MANPOWERGROUP INC. Financial Measures - Constant Currency And Organic Constant Currency
Changes in our financial results include the impact of changes in foreign currency exchange rates, acquisitions and dispositions. 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 intoUnited 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 and dispositions from the prior period from our constant currency calculation. We believe that this calculation is useful because it allows us to show the actual growth of our ongoing 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. Constant currency and organic constant currency percent variances, along with a reconciliation of these amounts to certain of our reported results, are included on page 37.
Results of Operations - For Years of Operation Ending
The financial discussion that follows focuses on 2019 results compared to 2018. For a discussion of 2018 results compared to 2017, see the company's Annual Report on Form 10-K for the year endedDecember 31, 2018 . During 2019,the United States dollar was stronger, on average, relative to the currencies in the majority of our markets than in 2018, and subsequently was having an unfavorable impact on our reported results. This strengthening was particularly pronounced against the Euro and British Pound. Our reported revenues from services decreased 5.1% in 2019 compared to 2018 and our reported operating profit decreased 19.1%. Given the relative weakness of other currencies againstthe United States dollar in 2019 compared to the 2018, these results generally may understate the performance of our underlying business. The changes in the foreign currency exchange rates had a 4.2% unfavorable impact on revenues from services, a 3.5% unfavorable impact on operating profit, and an approximately$0.28 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. 29 -------------------------------------------------------------------------------- In 2019, the environment has been one of revenue declines in most of our European markets, with slowing economic growth globally and continued tight labor markets in many countries that has overshadowed modest constant currency growth elsewhere. Over the course of the year, we experienced the following changes to our consolidated revenues: first quarter constant currency revenue decrease of 2.2%, 0.1% decrease in constant currency in the second quarter, 0.3% constant currency increase in the third quarter, with a deterioration in the fourth quarter to a 1.8% constant currency decrease. We remain highly focused on our business inEurope , where Southern andNorthern Europe segments combined reflect 66% of our total consolidated revenues. In 2019, several key markets within Southern andNorthern Europe experienced revenue declines, partially offset by constant currency revenue increases in certain markets within theAmericas and APME. We experienced a revenue decline in organic constant currency inSouthern Europe due to the revenue declines inFrance andItaly , partially offset by organic constant currency revenue growth in certain markets within Other Southern Europe. The revenue decrease inNorthern Europe was primarily due to the decreases inGermany ,the Netherlands , andSweden due mostly to reduced demand from the manufacturing sector in those markets and uncertainties related to global trade conflicts. In theAmericas , revenues increased 3.6% in constant currency due to increased demand for our staffing/interim services in certain markets within Other Americas and an increase in our ManpowerGroup Solutions business. These increases were partially offset by a slight decrease inthe United States primarily driven by a decline in demand for our staffing/interim due to the challenging manufacturing environment. Our gross profit margin in 2019 decreased compared to 2018 primarily due to the decreased margins in our higher-margin ManpowerGroup Solutions business, particularly within our Talent Based Outsourcing business, partially offset by a favorable impact from changes in currency exchange rates. Our operating profit decreased 19.1% in 2019 (-15.6% in constant currency and -14.4% in organic constant currency) while our operating profit margin decreased 50 basis points compared to 2018. Included in 2019 and 2018 were$39.8 million and$39.3 million , respectively, of restructuring costs. The 2019 restructuring costs were primarily related to our delivery channel and other front-office centralization and back-office optimization activities, as well as adjusting our cost-base for the slower market environment in many of our European operations. The 2018 restructuring costs were primarily related to the integration of certain acquisitions and front-office, back-office and delivery-model optimization. We recorded$64.0 million of goodwill impairment charges related to our investments inGermany andNew Zealand ($60.2 million and$3.8 million , respectively) and additional charges of$1.6 million related to ourNew Zealand operations in 2019.ManpowerGroup Greater China Limited , which operates in theGreater China region ofChina ,Taiwan ,Hong Kong , andMacau , completed its initial public offering ("IPO") on theHong Kong Stock Market onJuly 10, 2019 , resulting in deconsolidation of the entity. As a result of this transaction, we recognized a non-cash accounting gain of$30.4 million (see further information in Note 4 of our Consolidated Financial Statements).ManpowerGroup Greater China Limited's results throughJuly 10, 2019 , were included in our 2019 consolidated results. Excluding the restructuring costs in both 2019 and 2018, the goodwill impairment and other related charges and the IPO noncash accounting gain, our operating profit was down 8.5% in organic constant currency with operating profit margin down 30 basis points compared to 2018. We continue to monitor expenses closely to ensure we maintain the benefit of our efforts to optimize our organizational and cost structures, while investing appropriately to support the growth in the business and enhance our productivity and technology and digital capabilities. Although 2019 was a challenging year, we have made good progress advancing the key initiatives that we believe will position us well for future revenue growth. We anticipate the overall strength of labor markets will continue, though not evenly distributed across regions and industries, amidst high levels of talent shortage and changing client skill needs due to the increased pace of technological and transformational changes. Despite headwinds from geopolitical forces, including the adverse impact of global trade conflict on growth and employment in the manufacturing sector, we believe we are well-positioned to help our clients address these challenges with our market-leading global footprint and our portfolio of solutions and services. In early 2020, there has been potential progress on trade agreements, but even if trade issues are resolved, we anticipate that instability resulting from trade policies may continue to impact our business for a period of time, particularly within the manufacturing sector. If consumer confidence remains at high levels, supported by low unemployment levels in many of our key countries, we expect our outlook will be stable over the coming several quarters. 30 --------------------------------------------------------------------------------
Consolidated Results - 2019 compared to 2018
The following table presents selected consolidated financial data for 2019 as
compared to 2018.
Variance in
Variance in Organic
(in millions, except per share Reported Constant Constant
data) 2019 2018 Variance Currency Currency
Revenues from services $ 20,863.5 $ 21,991.2 (5.1 )% (0.9 )% (1.0 )%
Cost of services 17,488.4 18,412.2 (5.0 ) (0.8 )
Gross profit 3,375.1 3,579.0 (5.7 ) (1.8 ) (1.3 )
Gross profit margin 16.2 % 16.3 %
Selling and administrative
expenses, excluding goodwill
impairment charge 2,666.2 2,782.3
Goodwill impairment charge 64.0 -Selling and administrative expenses 2,730.2 2,782.3 (1.9 )
2.2 2.4
Selling and administrative expenses
as a % of revenues 13.1 % 12.7 %
Operating profit 644.9 796.7 (19.1 ) (15.6 ) (14.4 )
Operating profit margin 3.1 % 3.6 %
Net interest expense 38.4 41.0
Other (income) expenses, net (79.0 ) 1.0
Earnings before income taxes 685.5 754.7 (9.2 ) (5.7 )
Provision for income taxes 219.8 198.0 11.1
Effective income tax rate 32.1 % 26.2 %
Net earnings $ 465.7 $ 556.7 (16.4 ) (13.3 )
Net earnings per share - diluted
(6.5 )
Weighted average shares - diluted 60.3 65.1 (7.3 )%
The year-over-year decrease in revenues from services of 5.1% (-0.9% in constant currency and -1.0% in organic constant currency) was attributed to:
• decreased demand for services in several of our markets within Northern
in organic constant currency), primarily due to reduced demand for our
Manpower staffing services due to low levels of manufacturing activity and
uncertainties related to global trade conflicts, and the disposition of our
language translation business in
We experienced revenue declines in
(-21.1%, -20.5%, -5.3%, -0.1%, and -2.6%, respectively, in constant currency;
-16.7% and -1.4% in organic constant currency in the Netherlands and the
Nordics, respectively);
• a revenue decrease in
currency; -0.8% in organic constant currency). This included a revenue
decrease in
unfavorable impact of changes in currency exchange rates and a slight
decrease in our Manpower staffing revenues, partially offset by increased
demand in our ManpowerGroup Solutions business and the additional revenues as
a result of the acquisition of the remaining controlling interest in Manpower
decrease in
demand for our Manpower staffing services, partially offset by a 4.3%
increase (10.2% in constant currency) in the permanent recruitment business;
• a revenue decrease in
in demand for our staffing/interim services, partially offset by additional
revenues as a result of franchise acquisitions in August and
• a revenue decrease in APME of 9.1% (-7.2% in constant currency; increase of
3.7% in organic constant currency) due to the deconsolidation of
disposition of a low-margin business in
2018, and the impact of changes in currency exchange rates, partially offset
by an increase in our Manpower staffing revenues;
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• decreased demand for services at Right Management, where revenues decreased
1.6% (increase of 0.9% in constant currency), as our outplacement services
were flat (increase of 2.6% in constant currency), and we experienced a 7.3%
decrease (-5.1% in constant currency) in our talent management business; and
• a 4.2% decrease due to the impact of changes in currency exchange rates.
The year-over-year 10 basis point decrease in gross profit margin was primarily attributed to:
• a 20 basis point unfavorable impact from the declining margins in our
higher-margin ManpowerGroup Solutions business, particularly within our
Talent Based Outsourcing business; partially offset by
• a 10 basis point favorable impact from changes in currency exchange rates.
The 1.9% decrease in selling and administrative expenses in 2019 (increase of 2.2% in constant currency and 2.4% in organic constant currency) was primarily attributed to: • the$30.4 million gain related to the Deconsolidation;
• a 7.0% decrease (-3.8% constant currency and -4.2% in organic constant
currency) in office-related costs primarily due to a decrease in the number of
offices as a result of our delivery channel and other front-office
centralization and back-office optimization activities, as well as adjusting
our cost-base for the slower market environment in many of our European
operations, and the favorable impact of changes in currency exchange rates;
• a 3.6% decrease (increase of 0.3% in constant currency and 0.5% organic
constant currency) in personnel costs primarily due to the favorable impact of
changes in currency exchange rates, partially offset by an increase in
headcount to support the increase in revenues in certain markets within the
Americas ,Southern Europe , and APME; and
• the reduction in recurring selling and administrative costs of
as a result of the Deconsolidation in
2018 in Northern Europe and APME; partially offset by
• goodwill impairment and related charges of
Germany reporting unit andNew Zealand operations in 2019;
• the additional recurring selling and administrative costs of
incurred as a result of the acquisition of Manpower Switzerland in Southern
2019; and
• restructuring costs of
million in the
2018, comprised of
Selling and administrative expenses as a percent of revenues increased 40 basis points in 2019 compared to 2018. The change in selling and administrative expenses as a percent of revenues consisted of:
• a 30 basis point unfavorable impact from the goodwill impairment and other
related charges;
• a 10 basis point unfavorable impact as expenses increased slightly, excluding
the goodwill impairment and other related charges, restructuring costs and the
Deconsolidation gain, while our revenues declined on an organic constant
currency basis; and
• a 10 basis point unfavorable impact from changes in currency exchange rates;
partially offset by
• a 10 basis point favorable impact from the Deconsolidation gain.
Interest and other (income) expenses, net is comprised of interest, foreign
exchange gains and losses and other miscellaneous non-operating income and
expenses, including noncontrolling interests. Interest and other (income)
expenses, net was income of $40.6 million in 2019 compared to expenses of $42.0
million in 2018. Net interest expense decreased $2.6 million in 2019 to $38.4
million from $41.0 million in 2018 due to the lower interest rate on our €500.0
million notes offered and sold in June 2018 compared to the interest rate on the
€350.0 million notes due June 22, 2018 that were repaid in June 2018 .
Miscellaneous income increased to $85.7 million in 2019 from $0.4 million in
2018 primarily due to the gain of $80.4 million related to our acquisition of
the remaining controlling interest in our Swiss franchise and an increase in
income from the equity investment in ManpowerGroup Greater China Limited
subsequent to the Deconsolidation, partially offset by the decrease in the
income from the equity investment in Switzerland prior to the acquisition.
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We recorded income tax expense at an effective rate of 32.1% in 2019, as
compared to an effective rate of 26.2% in 2018. The 2019 rate was unfavorably
impacted by the transition of the French CICE subsidy, which was non-taxable, to
new French subsidies in January 2019 that are taxable, and the recognition of a
valuation allowance in Germany . These items were partially offset by a one-time
tax benefit related to the refinancing of an intercompany lending arrangement.
The 32.1% effective tax rate for 2019 was higher than the United States Federal
statutory rate of 21% due primarily to the French business tax, our overall mix
of earnings, and the recognition of a valuation allowance in Germany . In 2020,
we expect our effective tax rate to increase to approximately 34% due primarily
to the exclusion of the one-time tax benefit related to the refinancing of an
intercompany lending arrangement.
Net earnings per share - diluted was $7.72 in 2019 compared to $8.56 in 2018.
Foreign currency exchange rates favorably impacted net earnings per share -
diluted by approximately $0.28 in 2019. The gain from the acquisition of
Manpower Switzerland recorded in 2019 positively impacted net earnings per share
- diluted by approximately $1.32 per share. Goodwill impairment and related tax
and other charges recorded in 2019 negatively impacted net earnings per share -
diluted by approximately $1.26 . The gain from the Deconsolidation recorded in
2019 positively impacted net earnings per share - diluted by approximately $0.50
per share. In 2019 and 2018, restructuring costs negatively impacted net
earnings per share - diluted by approximately $0.52 and $0.46 per share, net of
tax. The gain from the sale of the Netherlands' language translation business
favorably impacted net earnings per share - diluted by approximately $0.06 per
share, net of tax, for 2018.
Weighted average shares - diluted decreased 7.3% to 60.3 million in 2019 from
65.1 million in 2018. This decrease was due to the impact of share repurchases
completed in 2019 and the full weighting of the repurchases completed in 2018,
partially offset by shares issued as a result of exercises and vesting of
share-based awards in 2019.
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, corporate expenses, interest and other income and expense amounts
or income taxes.
Effective January 2020 , our segment reporting was realigned due to our Right
Management business being combined with each of our respective country business
units. Accordingly, our former reportable segment, Right Management, is now
reported within each of our respective reportable segments. We will report on
the new realigned segments beginning in the first quarter of 2020. All
previously reported results will be restated to conform to the new presentation.
In theAmericas , revenues from services increased 0.6% (3.6% in constant currency and 3.1% in organic constant currency) in 2019 compared to 2018. Inthe United States , revenues from services decreased 0.6% (-1.4% on an organic basis) in 2019 compared to 2018, primarily driven by a decline in demand for our staffing/interim services in a challenging manufacturing environment, partially offset by a 5.2% increase in our permanent recruitment business, an increase in our ManpowerGroup Solutions business, primarily within our MSP offering, and the additional revenues as a result of franchise acquisitions in August andOctober 2019 . In Other Americas, revenues from services increased 2.3% (10.0% in constant currency) in 2019 compared to 2018. We experienced revenue growth inMexico ,Canada , andPeru of 2.2%, 13.7%, and 17.3%, respectively (2.4%, 16.3%, and 19.0%, respectively, in constant currency). These increases were partially offset by decreases inArgentina ,Colombia andBrazil of 28.8%, 2.3% and 5.6%, respectively (increases of 26.0%, 8.5% and 2.5%, respectively, in constant currency). The constant currency increase inArgentina was primarily due to inflation. There has been a steady devaluation of the Argentine peso relative tothe United States dollar in the last few years. As ofJuly 1, 2018 , theArgentina economy was designated as highly-inflationary and was treated as such for accounting purposes starting in the third quarter of 2018. 33 -------------------------------------------------------------------------------- Gross profit margin was flat for 2019 compared to 2018. We experienced an increase in ourUnited States staffing/interim margin due to pricing discipline and lower payroll tax and insurance costs. Gross profit margin also increased due to the increase of 4.8% (6.2% in constant currency and 5.9% in organic constant currency) in the permanent recruitment business in 2019 compared to 2018. The gross profit margin increases in 2019 compared to 2018 were offset by the decreases in the staffing/interim gross profit margins within certain markets within Other Americas. In 2019, selling and administrative expenses increased 3.8% (6.3% in constant currency; 5.8% in organic constant currency), due primarily to an increase in salary-related expenses, as a result of higher headcount related to growth initiatives, and an increase in restructuring costs to$5.1 million in 2019 from$0.3 million in 2018. OUP margin in theAmericas was 4.5% and 4.9% for 2019 and 2018, respectively. Inthe United States , OUP margin was 4.5% and 5.2% in 2019 and 2018, respectively. The margin decrease inthe United States was primarily due to increased costs as a result of headcount increases for growth initiatives, partially offset by an improvement in the gross profit margin. Other Americas OUP margin decreased to 4.4% in 2019 from 4.5% in 2018 due primarily due to an increase in restructuring costs and increased costs as a result of headcount increases for growth initiatives.
In 2019, revenues from services inSouthern Europe , which includes operations inFrance andItaly , decreased 2.2% (increase of 2.8% in constant currency; -0.8% in organic constant currency) compared to 2018. In 2019, revenues from services decreased 6.3% (-1.2% in constant currency) inFrance (which represents 60% ofSouthern Europe's revenues) and decreased 9.8% (-4.9% in constant currency) inItaly (which represents 16% ofSouthern Europe's revenues). The decrease inFrance is primarily due to the unfavorable impact of changes in currency exchange rates and decreased demand for our Manpower staffing services, partially offset by an increase in our ManpowerGroup Solutions business. The decrease inItaly was due to decreased demand for our Manpower staffing services as a result of a challenging economic environment and the unfavorable impact of changes in currency exchange rates, partially offset by the favorable impact of approximately one additional billing day and a 4.3% increase (10.2% in constant currency) in the permanent recruitment business. In Other Southern Europe, revenues from services increased 17.5% (21.9% in constant currency and 4.1% in organic constant currency) in 2019 compared to 2018, primarily due to the additional revenue from our acquisition of the remaining interest in ManpowerSwitzerland , increased demand for our Manpower staffing services, the increase in our ManpowerGroup Solutions business and the increase in our permanent recruitment business of 7.9% (12.6% in constant currency and 4.5% in organic constant currency), partially offset by the unfavorable impact of changes in currency exchange rates. Gross profit margin increased in 2019 compared to 2018, partially due to the favorable direct cost adjustments and various initiatives undertaken to address the unfavorable impact from transition of the CICE program to a new subsidy program and the improvement of the staffing/interim gross profit margin inItaly . The increase was partially offset by the unfavorable impact of the transition of the CICE program to a new subsidy program. TheSouthern Europe gross profit margin also increased due to growth in our higher-margin ManpowerGroup Solutions business and a 2.3% increase (7.6% in constant currency and 4.6% in organic constant currency) in the permanent recruitment business in 2019 compared to 2018. In 2019, selling and administrative expenses increased 0.4% (5.5% in constant currency and 1.4% in organic constant currency) compared to 2018, primarily due to the additional recurring costs from our acquisition of the remaining interest in Manpower Switzerland and an increase in salary-related expenses, as a result of higher headcount, partially offset by the favorable impact of changes in currency exchange rates. OUP margin inSouthern Europe was 5.0% in both 2019 and 2018. InFrance , the OUP margin increased to 5.2% in 2019 from 5.0% in 2018, primarily due to improvement in the gross profit margin, partially offset by an increase in salary-related expenses. InItaly , the OUP margin increased to 6.8% in 2019 from 6.7% in 2018, primarily due to the improvement in the gross profit margin, partially offset by expense deleveraging, as we were unable to decrease selling and administrative expenses at the same rate as our revenue decline. In Other Southern Europe, OUP margin decreased to 3.1% in 2019 comparted to 3.5% in 2018, due to a decline in the gross profit margin and increase in salary-related expenses, partially offset by a decrease in restructuring costs. 34 --------------------------------------------------------------------------------
InNorthern Europe , which includes operations in theUnited Kingdom ,Germany , the Nordics,the Netherlands andBelgium (comprising 33%, 17%, 21%, 12% and 9%, respectively, ofNorthern Europe's revenues), revenues from services decreased 12.6% (-7.6% in constant currency and -6.8% in organic constant currency) in 2019 as compared to 2018. We experienced revenue declines in theUnited Kingdom ,Germany , the Nordics,the Netherlands andBelgium of 4.4%, 25.2%, 10.1%, 24.7% and 10.2%, respectively (-0.1%, -21.1%, -2.6%, -20.5% and -5.3%, respectively, in constant currency; -1.4% and -16.7% in organic constant currency in the Nordics andthe Netherlands , respectively). TheNorthern Europe revenue decrease is primarily due to reduced demand for our Manpower staffing services, primarily because of the decrease inGermany resulting from lower production activity in the manufacturing sector in that market, decreases in our staffing/interim services inthe Netherlands due to a reduction in manufacturing-related demand and the exit from certain client contracts as a result of pricing decisions, decreased demand inSweden related to lower activity from our manufacturing clients, and uncertainties related to global trade conflicts. This decrease was also due to a decrease in our ManpowerGroup Solutions business from the disposition of our language translation business inthe Netherlands at the end ofDecember 2018 and the 10.8% decrease (-5.6% in constant currency) in the permanent recruitment business. These decreases were partially offset by an increased demand for our staffing/interim services inNorway . Gross profit margin decreased in 2019 compared to 2018 due to the decline in our staffing/interim margin, primarily as a result of business mix changes, lower associate utilization and higher vacation and sickness rates inGermany , and the decrease in our permanent recruitment business. Selling and administrative expenses decreased 12.9% (-7.7% in constant currency and -6.6% in organic constant currency) in 2019 compared to 2018, due to the decrease in salary-related expenses as a result of a reduction in headcount and a decrease in office-related expenses driven by a decrease in the number of offices, a decrease in consulting costs related to certain technology projects, front-office centralization and back-office optimization activities incurred in the latter part of 2018 and a decrease in restructuring costs to$19.8 million in 2019 from$33.3 million in 2018. These decreases were partially offset by the$8.4 million gain from the sale of a non-core language translation business inthe Netherlands in 2018. The 2019 restructuring costs related to delivery model and other front-office centralization activities as well as back-office optimization activities primarily inGermany ,the Netherlands ,Sweden , andBelgium . The 2018 restructuring costs related to delivery model and other front-office centralization activities as well as back-office optimization activities primarily in theUnited Kingdom ,Germany ,the Netherlands ,Norway andBelgium .
OUP margin for
APME
Revenues from services decreased 9.1% (-7.2% in constant currency and an increase of 3.7% in organic constant currency) in 2019 compared to 2018. InJapan (which represents 37% of APME's revenues), revenues from services increased 6.9% (5.5% in constant currency) due to the increased demand for our staffing/interim services, an increase in our ManpowerGroup Solutions business, and a 9.5% increase (8.3% in constant currency) in our permanent recruitment business, partially offset by the unfavorable impact of five fewer billing days in 2019 compared to 2018. InAustralia (which represents 16% of APME's revenues), revenue from services decreased 25.0% (-19.1% in constant currency) as we chose to exit certain low-margin Manpower business to improve profitability, and due to the 6.8% decrease (increase of 0.3% in constant currency) in our permanent recruitment business. The revenue decrease in the remaining markets in APME is due to the Deconsolidation and disposition of a low-margin business inGreater China at the end ofDecember 2018 , partially offset by increased demand for Manpower staffing services, mostly inIndia ,Korea andThailand . Gross profit margin decreased in 2019 compared to 2018 due to the decrease in our permanent recruitment business of 18.6% (-14.7% in constant currency; increase of 0.4% in organic constant currency), partially offset by the increase in our staffing/interim margin, due primarily to the improvement inJapan , and the disposition of a low-margin business inGreater China inDecember 2018 . 35 -------------------------------------------------------------------------------- Selling and administrative expenses decreased 15.3% (-12.7% in constant currency and -2.1% in organic constant currency) in 2019 compared to 2018. The decrease is primarily due to the gain from the Deconsolidation, the reduction of recurring selling and administrative costs as a result of the Deconsolidation and disposition of a low-margin business inGreater China inDecember 2018 , and the favorable impact of changes in currency exchange rates. These decreases were partially offset by an increase in costs to support the increase in revenues in certain markets. OUP margin for APME increased to 4.7% in 2019 compared to 4.0% in 2018 due to the gain from the Deconsolidation, partially offset by the decline in the gross profit margin and an increase in restructuring costs.
Right Management
In 2019, revenues from services for Right Management decreased 1.6% (increase of 0.9% in constant currency). The decrease is primarily due to the 7.3% decrease (-5.1% in constant currency) in our talent management services due mostly to softening demand in our European and Asian markets and the unfavorable impact of changes in currency exchange rates. Our outplacement business was flat (increase of 2.6% in constant currency) in 2019 compared to 2018 as the unfavorable impact of changes in currency exchange rates was offset by increased demand in our European and Asian markets. Gross profit margin decreased in 2019 compared to 2018 due to the decrease in both our outplacement business gross profit margin, partially offset by the change in business mix as the higher-margin outplacement business represented a higher percentage of the revenue mix and an increase in our talent management business gross profit margin. In 2019, selling and administrative expenses decreased 0.9% (increase of 1.5% in constant currency) compared to 2018 primarily due to a decrease in the number of offices, partially offset by an increase in restructuring costs to$4.7 million in 2019 from$0.3 million in 2018.
OUP margin for Right Management decreased to 15.3% in 2019 compared to 16.4% in 2018 due to the decline in the gross profit margin and the increase in restructuring costs.
36
--------------------------------------------------------------------------------Financial Measures
Constant Currency And Organic Constant Currency Reconciliation
Certain constant currency and organic constant currency percent variances are discussed throughout this report. A reconciliation of these Non-GAAP percent variances to the percent variances calculated based on our annual GAAP financial results is provided below. (SeeConstant Currency and Organic Constant Currency on page 29 for information.) Impact of Amounts represent 2019 Acquisitions and Organic Reported Variance in Dispositions Constant Percentages represent 2019 compared Amount Reported Impact of Constant (in Constant Currency to 2018 (in millions) Variance Currency Currency Currency) Variance Revenues from Services Americas: United States$ 2,507.0 (0.6 )% - % (0.6 )% 0.8 % (1.4 )% Other Americas 1,675.3 2.3 (7.7 ) 10.0 - 10.0 4,182.3 0.6 (3.0 ) 3.6 0.5 3.1 Southern Europe: France 5,459.7 (6.3 ) (5.1 ) (1.2 ) - (1.2 ) Italy 1,506.5 (9.8 ) (4.9 ) (4.9 ) - (4.9 ) Other Southern Europe 2,200.2 17.5 (4.4 ) 21.9 17.8 4.1 9,166.4 (2.2 ) (5.0 ) 2.8 3.6 (0.8 ) Northern Europe 4,691.3 (12.6 ) (5.0 ) (7.6 ) (0.8 ) (6.8 ) APME 2,627.2 (9.1 ) (1.9 ) (7.2 ) (10.9 ) 3.7 Right Management 196.3 (1.6 ) (2.5 ) 0.9 - 0.9 ManpowerGroup$ 20,863.5 (5.1 )% (4.2 )% (0.9 )% 0.1 % (1.0 )% Gross Profit - ManpowerGroup$ 3,375.1 (5.7 )% (3.9 )% (1.8 )% (0.5 )% (1.3 )% Operating Unit Profit Americas: United States $ 113.2 (13.4 )% - % (13.4 )% 0.4 % (13.8 )% Other Americas 73.1 (0.1 ) (5.0 ) 4.9 - 4.9 186.3 (8.6 ) (1.8 ) (6.8 ) 0.2 (7.0 ) Southern Europe: France 284.3 (2.1 ) (5.1 ) 3.0 - 3.0 Italy 102.6 (7.7 ) (5.0 ) (2.7 ) - (2.7 ) Other Southern Europe 67.7 2.4 (2.9 ) 5.3 15.3 (10.0 ) 454.6 (2.8 ) (4.8 ) 2.0 2.1 (0.1 ) Northern Europe 67.1 (45.3 ) (2.9 ) (42.4 ) (3.0 ) (39.4 ) APME 122.6 6.8 (0.6 ) 7.4 (18.7 ) 26.1 Right Management 30.0 (8.6 ) (1.7 ) (6.9 ) - (6.9 )
Operating Profit -
(3.5 )% (15.6 )% (1.2 )% (14.4 )%
37
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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 our available cash and 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 ofDecember 31, 2019 , we had$894.1 million of cash held by foreign subsidiaries. We have historically made and anticipate future cash repatriations tothe United States from certain foreign subsidiaries to fund corporate activities. With the enactment of the Tax Act inDecember 2017 , we have no longer recordedUnited States federal income taxes on unremitted earnings of non-United States subsidiaries. However, we do record deferred tax liabilities related to non-United States withholding and other taxes on unremitted earnings that are not considered permanently invested. As ofDecember 31, 2019 , deferred taxes related to non-United States withholding and other taxes were provided on$1,867.0 million of unremitted earnings of non-United States subsidiaries that may be remitted tothe United States . As ofDecember 31, 2019 and 2018, we have recorded a deferred tax liability of$8.8 million and$15.3 million , respectively, related to these non-United States earnings that may be remitted. We have an additional$371.5 million of unremitted earnings of non-United States subsidiaries for which we have not currently provided deferred taxes. 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$814.4 million ,$483.1 million and$400.9 million for 2019, 2018 and 2017, respectively. Changes in operating assets and liabilities generated$313.2 million of cash in 2019 compared to$198.3 million and$78.9 million utilized in 2018 and 2017, respectively. The change in 2019 from 2018 is primarily attributable to the timing of collections and payments, a decrease in CICE receivables resulting from the transition from the CICE program to a new subsidy program inJanuary 2019 , and the contingent consideration of$24.1 million paid in 2018 in excess of the original liability recorded at acquisition date for the acquisitions inthe Netherlands . The increase was partially offset by lower net proceeds from the sale of our CICE payroll tax credits. The change in 2018 from 2017 was primarily attributable to the timing of collections and payments and the contingent consideration of$24.1 million paid in 2018 in excess of the contingent consideration liabilities initially recognized on the acquisition date. The CICE payroll tax credits are creditable against our current French income tax payable, with any remaining amount being paid after three years. InApril 2019 , we sold a portion of our CICE earned in 2018 for net proceeds of$103.5 million (€92.0 million) with the remaining amount to be used against future tax payments. InApril 2018 andMarch 2017 , we sold substantially all of our CICE earned in 2017 and 2016, respectively, for net proceeds of$234.5 million (€190.9 million) and$143.5 million (€133.0 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. Accounts receivable decreased to$5,273.1 million as ofDecember 31, 2019 from$5,276.1 million as ofDecember 31, 2018 . This decrease is due to changes in currency exchange rates. Days Sales Outstanding ("DSO") decreased by approximately one day fromDecember 31, 2018 . Capital expenditures were$52.9 million ,$64.7 million and$54.7 million during 2019, 2018 and 2017, 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$2.0 million in 2019,$5.6 million in 2018 and$1.7 million in 2017. The higher expenditures in 2018 compared to 2019 was primarily due to additional technology investment and the timing of capital expenditures. 38
-------------------------------------------------------------------------------- OnApril 3, 2019 , we acquired the remaining 51% controlling interest in our Swiss franchise ("Manpower Switzerland") to obtain full ownership of the entity. Additionally, as part of the purchase agreement we acquired the remaining 20% interest inExperis AG . ManpowerSwitzerland provides contingent staffing services under our Manpower brand in the four main language regions inSwitzerland . BothManpower Switzerland and Experis AG are reported in ourSouthern Europe segment. The aggregate cash consideration paid was$219.5 million and was funded through cash on hand. Of the total consideration paid,$58.3 million was for the acquired interests and the remaining$161.2 million was for cash and cash equivalents. The aggregate cash consideration paid reflects a post-closing settlement of net debt and net working capital adjustments of$6.8 million , which we paid out during the third quarter of 2019. The acquisition of the remaining interest ofExperis AG was accounted for as an equity transaction as we previously consolidated the entity. Our investment in Manpower Switzerland prior to the acquisition was accounted for under the equity method of accounting and we recorded our share of equity income or loss in interest and other expenses (income), net on the Consolidated Statements of Operations. The acquisition of the remaining controlling interest in Manpower Switzerland was accounted for as a business combination, and the assets and liabilities of Manpower Switzerland were included in the Consolidated Balance Sheets as of the acquisition date and the results of its operations have been included in the Consolidated Statements of Operations subsequent to the acquisition date. The aggregate of the consideration paid and the fair value of previously held equity interest totaled$415.1 million , or$97.6 million net of cash acquired. In connection with the business combination, we recognized a one-time, non-cash gain on the disposition of our previously held equity interest in ManpowerSwitzerland of$80.4 million , which is included within interest and other (income) expenses, net on the Consolidated Statements of Operations. Of the$80.4 million ,$32.5 million represented foreign currency translation adjustments related to the previously held equity interest from accumulated other comprehensive income. As ofDecember 31, 2019 , the carrying value of intangible assets and goodwill resulting from the Manpower Switzerland acquisition was$44.5 million and$34.2 million , respectively. From time to time, we acquire and invest in companies throughout the world, including franchises. The total cash consideration paid for acquisitions excludingManpower Switzerland and Experis AG , net of cash acquired, for the years endedDecember 31, 2019 , 2018 and 2017 was$47.7 million ,$51.8 million and$45.7 million , respectively. The 2019 balance includes consideration payments for franchises inthe United States and contingent consideration payments related to previous acquisitions, of which$13.0 million had been recognized as a liability at the acquisition date. The 2018 balance includes initial acquisition payments of$9.1 million and contingent consideration payments of$42.7 million , of which$18.6 million had been recognized as a liability at the acquisition date. The 2017 balance includes initial acquisition payments of$32.7 million and contingent consideration related to previous acquisitions of$13.0 million , of which$10.3 million was related to our 2015 acquisition of7S Group GmbH ("7S") inGermany . As ofDecember 31, 2019 , goodwill and intangible assets resulting from the 2019 acquisitions, excluding Manpower Switzerland, were$14.2 million and$9.0 million , respectively. As ofDecember 31, 2018 , goodwill and intangible assets resulting from the 2018 acquisitions were$6.1 million and$0.7 million , respectively. OnJuly 10, 2019 , our joint venture inGreater China ,ManpowerGroup Greater China Limited , became listed on the Main Board of theStock Exchange of Hong Kong Limited through an initial public offering. Prior to the initial public offering, we owned a 51% controlling interest in the joint venture and consolidated the financial position and results of its operations into our Consolidated Financial Statements as part of our APME segment. As a result of the offering, in whichManpowerGroup Greater China Limited issued new shares representing 25% of the equity of the company, our ownership interest was diluted to 38.25%, and then further diluted to 36.87% as the underwriters exercised their overallotment option in full onAugust 7, 2019 . As a result, we deconsolidated the joint venture as of the listing date and account for our remaining interest under the equity method of accounting and record our share of equity income or loss in interest and other expenses (income), net in the Consolidated Statement of Operations. In connection with the deconsolidation of the joint venture, we recognized a one-time non-cash gain of$30.4 million , which was included in selling and administrative expenses in the Consolidated Statement of Operations in the year endedDecember 31, 2019 . Included in the$30.4 million was foreign currency translation adjustment losses of$6.2 million related to the joint venture from accumulated other comprehensive income. 39 -------------------------------------------------------------------------------- Occasionally, we dispose of parts of our operations to optimize our global strategic and geographic footprint and synergies. InDecember 2018 , we sold one of our business units inthe Netherlands for net cash proceeds of$13.2 million and divested a majority interest in a consolidated entity inChina with an immaterial cash impact. Cash provided by net debt borrowings was$19.5 million ,$178.2 million and$5.2 million in 2019, 2018 and 2017, respectively. InJune 2018 , we offered and sold €500.0 million aggregate principal amount of the Company's 1.750% notes dueJune 22, 2026 , with the net proceeds of €495.7 million predominantly used to repay our €350.0 million notes dueJune 22, 2018 . (See the "Euro Notes" section below for further information.) The Board of Directors authorized the repurchase of 6.0 million shares of our common stock in each ofAugust 2019 ,August 2018 andJuly 2016 . 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 2019, we repurchased a total of 2.4 million shares at a total cost of$203.0 million under the 2018 authorization. In 2018, we repurchased a total of 5.7 million shares, comprised of 2.9 million shares under the 2018 authorization and 2.8 million shares under the 2016 authorization, at a total cost of$500.7 million . In 2017, we repurchased a total of 1.9 million shares at a total cost of$203.9 under the 2016 authorization. As ofDecember 31, 2019 , there were 6.0 million and 0.8 million shares remaining authorized for repurchase under the 2019 authorization and 2018 authorization, respectively, and no shares remaining authorized under the 2016 authorization. During 2019, 2018 and 2017, the Board of Directors declared total cash dividends of$2.18 ,$2.02 and$1.86 per share, respectively, resulting in total dividend payments of$129.3 million ,$127.3 million and$123.7 million , respectively. We have aggregate commitments of$2,152.3 million related to debt, operating leases, severances and office closure costs, transition tax resulting from the Tax Act and certain other commitments, as follows: (in millions) Total 2020 2021-2022 2023-2024 Thereafter Long-term debt including interest$ 1,106.5 $ 18.2 $ 491.1 $ 21.7 $ 575.5 Short-term borrowings 61.0 61.0 - - - Operating leases 503.9 133.8 181.4 92.7 96.0 Severances and other office closure costs 7.3 5.9 1.3 0.1 - Transition tax resulting from the Tax Act 124.9 11.6 23.8 52.2 37.3 Other 348.7 128.0 153.3 30.6 36.8$ 2,152.3 $ 358.5 $ 850.9 $ 197.3 $ 745.6
Our liability for unrecognized tax benefits, including related interest and
penalties, of
We recorded net restructuring costs of$42.0 million and$39.3 million in 2019 and 2018, respectively, in selling and administrative expenses, primarily related to severances and office closures and consolidations in multiple countries and territories. The costs paid, utilized or transferred out of our restructuring reserve was$50.2 million and$37.3 million in 2019 and 2018, respectively. We expect a majority of the remaining$7.3 million reserve will be paid by the end of 2020. We have entered into guarantee contracts and stand-by letters of credit that total$845.0 million as ofDecember 31, 2019 ($793.4 million for guarantees and$51.6 million for stand-by letters of credit). The guarantees primarily relate to staffing license requirements, operating leases and indebtedness. The stand-by letters of credit mainly relate to workers' compensation inthe United States . 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$1.7 million for 2019. 40 -------------------------------------------------------------------------------- Total capitalization as ofDecember 31, 2019 was$3,834.9 million , comprised of$1,073.4 million in debt and$2,761.5 million in equity. Debt as a percentage of total capitalization was 28% as of bothDecember 31, 2019 and 2018 and 25% as ofDecember 31, 2017 . Euro Notes OnJune 22, 2018 , we offered and sold €500.0 million aggregate principal amount of the Company's 1.750% notes dueJune 22, 2026 (the "€500.0 million notes"). The net proceeds from the €500.0 million notes of €495.7 million were used to repay our €350.0 million notes dueJune 22, 2018 , with the remaining balance used for general corporate purposes, which included share repurchases. The €500.0 million notes were issued at a price of 99.564% to yield an effective interest rate of 1.809%. Interest on the €500.0 million notes is payable in arrears onJune 22 of each year. The €500.0 million notes are unsecured senior obligations and rank equally with all of the Company's existing and future senior unsecured debt and other liabilities. Our €400.0 million aggregate principal amount 1.875% notes (the "€400.0 million notes") are dueSeptember 2022 . When the 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 €500.0 million notes or the €400.0 million notes. Both the €500.0 million notes and €400.0 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 has been designated as a hedge of our net investment in our foreign subsidiaries with Euro-functional currency as ofDecember 31, 2019 . For this portion of the Euro-denominated notes, since our net investment in these subsidiaries exceeds the respective amount of the designated borrowings, both net of taxes, the related translation gains or losses are included as a component of accumulated other comprehensive loss. (See the Significant Matters Affecting Results of Operations section and Notes 8 and 12 to the Consolidated Financial Statements found in Item 8. "Financial Statements and Supplementary Data" for further information.)
Revolving Credit Agreement
OnJune 18, 2018 , we amended and restated our Five-Year Credit Agreement with a syndicate of commercial banks, principally to revise the termination date of the facility fromSeptember 16, 2020 toJune 18, 2023 . The remaining material terms and conditions of the Agreement are substantially similar to the previous agreement. The Credit 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 bothDecember 31, 2019 and 2018. Outstanding letters of credit issued under the Credit Agreement totaled$0.5 million as of bothDecember 31, 2019 and 2018. Additional borrowings of$599.5 million were available to us under the facility as of bothDecember 31, 2019 and 2018. Under the Credit 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 Credit 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-Net Earnings before interest and other expenses, provision for income taxes, intangible asset amortization expense, depreciation and amortization expense ("EBITDA")) of not greater than 3.5 to 1 and a fixed charge coverage ratio of not less than 1.5 to 1. The Credit 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. 41 -------------------------------------------------------------------------------- As defined in the Credit Agreement, we had a net Debt-to-EBITDA ratio of 0.57 to 1 (compared to the maximum allowable ratio of 3.5 to 1) and a Fixed Charge Coverage ratio of 5.01 to 1 (compared to the minimum required ratio of 1.5 to 1) as ofDecember 31, 2019 .
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 ofDecember 31, 2019 , such uncommitted credit lines totaled$324.1 million , of which$253.6 million was unused. Under the Credit Agreement, total subsidiary borrowings cannot exceed$300.0 million in the first, second and fourth quarters, and$600.0 million in the third quarter of each year. Due to these limitations, additional borrowings of$229.5 million could have been made under these lines as ofDecember 31, 2019 . Our long-term debt has a rating of Baa1 fromMoody's Investor Services and BBB from Standard and Poor's, both with a stable outlook. Both of the 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
Defined Benefit Pension Plans
We sponsor several qualified and nonqualified pension plans covering permanent employees. The most significant plans are located inSwitzerland , theUnited Kingdom ,the Netherlands ,Germany andFrance . Annual expense relating to these plans was$17.2 million ,$13.9 million and$11.2 million in 2019, 2018 and 2017, respectively, and is estimated to be approximately$33.0 million in 2020. The increase in 2020 estimated pension expense is primarily due to the settlement of aU.S. pension plan inFebruary 2020 . 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 annual expense recorded related to the plans. In determining the estimated 2020 pension expense for non-United States plans, we used a weighted-average discount rate of 1.1% compared to 1.8% for 2019, reflecting the current interest rate environment. We have selected a weighted-average expected return on plan assets of 2.2% for the non-United States plans in determining the 2020 estimated pension expense compared to 2.7% used for the calculation of the 2019 pension expense. Absent any other changes, a 25 basis point increase and decrease in the weighted-average discount rate would impact our 2020 consolidated pension expense by a decrease of$0.2 million and an increase of$0.7 million , respectively. Absent any other changes, a 25 basis point increase or decrease in the weighted-average expected return on plan assets would correspondingly decrease or increase our 2020 consolidated pension expense by$1.4 million . 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 9 to the Consolidated Financial Statements found in Item 8. "Financial Statements and Supplementary Data" for further information.) 42
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Income Taxes
We account for income taxes in accordance with the accounting guidance on income taxes. 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, based on cumulative probability, that is greater than 50% likely of being realized upon settlement is recognized. An uncertain tax position, one which does not meet the 50% threshold, will not be recognized in the financial statements. 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. InDecember 2017 , the Tax Act made broad changes tothe United States tax code, including a reduction ofthe United States federal corporate income tax rate from 35% to 21% effectiveJanuary 1, 2018 and a transition to a Territorial Tax regime resulting in a one-time transition tax on the mandatory deemed repatriation of unremitted post-1986 non-United States earnings. The Tax Act also established new provisions related to Global Intangible Low-Taxed Income ("GILTI"), Foreign-Derived Intangible Income ("FDII") and a Base Erosion and Anti-abuse Tax ("BEAT"). The computation of these new provisions is highly complex, and our estimates could significantly change as a result of new rules or guidance from the various standard-setting bodies.
Goodwill Impairment
In accordance with the accounting guidance on goodwill, we perform an annual impairment test of goodwill at our reporting unit level during the third quarter, or more frequently if events or circumstances change that would more likely than not reduce the fair value of our reporting units below their carrying value. Estimated cash flows and goodwill are grouped at the reporting unit level, which the company has determined to be a component of the operating segments for which discrete financial information is available and for which segment management regularly reviews the reporting results. We evaluate the recoverability of goodwill utilizing an income approach that estimates the fair value of the future discounted cash flows to which the goodwill relates. This approach reflects management's internal outlook of the reporting units, which is believed to be the best determination of value due to management's insight and experience with the reporting units. Significant assumptions used in our goodwill impairment test during the third quarter of 2019 included: expected future revenue growth rates, operating unit profit margins, working capital levels, discount rates, 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. We believe that the future discounted cash flow valuation model provides the most reasonable and meaningful fair value estimate based on the reporting units' projections of future operating results and cash flows and is consistent with our view of how market participants would value the company's reporting units in an orderly transaction. In the event the fair value of a reporting unit is less than the carrying value, including goodwill, we would record an impairment charge based on the excess of a reporting units' carrying amount over its fair value. During the second quarter of 2019, we determined that it was more likely than not that the fair value of theGermany reporting unit was below its carrying amount and performed an interim goodwill impairment test. As a result of the interim test, we wrote down the carrying value of theGermany reporting unit down to its estimated fair value and recognized a non-cash impairment charge loss of$60.2 million during the second quarter of 2019. In addition, in the second quarter of 2019, we recorded an impairment charge of$3.8 million related to ourNew Zealand operations as a result of it not meeting profitability expectations. We performed our annual impairment test of our goodwill during the third quarter of 2019, 2018 and 2017, and there was no impairment of our goodwill as a result of our annual tests. 43
-------------------------------------------------------------------------------- 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 80% of our consolidated goodwill balance as ofSeptember 30, 2019 . Right (in millions) France United States United Kingdom
Management
308.9 $ 265.8 $ 184.2 $ 158.7
Carrying values 1,302.9 801.5 337.2 126.6 262.8 92.0 129.1
The fair value of each reporting unit was at least 20% in excess of the
respective reporting unit's carrying value with the exception of the Germany
reporting unit. Key assumptions included in the Germany discounted cash flow
valuation performed during the third quarter of 2019 included a discount rate of
10.8% and a terminal value revenue growth rate of 2%. Should the operations of
the business incur significant declines in profitability and cash flow due to
significant and long-term deterioration in macroeconomic, industry and market
conditions, some or all of the recorded goodwill, which was $64.8 million as of
September 30, 2019 , could be subject to impairment.
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