News Column

MANPOWERGROUP INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 6, 2014

See the financial measures section on pages 23 and 24 for further information on constant currency and organic constant currency.

Operating Results - Three Months Ended June 30, 2014 and 2013

Client demand for workforce solutions and services is dependent on the overall strength of the labor market and secular trends toward greater workforce flexibility within each of the countries and territories in which we operate. Improving economic growth typically results in increasing demand for labor, resulting in greater demand for our staffing services. During these periods of increasing demand as we saw in the second quarter of 2014, we are able to improve our profitability and operating leverage as our cost base can support some increase in business without a similar increase in selling and administrative expenses. In the three months ended June 30, 2014, we experienced continued revenue growth in several of our markets as the global economy continued to stabilize. The improving economic conditions were seen in our consolidated revenue growth as we have maintained a steady trend of improvement each quarter over the past year, from a slight revenue decline of 0.3% in the third quarter of 2013 to a 3.7% increase for the second quarter of 2014 in constant currency. We saw this improving trend in many of our markets in the Americas and Europe; however, our APME segment continued to experience revenue declines. Our staffing/interim business increased in the quarter, along with a 4.3% constant currency increase in our permanent recruitment business and growth in all our ManpowerGroup Solutions offerings. At Right Management, we continued to experience revenue declines as the demand for our outplacement services decreased due to the improving economic conditions in several of our markets and the counter-cyclical nature of these services, while revenues from our talent management services increased 5.6% in constant currency. Our gross profit margin in the second quarter of 2014 compared to 2013 increased as our staffing/interim gross profit margin improved and was partially offset by declining demand for our higher-margin Right Management outplacement services. Our staffing/interim gross profit margin improvement in the second quarter of 2014 compared to 2013 reflects strong price discipline, focused pricing initiatives, and additional payroll tax credits related to the Credit d'ImpÔt pour la CompÉtitivitÉ et l'Emploi ("CICE") in France. The CICE law provides credits based on a percentage of wages paid to employees receiving less than two-and-a-half times the French minimum wage, which we account for as a reduction of our cost of services in the period earned. The payroll tax credit increased to 6% of eligible wages in 2014 from 4% of eligible wages in 2013. Our profitability improved in the quarter, with operating profit up 46.3%, or 43.2% in constant currency, and operating profit margin up 100 basis points compared to the second quarter of 2013. Included in the second quarter of 2013 was $20.0 million of restructuring charges as a result of our simplification and cost recalibration plan that began in the fourth quarter of 2012. Excluding these charges, our operating profit was up 23.9% in constant currency and 60 basis points compared to the second quarter of 2013. Our simplification and cost recalibration plan initiatives have resulted in a lower cost basis for the company. We saw the benefit of this in the quarter, resulting in the improved operational leverage as we were able to support the higher revenue level without a similar increase in expenses.



The following table presents selected consolidated financial data for the three months ended June 30, 2014 as compared to 2013.

Constant Currency (in millions, except per share data) 2014 2013 Variance Variance Revenues from services $ 5,321.7$ 5,040.7 5.6 % 3.7 % Cost of services 4,424.4 4,204.3 5.2 3.3 Gross profit 897.3 836.4 7.3 5.6 Gross profit margin 16.9 % 16.6 % Selling and administrative expenses 709.9 708.3 0.2 (1.2 ) Operating profit 187.4 128.1 46.3 43.2 Operating profit margin 3.5 % 2.5 % Interest and other expenses 7.9 10.3 (24.0 ) Earnings before income taxes 179.5 117.8 52.5 48.7 Provision for income taxes 69.7 49.6 40.8 Effective income tax rate 38.8 % 42.1 % Net earnings $ 109.8$ 68.2 61.0 57.4 Net earnings per share - diluted $ 1.35$ 0.87 55.2 51.7 Weighted average shares - diluted 81.4 78.6 3.5 % 15

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The year-over-year increase in revenues from services of 5.6% (3.7% in constant currency and 3.1% on an organic constant currency basis) was attributed to:

increased demand for services in several of our markets within Southern Europe

and Northern Europe, where revenues increased 9.3% (4.2% in constant currency

and 3.8% in organic constant currency) and 9.2% (4.6% in constant currency and

3.5% in organic constant currency), respectively. This included revenue

increases in our larger markets of France and Italy of 6.9% (1.9% in constant

currency) and 12.8% (7.5% in constant currency and 7.1% in organic constant

currency), respectively, as we continued to experience stabilization in France

and improving demand in Italy; and

revenue increase in the United States of 3.7% primarily driven by growth in

our larger national accounts and in the small/medium-sized business within our

Manpower business, as well as solid growth in our MSP and RPO offerings within

the ManpowerGroup Solutions business; partially offset by

revenue decrease in APME of 4.7% (-1.8% in constant currency and -2.4% in

organic constant currency) primarily due to a decrease in our staffing/interim

business in Japan as we were challenged to recruit candidates in a tight labor

market even though we experienced gradual improvement in demand for our

staffing/services, and in China where legislative changes restricted the use

of temporary employment; and

decreased demand for outplacement services at Right Management, where these

revenues decreased 3.8% (-5.1% in constant currency); and

the unfavorable impact of 1.0% due to approximately one fewer billing day in

the period.



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

a 40 basis point (0.40%) favorable impact from the improvement in our

staffing/interim margin as increases in the Americas, Southern Europe and APME

were offset by a decrease in Northern Europe. Overall, our Manpower business

was up 50 basis points and Experis was up 40 basis points; partially offset by

a 10 basis point (-0.10%) unfavorable impact from a decreased demand in our

higher-margin outplacement services at Right Management.

The 0.2% increase in selling and administrative expenses in the second quarter of 2014 (a decrease of -1.2% in constant currency and -2.2% in organic constant currency) was attributed to:



a 4.9% increase in organic salary-related costs primarily from an increase in

our variable incentive-based costs due to improved operating results;

legal costs of $9.0 million recorded in the United States related to a

settlement agreement (see the Employment-Related Items section of Management's

Discussion and Analysis for additional information);

the additional recurring selling and administrative costs incurred as a result

of the acquisitions in Southern Europe, Northern Europe and APME; and

a 1.0% increase due to the impact of currency exchange rates; partially offset

by



a decrease of restructuring costs from $20.0 million for the three months

ended June 30, 2013, comprised of $4.4 million in the Americas, $3.3 million

in Southern Europe, $9.3 million in Northern Europe, $0.4 million in APME,

$2.6 million at Right Management to zero for the three months ended June 30,

2014;



a property insurance recovery of $3.5 million recorded in corporate expenses;

a 4.6% decrease in lease and office-related costs because we closed over 150

offices since the second quarter of 2013 as a result of office consolidations

and delivery model changes; and

a decrease in other non-personnel related costs, excluding the property

insurance recovery and lease and office-related costs noted above, as a result

of the simplification and cost recalibration actions taken. 16

-------------------------------------------------------------------------------- Selling and administrative expenses as a percent of revenues decreased 80 basis points (-0.80%) in the second quarter of 2014 compared to 2013. The change in selling and administrative expense as a percent of revenues consisted of:



a 60 basis point (-0.60%) favorable impact due to the decrease of

non-personnel related costs: -20 basis points due to the decrease in our lease

and office-related costs, -10 basis points favorable impact due to the

property insurance recovery noted above, and the remaining -30 basis points

was due to other non-personnel related costs as a result of the simplification

and cost recalibration actions taken; and

a 40 basis point (-0.40%) favorable impact due to the decrease of

restructuring costs noted above; partially offset by

a 20 basis point (0.20%) increase due to the United States legal costs noted

above. Interest and other expenses are comprised of interest, foreign exchange gains and losses and other miscellaneous non-operating income and expenses. Interest and other expenses were $7.9 million in the second quarter of 2014 compared to $10.3 million in the second quarter of 2013. Net interest expense decreased $1.2 million in the second quarter of 2014 to $8.2 million from $9.4 million in the second quarter of 2013 due to lower debt levels as we repaid our 200.0 million Notes in June 2013 with cash. Other income was $0.3 million in the second quarter of 2014 compared to other expenses of $0.9 million in the second quarter of 2013 due to translation gains recorded in the second quarter of 2014. We recorded an income tax expense at an effective rate of 38.8% for the three months ended June 30, 2014, as compared to an effective rate of 42.1% for the three months ended June 30, 2013. The 2014 rate was favorably impacted by a change in the overall mix of earnings, primarily an increase to non-U.S. income. The 38.8% effective tax rate in the quarter was higher than the United States Federal statutory rate of 35%, and we currently expect a similar annual effective tax rate due primarily to the French business tax, repatriations, valuation allowances and other permanent items. Net earnings per share - diluted was $1.35 for the three months ended June 30, 2014 compared to $0.87 for the three months ended June 30, 2013. Foreign currency exchange rates favorably impacted net earnings per share - diluted by approximately $0.03 per share for the three months ended June 30, 2014. Weighted average shares - diluted increased 3.5% to 81.4 million for the three months ended June 30, 2014 from 78.6 million for the three months ended June 30, 2013. This increase is due to shares issued as a result of exercises and vesting of share-based awards since the second quarter of 2013 and the dilutive effect of share-based awards because of the increase in our share price, partially offset by the impact of share repurchases completed in the first quarter of 2014.



Operating Results - Six Months Ended June 30, 2014 and 2013

The following table presents selected consolidated financial data for the six months ended June 30, 2014 as compared to 2013.

Constant Currency (in millions, except per share data) 2014 2013 Variance Variance Revenues from services $ 10,225.7$ 9,809.6 4.2 % 3.3 % Cost of services 8,511.9 8,183.1 4.0 3.1 Gross profit 1,713.8 1,626.5 5.4 4.6 Gross profit margin 16.8 % 16.6 % Selling and administrative expenses 1,399.5 1,444.0 (3.1 ) (3.7 ) Operating profit 314.3 182.5 72.3 70.5 Operating profit margin 3.1 % 1.9 % Interest and other expenses 17.1 21.8 (21.7 ) Earnings before income taxes 297.2 160.7 85.0 82.6 Provision for income taxes 117.3 68.6 71.2 Effective income tax rate 39.5 % 42.7 % Net earnings $ 179.9$ 92.1 95.3 93.5 Net earnings per share - diluted $ 2.21$ 1.17 88.9 87.2 Weighted average shares - diluted 81.4 78.6 3.6 % 17

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The year-over-year increase in revenues from services of 4.2% (3.3% in constant currency and 2.8% on an organic constant currency basis) was attributed to:

increased demand for services in several of our markets within Southern Europe

and Northern Europe, where revenues increased 8.6% (4.0% in constant currency

and 3.6% in organic constant currency) and 8.0% (4.6% in constant currency and

3.4% in organic constant currency), respectively. This included revenue

increases in our larger markets of France and Italy of 6.6% (2.1% in constant

currency) and 9.8% (5.1% in constant currency and 4.7% in organic constant

currency), respectively, as we continued to experience stabilization in France

and improving demand in Italy; and

revenue increase in the United States of 2.9% primarily driven by growth in

our larger national accounts and in the small/medium-sized business within our

Manpower business as well as solid growth in our MSP and RPO offerings within

the ManpowerGroup Solutions business; partially offset by

revenue decrease in APME of 7.0% (-1.5% in constant currency and -1.9% in

organic constant currency) primarily due to a decrease in our staffing/interim

business in Japan as we were challenged to recruit candidates in a tight labor

market even though we experienced gradual improvement in demand for our

staffing/services, and in China where legislative changes restricted the use

of temporary employment; and

decreased demand for outplacement services at Right Management, where these

revenues decreased 3.5% (-4.0% in constant currency).

The year-over-year 20 basis point (0.20%) increase in gross profit margin was primarily attributed to:

a 30 basis point (0.30%) favorable impact from the improvement in our

staffing/interim margin as increases in the Americas and Southern Europe were

partially offset by a decrease in Northern Europe while APME remained flat;

and



a 10 basis point (0.10%) favorable impact resulting from a 6.6% constant

currency increase in our permanent recruitment business; partially offset by

a 10 basis point (-0.10%) unfavorable impact from decreased demand for our

higher-margin outplacement services at Right Management; and

a 10 basis point (-0.10%) decline from our ManpowerGroup Solutions business,

primarily a result of costs related to a contract termination.

The 3.1% decline in selling and administrative expenses for the six months ended June 30, 2014 (-3.7% in constant currency and -4.5% in organic constant currency) was attributed to:

a decrease in restructuring costs from $54.8 million for the six months ended

June 30, 2013, comprised of $10.3 million in the Americas, $4.5 million in

Southern Europe, $26.4 million in Northern Europe, $2.8 million in APME, $6.4

million at Right Management and $4.4 million in corporate expenses to zero for

the six months ended June 30, 2014;

a property insurance recovery of $3.5 million recorded in corporate expenses;

a 6.4% decrease in lease and office-related costs because we closed over 150

offices since the second quarter of 2013 as a result of office consolidations

and delivery model changes; and

a decrease in other non-personnel related costs, excluding the property

insurance recovery and lease and office-related costs noted above, as a result

of the simplification and cost recalibration actions taken; partially offset

by



legal costs of $9.0 million recorded in the United States related to a

settlement agreement (see the Employment-Related Items section of Management's

Discussion and Analysis for additional information);

a 1.8% increase in organic salary-related costs primarily from an increase in

our variable incentive-based costs due to improved operating results; and

the additional recurring selling and administrative costs incurred as a result

of the acquisitions in Southern Europe, Northern Europe and APME. 18

-------------------------------------------------------------------------------- Selling and administrative expenses as a percent of revenues decreased 100 basis points (-1.00%) for the six months ended June 30, 2014. The change in selling and administrative expense as a percent of revenues consisted of:



a 60 basis point (-0.60%) favorable impact due to the decrease of

restructuring costs noted above; and

a 40 basis point (-0.40%) favorable impact due to the decrease of

non-personnel related costs: -20 basis points due to the decrease in our lease

and office-related costs and -20 basis points due to the decrease in other

non-personnel related costs as a result of the simplification and cost recalibration actions taken. Interest and other expenses were $17.1 million for the six months ended June 30, 2014 compared to $21.8 million for the six months ended June 30, 2013. Net interest expense decreased $3.3 million for the six months ended June 30, 2014 to $15.9 million from $19.2 million for the six months ended June 30, 2013 due to lower debt levels as we repaid our 200.0 million Notes in June 2013 with cash. Other expenses were $1.2 million for the six months ended June 30, 2014 compared to $2.6 million for the six months ended June 30, 2013 due to translation gains recorded in the first half of 2014. We recorded an income tax expense at an effective rate of 39.5% for the six months ended June 30, 2014, as compared to an effective rate of 42.7% for the six months ended June 30, 2013. The 2014 rate was favorably impacted by a change in the overall mix of earnings, primarily an increase to non-U.S. income. The 39.5% effective tax rate for the six months ended June 30, 2014 was higher than the United States Federal statutory rate of 35% due primarily to the French business tax, repatriations, valuation allowances and other permanent items. Net earnings per share - diluted was $2.21 for the six months ended June 30, 2014 compared to $1.17 for the six months ended June 30, 2013. Foreign currency exchange rates favorably impacted net earnings per share - diluted by approximately $0.02 per share for the six months ended June 30, 2014. Weighted average shares - diluted increased 3.6% to 81.4 million for the six months ended June 30, 2014 from 78.6 million for the six months ended June 30, 2013. This increase is due to shares issued as a result of exercises and vesting of share-based awards since the second quarter of 2013 and the dilutive effect of share-based awards because of the increase in our share price, partially offset by the impact of share repurchases completed in the first quarter of 2014. Segment Operating Results Americas In the Americas, revenues from services increased 1.4% (5.0% in constant currency) in the second quarter of 2014 compared to 2013. In the United States, revenues from services increased 3.7% in the second quarter of 2014 compared to 2013. The revenue increase in the United States was attributable to growth in our larger national accounts and in the small/medium-sized business within our Manpower business, specifically the industrial and light industrial sectors, and strong growth in our MSP and RPO offerings within the ManpowerGroup Solutions business. These increases were partially offset by a decrease in revenue from our larger global accounts primarily due to stronger pricing discipline. In Other Americas, revenues from services declined 3.1% (7.7% increase in constant currency) in the second quarter of 2014 compared to 2013. We experienced constant currency revenue growth in Canada, Argentina due to inflation, Colombia and Brazil of 5.1%, 18.4%, 44.4% and 10.4%, respectively, offset by a 0.6% constant-currency decline in Mexico. In the Americas, revenues from services decreased 0.3% (3.8% increase in constant currency) in the first half of 2014 compared to 2013. In the United States, revenues from services increased 2.9% in the first half of 2014 compared to 2013. The revenue increase in the United States was attributable to growth in our larger national accounts and in the small/medium-sized business within our Manpower business and solid growth in our MSP and RPO offerings within the ManpowerGroup Solutions business. These increases were partially offset by severe weather conditions in certain areas of the United States that negatively impacted demand for our services in the first quarter of 2014, as well as a decrease in revenue from our larger global accounts primarily due to stronger pricing discipline. In Other Americas, revenues from services declined 6.3% (5.7% increase in constant currency) in the first half of 2014 compared to 2013. We experienced constant currency revenue growth in Canada, Argentina due to inflation, Colombia and Brazil of 2.6%, 15.0%, 26.8%, and 12.6%, respectively, offset by a 0.2% constant-currency decline in Mexico. Gross profit margin increased in the second quarter of 2014 compared to 2013 due to the favorable impact from improved Experis interim margins resulting from strong price discipline in selectively accepting new business opportunities and aggressively managing the pay bill gap with our clients. This increase was partially offset by a 3.9% decrease (-1.1% in constant currency) in our permanent recruitment business, business mix changes in our Manpower staffing revenue as growth came from some of our lower-margin business, and pricing pressures within the small/medium-sized business in the United States. Gross profit margin was flat in the first half of 2014 compared to 2013 as the favorable impact from improved Experis interim margins resulting from strong price discipline in selectively accepting new business opportunities and aggressively managing the pay bill gap with our clients, was offset by business mix changes in our Manpower staffing revenue as growth came from some of our lower-margin business, and pricing pressures within the small/medium-sized business in the United States. 19 -------------------------------------------------------------------------------- In the second quarter of 2014, selling and administrative expenses increased 1.4% (4.3% in constant currency) due to legal costs of $9.0 million recorded in the second quarter of 2014, partially offset by the $4.4 million of restructuring costs incurred in the second quarter of 2013 that we did not incur in the second quarter of 2014. In the first half of 2014, selling and administrative expenses decreased 3.4% (-0.4% in constant currency) due to the $10.3 million of restructuring costs incurred in the first half of 2013 that we did not incur in the first half of 2014 and the declines in non-personnel related costs, excluding the legal costs noted above, as a result of the simplification and cost recalibration actions taken in 2013, partially offset by $9.0 million of legal costs recorded in the first half of 2014. Operating Unit Profit ("OUP") margin in the Americas was 3.8% and 3.7% for the second quarter of 2014 and 2013, respectively. In the United States, OUP margin was 3.8% in the second quarter of 2014 compared to 4.1% in 2013. The margin decrease in the second quarter of 2014 in the United States was due to the legal costs noted above partially offset by a decrease in restructuring costs. Excluding the legal costs and restructuring costs, OUP margin increased due to higher gross profit margin and better operational leverage, as we were able to support an increase in revenues without a similar increase in expenses. Other Americas OUP margin was 3.7% in the second quarter of 2014 compared to 3.1% in the second quarter of 2013. The increase in the Other Americas OUP margin was due to declines in restructuring costs and in salary-related and lease costs as a result of the simplification and cost recalibration actions taken in 2013, which were partially offset by the decline in the gross profit margin. OUP margin in the Americas was 3.1% and 2.6% for the first half of 2014 and 2013, respectively. In the United States, OUP margin was 2.9% in the first half of 2014 compared to 2.6% in 2013. The margin increase in the first half of 2014 in the United States was due to better operational leverage, as we were able to support an increase in revenues while expenses remained relatively flat, partially offset by the legal costs noted above. Other Americas OUP margin was 3.7% in the first half of 2014 compared to 2.7% in the first half of 2013. The increase in the Other Americas OUP margin was due to declines in restructuring costs and in salary-related and lease costs as a result of the simplification and cost recalibration actions taken in 2013, partially offset by a decline in the gross profit margin. Southern Europe In Southern Europe, which includes operations in France and Italy, revenues from services increased 9.3% (4.2% in constant currency and 3.8% in organic constant currency) in the second quarter of 2014 compared to 2013. In the second quarter of 2014, revenues from services increased 1.9% in constant currency in France (which represents 72% of Southern Europe's revenues) and increased 7.1% in organic constant currency in Italy (which represents 16% of Southern Europe's revenues). The increase in France is due primarily to the continued stabilization of the French economic market. The increase in Italy is mostly due to the improvement in demand for our Manpower staffing services as clients opted for more flexible labor solutions during the current economic conditions and a 30.9% constant currency increase in the permanent recruitment business, partially offset by one fewer billing day in the second quarter. In Other Southern Europe, revenues from services increased 19.7% (14.9% in constant currency and 11.5% in organic constant currency) during the second quarter of 2014 compared to 2013 driven by the revenue increase in Spain due to improving economic conditions and clients acquired from a local competitor in July 2013. Revenues from services increased 8.6% (4.0% in constant currency and 3.6% in organic constant currency) in the first half of 2014 compared to 2013. In the first half, revenues from services increased 2.1% in constant currency in France, and increased 4.7% in organic constant currency in Italy. The increase in France is due primarily to the continued stabilization of the French economic market. The increase in Italy is mostly due to the improvement in demand for our Manpower staffing services as clients opted for more flexible labor solutions during the current economic conditions and a 29.8% constant currency increase in the permanent recruitment business, partially offset by two fewer billing days in the first half of 2014 compared to 2013. In Other Southern Europe, revenues from services increased 19.3% (14.8% in constant currency and 11.5% in organic constant currency) during the first half of 2014 compared to 2013 driven by the revenue increase in Spain due to improving economic conditions and clients acquired from a local competitor in July 2013.



Gross profit margin increased in both the second quarter and first half of 2014 compared to 2013 due to strong price discipline, enhanced CICE payroll tax credits in France and an increase in our permanent recruitment business, partially offset by the continued pricing pressures in some markets.

Selling and administrative expenses increased 1.8% (-2.9% decrease in constant currency and -3.0% in organic constant currency) during the second quarter of 2014 compared to 2013 primarily related to an increase in organic salary-related costs, partially offset by $3.3 million of restructuring costs incurred in the second quarter of 2013 that we did not incur in the second quarter of 2014 and the simplification and cost recalibration actions taken in 2013. Selling and administrative expenses increased 2.7% (-1.6% decrease in constant currency and -1.8% in organic constant currency) during the first half of 2014 compared to 2013 primarily related to an increase in organic salary-related costs, partially offset by $4.5 million of restructuring costs incurred in the first half of 2013 that we did not incur in the first half of 2014 and the simplification and cost recalibration actions taken in 2013. 20 -------------------------------------------------------------------------------- OUP margin in Southern Europe was 4.9% for the second quarter of 2014 compared to 3.1% for 2013. In France, the OUP margin was 5.1% for the second quarter of 2014 compared to 3.1% for 2013, due to the improvement in our gross profit margin and improved operational leverage as we were able to support the higher revenue level with lower expenses. In Italy, the OUP margin was 5.8% for the second quarter of 2014 compared to 5.3% for 2013, as we were able to effectively manage selling and administrative expenses while revenues increased, partially offset by the decrease in our gross profit margin and the impact of one fewer billing day. Other Southern Europe's OUP margin increased to 2.4% for the second quarter of 2014 from 0.6% in 2013 as we were able to effectively manage selling and administrative expenses while revenues increased. OUP margin in Southern Europe was 4.5% for the first half of 2014 compared to 3.0% for 2013. In France, the OUP margin was 4.7% for the first half of 2014 compared to 2.9% for 2013, due to the improvement in our gross profit margin and improved operational leverage as we were able to support the higher revenue level with lower expenses. In Italy, the OUP margin was 5.3% for the first half of 2014 compared to 4.9% for 2013, as we were able to effectively manage selling and administrative expenses while revenues increased, partially offset by the decrease in our gross profit margin and the impact of two fewer billing days. Other Southern Europe's OUP margin increased to 2.2% for the first half of 2014 from 0.9% in 2013 as we were able to effectively manage selling and administrative expenses while revenues increased and the decrease in restructuring costs, partially offset by the decrease of the gross profit margin.



Northern Europe

In Northern Europe, which includes operations in the United Kingdom, the Nordics, Germany and the Netherlands (comprised of 34%, 21%, 12%, and 10%, respectively, of Northern Europe's revenues), revenues from services increased 9.2% (4.6% in constant currency and 3.5% in organic constant currency) in the second quarter of 2014 as compared to 2013. The increase in revenues from services was primarily attributable to the increase in our staffing/interim business as a result of the improving economic conditions in most Northern European countries, a 12.3% constant currency increase in our permanent recruitment business mostly due to growth in the United Kingdom and the Netherlands, partially offset by one fewer billing day in the quarter. Revenues from services increased 8.0% (4.6% in constant currency and 3.4% on an organic constant currency basis) in the first half of 2014 as compared to 2013. The increase in revenues from services was primarily attributable to the increase in our staffing/interim business as a result of the improving economic conditions in most Northern European countries and a 12.1% constant currency increase in our permanent recruitment business mostly due to growth in the United Kingdom and the Netherlands. Gross profit margin decreased in the second quarter of 2014 compared to 2013 due to the decline in our staffing/interim margins as a result of business mix changes in our staffing/interim revenue, as growth came from our lower-margin countries, and general pricing pressures in several markets, partially offset by an increase in our permanent recruitment business. Gross profit margin decreased in the first half of 2014 compared to 2013 due to the decline in our staffing/interim margins as a result of business mix changes in our staffing/interim revenue, as growth came from our lower-margin countries, general pricing pressures in several markets and client contract termination costs recorded in the first quarter, partially offset by an increase in our permanent recruitment business. Selling and administrative expenses increased 3.2% (-0.8% decrease in constant currency and -3.4% in organic constant currency) in the second quarter of 2014 compared to 2013. The increase in selling and administrative expenses was due primarily to the increase in organic salary-related costs because of recruiters added to support the increase in revenue and an increase in our variable incentive-based costs due to improved operating results and additional recurring selling and administrative costs incurred as a result of acquisitions, partially offset by the $9.3 million of restructuring costs incurred the second quarter of 2013 that we did not incur in the second quarter of 2014. Selling and administrative expenses decreased 3.1% (-5.9% decrease in constant currency and -8.1% on an organic constant currency basis) in the first half of 2014 compared to 2013. The decrease in selling and administrative expenses was due primarily to the $26.4 million of restructuring costs incurred in the first half of 2013 that we did not incur in the first half of 2014 and a decrease in lease costs as a result of the simplification and cost recalibration actions taken, partially offset by the additional recurring selling and administrative costs incurred as a result of acquisitions and an increase in organic salary-related costs because of recruiters added to support the increase in revenue and an increase in our variable incentive-based costs due to improved operating results. OUP margin for Northern Europe was 3.0% and 2.4% for the second quarter of 2014 and 2013, respectively. The increase in OUP margin was the result of better operational leverage, as we were able to support the higher revenue levels with lower expenses. OUP margin for Northern Europe was 2.8% and 1.6% for the first half of 2014 and 2013, respectively. The increase in OUP margin was the result of better operational leverage, as we were able to support the higher revenue levels with lower expenses. 21

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APME

In APME, revenues from services decreased 4.7% (-1.8% in constant currency and -2.4% in organic constant currency) in the second quarter of 2014 compared to 2013. In Japan (which represents 36% of APME's revenues), revenues from services decreased 7.3% (-3.9% in constant currency) as we were challenged to recruit candidates in a tight labor market even though we experienced gradual improvement in demand for our staffing/interim services. In Australia (which represents 23% of APME's revenues), revenues from services were down 5.2% (0.5% increase in constant currency and -1.1% in organic constant currency) for the second quarter of 2014 compared to 2013 due to the decreased demand for our staffing/interim services and the unfavorable impact of one fewer billing day. The remaining revenue decrease in APME is due to the staffing/interim revenue decline in China as a result of legislative changes that restricted the use of temporary employment. Revenues from services decreased 7.0% (-1.5% in constant currency and -1.9% in organic constant currency) in the first half of 2014 compared to 2013. In Japan, revenues from services decreased 9.8% (-3.1% in constant currency) as we were challenged to recruit candidates in a tight labor market even though we experienced gradual improvement in demand for our staffing/interim services, partially offset by the increase of 11.5% in constant currency in the permanent recruitment business. In Australia, revenues from services were down 10.2% (-0.5% in constant currency and -1.8% in organic constant currency) in the first half of 2014 compared to 2013 due to the decreased demand for our staffing/interim services, partially offset by an 8.8% increase in constant currency in the permanent recruitment business. The remaining revenue decrease in APME is due to the staffing/interim revenue decline in China as a result of legislative changes that restricted the use of temporary employment.



Gross profit margin increased in the second quarter of 2014 compared to 2013 due to the slight increase in our staffing/interim gross profit margin due to business mix changes.

Gross profit margin increased in the first half of 2014 compared to 2013 due to the change in business mix as our lower-margin business represented a smaller percentage of the revenue mix and an increase of 5.6% in constant currency in our permanent recruitment business. Selling and administrative expenses decreased 5.4% (-2.4% in constant currency and -3.5% in organic constant currency) in the second quarter of 2014 compared to 2013 due to a decrease in non-personnel related costs as a result of the simplification and cost recalibration actions taken in 2013, reduced organic compensation-related expenses due to lower headcount and $0.4 million of restructuring costs incurred in the second quarter of 2013 that we did not incur in the second quarter of 2014. Selling and administrative expenses decreased 10.3% (-4.6% in constant currency and -5.5% in organic constant currency) in the first half of 2014 compared to 2013 related to reduced organic compensation-related expenses due to lower headcount, a decrease in non-personnel related costs as a result of the simplification and cost recalibration actions taken in 2013 and $2.8 million of restructuring costs incurred in the first half of 2013 that we did not incur in the first half of 2014. OUP margin for APME was 3.5% in the second quarter of 2014 compared to 3.3% in 2013. OUP margin increased for the second quarter of 2014 compared to 2013 due to the slight increase in our gross profit margin as well as the decrease in salary-related expenses and restructuring costs. OUP margin for APME was 3.5% in the first half of 2014 compared to 2.8% in 2013. OUP margin increased in the first half of 2014 compared to 2013 due to the increase in our gross profit margin as well as the decrease in salary-related expenses and restructuring costs.



Right Management

Revenues from services decreased 1.4% (-2.7% in constant currency) in the second quarter of 2014 compared to 2013 primarily due to the 3.8% decrease (-5.1% in constant currency) in our outplacement services as we experienced softer demand due to the stabilization of economic conditions in many of our markets and counter-cyclical nature of this business. Our talent management business increased 7.0% in the second quarter of 2014 compared to 2013 (5.4% in constant currency) due to employers' increasing confidence and resulting investment in their workforce. Revenues from services decreased 2.8% (-3.4% in constant currency) in the first half of 2014 compared to 2013 primarily due to the 3.5% decrease (-4.0% in constant currency) in our outplacement services as we experienced softer demand due to the stabilization of economic conditions in many of our markets and counter-cyclical nature of this business. Our talent management business increased 2.4% in the first half of 2014 compared to 2013 (1.6% in constant currency). Gross profit margin decreased in the second quarter and first half of 2014 compared to 2013 due to margin deterioration in the outplacement business and the change in business mix as the lower-margin talent management business represented a greater percentage of the revenue mix, partially offset by the increase in the talent management business gross profit margin. Selling and administrative expenses decreased 15.3% (-16.5% in constant currency) in the second quarter of 2014 compared to 2013 due to the cost savings from more efficient delivery solutions and the simplification and cost recalibration plan favorably impacting expense levels, as well as the $2.6 million of restructuring costs incurred in the second quarter of 2013 that we did not incur in the second quarter of 2014. 22 -------------------------------------------------------------------------------- Selling and administrative expenses decreased 17.0% (-17.4% in constant currency) in the first half of 2014 compared to 2013 due to the cost savings from more efficient delivery solutions and the simplification and cost recalibration plan favorably impacting expense levels, as well as the $6.4 million of restructuring costs incurred in the first half of 2013 that we did not incur in the first half of 2014. OUP margin for Right Management was 16.0% in the second quarter of 2014 compared to 9.2% in 2013. OUP margin was 13.7% in the first half of 2014 compared to 6.0% in 2013. The OUP margin for the second quarter and first half of 2014 improved due to the decrease in selling and administrative expenses as a result of the cost savings from more efficient delivery solutions and the simplification and cost recalibration plan and the decrease in restructuring costs, partially offset by the decline in the gross profit margin.



Financial Measures

Constant Currency and Organic Constant Currency Reconciliation

Changes in our financial results include the impact of changes in foreign currency exchange rates. We provide "constant currency" and "organic constant currency" calculations in our quarterly report to remove the impact of these items. We express year-over-year variances that were calculated in constant currency and organic constant currency as a percentage. When we use the term "constant currency," it means that we have translated financial data for a period into United States Dollars using the same foreign currency exchange rates that we used to translate financial data for the previous period. We believe that this calculation is a useful measure, indicating the actual growth of our operations. We use constant currency results in our analysis of subsidiary or segment performance. We also use constant currency when analyzing our performance against that of our competitors. Substantially all of our subsidiaries derive revenues and incur expenses within a single country and, consequently, do not generally incur currency risks in connection with the conduct of their normal business operations. Changes in foreign currency exchange rates primarily impact only reported earnings and not our actual cash flow or economic condition. When we use the term "organic constant currency," it means that we have further removed the impact of acquisitions in the current period and dispositions from the prior period from our constant currency calculation. We believe that this calculation is useful because it allows us to show the actual growth of our pre-existing business. The constant currency and organic constant currency financial measures are used to supplement those measures that are in accordance with United States Generally Accepted Accounting Principles ("GAAP"). These Non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies may calculate such financial results differently. These Non-GAAP financial measures are not measurements of financial performance under GAAP, and should not be considered as alternatives to measures presented in accordance with GAAP. 23 --------------------------------------------------------------------------------



Reconciliation of these Non-GAAP percentage variances to those calculated based on our GAAP financial results is provided below:

3 Months Ended June 30, 2014 Compared to 2013 Impact of Variance Acquisitions/ Organic Impact in Dispositions Constant Reported Reported of Constant (In Constant Currency Amount(a) Variance Currency Currency Currency) Variance

Revenues from services: Americas: United States $ 775.9 3.7 % - % 3.7 % - % 3.7 % Other Americas 375.2 (3.1 ) (10.8 ) 7.7 - 7.7 1,151.1 1.4 (3.6 ) 5.0 - 5.0 Southern Europe: France 1,412.1 6.9 5.0 1.9 - 1.9 Italy 313.9 12.8 5.3 7.5 0.4 7.1 Other Southern Europe 243.0 19.7 4.8 14.9 3.4 11.5 1,969.0 9.3 5.1 4.2 0.4 3.8 Northern Europe 1,527.8 9.2 4.6 4.6 1.1 3.5 APME 594.0 (4.7 ) (2.9 ) (1.8 ) 0.6 (2.4 ) Right Management 79.8 (1.4 ) 1.3 (2.7 ) - (2.7 ) Consolidated $ 5,321.7 5.6 1.9 3.7 0.6 3.1 Gross Profit $ 897.3 7.3 1.7 5.6 1.2 4.4 Selling and Administrative Expense $ 709.9 0.2 1.4 (1.2 ) 1.0 (2.2 ) Operating Profit $ 187.4 46.3 3.1 43.2 2.3 40.9



(a) In millions for the three months ended June 30, 2014.

6 Months Ended June 30, 2014 Compared to 2013 Impact of Variance Acquisitions/ Organic Impact in Dispositions Constant Reported Reported of Constant (In Constant Currency Amount(a) Variance Currency Currency Currency) Variance Revenues from services: Americas: United States $ 1,496.4 2.9 % - % 2.9 % - % 2.9 % Other Americas 725.8 (6.3 ) (12.0 ) 5.7 - 5.7 2,222.2 (0.3 ) (4.1 ) 3.8 - 3.8 Southern Europe: France 2,629.4 6.6 4.5 2.1 - 2.1 Italy 588.6 9.8 4.7 5.1 0.4 4.7 Other Southern Europe 473.0 19.3 4.5 14.8 3.3 11.5 3,691.0 8.6 4.6 4.0 0.4 3.6 Northern Europe 2,991.7 8.0 3.4 4.6 1.2 3.4 APME 1,167.7 (7.0 ) (5.5 ) (1.5 ) 0.4 (1.9 ) Right Management 153.1 (2.8 ) 0.6 (3.4 ) - (3.4 ) Consolidated $ 10,225.7 4.2 0.9 3.3 0.5 2.8 Gross Profit $ 1,713.8 5.4 0.8 4.6 1.1 3.5 Selling and Administrative Expenses $ 1,399.5 (3.1 ) 0.6 (3.7 ) 0.8 (4.5 ) Operating Profit $ 314.3 72.3 1.8 70.5 3.3 67.2



(a) In millions for the six months ended June 30, 2014.

24 --------------------------------------------------------------------------------



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 that our available cash and our existing credit facilities are sufficient to cover our cash needs for the foreseeable future. We assess and monitor our liquidity and capital resources globally. We use a global cash pooling arrangement, intercompany lending, and some local credit lines to meet funding needs and allocate our capital resources among our various entities. As of June 30, 2014, we had $445.0 million of cash held by foreign subsidiaries that was not available to fund domestic operations unless repatriated. We anticipate cash repatriations to the United States from certain foreign subsidiaries and have provided for deferred tax related to those foreign earnings not considered to be permanently invested. As of June 30, 2014, we have identified approximately $433.1 million of non-United States earnings that are not permanently invested. We may repatriate additional earnings in the future as cash needs arise. Cash used in operating activities was $16.0 million during the first half of 2014 compared to $71.6 million during the first half of 2013. This decrease is primarily due to the higher operating earnings in 2014. Changes in operating assets and liabilities utilized $275.4 million of cash during the first half of 2014 compared to $242.8 million utilized during the first half of 2013. This additional usage is mainly due to a larger increase in accounts receivable, due to the higher revenue growth this year, and the larger CICE receivable, partly offset by an increase in accounts payable due to the timing of payments. Accounts receivable increased to $4,501.0 million as of June 30, 2014 from $4,277.9 million as of December 31, 2013. This increase is mostly due to the growth in the business. At constant exchange rates, the June 30, 2014 balance would have been approximately $0.6 million higher than reported. Capital expenditures were $20.6 million in the first half of 2014 compared to $25.1 million in the first half of 2013. These expenditures were primarily comprised of purchases of computer equipment, office furniture and other costs related to office openings and refurbishments. From time to time, we acquire and invest in companies throughout the world, including franchises. The total cash consideration for acquisitions, net of cash acquired, was $23.7 million and $16.9 million for the first half of 2014 and 2013, respectively.



Cash provided by net debt borrowings was $14.7 million in the first half of 2014 compared to net debt payments of $229.8 million in the first half of 2013.

Our 350.0 million notes are due June 2018. When the notes mature, we plan to repay the amount with available cash, borrowings under our $600.0 million revolving credit facility or a new borrowing. The credit terms, including interest rate and facility fees, of any replacement borrowings will be dependent upon the condition of the credit markets at that time. We currently do not anticipate any problems accessing the credit markets should we decide to replace the 350.0 million notes. As of June 30, 2014, we had letters of credit totaling $0.9 million issued under our $600.0 million revolving credit facility. Additional borrowings of $599.1 million were available to us under the facility as of June 30, 2014. The $600.0 million revolving credit agreement requires that we comply with a leverage ratio (Debt-to-EBITDA) of not greater than 3.5 to 1 and a fixed charge coverage ratio of not less than 1.5 to 1. As defined in the agreement, we had a Debt-to-EBITDA ratio of 0.39 to 1 and a fixed charge coverage ratio of 3.84 to 1 as of June 30, 2014. Based on our current forecast, we expect to be in compliance with our financial covenants for the next 12 months. In addition to the previously mentioned facilities, we maintain separate bank credit lines with financial institutions to meet working capital needs of our subsidiary operations. As of June 30, 2014, such credit lines totaled $371.4 million, of which $321.6 million was unused. Under the revolving credit agreement, total subsidiary borrowings cannot exceed $300.0 million in the first, second and fourth quarters, and $600.0 million in the third quarter of each year. Due to limitations on subsidiary borrowings in our revolving credit agreement, additional borrowings of $250.2 million could have been made under these lines as of June 30, 2014. We currently have a Board of Directors authorization to repurchase 8.0 million shares of our common stock. Share repurchases may be made from time to time through a variety of methods, including open market purchases, block transactions, privately negotiated transactions, accelerated share repurchase programs, forward repurchase agreements or similar facilities. We repurchased 0.2 million shares at a cost of $16.7 million during the first half of 2014. No repurchases were made during the first half of 2013. As of June 30, 2014, there were 7.8 million shares remaining authorized for repurchase under this authorization. On April 29, 2014, the Board of Directors declared a semi-annual cash dividend of $0.49 per share, which was paid on June 16, 2014 to shareholders of record on June 2, 2014.



We had aggregate commitments related to debt repayments, operating leases, severances and office closure costs, and certain other commitments of $1,552.1 million as of June 30, 2014 compared to $1,573.6 million as of December 31, 2013.

25 -------------------------------------------------------------------------------- We also have entered into guarantee contracts and stand-by letters of credit that total approximately $182.3 million and $156.5 million as of June 30, 2014 and December 31, 2013, respectively, consisting of $137.8 million and $118.2 million for guarantees, respectively, and $44.5 million and $38.3 million for stand-by letters of credit, respectively. Guarantees primarily relate to bank accounts, operating leases and indebtedness. The letters of credit relate to workers' compensation, operating leases and indebtedness. If certain conditions were met under these arrangements, we would be required to satisfy our 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 $1.0 million and $0.9 million in the first half of 2014 and 2013, respectively. We recorded net restructuring costs of $54.8 million in the six months ended June 30, 2013 in selling and administrative expenses, related to severances and office closures and had a reserve of $48.4 million remaining for such costs as of December 31, 2013. During the first half of 2014, we made payments of $23.5 million out of our restructuring reserve. We expect a majority of the remaining $24.9 million reserve will be paid by the end of 2014. Changes in the restructuring costs by reportable segment and Corporate are shown in Note 5 to the Consolidated Financial Statements.



Employment-Related Items

For the three and six months ended June 30, 2014, we accrued legal costs of $9.0 million in the United States related to a settlement agreement in connection with a lawsuit in California involving allegations regarding our wage statements. The settlement agreement is still subject to final court approval which is expected later this year. We believe that the settlement is in our best interest to avoid the costs and disruption of ongoing litigation. In France, during the second quarter of 2013, we experienced a significant increase in claims against us, requesting refunds for various payroll tax subsidies that we have received dating back to 2003 related to our French temporary associates. In March 2014, the French Supreme Court ruled in our favor on this matter, confirming that, as a matter of law, the benefit of the payroll tax subsidies belongs to the direct employer of the temporary associates. Therefore, we do not expect to incur any significant losses related to these claims.



Recently Issued Accounting Standards

See Note 2 to the Consolidated Financial Statements.

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 ended December 31, 2013, which information is incorporated herein by reference, provides cautionary statements identifying, for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, important factors that could cause our actual results to differ materially from those contained in the forward-looking statements. Forward-looking statements can be identified by words such as "expect," "anticipate," "intend," "plan," "may," "believe," "seek," "estimate," and similar expressions. Some or all of the factors identified in our annual report on Form 10-K may be beyond our control. 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.


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