Vistaprint 2014 Annual Report Download - page 67

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Our fourth quarter fiscal 2014 acquisitions of People & Print Group and Pixartprinting provided for earn-out
payments that are payable based on the achievement of certain financial results. For People & Print Group, the
payment is contingent upon the achievement of an initial 2014 EBITDA margin threshold but ultimately payable
based on achieving certain revenue and EBITDA targets for calendar year 2015. The Pixartprinting payment is
contingent on the achievement of revenue and EBITDA targets for calendar year 2014.
The earn-out obligations are measured at fair value and are based on significant inputs not observable in
the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent
consideration uses assumptions and estimates to forecast a range of outcomes and probabilities for the contingent
consideration. We assess these assumptions and estimates on a quarterly basis as additional data impacting the
assumptions is obtained. Any changes in the fair value of contingent consideration related to updated assumptions
and estimates will be recognized within the consolidated statements of operations during the period in which the
change occurs.
The following table represents the changes in fair value of Level 3 contingent consideration:
People & Print Group
earn-out consideration
Pixartprinting
earn-out consideration
Total earn-out
consideration
Balance at June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . $—$—$—
Fair value at acquisition date . . . . . . . . . . . . . . . . . . . . . 9,053 4,953 14,006
Fair value adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . 832 1,360 2,192
Effect of currency translation adjustments. . . . . . . . . . . (89) (37) (126)
Balance at June 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . $9,796 $ 6,276 $ 16,072
As of June 30, 2014 and 2013, the carrying amounts of cash and cash equivalents, receivables, accounts
payable, and other current liabilities approximated their estimated fair values. As of June 30, 2014, the carrying
value of our debt was $448,059 and the fair value was $460,098. As of June 30, 2013, we performed an evaluation
of the estimated fair value of our debt and determined that the fair value approximated the carrying value of the
liability. Our debt is a variable rate debt instrument indexed to LIBOR that resets periodically. 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. The estimated fair value of assets and liabilities disclosed above 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
We enter into interest rate swap contracts to manage differences in the amount of our known or expected cash
payments related to our debt. Our objective in using interest rate derivatives is 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 designated and qualifying as cash flow
hedges is recorded in accumulated other comprehensive income (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, the ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.
During the years ended June 30, 2014 and 2013, we did not hold any interest rate derivative instruments that were
determined to be ineffective.
Amounts reported in accumulated other comprehensive income (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, 2014, we estimate that $1,031
will be reclassified from accumulated other comprehensive income (loss) to interest income during the twelve months
ending June 30, 2015. As of June 30, 2014, we had ten 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 July 2014 through January 2017. Since the start date of certain contracts has not yet commenced,
Form 10-K