Expedia 2008 Annual Report Download - page 61

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(3) The operating leases are for office space and related office equipment. We account for these leases on a
monthly basis. Certain leases contain periodic rent escalation adjustments and renewal options. Operating
lease obligations expire at various dates with the latest maturity in 2018.
(4) Our purchase obligations represent the minimum obligations we have under agreements with certain of our
vendors and marketing partners. These minimum obligations are less than our projected use for those peri-
ods. Payments may be more than the minimum obligations based on actual use.
(5) Guarantees and LOCs are commitments that represent funding responsibilities that may require our perfor-
mance in the event of third-party demands or contingent events. These commitments consist of stand-by
LOCs and guarantees. We use our stand-by LOCs to secure payment for hotel room transactions to partic-
ular hotel properties. The outstanding balance of our stand-by LOCs directly reduces the amount available
to us from our revolving credit facility. In addition, we provide a guarantee to the aviation authority of
one country to protect against potential non-delivery of our packaged travel services sold within that coun-
try. This country holds all travel agents and tour companies to the same standard. The letter of credit
amounts in the above table represent the amount of commitment expiration per period.
(6) Excludes $190 million of unrecognized tax benefits for which we cannot make a reasonably reliable esti-
mate of the amount and period of payment.
Other than the items described above, we do not have any off-balance sheet arrangements as of
December 31, 2008.
Certain Relationships and Related Party Transactions
For a discussion of certain relationships and related party transactions, see Note 15 — Related Party
Transactions in the notes to consolidated financial statements.
Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Management
Market risk is the potential loss from adverse changes in interest rates, foreign exchange rates and market
prices. Our exposure to market risk includes our long-term debt, our revolving credit facility, derivative
instruments and cash and cash equivalents, accounts receivable, intercompany receivables, merchant accounts
payable and deferred merchant bookings denominated in foreign currencies. We manage our exposure to these
risks through established policies and procedures. Our objective is to mitigate potential income statement, cash
flow and market exposures from changes in interest and foreign exchange rates.
Interest Rate Risk
In June 2008, we issued $400 million senior unsecured notes with a fixed rate of 8.5%. In August 2006,
we issued $500 million senior unsecured notes with a fixed rate of 7.456%. As a result, if market interest rates
decline, our required payments will exceed those based on market rates. The fair values of our 8.5% Notes
and our 7.456% Notes were approximately $280 million and $365 million as of December 31, 2008 as
calculated based on quoted market prices at year end. A 50 basis point increase or decrease in interest rates
would decrease or increase the fair value of our 8.5% Notes by approximately $7 million and our
7.456% Notes by approximately $6 million.
In July 2005, we entered into a $1 billion revolving credit facility. The revolving credit facility bears
interest based on market interest rates plus a spread, which is determined based on our financial leverage. The
weighted average interest rate was 1.34% as of December 31, 2008. Because our interest rate is tied to a
market rate, we will be susceptible to fluctuations in interest rates if, consistent with our practice to date, we
do not hedge the interest rate exposure arising from any borrowings under our revolving credit facility. As of
December 31, 2008 and 2007, our outstanding borrowing under the revolving credit facility were $650 million
and $585 million. A hypothetical 10% increase in market rates would increase our interest expense by less
than $1 million.
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