ManpowerGroup 2008 Annual Report Download - page 37

35Manpower Annual Report 2008 Management’s Discussion & Analysis
Fluctuations in currency exchange rates also impact the U.S. Dollar amount of our Shareholders’ Equity. The assets and
liabilities of our non-U.S. subsidiaries are translated into U.S. Dollars at the exchange rates in effect at year-end. The resulting
translation adjustments are recorded in Shareholders’ Equity as a component of Accumulated Other Comprehensive (Loss)
Income. The U.S. Dollar strengthened relative to many foreign currencies as of December 31, 2008 compared to December
31, 2007. Consequently, Shareholders’ Equity decreased by $249.9 million as a result of the foreign currency translation
during the year. If the U.S. Dollar had strengthened an additional 10% during 2008, resulting translation adjustments recorded
in Shareholders’ Equity would have decreased by approximately $305.1 million from the amounts reported.
Although currency fluctuations impact our reported results and Shareholders’ Equity, such fluctuations generally do not
affect our cash flow or result in actual economic gains or losses. Substantially all of our subsidiaries derive revenues and incur
expenses within a single country and, consequently, do not generally incur currency risks in connection with the conduct of
their normal business operations. We generally have few cross-border transfers of funds, except for transfers to the U.S. for
payment of license fees and interest expense on intercompany loans, working capital loans made between the U.S. and our
foreign subsidiaries, dividends from our foreign subsidiaries, and payments between certain countries for services provided.
To reduce the currency risk related to these transactions, we may borrow funds in the relevant foreign currency under our
revolving credit agreement or we may enter into a forward contract to hedge the transfer.
As of December 31, 2008, there were £18.6 million ($27.2 million) of net forward contracts that relate to cash flows owed to
our foreign subsidiaries in 2009. In addition, there were €2.7 million ($3.7 million) of net forward contracts outstanding relating
to the interest due on our €200.0 million Notes and €300.0 million Notes in June 2009. All such contracts entered into during
2008 and 2007, whether designated as cash flow hedges or fair value hedges, were considered highly effective, as defined
by SFAS No. 133, as amended. The effective portions of the changes in the fair value of the cash flow hedges are recorded as
a component of Accumulated Other Comprehensive (Loss) Income and recognized in the consolidated statements of
operations when the hedged item affects earnings. For a fair value hedge, the gain or loss attributable to the change in fair
value of the derivative as well as the hedged item is recognized in earnings in the period of change.
As of December 31, 2008, we had $836.3 million of long-term borrowings denominated in Euros (€600.0 million) which have
been designated as a hedge of our net investment in subsidiaries with the Euro-functional currency. Since our net investment
in these subsidiaries exceeds the respective amount of the designated borrowings, all translation gains or losses related to
these borrowings are included as a component of Accumulated Other Comprehensive (Loss) Income. Shareholders’ Equity
increased by $24.5 million, net of tax, due to changes in Accumulated Other Comprehensive (Loss) Income during the year
due to the currency impact on these borrowings.
Interest Rates – Our exposure to market risk for changes in interest rates relates primarily to our variable rate long-term debt
obligations. We have historically managed interest rates through the use of a combination of fixed-and variable-rate
borrowings and interest rate swap agreements. As of December 31, 2008, we had the following fixed-and variable-rate
borrowings:
Fixed Variable Total
Weighted- Weighted- Weighted-
Average Average Average
Interest Interest Interest
Amount Rate Amount Rate Amount Rate
Excluding interest rate swap agreements $ 698.2 4.9% $ 254.7 5.3% $ 952.9 5.0%
Including impact of swap agreements 837.9 5.2% 115.0 5.3% 952.9 5.2%
We have various interest rate swap agreements in order to fix our interest costs on a portion of our Euro-denominated variable
rate borrowings. The Euro interest rate swap agreements, with a notional value of €100.0 million ($139.7 million), fix the
interest rate, on a weighted-average basis, at 5.71% and expire in July 2010.