Expedia 2008 Annual Report Download - page 58

of outstanding stand-by letters of credit (“LOC”). We intend to repay $550 million of the outstanding
borrowings by February 20, 2009.
On February 18, 2009, we amended our credit facility to replace our tangible net worth covenant with a
minimum interest coverage covenant, among other changes. As part of this amendment our leverage ratio was
tightened, pricing on our borrowings increased by 200 basis points and we paid approximately $6 million in
fees, which will be amortized over the remaining term of the credit facility. Outstanding credit facility
borrowings bear interest reflecting our financial leverage. Based on our December 31, 2008 financial
statements and the new amendment, the interest rate would equate to a base rate plus 287.5 basis points. At
our discretion, we may choose a base rate equal to (1) the greater of the Prime rate or the Federal Funds Rate
plus 50 basis points or LIBOR plus 100 basis points or (2) various durations of LIBOR.
Under the merchant model, we receive cash from travelers at the time of booking and we record these
amounts on our consolidated balance sheets as deferred merchant bookings. We pay our airline suppliers
related to these merchant model bookings generally within two weeks after completing the transaction, but we
are liable for the full value of such transactions until the flights are completed. For most other merchant
bookings, which is primarily our merchant hotel business, we pay after the travelers’ use and subsequent
billing from the hotel suppliers. Therefore, generally we receive cash from the traveler prior to paying our
supplier, and this operating cycle represents a working capital source of cash to us. As long as the merchant
hotel business grows, we expect that changes in working capital will positively impact operating cash flows.
However, due to various factors, including decelerating bookings growth, growth in other business models that
lack the same working capital benefits as the merchant model, and technology and process initiatives which
have resulted in quicker payments to hotel suppliers, we have experienced a reduction in our working capital
impacts to cash flows in 2008 compared to 2007.
Seasonal fluctuations in our merchant hotel bookings affect the timing of our annual cash flows. During
the first half of the year, hotel bookings have traditionally exceeded stays, resulting in much higher cash flow
related to working capital. During the second half of the year, this pattern reverses and cash flows are typically
negative. While we expect the impact of seasonal fluctuations to continue, merchant hotel growth rates or
changes to the model or booking patterns as discussed above may affect working capital, which might
counteract or intensify the anticipated seasonal fluctuations.
As of December 31, 2008, we had a deficit in our working capital of $367 million, compared to a deficit
of $729 million as of December 31, 2007.
We continue to invest in the development and expansion of our operations. Ongoing investments include
but are not limited to improvements to infrastructure, which include our servers, networking equipment and
software, release improvements to our software code and search engine optimization efforts. In addition, we
relocated many of our global offices, including our corporate headquarters, to larger facilities in 2008 to
accommodate the growth of our business. These moves resulted in significant investments to improve the new
facilities. Our future capital requirements may include capital needs for acquisitions or expenditures in support
of our business strategy. In the event we have acquisitions, this may reduce our cash balance and/or increase
our debt.
Our cash flows are as follows:
2008 2007 2006 2008 vs 2007 2007 vs 2006
$ ChangeYear Ended December 31,
(In thousands)
Cash provided by (used in):
Operating activities ........ $520,688 $ 712,069 $ 617,440 $ (191,381) $ 94,629
Investing activities ......... (859,558) (179,506) (113,500) (680,052) (66,006)
Financing activities ........ 464,801 (789,979) 9,772 1,254,780 (799,751)
Effect of foreign exchange rate
changes on cash and cash
equivalents .............. (77,905) 21,528 42,146 (99,433) (20,618)
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