Making people successful in a changing world - Annual Report 2012

Financial reviewIn millions, except share and per share amountsConsolidated selling, general and administrativeexpenses increase as Adecco maintains branchnetworkSelling, general and administrative expenses for the group, whichconsists principally of personnel costs, office administration, rentand marketing increased 5% or CHF 187 in 2001 to CHF 3,941 fromCHF 3,754 in 2000. As a percentage of sales, selling, general andadministrative expenses increased to 14.5% in 2001 compared with14.1% in 2000. In 2001, personnel costs increased by 8%, officeadministration by 7%, premises expenses by 18%, and marketingwas down by 1%. To ensure that Adecco responds to marketconditions, management has continued to implement sensible costcontrol measures. However, management remains committed tomaintaining the branch network. This year, Adecco added 12% morebranches. Adecco now has nearly 6,000 branches in total, spanning58 countries.Amortisation of goodwill for the group remainsconstantGoodwill amortisation decreased in 2001 by CHF 3 to CHF 1,106,compared to CHF 1,109 in 2000. The decrease was primarily due tothe net impact of 3 additional months of goodwill amortisationresulting from the acquisition of Olsten Corporation, for which theamortisation period began in March 2000 and the fact that thegoodwill resulting from the Adia-Ecco merger was fully amortised inJune 2001. As of December 30, 2001, the remaining amount ofunamortised goodwill was CHF 2,292.Effective on the first day of fiscal year 2002 Adecco will no longeramortise any goodwill to earnings, but instead will be required toreview its recoverability annually for impairment. Other identifiableintangibles will continue to be amortised to earnings over theirestimated useful lives. As a result Adecco will no longer amortisegoodwill, thereby reducing estimated annual goodwill amortisationbefore any tax effect by approximately CHF 850 for 2002.Amortisation of goodwill before any tax effect was CHF 1,106.Intangible assets acquired prior to July 1, 2001 that have beenreported together with goodwill will be reported separately in 2002,however, the amount presented in the balance sheet and relatedamortisation is not viewed as material.Treasury managementAdecco conducts business and funds its subsidiaries in variouscountries and currencies, and therefore, is exposed to effects ofchange in foreign currency exchange rates mainly the US Dollar, theEuro, the British Pound and the Japanese Yen. Adecco also issuesbonds and short and long-term notes in various currencies. Adecco,in accordance with its written risk management policy, continues tomonitor its currency exposures and where appropriate enters intohedging transactions to minimise its overall exposure to volatility inits earnings.The interest expense line includes mainly interest on externaldebt, amortisation of capitalised financing costs and hedging costs.Interest expense decreased by CHF 21 in 2001 to CHF 242 comparedto CHF 263 in 2000, primarily due to the reduction in net debt ofCHF 739 during the year. Adecco recorded an expense of CHF 20 andCHF 26 in 2001 and 2000 respectively as net of foreign exchangegains and losses and net hedging expenses in interest expenses. Theincrease of other expense of CHF 27 million related mainly towrite-downs on investments.Effective January 1, 2001, Adecco adopted the FinancialStandards Board (FASB) Statement of Financial Accounting (SFAS)No. 133, “Accounting for Derivative Instruments and HedgingActivities” and SFAS No. 138,” Accounting for certain DerivativesInstruments and Certain Hedging Activities an amendment of FASBStatement No. 133”, which replaces existing pronouncements andpractices for derivatives and hedging activities with a single,integrated accounting framework. Upon adoption of thesestatements, Adecco recorded a net transition adjustment after tax ofCHF 8 in net earnings.Effective tax rateThe provision for income taxes decreased by CHF 11 to CHF 254 in2001 from CHF 265 in 2000. Adecco’s income tax provision differsfrom the expected tax benefit of CHF 119 for 2001 and expected taxbenefit of CHF 64 in 2000, calculated by totalling the products ofpre-tax income (loss) in each country multiplied by that country’sstatutory income tax rate, principally as a result of non-deductiblegoodwill amortisation in certain jurisdictions of CHF 231 in 2001and CHF 297 in 2000.Liquidity and Capital ResourcesAs of December 30, 2001, Adecco had cash and cash equivalents ofCHF 552 and short-term and long-term debt totalling CHF 3,042,compared to CHF 487 and CHF 3,736 as of December 31, 2000.Net cash flow from operating activities in 2001 was CHF 1,390.Net cash expended in investing activities for 2001 was CHF 528,related primarily to the addition to fixed assets of CHF 297 and thepurchase of the minority interest of Olsten Norway of CHF 184. Netcash used in financing activities for 2001 was CHF 780, primarilyrelated to changes in debt and the payment of dividends. Net debtdecreased primarily due to the free cash flow generated fromoperations.In the ordinary course of business, Adecco’s principal fundingrequirements are associated with financing working capital andcapital expenditures. Working capital requirements are primarily inthe form of accounts receivable and are offset by accounts payableand accrued expenses, all of which increase as revenues increase.Net working capital in 2001, excluding cash and short-termfinancing, decreased by approximately CHF 702, primarily relating toa greater decrease in receivables than payables. The level of workingcapital financing is primarily dependent upon accounts receivableturnover, which varies by location, and capital expenditures whichprimarily relates to new branch openings and expenditures forinformation systems. Cash disbursement activity is predominantlyassociated with scheduled payroll payments for its temporarypersonnel, and Adecco has limited flexibility to adjust itsdisbursement schedule. Conversely, collection or related accountsreceivable from customers may be considerably delayed, resulting insteeply rising working capital requirements during periods ofgrowth. As of December 30, 2001, accounts receivable had beenoutstanding for an average of 64 compared to 63 days as ofDecember 31, 2000. To finance working capital requirements Adeccouses multicurrency credit facilities, credit line facilities and bankoverdrafts. As of December 30, 2001, the consolidated short-term5