MIME 2017 Annual Report

54 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency rates, although we also have some exposure due to potential changes in inflation or interest rates. We do not hold financial instruments for trading purposes. Foreign Currency Risk Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British pound and South African rand. Percentage of revenues and expenses in foreign currency is as follows: Year ended March 31, 2018 2017 Revenues generated in locations outside the United States 51% 51% Revenues in currencies other than the United States dollar 49% 50% Expenses in currencies other than the United States dollar 49% 47% Percentage of revenues and expenses denominated in foreign currency for the years ended March 31, 2018 and 2017: Year ended March 31, 2018 Revenues Expenses British pound 29% 35% South African Rand 15% 6% Other currencies 5% 8% Total 49% 49% Year ended March 31, 2017 Revenues Expenses British pound 31% 36% South African Rand 15% 6% Other currencies 4% 5% Total 50% 47% As of March 31, 2018 and 2017, we had $35.3 million and $24.0 million respectively, of receivables denominated in currencies other than the U.S. dollar. We also maintain cash accounts denominated in currencies other than the local currency, which exposes us to foreign exchange rate movements. As of March 31, 2018 and 2017, we had $20.4 million and $27.0 million respectively, of cash denominated in currencies other than the U.S. dollar. As of March 31, 2018, cash denominated in British pounds and South African rand was $6.0 million and $10.7 million, respectively. As of March 31, 2017, cash denominated in British pounds and South African rand was $19.6 million and $5.0 million, respectively. In addition, although our foreign subsidiaries have intercompany accounts that are eliminated upon consolidation, these accounts expose us to foreign currency exchange rate fluctuations. Exchange rate fluctuations on short-term intercompany accounts are recorded in our consolidated statements of operations under “foreign exchange (expense) income.” Currently, our largest foreign currency exposures are to the British pound and South African rand. Relative to foreign currency exposures existing as of March 31, 2018, significant movements in foreign currency exchange rates may expose us to significant losses in earnings or cash flows or significantly diminish the fair value of our foreign currency financial instruments. For the year ended March 31, 2018, we estimate that a 10% decrease in foreign currency exchange rates against the U.S. dollar would have decreased revenue by $13.0 million, decreased expenses by $13.0 million and have no impact on our operating results. For the year ended March 31, 2017, we estimate that a 10% decrease in foreign currency exchange rates against the U.S. dollar would have decreased revenue by $9.3 million, decreased expenses by $9.3 million and have no impact on our operating results. The estimates used assume that all currencies move in the same direction at the same time and the ratio of non-U.S. dollar denominated revenue and expenses to U.S. dollar denominated revenue and expenses does not change from current levels. Since a portion of our revenue is deferred revenue that is recorded at different foreign currency exchange rates, the impact to revenue of a change in foreign currency exchange rates is recognized over time, and the impact to expenses is more immediate, as expenses are recognized at the current foreign currency exchange rate in effect at the time the expense is incurred. All of the potential changes noted above are based on sensitivity analyses performed on our financial results as of March 31, 2018 and 2017.