Expedia 2010 Annual Report Download - page 62

(3) 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
periods. Payments may be more than the minimum obligations based on actual use.
(4) Guarantees and LOCs are commitments that represent funding responsibilities that may require our
performance in the event of third-party demands or contingent events. We use our stand-by LOCs primarily
for certain regulatory purposes as well as to secure payment for hotel room transactions to particular hotel
properties. The outstanding balance of our stand-by LOCs directly reduces the amount available to us from
our revolving credit facility. The LOC amounts in the above table represent the amount of commitment
expiration per period. In addition, we provide a guarantee to the aviation authority of certain foreign
countries to protect against potential non-delivery of our packaged travel services sold within those
countries. These countries hold all travel agents and tour companies to the same standard. Our guarantees
also include certain surety bonds related to various company performance obligations.
(5) Excludes $74 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, 2010.
Certain Relationships and Related Party Transactions
For a discussion of certain relationships and related party transactions, see Note 16 — 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, investments,
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 August 2010, we issued $750 million senior unsecured notes with a fixed rate of 5.95%. 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, our 7.456% Notes, and
5.95% Notes were approximately $438 million, $561 million, and $743 million as of December 31, 2010 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 $10 million, our 7.456% Notes by
approximately $16 million, and our 5.95% Notes by approximately $27 million.
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, 2010
and 2009, we had no revolving credit facility borrowings outstanding.
During 2010, we began investing in investment grade corporate debt securities and, as of December 31,
2010, we had $244 million of available for sale investments. Based on a sensitivity analysis, we have determined
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