Vistaprint 2008 Annual Report Download - page 61

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, 2008, we had unrestricted cash and cash
equivalents totaling $103.1 million and short-term marketable securities totaling $26.6 million. These
amounts were invested primarily in money market funds commercial paper, investment-grade
corporate bonds, certificates of deposit, 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, 2008.
Foreign Currency Risk. As we conduct business in multiple international currencies through our
worldwide operations, we are affected by fluctuations in foreign exchange rates of such currencies.
Fluctuations in exchange rates can positively or negatively affect our revenue and profits. 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 and European
headquarters in Barcelona, Spain, also has the euro as its functional currency. Our Swiss subsidiary,
which operates a technology development facility in Winterthur, Switzerland, has the Swiss franc as its
functional currency. Our Dutch, Spanish and Swiss 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 on the balance
sheet. All other subsidiaries have the U.S. dollar as the functional currency and transaction gains and
losses and remeasurement of assets and liabilities denominated in currencies other than the U.S. dollar
are included in other income (expense), net on the statement of income. In addition, our subsidiaries
have intercompany accounts that are eliminated in consolidation, but that expose us to fluctuations in
foreign currency exchange rates. Exchange rate fluctuations on short-term intercompany accounts are
also reported in other income (expense), net on the statement of income. We had net foreign currency
transaction gains (losses) included in other income that were not material in fiscal 2008, 2007, and 2006.
We are not currently party to any derivative financial instruments as hedges against 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 $0.9 million on our income before taxes for
fiscal 2008. A similar 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.
Our Dutch subsidiary maintains a credit facility with ABN AMRO Bank N.V. pursuant to which it
has borrowings of 7.3 million euros. At June 30, 2008, 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, 2008 and comparing
that with the fair value using the hypothetical period end exchange rate.
Form 10-K
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