MANPOWERGROUP INC. See the financial measures section on pages 35-36 for further information on the Non-GAAP financial measures of constant currency and organic constant currency.
Forward-Looking Statements
Statements made in this quarterly report that are not statements of historical fact are forward-looking statements. In addition, from time to time, we and our representatives may make statements that are forward-looking. All forward-looking statements involve risks and uncertainties. The information in Item 1A. - Risk Factors in our annual report on Form 10-K for the year endedDecember 31, 2019 , which information is incorporated herein by reference as well as those discussed in Part II, Item 1A. Risk Factors in our quarterly report on Form 10-Q for the quarter endedMarch 31, 2020 , 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. Forward-looking statements can be identified by words such as "expect," "anticipate," "intend," "plan," "may," "believe," "seek," "estimate," and other similar expressions. Some or all of the factors identified in our annual report on Form 10-K and in Part II, Item 1A. - Risk Factors in our quarterly report on Form 10-Q for the quarter endedMarch 31, 2020 , may be beyond our control. Other risks and uncertainties include, but are not limited to, the following: the financial and operational impacts of the COVID-19 pandemic and related economic conditions and the Company's efforts to respond to such impacts, including the possibility that lockdown restrictions that were eased during the second quarter of 2020 in many countries may be reinstated if the spread of the coronavirus accelerates; changes in tax legislation in places we do business; challenges in operating our business in certain European markets; failure to implement strategic technology investments; and other factors that may be disclosed from time to time in ourSEC filings or otherwise. 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.
Business Overview
Our business is cyclical in nature and is sensitive to macroeconomic conditions generally. 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 segments where we operate. Improving economic growth typically results in increasing demand for labor, resulting in greater demand for our staffing services while demand for our outplacement services typically declines. During periods of increased demand, 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. By contrast, during periods of decreased demand, as we experienced in the second quarter of 2020, our operating profit is generally impacted unfavorably as we experience a deleveraging of selling and administrative expenses, which may not decline at the same pace as revenues. Our second quarter results were significantly negatively impacted by the COVID-19 crisis, which sharply reduced demand for our services across almost all of our operations. By the end of March, significant lockdown measures had been implemented in our main markets inEurope andNorth America , as well as in certain other countries with the majority of lockdown measures being eased in May. During the quarter, we experienced turbulent and uncertain market conditions, reflecting the unprecedented speed and magnitude of the shutdowns. Effects were felt across the world in March and April and quickly impacted the labor markets, resulting in rapidly rising unemployment as well as high levels of government supported furloughs. As the quarter drew to a close, indications are that the impact of the COVID-19 crisis had been contained in many parts of the world, and economies had begun to slowly reopen. However, some countries inLatin America and parts ofthe United States continue to deal with the COVID-19 crisis at elevated levels. Continued uncertainty remains as to the future impact of the pandemic on global and local economies. This may depend on multiple factors which cannot be predicted, including public health conditions and the willingness of local and national governments to re-open commerce and to continue with fiscal stimulus packages. What started as a sudden and swift slowdown of the global economies and labor markets is expected to take much longer to recover around the world, and consequently we expect any improvement in labor market conditions will be slow and gradual. During the second quarter of 2020,the United States dollar was stronger, on average, relative to the currencies in all of our markets, which therefore had an unfavorable impact on our reported results. Our reported revenues from services decreased 30.4% in the second quarter of 2020 compared to the second quarter of 2019. As noted above, most of the decline is due to the impact of COVID-19. Additionally, the results were further impacted by the relative weakness of other currencies againstthe United States dollar 23 -------------------------------------------------------------------------------- compared to the same period in 2019, which generally may understate the performance of our underlying business. The changes in the foreign currency exchange rates had a 2.4% unfavorable impact on revenues from services and an approximately$0.02 per share unfavorable impact on net earnings per share - diluted in the quarter. 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. During the three months endedJune 30, 2020 , our businesses experienced significant changes in revenue trends from the previous quarter reflecting the sudden drop of activity that started in March. Our consolidated revenues were down 28.0% year-over-year in constant currency in the quarter, a decline from the 5.9% year-over-year constant currency decrease in the first quarter of 2020. After adjusting for billing days, our organic constant currency revenue year-over-year decrease was 26.6% in the second quarter of 2020 compared to a 7.1% decrease in the first quarter of 2020. While revenue declines persisted throughout the second quarter, the most significant portion of the year-over-year revenue decline occurred in our European markets during April and the first few weeks of May as governments put states of emergency and related lockdown requirements into place. After adjusting for billing days, we experienced a gradual improvement in the rates of decline throughout the second quarter of 2020 with monthly year-over-year revenue declines of 31% in April, 26% in May, and 24% in June. The improvement in the rate of decline during the quarter reflects the reopening of economies largely in May as governments in some of our largest countries lifted lock-down requirements. We experienced a 45.0% decrease (-43.4% in constant currency and -38.4% in organic constant currency) in our permanent recruitment business in the quarter as a result of the COVID-19 crisis. Our Talent Solutions business, which includes Recruitment Process Outsourcing (RPO),TAPFIN - Managed Service Provider (MSP) and our Right Management offerings, experienced a decline in the quarter, which was driven mostly by RPO activity. We experienced a sharp reduction in RPO activity as many client programs initiated hiring freezes due to the COVID-19 crisis. Our MSP business has been resilient during the crisis and experienced growth during the quarter. Our Right Management business also experienced a decline during the quarter. Although Right Management has historically experienced an increase in outplacement activity during economic downturns, we believe client uncertainty as to the duration of the downturn has chilled outplacement spending. As a result, we did not see an increase in outplacement activity during the second quarter, although we experienced gradual improvement in the rate of revenue decline as the quarter progressed. During the second quarter of 2020, most of our markets experienced revenue declines due to the COVID-19 crisis. We experienced a revenue decrease inSouthern Europe , mainly due to revenue declines inFrance andItaly due to the severe impact from the crisis. We experienced a revenue decrease inNorthern Europe due to the declines in all of our key markets as a result of the COVID-19 crisis and reduced demand from very challenging conditions in the manufacturing sector, particularly the automotive sector, inGermany , which has not experienced the improvement in the rate of revenue decline as the second quarter progressed that many of our other European markets have experienced. After adjusting for billing days, our organic constant currency decrease in theAmericas was 18.1% due mostly to a decrease inthe United States related to the COVID-19 crisis. After adjusting for billing days, revenues in organic constant currency decreased 4.6% in APME due to the COVID-19 crisis, partially offset by an increase inJapan due to an increase in Manpower staffing revenues. Our gross profit margin in the second quarter of 2020 compared to 2019 decreased due to the decrease in our permanent recruitment business as a result of the COVID-19 crisis and the decrease in our staffing/interim margin in theAmericas ,Southern Europe andNorthern Europe . The decrease in the staffing/interim margin was due to the higher mix of our lower-margin enterprise client business and higher rates of sickness and absenteeism in certain countries at the beginning of the quarter, partially offset by reduced direct costs in certain countries due to government crisis response programs and our execution of various bill/pay yield initiatives due to the COVID-19 crisis. We recorded$72.8 million of goodwill and other impairment charges related to our investment inGermany and capitalized software inthe United States ($66.8 million and$6.0 million , respectively) in the second quarter of 2020. We experienced an operating loss of$50.0 million in the second quarter of 2020 compared to an operating profit of$130.8 million in the second quarter of 2019, with our operating profit margin decreasing 370 basis points compared to the second quarter of 2019. Excluding the goodwill and other impairment charges of$72.8 million and$65.6 million incurred in the second quarter of both 2020 and 2019, respectively, our operating profit was down 87.5% in constant currency while operating profit margin was down 310 basis 24 -------------------------------------------------------------------------------- points compared to the second quarter of 2019. The decrease in operating profit margin reflects the material deleveraging that accompanied the sudden decrease in revenues during the quarter as government lockdowns and restrictions were in effect. We took significant actions in late March and early April, which allowed us to reduce selling and administrative expenses to partially offset the revenue and gross profit declines in the second quarter of 2020. This included leveraging government unemployment related benefits, which allowed us to move unutilized staff and associates quickly onto these programs. This also included the short-term action of cutting discretionary costs and scaling operations back. In addition to these implemented initiatives, we are prepared to take further cost actions to optimize our business structure through this economic downturn with the intention of simultaneously preserving our ability to rebound when market conditions improve. We are focused on managing costs as efficiently as possible in the short-term while continuing to progress transformational actions aligned with our strategic priorities.
As we manage through this crisis and prepare our business for future opportunities we would also like to emphasize the following points:
• Many of our leaders have experience managing through economic downturns, and
many of our senior operational leaders previously managed parts of our
business during the economic downturn in 2008-2009. We believe this isvaluable experience for the current economic environment. Additionally, we
have enhanced our enterprise risk management framework in recent years, and
we have business continuity plans which have been executed at a global,
regional and country level.
• The technology investments we have been making for the last few years as
part of our transformational activities have facilitated a rapid response to
the COVID-19 crisis. As of
full-time equivalent employees working remotely while mitigating potential
productivity losses. We have also extended our cyber and information
security capability to accelerate the ability for some of our associates and
consultants to work for our clients at home mitigating potential operational
or financial losses. Expectations of when our full-time equivalent employees
return to the workplace will depend on a number of factors including the
impact such a return would have on the safety, health and well-being of our
employees as well as the impact from any government mandates or
restrictions.
• Our business has benefitted from our diversification across geographies,
industries, and offerings, that we believe position us well to endure the
COVID-19 crisis. We believe this diversification may likewise position us to
take advantage of market opportunities that present themselves. For example,
during the second quarter, we have seen much smaller declines within our
Experis business compared to the Manpower business, and we are positioned
with a large portion of our business focused on providing professional
services and Talent Solutions. We believe our strategy to improve the
diversification of our business through the growth of Experis will
facilitate growth following the crisis as companies accelerate technology
investments. Additionally, portions of our Talent Solutions business are
assisting our clients through this downturn with customized solutions. Right
Management has not yet seen an increase in overall outplacement activity
during the second quarter, which we believe is due to client uncertainty as
to the duration of the downturn, although we did experience gradual
improvement in the rate of revenue decline as the quarter progressed.
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Operating Results - Three Months Ended
The following table presents selected consolidated financial data for the three
months ended
Constant
Currency
(in millions, except per share data) 2020 2019 Variance Variance
Revenues from services $ 3,742.2 $ 5,373.1 (30.4 )% (28.0 )%
Cost of services 3,165.5 4,502.7 (29.7 )% (27.3 )%
Gross profit 576.7 870.4 (33.8 )% (31.9 )%
Gross profit margin 15.4 % 16.2 %
Selling and administrative expenses,
excluding goodwill impairment charges 559.9 675.6 (17.1 )% (14.9 )%
Goodwill impairment charges 66.8 64.0 4.2 % 4.6 %
Selling and administrative expenses 626.7 739.6 (15.3 )% (13.2 )%
Operating (loss) profit (50.0 ) 130.8 N/A N/A
Operating (loss) profit margin -1.3 % 2.4 %
Interest and other expenses (income),
net 5.8 (70.2 ) N/A
(Loss) earnings before income taxes (55.8 ) 201.0 N/A N/A Provision for income taxes 8.6 73.7 (88.4 )% Effective income tax rate -15.4 % 36.7 % Net (loss) earnings$ (64.4 ) $ 127.3 N/A N/A
Net (loss) earnings per share - diluted
N/A N/A Weighted average shares - diluted 58.2 60.4 (3.6 )%
The year-over-year decrease in revenues from services of 30.4% (-28.0% in constant currency and -26.7% in organic constant currency) was attributed to:
• a revenue decrease in
currency). This included a revenue decrease in
constant currency), which was primarily due to a decrease in our Manpower
staffing services and a 45.6% decrease (-44.6% in constant currency) in the
permanent recruitment business, both due to the impact of the COVID-19
crisis. The decrease also includes a decrease in
constant currency), which was primarily due to the decreased demand for our
Manpower staffing services and a 56.2% decrease (-55.4% in constant
currency) in the permanent recruitment business, both due to the impact of
the COVID-19 crisis;
• decreased demand for services in most of our markets within
where revenues decreased 27.5% (-24.2% in constant currency), primarily due
to a decrease in our Manpower business and a 47.2% decrease (-45.0% in
constant currency) in the permanent recruitment business as a result of the
impact of the COVID-19 crisis. We experienced revenue declines in the United
Kingdom,
27.9%, 26.8% and 39.2%, respectively (-21.6%, -32.2%, -26.4%, -20.3%, and
-38.0%, respectively, in constant currency);
• a revenue decrease in
basis) primarily driven by a decline in demand for our Manpower staffing
services and a 34.6% decrease in the permanent recruitment business, both
due to the impact of the COVID-19 crisis, partially offset by an increase in
demand for our MSP offering and outplacement services;
• a revenue decrease in APME of 20.6% (-19.1% in constant currency and -3.4%
in organic constant currency) due to the deconsolidation of
by an increase in revenues in Japan and an increase in demand for our
Talent-Based Outsourcing services within the Manpower business; and
• a 2.4% decrease due to the impact of changes in currency exchange rates.
The year-over-year 80 basis point decrease in gross profit margin was primarily attributed to:
• a 40 basis point unfavorable impact due to the decrease in our permanent
recruitment business of 45.0% (-43.4% in constant currency and -38.4% in
organic constant currency); and
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• a 40 basis point unfavorable impact from a deterioration in our
staffing/interim margin in the
due to the higher mix of our lower-margin enterprise client business and
higher rates of sickness and absenteeism in certain countries at the
beginning of the quarter, partially offset by reduced direct costs in
certain countries due to government crisis response programs and ourexecution of various bill/pay yield initiatives due to the COVID-19 crisis.
The 15.3% decrease in selling and administrative expenses in the second quarter of 2020 (-13.2% in constant currency; -11.2% in organic constant currency) was primarily attributed to:
• a 20.4% decrease (-18.2% in constant currency and -15.9% in organic constant
currency) in personnel costs due to a reduction of salary-related costs as a
result of lower headcount, a decrease in variable incentive costs due to a
decline in profitability in most markets, and the benefits related to the
transition of full-time equivalent employees onto government temporary
unemployment programs;
• a 12.5% decrease (-10.3% in constant currency and -8.2% in organic constant
currency) in non-personnel related costs, excluding goodwill and other
impairment charges, due to cost management actions taken across all segments
as a result of revenue declines;
• the reduction in recurring selling and administrative costs of
as a result of the Deconsolidation in
• a 2.1% decrease due to the impact of changes in currency exchange rates;
partially offset by
• the increase in goodwill and other impairment charges to
the second quarter of 2020 from
and
• the additional recurring selling and administrative costs of
incurred as a result of the franchise acquisitions in
August and
Selling and administrative expenses as a percent of revenues increased 290 basis points in the second quarter of 2020 compared to the second quarter of 2019 due primarily to:
• a 220 basis point unfavorable impact from expense deleveraging, excluding
goodwill and other impairment charges, as we were unable to decrease selling
and administrative expenses at the same rate as our revenue decline;• a 70 basis point unfavorable impact from the increase in goodwill and other
impairment charges; and
• a 10 basis point unfavorable impact from changes in currency exchange rates;
partially offset by
• a 10 basis point favorable impact from acquisitions and dispositions.
Interest and other expenses (income), net is comprised of interest, foreign
exchange gains and losses and other miscellaneous non-operating income and
expenses, including noncontrolling interests. Interest and other expenses
(income), net was expense of $5.8 million in the second quarter of 2020 compared
to income of $70.2 million in the second quarter of 2019. Net interest expense
decreased $2.8 million in the second quarter of 2020 to $7.3 million from $10.1
million in the second quarter of 2019 primarily due to an increase interest
income as a result of higher cash balances. Miscellaneous income decreased to
$2.0 million in the second quarter of 2020 from $79.8 million in the second
quarter of 2019 primarily due to the $80.4 million gain that was recorded in the
second quarter of 2019 from the acquisition of Manpower Switzerland and decrease
in noncontrolling interest expense as a result of a decrease in earnings in a
joint venture in Germany .
We recorded income tax expense on a pre-tax loss resulting in a negative
effective rate of 15.4% for the three months ended June 30, 2020 , as compared to
an income tax expense on pre-tax earnings resulting in an effective rate of
36.7% for the three months ended June 30, 2019 . The 2020 rate was negative due
to a pre-tax loss that primarily resulted from the impact from the goodwill
impairment charge, related to our Germany reporting unit, which was
non-deductible. The 2020 rate was also unfavorably impacted by the relatively
low level and mix of pre-tax (losses) earnings, tax losses in certain countries
for which we did not recognize a corresponding
27
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tax benefit due to valuation allowances, and the French business tax. The French
business tax had a more significant unfavorable impact in the quarter due to
French pre-tax earnings decreasing at a greater rate than revenues, which is the
primary basis for the tax calculation. The negative effective tax rate of 15.4%
for the three months ended June 30, 2020 was significantly different than the
United States Federal statutory rate of 21% primarily due to the factors noted
above. We compute our quarterly effective tax rate in part based upon an
estimate of projected annual earnings before income taxes. The COVID-19 crisis
has created uncertainty in predicting future earnings before income taxes and
its impact to the second quarter of 2020 along with future quarters quarterly
effective tax rates may be material.
Net (loss) earnings per share - diluted was a loss of $1.11 in the second
quarter of 2020 compared to earnings of $2.11 in the second quarter of
2019. Foreign currency exchange rates unfavorably impacted net (loss) earnings
per share - diluted by approximately $0.02 per share in the second quarter of
2020. Goodwill and other impairment charges recorded in the second quarter of
2020 and 2019 negatively impacted net earnings per share - diluted by
approximately $1.23 and $1.26 per share in the second quarter of 2020 and 2019,
respectively. The gain from the acquisition of Manpower Switzerland recorded in
the second quarter of 2019 positively impacted net earnings per share - diluted
by approximately $1.32 per share in the second quarter of 2019.
Weighted average shares - diluted decreased to 58.2 million in the second
quarter of 2020 from 60.4 million in the second quarter of 2019. This decrease
was due to the impact of share repurchases completed since the second quarter of
2019 and the full weighting of the repurchases completed in the second quarter
of 2019, partially offset by shares issued as a result of exercises and vesting
of share-based awards since the second quarter of 2019.
Operating Results - Six Months Ended
Constant
Currency
(in millions, except per share data) 2020 2019 Variance Variance
Revenues from services $ 8,361.3 $ 10,418.0 (19.7 )% (17.3 )%
Cost of services 7,060.6 8,742.8 (19.2 )% (16.8 )%
Gross profit 1,300.7 1,675.2 (22.4 )% (20.2 )%
Gross profit margin 15.6 % 16.1 %
Selling and administrative expenses,
excluding goodwill impairment charges 1,246.2 1,374.9 (9.4 )% (7.0 )%
Goodwill impairment charges 66.8 64.0 4.2 % 4.6 %
Selling and administrative expenses 1,313.0 1,438.9
(8.8 )% (6.5 )% Operating (loss) profit (12.3 ) 236.3 N/A N/A Operating (loss) profit margin -0.1 % 2.3 % Interest and other expenses (income), net 26.3 (58.3 )
N/A
(Loss) earnings before income taxes (38.6 ) 294.6 N/A N/A Provision for income taxes 24.1 113.8 (78.8 )% Effective income tax rate -62.4 % 38.6 % Net (loss) earnings$ (62.7 ) $ 180.8 N/A N/A
Net (loss) earnings per share - diluted
N/A N/A Weighted average shares - diluted 58.7 60.7 (3.2 )%
The year-over-year decrease in revenues from services of 19.7% (-17.3% in constant currency and -16.6% in organic constant currency) was attributed to:
• a revenue decrease in
-24.6% in organic constant currency). This included a revenue decrease in
decrease in our Manpower staffing services and a 28.9% decrease (-27.1% in
constant currency) in the permanent recruitment business, both due to the
impact of the COVID-19 crisis. The decrease also includes a decrease indecreased demand for our Manpower staffing services and a 37.4% decrease
(-35.7% in constant currency) in the permanent recruitment business, both
due to the impact of the COVID-19 crisis;
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• decreased demand for services in most of our markets within
where revenues decreased 19.2% (-16.0% in constant currency; -15.8% in
organic constant currency), primarily due to a decrease in our Manpower
business and a 31.7% decrease (-29.3% in constant currency) in the permanent
recruitment business as a result of the impact of the COVID-19 crisis. We
experienced revenue declines in the United Kingdom , Germany , the
Netherlands , the Nordics, and Belgium of 13.2%, 25.2%, 23.5%, 21.7% and
28.9%, respectively (-11.0%, -23.3%, -21.5%, -15.4%, and -27.1%,
respectively, in constant currency);
• a revenue decrease in
basis) primarily driven by a decline in demand for our Manpower staffing
services and a 13.2% decrease in the permanent recruitment business, both
due to the impact of the COVID-19 crisis, partially offset by an increase in
our Talent Solutions business, primarily within our MSP offering and
outplacement services;
• a revenue decrease in APME of 18.1% (-16.6% in constant currency; -1.1% in
organic constant currency) due to the deconsolidation of
by an increase in revenues in Japan and an increase in demand for our
Talent-Based Outsourcing services within the Manpower business; and
• a 2.4% decrease due to the impact of changes in currency exchange rates.
The year-over-year 50 basis point decrease in gross profit margin was primarily attributed to:
• a 30 basis point unfavorable impact due to the decrease in our permanent
recruitment business of 29.5% (-27.4% in constant currency and -22.5% in
organic constant currency);
• a 10 basis point unfavorable impact from a deterioration in our
staffing/interim margin in the
due to the higher mix of our lower-margin enterprise client business and
higher rates of sickness and absenteeism in certain countries and increased
direct costs associated with early termination of client contracts during
the COVID-19 crisis, partially offset by reduced direct costs in certain
countries due to government crisis response programs and our execution of
various bill/pay yield initiatives due to the COVID-19 crisis; and
• a 10 basis point unfavorable impact due to the margin decrease in our Talent
Based Outsourcing business primarily related to the lower utilization of
consultants in Germany .
The 8.8% decrease in selling and administrative expenses in the first half of 2020 (-6.5% in constant currency; -5.2% in organic constant currency) was primarily attributed to:
• a 12.8% decrease (-10.5% in constant currency and -9.0% in organic constant
currency) in personnel costs due to a reduction of salary-related costs as a
result of lower headcount and a decrease in variable incentive costs due to
a decline in profitability in most markets, and the benefits related to the
transition of full-time equivalent employees onto government temporary
unemployment programs;
• a 6.0% decrease (-3.6% in constant currency and -2.4% in organic constant
currency) in non-personnel related costs, excluding goodwill and other
impairment charges and restructuring costs, due to cost management actions
taken across all segments as a result of revenue declines;
• restructuring costs of
compared to
• the increase in goodwill and other impairment charges to
the first half of 2020 from $65.6 million in the first half of 2019; and
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• the additional recurring selling and administrative costs of
incurred as a result of the franchise acquisitions in
August and
• a 2.3% decrease due to the impact of changes in currency exchange rates; and
• the reduction in recurring selling and administrative costs of
as a result of the Deconsolidation in
Selling and administrative expenses as a percent of revenues increased 190 basis points in the first half of 2020 compared to the first half of 2019 due primarily to:
• a 130 basis point unfavorable impact from expense deleveraging, excluding
goodwill and other impairment charges, as we were unable to decrease selling
and administrative expenses at the same rate as our revenue decline;• a 30 basis point unfavorable impact from the increase in goodwill and other
impairment charges;
• a 20 basis point unfavorable impact from the increase in restructuring costs
in the first half of 2020 compared to 2019; and
• a 10 basis point unfavorable impact from changes in currency exchange rates.
Interest and other expenses (income), net is comprised of interest, foreign exchange gains and losses and other miscellaneous non-operating income and expenses, including noncontrolling interests. Interest and other expenses (income), net was expense of$26.3 million in the first half of 2020 compared to income of$58.3 million in the first half of 2019. Net interest expense decreased$4.1 million in the first half of 2020 to$14.7 million from$18.8 million in the first half of 2019 primarily due to an increase interest income as a result of higher cash balances. Miscellaneous expense was$8 million in the first half of 2020 compared to miscellaneous income of$79.5 million in the first half of 2019. The change is primarily due to the$80.4 million from the acquisition of Manpower Switzerland in the first half of 2019, the pension settlement expense of$10.2 million recorded in the first half of 2020 and the decrease in noncontrolling interest expense as a result of a decrease in earnings in a joint venture inGermany . We recorded income tax expense on a pre-tax loss resulting in a negative effective rate of 62.4% for the six months endedJune 30, 2020 , as compared to an income tax expense on pre-tax earnings resulting in an effective rate of 38.6% for the six months endedJune 30, 2019 . The 2020 rate was negative due to a pre-tax loss that primarily resulted from the impact from the goodwill impairment charge, related to ourGermany reporting unit, which was non-deductible. The 2020 rate was also unfavorably impacted by the relatively low level and mix of pre-tax earnings, restructuring costs and tax losses in certain countries for which we did not recognize a corresponding tax benefit due to valuation allowances, and the French business tax. The negative effective tax rate of 62.4% in the first half of 2020 was significantly different than the United States Federal statutory rate of 21% primarily due to the factors noted above, partially offset by a discrete favorable benefit for the successful appeal of a non-United States tax ruling. Net (loss) earnings per share - diluted was a loss of$1.07 in the six months endedJune 30, 2020 compared to earnings of$2.98 in the six months endedJune 30, 2019 . Foreign currency exchange rates unfavorably impacted net (loss) earnings per share - diluted by approximately$0.05 per share in the first half of 2020. Restructuring costs recorded in the six months endedJune 30, 2020 and 2019 negatively impacted net (loss) earnings per share - diluted by approximately$0.68 and$0.52 per share, net of tax, in the six months endedJune 30, 2020 and 2019, respectively.Goodwill and other impairment charges recorded in the first half of 2020 and 2019 negatively impacted net earnings per share - diluted by approximately$1.22 and$1.26 per share in the first half of 2020 and 2019, respectively. The pension settlement expense recorded in the six months endedJune 30, 2020 negatively impacted net loss per share - diluted by approximately$0.11 , net of tax, in the six months endedJune 30, 2020 . The gain from the acquisition of Manpower Switzerland recorded in the first half of 2019 positively impacted net earnings per share - diluted by approximately$1.32 per share in the first half of 2019. Weighted average shares - diluted decreased to 58.5 million in the first half of 2020 from 60.7 million in the first half of 2019. This decrease was due to the impact of share repurchases completed since the first half of 2019 and the full weighting of the repurchases completed in the first half of 2019, partially offset by shares issued as a result of exercises and vesting of share-based awards since the first half of 2019. 30 --------------------------------------------------------------------------------
Segment Operating ResultsAmericas In theAmericas , revenues from services decreased 21.7% (-16.7% in constant currency; -17.9% in organic constant currency) in the second quarter of 2020 compared to 2019. Inthe United States , revenues from services decreased 21.0% (-23.0% on an organic basis) in the second quarter of 2020 compared to 2019, primarily driven by decreased demand for our Manpower staffing services and a decrease in our permanent recruitment business of 34.6%, all due to the impacts of the COVID-19 crisis. These decreases inthe United States were partially offset by increased demand for our MSP offering and outplacement services. Our RPO business inthe United States has experienced significant client hiring freezes in the quarter as a result of the COVID-19 crisis. In Other Americas, revenues from services decreased 22.8% (-10.0% in constant currency) in the second quarter of 2020 compared to 2019. This decline was driven by decreases inMexico ,Canada ,Argentina ,Peru ,Colombia andBrazil of 26.4%, 7.6%, 10.1%, 31.3%, 47.0% and 27.4%, respectively (-10.3%, -4.3%, increase of 38.7%, -29.1%, -37.1% and -0.5%, respectively, in constant currency). The constant currency increase inArgentina was primarily due to inflation. In theAmericas , revenues from services decreased 12.0% (-7.9% in constant currency, -9.4% in organic constant currency) in the six months endedJune 30, 2020 compared to 2019. Inthe United States , revenues from services decreased 11.7% (-14.1% on an organic basis) in the six months endedJune 30, 2020 compared to 2019, primarily driven by decreased demand for our Manpower staffing services and a decrease in our permanent recruitment business of 13.2%, both due to the impacts of the COVID-19 crisis. These decreases inthe United States were partially offset by increased demand for our MSP offering, mostly in the first quarter of 2020, and outplacement services. In Other Americas, revenues from services decreased 12.4% (-2.0% in constant currency) in the six months endedJune 30, 2020 compared to 2019. This decline was driven by decreases inMexico ,Canada ,Argentina ,Peru ,Colombia andBrazil of 14.9%, 0.3%, 7.6%, 11.3%, 29.6% and 25.6%, respectively (-5.3%, increase of 1.9%, increase of 44.2%, -8.9%, -19.2% and -5.6%, respectively, in constant currency). The constant currency increase inArgentina was primarily due to inflation. After adjusting for billing days,the United States experienced monthly organic year-over-year revenue declines of 24% in April, 22% in May, and 23% in June. InJuly 2020 ,the United States experienced an organic year-over-year revenue decline of approximately 14%. It is uncertain if additional COVID-19 related restrictions will be introduced in different parts ofthe United States , and how those developments will impact our revenue trends. Gross profit margin increased in the second quarter of 2020 compared to 2019 primarily due to gross profit margin increase inthe United States from our higher margin MSP offering and outplacement services. This increase was partially offset by the decrease in our permanent recruitment business of 37.9% (-36.5% in constant currency) and a decline in the staffing/interim margin due to client mix changes, as a higher percentage of revenues came from our lower margin enterprise clients. Gross profit margin was flat for the six months endedJune 30, 2020 compared to 2019 as the increases in our higher margin MSP offering and outplacement services were offset by the decrease in our permanent recruitment business of 16.3% (-15.0% in constant currency) and a decline in the staffing/interim margin due to client mix changes, as a higher percentage of our revenues came from our lower margin enterprise clients. In the second quarter of 2020, selling and administrative expenses decreased 6.2% (-2.9% in constant currency and -4.0% in organic constant currency) primarily due to the decrease in salary-related costs, because of lower headcount, and discretionary expenses. These decreases were partially offset by the impairment charge of$6.0 million recorded inthe United States related to capitalized software and the additional recurring selling and administrative costs incurred as a result of the franchise acquisitions inthe United States in August andOctober 2019 . Selling and administrative expenses increased 0.1% (2.9% in constant currency and 1.6% in organic constant currency) in the six months endedJune 30, 2020 compared to 2019, primarily due to the software impairment charge inthe United States , the increase in restructuring costs to$12.8 million in the first half of 2020 compared to$9.8 million in the first half of 2019, a bad debt expense and a state sales tax related charge incurred in the first half of 2020, and the additional recurring selling and administrative costs incurred as a result of the franchise acquisitions inthe United States . These increases were partially offset by decreases in salary-related costs, due to lower headcount, and discretionary expenses. Operating Unit Profit ("OUP") margin in theAmericas was 2.4% and 5.2% for the second quarter of 2020 and 2019, respectively. Inthe United States , OUP margin decreased to 1.8% in the second quarter of 2020 from 5.8% in 2019. The margin decrease in 2020 inthe United States was primarily due to the software impairment charge and expense deleveraging, as we were unable to decrease expenses at the same rate as our revenue decline. These decreases were partially offset by the increase in the gross profit margin. Other 31 -------------------------------------------------------------------------------- Americas OUP margin decreased to 3.3% in the second quarter of 2020 from 4.3% in the second quarter of 2019 due primarily to the decrease in the gross profit margin and expense deleveraging. OUP margin in theAmericas was 2.0% and 4.2% for the six months endedJune 30, 2020 and 2019, respectively. Inthe United States , OUP margin decreased to 1.0% for the six months endedJune 30, 2020 from 4.3% in 2019. The margin decrease in 2020 inthe United States was primarily due to the software impairment charge, increase in restructuring costs and expense deleveraging. These decreases were partially offset by the increase in the gross profit margin. Other Americas OUP margin decreased to 3.4% for the six months endedJune 30, 2020 from 4.0% in 2019 primarily due to a decline in the gross profit margin.
InSouthern Europe , which includes operations inFrance andItaly , revenues from services decreased 38.6% (-37.7% in constant currency) in the second quarter of 2020 compared to 2019. In the second quarter of 2020, revenues from services decreased 48.4% (-47.5% in constant currency) inFrance (which represents 50% ofSouthern Europe's revenues) and decreased 31.9% (-30.7% in constant currency) inItaly (which represents 18% ofSouthern Europe's revenues). The decrease inFrance is primarily due to decreased demand for our Manpower staffing services and a 45.6% decrease (-44.6% in constant currency) in the permanent recruitment business, both due to the impact of the COVID-19 crisis. The decrease inItaly was primarily due to the decreased demand for our Manpower staffing services and a 56.2% decrease (-55.4% in constant currency) in the permanent recruitment business, both due to the impact of the COVID-19 crisis. In Other Southern Europe, revenues from services decreased 18.9% (-18.2% in constant currency) during the second quarter of 2020 compared to 2019, due to decreased demand for our Manpower staffing services and a decrease in our permanent recruitment business of 53.4% (-52.6% in constant currency), both due to the impact of the COVID-19 crisis. Revenues from services decreased 24.2% (-22.6% in constant currency) in the six months endedJune 30, 2020 compared to 2019. In the six months endedJune 30, 2020 , revenues from services decreased 33.0% (-31.3% in constant currency) inFrance and decreased 20.6% (-18.6% in constant currency) inItaly . The decrease inFrance is due to decreased demand for our Manpower staffing services and a 28.9% (-27.1% in constant currency) decrease in our permanent recruitment business, both due to the impact of the COVID-19 crisis. The decrease inItaly was primarily due to decreased demand for our Manpower staffing services and a 37.4% (-35.7% in constant currency) decrease in our permanent recruitment business. In Other Southern Europe, revenues from services decreased 3.1% (-2.3% in constant currency) during the six months endedJune 30, 2020 compared to 2019, due to decreased demand for our Manpower staffing services and a decrease in our permanent recruitment business of 28.8% (-27.8% in constant currency), both due to the impact of the COVID-19 crisis. After adjusting for billing days,France experienced monthly year-over-year revenue declines of 62% in April, 49% in May, and 33% in June. InJuly 2020 ,France has experienced a year-over-year revenue decline of approximately 25%. Although improvement in revenue trends throughout the quarter were steady inFrance , the rate of improvement in the revenue trend slowed somewhat in July. After adjusting for billing days,Italy experienced monthly year-over-year revenue declines of 41% in April, 31% in May, and 20% in June. InJuly 2020 ,Italy has experienced a year-over-year revenue decline of approximately 15%. Gross profit margin decreased in both the second quarter and first half of 2020 compared to 2019 primarily due to the decreases of 51.5% and 31.1%, respectively (-50.6% and -29.6% in constant currency, respectively) in the permanent recruitment business and a decrease in the staffing/interim gross profit margins inFrance and certain countries within Other Southern Europe. Selling and administrative expenses decreased 20.9% (-19.6% in constant currency) during the second quarter of 2020 compared to 2019. Selling and administrative expenses decreased 9.6% (-7.7% in constant currency) in the six months endedJune 30, 2020 compared to 2019. We took significant actions inFrance andItaly in March and April to reduce our costs to help offset the materially reduced revenues in the second quarter of 2020. In bothFrance andItaly , we transitioned full-time equivalent employees onto government temporary unemployment programs and other initiatives and eliminated a significant amount of discretionary spend to manage through the COVID-19 crisis. The decrease in selling and administrative expenses in the second quarter and first half of 2020 was primarily due to the decreases in personnel costs, as a result of a reduction in headcount, decrease in variable incentive costs due to a decline in profitability in most markets, and the benefits related to the transition of full-time equivalent employees onto government temporary unemployment programs in certain markets. The decreases are also due to the reduction of our discretionary expenses. The decreases in the first half of 2020 were offset by the increase in restructuring costs to$13.1 million in the first half of 32 --------------------------------------------------------------------------------
2020 compared to
OUP margin inSouthern Europe was 0.8% for the second quarter of 2020 compared to 5.2% for 2019.France experienced a decrease to an operating unit loss of 0.3% for the second quarter of 2020 from an OUP of 5.3% in 2019. InItaly , the OUP margin decreased to 4.1% for the second quarter of 2020 from 7.5% for 2019. The decreases inFrance andItaly were primarily due to the decline in the gross profit margin and expense deleveraging. OtherSouthern Europe's OUP margin decreased to 0.7% for the second quarter of 2020 from 3.1% in 2019, due to the decrease in the gross profit margin and expense deleveraging. OUP margin inSouthern Europe was 1.9% for the six months endedJune 30, 2020 compared to 4.7% in 2019. InFrance , the OUP margin decreased to 1.9% in the six months endedJune 30, 2020 compared to 4.8% in 2019. InItaly , the OUP margin decreased to 4.2% in the six months endedJune 30, 2020 compared to 6.7% in 2019. The decreases inFrance andItaly were primarily due to the decline in the gross profit margin and expense deleveraging. OtherSouthern Europe's OUP margin decreased to 0.4% in the six months endedJune 30, 2020 compared to 2.8% in 2019, due to the decrease in the gross profit margin, the increase in restructuring costs to$11.5 million in the first half of 2020 from$3.1 million in the first half of 2019, and expense deleveraging.
InNorthern Europe , which includes operations in theUnited Kingdom ,Germany , the Nordics,the Netherlands andBelgium (comprising 35%, 16%, 22%, 11%, and 7%, respectively, ofNorthern Europe's revenues), revenues from services decreased 27.5% (-24.2% in constant currency) in the second quarter of 2020 compared to 2019. We experienced revenue declines in theUnited Kingdom ,Germany , the Nordics,the Netherlands andBelgium of 24.2%, 33.5%, 26.8%, 27.9% and 39.2% (-21.6%, -32.2%, -20.3%, -26.4% and -38.0%, respectively, in constant currency). TheNorthern Europe revenue decrease is primarily due to reduced demand for our Manpower staffing services, primarily because of the impact of the COVID-19 crisis and reduced demand from very challenging conditions in the manufacturing sector, particularly the automotive sector, inGermany , which did not experience the improvement in the rate of revenue decline as the second quarter progressed that many of our other European markets have experienced. The decrease was also due to a 47.2% decrease (-45.0% in constant currency) in the permanent recruitment business primarily due to the impact of the COVID-19 crisis. Revenues from services decreased 19.2% (-16.0% in constant currency) in the six months endedJune 30, 2020 compared to 2019. We experienced revenue declines in theUnited Kingdom ,Germany , the Nordics,the Netherlands andBelgium of 13.2%, 25.2%, 21.7%, 23.5% and 28.9% (-11.0%, -23.3%, -15.4%, -21.5% and -27.1%, respectively, in constant currency). TheNorthern Europe revenue decrease is primarily due to reduced demand for our Manpower staffing services and a 31.7% decrease (-29.3% in constant currency) in the permanent recruitment business, both primarily due to the impact of the COVID-19 crisis. After adjusting for billing days, theUnited Kingdom experienced monthly year-over-year revenue declines of 17% in April, 26% in May, and 23% in June. InJuly 2020 , theUnited Kingdom has experienced a year-over-year revenue decline of approximately 21%. After adjusting for billing days,Germany experienced monthly year-over-year revenue declines of 33% in April, 32% in May, and 32% in June. InJuly 2020 ,Germany has experienced a year-over-year revenue decline of approximately 33%. Gross profit margin decreased in both the second quarter and first half of 2020 compared to 2019 due to the decreases in our permanent recruitment business for the second quarter and six months endedJune 30, 2020 compared to 2019, and the declines in the Experis interim margins due to client mix changes, as a higher percentage of revenues consisted of revenues from our lower margin enterprise clients, and the margin decrease in our Talent Based Outsourcing business primarily related to the lower utilization of consultants inGermany . Selling and administrative expenses decreased 22.8% (-19.6% in constant currency) in the second quarter of 2020 compared to 2019. Selling and administrative expenses decreased 14.7% (-11.4% in constant currency) in the six months endedJune 30, 2020 compared to 2019. The decreases were primarily due to the decreases in personnel costs, as a result of reductions in headcount, decreases in variable incentive costs due to declines in profitability in most markets, and the benefits related to the transition of full-time equivalent employees onto government temporary unemployment programs in certain markets. The decreases are also due to the decline in office-related expenses driven by a decrease in the number of offices, and a reduction of our discretionary expenses. These decreases were partially offset by the increase in the goodwill impairment charge inGermany of$66.8 million in the second quarter and first half of 2020 compared to$60.2 million in the second quarter and first half of 2019. The decrease in the first half of 2020 was also 33 --------------------------------------------------------------------------------
partially offset by the increase of restructuring costs to
OUP margin forNorthern Europe for the second quarter of 2020 decreased to 0.0% compared to 2.1% in 2019.Northern Europe experienced a decrease to an operating unit loss of 0.7% in the six months endedJune 30, 2020 from an OUP of 1.1% in the six months endedJune 30, 2019 . The decreases were primarily due to the declines in the gross profit margins, increase in the goodwill impairment charge, and expense deleveraging. The decrease in the six months endedJune 20, 2020 was also due to the increase in restructuring costs.
APME
Revenues from services decreased 20.6% (-19.1% in constant currency and -3.4% in organic constant currency) in the second quarter of 2020 compared to 2019. InJapan (which represents 47% of APME's revenues), revenues from services increased 11.3% (8.9% in constant currency) due to the increased demand for our staffing/interim services and an increase in our Talent Solutions business, partially offset by a 6.0% decrease (-8.2% in constant currency) in our permanent recruitment business,. InAustralia (which represents 16% of APME's revenues), revenues from services decreased 24.9% (-20.1% in constant currency) due to the decline in demand for our staffing/interim business and the 14.3% (-9.0% in constant currency) decrease in our permanent recruitment business, both due to the impact of the COVID-19 crisis. The revenue decrease in the remaining markets in APME is due to the Deconsolidation, and the decline in demand for our staffing and Talent-Based Outsourcing services within our Manpower business due to the COVID-19 crisis. Revenues from services decreased 18.1% (-16.6% in constant currency and -1.1% in organic constant currency) in the six months endedJune 30, 2020 compared to 2019. InJapan , revenues from services increased 10.5% (8.7% in constant currency) due to increased demand for our staffing/interim services, an increase in our Talent Solutions business and the favorable impact of approximately two additional billings days in the first half of 2020 compared to 2019. These increases were partially offset by a 1.0% decrease (-2.7% in constant currency) decrease in our permanent recruitment business. InAustralia , revenues from services decreased 27.0% (-21.5% in constant currency) due to the decrease in our staffing/interim revenues, as a result of our decision to exit certain businesses with low-margins to improve profitability and the impact of the COVID-19 crisis, and the 10.4% (-4.0% in constant currency) decline in our permanent recruitment business. The revenue decrease in the remaining markets in APME is due to the Deconsolidation, and the decline in demand for our staffing and Talent-Based Outsourcing services within our Manpower business due to the COVID-19 crisis. Gross profit margin decreased in both the second quarter and first half of 2020 compared to 2019 due to the decreases in our permanent recruitment business of 41.9% and 35.6%, respectively (-39.8 and -32.8%, respectively, in constant currency; -14.3% and -8.3%, respectively, in organic constant currency), partially offset by the increases in our staffing/interim margins due to the Deconsolidation. Selling and administrative expenses decreased 18.2% (-16.6% in constant currency; and increase of 6.1% in organic constant currency) in the second quarter of 2020 compared to 2019. Selling and administrative expenses decreased 16.6% (-14.7% in constant currency; and increase of 6.1% in organic constant currency) in the first half of 2020 compared to 2019. These decreases were primarily due to the reduction of recurring selling and administrative costs as a result of the Deconsolidation. The decrease in the first half of 2020 was also due to the decrease of restructuring costs to$2.6 million in the first half of 2020 compared to$4.4 million in the first half of 2019. These decreases in the second quarter and first half of 2020 were partially offset by increases in costs to support the increases in revenues in certain markets OUP margin for APME decreased to 3.1% in the second quarter of 2020 from 4.1%. OUP margin decreased to 3.0% in the first half of 2020 from 3.5% in 2019. The decreases were due to the declines in the gross profit margins and expense deleveraging. In the first half of 2020, these decreases were partially offset by the decrease in restructuring costs. 34
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Financial Measures
Constant Currency and Organic Constant Currency Reconciliation
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 or decline 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 or decline 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 provided below: 3 Months Ended June 30, 2020 Compared to 2019 Impact of Acquisitions Organic Constant and Dispositions Constant Reported Reported Impact of Currency (In Constant Currency Amount(a) Variance Currency Variance Currency) Variance Revenues from services: Americas: United States 515.9 (21.0 )% - (21.0 )% 2.0 % (23.0 )% Other Americas 320.7 (22.8 )% (12.8 )% (10.0 )% - (10.0 )% 836.6 (21.7 )% (5.0 )% (16.7 )% 1.2 % (17.9 )% Southern Europe: France 736.0 (48.4 )% (0.9 )% (47.5 )% - (47.5 )% Italy 268.5 (31.9 )% (1.2 )% (30.7 )% - (30.7 )% Other Southern Europe 466.3 (18.9 )% (0.7 )% (18.2 )% - (18.2 )% 1,470.8 (38.6 )% (0.9 )% (37.7 )% - (37.7 )% Northern Europe 865.7 (27.5 )% (3.3 )% (24.2 )% (0.2 )% (24.0 )% APME 569.1 (20.6 )% (1.5 )% (19.1 )% (15.7 )% (3.4 )% Consolidated 3,742.2 (30.4 )% (2.4 )% (28.0 )% (1.3 )% (26.7 )% Gross Profit 576.7 (33.8 )% (1.9 )% (31.9 )% (1.9 )% (30.0 )% Selling and Administrative Expenses 626.7 (15.3 )% (2.1 )% (13.2 )% (2.0 )% (11.2 )% Operating Loss (50.0 ) N/A - N/A - N/A
(a) In millions for the three months ended
35
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6 Months Ended June 30, 2020 Compared to 2019
Impact of
Acquisitions Organic
Constant and Dispositions Constant
Reported Reported Impact of Currency (In Constant Currency
Amount(a) Variance Currency Variance Currency) Variance
Revenues from
services:
Americas:
United States $ 1,126.8 (11.7 )% - (11.7 )% 2.4 % (14.1 )%
Other Americas 720.8 (12.4 )% (10.4 )% (2.0 )% - (2.0 )%
1,847.6 (12.0 )% (4.1 )% (7.9 )% 1.5 % (9.4 )%
Southern Europe:
France 1,829.8 (33.0 )% (1.7 )% (31.3 )% - (31.3 )%
Italy 596.2 (20.6 )% (2.0 )% (18.6 )% - (18.6 )%
Other Southern Europe 989.5 (3.1 )% (0.8 )% (2.3 )% 8.8 % (11.1 )%
3,415.5 (24.2 )% (1.6 )% (22.6 )% 2.0 % (24.6 )%
Northern Europe 1,934.2 (19.2 )% (3.2 )% (16.0 )% (0.2 )% (15.8 )%
APME 1,164.0 (18.1 )% (1.5 )% (16.6 )% (15.5 )% (1.1 )%
Consolidated $ 8,361.3 (19.7 )% (2.4 )% (17.3 )% (0.7 )% (16.6 )%
Gross Profit $ 1,300.7 (22.4 )% (2.2 )% (20.2 )% (1.2 )% (19.0 )%
Selling and
Administrative
Expenses $ 1,313.0 (8.8 )% (2.3 )% (6.5 )% (1.3 )% (5.2 )%
Operating Loss $ (12.3 ) N/A - N/A - N/A
(a) In millions for the six months ended
Liquidity and Capital Resources
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 ofJune 30, 2020 , we had$1,295.9 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 domestic operations. With the enactment of the United States Tax Cuts and Jobs Act inDecember 2017 , we no longer recordUnited 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. Cash provided by operating activities was$596.1 million and$277.1 million during the six months endedJune 30, 2020 and 2019, respectively. Changes in operating assets and liabilities generated$536.0 million of cash during the six months endedJune 30, 2020 compared to$35.6 million of cash generated during the six months endedJune 30, 2019 . These changes were primarily attributable to a decrease in accounts receivable, due to collections and the receivables not being replaced at the same level as a result of a decrease in demand for our services, and the benefit of certain government payment deferral measures introduced as part of the COVID-19 crisis. These improvements in our cash flows were partially offset by the decrease in our payroll-related liabilities due to lower activity. Accounts receivable decreased to$4,224.6 million as ofJune 30, 2020 from$5,273.1 million as ofDecember 31, 2019 . This decrease is primarily due to the revenue decline and changes in currency exchange rates. Days Sales Outstanding ("DSO") increased by approximately 1.0 day fromDecember 31, 2019 due to unfavorable mix changes, as a higher percentage of our consolidated revenues consisted of countries with a higher average DSO. The nature of our operations is such that our most significant current asset is accounts receivable, with an average days sales outstanding of between 55 and 60 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 is outstanding for much longer, which may result in a decline in operating cash flows. 36 -------------------------------------------------------------------------------- Conversely, as the demand for our services declines, as we saw starting in late March and continuing through the second quarter of 2020 due to the impact of the COVID-19 crisis, 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 expected to be sustained in the event that an economic downturn continued for an extended period. During the second quarter of 2020, we were highly successful in receivable collections while incurring lower payroll costs on lower activity. Our improved cash flow also benefited from certain government payment deferral measures introduced as part of the COVID-19 crisis. The impact of these benefits is expected to mature in the second half of the year and we expect lower levels of operating cash flow during the third and fourth quarters of 2020. Capital expenditures were$18.9 million for the six months endedJune 30, 2020 compared to$24.0 million for the six months endedJune 30, 2019 . 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. The lower expenditures in 2020 compared to 2019 is primarily due to overall scale-back of activities in 2020 due to the COVID-19 crisis and the completion of a software development project in 2019, as well as the timing of capital expenditures. From time to time, we acquire and invest in companies throughout the world, including franchises. For the six months endedJune 30, 2020 , the total cash consideration paid for acquisitions, net of cash acquired, was$1.7 million , which represents a deferred consideration payment related to a previous acquisition. 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$212.7 million as ofJune 30, 2019 and was funded through cash on hand. Of the total consideration paid,$58.3 million was for the acquired interests and the remaining$154.4 million was for cash and cash equivalents. The total cash impact of the acquisition was an inflow of$104.8 million , net of cash acquired of$317.5 million . The acquisition of the remaining interest ofExperis AG was accounted for as an equity transaction as we previously consolidated the entity. In connection with the business combination, we recognized a one-time, non-cash gain on the disposition of our previously held equity interest in ManpowerSwitzerland of$80.4 million , which is included within interest and other expenses (income), net on the Consolidated Statements of Operations. Of the$80.4 million ,$32.5 million represented the reclassification of foreign currency translation adjustments related to the previously held equity interest, from accumulated other comprehensive income. Excluding Manpower Switzerland and Experis AG, the total cash consideration paid for acquisitions, net of cash acquired, was$17.7 million for the six months endedJune 30, 2019 . This balance represents contingent consideration payments related to previous acquisitions, of which$12.9 million had been recognized as a liability at the acquisition date.
Net debt repayments was
Our €500.0 million notes and €400.0 million notes are dueJune 2026 andSeptember 2022 , respectively. 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 or €400.0 million notes. As ofJune 30, 2020 , we had letters of credit totaling$0.5 million issued under our$600.0 million revolving credit facility. Additional borrowings of$599.5 million were available to us under the facility as ofJune 30, 2020 . The$600.0 million revolving credit agreement requires 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. As defined in the agreement, we 37 -------------------------------------------------------------------------------- had a Net Debt-to-EBITDA ratio of 0.03 to 1 and a fixed charge coverage ratio of 3.88 to 1 as ofJune 30, 2020 . Based on our current forecast, we expect to be in compliance with our financial covenants for the next 12 months. We have assessed what impact the COVID-19 crisis has had or may have on our liquidity position as ofJune 30, 2020 and for the near future. As ofJune 30, 2020 , our cash and cash equivalents balance was$1,438.6 million . We also have access to the previously mentioned revolving credit facility that could immediately provide us with up to$600 million of additional cash, which remains unused as ofJune 30, 2020 , and we have an option to request an increase to the total availability under the revolving credit facility by an additional$200 million and each lender may participate in the requested increase at their discretion. In addition, we have access to the previously mentioned credit lines of up to$300 million ($600 million in the third quarter) to meet the working capital needs of our subsidiaries, of which$250.7 million was available to use as ofJune 30, 2020 . Our €500.0 million notes and €400.0 million notes that total$1,005.5 million as ofJune 30, 2020 mature in 2022 and 2026, thus, there are no payments due in the very near term except for annual interest payments. Based on the above, we believe we have sufficient liquidity and capital resources to satisfy future requirements and meet our obligations currently and in the near future should the COVID-19 crisis cause any additional cash flow needs. The Board of Directors declared a semi-annual dividend of$1.09 per share on bothMay 8, 2020 andMay 10, 2019 . The 2020 dividends were paid onJune 15, 2020 to shareholders of record as ofJune 1, 2020 . The 2019 dividends were paid onJune 14, 2019 to shareholders of record onJune 3, 2019 . InAugust 2019 , the Board of Directors authorized the repurchase of 6.0 million shares of our common stock, with terms consistent with the previous authorizations. This authorization is in addition to theAugust 2018 Board authorizations to purchase 6.0 million shares of our common stock. Share repurchases may be made from time to time through a variety of methods, including open market purchases, block transactions, privately negotiated transactions or similar facilities. During the first six months of 2020, we repurchased a total of 0.9 million shares comprised of 0.8 million shares under the 2018 authorization and 0.1 million shares under the 2019 authorization, at a total cost of$63.8 million . The repurchases in the first half of 2020 all occurred within the first quarter of 2020. During the first six months of 2019, we repurchased a total of 1.2 million shares at a cost of$101.0 million under the 2018 authorization. As ofJune 30, 2020 , there were 5.9 million shares remaining authorized for repurchase under the 2019 authorization and no shares remaining authorized for repurchase under the 2018 authorization. We had aggregate commitments of$2,148.5 million as ofJune 30, 2020 related to debt, operating leases, severances and office closure costs, transition tax resulting from the Tax Act and certain other commitments compared to$2,202.8 million as ofDecember 31, 2019 . We also have entered into guarantee contracts and stand-by letters of credit totaling approximately$902.6 million and$845.0 million as ofJune 30, 2020 andDecember 31, 2019 , respectively ($851.0 million and$793.4 million for guarantees, respectively, and$51.6 million for stand-by letters of credit as of both dates). 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 obligations in cash. Due to the nature of these arrangements and our historical experience, we do not expect any significant payments under these arrangements. Therefore, they have been excluded from our aggregate commitments. The cost of these guarantees and letters of credit was$0.9 million and$0.8 million for the six months endedJune 30, 2020 and 2019, respectively. We recorded net restructuring costs of$48.2 million and$41.4 million during the six months endedJune 30, 2020 and 2019, respectively, in selling and administrative expenses, primarily related to severances and office closures and consolidations in multiple countries and territories. As a result of the adoption of the new accounting guidance on leases as ofJanuary 1, 2019 , the office closure costs of$8.2 million during the six months endedJune 30, 2020 were recorded as an impairment to the operating lease right-of-use asset and, thus, are not included in the restructuring reserve balance as ofJune 30, 2020 . The costs paid, utilized or transferred out of our restructuring reserve were$32.1 million during the six months endedJune 30, 2020 . We expect a majority of the remaining$23.4 million reserve will be paid by the end of 2020.
Recently Issued Accounting Standards
See Note 2 to the Consolidated Financial Statements.
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