Expedia 2006 Annual Report Download - page 53

Equity Price Risk
We do not maintain any minority investments in equity securities as part of our marketable securities
investment strategy. Thus, our equity price risk primarily relates to fluctuations in our stock price, which
affects our derivative liabilities related to outstanding Ask Jeeves Notes. We base the fair value of these
derivative instruments primarily on the changes in the market price of our common stock.
In 2006, certain of these notes were converted at fair value for $80.8 million of common stock, or
3.5 million shares. As additional notes are converted, the value of the derivative liability will be reduced and
our equity price risk will decrease accordingly. The conversion of the Ask Jeeves Notes during 2006, reduced
our obligation to issue our common stock from 4.3 million shares as of December 31, 2005, to 0.8 million
shares as of December 31, 2006.
As of December 31, 2006, each $1.00 fluctuation in our common stock will result in approximately
$0.8 million of change in the aggregate fair value of our Ask Jeeves Notes derivative liability. An increase in
our common stock price will result in a charge to our consolidated statements of income and a decrease in our
common stock price will result in a credit. The Ask Jeeves Notes are due June 1, 2008; upon maturity of these
notes, our obligation to satisfy demands for conversion ceases.
For additional information about the Ask Jeeves Notes, see Note 7 — Derivative Instruments, in the notes
to consolidated financial statements.
Part II. Item 8. Consolidated Financial Statements and Supplementary Data
The Consolidated Financial Statements and Schedule listed in the Index to Financial Statements,
Schedules and Exhibits on page F-1 are filed as part of this report.
Part II. Item 9. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure
None.
Part II. Item 9A. Controls and Procedures
Changes in Internal Control over Financial Reporting.
We have been evaluating, designing and enhancing controls related to our internal controls over financial
reporting and discussing these matters with our independent accountants and our Audit Committee. Based on
these evaluations and discussions, we considered what revisions, improvements or corrections were necessary
in order for us to conclude that our internal controls are effective. As part of this process, we identified a
number of areas where there was a need for improvement in our internal controls over financial reporting. We
have completed the remediation of these areas. Besides the internal control improvements discussed above,
there were no changes to our internal controls over financial reporting that occurred during the quarter ended
December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Evaluation of Disclosure Controls and Procedures.
Our management, including our Chairman and Senior Executive, Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15(e) of the Exchange Act. Based upon that evaluation, our Chairman and
Senior Executive, Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures were effective.
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