Vistaprint 2007 Annual Report Download - page 60

at June 30, 2007). The lease requires a security deposit in the form of a bank guarantee in the amount
of 126,225 euros ($171,000 at June 30, 2007).
Purchase Commitments. At June 30, 2007, we had unrecorded commitments under contracts to
purchase print production equipment and to complete construction at the Windsor and Venlo printing
facilities of approximately $14.9 million compared to approximately $15.1 million at June 30, 2006.
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 and short term investments. At June 30, 2007, we had unrestricted cash and cash
equivalents totaling $69.5 million and short-term marketable securities totaling $38.6 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, 2007.
Foreign Currency Risk. As we conduct business in multiple currencies as a result of 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 Spanish subsidiary, which operates a
marketing office in Barcelona, Spain, also has the euro as its functional currency. Our Dutch and
Spanish subsidiaries translate their 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
2007, 2006, and 2005. We are not currently party to any 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. A hypothetical decrease in exchange rates of 10%, or strengthening of the
United States dollar, would have resulted in a decrease of $1.2 million on our income before taxes for
fiscal 2007. A similar decrease in exchange rates would have had an immaterial impact on our income
before taxes for fiscal 2006.
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, 2007, we had short-term borrowings 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, 2007 and comparing
that with the fair value using the hypothetical period end exchange rate.
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