Priceline 2010 Annual Report Download - page 169

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currency rates. Derivatives are considered “Level 2” fair value measurements. The Company’s derivative
instruments are typically short-term in nature.
As of December 31, 2010, the Company considers its redeemable noncontrolling interests to represent a
“Level 3” fair value measurement that requires a high level 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 13 for information on the estimated fair value for redeemable noncontrolling
interests.
As of December 31, 2010 and 2009, the carrying value of the Company’s cash and cash equivalents
approximated their fair value and consisted primarily of U.S. and foreign government securities and bank deposits.
Other financial assets and liabilities, including restricted cash, accounts receivable, accrued expenses and deferred
merchant bookings are carried at cost which also approximates their fair value because of the short-term nature of
these items. See Note 4 for information on the carrying value of investments and Note 11 for the estimated fair
value of the Company’s Senior Notes.
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. See Note 2 for further information on our accounting policy for derivative financial instruments.
Derivatives Not Designated as Hedging Instruments – The Company’s derivative contracts principally
address foreign exchange fluctuation risk for the Euro. As of December 31, 2010, derivatives with a notional value
of 30 million Euros resulting in a liability of $0.2 million are recorded in “Accrued expenses and other current
liabilities” in the Consolidated Balance Sheet. Foreign exchange derivatives outstanding as of December 31, 2010
associated with foreign currency transaction risks resulted in an asset of $1.0 million, recorded in “Prepaid expenses
and other current assets” in the Consolidated Balance Sheet. As of December 31, 2009, there were no outstanding
contracts for derivatives not designated as hedging instruments. Foreign exchange gains of $3.0 million and $4.0
million for the years ended December 31, 2010 and 2008, respectively, and foreign exchange losses of $2.7 million
for the year ended December 31, 2009, were recorded in “Foreign currency transactions and other” in the
Consolidated Statement of Operations. The settlement of derivative contracts for the twelve months ended
December 31, 2010 and 2009 resulted in a net cash inflow of $3.6 million and $5.2 million, respectively, and is
reported within “Net cash provided by operating activities” on the Consolidated Statements of Cash Flows.
Derivatives Designated as Hedging Instruments – As of December 31, 2010 and 2009, the Company has
outstanding foreign currency forward contracts for 378 million Euros and 183 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 net fair value of these
derivatives at December 31, 2010 of $2.8 million is 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
Consolidated Balance Sheet. Derivative assets at December 31, 2009 of $8.0 million are recorded in “Prepaid
expenses and other current assets” in the Consolidated Balance Sheet.