ManpowerGroup 2007 Annual Report Download - page 29

Management’s Discussion & Analysis26 Manpower 2007 Annual Report
Management’s Discussion & Analysis
of financial condition and results of operations
We used a weighted-average discount rate of 6.3% for the U.S. plans and 5.2% for the non-U.S. plans in determining the
estimated pension expense for 2008. These rates compare to the 5.8% and 4.6% weighted-average discount rates for the
U.S. plans and non-U.S. plans, respectively, used in determining the estimated pension expense for 2007, and refl ect the
current interest rate environment. Absent any other changes, a 25 basis point change in the weighted-average discount rate
would impact 2008 consolidated pension expense by approximately $0.1 million for the U.S. plans and $1.1 million for the non-
U.S. plans. We have selected a weighted-average expected return on plan assets of 7.5% for the U.S. plans and 5.6% for the
non-U.S. plans in determining the estimated pension expense for 2008. The comparable rates used for the calculation of the
2007 pension expense were 8.0% and 5.4% for the U.S. plans and non-U.S. plans, respectively. A 25 basis point change in the
weighted-average expected return on plan assets would impact 2008 consolidated pension expense by approximately $0.1
million for the U.S. plans and $0.5 million for the non-U.S plans. Changes to these assumptions have historically not been
signifi cant in any jurisdiction for any reporting period, and no signifi cant adjustments to the amounts recorded have been
required in the past or are expected in the future. (See Note 9 to the consolidated fi nancial statements for further information.)
U.S. Workers’ Compensation
In the U.S., we are self-insured in most states for workers’ compensation claims for our contingent workers. We determine the
proper reserve balance using an actuarial valuation, which considers our historical payment experience and current employee
demographics. Our reserve for such claims as of December 31, 2007 and 2006 was $81.2 million and $99.3 million, respectively.
Workers’ compensation expense is recorded as a component of Cost of Services.
There are two main factors that impact workers’ compensation expense: the number of claims and the cost per claim. The
number of claims is driven by the volume of hours worked, the business mix which refl ects the type of work performed (for
example, offi ce and professional work have fewer claims than industrial work), and the safety of the environment where the
work is performed. The cost per claim is driven primarily by the severity of the injury, related medical costs and lost-time wage
costs. A 10% change in the number of claims or cost per claim would impact workers’ compensation expense in the U.S. by
approximately $3.5 million.
Historically, we have not had signifi cant changes in our assumptions used in calculating our reserve balance or signifi cant
adjustments to our reserve level. During 2007, we saw a decline in workers’ compensation expense, primarily as a result of the
decline in the business, changes in business mix and our continued focus on safety, which includes training of contingent
workers and client site reviews. In addition, we saw favorable development in relation to regulatory changes, improved claim
handling and claim disclosure. Given current claims experience and cost per claim, we do not expect a signifi cant change in our
workers’ compensation reserve in the near term.
Social Program Remittances and Payroll Tax Audit Exposure
On a routine basis, governmental agencies in some of the countries in which we operate audit our payroll tax calculations and
our compliance with other payroll-related regulations. These audits focus primarily on documentation requirements and our
support for our payroll tax remittances. Due to the nature of our business, the number of people that we employ, and the
complexity of some payroll tax regulations, we may have some adjustments to the payroll tax remittances as a result of these audits.
In France, in particular, the government has various social programs that are aimed at reducing the cost of labor and encouraging
employment, particularly for low-wage workers, through the reduction of payroll taxes (or social contribution). Due to the number
of new programs or program changes, and the complexity of compliance, we may have adjustments to the amount of reductions
claimed as a result of the audits. During 2007, there was a change in the payroll tax calculation under certain French social
programs, retroactive to January 1, 2006 and effective through September 30, 2007. (See Note 1 to the consolidated fi nancial
statements for further information).
We make an estimate of the additional remittances that may be required on a country-by-country basis, and record the
estimate as a component of Cost of Services or Selling and Administrative Expenses, as appropriate. Each country’s estimate
is based on the results of past audits and the number of years that have not yet been audited, with consideration for changing
business volumes and changes to the payroll tax regulations. To the extent that our actual experience differs from our
estimates, we will need to make adjustments to our reserve balance, which will impact the results of the related operation and
the operating segment in which it is reported. Other than France, we have not had any signifi cant adjustments to the amounts
recorded as a result of any payroll tax audits, and we do not expect any signifi cant adjustments to the recorded amounts in the
near term.
In France, we currently maintain a reserve for the unaudited years of 2005 through 2007, which has been estimated based on
the results of past audits and changes in business volumes. We do not expect any signifi cant adjustments to the recorded
amount in the near term.