ManpowerGroup 2012 Annual Report Download - page 42

Application of Critical Accounting Policies
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the reported amounts. A discussion of the more significant
estimates follows. Management has discussed the development, selection and disclosure of these estimates and
assumptions with the Audit Committee of our Board of Directors.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
We have an allowance for doubtful accounts recorded as an estimate of the accounts receivable balance that may not be
collected. This allowance is calculated on an entity-by-entity basis with consideration for historical write-off experience, the
current aging of receivables and a specific review for potential bad debts. Items that affect this balance mainly include bad
debt expense and write-offs of accounts receivable balances.
Bad debt expense, which increases our allowance for doubtful accounts, is recorded as a selling and administrative
expense and was $29.2 million, $25.9 million and $28.9 million for 2012, 2011 and 2010, respectively. Factors that would cause
this provision to increase primarily relate to increased bankruptcies by our clients and other difficulties collecting amounts billed.
On the other hand, an improved write-off experience and aging of receivables would result in a decrease to the provision.
Write-offs, which decrease our allowance for doubtful accounts, are recorded as a reduction to our accounts receivable
balance and were $23.2 million, $25.0 million and $33.5 million for 2012, 2011 and 2010, respectively.
EMPLOYMENT-RELATED ITEMS
The employment of contingent workers and permanent staff throughout the world results in the recognition of liabilities
related to defined benefit pension plans, self-insured workers’ compensation, social program remittances and payroll tax
audit exposures that require us to make estimates and assumptions in determining the proper reserve levels. These
reserves involve significant estimates or judgments that are material to our financial statements.
Defined Benefit Pension Plans
We sponsor several qualified and nonqualified pension plans covering permanent employees. The most significant plans
are located in the United Kingdom, the United States, the Netherlands and other European countries. Annual expense
relating to these plans is recorded as selling and administrative expense and is estimated to be approximately $11.6 million
in 2013, compared to $12.6 million, $9.7 million and $9.2 million in 2012, 2011 and 2010, respectively. Included in the 2013
expense estimate is a $2.3 million curtailment gain resulting from an amendment to a defined benefit plan in the Netherlands.
Effective January 1, 2013, the defined benefit plan was frozen, and the participants were transitioned to a defined
contribution plan.
The calculations of annual pension expense and the pension liability required at year-end include various actuarial
assumptions such as discount rates, expected rate of return on plan assets, compensation increases and employee
turnover rates. We determine our assumption for the discount rate to be used for purposes of computing annual service
and interest costs based on an index of high-quality corporate bond yields and matched-funding yield curve analysis as of
the measurement date. We review the actuarial assumptions on an annual basis and make modifications to the assumptions
as necessary. We review market data and historical rates, on a country-by-country basis, to check for reasonableness in
setting both the discount rate and the expected return on plan assets. We estimate compensation increases and employee
turnover rates for each plan based on the historical rates and the expected future rates for each respective country.
Changes to any of these assumptions will impact the level of annual expense recorded related to the plans.
We used a weighted-average discount rate of 3.7% for the United States plans and 4.2% for non-United States plans in
determining the estimated pension expense for 2013. These rates compare to the weighted-average discount rate of 4.6%
for the United States plans and 4.7% for non-United States plans in determining the estimated pension expense for 2012,
and reflect the current interest rate environment. Absent any other changes, a 25 basis point increase and decrease in the
weighted-average discount rate would impact 2013 consolidated pension expense by approximately $0.1 million and $0.8
million for the United States plans and non-United States plans, respectively. We have selected a weighted-average
expected return on plan assets of 6.3% for the United States plans and 4.2% for the non-United States plans in determining
the estimated pension expense for 2013. The comparable rates used for the calculation of the 2012 pension expense were
6.3% and 4.7% for the United States plans and non-United States plans, respectively. A 25 basis point change in the
weighted-average expected return on plan assets would impact 2013 consolidated pension expense by approximately $0.1
million for the United States plans and $0.7 million for the non-United States plans. Changes to these assumptions have
historically not been significant in any jurisdiction for any reporting period, and no significant adjustments to the amounts
recorded have been required in the past or are expected in the future. (See Note 8 to the Consolidated Financial Statements
for further information.)
MANAGEMENT’S DISCUSSION & ANALYSIS
of financial condition and results of operations
ManpowerGroup 2012 Annual Report Management’s Discussion & Analysis
40