Expedia 2013 Annual Report Download - page 72

Interest Rate Risk
In August 2006, we issued $500 million senior unsecured notes with a fixed rate of 7.456%. In August
2010, we issued $750 million senior unsecured notes with a fixed rate of 5.95%. As a result, if market interest
rates decline, our required payments will exceed those based on market rates. The fair values of our
7.456% Notes and 5.95% Notes were approximately $587 million and $816 million as of December 31, 2013 as
calculated based on quoted market prices in less active markets at year end. A 50 basis point increase or decrease
in interest rates would decrease or increase the fair value of our 7.456% Notes by approximately $12 million and
our 5.95% Notes by approximately $22 million.
We maintain a $1 billion 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, 2013 and 2012, we had no
revolving credit facility borrowings outstanding.
We invest in investment grade corporate debt securities and, as of December 31, 2013, we had $200 million
of available for sale investments. Based on a sensitivity analysis, we have determined that a hypothetical 1.00%
(100 basis points) increase in bond prices would have resulted in a decrease in the fair values of our investments
of approximately $2 million as of December 31, 2013.Such losses would only be realized if we sold the
investments prior to maturity.
We did not experience any significant impact from changes in interest rates for the years ended
December 31, 2013, 2012 or 2011.
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, we
use foreign currency forward contracts to economically hedge certain merchant revenue exposures and in lieu of
holding certain foreign currency cash 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, 2013 and 2012, we had a net forward asset of $2 million
included in prepaid expenses and other current assets and a net forward liability of $3 million included 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
66