ManpowerGroup 2006 Annual Report Download - page 30

Management’s฀Discussion฀&฀Analysis26 Manpower฀2006฀Annual฀Report
MAN AGEME NT’S฀DI SCUSS ION฀&฀ANA LYSIS
of฀financi al฀condition ฀and฀res ults฀of ฀op erations
In฀France,฀we฀settled฀the฀audit฀for฀payroll฀tax฀remittances฀made฀during฀2001,฀2002฀and฀2003.฀As฀a฀result,฀we฀reduced฀our฀liability฀
related฀to฀these฀remittances฀by฀$9.0฀million฀in฀the฀fourth฀quarter฀of฀2005.฀During฀2004,฀based฀on฀the฀status฀of฀the฀audit฀at฀that฀
time฀we฀increased฀our฀estimated฀liability฀related฀to฀these฀remittances฀by฀$12.8฀million.฀We฀currently฀maintain฀a฀reserve฀in฀France฀
for฀the฀unaudited฀years,฀which฀has฀been฀estimated฀based฀on฀the฀results฀of฀past฀audits฀and฀changes฀in฀business฀volumes.฀We฀
do฀not฀expect฀any฀significant฀adjustments฀to฀the฀recorded฀amount฀in฀the฀near฀term.
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฀outplacement฀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฀outplacement฀revenue฀on฀a฀straight-line฀basis฀over฀the฀actual฀term฀of฀the฀agreements.฀For฀
group฀programs฀and฀large฀projects฀within฀the฀outplacement฀and฀consulting฀lines฀of฀business,฀we฀defer฀and฀recognize฀revenue฀
over฀the฀period฀in฀which฀the฀contracts฀are฀completed.฀The฀difference฀between฀the฀amount฀billed฀for฀services฀and฀the฀amount฀rec-
ognized฀as฀revenue฀is฀recorded฀as฀Deferred฀Revenue,฀which฀is฀included฀in฀Accrued฀Liabilities฀in฀our฀consolidated฀balance฀sheets.
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,฀2006฀and฀2005,฀we฀had฀$46.4฀million฀and฀$42.7฀million฀of฀Deferred฀Revenue,฀respectively.
Income฀Taxes
We฀account฀for฀income฀taxes฀in฀accordance฀with฀Statement฀of฀Financial฀Accounting฀Standards฀(“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,฀and฀net฀operating฀
loss฀and฀tax฀credit฀carryforwards.฀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฀for฀an฀amount฀different฀than฀our฀current฀reserve฀balance,฀our฀recorded฀contingency฀will฀be฀adjusted.
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฀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฀2007,฀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฀acquisitions฀of฀Right฀Management,฀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฀2006฀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฀2007.