ServiceMagic 2014 Annual Report Download - page 56

Table of Contents
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates relates primarily to the Company's cash equivalents, marketable debt
securities and long-term debt.
The Company invests its excess cash in certain cash equivalents and marketable debt securities, which consist of money market funds and
short-to-medium-term debt securities issued by investment grade corporate issuers. The Company employs a methodology that considers available
evidence in evaluating potential other-than-temporary impairments of its investments. Investments are considered to be impaired when a decline in
fair value below the amortized cost basis is determined to be other-than-temporary. If a decline in fair value is determined to be other-than-
temporary, an impairment charge is recorded in current earnings and a new cost basis in the investment is established. During 2014, 2013 and 2012,
the Company did not record any other-than-temporary impairment charges related to its cash equivalents and marketable debt securities.
Based on the Company's total investment in marketable debt securities at December 31, 2014, a 100 basis point increase or decrease in the
level of interest rates would, respectively, decrease or increase the fair value of these securities by $2.1 million. Such potential increase or decrease
in fair value is based on certain simplifying assumptions, including a constant level and rate of debt securities and an immediate across-the-board
increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period. Conversely, since almost all of
the Company's cash and cash equivalents balance of $990.4 million is invested in short-term fixed or variable rate money market instruments, the
Company would also earn more (less) interest income due to such an increase (decrease) in interest rates.
At December 31, 2014, the Company's outstanding debt is $1.1 billion , all of which pays interest at fixed rates. If market rates decline, the
Company runs the risk that the related required payments on the fixed rate debt will exceed those based on market rates. A 100 basis point increase
or decrease in the level of interest rates would, respectively, decrease or increase the fair value of the fixed-rate debt by $60.5 million. Such
potential increase or decrease in fair value is based on certain simplifying assumptions, including a constant level and rate of fixed-rate debt for all
maturities and an immediate across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder
of the period.
Equity Price Risk
The Company is exposed to market risk as it relates to changes in the market value of its investments.
At December 31, 2014, the Company has two investments in equity securities of publicly traded companies. These available-for-sale
marketable equity securities are reported at fair value based on their quoted market prices with any unrealized gain or loss, net of tax, included as a
component of "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet. Investments in equity securities of
publicly traded companies are exposed to significant fluctuations in fair value due to the volatility of the stock market. During 2014 and 2013, the
Company did not record any other-than-temporary impairment charges related to its available-for-sale marketable equity securities. During 2012,
the Company recorded an $8.7 million other-than-temporary impairment charge related to one of its available-for-sale marketable equity securities.
The other-than-temporary impairment charge is included in "Other (expense) income, net" in the accompanying consolidated statement of
operations.
Foreign Currency Exchange Risk
The Company conducts business in certain foreign markets, primarily in the European Union. The Company's primary exposure to foreign
currency exchange risk relates to investments in foreign subsidiaries that transact business in a functional currency other than the U.S. Dollar,
primarily the Euro and British Pound Sterling. However, the exposure is mitigated since the Company has generally reinvested cash flows from
international operations in order to grow the businesses. The statements of operations of these international businesses are translated into U.S.
dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar strengthens against foreign currencies, the translation
of these foreign activities result in reduced revenue and operating results. Similarly, the Company's revenue and operating results will increase for
our international operations if the U.S. dollar weakens against foreign currencies. The Company is also exposed to foreign currency exchange risk
related to its assets and liabilities denominated in a currency other than the functional currency.
The economic impact of foreign currency exchange rate movements on the Company is often linked to variability in real growth, inflation,
interest rates, governmental actions and other factors. These changes, if material, could cause the Company to adjust its financing and operating
strategies. Foreign currency exchange gains and losses are not material to the Company's earnings in 2014, 2013 and 2012. As foreign currency
exchange rates change, translation of the statements of operations of the Company's international businesses into U.S. dollars affects year-over-year
comparability of operating results. Historically, the Company has not hedged foreign currency exchange risks because cash flows from international
operations are generally reinvested locally. However, the Company periodically reviews its strategy for hedging foreign currency exchange risks.
The
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