Expedia 2009 Annual Report Download - page 63

(5) Excludes $190 million of unrecognized tax benefits for which we cannot make a reasonably reliable
estimate 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, 2009.
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 $431 million and $546 million as of December 31, 2009 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 $11 million and our 7.456% Notes by
approximately $18 million.
In July 2005, we entered into a $1 billion revolving credit facility. Interest on the facility was determined by
market interest rates plus a spread based on our financial leverage. In February 2010, we entered into a new $750
million revolving credit facility, which bears interest based on market rates plus a spread determined by our
credit ratings. 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, 2009 and 2008, our outstanding borrowing
under the prior revolving credit facility were $0 and $650 million. We currently have no borrowings outstanding
under the new facility.
We did not experience any significant impact from changes in interest rates for the years ended
December 31, 2009, 2008 or 2007.
Foreign Exchange Risk
We conduct business in certain international markets, primarily in Australia, Canada, China and the
European Union. Because we operate in international markets, we have exposure to different economic climates,
political arenas, tax systems and regulations that could affect foreign exchange rates. Our primary exposure to
foreign currency risk relates to transacting in foreign currency and recording the activity in U.S. dollars. Changes
in exchange rates between the U.S. dollar and these other currencies will result in transaction gains or losses,
which we recognize in our consolidated statements of operations.
To the extent practicable, we minimize our foreign currency exposures by maintaining natural hedges
between our current assets and current liabilities in similarly denominated foreign currencies. Additionally,
during 2008, we began using foreign currency forward contracts to economically hedge certain merchant revenue
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