April 1,
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
March 18, 2009, regarding the above-referenced filing. Set forth
below are the comments from your letter 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
believe that the business overview should include the most important
matters on which company’s management focuses in evaluating financial
condition and operating performance. The business overview
should provide context for management’s discussion and analysis of the
financial statements. We believe that your current business
overview is too general in nature, and that you should expand this section
to provide a discussion of the most important matters currently affecting
your business. Among other factors, you should address the
current and expected impact of the recent economic downturn in your
business, in particular in operating results and
liquidity.
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RESPONSE:
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We have
reviewed our Business Overview in light of your comments. While we
have disclosed information about these additional factors as they relate to our
actual results in Management’s Discussion and Analysis, we will provide
additional disclosure in our Business Overview to give readers a better
understanding of how economic factors generally impact our operating results and
our liquidity. Specifically we will expand our discussion around the
demand for our services and our ability to forecast future results to read as
follows (please note that the new disclosures are underlined
below):
Client
demand for employment services is dependent on the overall strength of the labor
market and secular trends towards greater workforce flexibility within each of
the countries in which we operate. Improving economic growth
typically results in increasing demand for labor, resulting in greater demand
for our staffing services. During periods of increasing
demand, we are able to improve our profitability and operating leverage as our
current cost base can support some increase in business without a similar
increase in selling and administrative expenses. During these
periods, we generally see an increase in our working capital needs, resulting
from an increase in our accounts receivable balance in line with the revenue
growth, which may result in a decline in operating cash
flows.
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 generally unfavorably impacted as we experience a
de-leveraging 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
de-leveraging, 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 generally see a decrease in our working capital needs
during these periods, primarily through the collection of our accounts
receivable, which may result in additional operating cash
flows.
Our Career Transition
services are counter-cyclical to our staffing services, so they tend to soften
the impact of any economic cycles on our overall financial
results.
Due to
our industry’s sensitivity to
economic factors, the inherent difficulty in forecasting the direction and
strength of the economy and the short-term nature of staffing assignments, it is
difficult to forecast future demand for our services with any reasonable
certainty. As a result, we monitor a number of economic indicators,
as well as recent business trends, to predict future revenue trends for each of our reportable
segments. Based upon these anticipated trends, we determine
what level of personnel and office investments are necessary to take full
advantage of growth opportunities. Given the recent economic
global downturn, and the overall uncertainty about the depth or length of the
downturn, we find it even more difficult to predict our future revenue trends
and profitability. As such, we have not provided any predictions of
the operating results for the company or for any of our reportable segments,
because under these unusual circumstances for our industry, we are unable to
make a reasonable estimate of future trends.
We will
add these additional disclosures in our Form 10-Q filing for the Quarter ended
March 31, 2009.
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Segment
Results, page 23
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2. One
of the objectives of MD&A is to provide a narrative explanation of the
company’s financial statements that enables investors to see the company
through the eyes of management. We note that revenue, on an
organic, constant currency basis, declined significantly as compared to
2007 in the United States, France and Jefferson Wells reporting segments,
and that operating unit profits, also on an organic, constant currency
basis, declined in most of your reportable segments. It appears
that you have disclosed the underlying factors contributing to the
declines by segment; however, it is not clear whether you expect these
trends to continue on a segment basis and as a whole. In this
regard, for each period presented and in total and for each of your
reportable segments, revise to:
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·
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disclose
the impact that the current weakened economy has had on your business and
describe how and the extent to which it has or you expect it to have on
your results of operations; and
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·
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describe
any other known trends or uncertainties that have had or you expect may
reasonably have a material impact on your operations and if you believe
that these trends are indicative of future
performance.
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For
further guidance, please refer to Item 303 Regulation S-K and the
Commission’s Interpretive Release on Management’s Discussion and Analysis
of Financial Condition and Results of Operation on our website
at: http://www.sec.gov/rules/interp/33-8350.htm.
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RESPONSE:
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We have
reviewed your comments and the guidance provided by Item 303 of Regulation S-K
and the Commission’s Interpretive Release. We believe that we
have disclosed the impact of the current economic environment on each of our
reportable segments, as requested under the first bullet point of your
comment. For example, we disclosed the following for our Jefferson
Wells reportable segment and had similar disclosure for the other reportable
segments:
Revenues
decreased during the year, to $291.0 million from $332.0 million in 2007, due
primarily to clients spending less given the current economic
conditions. We saw weakening demand throughout the year, with a
decline of 4.7% in the first quarter and a decline of 21.8% in the fourth
quarter.
The Gross
Profit Margin has declined from the 2007 level due primarily to the lower
utilization of our professional staff given the decrease in
revenues. We continually evaluate the portion of employees who
are full-time to ensure it is appropriate given business volumes. In
the current economic environment, we have transitioned a number of employees
into project-based roles in the fourth quarter to reduce our fixed
costs.
Selling
and Administrative Expenses decreased 8.8% in 2008 compared to 2007 due to lower
office costs, as we are reducing costs in response to the softening
demand. As we adjusted our network in light of the current
environment, we recorded $7.8 million of reorganization costs in the fourth
quarter of 2008 for severance and other office closure charges. We
recorded $4.0 million of reorganization costs in the fourth quarter of 2007
related to severance and other office closure costs.
2008 OUP
was a loss of $19.6 million compared to a loss of $5.2 million in 2007, as
expense reductions could not fully compensate for the declines in Revenues and
Gross Profit.
We have
disclosed in our Management’s Discussion and Analysis all known trends or
uncertainties that may have a material impact on the operating results for the
company and for any of our reportable segments, as requested in the second
bullet point of your comment. As we have noted, there was substantial
uncertainty given the economic environment, which resulted in our withdrawal of
guidance, reported in our Form 8-K filed on December 22, 2008. We
believed that there was more uncertainty than in prior periods, due to the
heightened volatility in the markets, which meant that current trends were less
likely to be an indicator of future trends. As such, we believed 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.
In future
filings, we will provide information regarding future trends to the extent that
it is appropriate and meaningful.
Application
of Critical Accounting Policies, page 31
Goodwill
and Indefinite-lived Intangible Asset Impairment, page 33
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3. We
note that you were required to record partial impairments of goodwill and
intangible assets associated with the Right Management reporting unit in
the amount of $140.8 million and $22.3 million, respectively, during the
three months ended September 30, 2008. You cite deteriorating
market conditions and general economic uncertainty, market comparables and
a decline in forecasted cash flows compared to previous years, as factors
that contributed to the impairment charges. It appears that
these factors were present in prior periods, and that your critical
accounting policy disclosures should have provided investors with an
understanding of the nature of the estimates and assumption included in
goodwill and intangible asset valuations and the impact that changes in
the estimates and assumption could have on your financial condition and
operating performance. Based upon the information provided in
the Form 8-K filed on December 22, 2008, and in this Annual Report, it
appears that the deteriorating market conditions and economic uncertainty
continue to be an issue for your company and may continue to provide
significant risks and uncertainties about the assumptions used to
determine the fair value of your reporting
units.
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In
light of the significance of your goodwill balance in total and by
reportable segment, we expect robust and comprehensive disclosure in your
critical accounting policies regarding your impairment testing
policy. This disclosure should provide investors with
sufficient information about management’s insights and assumptions with
regard to the recoverability of goodwill. Specifically, we
believe you should provide the following
information:
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·
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Disclose
a breakdown of your goodwill balance as of December 31, 2008 by reporting
unit.
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·
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Describe
the nature of the valuation techniques you employed in performing the
impairment tests. Qualitatively and quantitatively describe the
significant estimates and assumptions used in your valuation model to
determine the fair value of your reporting units in your impairment
analysis. For example, if you utilize the discounted cash flow
approach, you should disclose at a
minimum:
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1)
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the
discount rates for each reporting unit and how those discount rates were
determined,
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2)
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how
cash flows were determined, including your assumed growth rates, period of
assumed cash flows and determination of terminal value,
and
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3)
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your
consideration of any market risk
premiums.
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·
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Describe
changes to the assumptions and methodologies, if any, since your annual
impairment test. In addition, tell us how the assumptions in
your most recent test were impacted by the current economic
environment. For example, you should explain in detail how your
discount rates reflect the market risk premiums that have been noted in
the current equity and debt
markets.
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·
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Further,
disclose any changes to your reporting units or allocations of goodwill by
reporting unit and the reasons for such
changes.
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Provide
a table showing:
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1)
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the
carrying value and the fair value of each reporting
unit. Alternatively, if you do not disclose the fair value of
each reporting unit, you should disclose its fair value if it does not
exceed its carrying value by a significant amount;
and
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2)
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using
hypothetical percentage reductions in fair value, disclose the percentage
by which the fair value of a reporting unit would exceed its carrying
value.
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In
addition, if the fair value of any of your reporting units does not, or
would not, exceed its carrying value by a significant amount, provide a
sensitivity analysis of your most recent impairment test assumptions for
this reporting unit based upon reasonably likely
changes.
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For
further guidance, refer to Release No. 33-8350
“Interpretation: Commission Guidance Regarding Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.”
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RESPONSE:
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We have
reviewed your comments regarding our critical accounting policy disclosures
regarding goodwill and indefinite-lived intangible asset impairment and the
guidance provided within the Commission’s Interpretive Release No.
33-8350. We have incorporated each of your bullet points below in
italics with our applicable responses.
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Disclose
a breakdown of your goodwill balance as of December 31, 2008 by reporting
unit.
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As we
disclosed under Critical Accounting Polices, the majority of our goodwill and
indefinite-lived intangible assets result from the acquisitions of Right
Management, United States franchises, Jefferson Wells, Elan, and
Vitae. The goodwill amounts related to these reporting units are as
follows:
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Goodwill
by Reporting Unit:
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(amounts
in thousands)
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Reporting
Units:
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Right
Management
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$ | 324,392 | ||
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United
States
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150,869 | |||
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Jefferson
Wells
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150,205 | |||
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Elan
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116,141 | |||
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Netherlands
(Vitae)
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85,424 | |||
| 827,031 | ||||
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Other
reporting units
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145,860 | |||
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Total
goodwill
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$ | 972,891 | ||
The five
reporting units shown above represent 85% of our goodwill. The
remaining goodwill is not material to an individual reporting unit or in the
aggregate. In future filings, we will disclose goodwill by significant
reporting unit.
In our
2008 Annual Report, we have disclosed goodwill by reportable segment in Note 7
in our Notes to Consolidated Financial Statements. We describe below
in our response to comment no. 6 why the goodwill amounts by reporting unit are
not consistent with the goodwill amounts by reportable segment. Given
that explanation, we continue to believe that our goodwill disclosure by
reportable segment is appropriate.
In
addition, we disclosed in Note 1, Summary of Significant Accounting Policies, in
our 2007 Annual Report that changes to operating results or other assumptions
could result in a future goodwill impairment charge, which could have a
significant impact on the reportable segments and our consolidated
results. We also included similar language under Application of
Critical Accounting Policies.
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·
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Describe
the nature of the valuation techniques you employed in performing the
impairment tests. Qualitatively and quantitatively describe the
significant estimates and assumptions used in your valuation model to
determine the fair value of your reporting units in your impairment
analysis. For example, if you utilize the discounted cash flow
approach, you should disclose at a
minimum:
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1)
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the
discount rates for each reporting unit and how those discount rates were
determined,
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2)
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how
cash flows were determined, including your assumed growth rates, period of
assumed cash flows and determination of terminal value,
and
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3)
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your
consideration of any market risk
premiums.
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Regarding
the nature of our valuation techniques as well as the significant estimates and
assumptions used, we believe that our disclosures qualitatively described the
steps and significant assumptions involved. For the majority of our
reporting units, we utilized the income approach derived from discounted cash
flows over a ten year period, along with a terminal value
multiple. Discount rates were calculated by determining the cost of
equity and the after-tax cost of debt for each reporting unit and weighting each
according to the applicable debt to equity ratio. Included in the
cost of equity and after-tax debt calculations were the following:
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a
risk-free rate based on 20-year treasury
bonds,
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·
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a
5% equity risk premium,
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·
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a
3.7% size premium (except for Right Management where we used
2.6%),
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·
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a
specific premium of 1% and
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an
after-tax cost of debt based on the yield of Baa corporate
bonds.
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Cash
flows were determined by reviewing historical operating results and forecasts
available at the time to validate revenue growth rates and profitability
assumptions. We utilized higher discount rates to offset the
subjective nature of our forecasts and the resultant cash flows. As
noted above, we did consider market risk premiums in determining our discount
rates.
We will
add quantitative disclosure in our future filings as follows:
Under
SFAS No. 142, we are required to use a two-step method for determining goodwill
impairment. In the first step, we determine the fair value of each
reporting unit, generally by utilizing an income approach derived from a
discounted cash flow methodology and, for certain larger reporting units, a
combination of the income approach and the market approach derived from
comparable public companies. Significant assumptions used in this
analysis included: expected future annual revenue growth rates, which ranged
from (2.4)% to 10% over a ten year period, operating unit profit margins,
working capital levels; discount rates, which ranged from 10.4% to 12.7%; and a
terminal value multiple.
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·
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Describe
changes to the assumptions and methodologies, if any, since your annual
impairment test. In addition, tell us how the assumptions in
your most recent test were impacted by the current economic
environment. For example, you should explain in detail how your
discount rates reflect the market risk premiums that have been noted in
the current equity and debt
markets.
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In the
fourth quarter of 2008, we completed an analysis to ascertain whether we had any
triggering events requiring us to perform further goodwill impairment
testing. Our stock price was $33.99 as of December 31, 2008, which
was above our December 31, 2008 book value per share of
$31.86. However, given this proximity of book value to fair value, we
decided to calculate the fair value of Manpower Inc. by utilizing an income
approach, derived from discounted cash flows, and a market
approach. Based on these two approaches, we calculated a fair value
that was significantly higher than our carrying value and concluded that we did
not have a triggering event.
Despite
that conclusion, we further evaluated whether there were potential triggering
events for Right Management, given the impairment recorded in the third quarter
of 2008, and Jefferson Wells, as a result of the continued operating
losses. Even though the fair value of these reporting units
determined in our third quarter impairment review exceeded their carrying value,
and there were no triggering events, we believed it was prudent to update our
impairment analysis. To determine the fair values of these reporting
units, we used a combination of the income approach and market approach,
consistent with our annual impairment review. For the income
approach, we estimated the cash flows based on our available
forecasts. We considered the changes in market risk premiums, the
risk free rate and the cost of debt. These changes would have
decreased the discount rates and increased the fair values, however we utilized
the original discount rates from our third quarter review to calculate the fair
values as the higher discount rates did not impact the results of our
analysis. For the market approach, we estimated the market value
based on the third quarter value, adjusted for the decrease in the S&P
500. We weighted the two approaches consistently with the third
quarter review. The resulting fair values were both significantly
higher than either carrying value. It would take at least a 15%
decrease in fair value as of December 31, 2008 to impair the goodwill associated
with either Jefferson Wells or Right Management.
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·
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Further,
disclose any changes to your reporting units or allocations of goodwill by
reporting unit and the reasons for such
changes.
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There
were no changes to our reporting units or the allocation of goodwill by
reporting unit in 2008. Regarding the change in our goodwill by
reportable segment shown in Note 7 in Notes to Consolidated Financial Statements
of our 2008 Annual Report, please see our response below to comment no.
6.
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·
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Provide
a table showing:
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1)
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the
carrying value and the fair value of each reporting
unit. Alternatively, if you do not disclose the fair value of
each reporting unit, you should disclose its fair value if it does not
exceed its carrying value by a significant amount;
and
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2)
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using
hypothetical percentage reductions in fair value, disclose the percentage
by which the fair value of a reporting unit would exceed its carrying
value.
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·
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In
addition, if the fair value of any of your reporting units does not, or
would not, exceed its carrying value by a significant amount, provide a
sensitivity analysis of your most recent impairment test assumptions for
this reporting unit based upon reasonably likely
changes.
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As
previously mentioned at December 31, 2008, the fair value of each of our
significant reporting units does exceed its carrying value by a significant
amount. Therefore, we believe that our current disclosures are
adequate. In future filings, if the fair value of a reporting
unit no longer exceeds its carrying value by a significant amount, we will add
the appropriate disclosures regarding the sensitivity of the
calculation.
Cash
Sources and Uses, page 27
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4. We
note your disclosure stating that you believe that your internally
generated funds and your existing credit facilities are sufficient to
cover your near-term projected cash needs. Clarify how you
define near-term. In addition, you should also expand
significantly your discussion to address your liquidity needs on a
long-term basis. In this regard, we note that each of your
segments experienced declines in revenues and operating profits throughout
the year on an organic basis, slowing significantly in the last quarter of
2008. For instance, we note
that:
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revenues
contracted by 21%, 4% and 18% in France, Other EMEA and Italy,
respectively;
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operating
unit profits decreased 59.8% and 26.9% (in constant currency) in the U.S.
and Other EMEA segments in 2008;
and
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consolidated
revenues decreased from $5.7 billion in the third quarter of 2008 to $4.6
billion in the fourth quarter of
2008.
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Expand
your discussion to address in detail the impact that the declines in
revenues and operating profits units had in your operating cash flows in
the last quarter of 2008 (including the impact of non recurring
items). Discuss how you have considered the impact of these
negative trends in your liquidity on a long-term basis. You
should also address how these negative trends may impact your future
ability to obtain external financings. Also, address the
potential impact of known or reasonably likely changes in credit ratings
or rating outlook. Please tell us and discuss the reasons
behind your decision to repatriate approximately $522 million of foreign
earnings. Tell us and disclose whether you made this decision
due to concerns that internally generated funds (excluding funds
repatriation) and existing credit facilities may not be adequate enough to
support your liquidity needs in a near or long-term
basis.
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RESPONSE:
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When we
refer to our near-term cash needs, we are referring to our cash needs for ‘at
least the next 12 months’ and will clarify that in future filings. As
you will note in our response to comment no. 1, our operating cash flows improve
in an economic downturn, therefore the significant declines in revenue and
operating unit profit that you note in your comment have resulted in a reduction
of working capital, which improved our liquidity situation. We saw an
improvement in our liquidity situation in the fourth quarter of 2008, with
operating cash flows of $320 million in the quarter and a net debt position of
only $79 million at the end of the year. With the continued decline
in demand through the first two months of 2009, we have continued to see a
positive impact on our liquidity, with net debt approaching zero. The
most significant impact to our operating cash flows in the fourth quarter was
the change in working capital, and while it intensified in the fourth quarter,
it is the same trend that was disclosed under Cash Sources and
Uses.
In
preparing the disclosures included in our Management’s Discussion and Analysis,
we did consider our liquidity situation on a long-term basis. In
evaluating our long-term liquidity, we take into account, what we have
previously described, that our liquidity improves during an economic downturn
and worsens when the economic conditions improve. As such, we
anticipate that we will not see a tightening of our liquidity situation until
the economic downturn stabilizes or improves. In our analysis, we
specifically considered the following (much of which is included in our
disclosure in the 2008 Annual Report):
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§
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Our
two Euro-denominated notes comprise 73% of our outstanding debt at year
end. These notes have a fixed interest rate and do not mature
until 2012 and 2013. We could be required to repay these notes
ahead of their maturity if we have a payment default on the Revolving
Credit Agreement of an amount, as defined in the notes, that is currently
in excess of our borrowing level. Based on our borrowing level
and the amount of cash available to repay such borrowings, we do not
currently see this as a risk.
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§
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Our
Revolving Credit Agreement matures in 2012. It has certain
financial covenants, as we disclosed, and based on our projections as of
the time that we filed our Annual Report, we did not anticipate violating
those covenants. We will update those projections at least
quarterly and update our disclosures accordingly. We also
considered that in the event that we would violate one of the covenants
and we were not able to get a waiver from the banks, or were only able to
amend the agreement at significantly higher costs, that we could repay the
outstanding borrowings under the agreement as we had adequate cash
available at that time and as projected during
2009.
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§
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We
met with two rating agencies, Moody’s Investor Services, Inc. (“Moody’s”)
and Standard & Poor’s Financial Services LLC, in late 2008 and both
agencies updated their ratings at that time. At the time of our
filing, based on those discussions and our forecasts, we did not
anticipate any credit ratings or rating outlook
changes. Subsequent to our filing, we have met with
Moody’s again, and as a result of this review, they lowered their rating
outlook from stable to negative, but did not adjust their credit
rating.
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§
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As
disclosed at the time of our filing, we intended to renew our accounts
receivable securitization. We had adequate cash available at
December 31, 2008 and as projected during 2009 to repay any amounts
borrowed in the event that we could not renew this
facility.
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§
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We
expect to generate positive operating cash flow and do not expect to have
significant cash needs until economic conditions improve. We
have no reason to believe that when economic conditions improve, our
existing credit facilities will not be adequate to meet our financing
needs.
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§
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We
believe that our current facilities are adequate. In light of
market conditions for financing and the related pressures on credit
ratings, it is difficult to predict what the markets will be like in the
short-term, as well as when our facilities mature in 2012. In
the event that we would need to obtain new external financing arrangements
in this environment, either prior to or when the above agreements mature,
we would expect to obtain facilities that have significantly higher
interest costs, facility fees and stricter
covenants.
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Since 80%
of our operations are overseas, most of our cash is generated
overseas. While we continue to reinvest most of the cash locally, we
have historically repatriated funds from certain countries, as needed, to meet
some of our corporate funding needs. We have historically
reviewed these amounts each quarter and routinely recorded the appropriate tax
cost as required by APB 23. Based on the guidance provided from an
SEC Corporate Finance Speech dated December 9, 2008, we added disclosure this
year to identify the total amount ($522 million) that we had identified as not
being permanently reinvested. As we disclosed, we do not have any
current plans to repatriate any of these funds, however we will do so if and
when the needs arise.
We assess
liquidity on a company-wide basis, including all of our entities, both in the
United States and overseas. We have cash needs at a local level as
well as at a corporate level, so we consider all internally generated funds and
all cash needs in our analysis, including any amounts that would need to be
repatriated. In future filings, we will continue to consider all of
these factors and revise our disclosures, as appropriate to reflect any
significant changes.
Consolidated
Statements of Cash Flows, page 44
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5. It
appears that you generated significantly higher cash flows from operating
activities in the last quarter of 2008 as compared to prior 2008
quarters. However, it appears that the reason for the increase
was due to a significant decline in account receivables which was
partially offset by a significant decrease in accounts
payable. If true, please expand your discussion
accordingly. Also, we note that the $498 million account
receivable decrease in the last quarter of 2008 significantly exceeded the
decrease in accounts receivable in prior 2008
quarters. Disclose and tell us the reasons
why.
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RESPONSE:
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In
response to your comment, we would note that cash flows from operating
activities did increase due to the decline in accounts
receivable. Under Cash Sources and Uses, we disclosed the
impact of accounts receivable on our operating cash flows. Similar to accounts
receivable, accounts payable fluctuates in the normal course of our business;
however it generally has a lesser impact on our overall working capital
needs.
The
disclosure on page 28 of our Annual Report is as follows:
Working
capital is primarily in the form of trade receivables, which generally increase
as revenues increase. The amount of financing necessary to support
revenue growth depends on receivables turnover, which differs in each market
where we operate.
During
2008, cash provided by operating activities was $792.0 million, compared to
$432.2 million for 2007 and $359.1 million for 2006. The increase in
2008 from 2007 is primarily attributable to the change in working capital, as
accounts receivable has declined due to the decrease in business
volumes.
Accounts
Receivable decreased to $3,629.7 million as of December 31, 2008 from $4,478.8
million as of December 31, 2007. This decrease is due primarily to
changes in foreign currency exchange rates and decreased business
volumes. At constant exchange rates, the Accounts Receivable balance
at December 31, 2008 would have been approximately $320.4 million higher than
reported.
While
these disclosures do not specifically address the fourth quarter results, we
added them for the first time this year to address the accounts receivable
decline in 2008, so that we would more fully explain the actual
results. We continue to believe that this disclosure is
appropriate.
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Notes
to Financial Statements
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Note
7, Goodwill, page
60
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6. We
refer to the tabular disclosure of goodwill by reportable segment on page
60. We note that the beginning carrying value as of December
31, 2007 has changed significantly by reportable segment from the table
presented on page 51 of your 2007 annual report. Specifically
we note that the goodwill you allocated to the “Jefferson Wells,” “Right
Management” and “Other Operations” segments at December 31, 2007 have
changed from the amounts previously reported. We also note that
you are allocating goodwill to the Corporate segment. Please
tell us the rationale for these changes and disclose what is included in
the “Corporate” segment.
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RESPONSE:
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The
allocation of goodwill did not change during 2008. However, in
preparing our third quarter 2008 Form 10-Q, we realized that our disclosure of
goodwill in Note 7 to our 2007 Annual Report was made on a reporting unit basis
for Right Management and Jefferson Wells and this was not consistent with how we
disclosed the amounts by reportable segment in Note 15, Segment Data, in the
2007 Annual Report. The goodwill related to both the Right Management and
Jefferson Wells acquisitions has always been reported as part of Corporate in
our Segment Data footnote. Therefore, we revised the goodwill
information included in Note 7 during the third quarter of 2008 to reflect the
goodwill balances by reportable segment. We also added disclosure
that the majority of the goodwill balance recorded at Corporate relates to the
acquisitions of Right Management and Jefferson Wells.
We
generally record goodwill on the acquiring entity’s books. We do not
push the goodwill down to the acquired entity. Consequently, when
Right Management and Jefferson Wells have made decisions to acquire an entity,
we have recorded the goodwill related to those acquisitions directly within the
respective reportable segment. When Manpower acquired Right
Management and Jefferson Wells, we recorded the goodwill directly within
Corporate. For purposes of testing goodwill for impairment, we
combined the goodwill recorded on Corporate with the goodwill recorded on the
respective reporting unit. Since the appropriate amount of goodwill
is allocated to the respective reporting units for purposes of conducting the
impairment analysis, we believe that this approach is in accordance with
paragraph 34 of Statement of Financial Accounting Standard No. 142, “Goodwill
and Other Intangible Assets.”
When we
recorded the Right Management impairment charge during the third quarter, we
recorded it against the goodwill recorded at Corporate and disclosed this in
Note 7.
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7. On
page 49, you indicate that the impairment charge taken in the third
quarter of 2008 is attributed to the Right Management reporting
unit. On page 60; however, the impairment charge is being
presented as a reduction to the carrying value of goodwill attributed to
the “Corporate” segment. Please
explain.
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RESPONSE:
Please
see our response in comment no. 6.
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Note
16, Quarterly Data,
page 71
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8. Refer
to note 16 on page 71 of your annual report. Disclose the
reasons for the increase in gross profit as a percent of revenues in the
last quarter of 2008 as compared to the third quarter of
2008. In this regard, we note on page 19 that you increased
your gross profit in the last quarter of 2008 due to non-recurring items
such as the $48.2 million business tax refund and $68 million due to a
modification in the calculation of payroll taxes in
France. Also disclose that operating profit and net earnings
(loss) includes the impact of the $163.1 million impairment charge
recorded in the third quarter of 2008. In addition, disclose
any other non-recurring items that have had a material impact on your
quarterly data.
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RESPONSE:
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We note
your comment and will disclose the impact of this and any other significant
items included in the quarterly information in our future filings.
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We
acknowledge that:
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·
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the
company is responsible for the adequacy and accuracy of the disclosure in
the filings;
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·
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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
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·
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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.
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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,
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/s/Michael J. Van Handel
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Michael
J. Van Handel
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Executive
Vice President,
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Chief
Financial
Officer
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