Expedia 2006 Annual Report Download - page 22

over the internet, user privacy, taxation and the quality of products and services. Furthermore, the growth and
development of online commerce may prompt calls for more stringent consumer protection laws that may
impose additional burdens on online businesses generally.
Adverse application of tax laws, rules or regulations could have an adverse effect on our businesses
and financial performance.
In addition, the application of various domestic and international sales, use, occupancy, value-added and
other tax laws, rules and regulations to our historical and new products and services is subject to interpretation
by the applicable taxing authorities. Many of the fundamental statutes and regulations that impose these taxes
were established before the growth of the internet and e-commerce. If the tax laws, rules and regulations were
amended or if current laws are interpreted adversely to our interests, particularly with respect to occupancy or
value-added taxes, the results could decrease the demand for our products and services if we pass on such
costs to the consumer, increase our tax payments and/or subject us to penalties. As a result these changes
could have an adverse affect on our businesses or financial performance. We continue to work with relevant
tax authorities and legislators to clarify our obligations under existing, new and emerging laws and regulations.
There have been, and will continue to be, substantial ongoing costs associated with complying with the various
indirect tax requirements in the numerous markets in which we conduct or will conduct business.
Our international operations involve risks relating to differing customs and cultures as well as
commercial and regulatory environments.
We operate in a number of jurisdictions outside of the United States and intend to continue to expand our
international presence. In order to achieve widespread acceptance in the countries and markets we enter, we
must continue to tailor our services to the unique customs and cultures of such countries and markets.
Learning the customs and cultures of various countries, particularly with respect to travel patterns and
practices, can be difficult, costly and divert management and personnel resources. Our failure to learn such
customs and cultures successfully could slow our international growth.
We expect to continue to face additional risks in international operations. These risks include political
instability, threatened or actual acts of terrorism, unexpected changes in regulatory requirements, our ability to
comply with additional U.S. and local laws and regulations, increased risk and limits on our ability to enforce
intellectual property rights, slower adoption of the internet as an advertising and commerce medium in those
markets as compared to the United States and difficulties in managing operations due to distance, language
and cultural differences, including issues associated with establishing management systems and infrastructures
and staffing and managing foreign operations.
We have foreign exchange risk.
As a result of our international websites and acquisitions, we conduct a significant and growing portion
of our business outside the United States. Further, due to the nature of our operations and our corporate
structure, we have subsidiaries that have significant transactions in foreign currencies other than their
functional currency. As a result, we face exposure to movements in currency exchange rates, particularly those
related to the British Pound Sterling, the Euro, Canadian dollar and Chinese Renminbi. Foreign exchange rate
fluctuations may adversely impact our results of operations as exchange rate fluctuations on transactions
denominated in currencies other than the functional currency results in gains and losses that are reflected in
our consolidated statements of operations. Additionally, the results of operations of our foreign subsidiaries are
exposed to foreign exchange rate fluctuations as the financial results of our foreign subsidiaries 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, net revenues,
operating expenses, net income or loss as well as decreased cash flows from operations. Similarly, our net
assets, net revenues, operating expenses, and net income or loss will decrease if the U.S. dollar strengthens
against the local currency.
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