TripAdvisor 2012 Annual Report Download - page 71

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 and combined statements of operations and have recorded foreign
exchange losses of $3.2 million, 1.0 million and $1.6 million for the years ended December 31, 2012, 2011 and
2010, respectively, in Other, net.
We currently manage our exposure to foreign currency risk through internally established policies and
procedures. To the extent practicable, we minimize our foreign currency exposures by maintaining natural
hedges between our current assets and current liabilities in similarly denominated foreign currencies, as well as,
using derivative financial instruments. We use foreign exchange derivative contracts to manage certain short-
term foreign currency risk to try and reduce the effects of fluctuating foreign currency exchange rates on our cash
flows denominated in foreign currencies.
Our objective is to hedge only those currency exposures that can be confidently identified and quantified
and that may result in significant impacts to corporate cash or the consolidated income statement. 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.
Our current derivative contracts principally address foreign exchange fluctuation risk for the Euro versus the
U.S. Dollar. We account for our derivative instruments as either assets or liabilities and carry them at fair value.
As of December 31, 2012 we had outstanding forward currency not designated as hedging contracts with a
notional value of $2.7 million. These contracts are all short-term in nature. The fair value of these derivatives at
December 31, 2012 was a net liability of $0.1 million and was recorded in accrued expenses and other current
liabilities on the consolidated balance sheet. For the year end ended December 31, 2012, $0.1 million of expense
was recorded to Other, net on our consolidated and combined statement of operations related to outstanding
derivative contracts. A hypothetical 10% change of the foreign exchange rates relative to the U.S. Dollar, with all
other variables held constant, would not have a material impact on the fair value of our outstanding derivatives as
of December 31, 2011. We did not enter into any derivative instruments for the year ending December 31, 2011
and 2010. Refer to “Note 5—Financial Instruments” in the notes to the consolidated and combined financial
statements for further detail on our derivative instruments.
As we increase our operations in international markets, our exposure to potentially volatile movements in
foreign currency exchange rates increases. The economic impact to us of foreign currency exchange rate
movements is linked to variability in real growth, inflation, interest rates, governmental actions and other factors.
These changes, if material, could cause us to adjust our foreign currency risk strategies.
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