ManpowerGroup 2004 Annual Report Download - page 54

2004 Annual Report MANPOWER INC.52
Significant factors impacting Deferred Revenue are the type of programs sold, the level of current billings for new
programs and projects, and the average length of the programs. Over time, an increasing volume of new billings will
generally result in higher amounts of Deferred Revenue, while decreasing levels of new billings will generally result in
lower amounts of Deferred Revenue. As of December 31, 2004, we had $43.8 million of Deferred Revenue recorded.
Income Taxes
We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax bases, net operating loss and tax credit carry-
forwards, and tax contingencies. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We
record a valuation allowance against deferred tax assets for which utilization of the asset is not likely.
Our judgment is required in determining our deferred tax assets and liabilities, and any valuation allowances recorded.
Our net deferred tax assets may need to be adjusted in the event that tax rates are modified, or our estimates of future
taxable income change, such that deferred tax assets or liabilities are expected to be recovered or settled at a different
tax rate than currently estimated. In addition, valuation allowances may need to be adjusted in the event that our estimate
of future taxable income changes from the amounts currently estimated. We have tax contingencies recorded related
to items in various countries. To the extent these items are settled in our favor, a portion of our recorded contingency
will be reversed. To the extent items are settled for an amount greater than the amount we have recorded, an additional
tax provision will be recorded.
We provide for income taxes on a quarterly basis based on an estimated annual tax rate. In determining this rate, we
make estimates about taxable income for each of our largest locations worldwide, as well as the tax rate that will be in
effect for each location. To the extent these estimates change during the year, or that actual results differ from these
estimates, our estimated annual tax rate may change between quarterly periods and may differ from the actual effective
tax rate for the year. For 2005, we expect our effective tax rate will be approximately 36.5%.
Goodwill and Indefinite - Lived Intangible Asset Impairment
In connection with SFAS No. 142, “Goodwill and Other Intangible Assets,” we are required to perform goodwill and
indefinite-lived intangible asset impairment reviews, at least annually, using a fair-value-based approach. The majority of our
goodwill and indefinite-lived intangible assets result from our acquisition of RMC. Our remaining goodwill relates primarily
to our acquisitions of Elan and Jefferson Wells.
As part of our impairment reviews, we estimate fair value primarily by using a discounted cash flow analysis and, for
certain larger reporting units, we may also consider market comparables. Significant assumptions used in this analysis
include: expected future revenue growth rates, operating unit profit margins, and working capital levels; a discount rate;
and a terminal value multiple.
We have completed our annual impairment review for 2004 and determined there to be no impairment of either goodwill,
or indefinite-lived intangible assets. We plan to perform our next annual impairment review during the third quarter of 2005.
We may be required to perform an impairment review prior to our scheduled annual review if certain events occur,
including lower-than-forecasted earnings levels for various reporting units. In addition, changes to other assumptions
could significantly impact our estimate of the fair value of our reporting units. Such a change may result in an impairment
charge, which could have a significant impact on the reportable segments that include the related reporting units and
our consolidated financial statements.
MANAGEMENT’S DISCUSSION AND ANALYSIS
of financial condition and results of operations