TripAdvisor 2013 Annual Report Download - page 74

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 $0.2 million, $3.2 million and $1.0 million for the years ended December 31, 2013, 2012 and
2011, respectively, in Other, net on our consolidated and combined statements of operations.
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 statement of operations. 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, 2013 and 2012, we had outstanding forward currency contracts not designated as
hedging contracts with a notional value of $5.2 million and $2.7 million. These contracts are all short-term in
nature. The fair value of these derivatives at both December 31, 2013 and 2012, represented a net liability of $0.1
million and are recorded in accrued expenses and other current liabilities on our consolidated balance sheets. For
the years ended December 31, 2013 and 2012, $0.3 million and $0.7 million, respectively, of expense was
recorded to Other, net on our consolidated and combined statements of operations related to 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,
2013 and 2012. We did not enter into any derivative instruments for the year ending December 31, 2011. 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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