Groupon 2011 Annual Report Download - page 64

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ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business,
including the effect of foreign currency fluctuations, interest rate changes and inflation. Information relating to quantitative and qualitative disclosures about
these market risks is set forth below.
Foreign Currency Exchange Risk
We transact business in various foreign currencies other than the U.S. dollar, principally the euro, British pound sterling, Japanese yen and Brazilian
real, which exposes us to foreign currency risk. For the year ended December 31, 2011, we derived approximately 60.6%
of our revenue from international
customers, and we expect the percentage of revenue derived from outside the United States to increase in future periods as we continue to expand globally.
Revenue and related expenses generated from our international operations are denominated in the functional currencies of the corresponding country. The
functional currency of our subsidiaries that either operate or support these markets is generally the same as the corresponding local currency. The results of
operations of, and certain of our intercompany balances associated with, our international operations are exposed to foreign exchange rate fluctuations. Upon
consolidation, as exchange rates vary, our revenue and other operating results may differ materially from expectations, and we may record significant gains or
losses on the remeasurement of intercompany balances.
We assess our market risk based on changes in foreign currency exchange rates utilizing a sensitivity analysis that measures the potential impact in
earnings, fair values and cash flows based on a hypothetical 10% change (increase and decrease) in currency rates. We use a current market pricing model to
assess the changes in the value of the U.S. dollar on foreign currency denominated monetary assets and liabilities. The primary assumption used in these models
is a hypothetical 10% weakening or strengthening of the U.S. dollar against all our currency exposures as of December 31, 2011.
As of December 31, 2011, our working capital deficit (defined as current assets less current liabilities) subject to foreign currency translation risk was
$328.1 million . The potential decrease in net current assets from a hypothetical 10% adverse change in quoted foreign currency exchange rates would be
$32.8
million . This compares to $145.4 million
of working capital deficit subject to foreign currency exposure at December 31, 2010 which would have results in a
decrease of net current assets of $14.5 million
. The primary difference between foreign currency exposure from December 31, 2010 to December 31, 2011 is
due to our expansion into international markets.
Interest Rate Risk
Our cash and cash equivalents primarily consisted of highly1
rated commercial paper and money market funds. We currently have no investments of any
type and do not have any long-
term borrowings. Our exposure to market risk for changes in interest rates is limited because nearly all of our cash and cash
equivalents have a short-term maturity and are used primarily for working capital purposes.
Impact of Inflation
We believe that our results of operations are not materially impacted by moderate changes in the inflation rate. Inflation and changing prices did not
have a material effect on our business, financial condition or results of operations in 2009, 2010 or 2011.
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