Lincoln International, Inc. 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk Given the low capital intensity of our business, we do not believe that we are subject to significant market risk (including interest rate risk, exchange rate risk, and foreign currency risk) or credit or indebtedness risk, as further described below. Risks Related to Cash and Short-Term Investments Our cash and cash equivalents include short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or fewer from the date of purchase. We invest most of our cash in bank time deposits and money market funds. Cash is maintained in U.S. and non-U.S. bank accounts for the working capital needs of our U.S. and international operations. We maintain U.S. deposits at financial institutions that at times may exceed federally insured coverage limits. Such deposits are held in non-interest bearing and interest-bearing accounts, predominantly at one institution, Bank of America, N.A., which deposit amounts exceed the Federal Deposit Insurance Corporation limits. We have not experienced any losses in these accounts and believe we are not exposed to any significant credit risks. We believe our cash and short-term investments are not subject to any material interest rate risk, equity price risk, credit risk or other market risk. Credit Risk We regularly review our accounts receivable and allowance for doubtful accounts by considering factors such as historical experience, business life cycle, credit quality, age of client accounts receivable and recoverable out-of-pocket expense balances, and the current economic conditions that may affect a client’s ability to pay such amounts owed to us. We maintain an allowance for doubtful accounts that, in our opinion, provides for an adequate reserve to cover losses that may be incurred. See the section entitled “ Critical Accounting Estimates—Accounts Receivable and Allowance for Credit Losses ” included in the Prospectus. Indebtedness Risk Our indebtedness resulting from the MarshBerry Acquisition subjects us to restrictive covenants and could limit our financial and operational flexibility. Our debt structure may limit our ability to pursue strategic opportunities, invest in our business, or respond to competitive pressures. Our debt agreements contain covenants that restrict our operations, such as limitations on incurring additional indebtedness, drawing on our line of credit, making acquisitions, and selling assets. Failure to comply with these covenants could result in an event of default, even if we are current on our principal and interest payments. Exchange Rate Risk We are exposed to the risk that the exchange rate of the U.S. dollar relative to our other operating currencies may have an adverse effect on the reported value of our non-U.S. dollar denominated assets and liabilities. In addition, the reported amounts of our revenues may be affected by movements in the rate of exchange primarily between each of the Euro and the Pound Sterling and the U.S. dollar, the currency in which our financial statements are denominated. We believe the majority of our business has a natural hedge against exchange rate risk because our cash inflows are largely denominated in the same currency as our cash outflows. As a result, we have not entered into any currency-related transactions to hedge our exposure to these foreign currency fluctuations through the use of derivative instruments or other methods, but we may do so in the future. 37 Foreign Currency Risk We incur foreign currency transaction risk whenever we enter into a transaction using a currency other than the currency of the transacting entity. We conduct business in various jurisdictions throughout the world and are subject to market risk due to change in the value of foreign currencies in relation to our reporting currency, the U.S. dollar. The functional currencies of our foreign operating locations are generally the local currency in the country.