Expedia 2009 Annual Report Download - page 64

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exposures and in lieu of holding certain foreign currency cash and accounts receivable for the purpose of
economically hedging our foreign currency-denominated operating liabilities. These instruments are typically
short-term and are recorded at fair value with gains and losses recorded in other, net. As of December 31, 2009
and 2008, we had a net forward asset of less than $1 million recorded in prepaid expenses and other current
assets and a net forward liability of $1 million recorded in accrued expenses and other current liabilities. We may
enter into additional foreign exchange derivative contracts or other economic hedges in the future. Our goal in
managing our foreign exchange risk is to reduce to the extent practicable our potential exposure to the changes
that exchange rates might have on our earnings, cash flows and financial position. We make a number of
estimates in conducting hedging activities including in some cases the level of future bookings, cancellations,
refunds, customer stay patterns and payments in foreign currencies. In the event those estimates differ
significantly from actual results, we could experience greater volatility as a result of our hedges.
Future net transaction gains and losses are inherently difficult to predict as they are reliant on how the
multiple currencies in which we transact fluctuate in relation to the U.S. dollar, the relative composition and
denomination of current assets and liabilities each period, and our effectiveness at forecasting and managing,
through balance sheet netting or the use of derivative contracts, such exposures. As an example, if the foreign
currencies in which we hold net asset balances were to all weaken 10% against the U.S. dollar and foreign
currencies in which we hold net liability balances were to all strengthen 10% against the U.S. dollar, we would
recognize foreign exchange losses of approximately $1 million based on our foreign currency forward positions
(excluding the impact of forward positions economically hedging our merchant revenue exposures) and the net
asset or liability balances of our foreign denominated cash and cash equivalents, accounts receivable, deferred
merchant bookings and merchant accounts payable balances as of December 31, 2009. As the net composition of
these balances fluctuate frequently, even daily, as do foreign exchange rates, the example loss could be
compounded or reduced significantly within a given period.
During 2009, 2008 and 2007, we recorded net foreign exchange rate losses of $30 million ($20 million
excluding the contracts economically hedging our forecasted merchant revenue), $47 million, and $22 million.
As we increase our operations in international markets, our exposure to fluctuations in foreign currency exchange
rates increases. The economic impact to us of foreign currency exchange rate movements is linked to variability
in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could
cause us to adjust our financing and operating strategies.
Part II. Item 8. Consolidated Financial Statements and Supplementary Data
The Consolidated Financial Statements and Schedule listed in the Index to Financial Statements, Schedules
and Exhibits on page F-1 are filed as part of this report.
Part II. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Part II. Item 9A. Controls and Procedures
Changes in Internal Control over Financial Reporting.
There were no changes to our internal control over financial reporting that occurred during the quarter ended
December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Evaluation of Disclosure Controls and Procedures.
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), our management, including our Chairman and Senior Executive, Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and
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