Vistaprint 2013 Annual Report Download - page 67

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64
The share purchase agreement for our acquisition of Albumprinter Holding B.V. in fiscal 2012 provided for
an earn-out payment that was payable based on achieving certain operational results for calendar year 2012. This
earn-out was measured at fair value and was based on significant inputs not observable in the market, which
represents a Level 3 measurement within the fair value hierarchy. Any changes in the fair value of contingent
consideration related to updated assumptions and estimates have been recognized within the consolidated
statements of operations in the period of change. As of June 30, 2013, the fair value of the liability was zero as the
earn-out targets were not achieved within the specified time period and no payment was made.
As of June 30, 2013 and June 30, 2012, the carrying amounts of cash and cash equivalents, receivables,
accounts payable, and other current liabilities approximated their estimated fair values. We performed an evaluation
of the estimated fair value of our debt and determined that the fair value approximates the carrying value of the
liability as of June 30, 2013. Our debt is a variable rate debt instrument indexed to LIBOR that resets monthly. The
estimated fair value of our debt was determined using available market information based on recent trades or
activity of debt instruments with substantially similar risks, terms and maturities, which fall within Level 2 under the
fair value hierarchy. This estimated fair value may not be representative of actual values that could have been or
will be realized in the future.
4. Derivative Financial Instruments
Hedges of Interest Rate Risk
During fiscal 2013, we have entered into interest rate swap contracts to manage differences in the amount,
timing, and duration of our known or expected cash interest payments related to our debt. Our objectives in using
interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements.
Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in
exchange for us making fixed-rate payments over the life of the derivative agreements without exchange of the
underlying notional amount.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in the
period that the hedged forecasted transaction affects earnings. If a derivative is deemed to be ineffective, we recognize
the ineffective portion of the change in fair value of the derivatives directly in earnings. During the fiscal year ended
June 30, 2013, we did not hold any derivative instruments that were determined to be ineffective.
Amounts reported in accumulated other comprehensive loss related to interest rate swap contracts will be
reclassified to interest expense as interest payments are accrued or made on our variable-rate debt. Assuming these
derivative instruments continue to qualify for hedge accounting, as of June 30, 2013, we estimate that $193 will be
reclassified from accumulated other comprehensive loss to interest income during the twelve months ending June 30,
2014. As of June 30, 2013, we had seven outstanding interest rate swap contracts indexed to one-month LIBOR.
These instruments were designated as cash flow hedges of interest rate risk and have varying start dates and maturity
dates from 2013 - 2017. As the start date of certain contracts has not yet commenced, the notional amount of our
outstanding contracts is in excess of the variable-rate debt being hedged as of the balance sheet date.
Interest rate swap contracts outstanding: Notional Amounts
Contracts accruing interest as of June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 155,000
Contracts with a future start date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 195,000
Hedges of Currency Risk
During fiscal 2013, we have executed currency forward contracts in order to mitigate our exposure to
fluctuations in various currencies against our reporting currency, the U.S. dollar. We currently have outstanding
currency forward contracts that qualify as cash flow hedges intended to offset the effect of exchange rate
fluctuations on our net income. Currency forward agreements involve fixing the exchange rate for delivery of a
specified amount of currency on a specified date.
The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow
hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in the