ManpowerGroup 2013 Annual Report Download - page 47

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Management’s Discussion & Analysis ManpowerGroup 2013 Annual Report
Approximately 85% of our revenues and profits are generated outside of the United States, with approximately 45%
generated from our European operations with a euro-functional currency. As a result, fluctuations in the value of foreign
currencies against the United States dollar, particularly the euro, may have a significant impact on our reported results.
Revenues and expenses denominated in foreign currencies are translated into United States dollars at the monthly
weighted-average exchange rates for the year. Consequently, as the value of the United States dollar changes relative to the
currencies of our major markets, our reported results vary.
Throughout 2013, the United States dollar was volatile against many of the currencies of our major markets; however, the
fluctuations resulted in no impact to our consolidated revenues from services. In 2012, revenues from services in constant
currency were approximately 5.0% higher than reported. In both 2013 and 2012, a change in the strength of the United
States dollar by 10% would have impacted our revenues from services by approximately 8.5% from the amounts reported.
Fluctuations in currency exchange rates also impact the United States dollar amount of our shareholders’ equity. The
assets and liabilities of our non-United States subsidiaries are translated into United States 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 income. The United States dollar weakened relative to many foreign currencies as of
December 31, 2013 compared to December 31, 2012. Consequently, shareholders’ equity increased by $43.0 million as a
result of the foreign currency translation as of December 31, 2013. If the United States dollar had weakened an additional
10% as of December 31, 2013, resulting translation adjustments recorded in shareholders’ equity would have increased by
approximately $85.5 million from the amounts reported.
As of December 31, 2012, the United States dollar had weakened relative to many foreign currencies compared to
December 31, 2011. Consequently, shareholders’ equity increased by $8.0 million as a result of the foreign currency
translation as of December 31, 2012. If the United States dollar had weakened an additional 10% as of December 31, 2012,
resulting translation adjustments recorded in shareholders’ equity would have increased by approximately $47.0 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 United States for payment of license fees and interest expense on intercompany loans, working capital loans made
between the United States and our foreign subsidiaries, dividends from our foreign subsidiaries, and payments between
certain countries and territories 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, 2013, there were £7.8 ($12.5) million of forward contracts that relate to cash flows owed to our foreign
subsidiaries in 2014. 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, 2013, we had outstanding $480.9 million in principal amount of euro-denominated notes (€350.0
million). The note has 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 borrowing, translation
gains or losses related to the borrowing is included as a component of accumulated other comprehensive income.
Shareholders’ equity decreased by $9.5 million, net of tax, due to changes in accumulated other comprehensive income
during the year due to the currency impact on these designated borrowings.