ServiceMagic 2011 Annual Report Download - page 55

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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 primarily of money market
instruments and short-to-intermediate-term debt securities issued by states of the U.S. and subdivisions thereof and investment grade corporate
issuers. The Company employs a methodology that considers available evidence in evaluating potential impairment 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 and a new cost basis in the investment is
established. During 2011, 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, 2011, 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 $1.9 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 $704.2 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, 2011, the Company's outstanding debt is $95.8 million, 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 $10.8 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, 2011, the Company has four 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) income" 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 2011,
the Company did not record any other-than-temporary impairment charges related to its available-for-sale marketable equity securities.
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
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