Groupon 2013 Annual Report Download - page 89

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81
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES 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, 2013, we derived
approximately 28.9% and 12.0% of our revenue from our EMEA and Rest of World segments, respectively. Revenue and related
expenses generated from our international operations are generally denominated in the local currencies of the corresponding
countries. 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 re-
measurement of intercompany balances.
We assess our foreign currency exchange risk based on hypothetical changes in rates utilizing a sensitivity analysis that
measures the potential impact on working capital based on a 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 this model is a hypothetical 10% weakening or strengthening of the U.S.
dollar against all our currency exposures as of December 31, 2013 and 2012.
As of December 31, 2013, our net working capital deficit (defined as current assets less current liabilities) from subsidiaries
that are subject to foreign currency translation risk was $168.2 million. The potential increase in this working capital deficit from
a hypothetical 10% adverse change in quoted foreign currency exchange rates would be $16.8 million. This compares to a $197.3
million working capital deficit subject to foreign currency exposure as of December 31, 2012, for which a 10% adverse change
would have resulted in a potential increase in this working capital deficit of $19.7 million. The primary difference between foreign
currency exposure from December 31, 2012 to December 31, 2013 is due to fluctuations in foreign currencies against the U.S.
Dollar during the year ended December 31, 2013 and improvements in the working capital deficit throughout the year.
Interest Rate Risk
Our cash and cash equivalents primarily consists of cash and money market funds. We currently do not have long-term
borrowings except for $5.7 million of long-term capital lease obligations, which do not expose us to significant interest rate risk.
Our exposure to market risk for changes in interest rates is limited because our cash and cash equivalents have a short-term maturity
and are used primarily for working capital purposes. The Company has investments in convertible debt securities and convertible
redeemable preferred shares issued by nonpublic entities and has classified these investments as available-for-sale. We believe
that the interest rate risk on these investments is not significant.
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 for the years ended
December 31, 2013, 2012 or 2011.