Expedia 2009 Annual Report Download - page 60

As of December 31, 2009, we maintained a $1 billion revolving credit facility of which $958 million was
available. This represents the total $1 billion facility less $42 million of outstanding stand-by letters of credit
(“LOC”). During 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.
Outstanding credit facility borrowings bore interest reflecting our financial leverage. Based on our December 31,
2009 financial statements, the interest rate would equate to a base rate plus 262.5 basis points. At our discretion,
we could 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.
In February 2010, we reached agreement on a new $750 million, three-year revolving credit facility,
replacing our prior credit facility. Pricing is based on the Company’s credit ratings, with drawn amounts bearing
interest at LIBOR plus 300 basis points, and undrawn amounts bearing interest at 50 basis points. Financial
covenants remain the same under the new facility. We incurred approximately $8 million in fees, which will be
amortized over the life of the credit facility. We currently have no borrowings outstanding under the facility.
Our credit ratings are periodically reviewed by rating agencies. In October 2009, our long-term ratings from
Moody’s and Standard and Poor’s were raised to Ba1 and BBB-, respectively. Both agencies issued a stable
ratings outlook at that time. Changes in our operating results, cash flows, or financial position could impact the
ratings assigned by the various rating agencies. Should our credit ratings be adjusted downward, we may incur
higher costs to borrow, which could have a material impact on our financial condition and results of operations.
On February 10, 2010, the Executive Committee, acting on behalf of the Board of Directors, declared a
quarterly cash dividend of $0.07 per share of outstanding common stock, the first dividend in our history. Future
declarations of dividends are subject to final determination of our Board of Directors. Based on our current
shares outstanding, we estimate this quarterly dividend payment will be approximately $20 million.
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 a few 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. If this business model
declines relative to our other businesses, or if there are changes to the model or booking patterns which compress
the time of receipts of cash from travelers to payments to suppliers, our working capital benefits could be
reduced.
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, 2009, we had a deficit in our working capital of $610 million, compared to a deficit of
$367 million as of December 31, 2008 primarily due to the repayment of $650 million of borrowings under our
credit facility and capital expenditures, partially offset by cash generated from operations during 2009.
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 marketing and optimization efforts. Our future
capital requirements may include capital needs for acquisitions, share repurchases or expenditures in support of
our business strategy. In the event we have acquisitions or share repurchases, this may reduce our cash balance
and/or increase our debt.
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