ManpowerGroup 2011 Annual Report Download - page 37

Management’s Discussion & Analysis ManpowerGroup 2011 Annual Report 35
Our euro-denominated notes have been designated as a hedge of our net investment in subsidiaries with a euro-functional
currency. Since our net investment in these subsidiaries exceeds the respective amount of the designated borrowings, all
foreign exchange gains or losses related to these borrowings are included as a component of Accumulated other
comprehensive income. (See Significant Matters Affecting Results of Operations and Notes 7 and 12 to the Consolidated
Financial Statements for further information.)
REVOLVING CREDIT AGREEMENT
On October 5, 2011, we entered into the Agreement with a syndicate of commercial banks. This Agreement replaces our
previous $400.0 million revolving credit facility. The Agreement allows for borrowing in various currencies and up to
$150.0 million may be used for the issuance of stand-by letters of credit. The Agreement terminates in October 2016.
Outstanding letters of credit issued under the Agreement totaled $1.6 million as of December 31, 2011. Additional borrow ings
of $798.4 million were available to us under the Agreement as of December 31, 2011. As of December 31, 2010, we had
letters of credit totaling $2.2 million issued under our previous $400.0 million revolving credit agreement.
Under the Agreement, a credit ratings-based pricing grid determines the facility fee and the credit spread that we add to
the applicable interbank borrowing rate on all borrowings. At our current credit rating, the annual facility fee is 22.5 bps paid
on the entire $800.0 million revolving credit facility and the credit spread is 127.5 bps on any borrowings. Any downgrades
from the credit agencies would unfavorably impact our facility fees and result in additional costs ranging from approximately
$0.2 million to $0.4 million annually. We had no borrowings under this credit agreement as of December 31, 2011.
The Agreement contains customary restrictive covenants pertaining to our management and operations, including
limitations on the amount of subsidiary debt that we may incur and limitations on our ability to pledge assets, as well as
financial covenants, including covenants requiring, among other things, that we comply with a leverage ratio (Debt-to-
EBITDA) of not greater than 3.5 to 1 and a fixed charge coverage ratio of not less than 1.5 to 1. The material terms and
conditions of the Agreement are substantially similar to the material terms and conditions of the prior credit facility.
As defined in the Agreement, we had a Debt-to-EBITDA ratio of 0.80 to 1 (compared to a maximum allowable ratio of 3.5
to 1) as of December 31, 2011 and a Fixed Charge Coverage ratio of 3.13 to 1 (compared to a minimum required ratio
of 1.5 to 1) as of December 31, 2011. Based on our current forecast, we expect to be in compliance with our financial
covenants for the next 12 months.
OTHER
In addition to the previously mentioned facilities, we maintain separate bank credit lines with financial institutions to meet
working capital needs of our subsidiary operations. As of December 31, 2011, such uncommitted credit lines totaled
$399.2 million, of which $346.6 million was unused. Under the credit agreement, total subsidiary borrowings cannot
exceed $300.0 million in the first, second and fourth quarters, and $600.0 million in the third quarter of each year. Due to
these limitations, additional borrowings of $248.7 million could have been made under these lines as of December 31, 2011.
In August 2011, Moody’s Investors Services raised our credit outlook from stable to positive, while maintaining the Baa3
credit rating. Our credit rating from Standard and Poor’s is BBB- with a stable outlook. The rating agencies use a proprietary
methodology in determining their ratings and outlook which includes, among other things, financial ratios based upon debt
levels and earnings performance. Both of the current credit ratings are investment grade.
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.