ManpowerGroup 2013 Annual Report Download - page 46

44 ManpowerGroup 2013 Annual Report Management’s Discussion & Analysis
MANAGEMENT’S DISCUSSION & ANALYSIS
of financial condition and results of operations
The accounting guidance related to uncertain tax positions requires an 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% threshold, then the tax position is warranted and the largest amount that would be realized upon
ultimate settlement is recognized. An uncertain tax position, one which does not meet the 50% threshold, will not be
recognized in the financial statements.
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 unrecognized tax benefits related to items in
various countries and territories. To the extent these items are settled for an amount different than we currently expect, the
unrecognized tax benefit 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.
GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSET IMPAIRMENT
In accordance with the accounting guidance on goodwill and other intangible assets, we perform an annual impairment
test of goodwill at our reporting unit level and indefinite-lived intangible assets at our unit of account level during the third
quarter, or more frequently if events or circumstances change that would more likely than not reduce the fair value of our
reporting units below their carrying value.
We performed our annual impairment test of our goodwill and indefinite-lived intangible assets during the third quarter of
2013 and 2012, and there was no impairment of our goodwill or our indefinite-lived intangible assets.
Significant assumptions used in our annual goodwill impairment test during the third quarter of 2013 included: expected
future revenue growth rates, operating unit profit margins, working capital levels, discount rates ranging from 11.7% to
16.5%, and a terminal value multiple. The expected future revenue growth rates and operating unit profit margins were
determined after taking into consideration our historical revenue growth rates and operating unit profit margins, our
assessment of future market potential, and our expectations of future business performance, including the effects of the
simplification and cost recalibration plan.
The table below provides a sample of our reporting units’ estimated fair values and carrying values, which were determined
as part of our annual goodwill impairment test performed in the third quarter ended September 30, 2013. The reporting
units included below represented approximately 70% of our consolidated goodwill balance as of September 30, 2013.
(in millions) United States Netherlands France
Right
Management
Estimated fair values $1,143.0 $148.9 $1,577.0 $258.8
Carrying values 977.8 110.9 537.6 137.8
Significant Matters Affecting Results of Operations
MARKET RISKS
We are exposed to the impact of foreign currency exchange rate fluctuations and interest rate changes.
Exchange Rates — Our exposure to foreign currency exchange rates relates primarily to our foreign subsidiaries and our
euro-denominated borrowings. For our foreign subsidiaries, exchange rates impact the United States dollar value of our
reported earnings, our investments in the subsidiaries and the intercompany transactions with the subsidiaries.