Shutterfly 2015 Annual Report Download - page 71

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate and Credit Risk. We have exposure to interest rate risk that relates primarily to our
investment portfolio and our syndicated credit facility. We maintain our portfolio of cash equivalents and
investments in a variety of agency bonds and corporate debt securities. All of our cash equivalents are carried at
market value. We may draw funds from our syndicated credit facility under interest rates based on either the
Federal Funds Rate or the Adjusted London Interbank Offered Rate (“LIBO rate”). If these rates increase
significantly, our costs to borrow these funds will also increase. To date, we have not borrowed any funds under
our syndicated credit facility. We do not believe that a 10% change in interest rates would have a significant
impact on our interest income and expense, operating results, or liquidity.
Market Risk and Market Interest Risk. In May 2013, we issued $300.0 million of 0.25% convertible senior
notes due May 15, 2018. We carry this instrument at face value less unamortized discount on our balance sheet.
Since this instrument bears interest at fixed rates, we have no financial statement risk associated with changes in
interest rates. However, the fair value of these instruments fluctuates when interest rates change, and in the case
of convertible notes, when the market price of our stock fluctuates.
Inflation. We do not believe that inflation has had a material effect on our current business, financial
condition or results of operations. If our costs were to become subject to significant inflationary pressures, for
example, if the cost of our materials or the cost of shipping our products to customers were to incur substantial
increases as a result of the rapid rise in the cost of oil, we may not be able to fully offset such higher costs
through price increases. Our inability or failure to do so could harm our business, financial condition and results
of operations.
Investment. The primary objective of our investment activities is to preserve principal while at the same
time improving yields without significantly increasing risk. To achieve this objective, we maintain our portfolio
of cash equivalents and short-term and long-term investments in a variety of asset types, including bank deposits,
money market funds, agency bonds and corporate debt securities. As of December 31, 2015, our investments
totaled $51.9 million, which represented approximately 67% of our total investment portfolio.
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