related to these transactions, we may borrow funds in the relevant foreign currency under our revolving credit agreement or we may enter into a forward contract to hedge the transfer.
As of December 31, 2014, there were £2.7 ($4.3) million of forward contracts that relate to cash flows owed to our foreign subsidiaries in 2015. Our forward contracts are not designated as hedges. Consequently, any gain or loss resulting from the change in fair value is recognized in the current period earnings as is the currency gain or loss on the amounts owed.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
ManpowerGroup  |  Annual Report 2014   47
 
As of December 31, 2014, we had outstanding $423.4 million in principal amount of euro-denominated notes (€350.0 million). The note has been designated as a hedge of our net investment in subsidiaries with a euro-functional currency. Since our net investment in these subsidiaries exceeds the respective amount of the designated borrowing, translation gains or losses related to the borrowing is included as a component of accumulated other comprehensive (loss) income. Shareholders’ equity increased by $36.1 million, net of tax, due to changes in accumulated other comprehensive (loss) income during the year due to the currency impact on these designated borrowings.
Interest Rates — Our exposure to market risk for changes in interest rates relates primarily to our variable rate long-term debt obligations. We have historically managed interest rates through the use of a combination of fixed- and variable-rate borrowings and interest rate swap agreements. As of December 31, 2014, we had the following fixed- and variable-rate borrowings:
 
          Weighted-  
          Average
 
(in millions)   Amount     Interest Rate(1)  
Variable-rate borrowings   $ 43.3       15.8 %
Fixed-rate borrowings     425.8       4.5  
Total debt   $ 469.1       5.5 %
 
(1) The rates are impacted by currency exchange rate movements.
Sensitivity Analysis — The following tables summarize our debt and derivative instruments that are sensitive to foreign currency exchange rate and interest rate movements. All computations below are based on the United States dollar spot rate as of December 31, 2014 and 2013. The exchange rate computations assume a 10% appreciation or 10% depreciation of the euro and British pound to the United States dollar.
The hypothetical impact on 2014 and 2013 earnings and accumulated other comprehensive (loss) income of the stated change in rates is as follows:
       
2014 (in millions)   Movements In Exchange Rates  
Market Sensitive Instrument     10% Depreciation       10% Appreciation  
Euro notes:                
€350.0, 4.51% Notes due June 2018   $ 42.3 (1)   $ (42.3 )(1)
Forward contracts:                
£2.7 to $4.3     0.4       (0.4 )
                 
2013 (in millions)     Movements In Exchange Rates  
Market Sensitive Instrument     10% Depreciation       10% Appreciation  
Euro notes:                
€350.0, 4.51% Notes due June 2018   $ 48.1 (1)   $ (48.1 )(1)
Forward contracts:                
£7.8 to $12.5     1.3       (1.3 )
 
(1) Exchange rate movements are recorded through accumulated other comprehensive (loss) income as these instruments have been designated as an economic hedge of our net investment in subsidiaries with a euro-functional currency.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
48  
 
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The hypothetical changes in the fair value of our market sensitive instruments due to changes in interest rates, and changes in foreign currency exchange rates for the forward contracts, are as follows:
             
As of December 31, 2014            
Market Sensitive Instrument (in millions)   10% Decrease     10% Increase  
Fixed-rate debt:                
€350.0, 4.51% Notes due June 2018   $ 47.2 (1)   $ (47.2 )(1)
Forward contracts:                
£2.7 to $4.3     0.4       (0.4 )
                 
As of December 31, 2013                
Market Sensitive Instrument (in millions)     10% Decrease       10% Increase  
Fixed-rate debt:                
€350.0, 4.51% Notes due June 2018   $ 52.0 (1)   $ (52.0 )(1)
Forward contracts:                
£7.8 to $12.5     1.3       (1.3 )
 
(1) This change in fair value is not recorded in the Consolidated Financial Statements; however, disclosure of the fair value is included in Note 1 to the Consolidated Financial Statements.
Impact of Economic Conditions
 
One of the principal attractions of using workforce solutions and service providers is to maintain a flexible supply of labor to meet changing economic conditions. Therefore, the industry has been and remains sensitive to economic cycles. To help minimize the effects of these economic cycles, we offer clients a continuum of services to meet their needs throughout the business cycle. We believe that the breadth of our operations and the diversity of our service mix cushion us against the impact of an adverse economic cycle in any single country or industry. However, adverse economic conditions in any of our largest markets, or in several markets simultaneously, would have a material impact on our consolidated financial results.
Legal Regulations
 
The workforce solutions and services industry is closely regulated in all of the major markets in which we operate except the United States and Canada. Many countries and territories impose licensing or registration requirements and substantive restrictions on employment services, either on the provider of recruitment services or the ultimate client company, or minimum benefits to be paid to the temporary employee either during or following the temporary assignment. Regulations also may restrict the length of assignments, the type of work permitted or the occasions on which contingent workers may be used. Changes in applicable laws or regulations have occurred in the past and are expected in the future to affect the extent to which workforce solutions and services firms may operate. These changes could impose additional costs, taxes, record keeping or reporting requirements; restrict the tasks to which contingent workers may be assigned; limit the duration of or otherwise impose restrictions on the nature of the relationship (with us or the client); or otherwise adversely affect the industry. All of our other service lines are currently not regulated.
In many markets, the existence or absence of collective bargaining agreements with labor organizations has a significant impact on our operations and the ability of clients to utilize our services. In some markets, labor agreements are structured on a national or industry-wide (rather than a company-by-company) basis. Changes in these collective bargaining agreements have occurred in the past, are expected to occur in the future, and may have a material impact on the operations of workforce solutions and services firms, including us.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
ManpowerGroup  |  Annual Report 2014   49
 
In Germany, the Confederation of German Trade Unions (representing eight German trade unions and over six million people) and the Employer’s Association of the Temporary Staffing Industry (representing two major temporary worker employers’ associations) entered into a new Collective Labor Agreement (CLA). The first phase of the CLA was effective in November 2013 and January 2014, and required higher wages to temporary employees and higher cost for vacation, sick pay, and temporary staff time accounts. In 2015, the second phase of the CLA will take effect with the creation of salary bands in January and approximately a 3.5% to 4.5% wage increase in April. These changes will have an unfavorable impact on our gross profit margin in Germany, as we pass on many of these additional costs to the client without a mark-up. However, the first phase of the CLA did not have a significant impact on our consolidated or Northern Europe financial results in 2014, and we currently do not expect the impact of the other changes will be significant.
The Agency Workers Directive (“AWD”) impacts all EU member states and was passed to ensure “equal treatment” for agency (temporary) workers. It also requires all member states to review and address unnecessary prohibitions and restrictions on the use of agency workers. Equal treatment had been in place by law in many countries; therefore, we have not seen any significant changes. We have seen a decline in gross profit margin in some countries, as any cost increases could not always be passed on with a normal mark-up, but there was no other significant impact on our business from these changes.
In June 2013, the employer mandate provisions of the new U.S. healthcare legislation, Patient Protection and Affordable Care Act (PPACA), were delayed until 2015 from the original effective date of 2014. The employer mandate provisions of PPACA are expected to have the greatest financial impact on us and our clients with U.S.-based employees. We expect this legislation will increase the employment costs of our permanent employees and our associates, but we continue to assess the potential impact. Our intention is to pass on to our U.S. clients any cost increases related to our associates; however, there is no assurance that we will be fully successful.
Recently Issued Accounting Standards
 
See Note 1 to the Consolidated Financial Statements.
Forward-Looking Statements
 
Statements made in this annual report that are not statements of historical fact are forward-looking statements. All forward-looking statements involve risks and uncertainties. The information under the heading “Forward-Looking Statements” in our annual report on Form 10-K for the year ended December 31, 2014, which information is incorporated herein by reference, provides cautionary statements identifying, for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, important factors that could cause our actual results to differ materially from those contained in the forward-looking statements. Some or all of the factors identified in our annual report on Form 10-K may be beyond our control. Forward-looking statements can be identified by words such as “expect,” “anticipate,” “intend,” “plan,” “may,” “believe,” “seek,” “estimate,” and similar expressions. We caution that any forward-looking statement reflects only our belief at the time the statement is made. We undertake no obligation to update any forward-looking statements to reflect subsequent events or circumstances.
 
Management’s Discussion & Analysis of Financial Condition and Results of Operations
 
 
50  
 
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
We are responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance to management and the Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our Chief Executive Officer and our Executive Vice President and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Deloitte & Touche LLP, our independent registered public accounting firm, issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2014, which is included herein. Based on our evaluation we have concluded that our internal control over financial reporting was effective as of December 31, 2014.
February 20, 2015
 
Management Report on Internal Control Over Financial Reporting
 
 
ManpowerGroup  |  Annual Report 2014   51
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF MANPOWERGROUP INC.
 
We have audited the accompanying consolidated balance sheets of ManpowerGroup Inc. and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.
 
-s- Deloitte & Touche LLP 
  
Milwaukee, Wisconsin
February 20, 2015
 
Report of Independent Registered Public Accounting Firm 
 
 
52  
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF MANPOWERGROUP INC.
 
We have audited the internal control over financial reporting of ManpowerGroup Inc. and subsidiaries (the “Company”) as of December 31, 2014, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2014 of the Company and our report dated February 20, 2015 expressed an unqualified opinion on those financial statements.
 
-s- Deloitte & Touche LLP
 
Milwaukee, Wisconsin
February 20, 2015
 
Report of Independent Registered Public Accounting Firm 
 
 
ManpowerGroup  |  Annual Report 2014   53
 
CONSOLIDATED STATEMENTS OF OPERATIONS
in millions, except per share data
 
                   
Year Ended December 31   2014     2013     2012  
Revenues from services     $ 20,762.8      $ 20,250.5     $ 20,678.0  
Cost of services     17,274.6       16,883.8       17,236.0  
Gross profit     3,488.2       3,366.7       3,442.0  
Selling and administrative expenses     2,768.3       2,854.8       3,030.3  
Operating profit     719.9       511.9       411.7  
Interest and other expenses     38.3       36.4       43.3  
Earnings before income taxes     681.6       475.5       368.4  
Provision for income taxes     254.0       187.5       170.8  
Net earnings   $ 427.6     $ 288.0     $ 197.6  
Net earnings per share — basic   $ 5.38     $ 3.69     $ 2.49  
Net earnings per share — diluted   $ 5.30     $ 3.62     $ 2.47  
Weighted average shares — basic     79.5       78.0       79.5  
Weighted average shares — diluted     80.7       79.6       80.1  
 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
 
 
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
in millions
 
                   
Year Ended December 31   2014     2013     2012  
Net earnings     $ 427.6     $ 288.0     $ 197.6  
Other comprehensive (loss) income:                        
Foreign currency translation adjustments     (265.9 )     52.7       0.2  
Translation adjustments on net investment hedge, net of income taxes of $20.3, $(5.4) and $(4.8), respectively     36.1       (9.5 )     (7.9 )
Translation adjustments of long-term intercompany loans     0.2       (0.2 )     15.7  
Unrealized gain (loss) on investments, net of income taxes of $2.1, $(2.3) and $1.1, respectively     5.2       (0.3 )     3.6  
Defined benefit pension plans and retiree health care plan, net of income taxes of $(8.6), $5.2 and $(4.3), respectively     (13.0 )     5.1       (12.5 )
Total other comprehensive (loss) income   $ (237.4 )   $ 47.8     $ (0.9 )
Comprehensive income   $ 190.2     $ 335.8     $ 196.7  
 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
 
Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income
 
 
54  
 
CONSOLIDATED BALANCE SHEETS
in millions, except share and per share data
 
             
December 31   2014     2013  
ASSETS                
Current Assets                
Cash and cash equivalents     $ 699.2     $ 737.6  
Accounts receivable, less allowance for doubtful accounts of $111.4 and $118.6, respectively     4,134.5       4,277.9  
Prepaid expenses and other assets     147.8       161.3  
Future income tax benefits     52.2       66.2  
Total current assets     5,033.7       5,243.0  
Other Assets                
Goodwill     1,075.2        1,090.9  
Intangible assets, less accumulated amortization of $276.2 and $247.9, respectively     286.8       309.1  
Other assets     637.7       479.3  
Total other assets     1,999.7       1,879.3  
Property and Equipment                
Land, buildings, leasehold improvements and equipment     633.5       706.2  
Less: accumulated depreciation and amortization     484.4       540.2  
Net property and equipment     149.1       166.0  
Total assets   $ 7,182.5     $ 7,288.3  
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current Liabilities                
Accounts payable   $ 1,542.7     $ 1,523.9  
Employee compensation payable     204.5       230.4  
Accrued liabilities     493.3       536.1  
Accrued payroll taxes and insurance     622.4       680.7  
Value added taxes payable     466.3       502.5  
Short-term borrowings and current maturities of long-term debt     45.2       36.0  
Total current liabilities     3,374.4       3,509.6  
Other Liabilities                
Long-term debt     423.9       481.9  
Other long-term liabilities     441.2       382.6  
Total other liabilities     865.1       864.5  
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 112,876,552 and 112,014,673 shares, respectively     1.1       1.1  
Capital in excess of par value     3,084.2       3,014.0  
Retained earnings     1,667.8       1,317.5  
Accumulated other comprehensive (loss) income     (155.2 )     82.2  
Treasury stock at cost, 34,762,316 and 32,658,685 shares, respectively     (1,654.9 )     (1,500.6 )
Total shareholders’ equity     2,943.0       2,914.2  
Total liabilities and shareholders’ equity   $ 7,182.5     $ 7,288.3  
 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
 
Consolidated Balance Sheets
 
 
ManpowerGroup  |  Annual Report 2014   55
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
in millions
 
                   
Year Ended December 31   2014     2013     2012  
Cash Flows from Operating Activities                        
Net earnings     $ 427.6     $ 288.0     $ 197.6  
Adjustments to reconcile net earnings to net cash provided by operating activities:                        
Depreciation and amortization     83.8       94.3       100.5  
Deferred income taxes     54.0       17.0       (11.6 )
Provision for doubtful accounts     18.9       24.1       29.2  
Share-based compensation     40.6       31.5       30.0  
Excess tax benefit on exercise of share-based awards     (4.5 )     (7.3 )     (0.3 )
Change in operating assets and liabilities, excluding the impact of acquisitions:                        
Accounts receivable     (270.5     (82.6 )     48.3  
Other assets     (198.7 )     (35.9 )     (9.2 )
Other liabilities     155.0       67.6       (52.9 )
Cash provided by operating activities     306.2       396.7       331.6  
Cash Flows from Investing Activities                        
Capital expenditures     (51.5 )     (44.7 )     (72.0 )
Acquisitions of businesses, net of cash acquired     (32.0 )     (46.3 )     (49.0 )
Proceeds from the sale of property and equipment     2.1       3.4       3.7  
Cash used in investing activities     (81.4 )     (87.6 )     (117.3 )
Cash Flows from Financing Activities                        
Net change in short-term borrowings     16.0       (5.7 )     (6.7 )
Proceeds from long-term debt           3.9       751.6  
Repayments of long-term debt     (2.6 )     (269.5 )     (703.2 )
Proceeds from share-based awards     25.5       101.0       6.0  
Other share-based award transactions, net     (6.3 )     16.1       (6.3 )
Repurchases of common stock     (143.5 )           (138.2 )
Dividends paid     (77.3 )     (72.0 )     (67.8 )
Cash used in financing activities     (188.2 )     (226.2 )     (164.6 )
Effect of exchange rate changes on cash     (75.0 )     6.6       17.9  
Net (decrease) increase in cash and cash equivalents     (38.4 )     89.5       67.6  
Cash and cash equivalents, beginning of year     737.6       648.1       580.5  
Cash and cash equivalents, end of year   $ 699.2     $ 737.6     $ 648.1  
Supplemental Cash Flow Information                        
Interest paid   $ 36.6     $ 43.5     $ 39.9  
Income taxes paid, net   $ 105.8     $ 60.3     $ 123.0  
 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
 
Consolidated Statements of Cash Flows
 
 
56  
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
in millions, except share and per share data
                                           
                            Accumulated              
                Capital in           Other              
    Common Stock     Excess of     Retained     Comprehensive     Treasury        
    Shares Issued     Par Value     Par Value     Earnings     (Loss) Income     Stock     Total  
Balance, January 1, 2012     109,076,337     $ 1.1     $ 2,839.9     $ 971.7     $ 35.3     $ (1,364.6 )   2,483.4  
Net earnings                             197.6                       197.6  
Other comprehensive loss                                     (0.9 )             (0.9 )
Issuances under equity plans, including tax benefits     467,155               3.3                       (6.6 )     (3.3 )
Share-based compensation expense                     30.0                               30.0  
Dividends ($0.86 per share)                             (67.8 )                     (67.8 )
Repurchases of common stock                                             (138.2 )     (138.2 )
Balance, December 31, 2012     109,543,492       1.1       2,873.2       1,101.5       34.4       (1,509.4 )     2,500.8  
Net earnings                             288.0                       288.0  
Other comprehensive income                                     47.8               47.8  
Issuances under equity plans, including tax benefits     2,471,181               109.3                       8.8       118.1  
Share-based compensation expense                     31.5                               31.5  
Dividends ($0.92 per share)                             (72.0 )                     (72.0 )
Balance, December 31, 2013     112,014,673       1.1       3,014.0       1,317.5       82.2       (1,500.6 )     2,914.2  
Net earnings                             427.6                       427.6  
Other comprehensive loss                                     (237.4 )             (237.4 )
Issuances under equity plans, including tax benefits     861,879               29.6                       (10.8 )     18.8  
Share-based compensation expense                     40.6                               40.6  
Dividends ($0.98 per share)                             (77.3 )                     (77.3 )
Repurchases of common stock                                             (143.5 )     (143.5 )
Balance, December 31, 2014     112,876,552     $ 1.1     $ 3,084.2     $ 1,667.8     $ (155.2 )   $ (1,654.9 )   $ 2,943.0  
  
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
 
Consolidated Statements of Shareholders’ Equity 
 
 
ManpowerGroup  |  Annual Report 2014   57
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in millions, except share and per share data
Note 01. Summary of Significant Accounting Policies
Nature of Operations
 
ManpowerGroup Inc. is a world leader in the innovative workforce solutions and services industry. Our global network of 3,000 offices in 80 countries and territories allows us to meet the needs of our global, multinational and local clients across all major industry segments. Our largest operations, based on revenues, are located in the United States, France, Italy and the United Kingdom. We specialize in permanent, temporary and contract recruitment and assessment; training and development; outsourcing; career management and workforce consulting services. We provide services to a wide variety of clients, none of which individually comprise a significant portion of revenues for us as a whole.
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from these estimates.
Basis of Consolidation
 
The Consolidated Financial Statements include our operating results and the operating results of all of our subsidiaries. For subsidiaries in which we have an ownership interest of 50% or less, but more than 20%, the Consolidated Financial Statements reflect our ownership share of those earnings using the equity method of accounting. These investments, as well as certain other relationships, are also evaluated for consolidation under the accounting guidance on consolidation of variable interest entities. These investments were $132.3 and $140.2 as of December 31, 2014 and 2013, respectively, and are included in other assets in the Consolidated Balance Sheets. Included in shareholders’ equity as of December 31, 2014 and 2013 are $77.4 and $74.4, respectively, of unremitted earnings from investments accounted for using the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation.
Revenues and Receivables
 
We generate revenues from sales of services by our company-owned branch operations and from fees earned on sales of services by our franchise operations. Revenues are recognized as services are performed. The majority of our revenues are generated by our recruitment business, where billings are generally negotiated and invoiced on a per-hour basis. Accordingly, as contingent workers are placed, we record revenues based on the hours worked. Permanent recruitment revenues are recorded as placements are made. Provisions for sales allowances, based on historical experience, are recognized at the time the related sale is recognized.
Our franchise agreements generally state that franchise fees are calculated based on a percentage of revenues. We record franchise fee revenues monthly based on the amounts due under the franchise agreements for that month. Franchise fees, which are included in revenues from services, were $25.4, $24.4 and $23.9 for the years ended December 31, 2014, 2013 and 2012, respectively.
 
Notes to Consolidated Financial Statements
 
 
58  
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in millions, except share and per share data
In our outplacement business, we recognize revenues from individual programs and for large projects over the estimated period in which services are rendered to candidates. In our consulting business, revenues are recognized upon the performance of the service under the consulting service contract. For performance-based contracts, we defer recognizing revenues until the performance criteria have been met.
The amounts billed for outplacement, consulting services and performance-based contracts in excess of the amount recognized as revenues are recorded as deferred revenue and included in accrued liabilities for the current portion and other long-term liabilities for the long-term portion in our Consolidated Balance Sheets. As of December 31, 2014 and 2013, the current portion of deferred revenue was $35.5 and $48.5, respectively, and the long-term portion of deferred revenue was zero and $10.0, respectively. The decrease in these amounts is primarily related to a client contract that ended in 2014.
We record revenues from sales of services and the related direct costs in accordance with the accounting guidance on reporting revenue gross as a principal versus net as an agent. In situations where we act as a principal in the transaction, we report gross revenues and cost of services. When we act as an agent, we report the revenues on a net basis. Amounts billed to clients for out-of-pocket or other cost reimbursements are included in revenues from services, and the related costs are included in cost of services.
Allowance for Doubtful Accounts
 
We have an allowance for doubtful accounts recorded as an estimate of the accounts receivable balance that may not be collected. This allowance is calculated on an entity-by-entity basis with consideration for historical write-off experience, the current aging of receivables 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.
Bad debt expense is recorded as selling and administrative expenses in our Consolidated Statements of Operations and was $18.9, $24.1 and $29.2 in 2014, 2013 and 2012, respectively. Factors that would cause this provision to increase primarily relate to increased bankruptcies by our clients and other difficulties collecting amounts billed. On the other hand, an improved write-off experience and aging of receivables would result in a decrease to the provision. Write-offs were $15.8, $26.4 and $23.2 for 2014, 2013 and 2012, respectively.
Advertising Costs
 
We expense production costs of advertising as they are incurred. Advertising expenses were $25.7, $22.3 and $27.2 in 2014, 2013 and 2012, respectively.
Restructuring Costs
 
We recorded net restructuring costs of $89.4 and $48.8 in 2013 and 2012, respectively, in selling and administrative expenses, primarily related to severances and office closures and consolidations in multiple countries and territories. These expenses are net of reversals of previous accruals resulting mainly from larger-than-estimated cost savings from subleasing and lease buyouts. During 2014, we made payments of $35.5 out of our restructuring reserve. We expect a majority of the
 
Notes to Consolidated Financial Statements
 
 
ManpowerGroup  |  Annual Report 2014   59
 
remaining $12.9 reserve will be paid by the end of 2015. Changes in the restructuring liability balances for each reportable segment and Corporate are as follows:
                                           
          Southern     Northern           Right              
    Americas(1)     Europe(2)     Europe     APME     Management     Corporate     Total  
Balance, January 1, 2013   $ 4.5     $ 4.7     $ 15.6     $     $ 6.6     $ 10.0     $ 41.4  
Severance costs, net     15.2       6.2       24.7       2.7       9.1       4.4       62.3  
Office closure costs, net     2.8       1.6       14.3       3.5       4.9             27.1  
Costs paid or utilized     (15.7 )     (8.0 )     (32.4 )     (4.4 )     (8.3 )     (13.6 )     (82.4 )
Balance, December 31, 2013     6.8       4.5       22.2       1.8       12.3       0.8       48.4  
Costs paid or utilized     (5.7 )     (2.2 )     (16.4 )     (1.3 )     (10.0 )     0.1       (35.5 )
Balance, December 31, 2014   $ 1.1     $ 2.3     $ 5.8     $ 0.5     $ 2.3     $ 0.9     $ 12.9  
 
(1) Balance related to United States was $3.8 as of January 1, 2013. In 2013, United States incurred $7.8 for severance costs and $1.8 for office closure costs and paid/utilized $8.3, leaving a $5.1 liability as of December 31, 2013. In 2014, United States paid/utilized $4.1, leaving a $1.0 liability as of December 31, 2014.
(2) Balance related to France was $3.8 as of January 1, 2013. In 2013, France incurred $0.6 for severance costs and $1.6 for office closure costs and paid/utilized $2.5, leaving a $3.5 liability as of December 31, 2013. In 2014, France paid/utilized $1.4, leaving a $2.1 liability as of December 31, 2014. Italy had a $0.9 liability as of January 1, 2013. In 2013, Italy recorded severance costs of $3.4 and paid out $3.4, leaving a $0.9 liability as of December 31, 2013. In 2014, Italy paid/utilized $0.9, leaving no liability as of December 31, 2014.
Income Taxes
 
We account for income taxes in accordance with the accounting guidance on income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We record a valuation allowance against deferred tax assets for which utilization of the asset is not likely.
Fair Value Measurements
 
The assets and liabilities measured and recorded at fair value on a recurring basis were as follows:
 
    Fair Value Measurements Using     Fair Value Measurements Using  
          Quoted                       Quoted              
          Prices in                       Prices in              
          Active     Significant                 Active     Significant        
          Markets for     Other     Significant           Markets for     Other     Significant  
           Identical     Observable     Unobservable           Identical     Observable     Unobservable  
    December 31,     Assets     Inputs     Inputs     December 31,     Assets     Inputs     Inputs  
    2014     (Level 1)     (Level 2)     (Level 3)     2013     (Level 1)     (Level 2)     (Level 3)  
Assets                                                                
Foreign currency forward contracts     $ 0.1     $     $ 0.1     $     $ 0.3     $     $ 0.3     $  
Deferred compensation plan assets     81.4       81.4                   71.6       71.6              
    $ 81.5     $ 81.4     $ 0.1     $     $ 71.9     $ 71.6     $ 0.3     $  
Notes to Consolidated Financial Statements
 
 
60  
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in millions, except share and per share data
We determine the fair value of our deferred compensation plan assets, comprised of publicly traded securities, by using market quotes as of the last day of the period. The fair value of the foreign currency forward contracts is measured at the value from either directly or indirectly observable third parties.
The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities approximate their fair values because of the short-term nature of these instruments. The carrying value of our variable-rate long-term debt approximates fair value. The fair value of the euro-denominated notes, as observable at commonly quoted intervals (Level 2 inputs), was $471.6 and $520.1 as of December 31, 2014 and 2013, respectively, compared to a carrying value of $423.4. and $480.9, respectively.
Goodwill and Other Intangible Assets
 
We have goodwill, finite-lived intangible assets and indefinite-lived intangible assets as follows:
 
                                      
                2014                 2013  
          Accumulated                 Accumulated        
December 31   Gross     Amortization     Net     Gross     Amortization     Net  
Goodwill(1)   $ 1,075.2     $     $ 1,075.2     $ 1,090.9     $     $ 1,090.9  
Intangible assets:                                                
Finite-lived:                                                
Technology     $ 19.6     $ 19.6     $     $ 19.6     $ 19.6     $  
Franchise agreements     18.0       18.0             18.0       17.9       0.1  
Customer relationships     359.9       225.6       134.3