Expedia 2006 Annual Report Download - page 81

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The fair value of our Notes was approximately $520 million as of December 31, 2006 based on the
quoted market price.
The Notes are senior unsecured obligations guaranteed by certain domestic Expedia subsidiaries and rank
equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. For
further information, see Note 19 —Guarantor and Non-Guarantor Supplemental Financial Information.
The Notes include covenants that limit our ability to (i) incur liens, (ii) enter into sale and leaseback
transactions and (iii) merge, consolidate or sell substantially all of our assets. As of December 31, 2006, we
were in compliance with all covenants.
NOTE 7 — Derivative Instruments
The fair values of the derivative financial instruments generally represent the estimated amounts we
would expect to receive or pay upon termination of the contracts as of the reporting date. Components of our
derivative liabilities balance are as follows:
2006 2005
December 31,
(In thousands)
Ask Jeeves Notes ............................................. $15,900 $104,800
Cross-currency swaps .......................................... 13,060 927
Stock warrants ............................................... 31 100
$28,991 $105,827
Ask Jeeves Notes
As a result of the Spin-Off, we assumed certain obligations to IAC related to IAC’s Ask Jeeves Notes.
When holders of the Ask Jeeves Notes convert their notes, they will receive shares of both IAC and Expedia
common stock. Under the terms of the Spin-Off, we are obligated to issue shares of our common stock to IAC
for delivery to the holders of the Ask Jeeves Notes, or pay cash in equal value, in lieu of issuing such shares,
at our option. This obligation represents a derivative liability on our consolidated balance sheet because it is
not indexed solely to shares of our common stock. We record the fair value of this derivative obligation on our
consolidated balance sheets with any changes in fair value recorded in our consolidated statements of income.
The estimated fair value of this liability fluctuates primarily based on changes in the price of our common
stock.
In 2006 and 2005, certain of these notes were converted and we released approximately 3.5 million and
37,000 shares of our common stock from escrow with a fair value of $80.8 million and $0.9 million to satisfy
the conversion requirements. In 2006 and 2005, we recognized a net unrealized gain (loss) of $8.1 million and
$(6.0) million related to these Ask Jeeves Notes.
As of December 31, 2006, we estimate that we could be required to release from escrow up to 0.8 million
shares of our common stock (or pay cash in equal value, in lieu of issuing such shares, at our option). The
Ask Jeeves Notes are due June 1, 2008; upon maturity of these notes, our obligation to satisfy demands for
conversion ceases.
Cross-Currency Swaps
We enter into cross-currency swaps to hedge against the change in value of certain intercompany loans
denominated in currencies other than the lending subsidiaries’ functional currency.
F-21
Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)