NetZero 2011 Annual Report Download - page 87

Table of Contents
beginning after December 15, 2011. We do not expect this update to have a material impact on our consolidated financial statements.
Inflation
Inflation did not have a material impact on our consolidated revenues and results of operations during the years ended December 31, 2011,
2010 and 2009, and we do not currently anticipate that inflation will have a material impact on our consolidated revenues and results of
operations for the year ending December 31, 2012.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks arising from transactions in the normal course of business, principally risk associated with interest
rate and foreign currency exchange rate fluctuations.
Interest Rate Risk
We are exposed to interest rate risk on our cash and cash equivalents and the outstanding balance of the Credit Agreement. The interest rate
set forth in the Credit Agreement for the Term Loan and the Revolving Credit Facility is either a base rate plus 2.5% per annum, or LIBOR plus
3.5% per annum (with a LIBOR floor of 1.25% in the case of the Term Loan). A 100 basis point increase in LIBOR rates would result in an
estimated annual increase in our interest expense related to the outstanding debt under the Credit Agreement of approximately $0.6 million.
While we do not currently maintain any short-term investments, we still maintain deposits, which are classified as cash equivalents.
Therefore, our interest income is sensitive to changes in the general level of U.S. and certain foreign interest rates.
Foreign Currency Exchange Risk
We transact business in foreign currencies, and we are exposed to risk resulting from fluctuations in foreign currency exchange rates,
particularly the British Pound ("GBP"), the Euro ("EUR") and the Indian Rupee ("INR") and, to a much lesser extent, the Swedish Krona
("SEK"), the Swiss Franc ("CHF") and the Canadian Dollar ("CAD"), which may result in gains or losses reported in our results of operations.
The volatilities in GBP, EUR, INR, SEK, CHF, and CAD (and all other applicable foreign currencies) are monitored by us throughout the year.
We face two risks related to foreign currency exchange rates—translation risk and transaction risk. Amounts invested in our foreign operations
are translated into U.S. Dollars using period-end exchange rates. The resulting translation adjustments are recorded as a component of
accumulated other comprehensive loss in the consolidated balance sheets. Revenues and expenses in foreign currencies translate into higher or
lower revenues and expenses in U.S. Dollars as the U.S. Dollar weakens or strengthens against other currencies. Substantially all of the revenues
of our foreign subsidiaries are received, and substantially all expenses are incurred, in currencies other than the U.S. Dollar, which increases or
decreases the related U.S. Dollar-reported revenues and expenses depending on the trend in currencies. Therefore, changes in foreign currency
exchange rates may negatively affect our consolidated revenues and net income. A 1% adverse change in overall foreign currency exchange rates
over an entire year would not have a material impact on estimated annual revenues and estimated annual income before income taxes. These
estimates assume an adverse shift in all foreign currency exchange rates against the U.S. Dollar, which do not always move in the same direction
or in the same degrees, and actual results may differ materially. Net foreign currency transaction gains or losses arising from transactions
denominated in currencies other than the local functional currency are included in other income, net, in the consolidated statements of
operations.
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