Vistaprint 2014 Annual Report Download - page 49

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. Our exposure to interest rate risk relates primarily to our cash, cash equivalents and
debt. As of June 30, 2014, our cash and cash equivalents consisted of standard depository accounts which are held
for working capital purposes. Due to the nature of our cash and cash equivalents, we do not believe we have a
material exposure to interest rate fluctuations.
As of June 30, 2014, we had $448.1 million of total U.S. dollar denominated variable rate debt and $16.6
million of variable rate installment obligation related to the fiscal 2012 intra-entity transfer of Webs' intellectual
property. As a result, we have exposure to market risk for changes in interest rates related to these obligations. In
order to mitigate our exposure to interest rate changes related to our variable rate debt, we execute interest rate
swap contracts to fix the interest rate on a portion of our outstanding long-term debt with varying maturities. As of
June 30, 2014, a hypothetical 100 basis point increase in rates, inclusive of our outstanding interest rate swaps,
would result in an increase of interest expense of approximately $2.2 million over the next 12 months.
Currency Exchange Rate Risk. We conduct business in multiple currencies through our worldwide
operations but report our financial results in U.S. dollars. Our international revenues, as well as costs and expenses
denominated in currencies other than the U.S. dollar, expose us to the risk of fluctuations in exchange rates of such
currencies versus the U.S. dollar. Our most significant net currency exposures are the British pound, Canadian
dollar and Swiss Franc, although our exposures to these and other currencies fluctuate, particularly in our fiscal
second quarter. A summary of our currency risk is as follows:
• Translation of our non-U.S. dollar revenues and expenses: Revenue and related expenses generated in
currencies other than the U.S. dollar could result in higher or lower net income when, upon consolidation,
those transactions are translated to U.S. dollars. When the value or timing of revenue and expenses in a
given currency are materially different, we may be exposed to significant impacts on our net income.
We use currency forward contracts to protect or mitigate our forecasted U.S. dollar-equivalent cash flows
from adverse changes in currency exchange rates. These hedging contracts reduce, but do not entirely
eliminate, the impact of adverse currency exchange rate movements. We have executed currency forward
contracts that do not qualify for hedge accounting. As a result, we may experience volatility in our
consolidated statements of operations due to (i) the impact of unrealized gains and losses reported in other
income (expense), net on the mark-to-market of outstanding contracts and (ii) realized gains and losses
recognized in other income (expense), net, whereas the offsetting gains and losses are reported in the line
item of the underlying cash flow, for example, revenue. For example, in fiscal 2014 we had realized and
unrealized losses from currency forward contracts of $7.5 million, which were largely offset within operating
income.
• Translation of our non-U.S. dollar assets and liabilities: Each of our subsidiaries translates its assets and
liabilities to U.S. dollars 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 loss on the
consolidated balance sheet. Fluctuations in exchange rates can materially impact the carrying value of our
assets and liabilities.
• Remeasurement of monetary assets and liabilities: Transaction gains and losses generated from
remeasurement of monetary assets and liabilities denominated in currencies other than the functional
currency of a subsidiary are included in other income (expense), net on the consolidated statements of
operations. Our subsidiaries have intercompany accounts that are eliminated in consolidation and cash and
cash equivalents denominated in various currencies that expose us to fluctuations in currency exchange
rates. A hypothetical 10% change in currency exchange rates was applied to total net monetary assets
denominated in currencies other than the functional 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% against the functional currency of our subsidiaries would have resulted
in an increase of $10.1 million, $2.5 million and $2.1 million on our income before taxes for the fiscal years
2014, 2013 and 2012, respectively. Changes in our corporate entity operating structure, effective on
October 1, 2013, resulted in changes in our intercompany transactional and financing activities that may
cause increased volatility in exchange rate gains and losses in future periods. Additionally, some of our
subsidiaries prepare tax returns in currencies other than their functional currency.
Form 10-K