TripAdvisor 2015 Annual Report Download - page 57

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Management
Weareexposedtocertainmarketrisks,includingchangesininterestratesandforeigncurrencyexchangeratesthatcouldadverselyaffectourresultsof
operationsorfinancialcondition.Wemanageourexposuretotheserisksthroughestablishedpoliciesandproceduresandbyassessingtheanticipatednear-term
andlong-termfluctuationsininterestratesandforeigncurrencyexchangerates.Ourobjectiveistomitigatepotentialincomestatement,cashflowandmarket
exposuresfromchangesininterestandforeignexchangerates.
Interest Rates
Ourcurrentexposuretochangesininterestratesrelateprimarilytoourinvestmentportfolioandtheoutstandingborrowingsonour2015CreditFacility.
OurinterestincomeandexpenseismostsensitivetofluctuationsinU.S.interestratesandLibor.Changesininterestratesaffecttheinterestearnedonourcash,
cashequivalentsandmarketablesecuritiesandthefairvalueofthosesecurities,aswellastheamountofinterestwepayonouroutstandingdebt.
Wecurrentlyinvestourexcesscashincashdepositsatmajorglobalbanks,moneymarketmutualfundsandmarketablesecurities.Ourinvestmentpolicy
andstrategyarefocusedonpreservationofcapitalandsupportingourliquidityrequirements.Weinvestinhighly-ratedsecurities,andourinvestmentpolicylimits
theamountofcreditexposuretoanyoneissuer.Thepolicyrequiresinvestmentstobeinvestmentgrade,withtheprimaryobjectiveofminimizingthepotentialrisk
ofprincipalloss.
Inordertoprovideameaningfulassessmentoftheinterestrateriskassociatedwithourinvestmentportfolio,weperformedasensitivityanalysisto
determinetheimpactachangeininterestrateswouldhaveonthevalueofourcurrentinvestmentportfolioassuminga100basispointparallelshiftintheyield
curve.BasedonourinvestmentpositionsasofDecember31,2015,ahypothetical100basispointincreaseininterestratesacrossallmaturitieswouldresultinan
approximate$1millionincrementaldeclineinthefairmarketvalueoftheportfolio.Suchlosseswouldonlyberealizedifwesoldtheinvestmentspriorto
maturity.
AsofDecember31,2015,wehad$200millionofdebtunderour2015CreditFacility,whichhasavariablerate.Thevariableinterestrateonthe2015
CreditFacilityisbasedoncurrentassumptions,leverageandLIBORrates.BasedonourcurrentoutstandingbalancethroughDecember31,2015,a25basispoint
changeinourinterestrateonthe2015CreditFacilitywouldresultinanincreaseordecreasetointerestexpensethatwouldbelessthan$1millionperannum.We
currentlydonothedgeourinterestraterisk;however,wearecontinuallyevaluatingtheinterestratemarket,andifwebecomeincreasinglyexposedtopotentially
volatilemovementsininterestrates,andifthesemovementsarematerial,thiscouldcauseustoadjustourfinancingstrategy.
WedidnotexperienceanysignificantimpactfromchangesininterestratesfortheyearsendedDecember31,2015,2014or2013.
Foreign Currency Exchange Rates
Weconductbusinessincertaininternationalmarkets,primarilytheEuropeanUnion,theUnitedKingdom,Singapore,AustraliaandChina.Becausewe
operateininternationalmarkets,wehaveexposuretodifferenteconomicclimates,politicalarenas,taxsystemsandregulationsthatcouldaffectforeignexchange
rates.
SomeofourforeignsubsidiariesmaintaintheiraccountingrecordsintheirrespectivelocalcurrenciesotherthantheU.S.dollar(primarilyinBritish
pounds).Consequently,changesincurrencyexchangeratesmayimpactthetranslationofforeignfinancialstatementsintoU.S.dollars.Asaresult,weface
exposuretoadversemovementsincurrencyexchangeratesasthefinancialresultsofourinternationaloperationsaretranslatedfromlocalcurrency,orfunctional
currency,intoU.S.dollarsuponconsolidation.IftheU.S.dollarweakensagainstthelocalcurrency,thetranslationoftheseforeign-currency-denominatedbalances
willresultinincreasednetassets,revenue,operatingexpenses,operatingincomeandnetincome.Similarly,ournetassets,revenue,operatingexpenses,operating
incomeandnetincomewilldecreaseiftheU.S.dollarstrengthensagainstlocalcurrency.Theeffectofforeignexchangeonourbusinesshistoricallyhasvaried
fromquartertoquarterandmaycontinuetodoso,potentiallymaterially.Ahypothetical10%decreaseoftheforeignexchangeratesrelativetotheU.S.Dollar,or
strengtheningoftheU.S.Dollar,wouldgenerateanunrealizedlossofapproximately$22millionrelatedtoadecreaseinournetassetsheldinfunctionalcurrencies
otherthantheU.S.DollarasofDecember31,2015,whichwouldbeinitiallyrecordedtoaccumulatedothercomprehensivelossonourconsolidatedbalancesheet.
Inaddition,foreignexchangeratefluctuationsontransactionsdenominatedincurrenciesotherthanthefunctionalcurrencyresultingainsandlosses.We
recognizethesetransactionalgainsandlosses(primarilyEurocurrencytransactions)inourconsolidated
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