May 19,
2009
Mr. Larry
Spirgel
Assistant
Director
U.S.
Securities and Exchange Commission
Division
of Corporation Finance
Mail Stop
3720
100 F
Street, NE
Washington,
D.C. 20549
RE: Manpower
Inc.
Form 10-K
for the year ended December 31, 2008
Filed
February 20, 2009
File No.
1-10686
Dear Mr.
Spirgel:
I am
providing the following response to the comments raised in your letter dated May
5, 2009, regarding the above-referenced filing, and our subsequent discussion
with members of the Staff on May 7, 2009. In order to meet the filing
requirement, we filed our Form 10-Q for the first quarter of 2009 on May 11,
2009. In that filing, we have added additional disclosure in response
to the Staff’s comments. (All added disclosure has been underlined for your
convenience in the following responses herein). Set forth below are
the comments from your letter (in bold) and our responses thereto.
Form 10-K for the Year Ended
December 31, 2008
Annual Report to
Shareholders
Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Business Overview, page
17
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1. We
note your response to prior comment 1 and your proposed, revised
disclosures. You indicate that due to the significant overall
uncertainty about the depth and length of the current economic downturn,
you have not provided any predictions about the future operating results
for your company or reportable segments. However, we believe
that it is even more important, considering the current economic
environment, that you communicate to investors in a clear and
straightforward manner about the challenges you face today and how you
intend to progress forward. Your proposed disclosures speak in
generalizations, and it is unclear how you intend to drive your business
specifically as a whole and by segment through the next fiscal
year. We believe that your overview should provide a balanced,
executive-level discussion that identifies the most important themes or
other significant matters with which management is primarily concerned in
evaluating the company’s financial condition and operating
results. Please revise or
advise.
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RESPONSE:
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In
response to your comment regarding a balanced, executive-level discussion that
identifies the most important themes or other significant matters with which
management is primarily concerned with, we have added disclosure to our
Operating Results section within Management’s Discussion and Analysis of
Financial Condition and Results of Operations in our first quarter Form 10-Q as
noted below. We believe this disclosure appropriately addresses the
challenges we face and how we intend to drive the business:
Given the current economic
environment and the level of revenue declines which we have experienced in our
staffing markets, we have initiated a number of cost reduction measures to try
to minimize the impact on our overall profitability. We have reviewed
our direct costs and selling and administrative expenses and have reduced our
full-time equivalent employees by 4,500, or 13% of our employee base, subsequent
to September 2008, and closed 350 branches (8% of our branches), subsequent to
September 2008. This includes the transition of some Jefferson Wells
professionals to project-based roles, where they are only compensated if
utilized on client engagements as we try to improve our staff utilization in
light of the revenue declines within this business.
In reviewing our various
cost control measures, we continue to balance the value of preserving our branch
network and investing in our strategic initiatives against the desire to reduce
costs and maintain profitability. We are focused on making the
appropriate cost reductions, while trying to position the Company to take
advantage of any future economic recovery. We believe that
maintaining our brand presence in key markets is critical to our ability to
rebound quickly when the economic conditions improve. However, if the
economic downturn continues for an extended period of time, or becomes more
severe, we may decide to undertake further cost reductions. These
further cost reductions would primarily consist of additional employee
reductions and branch closures.
In addition, the effects of
the economic downturn have impacted the demand for our services over the past
several quarters. Based upon historical experience, we would expect
our businesses to return to growth when the underlying economies improve and
eventually to exceed previous revenue levels. The strength of this
growth will be dependent on the level of economic growth. Given the
uncertainties of predicting economic trends, however, it is not possible to
predict when we will return to prior revenue and earnings
levels.
We will
continue to provide and update these disclosures, as appropriate, in future
filings.
Segment Results, page
23
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2. We
note your response to prior comment 2. You indicate that you
believe that providing any additional disclosures about future trends or
forecasted operating results for the company or for any reportable segment
would not have been meaningful, because it would have been based on
speculation rather than reasonable expectations. We believe
that the withdrawal of guidance given the substantial uncertainty of the
economic environment does not preclude your obligation to discuss the
expected impact that current known trends will have in your operating
results on a short-term basis. Although you may not be able to
reasonably predict the duration of current trends on a long-term basis, we
believe that you should disclose, based on current available information,
management’s assessment as to whether these trends are reasonably expected
to have a material effect on your operating results on a short-term
basis.
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RESPONSE:
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As we
discussed with members of the Staff on May 7, 2009, our business is very closely
tied to the economy and to the labor market conditions in each country where we
operate. Our assignments are generally of a short-term nature, with
no backlog, and even where we have contracts in place with our larger clients,
assignments can be cancelled without notice, which contributes to the
sensitivity of our near-term revenue streams. Therefore, when
economic conditions or labor market conditions change, we experience similar
changes in the demand for our services and our revenue levels.
Because
our business is so heavily dependent on economic and labor market conditions,
when these conditions are volatile, it becomes difficult to accurately forecast
our future results. Given the unprecedented global economic downturn
in the fourth quarter of 2008, we withdrew our guidance for the quarter, and at
the time we filed our 2008 Form 10-K, there was still such volatility in the
market that we were unable to reasonably predict our operating results in the
near-term. Toward the end of the first quarter, however we started to
see some stability in certain markets and, as such, we were able to rely on
those market conditions as a basis for forecasting our earnings for the second
quarter. However, our forecast range was substantially wider than
what we have typically provided, reflecting the continued uncertainty in our
forecast.
In future
filings, we will provide the above disclosure, as appropriate, regarding
management’s assessment on current trends and their impact on our operating
results on a short-term basis.
In our
first quarter Form 10-Q, we have added the following disclosure to our Operating
Results section within Management’s Discussion and Analysis of Financial
Condition and Results of Operations to provide additional information about our
near-term expectations for the business and our continued uncertainty associated
with those expectations:
In the U.S. and France, we
have seen the same consistent year-over-year declines in business volumes during
the latter part of the first quarter and early part of the second
quarter. This trend, however, was not evident in our other staffing
markets. If the current unfavorable economic environment continues,
we may continue to experience a significant decline in business volumes in all
of our staffing segments, and an increase in business volumes in Right
Management. Since the demand for our services depends heavily on the
economy and the labor markets in the various countries where we operate and it
is difficult for us to predict the duration of these current trends, it is
difficult for us to predict our near-term revenue levels and
profitability.
Since the
majority of our reportable segments are geographical and were experiencing
relatively similar economic circumstances, we added this disclosure as noted
above rather than repeating the disclosure in each reportable
segment.
We will
continue to provide and update these disclosures, as appropriate, in future
filings.
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3. Further,
we note that in the current economic environment, you have transitioned a
number of employees into project-based roles in the fourth quarter of 2008
to reduce your fixed costs. As a result, it appears that you
are reducing your fixed costs until the economy improves and revenues
increase. However, we also note that your revenues will
continue to be negatively impacted until the economy
improves. Please expand your MD&A discussion to explain, if
true, that the impact of the reductions of these fixed costs will not be
sufficient to offset the declines in
revenues.
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RESPONSE:
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We have
added disclosure to the first quarter Form 10-Q to clarify how the transition of
these Jefferson Wells employees into project-based roles will impact the segment
results (i.e. by reducing our fixed direct costs as these project employees are
only compensated when they are assigned on client
engagements). Please note that at the time of our Form 10-K filing,
we expected this change to be sufficient to offset the decline in revenues at
Jefferson Wells, however due to the continued pressure on our staff utilization,
the overall impact of this change has not been realized and we have continued to
see a negative near-term impact on Jefferson Wells’ profitability.
In our
first quarter Form 10-Q, we have added the following disclosure to our Operating
Results section within Management’s Discussion and Analysis of Financial
Condition and Results of Operations related to Jefferson Wells:
This includes the transition
of some Jefferson Wells professionals to project-based roles, where they are
only compensated if utilized on client engagements as we try to improve our
staff utilization in light of the revenue declines within this
business.
We also
have included the following disclosure to our Jefferson Wells section within
Management’s Discussion and Analysis of Financial Condition and Results of
Operations:
In the
fourth quarter of 2008, we transitioned a number of employees into project-based
roles to reduce our fixed direct costs and improve our utilization
of professional staff. However, due to the continued decline in
revenues, our staff utilization remains under pressure, negatively impacting our
overall profitability. We continue to analyze the mix of fixed and
project-based professional staff and are making adjustments as we consider
necessary to react to the anticipated revenue levels.
We will continue to provide
and update these disclosures, as appropriate, in future
filings.
Application of Critical
Accounting Policies, page 31
Goodwill and
Indefinite-lived Intangible Asset Impairment, page 33
4. We
note your response to comment 3. Please revise as
follows:
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Disclose
goodwill by reporting unit.
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·
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Provide
a discussion of your historical growth rates and explain how your
historical growth rates were considered when determining the growth rate
to be utilized in your cash flows
projections.
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·
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Disclose
the annual growth rate you need to achieve in your cash flow projections
in order to avoid having a goodwill impairment
charge.
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·
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In
view of the current economic environment, discuss how you considered the
uncertainties inherent in your estimated future growth
rates. For example, you should explain if and when you
anticipated a recovery of the economy in your growth rates used in your
cash flows analysis.
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RESPONSE:
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We have
included additional disclosure in our first quarter Form 10-Q in response to
your comments. The disclosure below includes those disclosures, which
we indicated in our letter dated April 1, 2009 that we would provide in response
to comment 3 in your original comment letter dated March 18, 2009.
As we
discussed with members of the Staff on May 7, 2009, we have numerous reporting
units with goodwill balances. We have added disclosure of our five
most significant reporting units, which represents 86% of our goodwill balances
as of March 31, 2009, in Note 7 in Notes to Consolidated Financial Statements
within our first quarter Form 10-Q. The amount included as ‘other reporting
units’ represents the goodwill balances related to 25 reporting units, all of
which individually are not significant amounts.
Goodwill balances by
reporting unit are as follows:
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March 31,
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December 31,
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2009
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2008
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Right Management
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$ | 323.4 | $ | 324.4 | ||||
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United States
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157.0 | 150.9 | ||||||
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Jefferson Wells
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150.2 | 150.2 | ||||||
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Elan
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114.0 | 116.1 | ||||||
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Netherlands (Vitae)
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81.0 | 85.4 | ||||||
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Other reporting units
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139.8 | 145.9 | ||||||
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Total
goodwill
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$ | 965.4 | $ | 972.9 | ||||
In
addition, we have added disclosure about how we consider our historical growth
rates when we determine the growth rates used in our discounted cash flow
projections for our goodwill impairment analysis. Please see our
first quarter Form 10-Q disclosure below.
In your
comment, you requested that we disclose the annual growth rate needed to avoid
having a goodwill impairment charge. As we discussed with members of
the Staff on May 7, 2009, our discounted cash flow projections are based on a
number of assumptions, which are somewhat dependent on each
other. Therefore, we have added disclosure on the sensitivity of the
projections to the changes in overall cash flows, as this will address the
overall sensitivity and will encompass changes to any or all of our
assumptions. Please see our first quarter Form 10-Q disclosure
below.
Also, as
indicated in our previous response letter dated April 1, 2009, we have added
disclosure on the significant assumptions used in our discounted cash flow
analysis, including the revenue growth rates and discount rates for our Right
Management and Jefferson Wells reporting units. These two reporting
units represent almost 50% of our goodwill balance and represent the greatest
risk as it relates to the recoverability of our goodwill balance. We
have not provided the same level of detail on the assumptions used for our
remaining reporting units, given the low risk of impairment in those reporting
units. As a result, we have added disclosure to indicate there is a
sufficient margin in the fair value of those units. Please see our
first quarter Form 10-Q disclosure below.
Finally,
in view of the current economic environment, we have addressed the uncertainties
inherent in our estimated future growth rates by adding a specific premium to
our discount rate and by utilizing a number of data points in determining other
key assumptions, including the historical revenue growth rates and our currently
available forecasts. In our analysis performed in our fourth quarter
of 2008, we used our most recent forecasts, which anticipated a modest economic
recovery beginning in 2010. We have included this fact in the
discussion of our revenue growth assumptions in the first quarter Form 10-Q
disclosure below.
The
following disclosure is included in our Critical Accounting Policy disclosure
for goodwill and in Note 1 in Notes to Consolidated Financial Statements in our
first quarter Form 10-Q. We have underlined the added
disclosure.
Goodwill and Intangible
Assets
In
accordance with Statement of Financial Accounting Standards No. 142, “Goodwill
and Other Intangible Assets,” we perform an annual impairment test of goodwill
and indefinite-lived intangible assets at our reporting unit 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.
Due to the unfavorable
impact of the credit crisis and the current economic environment, in the fourth
quarter of 2008, we experienced significant volatility in our stock price as
well as an 18.5% reduction of consolidated revenues (10% in constant currency).
Our stock price decreased 21% to $33.99 as of December 31, 2008 as compared to
$43.16 as of September 30, 2008. As of December 31, 2008, our market
capitalization was approximately $2,700 as compared to a consolidated book value
of approximately $2,500.
As a result, we considered
the near-term effects of the foregoing events, including but not limited to, the
ongoing credit crisis, the current economic environment, the decline in our
stock price and significantly lower near-term revenues from services in most of
our businesses. However, we believe that sharp rises and declines in demand for
our services or stock price are not necessarily indicative of a decline in the
long-term value of our businesses based on our prior experiences during previous
economic downturns. For this reason, we believe the long-term economic outlook
of our reporting units was not materially different at December 31, 2008 than
was assumed in the annual impairment test we performed during the third quarter
of 2008, with the exception of our Right Management and Jefferson Wells
reporting units.
Consequently, we performed
the step one analysis to determine the fair value of these two respective
reporting units at December 31, 2008. To determine their fair value, we used a
combination of the income approach (weighted 75%) and market approach (weighted
25%). Significant assumptions used in our analysis include: expected future
revenue growth rates, operating unit profit margins, and working capital levels;
a discount rate of 10.4% for Right Management and 12.7% for Jefferson Wells; and
a terminal value multiple. The expected future revenue growth rates were
determined with consideration of our historical revenue growth rates, our
assessment of future market potential, our expectations of future business
performance and an assumed modest economic recovery beginning in 2010. The
growth rates we used for Right Management ranged from 4.0% to 7.1% over a
ten-year period, compared to historical growth rates of (5.4)% to 9.7% for the
years 2004 (year of acquisition) through 2008. The growth rates we used for
Jefferson Wells ranged from (2.3)% to 10.0% over the ten-year period, compared
to historical rates of (12.4)% to 149.6% for the years 2002 (year of
acquisition) through 2008. The expected cash flows used in our analysis could
decrease by more than 15% before we would have a potential goodwill impairment
for either of these reporting units as of December 31, 2008.
We followed a consistent
approach in determining the assumptions used in calculating the fair value of
our other reporting units during our annual impairment testing in the third
quarter of 2008. Based on our testing, we believe that the fair value
of our other reporting units were sufficiently more than their carrying
values.
During the first quarter of
2009, we again reviewed the current circumstances and events to determine if the
fair value of our reporting units was below their carrying value. While our
consolidated revenues declined 32.3% (21.8% in constant currency) during the
first quarter of 2009 as compared to the comparable period in 2008 and our stock
price remained volatile during this period (a decline of 7% to $31.53 as of
March 31, 2009), our book value per share was $30.61 as of March 31, 2009 and
our stock price has subsequently risen significantly. We believe that while we
may see continued volatility in the near-term, our stock price and the long-term
economic outlook of the global economies will rebound. Therefore, we do not
believe that the fair value of our reporting units was below their carrying
value at March 31, 2009.
If we continue to experience
volatile stock prices, a further erosion of actual and projected revenues or
other unfavorable economic impacts, we may have a material impairment charge
related to our goodwill or other indefinite-lived intangible assets in the near
term. We will monitor circumstances and events in future periods to determine
whether additional asset impairment testing is warranted.
We will
continue to provide and update these disclosures, as appropriate, in future
filings.
Cash Sources and Uses, page
27
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5. We
note your responses to comments 4 and 5. It is unclear to us
why you believe that your liquidity improves during an economic downturn
and worsens when the economic conditions improve. In this
regard, it appears to us that the favorable impact on your operating cash
flows as a result of your decrease in account receivables may be only
temporary. Tell us how liquidity would be impacted in the event
that your revenues and operating margins continue to decrease
significantly quarter after
quarter.
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RESPONSE:
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As we
discussed with members of the Staff on May 7, 2009, as our revenues decline in
an economic downturn, our working capital needs decline, resulting in additional
cash being provided by operations. This is due primarily to our
accounts receivable declining, which on average takes us 65 days to collect
because of the collection trends in the numerous countries we operate
in. Accordingly, as our revenues decline, the collections of accounts
receivable from prior billings typically exceed the amount of accounts
receivable generated from new billings. This represents a near-term
liquidity enhancement for our business in a down economy.
That
said, we acknowledge that this near–term phenomenon is not
sustainable. We will continue to experience this benefit on working
capital as long as revenues continue to decline, however if revenues continue to
decline for an extended period of time, or if the decline worsens, our overall
profitability will be unfavorably impacted which will ultimately have a negative
impact on our operating cash flows.
To more
fully discuss these impacts, we have added the following disclosure in our first
quarter Form 10-Q, within our Business Overview and Liquidity and Capital
Resources sections of Management’s Discussion and Analysis of Financial
Condition and Results of Operations:
Business
Overview:
Correspondingly, during
periods of weak economic growth or economic contraction, the demand for our
staffing services typically declines. When demand drops, our operating profit is
typically impacted unfavorably as we experience a deleveraging of our selling
and administrative expense base as expenses may not reduce at the same pace as
revenues. In periods of economic contraction, as we are now
experiencing, we will have more significant expense deleveraging, as we can only
reduce selling and administrative expenses to a certain level without negatively
impacting the long-term potential of our branch network and
brands. We typically see a decrease in our working capital needs
during these periods, as collections of accounts receivable from prior billings
exceed the amount of accounts receivable generated from new billings as accounts
receivable decreased $690.3 million from December 31, 2008 to March 31,
2009. This decrease in working capital has a favorable impact on
operating cash flows. Operating cash flows are also impacted by
earnings, and therefore any reduction in earnings will have an unfavorable
impact on operating cash flows.
Liquidity and Capital
Resources:
The declining revenue levels
that we have experienced over the last two quarters have resulted in lower
accounts receivable balances and a decline in net working
capital. This decline in working capital has resulted in a
significant increase in cash flows from operations in both the fourth quarter of
2008 and the first quarter of 2009. We have seen a significant
increase in our cash and cash equivalents, to $1.0 billion as of March 31, 2009,
resulting in a net positive cash position at the end of the
quarter. However, the favorable impact on our operating cash flows
would not be sustainable in the event that the current economic downturn
continued for an extended number of years.
We will
continue to provide and update these disclosures, as appropriate, in future
filings.
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6. We
note from your response to comment 2, that you find it even more difficult
to predict your future revenue trends and profitability given the recent
global economic downturn and the overall uncertainty about the depth or
length of the downturn. However, we believe that you should
discuss your ability to generate cash to meet your cash requirements on a
long-term basis assuming a continuation of the significant negative impact
that the recent economic global downturn has had on your operating
results. In this regard, we note that 73% of your long-term
debt matures in 2012 and 2013 and that the revolving credit agreement
matures in 2012.
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RESPONSE:
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We have
added the following disclosure, discussing our ability to generate cash to meet
our long-term cash requirements, including the maturity of our long-term
facilities in 2012 and 2013, in our first quarter Form 10-Q. This
disclosure was added to our Liquidity and Capital Resources section within
Management’s Discussion and Analysis of Financial Condition and Results of
Operations:
Cash used to fund our
operations is primarily generated through operating activities and our existing
credit facilities. We believe that our available cash and our
existing credit facilities are sufficient to cover our future cash needs for at
least the next couple of years. We assess and monitor our liquidity
and capital resources globally. We use a global cash pooling
arrangement, intercompany lending, and some local credit lines to meet funding
needs and allocate our capital resources among our various
entities.
Our €300.0 million notes are
due June 2012, our $625.0 million revolving credit agreement expires in November
2012, and our €200.0 million notes are due June 2013. When these
facilities mature, we plan to repay these amounts with available cash or
refinance them with new long-term facilities. In the event that the
economy continues to decline for an extended period of time, we may be unable to
repay these amounts with available cash and, as such, may need to replace these
borrowings with new long-term facilities. The credit terms, including
interest rate and facility fees, of any replacement borrowings will be dependent
upon the condition of the credit markets at that time. We currently
do not anticipate any problems accessing the credit markets should we need to
replace our facilities.
We will
continue to provide and update these disclosures, as appropriate, in future
filings.
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7. Further,
we note that you met with two credit agencies in late 2008 and both
agencies updated their ratings at that time. You also indicate
that at the time of your filing, based on those discussions and your
forecasts, you did not anticipate any credit rating or rating outlook
changes. Subsequent to your filing, Moody’s lowered their
credit outlook from stable to negative, but did not adjust their credit
rating. Please revise to explain in detail why you believe
Moody’s lowered their credit outlook from stable in late 2008 to negative
subsequent to the time of your filing and how you believe this will impact
your ability to obtain external financing in the
future.
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RESPONSE:
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We have
added the following disclosure to our first quarter Form 10-Q in our Liquidity
and Capital Resources section of Management’s Discussion and Analysis of
Financial Condition and Results of Operations:
Our
credit rating from Moody’s Investors Services is Baa2 with a negative
outlook. This reflects a change in outlook from stable to negative in
the first quarter of 2009. The rating
agencies use a proprietary methodology in determining their ratings and outlook
which includes, among other things, financial ratios based upon debt levels and
earnings performance. Due to the Company’s weakening financial
results, Moody’s Investors Service determined that a change in outlook was
warranted. We do not expect this change in outlook to impact our
ability to obtain additional financing. Our credit rating from
Standard and Poor’s is BBB- with a negative outlook. Both of these
credit ratings are investment grade.
A
downgrade in our credit rating from either rating agency would cause a slight
increase to the cost of our borrowings under the revolving credit
agreement. We have added the following disclosure in our first
quarter Form 10-Q to provide the pricing information in the event of a
downgrade.
Under our Revolving Credit
Agreement, we have a ratings-based pricing grid which determines the facility
fee and the credit spread that we add to the applicable interbank borrowing rate
on all borrowings. At our current credit ratings, the facility fee is
10 bps, and the credit spread is 40 bps. If we are downgraded one
level from the current ratings by either or both rating agencies, the facility
fee will increase to 12.5 bps and the credit spread will increase to 50
bps. A downgrade of two levels by either or both rating agencies will
increase the facility fee to 20 bps and the credit spread to 55
bps.
We will
continue to provide and update these disclosures, as appropriate, in future
filings.
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8. You
indicate that you assess liquidity on a company-wide basis, and you have
provided a discussion on a company level basis. Please note
that you should also disclose your liquidity needs by
segment. Revise
accordingly.
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RESPONSE:
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As we
discussed with members of the Staff on May 7, 2009, we assess and monitor our
liquidity and capital resources on a global basis through a global cash pooling
arrangement, intercompany lending, and local credit lines that we have available
to us to meet funding needs and allocate our capital resources among our various
entities. We do not assess, report on or monitor our liquidity and
capital resources on a reportable segment basis internally.
As we
noted above in our response to comment 6, we have clarified our approach in our
Liquidity and Capital Resources section within Management’s Discussion and
Analysis of Financial Condition and Results of Operations in our first quarter
Form 10-Q, as follows:
We assess and monitor our
liquidity and capital resources globally. We use a global cash
pooling arrangement, intercompany lending, and some local credit lines to meet
funding needs and allocate our capital resources among our various
entities.
It is our
understanding of Item 303 Regulation S-K and the Commission’s Interpretive
Release on Management’s Discussion and Analysis of Financial Condition and
Results of Operation that, if material to understanding a company’s liquidity, a
company should consider whether, in order to make required disclosures, it is
necessary to expand MD&A to address the cash requirements of and the cash
provided by its reportable segments or other subdivisions of the business,
including issues related to foreign subsidiaries, as well as the indicative
nature of those results. We have considered such disclosure, but
because we assess and monitor our liquidity on a global basis, we do not believe
that providing liquidity by reportable segment is material to the understanding
of our overall liquidity.
We will
continue to provide and update these disclosures, as appropriate, in future
filings.
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9. We
note from your disclosure in note 5, that as of December 31, 2008, you
have identified approximately $522.2 million of non-U.S. funds that will
likely be repatriated, the majority of which is related to Manpower
France. You also indicate that you currently do not have
specific plans to repatriate these funds, however you may do so in the
future as cash needs arise. We also note that you have not
recorded a deferred tax liability on the $522.2 million unremitted
earnings. Under paragraph 12 of APB 23, if circumstances change
and it becomes apparent that some or all of the undistributed earnings of
a subsidiary will be remitted in the foreseeable future but income taxes
have not been recognized by the parent company, it should accrue as an
expense of the current period income taxes attributable to that
remittance. Considering your disclosure that the $522.2 million
will likely be repatriated, it is unclear to us how you concluded that it
is not apparent that the $522.2 million will not be remitted in the
foreseeable future. Also, tell us why you believe that because
of the fact that you currently do not have specific plans to repatriate
these funds, you concluded that it is not apparent that these funds will
not be remitted.
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RESPONSE:
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As we
discussed with members of the Staff on May 7, 2009, we have recorded
a deferred tax liability of $44.4 million as of December 31, 2008 related to the
repatriation of the $522.2 million of non-U.S. funds. The deferred
tax liability is calculated on an entity-by-entity basis based on the relative
tax cost of repatriating the funds, considering the U.S. tax cost and related
foreign tax credits. We disclosed the aforementioned deferred taxes
in both Management’s Discussion and Analysis of Financial Condition and Results
of Operations and Notes to Consolidated Financial Statements in our 2008 Annual
Report.
Included
under our Cash Sources and Uses section on page 27 of our Annual Report, we
disclosed the following:
We
anticipate cash repatriations to the United States from certain international
subsidiaries and have provided for deferred taxes related to those foreign
earnings not considered to be permanently invested. As of December
31, 2008, we have identified approximately $522.2 million of non-U.S. funds that
will likely be repatriated, the majority of which is related to Manpower
France.
Included
in our Notes to Consolidated Financial Statements on page 58 of our Annual
Report, we disclosed the following:
Deferred
taxes are provided on the earnings of non-U.S. subsidiaries that will likely be
remitted to the U.S. As of December 31, 2008 and 2007, we have
recorded a deferred tax liability of $44.4 million and $56.9 million,
respectively, related to non-U.S. earnings that we plan to remit.
We will
continue to provide and update these disclosures, as appropriate, in future
filings.
Notes to Financial
Statements
Note 7. Goodwill, page
60
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10.
We note your response to prior comments 6 and 7. We believe
that you should revise the table, as presented on page 60, to disclose
goodwill by reportable segment in accordance with the disclosure
requirements in paragraph 45(c) of SFAS
No.142.
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RESPONSE:
|
As we
discussed with members of the Staff on May 7, 2009, our understanding
of paragraph 45 (c) of Statement of Financial Accounting Standards
No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”) is that it
requires entities to disclose changes in the carrying amount of goodwill during
the period, including the aggregate amount of goodwill acquired, the aggregate
amount of impairment losses recognized and the amount of goodwill
included in the gain or loss on disposal of all or a portion of a reporting
unit. Near the end of paragraph 45, SFAS No. 142 states, “entities
that report segment information in accordance with SFAS No. 131 shall provide
the above information about goodwill in total and for each reportable segment
and shall disclose any significant changes in the allocation of goodwill by
reportable segment.”
Paragraph
29 of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related
Information” (SFAS No. 131), this paragraph states “the amount of each segment
item reported shall be the measure reported to the chief operating decision
maker for purposes of making decisions about allocating resources to the segment
and assessing its performance. Adjustments and eliminations made in
preparing an enterprise's general-purpose financial statements and allocations
of revenues, expenses, and gains or losses shall be included in determining
reported segment profit or loss only if they are included in the measure of the
segment's profit or loss that is used by the chief operating decision
maker. Similarly, only those assets that are included in the measure of
the segment's assets that is used by the chief operating decision maker shall be
reported for that segment. If amounts are allocated to reported segment
profit or loss or assets, those amounts shall be allocated on a reasonable
basis.”
As we
noted in our previous response letter dated April 1, 2009, when we acquired the
Jefferson Wells and Right Management businesses, all of the goodwill associated
with these acquisitions remained at Corporate. Accordingly, all of our internal
reporting and analysis that is reviewed by our chief operating decision maker
presents these goodwill balances at Corporate.
Therefore,
we have presented such goodwill balances, in Note 7 and Note 15 in Notes to
Consolidated Financial Statements, at Corporate. In order to
reconcile this disclosure with that required by paragraph 45 of SFAS No. 142, we
have supplementally disclosed the significant components of the goodwill
recorded at Corporate, and we have allocated the appropriate amounts to
Jefferson Wells and Right Management for purposes of our goodwill impairment
analysis.
Our first
quarter Form 10-Q disclosure in Note 7 in Notes to Consolidated Financial
Statements is as follows:
(7) Goodwill
This presentation reflects
the realignment of our segments. See Note 13 for further
information.
Changes
in the carrying value of goodwill by reportable segment and Corporate are as
follows:
|
Americas
|
France
|
EMEA (1)
|
Asia
Pacific
|
Right
Management
|
Jefferson
Wells
|
Corporate (2)
|
Total
|
|||||||||||||||||||||||||
|
Balance,
December
31, 2008
|
$ | 162.3 | $ | 3.6 | $ | 266.2 | $ | 56.5 | $ | 140.0 | $ | 1.0 | $ | 343.3 | $ | 972.9 | ||||||||||||||||
|
Goodwill
acquired
|
6.1 | - | - | - | 0.1 | - | - | 6.2 | ||||||||||||||||||||||||
|
Currency
impact
|
(0.4 | ) | (0.1 | ) | (8.8 | ) | (3.2 | ) | (1.2 | ) | - | - | (13.7 | ) | ||||||||||||||||||
|
Balance,
March
31, 2009
|
$ | 168.0 | $ | 3.5 | $ | 257.4 | $ | 53.3 | $ | 138.9 | $ | 1.0 | $ | 343.3 | $ | 965.4 | ||||||||||||||||
|
(1)
Balances related to Italy are $4.6 and $4.8 as of March 31, 2009 and
December 31, 2008, respectively. The ($0.2) change represents a currency
impact.
|
|
(2)
The majority of the Corporate balance relates to goodwill attributable
from our acquisitions of Right Management ($184.5) and
Jefferson Wells
($149.2). For purposes of monitoring our total assets by segment, we do
not allocate these balances to their respective reportable
segments as this is commensurate with how we operate our business. We do,
however, include these balances within the appropriate reporting units for
our goodwill impairment testing. See table below for the breakout of
goodwill balances by reporting
unit.
|
In
addition, as noted in our response to comment 4, we have also included a table
showing goodwill by reporting unit, so that the total goodwill for Right
Management and Jefferson Wells are clearly disclosed.
The
disclosure in Note 15 in Notes to Consolidated Financial Statements is
consistent with these amounts.
We will
continue to provide and update these disclosures, as appropriate, in future
filings.
Note 15. Segment Data, page
68
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11.
We refer to your presentation of segment assets found on page
70. Please revise to disclose segment assets in accordance with
paragraph 29 and a reconciliation of total reportable segment assets to
total assets in accordance with paragraph 32(c) of SFAS No.
131.
|
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RESPONSE:
|
Please
see our response to comment 10.
|
We
acknowledge that:
|
|
·
|
the
company is responsible for the adequacy and accuracy of the disclosure in
the filings;
|
|
·
|
staff
comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the
filings; and
|
|
·
|
the
company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
|
If you
have any further comments, or comments regarding our responses, we would
appreciate the opportunity to discuss those with you via phone. To
the extent you have any such questions or comments, please do not hesitate to
call Sherri Albinger, Corporate Controller and Chief Accounting Officer at
414-906-6626 or me at 414-906-6305.
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Sincerely,
|
/s/Michael
J. Van Handel
|
Michael
J. Van Handel
|
|
Executive
Vice President,
|
|
Chief
Financial
Officer
|