ManpowerGroup 2004 Annual Report Download - page 52

2004 Annual Report MANPOWER INC.50
The new agreement requires, among other things, that we comply with a Debt-to-EBITDA ratio of less than 3.25 to 1
and a fixed charge ratio of greater than 2.00 to 1. As defined in the agreement, we had a Debt-to-EBITDA ratio of 1.84
to 1 and a fixed charge ratio of 2.69 to 1 as of December 31, 2004. Based upon current forecasts, we expect to be in
compliance with these covenants throughout the coming year.
There were no borrowings outstanding under our $125.0 million U.S. commercial paper program as of December 31,
2004 and 2003.
In addition to the previously mentioned facilities, we maintain separate bank facilities with foreign financial institutions to
meet working capital needs of our foreign operations. As of December 31, 2004, such facilities totaled $295.0 million,
of which $284.9 million was unused.
Our current credit rating from Moody’s Corporation is Baa3 with a stable outlook and our credit rating from Standard
& Poor’s is BBB- with a stable outlook. Both of these credit ratings are investment grade.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements in conformity with accounting principles generally accepted in the United
States requires us to make estimates and assumptions that affect the reported amounts. A discussion of the more
significant estimates follows. Management has discussed the development, selection and disclosure of these estimates
and assumptions with the Audit Committee of our Board of Directors.
Allowance for Doubtful Accounts
We have an Allowance for Doubtful Accounts recorded as an estimate of the Accounts Receivable balance that may not
be collected. This allowance is calculated on an entity-by-entity basis with consideration for historical write-off experience,
the current aging of receivables and a specific review for potential bad debts. Items that affect this balance mainly
include bad debt expense and write-offs of accounts receivable balances.
Bad Debt Expense, which increases our Allowance for Doubtful Accounts, is recorded as a Selling and Administrative
Expense and was $27.3 million, $16.7 million, and $18.2 million for 2004, 2003, and 2002, respectively. Factors that
would cause this provision to increase primarily relate to increased bankruptcies by our customers and other difficulties
collecting amounts billed. On the other hand, an improved write-off experience and aging of receivables would result in
a decrease to the provision.
Write-offs, which decrease our Allowance for Doubtful Accounts, are recorded as a reduction to our Accounts
Receivable balance and were $21.9 million, $19.5 million, and $18.4 million, for 2004, 2003 and 2002, respectively.
Employment-Related Items
The employment of temporary workers and permanent staff throughout the world results in the recognition of liabilities
related to defined benefit pension plans, self-insured workers’ compensation, social program remittances and payroll
tax audit exposures that require us to make estimates and assumptions in determining the proper reserve levels.
We sponsor several qualified and non-qualified pension plans covering permanent employees. The most significant plans are
located in the United States, France, the United Kingdom, Japan and other European countries. Annual expense relating
to these plans is recorded as Selling and Administrative Expense, in accordance with the accounting rules generally
accepted in the United States. The calculations of annual pension expense and the pension liability required at year-end
include various actuarial assumptions such as discount rates, expected rate of return on plan assets, compensation
increases and employee turnover rates. Changes to any of these assumptions will impact the level of annual expense
recorded related to the plans. We review the actuarial assumptions on an annual basis and make modifications to the
assumptions as necessary. (See note 9 to the consolidated financial statements for further information.)
MANAGEMENT’S DISCUSSION AND ANALYSIS
of financial condition and results of operations