ManpowerGroup 2013 Annual Report Download - page 45

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Management’s Discussion & Analysis ManpowerGroup 2013 Annual Report
eligible wages in 2013 and increases to 6% of eligible wages starting in 2014. We intend to use the credit to invest in
employment opportunities and to improve our competitiveness, as required by the law. We are uncertain what impact, if
any, this credit will have on overall market pricing or on client requests for pricing concessions, either of which could reduce
the net benefit we receive from these credits. Due to the complexity of compliance with this law, we may have adjustments
to the payroll tax credit amount as a result of any audits. The CICE credit is accounted for as a reduction of our cost of
services in the period earned, and has had a favorable impact on our consolidated gross profit margin, as well as margins
in France and Southern Europe.
The payroll tax credit is creditable against our current income tax payable, with any remaining amount being paid after
three years. Given the amount of our current income taxes payable, we would generally receive the vast majority of the
CICE credits after the three-year period. However, we entered into an agreement in December 2013 to sell a portion of the
credits earned in 2013 for net proceeds of $104.0 million. We derecognized these receivables upon sale date as the terms
of the agreement are such that the transaction qualifies for sale treatment according to the accounting guidance on the
transfer and servicing of assets. The discount on the sale of this receivable was recorded as a reduction of the payroll tax
credits in cost of services. We received the cash from the sale in December, which improved our operating cash flows in
the fourth quarter of 2013.
In France, during the second quarter of 2013, a number of clients asserted claims against us, requesting refunds for various
payroll tax subsidies that we have received dating back to 2003 related to our French temporary associates. While
we receive claims in the normal course of business, there was a significant increase in claims made during the second
quarter due to an impending change in the French statute of limitations that reduced the claims period from 10 to 5 years
for claims filed after June 2013. We did not receive any claims in the remainder of 2013. We believe the claims against
us are without merit as a matter of French law. Payroll tax subsidies have historically been for the benefit of the direct
employer of the temporary associates. As such, our pricing practices implicitly consider all direct costs of employing our
temporary associates, and factor in the benefit provided by these payroll tax subsidies. The French Supreme Court has
been asked to confirm that, as a matter of law, the benefit of the payroll tax subsidies belongs to the direct employer,
with a ruling expected during 2014. We believe the likelihood of any loss to be remote and do not expect the resolution of
these claims to have a material impact on our consolidated financial statements or the results of our France and Southern
Europe segments.
DEFERRED REVENUE
We recognize revenues under the current accounting guidance on revenue recognition. The accounting guidance generally
provides that revenues for time-based services be recognized over the average length of the services being provided. For
the outplacement line of business, we recognize revenues from individual programs and for larger projects over the
estimated period in which services are rendered to candidates. In our consulting business, revenues are recognized upon
the performance of the service under the consulting service contract. For performance-based contracts, we defer
recognizing revenues until the performance criteria have been met.
The amounts billed for outplacement, consulting services and performance-based contracts in excess of the amount
recognized as revenues are recorded as deferred revenue and included in accrued liabilities for the current portion and
other long-term liabilities for the long-term portion in our Consolidated Balance Sheets.
Significant factors impacting deferred revenue are the type of programs and projects sold and the volume of current billings
for new programs and projects. 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, 2013 and 2012, the current portion of deferred revenue was $48.5 million and $55.7 million, respectively, and
the long-term portion of deferred revenue was $10.0 million and $17.1 million, respectively.
INCOME TAXES
We account for income taxes in accordance with the accounting guidance on 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 basis, 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.