Priceline 2014 Annual Report Download - page 72

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Off-Balance Sheet Arrangements.
As of December 31, 2014 , we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or
future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
deemed appropriate, through the use of derivative financial instruments. We use foreign exchange derivative contracts to manage short-term
foreign currency risk.
adverse fluctuations in rates. We evaluate our exposure to market risk by assessing the anticipated near-term and long-term fluctuations in
interest rates and foreign exchange rates. This evaluation includes the review of leading market indicators, discussions with financial analysts
and investment bankers regarding current and future economic conditions and the review of market projections as to expected future rates. We
utilize this information to determine our own investment strategies as well as to determine if the use of derivative financial instruments is
appropriate to mitigate any potential future market exposure that we may face. Our policy does not allow speculation in derivative instruments
for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial instruments for
trading purposes and are not a party to any leveraged derivatives. To the extent that changes in interest rates and currency exchange rates affect
general economic conditions, we would also be affected by such changes.
We did not experience any material changes in interest rate exposures during the year ended December 31, 2014
. Based upon economic
conditions and leading market indicators at December 31, 2014 , we do not foresee a significant adverse change in interest rates in the near
future.
Fixed rate investments are subject to unrealized gains and losses due to interest rate volatility. We performed a sensitivity analysis to
determine the impact a change in interest rates would have on the fair value of our available for sale investments assuming an adverse change of
100 basis points. A hypothetical 100 basis point (1.0%) increase in interest rates would have resulted in a decrease in the fair values of our
investments as of December 31, 2014 of approximately $85 million. These hypothetical losses would only be realized if we sold the investments
prior to their maturity.
As of December 31, 2014 , the outstanding aggregate principal amount of our debt is $4.2 billion . We estimate that the market value of
such debt was approximately $4.8 billion as of December 31, 2014 . A substantial portion of the market value of our debt in excess of the
outstanding principal amount is related to the conversion premium on our outstanding convertible bonds.
U.S. Dollar (primarily Euros). As a result, we face exposure to adverse movements in currency exchange rates as the operating results of our
international operations are translated from local 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, gross bookings, gross profit,
operating expenses, and net income. Similarly, our net assets, gross bookings, gross profit, operating expenses, and net income will decrease if
the U.S. Dollar strengthens against the local currency. Additionally, foreign exchange rate fluctuations on transactions denominated in currencies
other than the functional currency results in gains and losses that are reflected in the Consolidated Statement of Operations.
From time to time, we enter into foreign exchange derivative contracts to minimize the impact of short-term foreign currency
fluctuations on our consolidated operating results. Our derivative contracts principally address foreign exchange fluctuation risk for the Euro and
the British Pound Sterling versus the U.S. Dollar. As of December 31, 2014 and 2013 , there were no such outstanding derivative contracts
associated with foreign currency translation risk. Foreign exchange gains of $13.7 million , $0.3 million , and $0.7 million for the years ended
December 31, 2014 , 2013 , and 2012 , respectively, were recorded in "Foreign currency transactions and other" in the Consolidated Statements
of Operations.
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