ManpowerGroup Inc

Notes to Consolidated Financial Statements (Unaudited)

For the three and six months ended June 30, 2024 and 2023

(1)Basis of Presentation and Accounting Policies

Basis of Presentation

Certain information and footnote disclosures normally included in the financial statements prepared in accordance with United States Generally Accepted Accounting Principles ("GAAP") have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although we believe that the disclosures are adequate to make the information presented not misleading. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements included in our 2023 Annual Report on Form 10-K.

The information furnished reflects all adjustments that, in the opinion of management, were necessary for a fair statement of the Consolidated Financial Statements for the periods presented. Such adjustments were of a normal recurring nature, unless otherwise disclosed.

Allowance for Expected Credit Losses

We have an allowance for expected credit losses recorded as an estimate of the accounts receivable that may not be collected. This allowance is calculated on an entity-by-entity basis with consideration of historical write-off experience, age of receivables, market conditions, and a specific review for expected credit losses. Items that affect this balance mainly include provision for expected credit losses and the write-off of accounts receivable balances.

A rollforward of our allowance for expected credit losses is shown below:

Leases

We determine whether a contract is or contains a lease at contract inception. Right-of-use (“ROU”) assets and long-term lease liabilities are presented as separate line items on our Consolidated Balance Sheets. Short-term lease liabilities are included in accrued liabilities on our Consolidated Balance Sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. As the rate implicit in the lease is not readily determinable in most of our leases, we use our incremental borrowing rate. We determine our incremental borrowing rate at the commencement date using our unsecured borrowing rate, adjusted for collateralization, lease term, economic environment, currency and other factors. ROU assets are recognized at commencement date at the value of the related lease liabilities, adjusted for any prepayments, lease incentives received, and initial direct costs incurred. Our lease terms include options to renew or not terminate the lease when it is reasonably certain that we will exercise that option.

Lease expenses for operating leases are recognized on a straight-line basis over the lease term and recorded in selling and administrative expenses on the Consolidated Statements of Operations.

Goodwill Impairment

In accordance with the accounting guidance on goodwill, we perform an annual impairment test of goodwill at our reporting unit level during the third quarter, or more frequently if events or circumstances change that would more likely than not reduce the fair value of our reporting units below their carrying value.

We evaluate the recoverability of goodwill utilizing an income approach that estimates the fair value of the future discounted cash flows to which the goodwill relates. This approach reflects management’s internal outlook of the reporting units, which is believed to be the best determination of value due to management’s insight and experience with the reporting units. Significant assumptions used in our goodwill impairment tests include: expected future revenue growth rates, operating unit profit margins, working capital levels, discount rates, and a terminal value multiple.

Management closely monitors the results of all the reporting units and comparisons to the key assumptions used in our fair value estimate at the time of our annual impairment test, in addition to operational initiatives and macroeconomic conditions, which may impact the results of the reporting units. As of our last annual impairment date, all of our reporting units' fair values exceeded their respective carrying values by 20% or more besides the Netherlands reporting unit, for which we recognized a full impairment of the remaining goodwill balance as of December 31, 2023. There could be significant decreases in the operating results of our reporting units for a sustained period, which may result in a recognition of goodwill impairment that could be material to the Consolidated Financial Statements.

(2)Recent Accounting Standards

Accounting Standards Effective as of January 1, 2024

In March 2020, the FASB issued newguidance on accounting for contract modifications, including hedging relationships, due to the transition from LIBOR and other interbank offerings related to alternative reference interest rates. The guidance was effective upon issuance and can be applied to applicable contract modifications through December 31, 2024. The adoption of this guidance has not had any impact on our Consolidated Financial Statements, and we do not expect it to have amaterial impact going forward.

Recently Issued Accounting Standards

In November 2023, the FASB issued newguidance on segment reporting. The guidance requires an annual and interim disclosure of significant segment expenses that are (1) regularly provided to the chief operating decision maker and (2) included in the reported measure of segment profit or loss. The guidance also allows companies to disclose multiple measures of segment profit or loss if those measures are used to assess performance and allocate resources. The new guidance is effective for our 2024 annual disclosures and subsequent quarters, and should be adopted retrospectively. We are currently assessing the impact of the adoption of this guidance on our financial statement disclosures.

In December 2023, the FASB issued a final standard on improvements to income tax disclosures. The guidance requires that public entities on an annual basis disclose disaggregated information about the rate reconciliation as well as income taxes paid. The new standard is effective for our 2025 annual disclosures and will be adopted prospectively. We are currently assessing the impact of the adoption of this guidance on our financial statement disclosures.

(3)Revenue Recognition

For certain client contracts where we recognize revenues over time, we recognize the amount that we have the right to invoice, which corresponds directly to the value provided to the client of our performance to date.

We do not disclose the amount of unsatisfied performance obligations for client contracts with an original expected length of one year or less and those client contracts for which we recognize revenues at the amount to which we have the right to invoice for services performed. We have other contracts with revenues expected to be recognized subsequent to June 30, 2024, related to remaining performance obligations, which are not material.

We record accounts receivable when our right to consideration becomes unconditional. Contract assets primarily relate to our rights to consideration for services provided that they are conditional on satisfaction of future performance obligations. We record contract liabilities (deferred revenue) when payments are made or due prior to the related performance obligations being satisfied. The current portion of our contract liabilities is included in accrued liabilities in our Consolidated Balance Sheets. We do not have any material contract assets or long-term contract liabilities.

Our deferred revenue was $33.3 as of June 30, 2024 and $31.9 as of December 31, 2023.

In the following table, revenue is disaggregated by service types for each of our reportable segments. See Note 2 to the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K for descriptions of revenue service types.

(a)

Effective January 1, 2024, our segment reporting was realigned to include our Puerto Rico business within Other Americas. Accordingly, United States is now adjusted to exclude Puerto Rico. All previously reported results have been restated to conform to the current year presentation.

(a)

Effective January 1, 2024, our segment reporting was realigned to include our Puerto Rico business within Other Americas. Accordingly, United States is now adjusted to exclude Puerto Rico. All previously reported results have been restated to conform to the current year presentation.

In the following table, revenue is disaggregated by timing of revenue recognition for each of our reportable segments:

(a)

Effective January 1, 2024, our segment reporting was realigned to include our Puerto Rico business within Other Americas. Accordingly, United States is now adjusted to exclude Puerto Rico. All previously reported results have been restated to conform to the current year presentation.

(a)

Effective January 1, 2024, our segment reporting was realigned to include our Puerto Rico business within Other Americas. Accordingly, United States is now adjusted to exclude Puerto Rico. All previously reported results have been restated to conform to the current year presentation.

(4)Share-Based Compensation Plans

During the three months ended June 30, 2024 and 2023, we recognized share-based compensation expense of $7.5 and $6.9, respectively, and $15.0 and $12.0 for thesix months ended June 30, 2024 and 2023, respectively. The expense relates to stock options, deferred stock units, restricted stock units and performance share units. We recognize share-based compensation expense in selling and administrative expenses on a straight-line basis over the service period of each award. Consideration received from share-based awards was $0.7 and $1.7 for the six months ended June 30, 2024 and 2023, respectively.

(5)Acquisitions and Dispositions

From time to time, we acquire and invest in companies throughout the world, including franchises. For the six months ended June 30, 2024, total cash consideration paid for acquisitions, net of cash acquired, was $2.8, which represents a contingent consideration payment related to a previous acquisition. No cash consideration was paid during thesix months ended June 30, 2023.

(6)Restructuring Costs

During the six months ended June 30, 2024, we did not record any restructuring costs. During the six months ended June 30, 2023, we recorded $21.1 in restructuring costs. During the six months ended June 30, 2024, we made payments of$51.0 out of our restructuring reserve, which is used for severance, office closures and consolidations, and professional and other fees related to restructuring in multiple countries and territories. We expect a majority of the remaining$39.0 reserve will be paid by the end of 2024.

Changes in the restructuring reserve by reportable segment and Corporate are shown below:

(a)

Balances related to the United States were $3.7 and $0.9 as of December 31, 2023 and June 30, 2024, respectively.

(b)

Balances related to France were $2.5 and 0.7 as of December 31, 2023 and June 30, 2024, respectively. Balances related to Italy were $1.0 and $0.5 as of December 31, 2023 and June 30, 2024, respectively.

(7)Income Taxes

We recorded income tax expense at an effective rate of 34.9% for the three months ended June 30, 2024, as compared to an effective rate of 31.9% for the three months ended June 30, 2023. The 2024 rate was unfavorably impacted by the lower level and overall mix of earnings and partially offset by the scheduled reduction in the French business tax rate from 0.38% to 0.28% effective January 1, 2024. The 34.9% effective tax rate for the second quarter of 2024 was higher than the United States Federal statutory rate of 21% primarily due to the French business tax, tax losses in certain countries for which we did not recognize a corresponding tax benefit due to valuation allowances, and the overall mix of earnings.

We recorded income tax expense at an effective rate of 33.4% for the six months ended June 30, 2024, as compared to an effective rate of 30.6% for the six months ended June 30, 2023. The 2024 rate was unfavorably impacted by the lower level and overall mix of earnings and partially offset by the scheduled reduction in the French business tax rate from 0.38% to 0.28% effective January 1, 2024. The 33.4% effective tax rate for the first half of 2024 was higher than the United States Federal statutory rate of 21% primarily due to the French business tax, tax losses in certain countries for which we did not recognize a corresponding tax benefit due to valuation allowances, and the overall mix of earnings.

We had gross unrecognized tax benefits related to various tax jurisdictions, including interest and penalties, of $35.2 as of June 30, 2024. If recognized, the entire amount would favorably affect the effective tax rate except for $6.0. As of December 31, 2023, we had gross unrecognized tax benefits related to various tax jurisdictions, including interest and penalties, of $32.8.

We conduct business globally in various countries and territories. We are routinely audited by the tax authorities of the various tax jurisdictions in which we operate. Generally, the tax years that could be subject to examination are 2017 through 2024 for our major operations in France, Italy, the United Kingdom and the United States. As of June 30, 2024, we were subject to tax audits in Australia, Austria, France, Germany, India, Israel, Spain and the United States. We believe that the resolution of these audits will not have a material impact on earnings.

(8)Net Earnings Per Share

The calculations of net earnings per share - basic and net earnings per share - diluted were as follows:

There were 0.8 million and 0.7 million share-based awards excluded from the calculation of net earnings per share - diluted for thethree months ended June 30, 2024 and 2023, respectively, because their impact was anti-dilutive. There were 0.8 million and 0.6 million share-based awards excluded from the calculation of net earnings per share - diluted for thesix months ended June 30, 2024 and 2023, respectively, because their impact was anti-dilutive.

(9)Goodwill and Other Intangible Assets

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

(a)

Balances were net of accumulated impairment loss of $749.3 as of both June 30, 2024 and December 31, 2023.

(b)

Balances were net of accumulated impairment loss of $139.5 as of both June 30, 2024 and December 31, 2023.

Total consolidated amortization expense related to intangible assets for the remainder of 2024 is expected to be $16.2 and in each of the next five years as follows: 2025 - $30.3, 2026 - $26.8, 2027 - $26.2, 2028 - $26.2 and 2029 - $26.2.

Changes in the carrying value of goodwill by reportable segment and Corporate were as follows:

(a)

Balances related to the United States were $1,005.8 as of both December 31,2023 and June 30, 2024. Effective January 1, 2024, our segment reporting was realigned to include our Puerto Rico business within Other Americas. Accordingly, United States is now adjusted to exclude Puerto Rico. All previously reported results have been restated to conform to the current year presentation.

(b)

Balances related to France were $75.6 and $73.4 as of December 31, 2023 and June 30, 2024, respectively. Balances related to Italy were$3.8 and $3.7 as of December 31, 2023 and June 30, 2024, respectively.

(c)

The majority of the Corporate balance relates to goodwill attributable to our acquisitions of Right Management ($62.1) and Jefferson Wells ($55.5). Jefferson Wells is part of the United States reporting unit. Right Management is allocated to the reporting units of the countries in which Right Management operates. For purposes of monitoring our total assets by segment, we do not allocate the Corporate balances to the respective reportable segments as this is commensurate with how we operate our business. We do, however, include these balances within the appropriate reporting units for our goodwill impairment testing.

(10)Retirement Plans

The components of the net periodic benefit cost (credit) for our plans were as follows:

During the three and six months ended June 30, 2024, contributions made to our pension plans were$4.3 and$9.5, respectively, and contributions made to our retiree health care plan were$0.2 and$0.5, respectively. During 2024, we expect to make total contributions of approximately$19.0 to our pension plans and to fund our retiree health care payments as incurred.

(11)Shareholders’ Equity

The components of accumulated other comprehensive loss, net of tax, were as follows:

Noncontrolling interests, reported in total shareholders' equity in our Consolidated Balance Sheets, represent amounts related to majority-owned subsidiaries in which we have a controlling financial interest. Net earnings attributable to these noncontrolling interests are recorded in interest and other expenses, net in our Consolidated Statements of Operations. During the three and six months ended June 30, 2024, we recorded income of $0.1 and $0.0, respectively. During both the three and six months ended June 30, 2023 we recorded expenses of $0.1.

The Board of Directors declared a semi-annual dividendof $1.54 and $1.47 per share on May 3, 2024 and May 5, 2023, respectively. The 2024 dividends were paid on June 14, 2024 to shareholders of record as of June 3, 2024. The 2023 dividends were paid on June 15, 2023 to shareholders of record as of June 1, 2023.

In August 2023 and August 2021, the Board of Directors authorized the repurchase of 5.0 million shares and 4.0 million shares of our common stock, respectively. We conduct share repurchases from time to time through a variety of methods, including open market purchases, block transactions, privately negotiated transactions or similar facilities. During thesix months ended June 30, 2024, we repurchased a total of 1.0 million shares under the 2023 authorization at a cost of $77.0. During thesix months ended June 30, 2023, we repurchased a total of 1.1 million shares under the 2021 authorization at a cost of $81.9, including 25,000 shares at a cost of $2.0 that were repurchased but not yet settled. As of June 30, 2024, there were 3.6 million shares remaining authorized for repurchase under the 2023 authorization andno shares remaining authorized for repurchase under the 2021 authorization.

(12)Interest and Other Expenses, Net

Interest and other expenses, net consisted of the following:

(13)Derivative Financial Instruments and Fair Value Measurements

Derivative Financial Instruments

We are exposed to various market risks relating to our ongoing business operations. The primary market risks, which are managed using derivative instruments, are foreign currency exchange rate risk and interest rate risk. In certain circumstances, we enter into foreign currency forward exchange contracts and cross-currency swaps to reduce the effects of fluctuating foreign currency exchange rates on our cash flows denominated in foreign currencies. Our exposure to market risk for changes in interest rates relates primarily to our long-term debt obligations. We have historically managed interest rate risk through the use of a combination of fixed and variable rate borrowings.

Net Investment Hedges

We use cross currency swaps, forward contracts and a portion of our foreign currency denominated debt, a non-derivative financial instrument, to protect the value of our net investments in certain of our foreign subsidiaries. For derivative instruments that are designated and qualify as hedges of our net investments in foreign operations, the changes in fair values of the derivative instruments are recognized in foreign currency translation, a component of accumulated other comprehensive income (“AOCI”), to offset the changes in the values of the net investments being hedged. For non-derivative financial instruments that are designated and qualify as hedges of net investments in foreign operations, the change in the carrying value of the designated portion of the non-derivative financial instrument due to changes in foreign currency exchange rates is also recorded in foreign currency translation.

The €400.0 ($425.8) notes due June 2027 and the €500.0 ($534.3) notes due June 2026 were designated as a hedge of our net investment in our foreign subsidiaries with a Euro-functional currency as of June 30, 2024.

In September 2022, we entered into a cross currency swap agreement that net converts fixed-rate Swiss franc (“CHF”) payments to fixed-rate United States dollar payments. This swap was designated as a net investment hedge of our foreign subsidiary with CHF functional currency.

The effect of our net investment hedges on AOCI for the three and six months ended June 30, 2024 and 2023 was as follows:

Cash Flow Hedges

We use forward currency exchange contracts to hedge the changes in cash flows of certain operational expenses denominated in foreign currency due to changes in foreign currency exchange rates. The changes in fair value of the forward currency exchange contracts derivatives are recorded in AOCI and reclassified into earnings when the underlying operating expense is recognized in earnings.

On June 9, 2022, we entered into a forward starting interest rate swap agreement with a notional amount of €300.0 and a fixed rate of 1.936%, which was accounted for as a cash flow hedge, to hedge the interest rate exposure related to our anticipated issuance of €400.0 notes to repay our existing €400.0 notes maturing in September 2022. Upon the issuance of the notes on June 30, 2022, we settled this forward starting interest rate swap, resulting in a gain of $2.0, which was recorded in AOCI and is being amortized over the term of the notes as an offset to interest expense.

The following tables present the impact that changes in the fair values of derivatives designated as cash flow hedges had on other comprehensive income (“OCI”), AOCI and earnings for thethree and six months ended June 30, 2024 and 2023:

We expect the net amount of pre-tax derivative gains included in AOCI at June 30, 2024 to be reclassified into earnings within the next 12 months will not be significant. The actual amount that will be reclassified to earnings over the next 12 months will vary due to future currency exchange rates.

Fair Value Hedges

We account for derivatives as fair value hedges when the hedged item is a recognized asset, liability, or firm commitment. We use cross currency swaps to hedge the changes in cash flows of certain of our foreign currency denominated intercompany notes due to changes in foreign currency exchange rates. We record the change in carrying value of the foreign currency denominated notes due to changes in exchange rates into earnings each period. The changes in fair value of the cross-currency swap derivatives are recorded in other comprehensive income (“OCI”) with an immediate reclassification into earnings for the change in fair value attributable to fluctuations in foreign currency exchange rates.

In March 2022, we entered into a cross currency swap agreement to hedge our intercompany fixed-rate CHF denominated note. On April 18, 2024, we settled the swaps at maturity for a net cash inflow of $14.9 and entered into a new cross currency swap with a maturity date of April 2027. The cross currency swaps convert our intercompany fixed-rate CHF denominated note, including the annual interest payment and the payment of remaining principal at maturity, to a fixed-rate Euro denominated note. The economic effect of the swaps is to eliminate the uncertainty of cash flows in CHF associated with the note by fixing the principal at €236.9 with a fixed annual interest rate of 3.45%.

In September 2022, we entered into a cross currency swap agreement to hedge an intercompany fixed-rate CHF denominated note, including the annual interest payment and the payment of remaining principal at maturity, to a fixed-rate Euro denominated note. The economic effect of the swaps is to eliminate the uncertainty of cash flows in CHF associated with the note by fixing the principal at €55.4 with a fixed annual interest rate of 1.7975%. The cross-currency swap matures in September 2024, which aligns with the term of the intercompany note.

The following tables present the impact that the fair value hedges had on OCI and earnings for thethree and six months ended June 30, 2024 and 2023:

We assessed the hedging relationship at the inception of the hedges in order to determine whether the derivatives that are used in the transaction are highly effective in offsetting the cash flows of the hedged item, and will continue to assess the relationship on an ongoing basis. We use the hypothetical derivative method in conjunction with regression analysis using a third-party valuation to measure effectiveness of our cross-currency swap agreements and our forward currency exchange contracts.

Non-designated instruments

We also use certain derivatives, which are not designated as hedging instruments, as economic hedges of foreign currency and interest rate exposure. For our forward contracts that are not designated as hedges, any gain or loss resulting from the change in fair value is recognized in current period earnings. These gains or losses are offset by the exposure related to receivables and payables with our foreign subsidiaries and to interest due on our Euro-denominated notes, which is paid annually in June and September. The effect of our forward contracts that are not designated as hedging instruments on the consolidated statements of operations for thethree and six months ended June 30, 2024 and 2023 was as follows:

The following tables present the fair value of derivative and non-derivative assets and liabilities on the Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023:

Fair Value Measurements

The carrying value of the long-term debt approximates fair value, except for the Euro-denominated notes, because the interest rates are variable and reflect current market rates. The fair value of the Euro-denominated notes, as observable at commonly quoted intervals (Level 2 inputs), was $947.1 and $977.6 as of June 30, 2024 and December 31, 2023, respectively, compared to a carrying value of $960.1 and $988.2, respectively.

Our deferred compensation plan assets were $160.1 and $144.2 as of June 30, 2024 and December 31, 2023, respectively. We determine the fair value of these assets, comprised of publicly traded securities, by using market quotes as of the last day of the period (Level 1 inputs).

We measure the fair value of the foreign currency forward contracts and cross-currency swaps at the value based on either directly or indirectly observable inputs from third parties (Level 2 inputs).

(14)Leases

The components of lease expense were as follows:

(a)

Other lease expense includes variable lease expense and sublease income.

Other information related to leases was as follows:

(a)

Short-term operating lease liability is included in accrued liabilities on our Consolidated Balance Sheets.

Maturities of operating lease liabilities as of June 30, 2024 were as follows:

(15)Segment Data

Effective January 1, 2024, our segment reporting was realigned to include our Puerto Rico business within Other Americas. Accordingly, United States is now adjusted to exclude Puerto Rico. All previously reported results have been restated to conform to the current year presentation.

We are organized and managed primarily on a geographic basis. Each country and business unit generally has its own distinct operations and management team, providing services under our global brands, and maintains its own financial reports. We have an executive sponsor for each global brand who is responsible for ensuring the integrity and consistency of delivery across the company. Each operation reports directly or indirectly through a regional manager, to a member of executive management. Given this reporting structure, we operate using the following reporting segments: Americas, which includes United States and Other Americas; Southern Europe, which includes France, Italy and Other Southern Europe; Northern Europe; and APME.

The segments derive a significant majority of their revenues from our staffing and interim services. The remaining revenues within these segments are derived from our outcome-based solutions and consulting services, permanent recruitment services, and other services. Segment revenues represent sales to external clients. We provide services to a wide variety of clients, none of which individually comprise a significant portion of revenues for us as a whole. Due to the nature of our business, we generally do not have export sales.

(a)

In the United States, revenues from services included fees received from the related franchise offices of$3.2 and$2.6 for the three months ended June 30, 2024 and 2023, respectively, and$5.6 and$5.8 for the six months ended June 30, 2024 and 2023, respectively. These fees are primarily based on revenues generated by the franchise offices, which were$99.8 and$100.8 for the three months ended June 30, 2024 and 2023, respectively, and$187.2 and$200.1 for the six months ended June 30, 2024 and 2023, respectively.

(b)

Our consolidated revenues from services include fees received from our franchise offices of$4.0 and$3.3 for the three months ended June 30, 2024 and 2023, respectively, and$7.3 and$7.2 for the six months ended June 30, 2024 and 2023, respectively. These fees are primarily based on revenues generated by the franchise offices, which were$287.7 and$250.6 for the three months ended June 30, 2024 and 2023, respectively, and$564.9 and$500.8 for the six months ended June 30, 2024 and 2023, respectively.

(c)

We evaluate segment performance based on operating unit profit (“OUP”), which is equal to segment revenues less cost of services and branch and national headquarters operating costs. This profit measure does not include goodwill and intangible asset impairment charges or amortization of intangibles related to acquisitions, corporate expenses, interest and other expense amounts or income taxes.