ManpowerGroup 2013 Annual Report Download - page 43

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Management’s Discussion & Analysis ManpowerGroup 2013 Annual Report
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 $24.1 million, $29.2 million and $25.9 million for 2013, 2012 and 2011, 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 $26.4 million, $23.2 million and $25.0 million for 2013, 2012 and 2011, 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, Norway and other European countries. Annual expense relating to
these plans is recorded as selling and administrative expense and is estimated to be approximately $12.6 million in 2014,
compared to $11.8 million, $12.6 million and $9.7 million in 2013, 2012 and 2011, respectively. Included in the 2013 expense
was a $2.3 million curtailment gain resulting from an amendment to a defined benefit plan in the Netherlands. Effective
January 1, 2013, the Netherlands’ 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 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 determine the discount rate based on an index
of high-quality corporate bond yields and matched-funding yield curve analysis as of the end of each fiscal year. The
expected return on plan assets is determined based on the expected returns of the various investment asset classes held
in the plans. 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 4.6% for the United States plans and 4.1% for non-United States plans in
determining the estimated pension expense for 2014. These rates compare to the 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,
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 2014 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 6.0% for the United States plans and 4.5% for the non-United States plans in determining
the estimated pension expense for 2014. The comparable rates used for the calculation of the 2013 pension expense were