Expedia 2006 Annual Report Download - page 82

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In November 2003, we entered into a swap with a notional amount of Euro 39.0 million that matures in
October 2013. Under the terms of this swap, we pay Euro at a rate of the three-month EURIBOR plus 0.50%
on Euro 39.0 million and we receive 4.90% interest on $46.4 million in U.S. dollars.
In April 2004, we entered into a swap with a notional amount of Euro 38.2 million that matures in April
2014. Under the terms of this swap, we pay Euro at a rate of the six-month EURIBOR plus 0.90% on Euro
38.2 million and we receive 5.47% interest on $45.9 million in U.S. dollars.
Upon maturity, these cross-currency swap agreements call for the exchange of notional amounts. These
swaps have been designated as cash flow hedges and are re-measured at fair value each reporting period. The
hedges have been determined to be perfectly effective, at designation and on an ongoing basis. As such, we
record the total change in the fair value of the hedges in OCI each period, and concurrently reclassify a
portion of the gain or loss to other income (expense), net to perfectly offset gains or losses related to
transactional remeasurement of the hedged items. We are not able to predict future gains or losses due to
remeasurement of the hedged items, or the equivalent reclassifications of the gains or losses on the hedges
from accumulated OCI to earnings. There was no ineffectiveness related to these cash flow hedges for the
years ended December 31, 2006, 2005 and 2004.
In addition, as of December 31, 2006, we had $14.1 million of cash held by counterparties as collateral
for our cross-currency swaps, which is classified in long-term investments and other assets on our consolidated
balance sheet.
Stock Warrants
In connection with prior transactions, IAC assumed a number of stock warrants that were adjusted to
become exercisable into IAC common stock and subsequent to the Spin-Off, also in our common stock. As of
December 31, 2006, there are approximately 42,700 of these stock warrants outstanding with expiration dates
through May 2010. Each stock warrant represents the right to receive the number of shares of IAC common
stock and Expedia common stock that the stock warrant holder would have received had the holder exercised
the stock warrant immediately prior to the Spin-Off. Under the terms of the Spin-Off between IAC and
Expedia, we assumed the obligation to deliver our common stock to the stock warrant holders upon exercise
and will receive a portion of the proceeds from exercise. This obligation represents a derivative instrument that
we record at fair value on our consolidated balance sheets with any changes in value recorded in our
consolidated statements of income. The estimated fair value of this liability fluctuates based on changes in the
price of our common stock.
NOTE 8 — Employee Benefit Plans
Our U.S. employees are generally eligible to participate in a retirement and savings plan that qualifies
under Section 401(k) of the Internal Revenue Code. Participating employees may contribute up to 16% of their
pretax salary, but not more than statutory limits. We contribute fifty cents for each dollar a participant
contributes in this plan, with a maximum contribution of 3% of a participant’s earnings. Our contribution vests
with the employee after the employee completes two years of service. Participating employees have the option
to invest in our common stock, but there is no requirement for participating employees to invest their
contribution or our matching contribution in our common stock. We also have various defined contribution
plans for our international employees. Our contributions to these benefit plans was $8.0 million, $6.0 million
and $4.1 million for the years ended December 31, 2006, 2005 and 2004.
NOTE 9 — Stock-Based Awards and Other Equity Instruments
Pursuant to the 2005 Expedia, Inc. Stock and Annual Incentive Plan, we may grant restricted stock,
restricted stock awards (“RSA”), RSUs, stock options and other stock-based awards to directors, officers,
employees and consultants. As of December 31, 2006, we had approximately 7.1 million shares of common
F-22
Expedia, Inc.
Notes to Consolidated Financial Statements — (Continued)