ManpowerGroup 2004 Annual Report Download - page 53

MANPOWER INC. 2004 Annual Report51
In the United States, we are self-insured in most states for workers’ compensation claims for our temporary workers. We
determine the proper reserve balance using an actuarial valuation, which considers our historical payment experience
and current employee demographics. Our reserve for such claims as of December 31, 2004 and 2003 was $100.0 and
$103.0 million, respectively. The workers’ compensation expense is recorded as a component of Cost of Services. A
significant increase in claims or changes in laws may require us to record more expense related to workers’ compensation.
On the other hand, significantly improved claim experience may result in a lower annual expense level.
In France, the government has various social programs that are aimed at reducing the cost of labor and encouraging
employment, particularly for low-wage workers, through the reduction of payroll taxes (or social contribution). A portion of
these payroll tax reductions is remitted to our customers in certain circumstances. We are required to make an estimate
for the amount that will be remitted, which is recorded as a reduction of Revenue from Services. We make this estimate
based on our historical experience, including related trends. To the extent that our experience differs from our estimate,
we will need to make adjustments to our reserve balance, which will impact the results of our French operation. In addition,
future changes to laws governing these payroll tax reductions may require us to revise our estimates, which may
significantly impact our consolidated financial statements. In the fourth quarter of 2003, we reduced our estimated
liability related to these remittances by $16.1 million due to the recent historical trends in the amounts remitted.
On a routine basis, governmental agencies in some of the countries in which we operate will audit our payroll tax
calculations and our compliance with other payroll-related regulations. These audits focus primarily on documentation
requirements and our support for our payroll tax remittances. Due to the nature of our business, the number of people
that we employ, and the complexity of some payroll tax regulations, we may have some adjustments to the payroll tax
remittances as a result of these audits. We make an estimate of the additional remittances that may be required and
record the estimate as a component of Cost of Services. The estimate is based on the results of past audits, with
consideration for changing business volumes and changes to the payroll tax regulations. To the extent that our actual
experience differs from our estimates, we will need to make adjustments to our reserve balance, which will impact the
results of the related operation and the operating segment in which it is reported.
In France, we are currently under audit for payroll tax remittances made during 2001 and for remittances made during
2002 and 2003. We have received a preliminary notification related to 2001 and have responded to the notification with
additional information. During 2004, we increased our estimated liability related to these remittances by $12.8 million.
In the Netherlands, we are currently under audit for compliance with regulations related to the collection and mainte-
nance of payroll-related documents for our temporary employees. We have not received any notification of findings
related to this audit, however we currently do not expect any assessment to have a significant impact on the consolidated
financial statements.
Deferred Revenue
We recognize revenue under the provisions of Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB
104”). SAB 104 generally provides that revenue for time-based services be recognized over the average length of the
services being provided. For the career transition line of business, we recognize revenue from individual programs on a
straight-line basis over the average length of time for candidates to find jobs based on statistically valid data for the specific
type of program. If statistically valid data is not available, then we recognize career transition revenue on a straight-line
basis over the actual term of the agreements. For group programs and large projects within the career transition line of
business, we defer and recognize revenue over the period in which the contracts are completed. The difference between
the amount billed for career transition services and the amount recognized as revenue is recorded as Deferred
Revenue, which is included in Accrued Liabilities on our consolidated balance sheets.
MANAGEMENT’S DISCUSSION AND ANALYSIS
of financial condition and results of operations