ManpowerGroup 2011 Annual Report Download - page 42

40 ManpowerGroup 2011 Annual Report Management’s Discussion & Analysis
MANAGEMENT’S DISCUSSION & ANALYSIS
of financial condition and results of oper ations
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, 2011, there were £17.3 million ($27.0 million) of forward contracts that relate to cash flows owed to our
foreign subsidiaries in 2012. Our forward contracts are not designated as hedges. Consequently, any gain or loss resulting
from the change in fair value is recognized in the current period earnings as is the currency gain or loss on the amounts owed.
As of December 31, 2011, we had $647.6 million of borrowings denominated in euros (€500.0 million). These notes 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, translation gains or losses related to
these borrowings are included as a component of Accumulated other comprehensive income. Shareholders’ equity
decreased by $12.9 million, net of tax, due to changes in Accumulated other comprehensive income during the year due to
the currency impact on these borrowings.
On January 7, 2010, Venezuela’s National Consumer Price Index for December 2009 was released, which noted that the
cumulative three-year inflation rates for both of Venezuela’s inflation indices were over 100%. Under the current accounting
guidance, since the country’s economy is considered highly inflationary, the functional currency of the foreign entity
(Bolivar Fuerte) must be remeasured to the functional currency of the reporting entity (U.S. dollar) effective January 1, 2010.
As such, all currency adjustments related to the assets and liabilities of our Venezuelan subsidiary are now reported as
translation gains or losses in our Consolidated Statements of Operations.
In addition, the Venezuelan government announced on January 8, 2010 that it was devaluing their currency in half as
compared to the U.S. dollar. As a result, we recorded a translation loss of $1.2 million in the first quarter of 2010.
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, 2011, we had the following fixed- and variable-rate
borrowings:
(in millions) Amou nt
Weighted-
Average
Interest Rate
(1)
Variable-rate borrowings $ 42.4 11.90%
Fixed-rate borrowings 657.8 5.02%
Total debt $ 700.2 5.14%
(1) The rates are impacted by currency exchange rate movements.
Prior to the fourth quarter of 2009, we had various interest rate swap agreements in order to fix our interest costs on
€100.0 million of euro-denominated variable rate borrowings. We repaid the borrowings and terminated the related interest
rate swap agreements in the fourth quarter of 2009.
Sensitivity analysis — The following table summarizes our debt and derivative instruments that are sensitive to foreign
currency exchange rate and interest rate movements. All computations below are based on the U.S. dollar spot rate as of
December 31, 2011. The exchange rate computations assume a 10% appreciation or 10% depreciation of the euro and
British pound to the U.S. dollar.