View Filing Data

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 421,166	$ 358,967
Restricted cash	3,851	1,050
Short-term investments	1,983,467	1,303,251
Accounts receivable, net of allowance for doubtful accounts of $6,833 and $6,353 respectively	345,339	162,426
Prepaid expenses and other current assets	95,906	61,211
Deferred income taxes	32,248	70,559
Total current assets	2,881,977	1,957,464
Property and equipment, net	53,843	39,739
Intangible assets, net	210,693	232,030
Goodwill	510,154	510,894
Deferred income taxes	137,462	151,408
Other assets	21,444	14,418
Total assets	3,815,573	2,905,953
Current liabilities:
Accounts payable	169,545	90,311
Accrued expenses and other current liabilities	305,745	243,767
Deferred merchant bookings	213,802	136,915
Convertible debt (see Note 9)	492,169	175
Total current liabilities	1,181,261	471,168
Deferred income taxes	47,448	56,440
Other long-term liabilities	37,119	42,990
Convertible debt (see Note 9)		476,230
Total liabilities	1,265,828	1,046,828
Redeemable noncontrolling interests (see Note 12)	76,615	45,751
Convertible debt (see Note 9)	82,831	38
Stockholders' equity:
Common stock, $0.008 par value; authorized 1,000,000,000 shares, 57,561,537 and 56,567,236 shares issued, respectively	446	438
Treasury stock, 7,778,107 and 7,421,128 shares, respectively	(802,784)	(640,415)
Additional paid-in capital	2,394,034	2,417,092
Accumulated earnings	858,438	69,110
Accumulated other comprehensive loss	(59,835)	(32,889)
Total stockholders' equity	2,390,299	1,813,336
Total liabilities and stockholders' equity	$ 3,815,573	$ 2,905,953

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2011	Dec. 31, 2010
CONSOLIDATED BALANCE SHEETS
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 6,833	$ 6,353
Common stock, par value (in dollars per share)	$ 0.008	$ 0.008
Common stock, authorized shares	1,000,000,000	1,000,000,000
Common stock, shares issued	57,561,537	56,567,236
Treasury stock, shares	7,778,107	7,421,128

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Merchant revenues	$ 573,230	$ 494,473	$ 1,558,564	$ 1,309,407
Agency revenues	876,601	504,010	1,797,204	1,034,765
Other revenues	2,973	3,274	9,071	9,419
Total revenues	1,452,804	1,001,757	3,364,839	2,353,591
Cost of revenues	352,656	335,569	1,009,657	923,032
Gross profit	1,100,148	666,188	2,355,182	1,430,559
Operating expenses:
Advertising - Online	279,926	172,727	701,317	418,354
Advertising - Offline	8,035	7,773	29,463	29,684
Sales and marketing	47,124	33,060	122,931	85,663
Personnel, including stock-based compensation of $13,298, $21,176, $40,404 and $48,550, respectively	94,463	82,007	255,450	194,635
General and administrative	31,717	15,730	87,334	56,224
Information technology	8,548	5,347	23,456	14,850
Depreciation and amortization	13,957	12,775	40,087	33,312
Total operating expenses	483,770	329,419	1,260,038	832,722
Operating income	616,378	336,769	1,095,144	597,837
Other income (expense):
Interest income	2,526	918	6,075	2,713
Interest expense	(7,879)	(8,293)	(23,389)	(22,366)
Foreign currency transactions and other	827	(10,715)	(8,696)	(12,806)
Total other income (expense)	(4,526)	(18,090)	(26,010)	(32,459)
Earnings before income taxes	611,852	318,679	1,069,134	565,378
Income tax expense	(138,966)	(94,119)	(235,959)	(172,347)
Net income	472,886	224,560	833,175	393,031
Less: net income attributable to noncontrolling interests	3,387	1,580	2,520	1,219
Net income applicable to common stockholders	$ 469,499	$ 222,980	$ 830,655	$ 391,812
Net income applicable to common stockholders per basic common share (in dollars per share)	$ 9.43	$ 4.59	$ 16.74	$ 8.24
Weighted average number of basic common shares outstanding (in shares)	49,779	48,570	49,607	47,565
Net income applicable to common stockholders per diluted common share (in dollars per share)	$ 9.17	$ 4.41	$ 16.23	$ 7.70
Weighted average number of diluted common shares outstanding (in shares)	51,184	50,559	51,193	50,917

CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
CONSOLIDATED STATEMENTS OF OPERATIONS
Personnel, stock-based compensation	$ 13,298	$ 21,176	$ 40,404	$ 48,550

- Definition

Represents the expense recognized during the period arising from equity-based compensation arrangements (for example, shares of stock, unit, stock options or other equity instruments) with employees, directors and certain consultants qualifying for treatment as employees.

+ References + Details

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - 9 months ended Sep. 30, 2011 - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Treasury Stock	Additional Paid-in Capital	Accumulated Earnings	Accumulated Other Comprehensive Income (Loss)	Comprehensive Income
Balance at Dec. 31, 2010	$ 1,813,336	$ 438	$ (640,415)	$ 2,417,092	$ 69,110	$ (32,889)
Balance (in shares) at Dec. 31, 2010		56,567	(7,421)
Increase (Decrease) in Stockholders' Equity
Net income applicable to common stockholders	830,655				830,655		$ 830,655
Unrealized gain on marketable securities, net of tax of $112	180					180	180
Currency translation adjustments, net of tax of $4,598	(27,126)					(27,126)	(27,126)
Comprehensive income	803,709						$ 803,709
Redeemable noncontrolling interests fair value adjustments	(41,327)				(41,327)
Reclassification adjustment for convertible debt in mezzanine	(82,793)			(82,793)
Conversion of debt (in shares)		5
Exercise of stock options and vesting of restricted stock units and/or performance share units	3,991	$ 8		3,983
Exercise of stock options and vesting of restricted stock units and/or performance share units (in shares)		990
Repurchase of common stock	(162,369)		$ (162,369)
Repurchase of common stock (in shares)			(357)
Stock-based compensation and other stock-based payments	40,756			40,756
Excess tax benefit on stock-based compensation	14,996			14,996
Balance at Sep. 30, 2011	$ 2,390,299	$ 446	$ (802,784)	$ 2,394,034	$ 858,438	$ (59,835)
Balance (in shares) at Sep. 30, 2011		57,562	(7,778)

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) $ in Thousands	9 Months Ended
	Sep. 30, 2011 USD ($)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized gain on marketable securities, tax	$ 112
Currency translation adjustments, tax	$ 4,598

- Definition

Tax effect on the change in the balance sheet adjustment that results from the process of translating subsidiary financial statements and foreign equity investments into reporting currency of the reporting entity for the period being reported.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 130
-Paragraph 23, 24, 25, 26
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 130
-Paragraph 25
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 52
-Paragraph 31
-Subparagraph c
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 830
-SubTopic 30
-Section 45
-Paragraph 20
-Subparagraph (c)
-URI http://asc.fasb.org/extlink&oid=6915805&loc=d3e32211-110900

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 12
-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e640-108580

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 51
-Paragraph 38
-Subparagraph c(3)
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

+ Details

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
OPERATING ACTIVITIES:
Net income	$ 833,175	$ 393,031
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	14,801	12,068
Amortization	25,286	24,193
Provision for uncollectible accounts, net	7,641	5,737
Deferred income taxes	34,170	33,650
Stock-based compensation expense and other stock-based payments	40,756	48,628
Amortization of debt issuance costs	1,676	2,785
Amortization of debt discount	15,944	14,948
Loss on early extinguishment of debt	32	11,334
Changes in assets and liabilities:
Accounts receivable	(202,087)	(112,755)
Prepaid expenses and other current assets	5,981	(8,034)
Accounts payable, accrued expenses and other current liabilities	292,160	169,898
Other	(9,564)	1,897
Net cash provided by operating activities	1,059,971	597,380
INVESTING ACTIVITIES:
Purchase of investments	(2,230,661)	(1,030,011)
Proceeds from sale of investments	1,529,998	665,925
Additions to property and equipment	(29,770)	(14,471)
Acquisitions and other equity investments, net of cash acquired	(67,973)	(110,972)
Proceeds from settlement of foreign currency contracts	5,205	44,564
Payments on foreign currency contracts	(42,032)	(4,283)
Change in restricted cash	(2,920)	156
Net cash used in investing activities	(838,153)	(449,092)
FINANCING ACTIVITIES:
Proceeds from the issuance of convertible debt		575,000
Payment of debt issuance costs		(13,334)
Payments related to conversion of convertible debt	(213)	(295,398)
Repurchase of common stock	(162,369)	(125,653)
Payments to purchase subsidiary shares from noncontrolling interests	(12,986)
Proceeds from the sale of subsidiary shares to noncontrolling interests		4,311
Proceeds from exercise of stock options	3,991	24,623
Excess tax benefit on stock-based compensation	14,996	4,975
Net cash (used in) provided by financing activities	(156,581)	174,524
Effect of exchange rate changes on cash and cash equivalents	(3,038)	8,168
Net increase in cash and cash equivalents	62,199	330,980
Cash and cash equivalents, beginning of period	358,967	202,141
Cash and cash equivalents, end of period	421,166	533,121
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for income taxes	99,376	61,568
Cash paid during the period for interest	7,443	4,639
Non-cash fair value increase for redeemable noncontrolling interests	$ 41,327	$ 4,118

BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2011

BASIS OF PRESENTATION

BASIS OF PRESENTATION

1. BASIS OF PRESENTATION

Priceline.com Incorporated (“priceline.com” or the “Company”) is responsible for the Unaudited Consolidated Financial Statements included in this document. The Unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operating results. The Company prepared the Unaudited Consolidated Financial Statements following the requirements of the Securities and Exchange Commission for interim reporting. As permitted under those rules, the Company condensed or omitted certain footnotes or other financial information that are normally required by GAAP for annual financial statements. These statements should be read in combination with the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

The Unaudited Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries and its majority-owned interest in TravelJigsaw Holdings Limited since its acquisition in May 2010. All intercompany accounts and transactions have been eliminated in consolidation. The functional currency of the Company’s foreign subsidiaries is generally the respective local currency. Assets and liabilities are translated into U.S. Dollars at the rate of exchange existing at the balance sheet date. Income statement amounts are translated at the average exchange rates for the period. Translation gains and losses are included as a component of “Accumulated other comprehensive loss” in the accompanying Unaudited Consolidated Balance Sheets. Foreign currency transaction gains and losses are included in the Unaudited Consolidated Statements of Operations in “Foreign currency transactions and other.”

Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year.

Recent Accounting Pronouncements

In May 2010, the Financial Accounting Standards Board (“FASB”) issued amended guidance on fair value to largely achieve common fair value measurement and disclosure requirements between U.S. GAAP and International Financial Reporting Standards (“IFRS”). The new accounting guidance does not extend the use of fair value but rather provides guidance about how fair value should be determined. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS. Amendments that clarify the Board’s intent under existing requirements include: (a) use of the highest and best use and valuation premise concept should be limited to nonfinancial assets; (b) disclosure should include quantitative information about the unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy; and (c) the fair value of an instrument classified in an entity’s equity should be valued from the perspective of a market participant that holds that instrument as an asset. The amended guidance changes requirements as follows: (a) disclosures are expanded, particularly those relating to fair value measurements based on unobservable inputs, (b) fair value measurements for financial assets and liabilities based on a net position are permitted if market or credit risks are managed on a net basis and other criteria are met, and (c) premiums and discounts are allowed only if a market participant would also include them in the fair value measurement. This accounting update is effective for public companies for interim or annual periods beginning after December 15, 2011, with early adoption permitted. The Company does not expect the adoption of this new accounting guidance will impact its accounting policies and practices or disclosures.

In June 2010, the FASB issued amended accounting guidance on the presentation of other comprehensive income in financial statements by requiring comprehensive income to be reported in either a single statement or in two consecutive statements reporting net income and other comprehensive income. The accounting guidance did not change the items that constitute net income or other comprehensive income, the timing of when other comprehensive income is reclassified to net income, or the earnings per share computation. The accounting update requires retrospective application. Public entities will be required to adopt the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company will comply with the change in presentation of other comprehensive income in the financial statements beginning in the first quarter of 2012.

In September 2011, the FASB issued an accounting update, which amends the guidance on testing goodwill for impairment. Under the revised guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. If, based on the qualitative factors, it is more-likely-than not that the fair value of the reporting unit is less than its carrying value, then the unchanged two-step approach previously used would be required. The new accounting guidance does not change how goodwill is calculated, how goodwill is assigned to the reporting unit, or the requirements for testing goodwill annually or when events and circumstances warrant testing. The accounting update is effective for annual and interim periods beginning after December 15, 2011. Early adoption of the update is permitted. During the three months ended September 30, 2011, the Company performed its annual quantitative goodwill impairment testing, and concluded that the estimated fair value for each reporting unit substantially exceeds its respective carrying value. This new accounting guidance will not have a significant impact on the Company.

SUBSEQUENT EVENT

9 Months Ended

Sep. 30, 2011

SUBSEQUENT EVENT

SUBSEQUENT EVENT

2. SUBSEQUENT EVENT

In October 2011, the Company entered into a $1 billion five-year unsecured revolving credit facility with a group of lenders. Borrowings under the revolving credit facility will bear interest, at the Company’s option, at a rate per annum equal to either (i) the adjusted LIBOR for the interest period in effect for such borrowing plus an applicable margin ranging from 1.00% to 1.50%; or (ii) the greatest of (a) JPMorgan Chase Bank, National Association’s prime lending rate, (b) the federal funds rate plus ½ of 1%, and (c) an adjusted LIBOR for an interest period of one month plus 1.00%, plus an applicable margin ranging from 0.00% to 0.50%. Undrawn balances available under the revolving credit facility are subject to commitment fees at the applicable rate ranging from 0.10% to 0.25%.

The revolving credit facility provides for the issuance of up to $100.0 million of letters of credit as well as borrowings of up to $50 million on same-day notice, referred to as swingline loans. Borrowings under the revolving credit facility may be made in U.S. dollars, Euros, Pounds Sterling and any other foreign currency agreed to by the lenders. The proceeds of loans made under the facility will be used for working capital and general corporate purposes. As of November 7, 2011, there were no borrowings under the facility, and approximately $1.8 million of letters of credit were issued under the facility.

Upon entering into this new revolving credit facility, the Company terminated its $175.0 million revolving credit facility entered into in 2007 (see Note 9).

STOCK-BASED EMPLOYEE COMPENSATION

9 Months Ended

Sep. 30, 2011

STOCK-BASED EMPLOYEE COMPENSATION

STOCK-BASED EMPLOYEE COMPENSATION

3. STOCK-BASED EMPLOYEE COMPENSATION

The Company has adopted stock compensation plans which provide for grants of share based compensation as incentives and rewards to encourage employees, officers, and directors to contribute towards the long-term success of the Company. Stock-based compensation cost included in personnel expenses in the Unaudited Consolidated Statements of Operations was approximately $13.3 million and $21.2 million, and $40.4 million and $48.6 million for the three and nine months ended September 30, 2011 and 2010, respectively.

During the nine months ended September 30, 2011, stock options were exercised for 145,015 shares of common stock with a weighted average exercise price per share of $27.52. As of September 30, 2011, the aggregate number of stock options outstanding and exercisable was 210,453 shares, with a weighted average exercise price per share of $20.88 and a weighted average remaining term of 2.5 years.

The following table summarizes the activity of unvested restricted stock, restricted stock units and performance share units (“Share-Based Awards”) during the nine months ended September 30, 2011.

Share-Based Awards	Shares		Weighted Average Grant Date Fair Value
Unvested at December 31, 2010	1,530,647		$	130.93
Granted	117,790		$	465.07
Vested	(853,480	)	$	113.36
Performance Share Units Adjustment	(13,411	)	$	125.56
Forfeited	(70,179	)	$	176.95
Unvested at September 30, 2011	711,367		$	202.90

As of September 30, 2011, there was $74.9 million of total future compensation cost related to unvested share-based awards to be recognized over a weighted-average period of 1.9 years.

During the three months ended September 30, 2011, the Company made broad-based grants of 607 restricted stock units (“RSUs”) that generally vest over four years. The share-based awards granted had a total grant date fair value of $0.3 million based upon the grant date fair value per share of $500.16.

During the three months ended June 30, 2011, the Company made broad-based grants of 191 RSUs that generally vest over four years. The share-based awards granted had a total grant date fair value of $0.1 million based upon the grant date fair value per share of $523.96.

During the three months ended March 31, 2011, the Company made broad-based grants of 39,848 RSUs that generally vest after three years. The share based awards granted had a total grant date fair value of $18.5 million based upon the grant date fair value per share of $464.79.

In addition, during the three months ended March 31, 2011, the Company granted 77,144 performance share units to certain executives. The performance share units had a total grant date fair value of $35.9 million based upon the grant date fair value per share of $464.79. The performance share units are payable in shares of the Company’s common stock upon vesting. Subject to certain exceptions for terminations related to a change in control and terminations other than for “cause,” for “good reason” or on account of death or disability, the executive officers must continue their service through March 1, 2014 in order to receive any shares. Stock-based compensation for performance share units is recorded based on the estimated probable outcome at the end of the performance period. The actual number of shares to be issued on the vesting date will be determined upon completion of the performance period which ends December 31, 2013. As of September 30, 2011, the estimated number of probable shares to be issued under this 2011 grant is a total of 77,144 shares. If the maximum performance thresholds are met at the end of the performance period, a maximum number of 164,508 total shares could be issued. If the minimum performance thresholds are not met, 22,796 shares would be issued at the end of the performance period.

2010 Performance Shares Units

During the year ended December 31, 2010, the Company granted 110,430 performance shares units with a grant date fair value of $26.0 million, based on a weighted average grant date fair value per share of $235.34. The actual number of shares will be determined upon completion of the performance period which ends December 31, 2012.

At September 30, 2011, there were 93,745 unvested performance share units outstanding, net of actual forfeitures and vesting. As of September 30, 2011, the number of shares estimated to be issued at the end of the performance period is a total of 216,793 shares. If the maximum performance thresholds are met at the end of the performance period, a maximum of 226,505 total shares could be issued.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 123R
-Paragraph 64, 65, A240
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Statement of Position (SOP)
-Number 93-6
-Paragraph 53
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 14

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 50
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901

Reference 6: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
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-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901

Reference 7: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
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-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 40
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929

+ Details

NET INCOME PER SHARE

9 Months Ended

Sep. 30, 2011

NET INCOME PER SHARE

NET INCOME PER SHARE

4. NET INCOME PER SHARE

The Company computes basic net income per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is based upon the weighted average number of common and common equivalent shares outstanding during the period.

Common equivalent shares related to stock options, restricted stock, restricted stock units, and performance share units are calculated using the treasury stock method. Performance share units are included in the weighted average common equivalent shares based on the number of shares that would be issued if the end of the reporting period were the end of the performance period and if the result would be dilutive.

The Company’s convertible debt issues have net share settlement features requiring the Company upon conversion to settle the principal amount of the debt for cash and the conversion premium for cash or shares of the Company’s common stock, at the Company’s option. The convertible notes are included in the calculation of diluted net income per share if their inclusion is dilutive under the treasury stock method.

A reconciliation of the weighted average number of shares outstanding used in calculating diluted earnings per share is as follows (in thousands):

	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2011	2010	2011	2010

Weighted average number of basic common shares outstanding	49,779	48,570	49,607	47,565
Weighted average dilutive stock options, restricted stock, restricted stock units and performance share units	622	1,402	854	1,524
Assumed conversion of convertible debt	783	587	732	1,828
Weighted average number of diluted common and common equivalent shares outstanding	51,184	50,559	51,193	50,917
Anti-dilutive potential common shares	1,558	2,629	1,441	2,582

Anti-dilutive potential common shares for the three and nine months ended September 30, 2011 includes approximately 1.1 million shares and 1.2 million shares, respectively, which could be issued under the Company’s convertible debt if the Company experiences substantial increases in its common stock price. Under the treasury stock method, the convertible debt will generally have a dilutive impact on net income per share if the Company’s average stock price for the period exceeds the conversion price for the convertible debt.

The Company has Conversion Spread Hedges outstanding at September 30, 2011, which were designed to reduce potential dilution upon conversion of the Company’s 0.75% Convertible Senior Notes due 2013 (the “2013 Notes”) at their stated maturity date (see Note 9). Since the beneficial impact of the Conversion Spread Hedges was anti-dilutive, it was excluded from the calculation of net income per share.

INVESTMENTS

9 Months Ended

Sep. 30, 2011

INVESTMENTS

INVESTMENTS

5. INVESTMENTS

The following table summarizes, by major security type, the Company’s short-term investments as of September 30, 2011 (in thousands):

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale securities
Foreign government securities	$	1,142,648	$	817	$	(386	)	$	1,143,079
U.S. government securities	757,002		357		(55		)	757,304
U.S. agency securities	52,538		9		(2		)	52,545
U.S. corporate notes	30,365		174		—			30,539
Total	$	1,982,553	$	1,357	$	(443	)	$	1,983,467

As of September 30, 2011, foreign government securities included investments in debt securities issued by the governments of Germany, the Netherlands, France and the United Kingdom. The U.S. corporate notes are guaranteed by the federal government.

The following table summarizes, by major security type, the Company’s short-term investments as of December 31, 2010 (in thousands):

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale securities
Foreign government securities	$	682,841	$	558	$	(81	)	$	683,318
U.S. government securities	469,116		158		(66		)	469,208
U.S. agency securities	109,920		15		(30		)	109,905
U.S. corporate notes	40,845		—		(25		)	40,820
Total	$	1,302,722	$	731	$	(202	)	$	1,303,251

There were no material realized gains or losses related to investments for the three or nine months ended September 30, 2011 or 2010.

- Definition

Tabular disclosure of available-for-sale securities which consist of all investments in certain debt and equity securities neither classified as trading or held-to-maturity securities. A debt security represents a creditor relationship with an enterprise. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Emerging Issues Task Force (EITF)
-Number 03-1
-Paragraph 21
-Subparagraph a, b
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name FASB Staff Position (FSP)
-Number FAS115-1/124-1
-Paragraph 17
-Subparagraph a, b
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 115
-Paragraph 19, 20, 21
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 320
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-Section 50
-Paragraph 7
-URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27337-111563

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+ Details

FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2011

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

6. FAIR VALUE MEASUREMENTS

Financial assets and liabilities carried at fair value as of September 30, 2011 are classified in the table below in the categories described below (in thousands):

	Level 1		Level 2		Level 3		Total
ASSETS:
Short-term investments
Foreign government securities	$	—	$	1,143,079	$	—	$	1,143,079
U.S. government securities	—		757,304		—		757,304
U.S. agency securities	—		52,545		—		52,545
U.S. corporate notes	—		30,539		—		30,539
Foreign exchange derivatives	—		45,849		—		45,849
Total assets at fair value	$	—	$	2,029,316	$	—	$	2,029,316

	Level 1		Level 2		Level 3		Total
LIABILITIES:
Foreign exchange derivatives	$	—	$	1,669	$	—	$	1,669
Redeemable noncontrolling interests	—		—		76,615		76,615
Total liabilities at fair value	$	—	$	1,669	$	76,615	$	78,284

Financial assets and liabilities carried at fair value as of December 31, 2010 were classified in the table below in the categories described below (in thousands):

	Level 1		Level 2		Level 3		Total
ASSETS:
Short-term investments
Foreign government securities	$	—	$	683,318	$	—	$	683,318
U.S. government securities	—		469,208		—		469,208
U.S. agency securities	—		109,905		—		109,905
U.S. corporate notes	—		40,820		—		40,820
Long-term investments	—		394		—		394
Foreign exchange derivatives	—		4,970		—		4,970
Total assets at fair value	$	—	$	1,308,615	$	—	$	1,308,615

	Level 1		Level 2		Level 3		Total
LIABILITIES:
Foreign exchange derivatives	$	—	$	6,995	$	—	$	6,995
Redeemable noncontrolling interests	—		—		45,751		45,751
Total liabilities at fair value	$	—	$	6,995	$	45,751	$	52,746

There are three levels of inputs to measure fair value. The definition of each input is described below:

Level 1: Quoted prices in active markets that are accessible by the Company at the measurement date for identical assets and liabilities.

Level 2: Inputs that are observable, either directly or indirectly. Such prices may be based upon quoted prices for identical or comparable securities in active markets or inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available.

For the Company’s short-term investments, a market approach is used for recurring fair value measurements and the valuation techniques use inputs that are observable, or can be corroborated by observable data, in an active marketplace. Investments in U.S. Treasury and foreign government securities are considered “Level 2” fair value measurements as of September 30, 2011 and December 31, 2010 because the Company has access to quoted prices, but does not have visibility to the volume and frequency of trading for all of these investments. Fair values for U.S. agency securities and U.S. corporate notes, which are guaranteed by the federal government, are considered “Level 2” fair value measurements because they are obtained from pricing sources for these or comparable instruments.

The Company’s derivative instruments are valued using pricing models. Pricing models take into account the contract terms as well as multiple inputs where applicable, such as interest rate yield curves, option volatility and currency rates.

As of September 30, 2011 and December 31, 2010, the Company considers its redeemable noncontrolling interests to represent a “Level 3” fair value measurement that requires a high degree of judgment to determine fair value. The Company estimated such fair value based upon standard valuation techniques using discounted cash flow analysis and industry peer comparable analysis. See Note 12 for further information on redeemable noncontrolling interests.

As of September 30, 2011 and December 31, 2010, the carrying value of the Company’s cash and cash equivalents approximated their fair value and consisted primarily of foreign government securities, U.S. Treasury money market funds and bank deposits. Other financial assets and liabilities, including restricted cash, accounts receivable, accrued expenses and deferred merchant bookings are carried at cost which approximates their fair value because of the short-term nature of these items. See Note 5 for information on the carrying value of investments and Note 9 for the estimated fair value of the Company’s convertible debt.

In the normal course of business, the Company is exposed to the impact of foreign currency fluctuations. The Company limits these risks by following established risk management policies and procedures, including the use of derivatives. The Company’s derivative instruments are typically short-term in nature. The Company does not use derivatives for trading or speculative purposes. All derivative instruments are recognized in the Unaudited Consolidated Balance Sheets at fair value. Gains and losses resulting from changes in the fair value of derivative instruments which are not designated as hedging instruments for accounting purposes are recognized in the Unaudited Consolidated Statements of Operations in the period that the changes occur. Changes in the fair value of derivatives designated as net investment hedges are recorded as currency translation adjustments to offset a portion of the translation adjustment of the foreign subsidiary’s net assets and are recognized in the Unaudited Consolidated Balance Sheets in “Accumulated other comprehensive loss.”

Derivatives Not Designated as Hedging Instruments — The Company is exposed to adverse movements in currency exchange rates as the financial results of its international operations are translated from local currency into U.S. Dollars upon consolidation. The Company’s derivative contracts principally address foreign exchange fluctuations for the Euro and British Pound Sterling. As of September 30, 2011, there were no outstanding derivative contracts. As of December 31, 2010, these derivatives resulted in a liability of $0.2 million and were recorded in “Accrued expenses and other current liabilities” on the Unaudited Consolidated Balance Sheet. Foreign exchange gains of $3.9 million and $1.9 million for the three and nine months ended September 30, 2011, respectively, and foreign exchange losses of $6.1 million and foreign exchange gains of $2.1 million for the three and nine months ended September 30, 2010, respectively, were recorded in “Foreign currency transactions and other” in the Unaudited Consolidated Statements of Operations.

Derivatives associated with foreign currency transaction risks as of September 30, 2011 resulted in an asset of $0.4 million, which was recorded in “Prepaid and other current assets”, and a liability of $1.7 million, which is recorded in “Accrued expenses and other current liabilities” in the Unaudited Consolidated Balance Sheet. Derivatives associated with foreign currency transaction risks as of December 31, 2010 resulted in an asset of $1.0 million and was recorded in “Prepaid expenses and other current assets” in the Unaudited Consolidated Balance Sheet. Foreign exchange losses of $0.9 million and $1.0 million for the three and nine months ended September 30, 2011, respectively, and foreign exchange losses of $0.1 million and foreign exchange gains of $0.3 million for the three and nine months ended September 30, 2010, respectively, were recorded in “Foreign currency transactions and other” in the Unaudited Consolidated Statements of Operations.

The settlement of derivative contracts resulted in a net cash outflow of $2.8 million for the nine months ended September 30, 2011 compared to net cash received of $5.7 million for the nine months ended September 30, 2010 and are reported within “Net cash provided by operating activities” on the Unaudited Consolidated Statements of Cash Flows.

Derivatives Designated as Hedging Instruments — As of September 30, 2011 and December 31, 2010, the Company had outstanding foreign currency forward contracts for 605 million Euros and 378 million Euros, respectively, to hedge a portion of its net investment in a foreign subsidiary. These contracts are all short-term in nature. Hedge ineffectiveness is assessed and measured based on changes in forward exchange rates. The fair value of these derivatives at September 30, 2011 was an asset of $45.5 million and is recorded in “Prepaid expenses and other current assets” in the Unaudited Consolidated Balance Sheet. At December 31, 2010, the net liability of $2.8 million was recorded as a liability of $6.8 million in “Accrued expenses and other current liabilities” and as an asset of $4.0 million in “Prepaid expenses and other current assets” in the Unaudited Consolidated Balance Sheet. A net cash outflow of $36.8 million for the nine months ended September 30, 2011, compared to net cash received of $40.3 million for the nine months ended September 30, 2010, was reported within “Net cash used in investing activities” on the Unaudited Consolidated Statements of Cash Flows.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44A, 44B
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15C, 15D
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
-Subparagraph a-d
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15B
-Subparagraph a, b
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 3, 10, 14, 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 32, 33, 34
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 159
-Paragraph 17-22, 27, 28
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
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+ Details

INTANGIBLE ASSETS AND GOODWILL

9 Months Ended

Sep. 30, 2011

INTANGIBLE ASSETS AND GOODWILL

INTANGIBLE ASSETS AND GOODWILL

7. INTANGIBLE ASSETS AND GOODWILL

The Company’s intangible assets consist of the following (in thousands):

	September 30, 2011							December 31, 2010
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Amortization Period	Weighted Average Useful Life

Supply and distribution agreements	$	264,252	$	(93,239	)	$	171,013	$	264,491	$	(76,823	)	$	187,668	10 - 13 years	12 years

Technology	23,546		(23,222		)	324		23,549		(22,119		)	1,430		3 years	3 years

Patents	1,638		(1,387		)	251		1,638		(1,352		)	286		15 years	15 years

Customer lists	20,327		(19,040		)	1,287		20,338		(17,512		)	2,826		2 years	2 years

Internet domain names	5,080		(465		)	4,615		1,853		(126		)	1,727		2 – 20 years	10 years

Trade names	52,994		(19,816		)	33,178		53,099		(15,064		)	38,035		5 – 20 years	11 years

Other	345		(320		)	25		344		(286		)	58		3 – 10 years	4 years

Total intangible assets	$	368,182	$	(157,489	)	$	210,693	$	365,312	$	(133,282	)	$	232,030

Intangible assets with determinable lives are primarily amortized on a straight-line basis. Intangible asset amortization expense was approximately $8.4 million and $10.6 million for the three months ended September 30, 2011 and 2010, respectively, and approximately $25.3 million and $24.2 million for the nine months ended September 30, 2011 and 2010, respectively.

The estimated amortization expense for intangible assets for the remainder of 2011, the annual expense for the next five years, and the expense thereafter is expected to be as follows (in thousands):

2011	$	7,826
2012	29,952
2013	28,680
2014	28,606
2015	25,900
2016	23,317
Thereafter	66,412
	$	210,693

The change in goodwill for the nine months ended September 30, 2011 consists of the following (in thousands):

Balance at December 31, 2010	$	510,894
Currency translation adjustments	(740		)
Balance at September 30, 2011	$	510,154

A substantial majority of the Company’s goodwill relates to the acquisition of Booking.com. In addition, the acquisition of TravelJigsaw Holdings Limited in May 2010 increased goodwill by $105.3 million (refer to Note 12). During the three months ended September 30, 2011, the Company performed its annual goodwill impairment testing and concluded that the estimated fair value for Booking.com, as well as the Company’s other reporting units, substantially exceeds their respective carrying values.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

+ References + Details

OTHER ASSETS

9 Months Ended

Sep. 30, 2011

OTHER ASSETS

OTHER ASSETS

8. OTHER ASSETS

Other assets at September 30, 2011 and December 31, 2010 consist of the following (in thousands):

	September 30, 2011		December 31, 2010
Deferred debt issuance costs	$	7,900	$	9,576
Other	13,544		4,842
Total	$	21,444	$	14,418

Deferred debt issuance costs arose from (i) the Company’s issuance, in March 2010, of $575.0 million aggregate principal amount of 1.25% Convertible Senior Notes due 2015 (the “2015 Notes”); (ii) a $175.0 million revolving credit facility entered into in September 2007; and (iii) the Company’s issuance, in September 2006, of $172.5 million aggregate principal amount of 2013 Notes. Deferred debt issuance costs are being amortized using the effective interest rate method over the term of approximately five years, except for the 2013 Notes which were amortized over their term of seven years. The period of amortization for the Company’s debt issue costs was determined at inception of the related debt agreements based upon the stated maturity date. Unamortized debt issuance costs written off to interest expense in the three and nine months ended September 30, 2010 resulting from conversions of convertible debt amounted to $0.3 million and $1.3 million, respectively. Unamortized debt issuance costs written off in the nine months ended September 30, 2011 for debt conversions were insignificant.

DEBT

9 Months Ended

Sep. 30, 2011

DEBT

DEBT

9. DEBT

Revolving Credit Facility

In September 2007, the Company entered into a $175.0 million five-year committed revolving credit facility with a group of lenders, which is secured, subject to certain exceptions, by a first-priority security interest on substantially all of the Company’s assets and related intangible assets located in the United States. In addition, the Company’s obligations under the revolving credit facility are guaranteed by substantially all of the assets and related intangible assets of the Company’s material direct and indirect domestic and foreign subsidiaries. Borrowings under the revolving credit facility will bear interest, at the Company’s option, at a rate per annum equal to the greater of (a) JPMorgan Chase Bank, National Association’s prime lending rate and (b) the federal funds rate plus ½ of 1%, plus an applicable margin ranging from 0.25% to 0.75%; or at an adjusted LIBOR for the interest period in effect for such borrowing plus an applicable margin ranging from 1.25% to 1.75%. Undrawn balances available under the revolving credit facility are subject to commitment fees at the applicable rate ranging from 0.25% to 0.375%.

The revolving credit facility provides for the issuance of up to $50.0 million of letters of credit as well as borrowings on same-day notice, referred to as swingline loans, which are available in U.S. Dollars, Euros, Pound Sterling and any other foreign currency agreed to by the lenders. The proceeds of loans made under the facility will be used for working capital and general corporate purposes. At both September 30, 2011 and December 31, 2010, there were no borrowings outstanding under the facility, and approximately $1.8 million and $1.6 million, respectively, of letters of credit were issued under the revolving credit facility.

In October 2011, the Company entered into a $1 billion five-year unsecured revolving credit facility with a group of lenders. Upon entering into this new revolving credit facility, the Company terminated its $175.0 million revolving credit facility (see Note 2).

Convertible Debt

Convertible debt as of September 30, 2011 consists of the following (in thousands):

September 30, 2011	Outstanding Principal Amount		Unamortized Debt Discount			Carrying Value
1.25% Convertible Senior Notes due March 2015	$	575,000	$	(82,831	)	$	492,169

Convertible debt as of December 31, 2010 consisted of the following (in thousands):

December 31, 2010	Outstanding Principal Amount		Unamortized Debt Discount			Carrying Value
1.25% Convertible Senior Notes dues March 2015	$	575,000	$	(98,770	)	$	476,230
0.75% Convertible Senior Notes due September 2013	213		(38		)	175
Outstanding convertible debt	$	575,213	$	(98,808	)	$	476,405

Based upon the closing price of the Company’s common stock for the prescribed measurement period during the three months ended December 31, 2010, the contingent conversion thresholds on the 2013 Notes were exceeded. As a result, the 2013 Notes were convertible at the option of the holders as of December 31, 2010, and accordingly were classified as a current liability as of that date. The remaining outstanding principal amount of the 2013 Notes was converted during the three months ended June 30, 2011.

The contingent conversion threshold for the prescribed measurement period during the three months ended September 30, 2011 was exceeded for the 2015 Notes. Therefore, the 2015 Notes are convertible at the option of the holders. Accordingly, the Company reported the carrying value of the 2015 Notes as a current liability as of September 30, 2011. Since these notes are convertible at the option of the holders and the principal amount is required to be paid in cash, the difference between the principal amount and carrying value is reflected as convertible debt in the mezzanine section on the Company’s Unaudited Consolidated Balance Sheet. Therefore, with respect to the 2015 Notes, the Company reclassified $82.8 million from additional paid-in-capital to convertible debt in the mezzanine section on the Company’s Unaudited Consolidated Balance Sheet as of September 30, 2011. The determination of whether or not the 2015 Notes are convertible must continue to be performed on a quarterly basis. Consequently, the 2015 Notes may not be convertible in future quarters, and therefore may again be classified as long-term debt, if the contingent conversion threshold is not met in such quarters.

In the nine months ended September 30, 2011, the Company delivered cash of $0.2 million to repay the principal amount and issued 4,869 shares of its common stock in satisfaction of the conversion value in excess of the principal amount for convertible debt that was converted prior to maturity. In the nine months ended September 30, 2010, the Company delivered cash of $195.6 million to repay the principal amount and issued 3,457,785 shares of its common stock and delivered cash of $99.8 million in satisfaction of the conversion value in excess of the principal amount for convertible debt that was converted prior to maturity.

As of September 30, 2011 and December 31, 2010, the estimated market value of the outstanding convertible debt was approximately $0.9 billion for both periods. Fair value was estimated based upon actual trades at the end of the reporting period or the most recent trade available as well as the Company’s stock price at the end of the reporting period. A substantial portion of the market value of the Company’s debt in excess of the outstanding principal amount relates to the conversion premium on the bonds.

Description of Senior Notes

In March 2010, the Company issued in a private placement $575.0 million aggregate principal amount of Convertible Senior Notes due March 15, 2015, with an interest rate of 1.25% (the “2015 Notes”). The Company paid $12.9 million in debt issuance costs during the three months ended March 31, 2010, related to this offering. The 2015 Notes are convertible, subject to certain conditions, into the Company’s common stock at a conversion price of approximately $303.06 per share. The 2015 Notes are convertible, at the option of the holder, prior to March 15, 2015 upon the occurrence of specified events, including, but not limited to a change in control, or if the closing sales price of the Company’s common stock for at least 20 consecutive trading days in the period of the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 150% of the applicable conversion price in effect for the notes on the last trading day of the immediately preceding quarter. In the event that all or substantially all of the Company’s common stock is acquired on or prior to the maturity of the 2015 Notes in a transaction in which the consideration paid to holders of the Company’s common stock consists of all or substantially all cash, the Company would be required to make additional payments in the form of additional shares of common stock to the holders of the 2015 Notes in aggregate value ranging from $0 to approximately $132.7 million depending upon the date of the transaction and the then current stock price of the Company. As of December 15, 2014, holders will have the right to convert all or any portion of the 2015 Notes. The 2015 Notes may not be redeemed by the Company prior to maturity. The holders may require the Company to repurchase the 2015 Notes for cash in certain circumstances. Interest on the 2015 Notes is payable on March 15 and September 15 of each year.

In 2006, the Company issued in a private placement $172.5 million aggregate principal amount of Convertible Senior Notes due September 30, 2013, with an interest rate of 0.75% (the “2013 Notes”). The 2013 Notes were convertible, subject to certain conditions, into the Company’s common stock at a conversion price of approximately $40.38 per share. The 2013 Notes were not redeemable by the Company prior to maturity.

In 2006, the Company entered into hedge transactions relating to the potential dilution of the Company’s common stock upon conversion of the 2013 Notes (the “Conversion Spread Hedges”). Under the Conversion Spread Hedges, the Company is entitled to purchase from Goldman Sachs and Merrill Lynch approximately 4.3 million shares of the Company’s common stock (the number of shares underlying the 2013 Notes) at a strike price of $40.38 per share (subject to adjustment in certain circumstances) in 2013, and the counterparties are entitled to purchase from the Company approximately 4.3 million shares of the Company’s common stock at a strike price of $50.47 per share (subject to adjustment in certain circumstances) in 2013. The Conversion Spread Hedges are separate transactions entered into by the Company with the counterparties and are not part of the terms of the 2013 Notes. The Conversion Spread Hedges did not immediately hedge against the associated dilution from early conversions of the 2013 Notes prior to their stated maturities. Therefore, upon early conversion of the 2013 Notes, the Company has delivered any related conversion premium in shares of stock or a combination of cash and shares. However, the hedging counterparties were not obligated to deliver the Company shares or cash that would offset the dilution associated with the early conversion activity. Because of this timing difference, the number of shares, if any, that the Company receives from its Conversion Spread Hedges can differ materially from the number of shares that it was required to deliver to the holders of the 2013 Notes upon their early conversion. The actual number of shares to be received will depend upon the Company’s stock price on the date the Conversion Spread Hedges are exercisable, which coincides with the scheduled maturity of the 2013 Notes.

Accounting guidance requires that cash-settled convertible debt, such as the Company’s convertible senior notes, be separated into debt and equity components at issuance and a value to be assigned to each. The value assigned to the debt component is the estimated fair value, as of the issuance date, of a similar bond without the conversion feature. The difference between the bond cash proceeds and this estimated fair value, representing the value assigned to the equity component, is recorded as a debt discount. Debt discount is amortized using the effective interest method over the period from origination date through the stated maturity date. The Company estimated the straight debt borrowing rates at debt origination to be 5.89% for the 2015 Notes and 8.0% for the 2013 Notes. The yield to maturity was estimated at an at-market coupon priced at par.

For the three months ended September 30, 2011 and 2010, the Company recognized interest expense of $7.7 million for both periods related to convertible notes. Interest expense was comprised of $1.8 million and $1.7 million, respectively, for the contractual coupon interest, $5.4 million and $5.5 million, respectively, related to the amortization of debt discount and $0.5 million for both periods related to the amortization of debt issuance costs. In addition, unamortized debt issuance costs written off to interest expense related to debt converted prior to maturity in 2010 amounted to approximately $0.3 million. There were no debt conversions for the three months ended September 30, 2011. The effective interest rate for the three months ended September 30, 2011 and 2010 was 6.3% and 6.5%, respectively.

For the nine months ended September 30, 2011 and 2010, the Company recognized interest expense of $22.8 million and $20.2 million, respectively, related to convertible notes. Interest expense was comprised of $5.4 million and $4.0 million, respectively, for the contractual coupon interest, $15.9 million and $15.0 million, respectively, related to the amortization of debt discount and $1.5 million and $1.2 million, respectively, related to the amortization of debt issuance costs. In addition, unamortized debt issuance costs written off to interest expense related to debt converted prior to maturity in 2010 amounted to approximately $1.3 million, while costs associated with 2011 debt conversions were insignificant. The effective interest rate for the nine months ended September 30, 2011 and 2010 was 6.3% and 6.9%, respectively.

In addition, if the Company’s convertible debt is redeemed or converted prior to maturity, a gain or loss on extinguishment will be recognized. The gain or loss is the difference between the fair value of the debt component immediately prior to extinguishment and its carrying value. To estimate the fair value at each conversion date, the Company used an applicable LIBOR rate plus an applicable credit default spread based upon the Company’s credit rating at the respective conversion dates. In the three and nine months ended September 30, 2010, the Company recognized losses of $3.2 million ($1.9 million after tax) and $11.3 million ($6.8 million after tax), respectively, in “Foreign currency transactions and other” in the Unaudited Consolidated Statement of Operations. The losses recognized for the nine months ended September 30, 2011 for debt conversions were insignificant.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References + Details

TREASURY STOCK

9 Months Ended

Sep. 30, 2011

TREASURY STOCK.

TREASURY STOCK

10. TREASURY STOCK

As of September 30, 2011, the Company has a remaining amount from all authorizations granted by the Board of Directors of $459.2 million to purchase its common stock. The Company may make additional repurchases of shares under its stock repurchase programs, depending on prevailing market conditions, alternate uses of capital and other factors. Whether and when to initiate and/or complete any purchase of common stock and the amount of common stock purchased will be determined in the Company’s complete discretion.

The Company’s Board of Directors has also given the Company the general authorization to repurchase shares of its common stock to satisfy employee withholding tax obligations related to stock-based compensation. The Company repurchased 356,979 shares and 84,002 shares at aggregate costs of $162.4 million and $19.6 million in the nine months ended September 30, 2011 and 2010, respectively, to satisfy employee withholding taxes related to stock-based compensation.

As of September 30, 2011, there were approximately 7.8 million shares of the Company’s common stock held in treasury.

In the first quarter of 2010, the Company’s Board of Directors authorized the repurchase of up to $500 million of the Company’s common stock, including the approval to purchase up to $100 million using proceeds from the issuance of the 2015 Notes. The Company repurchased 0.4 million shares of its common stock at an aggregate cost of approximately $100 million in the three months that ended March 31, 2010. During the three months ended June 30, 2010, the Company repurchased 32,487 shares of its common stock at an aggregate cost of approximately $6.1 million.

INCOME TAXES

9 Months Ended

Sep. 30, 2011

INCOME TAXES

INCOME TAXES

11. INCOME TAXES

Income tax expense includes U.S. and international income taxes, determined using an estimate of the Company’s annual effective tax rate. A deferred tax liability is recognized for all taxable temporary differences, and a deferred tax asset is recognized for all deductible temporary differences and operating loss and tax credit carryforwards. A valuation allowance is recognized if it is more likely than not that some portion of the deferred tax asset will not be realized.

The Company recognizes income tax expense related to income generated outside of the United States based upon the applicable tax rates and tax laws of the foreign countries in which the income is generated. During the three and nine months ended September 30, 2011 and 2010, the substantial majority of the Company’s foreign-sourced income has been generated in the Netherlands and the United Kingdom. Income tax expense for the three and nine months ended September 30, 2011 and 2010 differs from the expected tax expense at the U.S. statutory rate of 35%, primarily due to lower foreign tax rates, partially offset by state income taxes and certain non-deductible expenses. In addition, following the conclusion of an audit, the Company reversed a reserve of approximately $12.5 million in the three months ended June 30, 2011 for unrecognized tax benefits attributable to tax positions taken in 2010. The Company does not expect further significant changes in the amount of unrecognized tax benefits during the next twelve months.

Effective January 1, 2010, the Netherlands modified its corporate income tax law related to income generated from qualifying “innovative” activities (“Innovation Box Tax”). Earnings that qualify for the Innovation Box Tax will effectively be taxed at the rate of 5% rather than the Dutch statutory rate of 25%. Booking.com obtained a ruling from the Dutch tax authorities in February 2011 confirming that a portion of its earnings (“qualifying earnings”) is eligible for Innovation Box Tax treatment. The ruling from the Dutch tax authorities is valid from January 1, 2010 through December 31, 2013 (the “Initial Period”). In this ruling, the Dutch tax authorities require that the Innovation Box Tax benefit be phased in over a multi-year period. The amount of qualifying earnings expressed as a percentage of the total pretax earnings in the Netherlands will vary depending upon the level of total pretax earnings that is achieved in any given year.

In order to be eligible for Innovation Box Tax treatment, Booking.com must, among other things, apply for and obtain a research and development (“R&D”) certificate from a Dutch governmental agency every six months confirming that the activities that Booking.com intends to be engaged in over the subsequent six month period are “innovative.” Should Booking.com fail to secure such a certificate in any such period — for example, because the governmental agency does not view Booking.com’s new or anticipated activities as “innovative” — or should this agency determine that the activities contemplated to be performed in a prior year were not performed as contemplated or did not comply with the agency’s requirements, Booking.com may lose its certificate and, as a result, the Innovation Box Tax benefit may be reduced or eliminated.

After the Initial Period, Booking.com intends to reapply for continued Innovation Box Tax treatment for future periods. There can be no assurance that Booking.com’s application will be accepted, or that the amount of qualifying earnings or applicable tax rates will not be reduced at that time. In addition, there can be no assurance that the tax law will not change in 2011 and/or future years resulting in a reduction or elimination of the tax benefit.

The Innovation Box Tax did not have a material impact on the Company’s 2010 results. The Company currently expects the impact of the Innovation Box Tax to reduce its consolidated effective income tax rate for 2011 by approximately two to four percentage points.

The Company has significant deferred tax assets, resulting principally from domestic net operating loss carryforwards (“NOLs”). At December 31, 2010, the Company had approximately $2.7 billion of NOLs for U.S. federal income tax purposes, comprised of $0.6 billion of NOLs generated from operating losses and approximately $2.1 billion of NOLs generated from equity-related transactions, including equity-based compensation and stock warrants, mainly expiring from December 31, 2019 to December 31, 2021. The utilization of these NOLs is subject to limitation under Section 382 of the Internal Revenue Code and is also dependent on the Company’s ability to generate sufficient future taxable income.

Section 382 imposes limitations on the availability of a company’s net operating losses after a more than 50 percentage point ownership change occurs. The Section 382 limitation is based upon certain conclusions pertaining to the dates of ownership changes and the value of the Company on the dates of the ownership changes. As a result of a study, it was determined that ownership changes, as defined in Section 382, occurred in 2000 and 2002. The amount of the Company’s net operating losses incurred prior to each ownership change is limited based on the value of the Company on the respective dates of ownership change. As of the beginning of the year, it is estimated that the effect of Section 382 will generally limit the total cumulative amount of net operating loss available to offset future taxable income to approximately $1.3 billion, comprised of $0.6 billion of NOLs generated from operating losses which have been fully reflected in the Unaudited Consolidated Financial Statements and $0.7 billion of NOLs generated from equity-related transactions. At December 31, 2010, the Company had additional federal tax benefits of $87.8 million, generated since January 1, 2006, related to equity transactions that are not recorded in our deferred tax asset accounts. In accordance with accounting guidance, tax benefits related to equity transactions will be recognized as a credit to additional paid-in capital if and when they are realized by reducing the Company’s current income tax liability. Pursuant to Section 382, future ownership changes, if any, could further limit this amount.

The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of these deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of the deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectations of future income, the carryforward periods available for tax reporting purposes, and other relevant factors. The deferred tax asset at September 30, 2011 and December 31, 2010 amounted to $169.7 million and $222.0 million, net of the valuation allowance recorded, respectively.

The Company has recorded a non-current deferred tax liability in the amount of $47.4 million and $56.4 million at September 30, 2011 and December 31, 2010, respectively, primarily related to the assignment of estimated fair value to certain purchased identifiable intangible assets associated with various international acquisitions.

As an international corporation providing hotel reservation services available around the world, the Company is subject to income taxes as well as non-income based taxes, in both the United States and various foreign jurisdictions. Significant judgment is required in determining the Company’s worldwide provision for income taxes and other tax liabilities. Although the Company believes that its tax estimates are reasonable, there is no assurance that the final determination of tax audits or tax disputes will not be different from what is reflected in the Company’s historical income tax provisions and accruals. To date, we have been audited in several taxing jurisdictions with no significant adjustments as a result. The Internal Revenue Service initiated an audit of our federal income tax returns in the third quarter of 2011.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 08
-Paragraph h
-Article 4

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 109
-Paragraph 136, 172
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
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-Name Statement of Financial Accounting Standard (FAS)
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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
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+ Details

REDEEMABLE NONCONTROLLING INTERESTS

9 Months Ended

Sep. 30, 2011

REDEEMABLE NONCONTROLLING INTERESTS

REDEEMABLE NONCONTROLLING INTERESTS

12. REDEEMABLE NONCONTROLLING INTERESTS

On May 18, 2010, the Company, through its wholly-owned subsidiary, Priceline.com International Limited (“PIL”), paid $108.5 million, net of cash acquired, to purchase a controlling interest of the outstanding equity of TravelJigsaw Holdings Limited and its operating subsidiary, TravelJigsaw Limited (collectively, “TravelJigsaw”), a Manchester, UK-based international rental car reservation service.

Certain key members of TravelJigsaw’s management team retained a noncontrolling ownership interest in TravelJigsaw Holdings Limited. In addition, certain key members of the management team of Booking.com purchased a 3% ownership interest in TravelJigsaw from PIL in June 2010 (together with TravelJigsaw management’s investment, the “Redeemable Shares”). The holders of the Redeemable Shares have the right to put their shares to PIL and PIL will have the right to call the shares in each case at a purchase price reflecting the fair value of the Redeemable Shares at the time of exercise. Subject to certain exceptions, one-third of the Redeemable Shares have been or will be, as the case may be, subject to the put and call options in each of 2011, 2012 and 2013, respectively, during specified option exercise periods. In April 2011, in connection with the exercise of March 2011 call and put options, PIL purchased a portion of the shares underlying redeemable noncontrolling interests for an aggregate purchase price of approximately $13.0 million. As a result of the April 2011 purchase, the redeemable noncontrolling interests in TravelJigsaw Holdings Limited were reduced from 24.4% to 19.0%.

Redeemable noncontrolling interests are measured at fair value, both at the date of acquisition and subsequently at each reporting period. The redeemable noncontrolling interests are reported on the Company’s Unaudited Consolidated Balance Sheets in the mezzanine section in “Redeemable noncontrolling interests.”

A reconciliation of redeemable noncontrolling interests for the nine months ended September 30, 2011 is as follows (in thousands):

	2011
Balance, December 31, 2010	$	45,751
Net income attributable to redeemable noncontrolling interests	2,520
Fair value adjustments(1)	41,327
Purchase of subsidiary shares at fair value(1)	(12,986		)
Currency translation adjustments	3
Balance, September 30, 2011	$	76,615

(1) The estimated fair value was based upon standard valuation techniques using discounted cash flow analysis and industry peer comparable analysis.

- Definition

The entire disclosure for noncontrolling interest in consolidated subsidiaries, which could include the name of the subsidiary, the ownership percentage held by the parent, the ownership percentage held by the noncontrolling owners, the amount of the noncontrolling interest, the location of this amount on the balance sheet (when not reported separately), an explanation of the increase or decrease in the amount of the noncontrolling interest, the noncontrolling interest share of the net Income or Loss of the subsidiary, the location of this amount on the income statement (when not reported separately), the nature of the noncontrolling interest such as background information and terms, the amount of the noncontrolling interest represented by preferred stock, a description of the preferred stock, and the dividend requirements of the preferred stock.

+ References + Details

COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS

9 Months Ended

Sep. 30, 2011

COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS

COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS

13. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS

The table below provides the detail of comprehensive income for the three and nine months ended September 30, 2011 and 2010 (in thousands):

	Three Months Ended						Nine Months Ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Net income applicable to common stockholders	$	469,499		$	222,980		$	830,655		$	391,812
Net unrealized gain (loss) on investment securities	665			(163		)	180			87
Currency translation gain (loss)	(79,978		)	75,788			(27,126		)	(16,135		)
Comprehensive income	$	390,186		$	298,605		$	803,709		$	375,764

The table below provides the balances for each classification of accumulated other comprehensive loss as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30, 2011			December 31, 2010
Foreign currency translation adjustments (1)	$	(60,533	)	$	(33,407	)
Net unrealized gain on investment securities (2)	698			518
Accumulated other comprehensive loss	$	(59,835	)	$	(32,889	)

(1) Includes net gains from fair value adjustments at September 30, 2011 of $22,722 after tax ($38,631 before tax) and net gains from fair value adjustments at December 31, 2010 of $15,827 after tax ($27,138 before tax) associated with net investment hedges (see Note 6). The remaining balance in currency translation adjustments excludes income taxes due to the Company’s practice and intention to reinvest the earnings of its foreign subsidiaries in those operations.

(2) The unrealized gain before tax at September 30, 2011 and December 31, 2010 was $985 and $714, respectively.

- Definition

The entire disclosure for comprehensive income. Includes, but is not limited to, the following: 1) the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, 2) the reclassification adjustments for each classification of other comprehensive income and 3) the ending accumulated balances for each component of comprehensive income. Components of comprehensive income include: (1) foreign currency translation adjustments; (2) gains (losses) on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity; (3) gains (losses) on intercompany foreign currency transactions that are of a long-term-investment nature, when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting enterprise's financial statements; (4) change in the market value of a futures contract that qualifies as a hedge of an asset reported at fair value; (5) unrealized holding gains (losses) on available-for-sale securities and that resulting from transfers of debt securities from the held-to-maturity category to the available-for-sale category; (6) a net loss recognized as an additional pension liability not yet recognized as net periodic pension cost; and (7) the net gain (loss) and net prior service cost or credit for pension plans and other postretirement benefit plans.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 130
-Paragraph 14-26
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

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+ Details

COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2011

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

14. COMMITMENTS AND CONTINGENCIES

Litigation Related to Hotel Occupancy and Other Taxes

The Company and certain third-party defendant online travel companies are currently involved in approximately fifty lawsuits, including certified and putative class actions, brought by or against states, cities and counties over issues involving the payment of hotel occupancy and other taxes (i.e., state and local sales tax) and the Company’s “merchant” hotel business. The Company’s subsidiaries Lowestfare.com LLC and Travelweb LLC are named in some but not all of these cases. Generally, each complaint alleges, among other things, that the defendants violated each jurisdiction’s respective hotel occupancy tax ordinance with respect to the charges and remittance of amounts to cover taxes under each law. Each complaint typically seeks compensatory damages, disgorgement, penalties available by law, attorneys’ fees and other relief. The Company is also involved in one consumer lawsuit relating to, among other things, the payment of hotel occupancy taxes and service fees. In addition, approximately sixty municipalities or counties, and at least six states, have initiated audit proceedings (including proceedings initiated by more than forty municipalities in California), issued proposed tax assessments or started inquiries relating to the payment of hotel occupancy and other taxes (i.e., state and local sales tax). Additional state and local jurisdictions are likely to assert that the Company is subject to, among other things, hotel occupancy and other taxes (i.e., state and local sales tax) and could seek to collect such taxes, retroactively and/or prospectively.

With respect to the principal claims in these matters, the Company believes that the ordinances at issue do not apply to the service it provides, namely the facilitation of reservations, and, therefore, that it does not owe the taxes that are claimed to be owed. Rather, the Company believes that the ordinances at issue generally impose hotel occupancy and other taxes on entities that own, operate or control hotels (or similar businesses) or furnish or provide hotel rooms or similar accommodations. In addition, in many of these matters, municipalities have asserted claims for “conversion” — essentially, that the Company has collected a tax and wrongfully “pocketed” those tax dollars — a claim that the Company believes is without basis and has vigorously contested. The municipalities that are currently involved in litigation and other proceedings with the Company, and that may be involved in future proceedings, have asserted contrary positions and will likely continue to do so. From time to time, the Company has found it expedient to settle, and may in the future agree to settle, claims pending in these matters without conceding that the claims at issue are meritorious or that the claimed taxes are in fact due to be paid.

In connection with some of these tax audits and assessments, the Company may be required to pay any assessed taxes, which amounts may be substantial, prior to being allowed to contest the assessments and the applicability of the ordinances in judicial proceedings. This requirement is commonly referred to as “pay to play” or “pay first.” For example, the City of San Francisco assessed the Company approximately $3.4 million (an amount that includes interest and penalties) relating to hotel occupancy taxes, which the Company paid in July 2009. Payment of these amounts, if any, is not an admission that the Company believes it is subject to such taxes and, even if such payments are made, the Company intends to continue to assert its position vigorously. The Company has successfully argued against a “pay first” requirement asserted in another California proceeding.

Litigation is subject to uncertainty and there could be adverse developments in these pending or future cases and proceedings. For example, in October 2009, a jury in a San Antonio class action found that the Company and the other online travel companies that are defendants in the lawsuit “control” hotels for purposes of the local hotel occupancy tax ordinances at issue and are, therefore, subject to the requirements of those ordinances. On July 1, 2011, the court issued findings of fact and conclusions of law in connection with this case. In addition to ruling that hotel tax was due from defendants on the markup and service fee, the court held defendants liable for penalties and interest per the terms of each city’s applicable ordinance, but capped at fifteen percent (15%) of the total amount of unpaid taxes at the time of entry of judgment; ordinances without a penalty provision are assessed a fifteen percent (15%) penalty under the Texas Tax Code. The Company expects supplemental findings of fact and conclusions of law to be issued by the court, followed by a judgment. The Company intends to vigorously pursue an appeal of the judgment on legal and factual grounds.

An unfavorable outcome or settlement of pending litigation may encourage the commencement of additional litigation, audit proceedings or other regulatory inquiries. In addition, an unfavorable outcome or settlement of these actions or proceedings could result in substantial liabilities for past and/or future bookings, including, among other things, interest, penalties, punitive damages and/or attorney fees and costs. There have been, and will continue to be, substantial ongoing costs, which may include “pay first” payments, associated with defending the Company’s position in pending and any future cases or proceedings. An adverse outcome in one or more of these unresolved proceedings could have a material adverse effect on the Company’s business and results of operations and could be material to the Company’s earnings, financial position or cash flow in any given operating period.

To the extent that any tax authority succeeds in asserting that the Company has a tax collection responsibility, or the Company determines that it has such a responsibility, with respect to future transactions, the Company may collect any such additional tax obligation from its customers, which would have the effect of increasing the cost of hotel room reservations to its customers and, consequently, could make the Company’s hotel service less competitive (i.e., versus the websites of other online travel companies or hotel company websites) and reduce hotel reservation transactions; alternatively, the Company could choose to reduce the compensation for its services on “merchant” hotel transactions. Either step could have a material adverse effect on the Company’s business and results of operations.

In many of the judicial and other proceedings initiated to date, municipalities seek not only historical taxes that are claimed to be owed on the Company’s gross profit, but also, among other things, interest, penalties, punitive damages and/or attorney fees and costs. Therefore, any liability associated with hotel occupancy tax matters is not constrained to the Company’s liability for tax owed on its historical gross profit, but may also include, among other things, penalties, interest and attorneys’ fees. To date, the majority of the taxing jurisdictions in which the Company facilitates hotel reservations have not asserted that taxes are due and payable on the Company’s U.S. “merchant” hotel business. With respect to municipalities that have not initiated proceedings to date, it is possible that they will do so in the future or that they will seek to amend their tax statutes and seek to collect taxes from the Company only on a prospective basis.

Reserve for Hotel Occupancy and Other Taxes

As a result of this litigation and other attempts by jurisdictions to levy similar taxes, the Company has established a reserve for the potential resolution of issues related to hotel occupancy and other taxes in the amount of approximately $31 million at September 30, 2011 compared to approximately $26 million at December 31, 2010 (which includes, among other things, amounts related to the litigation in San Antonio). The reserve is based on the Company’s reasonable estimate, and the ultimate resolution of these issues may be less or greater, potentially significantly, than the liabilities recorded.

Developments in and after the Quarter Ended September 30, 2011

In the quarter ending September 30, 2011, two new putative class actions were commenced. Town of Breckenridge, Colorado v. Colorado Travel Company, LLC et al., 2011CV420 (Summit County District Court) was filed on July 25, 2011. County of Nassau v. Expedia, Inc. et al. (Supreme Court of the State of New York, County of Nassau) was filed on September 26, 2011. This case previously had been dismissed from federal court and was refiled as a state court action.

On October 25, 2011, in City of Houston v. Hotels.com, L.P. (Harris County, Texas District Court, filed on March 5, 2007) (Tex. App., appeal filed April 14, 2010), the Texas 14th Court of Appeals affirmed the lower court’s grant of summary judgment in favor of the defendants on all claims, holding that the statutes at issue in that case did not apply to defendants’ hotel reservation facilitation services. Plaintiffs may seek review by the Texas Supreme Court.

Two cases were dismissed in their entirety during the quarter. In City of Santa Monica v. Expedia, Inc. et al., JCCP 4472 (Los Angeles Superior Court, filed June 25, 2010), the court granted the online travel companies’ motion to dismiss all claims without leave to amend; judgment was entered on September 9, 2011 in favor of the defendants. Plaintiffs may seek an appeal. In Township of Lyndhurst, New Jersey v. priceline.com Inc., et al. (filed in the U.S. District Court for the District of New Jersey in June 2008) (U.S. Court of Appeals for the Third Circuit, appeal filed April 2009), the Third Circuit affirmed the District Court’s dismissal of the case. On August 24, 2011, the Third Circuit also denied the Township’s motion for rehearing. Finally, on July 29, 2011, in Hamilton County, Ohio, et al. v. Hotels.com, L.P., et al. (U.S. District Court for the Northern District of Ohio, filed in August 2010), the court granted in part and denied in part the defendants’ motion to dismiss, dismissing plaintiff counties’ breach of contract, declaratory judgment and violation of tax statutes claims. The plaintiffs’ unjust enrichment, money had and received, conversion, constructive trust and damages claims remain pending.

The Company reached agreements in principle resolving claims in three cases: County of Genesee, Michigan, et al. v. Hotels.com L.P., et al. (Circuit Court for the County of Ingham, Michigan, filed in February 2009); City of Jacksonville v. Hotels.com, L.P., et al., 2006-CA-005393 (Circuit Court for Duval County, filed August 4, 2006), and Anne Gannon v. Hotels.com, L.P.,, 50 2009 CA 025919 (Circuit Court for Palm Beach County, filed July 30, 2009). The Company expects these cases to be dismissed pursuant to these agreements shortly. In addition, pursuant to an agreement reached in July, 2011, City of Myrtle Beach, South Carolina v. Hotels.com, L.P., et al. (Court of Common Pleas for Horry County, South Carolina, filed in February 2007) was dismissed with prejudice on September 8, 2011. Pursuant to an agreement reached in May, 2011, Town of Hilton Head Island, South Carolina v. Hotels.com, L.P., et al. (Court of Common Pleas for Beaufort County, South Carolina, filed in April 2010) was dismissed with prejudice on July 22, 2011.

In City of San Diego, California v. Hotels.com, L.P., et al., JCCP 4472 (Los Angeles Superior Court, filed February 9, 2006), on September 6, 2011, the court granted the online travel companies’ petition to (i) vacate the hearing officer’s prior ruling that the online travel company defendants are liable for transient occupancy tax pursuant to San Diego’s ordinance, (ii) issue a new ruling that the online travel company defendants are not liable for such tax, and (iii) to set aside the City of San Diego’s assessments. With respect to its remaining claims, the City of San Diego has indicated it will stipulate to a consent judgment in favor of the online travel companies. The City has indicated it plans to appeal.

In City of San Antonio, Texas v. Hotels.com, L.P., et al. (U.S. District Court for the Western District of Texas; filed in May 2006), on October 18, 2011, plaintiffs filed a motion to amend the court’s findings of fact and conclusions of law on penalty calculations. The Company believes plaintiffs’ motion is without merit and will vigorously oppose it.

In addition, on August 3, 2011, in County of Lawrence, Pennsylvania v. Hotels.com, L.P., et al. (Court of Common Pleas of Lawrence County, Pennsylvania, filed Nov. 2009) (Commonwealth Court of Pennsylvania, appeal filed in November 2010), the Court for the Commonwealth of Pennsylvania reversed the dismissal by the Court of Common Pleas of Lawrence of the County’s declaratory action, but affirmed the dismissal of the remaining counts. In District of Columbia v. Expedia, Inc., et al. (Superior Court of the District of Columbia, filed in March 2011), on October 12, 2011, the court denied defendants’ motion to dismiss the complaint seeking declaratory and monetary relief under the District of Columbia’s Sales Tax Statute which existed before and after an April 8, 2011 amendment. In The Village of Rosemont, Illinois v. priceline.com, Inc., et al. (U.S. District Court for the Northern District of Illinois, filed in July 2009), on October 14, 2011, the court granted plaintiff’s motion for summary judgment. The Court stated that it expects the parties to discuss final disposition of the case at its next scheduling conference.

In addition to these developments, a discussion of the remaining legal proceedings listed below can be found in the section titled “Legal Proceedings” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The Company intends to vigorously defend against the claims in all of the proceedings described below.

Statewide Class Actions and Putative Class Actions

Such actions include:

· City of Los Angeles, California v. Hotels.com, Inc., et al. (California Superior Court, Los Angeles County; filed in December 2004)

· City of Rome, Georgia, et al. v. Hotels.com, L.P., et al. (U.S. District Court for the Northern District of Georgia; filed in November 2005)

· City of San Antonio, Texas v. Hotels.com, L.P., et al. (U.S. District Court for the Western District of Texas; filed in May 2006)

· City of Jacksonville, Florida, et al. v. Hotels.com, L.P., et al. (Circuit Court, Fourth Judicial Circuit, Duval County, Florida; filed in July 2006)

· City of Gallup, New Mexico v. Hotels.com, L.P., et al. (U.S. District Court for the District of New Mexico; filed in July 2007)

· City of Goodlettsville, Tennessee, et al. v. priceline.com Incorporated, et al. (U.S. District Court for the Middle District of Tennessee; filed in June 2008)

· Pine Bluff Advertising and Promotion Commission, Jefferson County, Arkansas, et al. v. Hotels.com, LP, et al. (Circuit Court of Jefferson County, Arkansas; filed in September 2009)

· County of Lawrence, Pennsylvania v. Hotels.com, L.P., et al. (Court of Common Pleas of Lawrence County, Pennsylvania; filed Nov. 2009); (Commonwealth Court of Pennsylvania; appeal filed in November 2010)

Actions Filed on Behalf of Individual Cities, Counties and States

Such actions include:

· City of Findlay, Ohio v. Hotels.com, L.P., et al. (U.S. District Court for the Northern District of Ohio; filed in October 2005); and City of Columbus, Ohio, et al. v. Hotels.com, L.P., et al. (U.S. District Court for the Southern District of Ohio; filed in August 2006); (U.S. District Court for the Northern District of Ohio)

· City of Chicago, Illinois v. Hotels.com, L.P., et al. (Circuit Court of Cook County Illinois; filed in November 2005)

· City of San Diego, California v. Hotels.com L.P., et al. (California Superior Court, San Diego County; filed in September 2006) (Superior Court of California, Los Angeles County)

· City of Atlanta, Georgia v. Hotels.com L.P., et al. (Superior Court of Fulton County, Georgia; filed in March 2006); (Court of Appeals of the State of Georgia; appeal filed in January 2007); (Georgia Supreme Court; further appeal filed in December 2007)

· Wake County, North Carolina v. Hotels.com, LP, et al. (General Court of Justice, Superior Court Division, Wake County, North Carolina; filed in November 2006); Dare County, North Carolina v. Hotels.com, LP, et al. (General Court of Justice, Superior Court Division, Dare County, North Carolina; filed in January 2007); Buncombe County, North Carolina v. Hotels.com, LP, et al. (General Court of Justice, Superior Court Division, Buncombe County, North Carolina; filed in February 2007); Mecklenburg County, North Carolina v. Hotels.com LP, et al. (General Court of Justice, Superior Court Division, Mecklenburg County, North Carolina; filed in January 2008)

· City of Branson, Missouri v. Hotels.com, LP., et al. (Circuit Court of Greene County, Missouri; filed in December 2006)

· City of Houston, Texas v. Hotels.com, LP., et al. (District Court of Harris County, Texas; filed in March 2007)

· City of Oakland, California v. Hotels.com, L.P., et al. (U.S. District Court for the Northern District of California; filed in June 2007); (U.S. Court of Appeals for the Ninth Circuit; appeal filed in December 2007)

· County of Genesee, Michigan, et al. v. Hotels.com L.P., et al. (Circuit Court for the County of Ingham, Michigan; filed in February 2009)

· City of Bowling Green, Kentucky v. Hotels.com L.P. et al. (Warren Cir. Ct., Kentucky, Div. 1; filed in March 2009); (Commonwealth of Kentucky Court of Appeals; appeal filed in April 2010)

· St. Louis County, Missouri v. Prestige Travel, Inc. et al. (Circuit Court of St. Louis County, Missouri; filed in July 2009)

· The Village of Rosemont, Illinois v. priceline.com, Inc., et al. (U.S. District Court for the Northern District of Illinois; filed in July 2009)

· Palm Beach County, Florida v. priceline.com, Inc., et al. (Circuit Court for Palm Beach County, Florida; filed in July 2009)

· Leon County, et al. v. Expedia, Inc., et al. (Second Judicial Circuit Court for Leon County, Florida; filed Nov. 2009); Leon County v. Expedia, Inc. et al. (Second Judicial Circuit Court for Leon County, Florida; filed in December 2009)

· City of Birmingham, Alabama, et al. v. Orbitz, Inc., et al. (Circuit Court of Jefferson County, Alabama; filed in December 2009)

· Baltimore County, Maryland v. priceline.com, Inc., et al. (U.S. District Court for the District of Maryland; filed in May 2010)

· Hamilton County, Ohio, et al. v. Hotels.com, L.P., et al. (U.S. District Court for the Northern District Of Ohio; filed in August 2010)

· State of Florida Attorney General v. Expedia, Inc., et al. (Circuit Court — Second Judicial Circuit, Leon County, Florida; filed in November 2010)

· Montana Department of Revenue v. priceline.com, Inc., et al. (First Judicial District Court of Lewis and Clark County, Montana; filed in November 2010)

· Montgomery County, Maryland v. Priceline.com, Inc., et al. (United States District Court for the District of Maryland; filed in December 2010)

The Company has also been informed by counsel to the plaintiffs in certain of the aforementioned actions that various, undisclosed municipalities or taxing jurisdictions may file additional cases against the Company, Lowestfare.com LLC and Travelweb LLC in the future.

Judicial Actions Relating to Assessments Issued by Individual Cities, Counties and States

After administrative remedies have been exhausted, the Company may seek judicial review of assessments issued by an individual city or county. Currently pending actions seeking such a review include:

· Priceline.com, Inc., et al. v. Broward County, Florida (Circuit Court — Second Judicial Circuit, Leon County, Florida; filed in January 2009)

· Priceline.com Inc., et al. v. City of Anaheim, California, et al. (Superior Court of California, County of Orange; filed in February 2009); (Superior Court of California, County of Los Angeles)

· Priceline.com, Inc. v. Indiana Department of State Revenue (Indiana Tax Court; filed in March 2009)

· Priceline.com, Inc., et al. v. City of San Francisco, California, et al. (Superior Court of California, County of San Francisco; filed in June 2009); (Superior Court of California, County of Los Angeles)

· Priceline.com, Inc. v. Miami-Dade County, Florida, et al. (Eleventh Judicial Circuit Court for Miami Dade, County, Florida; filed in December 2009)

· Priceline.com, Inc., et al. v. Osceola County, Florida, et al. (Circuit Court of the Second Judicial Circuit, in and For Leon County, Florida; filed in January 2011)

· In the Matter of the Tax Appeal of priceline.com Inc., In the Matter of the Tax Appeal of Lowestfare.com LLC and In the Matter of the Tax Appeal of Travelweb LLC (Tax Appeal Court of the State of Hawaii; filed in March 2011)

The Company intends to prosecute vigorously its claims in these actions.

Consumer Class Actions

· In Chiste, et al. v. priceline.com Inc., et al. (United States District Court for the Southern District of New York; filed in December 2008), the District Court granted the Company’s motion to dismiss all claims against it except the breach of fiduciary claim, which, the court ordered transferred to Illinois. On July 11, 2011, the case was transferred to the United States District Court for the Northern District of Illinois for resolution of the remaining claim, which was consolidated under Peluso v. Orbitz.com, et al., 11 Civ. 4407 on July 14, 2011. On July 13, 2011, plaintiffs filed notices of appeal in the Second Circuit Court of Appeals of the court’s orders in the Southern District of New York. On July 26, 2011, the Peluso court granted plaintiff’s motion to voluntarily dismiss the claim against the Company in the Northern District of Illinois. On August 5, 2011, the Company moved to dismiss the appeal in the Second Circuit Court of Appeals as improperly filed there.

The Company intends to defend vigorously against the claims in all of the on-going proceedings described above.

Administrative Proceedings and Other Possible Actions

At various times, the Company has also received inquiries or proposed tax assessments from municipalities and other taxing jurisdictions relating to the Company’s charges and remittance of amounts to cover state and local hotel occupancy and other related taxes. Among others, the City of Philadelphia, Pennsylvania; the City of Phoenix, Arizona (on behalf of itself and 12 other Arizona cities); the City of Paradise Valley, Arizona; and the City of Denver, Colorado; and state tax officials from Arkansas, Florida, Hawaii, Indiana, Louisiana, Maryland, New Mexico, Ohio, Pennsylvania, Texas, West Virginia, Wisconsin, and Wyoming have begun formal or informal administrative procedures or stated that they may assert claims against the Company relating to allegedly unpaid state or local hotel occupancy or related taxes. Since late 2008, the Company has received audit notices from more than forty cities in the state of California. The Company is engaged in audit proceedings in each of those cities. The Company has also been contacted for audit by five counties in the state of Utah and by the City of St. Louis, Missouri. In addition, the state of Maryland has notified the Company of its intention to issue a proposed tax assessment relating the Company’s charges and remittance of amounts to cover state sales taxes on rental car transactions.

Litigation Related to Securities Matters

On March 16, March 26, April 27, and June 5, 2001, respectively, four putative class action complaints were filed in the U.S. District Court for the Southern District of New York naming priceline.com, Inc., Richard S. Braddock, Jay Walker, Paul Francis, Morgan Stanley Dean Witter & Co., Merrill Lynch, Pierce, Fenner & Smith, Inc., BancBoston Robertson Stephens, Inc. and Salomon Smith Barney, Inc. as defendants (01 Civ. 2261, 01 Civ. 2576, 01 Civ. 3590 and 01 Civ. 4956). Shives et al. v. Bank of America Securities LLC et al., 01 Civ. 4956, also names other defendants and states claims unrelated to the Company. The complaints allege, among other things, that the Company and the individual defendants violated the federal securities laws by issuing and selling priceline.com common stock in the Company’s March 1999 initial public offering without disclosing to investors that some of the underwriters in the offering, including the lead underwriters, had allegedly solicited and received excessive and undisclosed commissions from certain investors. After extensive negotiations, the parties reached a comprehensive settlement on or about March 30, 2009. On April 2, 2009, plaintiffs filed a Notice of Motion for Preliminary Approval of Settlement. On June 9, 2009, the court granted the motion and scheduled the hearing for final approval for September 10, 2009. The settlement, previously approved by a special committee of the Company’s Board of Directors, compromised the claims against the Company for approximately $0.3 million. The court issued an