Expedia 2015 Annual Report Download - page 34

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We work closely with various business partners and rely on third-parties for many systems and
services, and therefore could be harmed by their activities.
We could be harmed by the activities of third parties that we do not control. We work closely with business
partners, including in connection with significant commercial arrangements and joint ventures, and through our
Expedia Affiliate Network business. We also rely on third-party service providers for certain customer care,
fulfillment, processing, systems development, technology and other services, including, increasingly, travel care
and information technology services. If these partners or third-party service providers experience difficulty or fail
to meet our requirements or standards or the requirements or standards of governmental authorities, it could
damage our reputation, make it difficult for us to operate some aspects of our business, or expose us to liability
for their actions which could have an adverse impact on our business and financial performance. Likewise, if the
third-party service providers on which we rely were to cease operations, temporarily or permanently, face
financial distress or other business disruption, we could suffer increased costs and delays in our ability to provide
similar services until an equivalent service provider could be found or we could develop replacement technology
or operations, any of which could also have an adverse impact on our business and financial performance.
We are exposed to various counterparty risks.
We are exposed to the risk that various counterparties, including financial entities, will fail to perform. This
creates risk in a number of areas, including with respect to our bank deposits and investments, foreign exchange
risk management, insurance coverages, and letters of credit. As it relates to deposits, as of December 31, 2015,
we held cash in bank depository accounts of approximately $1.6 billion (primarily in Bank of America, BNP
Paribas, HSBC, JPMorgan Chase, Royal Bank of Canada and Standard Chartered Bank) and held time deposits
of approximately $29 million at financial institutions including, JPMorgan Chase and Nordea. Additionally,
majority-owned subsidiaries held cash of approximately $71 million (primarily in Deutsche Bank and Citibank).
As it relates to foreign exchange, as of December 31, 2015, we were party to forward contracts with a notional
value of approximately $1.9 billion, the fair value of which was approximately $8 million. The counterparties to
these contracts were Credit Suisse International, Standard Chartered Bank, Goldman Sachs Bank, JPMorgan
Chase, Bank of America, US Bank, Barclays Bank PLC, BNP Paribas, Wells Fargo, Royal Bank of Canada,
Societe Generale, Bank of Tokyo-Mitsubishi, Citibank and HSBC. We employ forward contracts to hedge a
portion of our exposure to foreign currency exchange rate fluctuations. At the end of the deposit term or upon the
maturity of the forward contracts, the counterparties are obligated, or potentially obligated in the case of forward
contracts, to return our funds or pay us net settlement values. If any of these counterparties were to liquidate,
declare bankruptcy or otherwise cease operations, it may not be able to satisfy its obligations under these time
deposits or forward contracts.
In addition, due to instability in the economy we also face increased credit risk and payment delays from our
non-financial contract counterparties.
We have significant indebtedness, which could adversely affect our business and financial condition.
We have outstanding long-term indebtedness with a face value of $3.2 billion and we have a $1.5 billion
unsecured revolving credit facility. Risks relating to our indebtedness include:
• Increasing our vulnerability to general adverse economic and industry conditions;
• Requiring us to dedicate a portion of our cash flow from operations to payments on our indebtedness,
thereby reducing the availability of cash flow to fund working capital, capital expenditures,
acquisitions and investments and other general corporate purposes;
• Making it difficult for us to optimally capitalize and manage the cash flow for our businesses;
• Limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in
which we operate;
• Placing us at a competitive disadvantage compared to our competitors that have less debt; and
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