Expedia 2015 Annual Report Download - page 101

Derivative Instruments
Derivative instruments are carried at fair value on our consolidated balance sheets. The fair values of the
derivative financial instruments generally represent the estimated amounts we would expect to receive or pay
upon termination of the contracts as of the reporting date.
At December 31, 2015 and 2014, our derivative instruments primarily consisted of foreign currency forward
contracts. 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. 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. Our foreign currency forward contracts are typically short-term and, as they do not
qualify for hedge accounting treatment, we classify the changes in their fair value in other, net. We do not hold or
issue financial instruments for speculative or trading purposes.
In June 2015, we issued Euro 650 million of registered senior unsecured notes that are due in June 2022 and
bear interest at 2.5% (the “2.5% Notes”). The aggregate principal value of the 2.5% Notes is designated as a
hedge of our net investment in certain Euro functional currency subsidiaries. The notes are measured at Euro to
U.S. Dollar exchange rates at each balance sheet date and transaction gains or losses due to changes in rates are
recorded in accumulated other comprehensive income (loss) (“OCI”). The Euro-denominated net assets of these
subsidiaries are translated into U.S. Dollars at each balance sheet date, with effects of foreign currency changes
also reported in accumulated OCI Since the notional amount of the recorded Euro-denominated debt is less than
the notional amount of our net investment, we do not expect to incur any ineffectiveness on this hedge.
Foreign Currency Translation and Transaction Gains and Losses
Certain of our operations outside of the United States use the related local currency as their functional
currency. We translate revenue and expense at average rates of exchange during the period. We translate assets
and liabilities at the rates of exchange as of the consolidated balance sheet dates and include foreign currency
translation gains and losses as a component of accumulated OCI. Due to the nature of our operations and our
corporate structure, we also have subsidiaries that have significant transactions in foreign currencies other than
their functional currency. We record transaction gains and losses in our consolidated statements of operations
related to the recurring remeasurement and settlement of such transactions.
To the extent practicable, we attempt to minimize this exposure by maintaining natural hedges between our
current assets and current liabilities of similarly denominated foreign currencies. Additionally, as discussed
above, 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.
Debt Issuance Costs
We defer costs we incur to issue debt and amortize these costs to interest expense over the term of the debt
or, when the debt can be redeemed at the option of the holders, over the term of the redemption option.
Marketing Promotions
We periodically provide incentive offers to our customers to encourage booking of travel products and
services. Generally, our incentive offers are as follows:
Current Discount Offers. These promotions include dollar off discounts to be applied against current
purchases. We record the discounts as reduction in revenue at the date we record the corresponding revenue
transaction.
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