ManpowerGroup 2007 Annual Report Download - page 30

27Management’s Discussion & Analysis Manpower 2007 Annual Report
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 fi nd jobs based on historical data for the specifi c type of program. If historical 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 recognized
as revenue is recorded as Deferred Revenue, which is included in Accrued Liabilities in our consolidated balance sheets.
Signifi cant 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, 2007 and 2006, we had $46.3 million and $46.4 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 fi nancial 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.
We adopted the provisions of FIN 48 as of January 1, 2007. FIN 48 requires a new evaluation process for all tax positions taken
that involves a review of probability for sustaining a tax position. If the probability for sustaining a tax position is more likely than
not, which is a 50 percent threshold, then the tax position is warranted and the largest amount that would be realized upon
ultimate settlement is recognized. An uncertain tax position will not be recognized in the fi nancial statements unless it is more
likely than not of being sustained.
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 modifi ed, 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 unrecognized tax benefi ts related to items in various countries. To the
extent these items are settled for an amount different than we currently expect, the unrecognized tax benefi t 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 2008, we
expect our effective tax rate will be approximately 37.5%.
Goodwill and Indefi nite-Lived Intangible Asset Impairment
In connection with SFAS No. 142, “Goodwill and Other Intangible Assets,” we are required to perform goodwill and indefi nite-lived
intangible asset impairment reviews, at least annually, using a fair-value-based approach. The majority of our goodwill and
indefi nite-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 fl ow analysis and, for certain
larger reporting units, we may also consider market comparables. Signifi cant assumptions used in this analysis include:
expected future revenue growth rates, operating unit profi t margins, and working capital levels; a discount rate; and a terminal
value multiple.
We have completed our annual impairment review for 2007 and determined there to be no impairment of either goodwill or
indefi nite-lived intangible assets. We plan to perform our next annual impairment review during the third quarter of 2008.