ManpowerGroup 2001 Annual Report Download - page 24

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01 Summary of Significant Accounting Policies
Nature of Operations
Manpower Inc. (the “Company”) is a global staffing leader with over 3,900 systemwide offices in 61 countries. The Company’s largest operations,
based on revenues, are located in the United States, France and the United Kingdom. The Company provides a wide range of human resource services,
including professional, technical, specialized, office and industrial staffing; temporary and permanent employee testing, selection, training and
development; and organizational-performance consulting. The Company provides services to a wide variety of customers, none of which individually
comprise a significant portion of revenues within a given geographic region or for the Company as a whole.
Basis of Consolidation
The Consolidated Financial Statements include the accounts of the Company and all subsidiaries. For subsidiaries in which the Company has an ownership
interest of 50% or less, but more than 20%, the Consolidated Financial Statements reflect the Company’s ownership share of those earnings using the
equity method of accounting. These investments are included as Investments in licensees in the Consolidated Balance Sheets. Included in Shareholders’
equity at December 31, 2001 are $38.0 of unremitted earnings from investments accounted for using the equity method. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Revenues
The Company generates revenues from sales of services by its own branch operations and from fees earned on sales of services by its franchise operations.
Revenues from services are recognized as the services are rendered and revenues from franchise fees are recognized as earned. Franchise fees, which are
included in revenues from services, were $28.1, $37.4 and $37.7 for the years ended December 31, 2001, 2000 and 1999, respectively.
Derivative Financial Instruments
The Company accounts for its derivative instruments in accordance with Statements of Financial Accounting Standards (“SFAS”) Nos. 133, 137, and
138 related to “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133, as amended” or “Statements”). Derivative instruments
are recorded on the balance sheet as either an asset or liability measured at its fair value. If the derivative is designated as a fair value hedge, the changes
in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a
cash flow hedge, the effective portions of the changes in the fair value of the derivative are recorded as a component of Accumulated other comprehensive
income (loss) and recognized in the Consolidated Statements of Operations when the hedged item affects earnings. Ineffective portions of changes in
the fair value of cash flow hedges are recognized in earnings. The Company adopted SFAS No. 133, as amended, on January 1, 2001.
Accounts Receivable Securitization
The Company accounts for the securitization of accounts receivable in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.” At the time the receivables are sold, the balances are removed from the Consolidated Balance
Sheets. Costs associated with the sale of receivables, primarily related to the discount and loss on sale, are included in Other expense in the Consolidated
Statements of Operations.
Foreign Currency Translation
The financial statements of the Company’s non-U.S. subsidiaries have been translated in accordance with SFAS No. 52. Under SFAS No. 52, asset and
liability accounts are translated at the current exchange rate and income statement items are translated at the weighted average exchange rate for the
year. The resulting translation adjustments are recorded as a component of Accumulated other comprehensive income (loss), which is included in
Shareholders’ equity. In accordance with SFAS No. 109, no deferred taxes have been recorded related to the cumulative translation adjustments.
The Company’s various foreign currency denominated borrowings are accounted for as a hedge of the Company’s net investment in its subsidiaries
with the related functional currencies. Since the Company’s net investment in these subsidiaries exceeds the amount of the related borrowings, all
translation gains or losses related to these borrowings are included as a component of Accumulated other comprehensive income (loss).
Translation adjustments for those operations in highly inflationary economies and certain other transaction adjustments are included in earnings.
Historically these adjustments have been immaterial to the Consolidated Financial Statements.
Capitalized Software
The Company capitalizes purchased software as well as internally developed software. Internal software development costs are capitalized from the
time the internal use software is considered probable of completion until the software is ready for use. Business analysis, system evaluation, selection
and software maintenance costs are expensed as incurred. Capitalized software costs are amortized using the straight-line method over the estimated
useful life of the software. The Company regularly reviews the carrying value of all capitalized software and recognizes a loss when the carrying value
is considered unrealizable. The net capitalized software balance of $26.0 and $10.8 as of December 31, 2001 and 2000, respectively, is included in
Other assets in the Consolidated Balance Sheets.
Intangible Assets
Intangible assets consist primarily of the excess of cost over the fair value of net assets acquired (i.e. goodwill). Goodwill resulting from business
combinations completed prior to July 1, 2001 was amortized on a straight-line basis over its useful life, estimated based on the facts and circumstances
surrounding each individual acquisition, not to exceed twenty years. The intangible asset and related accumulated amortization are removed from the
Consolidated Balance Sheets when the intangible asset becomes fully amortized. The Company regularly reviews the carrying value of all intangible
assets and recognizes a loss when the unamortized balance is considered unrealizable. Amortization expense was $17.0, $13.3 and $6.9 in 2001, 2000
and 1999, respectively.
During June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations,” which requires all business
combinations completed subsequent to June 30, 2001 to be accounted for using the purchase method. Although the purchase method generally
remains unchanged, this standard also requires that acquired intangible assets should be separately recognized if the benefit of the intangible assets are
obtained through contractual or other legal rights, or if the intangible assets can be sold, transferred, licensed, rented or exchanged, regardless of the
acquirer’s intent to do so. Intangible assets separately identified must be amortized over their estimated economic life.
This statement was adopted by the Company on July 1, 2001. The Company has accounted for previous acquisitions under the purchase method and
the related excess of purchase price over net assets was mainly goodwill, therefore, the adoption of this statement did not have a material impact on the
Consolidated Financial Statements.
During June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets,” which prohibits the amortization of goodwill or identifiable
intangible assets with an indefinite life beginning January 1, 2002. In addition, goodwill or identifiable intangible assets with an indefinite life
resulting from business combinations completed between July 1, 2001 and December 31, 2001 are no longer required to be amortized. Rather, goodwill
will be subject to impairment reviews by applying a fair-value-based test at the reporting unit level, which generally represents operations one level
below the segments reported by the Company. An impairment loss will be recorded for any goodwill that is determined to be impaired.
The impairment testing provisions of this statement are effective for the Company on January 1, 2002. The Company will perform an impairment
test on all existing goodwill before June 30, 2002, which will be updated at least annually. The Company has not yet determined the extent of any
impairment losses on its existing goodwill, however, any such losses are not expected to be material to the Consolidated Financial Statements.
The non-amortization provisions of this statement related to goodwill resulting from business combinations completed between July 1, 2001 and
December 31, 2001 were adopted on July 1, 2001. The remaining non-amortization provisions of this statement were adopted on January 1, 2002.
Under the provisions of this statement, $16.8 of the 2001 Amortization of intangible assets would not have been recorded.
Notes to Consolidated Financial Statements
— in millions, except per share data —