EX-13 7 a10k2015exhibit13.htm EXHIBIT 13 Exhibit
Exhibit 13


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 over 2,900 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.

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 brands, 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 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 50 countries and territories, we delivered 57 million hours of professional talent in 2015 specializing in Information Technology (IT), Engineering, Finance and Accounting, and Healthcare.

Right Management — We are a global career expert dedicated to helping organizations and individuals become more agile and innovative. By leveraging our expertise in assessment, development and coaching, we provide tailored solutions that deliver organizational efficiency, individual development, and career management, to increase productivity and optimize business performance.

Annual Report 2015 | 14
 
Management's Discussion & Analysis



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), Recruitment Process Outsourcing (RPO) and Proservia. Proservia is a recognized leader within the Digital Services market and IT Infrastructure sector throughout Europe, specializing in infrastructure management and user support.

Our leadership position allows us to be a center for quality employment opportunities for people at all points in their career paths. In 2015, 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 increased demand, as we saw in 2015, 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.

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
 
15 | ManpowerGroup

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 has its 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, RPO and Proservia. 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 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.

Annual Report 2015 | 16
 
Management's Discussion & Analysis



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 28 and 29.


RESULTS OF OPERATIONS — YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

During 2015, the United States dollar was stronger relative to the currencies in most of our major markets, having a significant unfavorable impact on our reported results. While our reported revenues from services declined 6.9% from 2014 and our reported operating profit declined 4.3%, these results were significantly impacted by the changes in foreign currency exchange rates and do not reflect the performance of our underlying business. The changes in the foreign currency exchange rates had a 13.5% unfavorable impact on revenues from services, a 15.5% unfavorable impact on operating profit and an approximately $0.81 per share unfavorable impact on net earnings per share - diluted. Substantially all of our subsidiaries derive revenues from services and incur expenses within the same currency and generally do not have cross-currency transactions, and, therefore, changes in foreign currency exchange rates primarily impact reported earnings and not our actual cash flow unless earnings are repatriated. To understand the performance of our underlying business, we utilize constant currency or organic constant currency variances for our consolidated and segment results.

In 2015, we experienced constant currency revenue growth in most of our markets. Our consolidated revenues were up 6.6% in constant currency (-6.9% as reported) in 2015 compared to 2014. We continue to experience uneven economic conditions in Europe and certain of our major markets, and further recovery may be slow or somewhat volatile. Our staffing/interim business had solid growth in 2015, along with a 15.8% constant currency increase (3.2% as reported) in our permanent recruitment business and strong growth in all of our ManpowerGroup Solutions offerings. At Right Management, we have seen some improvement as we experienced revenue growth of 3.2% in constant currency (-4.8% as reported) in our counter-cyclical outplacement services due to increased demand, while revenues from our talent management services decreased 5.4% in constant currency (-12.0% as reported).

Our gross profit margin in 2015 compared to 2014 increased mostly due to the constant currency growth in our permanent recruitment business and a favorable mix impact due to the changes in currency exchange rates, partially offset by the decline in our staffing/interim margin. Our staffing/interim gross profit margin decreased slightly in 2015 compared to 2014 due to general pricing pressures in certain markets and the impact of business mix as we saw higher growth from our lower-margin markets as well as higher growth from our lower-margin business in certain markets, partially offset by improved margins in the United States and France.

We recorded $16.4 million of restructuring costs in the fourth quarter of 2015 primarily related to severance costs across a number of markets as we adjusted our cost base to reflect current revenue levels and enhancements in productivity. Selling and administrative expenses increased 6.0% in constant currency (-5.8% as reported) in 2015.

Our profitability improved in 2015, with operating profit up 11.2% in constant currency (-4.3% as reported), and operating profit margin up 10 basis points in constant currency (10 basis points as reported) compared to 2014. Excluding the restructuring costs, operating profit increased 13.7% in constant currency and operating profit margin was up 20 basis points in constant currency in 2015 compared to 2014. We continue to monitor expenses closely to ensure we maintain the full benefit of the simplification and cost recalibration plan initiatives that resulted in a lower cost base as we streamlined our organization, while investing appropriately to support the growth in the business. During 2015, 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 and restructuring costs, we saw improved operational leverage in 2015 as we were able to support the higher revenue level without a similar increase in expenses in constant currency.


Management's Discussion & Analysis
 
17 | ManpowerGroup

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Consolidated Results — 2015 Compared to 2014

The following table presents selected consolidated financial data for 2015 as compared to 2014.

(in millions, except per share data)

2015

2014

Reported
 Variance

Variance in
 Constant
 Currency

Variance in
 Organic
Constant
Currency

Revenues from services
$
19,329.9

$
20,762.8

(6.9
)%
6.6
%
4.7
%
Cost of services
16,034.1

17,274.6

(7.2
)
6.5

 
Gross profit
3,295.8

3,488.2

(5.5
)
7.1

4.7

Gross profit margin
17.1
%
16.8
%
 
 
 
Selling and administrative expenses
2,606.9

2,768.3

(5.8
)
6.0

3.7

Selling and administrative expenses as a % of revenues
13.5
%
13.3
%
 
 
 
Operating profit
688.9

719.9

(4.3
)
11.2

8.6

Operating profit margin
3.6
%
3.5
%
 
 
 
Net interest expense
33.5

31.5

 
 
 
Other (income) expense
(5.3
)
6.8

 
 
 
Earnings before income taxes
660.7

681.6

(3.1
)
12.2

 
Provision for income taxes
241.5

254.0

(4.9
)
 
 
Effective income tax rate
36.5
%
37.3
%
 
 
 
Net earnings
$
419.2

$
427.6

(2.0
)
12.8



Net earnings per share — diluted
$
5.40

$
5.30

1.9

17.2



Weighted average shares — diluted
77.7

80.7

(3.8
)%
 
 
 
 
 
 
 
 

The year-over-year decrease in revenues from services of -6.9% (increase of 6.6% in constant currency and 4.7% in organic constant currency) was attributed to:

a 13.5% decrease due to the impact of changes in the currency exchange rates;

revenue decrease in the United States of 2.6% primarily driven by a decline in demand for our staffing/interim services in the industrial, engineering and finance markets, partially offset by solid growth in our permanent recruitment business and in our MSP and RPO offerings within the ManpowerGroup Solutions business; and

revenue decrease of 5.4% in constant currency (-12.0% as reported) in our talent management business at Right Management; partially offset by

increased demand for services in several of our markets within Southern Europe and Northern Europe, where in constant currency revenues increased 9.1% (-8.5% as reported) and 5.2% (2.1% in organic constant currency; -9.8% as reported), respectively. This included a constant currency revenue increase in France of 4.3% (-12.9% as reported) primarily due to the staffing market, which showed some growth during 2015. This increase also included a constant currency revenue increase in Italy of 24.5% (4.0% as reported) due to improved demand and our contract with the Milan Expo. We experienced constant currency revenue growth in Spain, the United Kingdom, Germany, and the Nordics of 30.3%, 6.0%, 26.1%, and 0.6%, respectively (9.0%, -1.7%, 6.1%, and -19.2%, respectively, as reported; 7.6% in organic constant currency in Germany);

revenue increase in APME of 7.9% in constant currency (4.1% in organic constant currency; -3.8% as reported) primarily due to an increase in our staffing/interim revenues, a 12.5% constant currency increase (-0.3% as reported) in our permanent recruitment business and an increase in our ManpowerGroup Solutions business;

Annual Report 2015 | 18
 
Management's Discussion & Analysis



increased demand for outplacement services at Right Management, where revenues increased 3.2% in constant currency (-4.8% as reported); and

our acquisitions in the Americas, Southern Europe, Northern Europe and APME, which added approximately 1.9% revenue growth to our consolidated results.

The year-over-year 30 basis point (0.30%) increase in gross profit margin was primarily attributed to:

a 20 basis point (0.20%) favorable impact due to the 15.8% constant currency growth (3.2% as reported) in our permanent recruitment business; and

a 20 basis point (0.20%) increase due to the impact on business mix of the changes in currency exchange rates; partially offset by

a 10 basis point (-0.10%) unfavorable impact from the decline in our staffing margin due to general pricing pressures in certain markets and the impact of business mix as we saw higher growth from our lower-margin markets as well as higher growth from our lower-margin business in certain markets, partially offset by improved margins in the United States and France. The increase in the United States was due to strong price discipline, effective management of workers' compensation and health care costs, and lower state unemployment tax rates. The improvement in France was due to strong price discipline and an increase in subsidies.

The 5.8% decline in selling and administrative expenses in 2015 (increase of 6.0% in constant currency and 3.7% in organic constant currency) was attributed to:

an 11.8% decrease due to the impact of changes in the currency exchange rates; and

legal costs of $9.0 million in the United States related to a settlement agreement in 2014, which we did not incur in 2015 (see the Employment-Related Items section for additional information); partially offset by

a 3.5% increase in constant currency (-7.8% as reported) in organic salary-related costs primarily because of additional headcount to support an increased demand for our services and an increase in our variable incentive-based costs due to improved operating results;

an increase in other non-personnel related costs, excluding the legal costs noted above and restructuring costs, as a result of increased demand for our services;

the additional recurring selling and administrative costs incurred as a result of the acquisitions in the Americas, Southern Europe, Northern Europe and APME; and

restructuring costs of $16.4 million incurred in 2015, comprised of $3.2 million in the Americas, $9.0 million in Northern Europe, $2.9 million in APME, and $1.3 million at Right Management.

Selling and administrative expenses as a percent of revenues increased 20 basis points (0.20%) in 2015 compared to 2014. The change in selling and administrative expenses as a percent of revenues consisted of:

a 20 basis point (0.20%) unfavorable impact from business mix changes due to the changes in currency exchange rates; and

a 10 basis point (0.10%) unfavorable impact due to the restructuring costs of $16.4 million incurred in 2015; partially offset by

a 10 basis point (-0.10%) favorable impact from better expense leverage.

Management's Discussion & Analysis
 
19 | ManpowerGroup

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 $28.2 million in 2015 compared to $38.3 million in 2014. Net interest expense increased $2.0 million in 2015 to $33.5 million from $31.5 million in 2014 due to higher debt levels as we issued €400.0 million Notes in September of 2015, partially offset by the favorable impact of currency exchange rates. Foreign exchange gains in 2015 were $4.7 million compared to $2.2 million in 2014. The foreign exchange gains in 2015 were primarily due to a favorable foreign currency impact on an income tax settlement. The foreign exchange 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 income was $0.6 million in 2015 compared to miscellaneous expense of $9.0 million in 2014. The variance between 2015 and 2014 is primarily due to a gain on the sale of an equity investment in 2015.

We recorded an income tax expense at an effective rate of 36.5% in 2015, as compared to an effective rate of 37.3% in 2014. The 36.5% effective tax rate for 2015 was higher than the United States Federal statutory rate of 35% due primarily to the French business tax, expected repatriations, valuation allowances and other permanent items, partially offset by the favorable impact of the United States Work Opportunity Tax Credit (“WOTC”), which was enacted in December of 2015 and extended from 2015 through the year ending December 31, 2019.

Net earnings per share — diluted was $5.40 in 2015 compared to $5.30 in 2014. Foreign currency exchange rates unfavorably impacted net earnings per share — diluted by approximately $0.81 in 2015.

Weighted average shares — diluted decreased 3.8% to 77.7 million in 2015 from 80.7 million in 2014. This decrease was due to the impact of share repurchases completed in 2015, partially offset by shares issued as a result of exercises and vesting of share-based awards in 2015.


Consolidated Results — 2014 Compared to 2013

The following table presents selected consolidated financial data for 2014 as compared to 2013.

(in millions, except per share data)
2014

2013

Reported
 Variance

Variance in
 Constant
 Currency

Variance in
 Organic
 Constant
 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
%
 
 


Annual Report 2015 | 20
 
Management's Discussion & Analysis


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 improved demand in Italy, for much of 2014. 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;

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; and

our acquisitions in Southern Europe, Northern Europe and APME, which combined to add 0.4% of revenue growth to our consolidated results: 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; and

decreased demand for outplacement services at Right Management, where these revenues decreased 10.2% (-9.8% in constant currency).

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

Management's Discussion & Analysis
 
21 | ManpowerGroup

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


legal costs of $9.0 million recorded in the United States related to a settlement agreement in 2014 (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.

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-United States 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.


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.

Annual Report 2015 | 22
 
Management's Discussion & Analysis


 
Americas — The Americas segment is comprised of 674 Company-owned branch offices and 180 stand-alone franchise offices. In the Americas, revenues from services decreased 2.0% (increase of 4.0% in constant currency) in 2015 compared to 2014. In the United States, revenues from services decreased 2.6% in 2015 compared to 2014, primarily driven by a decline in demand for our Manpower staffing services, due to the winter storms in the first quarter of 2015, a longshoreman’s strike on the West Coast in the first quarter of 2015, the strengthening of the United States dollar impacting demand in certain industries, and a change in specific client mix within our industrial sector. We also experienced a decline in our interim service revenues within our Experis business due to declines in our engineering and finance sectors and stronger price discipline. These declines were partially offset by a 22.5% increase in our permanent recruitment business and strong growth in our MSP and RPO offerings within the ManpowerGroup Solutions business. In Other Americas, revenues from services decreased 0.7% (increase of 17.6% in constant currency) in 2015 compared to 2014. We experienced constant currency revenue growth in Mexico, Canada, Argentina, Colombia and Peru of 14.2%,
 
 
 
 
 
 
13.0%, 40.8%, 11.2% and 24.0%, respectively (-4.3%, -2.5%, 23.7%, -18.4% and 10.5%, respectively, as reported; 1.0% in organic constant currency in Canada). The increase in Argentina was primarily due to inflation, although we did experience volume growth with a 8.1% increase in billable hours.

In 2014, revenues from services increased 1.6% (5.4% in constant currency) 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 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.

Gross profit margin increased in 2015 compared to 2014 as a result of the favorable impact from the growth in our permanent recruitment and ManpowerGroup Solutions businesses, and improved staffing/interim margins in the United States due to strong price discipline, effective management of workers' compensation and health care costs, and lower unemployment tax rates. These increases were partially offset by decreases in our staffing/interim margins within some of our markets in the Other Americas due to general pricing pressures and client mix changes. In 2014, gross profit margin was flat 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, was 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 2015, selling and administrative expenses decreased 0.5% (increase of 3.5% in constant currency) primarily due to the legal costs of $9.0 million in the United States related to a settlement agreement in 2014, which we did not incur in 2015. This favorable impact was partially offset by the increase in salary-related costs due to additional headcount in Other Americas, to support an increased demand for our services, an increase in our variable incentive-based costs due to improved operating results, and $3.2 million of restructuring costs in 2015. 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

Management's Discussion & Analysis
 
23 | ManpowerGroup

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

did not recur in 2014. These decreases were offset by $9.0 million of legal costs recorded in 2014 noted above 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.

OUP margin in the Americas was 4.5%, 4.0% and 3.2% for 2015, 2014 and 2013, respectively. In the United States, OUP margin was 4.8%, 4.1% and 3.4% in 2015, 2014 and 2013, respectively. The margin increase in 2015 was primarily due to the improvement in the gross profit margin. Other Americas OUP margin was 3.8%, 3.8% and 2.8% in 2015, 2014 and 2013, respectively. The margin was flat in Other Americas in 2015 compared to 2014 as a decline in the gross profit margin was offset by better operational leverage, because we were able to support an increase in revenues without a similar increase in expenses. The margin increase in the Americas in 2014 was primarily due to the United States, as a result of 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.
 
Southern Europe — In 2015, revenues from services in Southern Europe, which includes operations in France and Italy, decreased 8.5% (increase of 9.1% in constant currency) compared to 2014. In 2015, revenues from services increased 4.3% in constant currency (-12.9% as reported) in France (which represents 67.8% of Southern Europe’s revenues) and increased 24.5% in constant currency (4.0% as reported) in Italy (which represents 17.8% of Southern Europe’s revenues). The constant currency increase in France was primarily due to the staffing market, which showed some growth, particularly in the fourth quarter of 2015. The constant currency increase in Italy was mostly due to increased demand for our Manpower staffing services due to improving economic conditions during 2015, the contract with the Milan Expo, a 42.5% constant currency increase (19.1% as reported) in the permanent recruitment business, and strong growth in our ManpowerGroup Solutions business partly due to the contract with the Milan Expo. In Other Southern Europe, revenues from services increased 0.5% (17.0% in constant currency and 14.6% in organic constant currency) in 2015 compared to 2014. The constant currency increase was primarily driven by the 30.3% constant
 
 
 
 
 
 
 
 
 
currency increase (9.0% as reported) in Spain due to improving economic conditions in 2015 and strong execution in selling clients our full range of services.

In 2014, revenues from services in Southern Europe increased 3.8% (3.8% in constant currency) compared to 2013. In 2014, revenues from services increased 1.2% in constant currency in France and increased 8.1% in organic constant currency in Italy (1.3% and 8.4%, respectively, as reported). 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 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.

Gross profit margin increased in 2015 compared to 2014 primarily due to a 20.2% constant currency increase (1.2% as reported) in our permanent recruitment business and growth in our higher-margin ManpowerGroup Solutions business, partially offset by the continued pricing pressures on our staffing/interim margins in some markets. In 2014, gross profit margin increased 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 pricing pressures in some markets.

Annual Report 2015 | 24
 
Management's Discussion & Analysis



In 2015, selling and administrative expenses decreased 10.1% (increase of 7.2% in constant currency and 5.9% in organic constant currency) compared to 2014. The constant currency increase is due to an increase in organic salary-related costs because of additional headcount, and other non-personnel related costs to support the constant currency revenue growth, and additional recurring selling and administrative costs incurred as a result of acquisitions. 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.

OUP margin in Southern Europe was 5.2%, 4.8% and 3.7% in 2015, 2014 and 2013, respectively. OUP margin increased over the period primarily due to France, where the OUP margin was 5.6%, 5.1% and 3.8% in 2015, 2014 and 2013, respectively. France's margin increase in 2015 was primarily due to the improvement in our gross profit margin and improved operational leverage as we were able to support a constant currency increase in revenues without a similar constant currency increase in expenses. Italy’s OUP margin was 5.8%, 5.4% and 4.9% in 2015, 2014 and 2013, respectively. Italy’s margin increase in 2015 was due to the growth in our permanent recruitment business and improved operational leverage, as we were able to support a constant currency increase in revenues without a similar constant currency increase in expenses, partially offset by a decrease in our staffing gross profit margin due to client mix changes and overall pricing pressure. Other Southern Europe’s OUP margin was 2.5%, 2.3% and 1.4% in 2015, 2014 and 2013, respectively. The margin increase in 2015 was due to an increase in the gross profit margin and improved operational leverage, as we were able to support a constant currency increase in revenues without a similar constant currency increase in expenses. The margin increase in Southern Europe in 2014 was due to the improvement in France's gross profit margin and improved operational leverage as we were able to support increased revenues with lower expenses.
 
Northern Europe — In Northern Europe, which includes operations in the United Kingdom, the Nordics, Germany and the Netherlands (comprising 38.1%, 18.5%, 14.0%, and 9.3%, respectively, of Northern Europe’s revenues), revenues from services decreased 9.8% (increase of 5.2% in constant currency and 2.1% in organic constant currency) in 2015 as compared to 2014. We experienced constant currency revenue growth in the United Kingdom, the Nordics, Germany, and the Netherlands of 6.0%, 0.6%, 26.1%, and 1.3%, respectively (-1.7%, -19.2%, 6.1%, and -15.3%, respectively, as reported; 7.6% in organic constant currency in Germany). The organic constant currency increase in revenues from services was primarily attributable to the increase in our staffing/interim services and a 13.7% constant currency increase (11.2% in organic constant currency; -1.1% as reported) in our permanent recruitment business mostly due to growth in the United Kingdom. The revenue increase in the Nordics was mostly due to the 9.1% constant currency growth (-11.3% as reported) in Sweden, which was partially offset by the 6.5% constant currency decline (-27.0% as reported) in Norway due to the dependence on the struggling oil and gas industry.
 
 
 
 
 
 
 
 
In 2014, revenues from services in Northern Europe increased 5.4% (5.7% in constant currency and 4.4% in organic constant currency). We experienced organic constant currency 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 during 2014, 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.

Management's Discussion & Analysis
 
25 | ManpowerGroup

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Gross profit margin decreased in both 2015 and 2014 due to the decline in our staffing/interim margins because of business mix changes in our staffing/interim revenues, as higher growth came from our lower-margin clients and markets, and general pricing pressures in several markets, partially offset by the increase in our permanent recruitment business. The decrease in 2014 compared to 2013 was also due to client contract termination costs.

Selling and administrative expenses decreased 8.6% (increase of 7.4% in constant currency and 2.9% in organic constant currency) in 2015 compared to 2014. The constant currency increase in selling and administrative expenses was due primarily to the increase in organic salary-related costs because of permanent recruiters added to support the increase in the permanent recruitment business, restructuring costs of $9.0 million incurred in 2015, and the additional recurring selling and administrative costs incurred as a result of acquisitions. In 2014, selling and administrative expenses decreased 2.8% (-2.2% in constant currency and -4.8% in organic constant currency) compared to 2013 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.

OUP margin for Northern Europe was 2.9%, 3.3% and 2.4% in 2015, 2014 and 2013, respectively. The decrease in 2015 was primarily due to the decline in the gross profit margin and the restructuring costs in 2015. The OUP margin increased in 2014 as a 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.
 
APME — Revenues from services decreased 3.8% (increase of 7.9% in constant currency and 4.1% in organic constant currency) in 2015 compared to 2014. In Japan (which represents 33.3% of APME’s revenues), revenues from services increased 2.2% in constant currency (-10.8% as reported) due to the increased demand for our Manpower staffing services and a 17.4% constant currency increase (2.0% as reported) in our permanent recruitment business. In Australia (which represents 22.3% of APME’s revenues), revenues from services were down 2.8% in organic constant currency (13.5% increase in constant currency; -5.7% as reported) in 2015 compared to 2014 due to the decreased demand for our Manpower staffing services due to the challenging conditions in this commodity-based economy, partially offset by growth in our ManpowerGroup Solutions business. The constant currency revenue increase in the remaining markets in APME is due to an increase in our Manpower staffing service revenues, mostly in Korea, India and Taiwan, and strong growth in our ManpowerGroup Solutions and permanent recruitment businesses.
 
 
 
 
 
 
 
 
In 2014, revenues from services for APME decreased 4.9% (-0.1% in constant currency and -0.6% in organic constant currency) compared to 2013. In Japan, revenues from services decreased 9.3% (-1.7% in constant currency) in 2014 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 10.5% constant currency increase in the permanent recruitment business. In Australia, 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% constant currency increase in the permanent recruitment business. The remaining revenue decrease in 2014 in APME was 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.

Annual Report 2015 | 26
 
Management's Discussion & Analysis



Gross profit margin was flat in 2015 compared to 2014 as the constant currency increase in our permanent recruitment business of 12.5% (-0.3% as reported) and growth in our high-margin ManpowerGroup Solutions business was offset by the decrease in our staffing/interim gross profit margins due to business mix changes. In 2014, gross profit margin increased due to a 8.3% constant currency increase in our permanent recruitment business.

Selling and administrative expenses decreased 3.3% (increase of 9.0% in constant currency and 5.2% in organic constant currency) in 2015 compared to 2014. The constant currency increase was due to the increase in organic salary-related costs because of higher headcount to support the constant currency increase in revenues, the additional recurring selling and administrative costs incurred as a result of acquisitions, and restructuring costs of $2.9 million incurred in 2015. In 2014, selling and administrative expenses decreased 8.0% (-3.0% in constant currency and -4.3% in organic constant currency) compared to 2013 related to reduced organic compensation-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.

OUP margin for APME was 3.5%, 3.6% and 2.9% in 2015, 2014 and 2013, respectively. The OUP margin decrease in 2015 was due to the restructuring costs incurred in 2015. The 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.
 
Right Management — Right Management is a leading global provider of talent and career management (also known as outplacement services) workforce solutions, operating in 108 offices in more than 50 countries and territories.

In 2015, revenues from services decreased 7.0% (0.5% increase in constant currency). We experienced an increase in our outplacement services of 3.2% in constant currency (-4.8% as reported) due to growth in the second half of 2015 as a result of greater demand in the oil and gas industry and several client wins, partially offset by softer demand in the first half of 2015. This was partially offset by a decline in our talent management business of 12.0% (-5.4% in constant currency) due to softer demand.

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.
 
 
 
 
 
 
 
 
 
Gross profit margin increased in 2015 compared to 2014 due to an increase in both the outplacement and talent management business gross profit margins and the change in business mix as the higher-margin outplacement services represented a greater percentage of the revenue mix. In 2014, gross profit margin decreased due to the 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 2015, selling and administrative expenses decreased 7.6% (flat in constant currency) in 2015 compared to 2014 due to the cost savings from more efficient delivery solutions offset by restructuring costs of $1.3 million in 2015. 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.


Management's Discussion & Analysis
 
27 | ManpowerGroup

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OUP margin for Right Management was 14.0%, 11.4% and 6.4% for 2015, 2014 and 2013, respectively. The OUP margin for 2015 increased due primarily to the improvement in our gross profit margin. 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.


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 16 and 17 for information.)


Amounts represent 2015
Percentages represent 2015 compared to 2014
Reported
 Amount
(in millions)

Reported
 Variance

Impact of
 Currency

Variance in
 Constant
 Currency

Impact of
 Acquisitions
(in Constant
 Currency)

Organic
 Constant
 Currency
 Variance

Revenues from Services
 
 
 
 
 
 
Americas:
 
 
 
 
 
 
United States
$
3,005.8

(2.6
)%
 %
(2.6
)%
0.3
%
(2.9
)%
Other Americas
1,486.2

(0.7
)
(18.3
)
17.6

1.6

16.0

 
4,492.0

(2.0
)
(6.0
)
4.0

0.7

3.3

Southern Europe:
 
 
 
 
 
 
France
4,661.3

(12.9
)
(17.2
)
4.3

1.0

3.3

Italy
1,226.1

4.0

(20.5
)
24.5


24.5

Other Southern Europe
984.5

0.5

(16.5
)
17.0

2.4

14.6

 
6,871.9

(8.5
)
(17.6
)
9.1

1.0

8.1

Northern Europe
5,453.3

(9.8
)
(15.0
)
5.2

3.1

2.1

APME
2,239.1

(3.8
)
(11.7
)
7.9

3.8

4.1

Right Management
273.6

(7.0
)
(7.5
)
0.5


0.5

ManpowerGroup
$
19,329.9

(6.9
)%
(13.5
)%
6.6
 %
1.9
%
4.7
 %
Gross Profit - ManpowerGroup
$
3,295.8

(5.5
)%
(12.6
)%
7.1
 %
2.4
%
4.7
 %
Operating Unit Profit
 
 
 
 
 
 
Americas:
 
 
 
 
 
 
United States
$
143.8

14.7
 %
 %
14.7
 %
1.1
%
13.6
 %
Other Americas
57.0

1.3

(17.9
)
19.2

1.7

17.5

 
200.8

10.5

(5.6
)
16.1

1.3

14.8

Southern Europe:
 
 
 
 
 
 
France
258.8

(6.1
)
(18.7
)
12.6

1.7

10.9

Italy
70.9

10.5

(22.0
)
32.5


32.5

Other Southern Europe
25.1

13.7

(18.1
)
31.8

5.8

26.0

 
354.8

(1.9
)
(19.2
)
17.3

1.6

15.7

Northern Europe
159.5

(19.5
)
(11.7
)
(7.8
)
6.3

(14.1
)
APME
79.3

(5.7
)
(10.8
)
5.1

2.2

2.9

Right Management
38.3

14.3

(5.8
)
20.1


20.1

Operating Profit — ManpowerGroup
$
688.9

(4.3
)%
(15.5
)%
11.2
 %
2.6
%
8.6
 %

Annual Report 2015 | 28
 
Management's Discussion & Analysis




Amounts represent 2014
Percentages represent 2014 compared to 2013
Reported
Amount
(in millions)

Reported
Variance

Impact of
Currency

Variance in
Constant
Currency

Impact of
Acquisitions
(in Constant
Currency)

Organic
Constant
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
 %


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, 2015, we had $652.2 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 permanently invested. As of December 31, 2015 and 2014, we identified approximately $604.4 million and $452.8 million,

Management's Discussion & Analysis
 
29 | ManpowerGroup

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 $132.0 million and $53.1 million as of December 31, 2015 and 2014, respectively. This deferred tax liability increased as of December 31, 2015 from December 31, 2014 due to 2015 non-United States earnings that are not permanently invested, which had a higher United States tax cost due to lower foreign tax credits.

Our principal ongoing cash needs are to finance working capital, capital expenditures, debt payments, interest expense, dividends, share repurchases 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 $511.5 million, $306.2 million and $396.7 million for 2015, 2014 and 2013, respectively. The increase in 2015 from 2014 was primarily attributable to the 2015 sale of $132.8 million of our CICE payroll tax credits and an increase in accounts payable due to timing of payments, partly offset by an increase in accounts receivables due to the growth in the business. The decrease in cash provided by operating activities in 2014 from 2013 is primarily due to the fact that we did not sell any of our CICE receivable in 2014, and we had an increase in working capital needs as a result of the growth in the business, partially offset by an increase in earnings. In 2013, we sold a portion of our 2013 CICE payroll tax credits for net proceeds of $104.0 million. Changes in operating assets and liabilities utilized $116.6 million of cash in 2015, as compared to $314.2 million and $50.9 million in 2014 and 2013, respectively.

Accounts receivable increased to $4,243.0 million as of December 31, 2015 from $4,134.5 million as of December 31, 2014, primarily due to an increase in business volume. Utilizing exchange rates as of December 31, 2014, the December 31, 2015 balance would have been approximately $342.2 million higher than reported.

Capital expenditures were $52.3 million, $51.5 million and $44.7 million during 2015, 2014 and 2013, 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 in both 2015 and 2014 and $0.5 million in 2013.

On September 3, 2015, we acquired 7S Group GmbH (“7S”), for total consideration, net of cash acquired, of $140.4 million (€125.3 million). In addition, we incurred approximately $3.4 million of transaction costs associated with the acquisition during the year ended December 31, 2015, which have been recorded in selling and administrative expenses. Based primarily in Germany, 7S is a highly specialized provider of human resource services focusing on a number of core sectors including skilled trades, engineering and IT.

Of the $153.0 million (€136.5 million) of net acquired assets, $48.8 million (€43.5 million) was recorded as finite-lived intangible assets, of which $44.2 million (€39.4 million) was assigned to customer relationships and will be amortized over 10 years using the straight line method. As of December 31, 2015, the customer relationships were $41.4 million (€38.1 million). Total amortization expense related to this intangible asset in each of the next five years is $4.3 million.
The fair value of $119.3 million (€106.4 million), which was not directly attributable to any specific assets or liabilities, was assigned to goodwill as part of the Germany reporting unit.
As of December 31, 2015, the purchase accounting and figures associated with the above acquisition were preliminary and will be finalized in early 2016.
From time to time, we acquire and invest in companies throughout the world, including franchises. The total cash consideration for acquisitions excluding 7S, net of cash acquired, was $120.1 million for the year ended December 31, 2015, the majority of which took place in Australia, Canada and the Netherlands. The total cash consideration for acquisitions,

Annual Report 2015 | 30
 
Management's Discussion & Analysis


net of cash acquired, for the years ended 2014 and 2013 was $32.0 million and $46.3 million, respectively. Goodwill and intangible assets resulting from the remaining 2015 acquisitions were $108.7 million and $28.5 million, respectively, as of December 31, 2015. 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.
During the third quarter of 2015, we entered into a joint venture to expand our business in the Greater China region. We contributed a majority of the net assets of our China, Hong Kong, Macau and Taiwan operations and the noncontrolling shareholder contributed cash. The joint venture is included in our Consolidated Balance Sheets as of December 31, 2015 as we have a controlling financial interest. The noncontrolling equity interest is included in noncontrolling interests in total shareholders’ equity in our Consolidated Balance Sheets as of December 31, 2015.
Net debt borrowings were $456.1 million for 2015, as compared to $13.4 million for 2014 and net repayments of $271.3 million in 2013. In September 2015, we offered and sold €400.0 million aggregate principal amount of the Company's 1.875% notes due September 11, 2022. (See the "Euro Notes" section below for further information.) 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.

In October 2015 and December 2012, the Board of Directors authorized the repurchase of 6.0 million and 8.0 million shares of our common stock, respectively. Share repurchases may be made from time to time through a variety of methods, including open market purchases, block transactions, privately negotiated transactions or similar facilities. In 2015, we repurchased a total of 6.7 million shares, comprised of 6.0 million shares under the 2012 authorization and 0.7 million shares under the 2015 authorization, at a total cost of $587.9 million, including a nominal amount of shares at a cost of $7.7 million that settled in January 2016. The share repurchases that settled in January are not reflected in the treasury stock in our Consolidated Balance Sheets as of December 31, 2015. In 2014, we repurchased 2.0 million shares under the 2012 authorization at a cost of $143.5 million. No repurchases were made in 2013. As of December 31, 2015, there were 5.3 million shares remaining authorized for repurchase under the 2015 authorization and no shares remaining under the 2012 authorization.

We have aggregate commitments of $1,759.0 million related to debt, operating leases, severances and office closure costs, and certain other commitments, as follows:
(in millions)
Total

2016

2017–2018

2019–2020

Thereafter

Long-term debt including interest
$
925.7

$
31.4

$
430.4

$
16.6

$
447.3

Short-term borrowings
38.2

38.2




Operating leases
582.2

155.9

204.9

114.6

106.8

Severances and other office closure costs
16.4

12.9

2.9

0.6


Other
196.5

72.6

71.8

27.6

24.5

 
$
1,759.0

$
311.0

$
710.0

$
159.4

$
578.6


Our liability for unrecognized tax benefits, including related interest and penalties, of $37.9 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 $16.4 million and $89.4 million in 2015 and 2013, respectively, in selling and administrative expenses, primarily related to severances and office closures and consolidations in multiple countries. During 2015, we made payments of $12.9 million out of our restructuring reserve. We expect a majority of the remaining $16.4 million reserve will be paid by the end of 2016.


Management's Discussion & Analysis
 
31 | ManpowerGroup

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


We have entered into guarantee contracts and stand-by letters of credit that total approximately $190.2 million and $172.6 million as of December 31, 2015 and 2014, respectively ($144.7 million and $126.8 million for guarantees, respectively, and $45.5 million and $45.8 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 $1.5 million and $1.9 million in 2015 and 2014, respectively.
 
Total capitalization as of December 31, 2015 was $3,547.6 million, comprised of $855.1 million in debt and $2,692.5 million in equity. Debt as a percentage of total capitalization was 24%, 14% and 15% as of December 31, 2015, 2014 and 2013, respectively. The increase in 2015 in debt as a percentage of total capitalization is primarily due to the offering of our €400.0 Notes.

 
 
 
 
 
 
 
 
 


Euro Notes

On September 11, 2015, we offered and sold €400.0 million aggregate principal amount of the Company's 1.875% notes due September 11, 2022 (the "€400.0 million Notes"). The net proceeds from the €400.0 million Notes of €397.4 million will be used for general corporate purposes, which may include share repurchases and the acquisition of or investment in complementary businesses or other assets. The €400.0 million Notes were issued at a price of 99.753% to yield an effective interest rate of 1.913%. Interest on the €400.0 million Notes is payable in arrears on September 11 of each year.
We also 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. 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.

When the €400.0 million Notes and €350.0 million Notes mature, we plan to repay the amounts 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 either the €400.0 million Notes or €350.0 million Notes.

Both the €400.0 million Notes and €350.0 million Notes contain certain customary non-financial restrictive covenants and events of default and are unsecured senior obligations and rank equally with all of our existing and future senior unsecured debt and other liabilities. A portion of these notes have been designated as a hedge of our net investment in subsidiaries with a euro-functional currency as of December 31, 2015. Since our net investment in these subsidiaries exceeds the respective amount of the designated borrowings, both net of taxes, translation gains or losses related to these borrowings are included as a component of accumulated other comprehensive loss. (See the Significant Matters Affecting Results of Operations section and Notes 7 and 12 to the Consolidated Financial Statements for further information.)


Revolving Credit Agreement

On September 16, 2015, we amended and restated our Five Year Credit Agreement (the “Amended Agreement”) with a syndicate of commercial banks primarily to revise the termination date of the facility from October 15, 2018 to September 16, 2020. The remaining material terms and conditions of the Amended

Annual Report 2015 | 32
 
Management's Discussion & Analysis


Agreement are substantially similar to the material terms and conditions of our Amended and Restated Five Year Credit Agreement dated October 15, 2013.

Management's Discussion & Analysis
 
33 | ManpowerGroup

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. We had no borrowings under this facility as of both December 31, 2015 and 2014. Outstanding letters of credit issued under the Amended Agreement totaled $0.9 million and $1.0 million as of December 31, 2015 and 2014, respectively. Additional borrowings of $599.1 million and $599.0 million were available to us under the facility as of December 31, 2015 and 2014, 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 12.5 basis points paid on the entire facility and the credit spread is 100.0 basis points on any borrowings. A downgrade from both credit agencies would unfavorably impact our facility fees and result in additional costs ranging from approximately $0.2 million to $0.8 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.

As defined in the Amended Agreement, we had a net Debt-to-EBITDA ratio of 0.67 to 1 (compared to the maximum allowable ratio of 3.5 to 1) and a Fixed Charge Coverage ratio of 4.55 to 1 (compared to the minimum required ratio of 1.5 to 1) as of December 31, 2015.


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, 2015, such uncommitted credit lines totaled $292.9 million, of which $248.0 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.

In July 2015, Moody’s Investors Services upgraded our long-term debt rating to Baa1 from Baa2 while the ratings outlook remained stable. In April 2014, Standard and Poor’s raised our credit rating to BBB from BBB-, while maintaining the stable outlook. Both of the current credit ratings are investment grade. Rating agencies use proprietary methodology in determining their ratings and outlook which includes, among other things, financial ratios based upon debt levels and earnings performance.


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.


Annual Report 2015 | 34
 
Management's Discussion & Analysis


Bad debt expense, which increases our allowance for doubtful accounts, is recorded as a selling and administrative expense and was $16.3 million, $18.9 million and $24.1 million for 2015, 2014 and 2013, 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 $20.3 million, $15.8 million and $26.4 million for 2015, 2014 and 2013, 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.


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 $7.9 million in 2016, compared to $11.4 million, $12.6 million and $11.8 million in 2015, 2014 and 2013, respectively. The 2016 expense estimate reflects a decrease resulting from our adoption of the spot rate approach for all of our United States defined benefit plans in measuring the service and interest cost components of net periodic benefit cost, and a change to the amortization period for gains and losses for two of our United States defined benefit plans. Both of these changes will have an immaterial impact on the Consolidated Financial Statements (see Note 8 to the Consolidated Financial Statements for further information). 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 4.3% for the United States plans and 3.2% for non-United States plans in determining the estimated pension expense for 2016. These rates compare to the weighted-average discount rate of 3.9% for the United States plans and 2.9% for non-United States plans we used in determining the estimated pension expense for 2015, 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 2016 consolidated pension expense by approximately $0.1 million and $0.8 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 3.4% for the non-United States plans in determining the estimated pension expense for 2016. The comparable rates used for the calculation of the 2015 pension

Management's Discussion & Analysis
 
35 | ManpowerGroup

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

expense were 5.5% and 3.2% 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 2016 consolidated pension expense by approximately $0.1 million for the United States plans and $0.8 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, 2015 and 2014 was $76.5 million and $79.8 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 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.


Annual Report 2015 | 36
 
Management's Discussion & Analysis


In France, we currently maintain a reserve related to these programs for 2007 through 2015, which has been estimated based on the results of past audits, changes in business volumes and the assessments related to the audit of 2007 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 was 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 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 July 2015 and December 2013, we entered into an agreement to sell a portion of the credits earned in 2014 and 2013, respectively, for net proceeds of $132.8 million (€120.1 million) and $104.0 million (€75.8 million), respectively. 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 these receivables was recorded as a reduction of the payroll tax credits earned in the respective years in cost of services. We received the cash from these sales in July 2015 and December 2013, which improved our operating cash flows in the third quarter of 2015 and fourth quarter of 2013, respectively.


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
 
37 | ManpowerGroup

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 2015, 2014 and 2013, 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 2015 included: expected future revenue growth rates, operating unit profit margins, working capital levels, discount rates ranging from 11.8% to 17.1%, 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 73% of our consolidated goodwill balance as of September 30, 2015.
(in millions)
France

United States

United Kingdom

Right
 Management

Netherlands

Estimated fair values
$
1,510.5

$
1,132.9

$
410.4

$
296.3

$
164.8

Carrying values
633.3

799.0

305.4

122.6

128.9



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.


Annual Report 2015 | 38
 
Management's Discussion & Analysis


Approximately 84% of our revenues and profits are generated outside of the United States, with approximately 44% 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 average exchange rates each month. Consequently, as the value of the United States dollar changes relative to the currencies of our major markets, our reported results vary.

In both 2015 and 2014, the United States dollar generally strengthened against many of the currencies of our major markets. Revenues from services in constant currency were 13.5% and 1.5% higher than reported revenues in 2015 and 2014, respectively. A change in the strength of the United States dollar by 10% would have impacted our revenues from services by approximately 8.4% and 8.5% from the amounts reported in 2015 and 2014, respectively.

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. The United States dollar strengthened relative to many foreign currencies as of December 31, 2015 compared to December 31, 2014. Consequently, shareholders’ equity decreased by $150.4 million as a result of the foreign currency translation as of December 31, 2015. If the United States dollar had strengthened an additional 10% as of December 31, 2015, resulting translation adjustments recorded in shareholders’ equity would have decreased by approximately $137.7 million from the amounts reported.

As of December 31, 2014, the United States dollar strengthened relative to many foreign currencies 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.

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.

On occasion, forward contracts are designated as an economic hedge of our net investment in our foreign subsidiaries. As of December 31, 2015, we had a translation loss of $4.1 million included in accumulated other comprehensive loss, net of taxes, as the net investment hedge was deemed effective.

As of December 31, 2015, there were £11.1 ($16.8) million of forward contracts that relate to cash flows owed to our foreign subsidiaries in 2016. For our forward contracts that are not designated as hedges, any gain or loss resulting from the change in fair value is recognized in the current period earnings.


Management's Discussion & Analysis
 
39 | ManpowerGroup

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As of December 31, 2015, we had outstanding $810.2 million in principal amount of euro-denominated notes (€750.0 million). A portion of the notes have been designated as a hedge of our net investment in subsidiaries with a euro-functional currency as of December 31, 2015. Since our net investment in these subsidiaries exceeds the respective amount of the designated borrowings, both net of tax, translation gains or losses related to these borrowings are included as a component of accumulated other comprehensive loss. Shareholders’ equity increased by $38.6 million, net of tax, due to changes in accumulated other comprehensive loss 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, 2015, we had the following fixed- and variable-rate borrowings:
(in millions)
Amount

Weighted-
Average
Interest Rate(1)

Variable-rate borrowings
$
38.2

17.8
%
Fixed-rate borrowings
816.9

3.1

Total debt
$
855.1

3.8
%

(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, 2015 and 2014. 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 2015 and 2014 net earnings and total other comprehensive (loss) income of the stated change in rates is as follows:
2015 (in millions)
Movements in Exchange Rates
 
Market Sensitive Instrument
10% Depreciation

 
10% Appreciation

Euro Notes:
 
 
 
€400.0, 1.91% Notes due September 2022
$
43.4

(1) 
$
(43.4
)
€350.0, 4.51% Notes due June 2018
38.0

(1) 
(38.0
)
Forward contracts:
 
 
 
£11.1 to $16.8
1.6

 
(1.6
)

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
)
Forward contracts:
 
 
 
£2.7 to $4.3
0.4

 
(0.4
)

(1) Exchange rate movements are recorded through accumulated other comprehensive loss as these instruments have been designated as an economic hedge of our net investment in subsidiaries with a euro-functional currency.


Annual Report 2015 | 40
 
Management's Discussion & Analysis


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, 2015
Market Sensitive Instrument (in millions)
10% Decrease

 
10% Increase

Euro Notes:
 
 
 
€400.0, 1.91% Notes due September 2022
$
44.4

(1) 
$
(44.4
)
€350.0, 4.51% Notes due June 2018
41.5

(1) 
41.5

Forward contracts:
 
 
 
£11.1 to $16.8
1.6

 
(1.6
)

As of December 31, 2014
Market Sensitive Instrument (in millions)
10% Decrease

 
10% Increase

Euro Notes:
 
 
 
€350.0, 4.51% Notes due June 2018
$
47.2

(1) 
$
(47.2
)
Forward contracts:
 
 
 
£2.7 to $4.3
0.4

 
(0.4
)

(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
 
41 | ManpowerGroup

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 took 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 CLA did not have a significant impact on our consolidated or Northern Europe financial results in either 2015 or 2014.

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 United States 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 having the greatest financial impact on us and our clients with United States-based employees. This legislation has increased the employment costs of our permanent employees and our associates. It is our intention that any cost increases related to our associates will be passed on to our United States clients; however, there is no assurance that we will be fully successful at doing so in the future.


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 “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2015, 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.

Annual Report 2015 | 42
 
Management's Discussion & Analysis


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. Based on our evaluation we have concluded that our internal control over financial reporting was effective as of December 31, 2015.

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, 2015, which is included herein.

February 22, 2016


Annual Report '15 | 43
 
Management Report on Internal Control Over Financial Reporting


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, 2015 and 2014, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015. 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 ManpowerGroup Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, 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, 2015, 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 22, 2016 expressed an unqualified opinion on the Company’s internal control over financial reporting.




Milwaukee, Wisconsin
February 22, 2016


Report of Independent Registered Public Accounting Firm
 
44 | ManpowerGroup


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, 2015, 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, 2015, 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, 2015 of the Company and our report dated February 22, 2016 expressed an unqualified opinion on those consolidated financial statements.



Milwaukee, Wisconsin
February 22, 2016

Annual Report '15 | 45
 
Report of Independent Registered Public Accounting Firm


CONSOLIDATED STATEMENTS OF OPERATIONS
in millions, except per share data
Year Ended December 31
2015

2014

2013

Revenues from services
$
19,329.9

$
20,762.8

$
20,250.5

Cost of services
16,034.1

17,274.6

16,883.8

Gross profit
3,295.8

3,488.2

3,366.7

Selling and administrative expenses
2,606.9

2,768.3

2,854.8

Operating profit
688.9

719.9

511.9

Interest and other expenses
28.2

38.3

36.4

Earnings before income taxes
660.7

681.6

475.5

Provision for income taxes
241.5

254.0

187.5

Net earnings
$
419.2

$
427.6

$
288.0

Net earnings per share — basic
$
5.46

$
5.38

$
3.69

Net earnings per share — diluted
$
5.40

$
5.30

$
3.62

Weighted average shares — basic
76.8

79.5

78.0

Weighted average shares — diluted
77.7

80.7

79.6

 
 
 
 
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
2015

2014

2013

Net earnings
$
419.2

$
427.6

$
288.0

Other comprehensive (loss) income:
 
 
 
Foreign currency translation
(182.8
)
(265.9
)
52.7

Translation adjustments on net investment hedge, net of income taxes of $19.2, $20.3 and $(5.4), respectively
34.5

36.1

(9.5
)
Translation adjustments on long-term intercompany loans
(2.1
)
0.2

(0.2
)
Unrealized gain (loss) on investments, net of income taxes of $0.1, $2.1 and $(2.3), respectively
0.3

5.2

(0.3
)
Defined benefit pension plans and retiree health care plan, net of income taxes of $7.8, $(8.6) and $5.2, respectively
19.3

(13.0
)
5.1

Total other comprehensive (loss) income
$
(130.8
)
$
(237.4
)
$
47.8

Comprehensive income
$
288.4

$
190.2

$
335.8

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



Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income
 
46 | ManpowerGroup


CONSOLIDATED BALANCE SHEETS
in millions, except share and per share data

December 31
2015

2014

ASSETS
 
 
Current Assets
 
 
Cash and cash equivalents
$
730.5

$
699.2

Accounts receivable, less allowance for doubtful accounts of $98.1 and $111.4, respectively
4,243.0

4,134.5

Prepaid expenses and other assets
119.0

147.8

Total current assets
5,092.5

4,981.5

Other Assets
 
 
Goodwill
1,257.4

1,075.2

Intangible assets, less accumulated amortization of $266.6 and $276.2, respectively
326.5

286.8

Other assets
694.0

688.6

Total other assets
2,277.9

2,050.6

Property and Equipment
 
 
Land, buildings, leasehold improvements and equipment
585.4

633.5

Less: accumulated depreciation and amortization
438.3

484.4

Net property and equipment
147.1

149.1

Total assets
$
7,517.5

$
7,181.2

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
Current Liabilities
 
 
Accounts payable
$
1,659.2

$
1,542.7

Employee compensation payable
211.4

204.5

Accrued liabilities
483.7

472.7

Accrued payroll taxes and insurance
613.8

622.4

Value added taxes payable
438.7

466.3

Short-term borrowings and current maturities of long-term debt
44.2

45.2

Total current liabilities
3,451.0

3,353.8

Other liabilities
 
 
Long-term debt
810.9

422.6

Other long-term liabilities
563.1

461.8

Total other liabilities
1,374.0

884.4

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 114,504,928 and 112,876,552 shares, respectively
1.2

1.1

Capital in excess of par value
3,186.7

3,084.2

Retained earnings
1,966.0

1,667.8

Accumulated other comprehensive loss
(286.0
)
(155.2
)
Treasury stock at cost, 41,466,590 and 34,762,316 shares, respectively
(2,243.2
)
(1,654.9
)
   Total ManpowerGroup shareholders' equity
2,624.7

2,943.0

Noncontrolling interests
67.8


Total shareholders’ equity
2,692.5

2,943.0

Total liabilities and shareholders’ equity
$
7,517.5

$
7,181.2

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



Annual Report 2015 | 47
 
Consolidated Balance Sheets


CONSOLIDATED STATEMENTS OF CASH FLOWS
in millions

Year Ended December 31
2015

2014

2013

Cash Flows from Operating Activities
 
 
 
Net earnings
$
419.2

$
427.6

$
288.0

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
77.7

83.8

94.3

Deferred income taxes
91.2

54.0

17.0

Provision for doubtful accounts
16.3

18.9

24.1

Share-based compensation
31.1

40.6

31.5

Excess tax benefit on exercise of share-based awards
(7.4
)
(4.5
)
(7.3
)
Change in operating assets and liabilities, excluding the impact of acquisitions:
 
 
 
Accounts receivable
(369.8
)
(270.5
)
(82.6
)
Other assets
(59.7
)
(198.7
)
(35.9
)
Other liabilities
312.9

155.0

67.6

Cash provided by operating activities
511.5

306.2

396.7

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(52.3
)
(51.5
)
(44.7
)
Acquisitions of businesses, net of cash acquired
(260.5
)
(32.0
)
(46.3
)
Proceeds from the sale of investments, property and equipment
14.7

2.1

3.4

Cash used in investing activities
(298.1
)
(81.4
)
(87.6
)
Cash Flows from Financing Activities
 
 
 
Net change in short-term borrowings
4.1

16.0

(5.7
)
Proceeds from long-term debt
454.0


3.9

Repayments of long-term debt
(2.0
)
(2.6
)
(269.5
)
Payments for debt issuance costs
(2.5
)


Proceeds from share-based awards and other equity transactions
104.1

25.5

101.0

Other share-based award transactions, net
(0.7
)
(6.3
)
16.1

Repurchases of common stock
(580.2
)
(143.5
)

Dividends paid
(121.0
)
(77.3
)
(72.0
)
Cash used in financing activities
(144.2
)
(188.2
)
(226.2
)
Effect of exchange rate changes on cash
(37.9
)
(75.0
)
6.6

Net increase (decrease) in cash and cash equivalents
31.3

(38.4
)
89.5

Cash and cash equivalents, beginning of year
699.2

737.6

648.1

Cash and cash equivalents, end of year
$
730.5

$
699.2

$
737.6

Supplemental Cash Flow Information
 
 
 
Interest paid
$
32.2

$
36.6

$
43.5

Income taxes paid, net
$
75.9

$
105.8

$
60.3

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




Consolidated Statements of Cash Flows
 
48 | ManpowerGroup


CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
in millions, except share and per share data

 
ManpowerGroup Shareholders
 
Non-
controlling Interests

 
 
 
Common Stock
Capital in
Excess of
 Par Value

Retained
Earnings

Accumulated
 Other
Comprehensive
 (Loss) Income

Treasury
 Stock

 
 
Total

 
Shares Issued


Par Value

Balance, January 1, 2013
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

Net earnings
 
 
 
419.2

 
 
 
 
 
419.2

Other comprehensive loss
 
 
 
 
(130.8
)
 
 
 
 
(130.8
)
Issuances under equity plans, including tax benefits
1,628,376

0.1

77.5

 
 
(8.1
)
 
 
 
69.5

Share-based compensation expense
 
 
31.1

 
 
 
 
 
 
31.1

Dividends ($1.60 per share)
 
 
 
(121.0
)
 
 
 
 
 
(121.0
)
Repurchases of common stock
 
 
 
 
 
(580.2
)
 
 
 
(580.2
)
Contribution from a noncontrolling interest and other noncontrolling interest transactions
 
 
(6.1
)
 
 
 
 
67.8

 
61.7

Balance, December 31, 2015
114,504,928

$
1.2

$
3,186.7

$
1,966.0

$
(286.0
)
$
(2,243.2
)
 
$
67.8

 
$
2,692.5

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



Annual Report 2015 | 49
 
Consolidated Statements of Shareholders' Equity


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 over 2,900 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 majority-owned subsidiaries and entities in which we have a controlling financial interest. We have a controlling financial interest if we own a majority of the outstanding voting common stock and the noncontrolling shareholders do not have substantive participating rights, or we have significant control over an entity through contractual or economic interests in which we are the primary beneficiary. 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 $137.9 and $132.3 as of December 31, 2015 and 2014, respectively, and are included in other assets in the Consolidated Balance Sheets. Included in shareholders’ equity as of December 31, 2015 and 2014 are $85.4 and $77.4, 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.

Annual Report 2015 | 50
 
Notes to Consolidated Financial Statements



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 $24.2, $25.4 and $24.4 for the years ended December 31, 2015, 2014 and 2013, respectively.

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, 2015 and 2014, deferred revenue was $38.4 and $35.5, respectively, all of which was current.

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 $16.3, $18.9 and $24.1 in 2015, 2014 and 2013, 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 $20.3, $15.8 and $26.4 for 2015, 2014 and 2013, respectively.


Advertising Costs

We expense production costs of advertising as they are incurred. Advertising expenses were $28.8, $25.7 and $22.3 in 2015, 2014 and 2013, respectively.


Restructuring Costs

We recorded net restructuring costs of $16.4 and $89.4 in 2015 and 2013, respectively, in selling and administrative expenses, primarily related to severances and office closures and consolidations in multiple countries and territories. During 2015 and 2014, we made payments of $12.9 and $35.5, respectively, out of our restructuring reserve. We expect a

Notes to Consolidated Financial Statements
 
51 | ManpowerGroup


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in millions, except share and per share data


majority of the remaining $16.4 reserve will be paid by the end of 2016. Changes in the restructuring liability balances for each reportable segment and Corporate are as follows:

 
Americas(1)

Southern
 Europe(2)

Northern
 Europe

APME

Right Management

Corporate

Total

Balance, January 1, 2014
$
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

Severance costs
2.5


8.6

0.9

1.1


13.1

Office closure costs
0.7


0.4

2.0

0.2


3.3

Costs paid or utilized
(0.8
)
(0.6
)
(6.3
)
(1.7
)
(2.8
)
(0.7
)
(12.9
)
Balance, December 31, 2015
$
3.5

$
1.7

$
8.5

$
1.7

$
0.8

$
0.2

$
16.4


(1) Balance related to United States was $5.1 as of January 1, 2014. In 2014, United States paid/utilized $4.1, leaving a $1.0 liability as of December 31, 2014. In 2015, United States incurred $2.3 for severance costs and $0.7 for office closure costs and paid/utilized $1.1, leaving a $2.9 liability as of December 31, 2015.
(2) Balance related to France was $3.5 as of January 1, 2014. In 2014, France paid/utilized $1.4, leaving a $2.1 liability as of December 31, 2014. In 2015, France paid/utilized $0.6, leaving a $1.5 liability as of December 31, 2015. Italy had a $0.9 liability as of January 1, 2014. In 2014, Italy paid/utilized $0.9, leaving no liability as of December 31, 2014 or 2015.


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 to reduce the assets to the amounts more likely than not to be realized.


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
 
 
December 31, 2015

Quoted
 Prices in
 Active
 Markets for
 Identical
 Assets
 (Level 1)

Significant
 Other
 Observable
 Inputs
(Level 2)

Significant
 Unobservable
 Inputs
(Level 3)

 
December 31, 2014

Quoted
 Prices in
 Active
 Markets for
 Identical
 Assets
 (Level 1)

Significant
 Other
 Observable
 Inputs
(Level 2)

Significant
 Unobservable
 Inputs
(Level 3)

Assets
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
$
0.1

$

$
0.1

$

 
$
0.1

$

$
0.1

$

Deferred compensation plan assets
84.1

84.1



 
81.4

81.4



 
$
84.2

$
84.1

$
0.1

$

 
$
81.5

$
81.4

$
0.1

$

Liabilities
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
$
0.5

$

$
0.5

$

 
$

$

$

$

 
$
0.5

$

$
0.5

$

 
$

$

$

$

 
 
 
 
 
 
 
 
 
 

Annual Report 2015 | 52
 
Notes to Consolidated Financial Statements



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 $858.2 and $471.6 as of December 31, 2015 and 2014, respectively, compared to a carrying value of $810.2 and $422.1, respectively.


Goodwill and Other Intangible Assets

We have goodwill, finite-lived intangible assets and indefinite-lived intangible assets as follows:
 
2015
 
2014
 

December 31
Gross

Accumulated
 Amortization

Net

Gross

Accumulated
 Amortization

Net

Goodwill(1)
$
1,257.4

$

$
1,257.4

$
1,075.2

$

$
1,075.2

Intangible assets:
 
 
 
 
 
 
 Finite-lived:
 
 
 
 
 
 
Technology
$

$

$

$
19.6

$
19.6

$

Franchise agreements



18.0

18.0


Customer relationships
425.6

256.7

168.9

359.9

225.6

134.3

Other
16.9

9.9

7.0

14.2

13.0

1.2

 
442.5

266.6

175.9

411.7

276.2

135.5

Indefinite-lived:
 
 
 
 
 
 
Tradenames(2)
54.0


54.0

54.0


54.0

Reacquired franchise rights
96.6


96.6

97.3


97.3

 
150.6


150.6

151.3


151.3

Total intangible assets
$
593.1

$
266.6

$
326.5

$
563.0

$
276.2

$
286.8

 
 
 
 
 
 
 

(1) Balances were net of accumulated impairment loss of $513.4 as of both December 31, 2015 and 2014.
(2) Balances were net of accumulated impairment loss of $139.5 as of both December 31, 2015 and 2014.

Amortization expense related to intangibles was $32.8, $33.4 and $34.1 in 2015, 2014 and 2013, respectively. Amortization expense expected in each of the next five years related to acquisitions completed as of December 31, 2015 is as follows: 2016 - $34.8, 2017 - $31.8, 2018 - $29.0, 2019 - $24.7 and 2020 - $20.2. The weighted-average useful lives of the customer relationships and other are 13 and 4 years, respectively. The tradenames have been assigned an indefinite life based on our expectation of renewing the tradenames, as required, without material modifications and at a minimal cost, and our expectation of positive cash flows beyond the foreseeable future. The reacquired franchise rights result from our franchise acquisitions in the United States and Canada completed prior to 2009.

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 2015, 2014 and 2013, and there was no impairment of our goodwill or indefinite-lived intangible as a result of our annual tests.

Notes to Consolidated Financial Statements
 
53 | ManpowerGroup


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in millions, except share and per share data



We utilize a two-step method for determining goodwill impairment. In the first step, we determined the fair value of each reporting unit, generally by utilizing an income approach derived from a discounted cash flow methodology. For certain of our reporting units, a combination of the income approach (weighted 75%) and the market approach (weighted 25%) derived from comparable public companies was utilized. The income approach is developed from management’s forecasted cash flow data. Therefore, it represents an indication of fair market value reflecting management’s internal outlook for the reporting unit. The market approach utilizes the Guideline Public Company Method to quantify the respective reporting unit’s fair value based on revenues and earnings multiples realized by similar public companies. The market approach is more volatile as an indicator of fair value as compared to the income approach. We believe that each approach has its merits. However, in the instances where we have utilized both approaches, we have weighted the income approach more heavily than the market approach because we believe that management’s assumptions generally provide greater insight into the reporting unit’s fair value.

Significant assumptions used in our goodwill impairment tests during 2015, 2014 and 2013 included: expected revenue growth rates, operating unit profit margins, working capital levels, discount rates ranging from 11.8% to 17.1% for 2015, and a terminal value multiple. The expected future revenue growth rates and the expected operating unit profit margins were determined after considering our historical revenue growth rates and operating unit profit margins, our assessment of future market potential, and our expectation