Vistaprint 2006 Annual Report Download - page 55

Table of Contents
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. Our exposure to interest rate risk relates primarily to our cash and cash equivalents, short term investments and
variable rate borrowings under our existing bank credit facilities. At June 30, 2006, we had unrestricted cash and cash equivalents totaling
$64.7 million and short−term marketable securities totaling $43.5 million. These amounts were invested primarily in money market funds,
asset−backed securities, investment−grade corporate bonds, U.S. government agency issues and municipal auction rate securities, and are held
for working capital purposes. We do not enter into investments for trading or speculative purposes. We considered the historical volatility of short
term interest rates and determined that it was reasonably possible that an adverse change of 100 basis points could be experienced in the near
term. A hypothetical 1% (100 basis−point) increase in interest rates would have resulted in an immaterial decrease in the fair values of our
marketable securities at June 30, 2006.
Foreign Currency Risk. As we conduct business in multiple currencies through our worldwide operations, we are affected by changes in
foreign exchange rates of such currencies. Changes in exchange rates can positively or negatively affect our sales, gross margins and retained
earnings. The majority of our products sold outside North America are manufactured by our Dutch subsidiary, which has the euro as its functional
currency. Our Dutch subsidiary translates its assets and liabilities at current rates of exchange in effect at the balance sheet date. The resulting
gains and losses from translation are included as a component of accumulated other comprehensive income. All other international subsidiaries
have the United States dollar as the functional currency and transaction gains and losses and remeasurement of foreign currency denominated
assets and liabilities are included in other income (expense), net. Foreign currency transaction gains or losses included in other income (expense),
net were not material in fiscal 2006, 2005 and 2004. We do not currently enter into derivative financial instruments as hedges against foreign
currency fluctuations.
We considered the historical trends in currency exchange rates and determined that it was reasonably possible that an increase or
decrease in exchange rates of 10% for all currencies could be experienced in the near term. These reasonably possible changes in exchange
rates of 10% were applied to total net monetary assets denominated in currencies other than the local currencies at the balance sheet dates to
compute the impact these changes would have had on our income before taxes in the near term. These changes would have had an immaterial
impact on our net income (loss) for the years ended June 30, 2006, 2005 and 2004.
Our Dutch subsidiary maintains a credit facility with ABN AMRO Bank N.V. pursuant to which it has borrowings of 5.5 million euros. At
June 30, 2006, we had short−term borrowings of 0.6 million euros related to current portion of long−term debt denominated in euros. The carrying
value of these short−term borrowings approximates fair value due to their short period to maturity. Assuming a hypothetical 10% increase or
decrease in the euro to United States dollar period end exchange rate, the impact to the fair value of these short−term borrowings would be
immaterial. The potential increase or decrease in fair value was estimated by calculating the fair value of the short−term borrowings at June 30,
2006 and comparing that with the fair value using the hypothetical period end exchange rate.
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