ManpowerGroup 2008 Annual Report Download - page 22

20 Management’s Discussion & Analysis Manpower Annual Report 2008
Management’s Discussion & Analysis
of financial condition and results of operations
The overall 20 basis point (+0.20%) increase in Gross Profit Margin is attributed to:
a 39 basis point (+0.39%) increase in our temporary recruitment business margin as we were able to maintain pricing
despite the difficult economic environment;
a 22 basis point (+0.22%) increase due to the business tax refund in France;
an 18 basis point (+0.18%) increase due to the 14.3% growth in our permanent recruitment business;
a 45 basis point (-0.45%) decrease due to the lower impact of the French payroll tax modification in 2008; and
a 14 basis point (-0.14%) decrease due to a lesser amount of revenues coming from our specialty business where the gross
profit margin is generally higher than the Company average, as these businesses grew relatively slower than the remainder
of the business.
Acquisitions did not have a significant impact on Gross Profit Margin.
The 18.9% increase in Selling and Administrative Expenses in 2008, or 14.7% increase in constant currency is due to:
a $163.1 million goodwill and intangible asset impairment charge recorded in the third quarter related to Right Management
(see Note 1 to the consolidated financial statements for further information);
$54.1 million of costs for a legal reserve recorded in the second quarter related to the French competition investigation
compared to the $15.0 million recorded in 2007 (see Note 14 to the consolidated financial statements for further information);
$37.2 million of global reorganization charges for severance and other office closure costs recorded in the fourth quarter;
a 7.3% increase in expenses in constant currency, primarily related to personnel costs and continued investments in certain
markets; and
certain items included in the 2007 Selling and Administrative Expenses that did not recur in 2008, including a $7.5 million
charge related to the payroll tax modification in France.
Selling and Administrative Expenses as a percent of revenue increased by 2.0% (+200 basis points) in 2008 compared to
2007. The change in Selling and Administrative Expenses as a percent of revenue consists of:
a 76 basis point (+0.76%) impact due to the goodwill and intangible asset impairment charge related to Right Management
recorded in 2008;
a 25 basis point (+0.25%) impact due to the legal reserve recorded related to the French competition investigation
recognized in 2008, compared to a 7 basis point (+0.07%) impact in 2007;
a 17 basis point (+0.17%) impact due to the global reorganization charges recorded in 2008;
a 4 basis point (-0.04%) decline related to costs recorded in 2007 associated with the payroll tax modification in France; and
an 86 basis point (+0.86%) increase due primarily to the deleveraging of expenses, as we did not decrease expenses in line
with the slowing revenue levels later in the year.
Interest and Other Expense is comprised of interest, foreign exchange gains and losses and other miscellaneous non-
operating income and expenses. Interest and Other Expense was $50.9 million in 2008 compared to $34.2 million in 2007.
Net Interest Expense increased $12.8 million to $41.8 million in 2008 from $29.0 million in 2007, due primarily to our Euro-
denominated interest expense being translated into U.S. Dollars at a higher rate in 2008 compared to 2007. Foreign exchange
gains and losses primarily result from intercompany transactions between our foreign subsidiaries and the U.S. Foreign
exchange gains were $2.9 million in 2008 compared to $0.6 million in 2007. Other expense consists of bank fees and other
non-operating expenses and in 2008, was $12.0 million compared to $5.8 million in 2007.
We provided for income taxes at an effective rate of 52.2% for 2008 compared to an effective rate of 38.7% for 2007. The
2008 rate is higher due to the impact of the non-deductible goodwill and intangible asset impairment charge related to Right
Management and certain discrete items including the non-deductible French legal reserve. Excluding the impairment charge
and these discrete items, our effective tax rate for 2008 was 37.5%. This 37.5% rate is higher than the U.S. Federal statutory
rate of 35% due primarily to the impact of valuation allowances recorded for non-U.S. net operating losses, U.S. state income
taxes and the income tax cost associated with additional cash repatriations from our non-U.S. subsidiaries.