Priceline 2010 Annual Report Download - page 176

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Accounting guidance requires that cash-settled convertible debt, such as the Company’s convertible senior
notes, be separated into debt and equity at issuance and each be assigned a value. 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 or modification date through the earlier of the first stated put date or 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.
Debt discount after tax of $69.1 million ($115.2 million before tax) partially offset by financing costs
associated with the equity component of convertible debt of $1.6 million were recorded in additional paid-in capital
related to the 2015 Notes at December 31, 2010.
For the years ended December 31, 2010, 2009 and 2008, the Company recognized interest expense of
$27.6 million, $22.1 million and $33.4 million, respectively, related to convertible notes, comprised of $5.8 million,
$2.9 million and $4.6 million, respectively, for the contractual coupon interest, $20.1 million, $18.2 million and
$26.7 million, respectively, related to the amortization of debt discount and $1.7 million, $1.0 million and $2.1
million, respectively, related to the amortization of debt issuance costs. In addition, unamortized debt issuance costs
written off to interest expense related to debt conversions in 2010, 2009 and 2008 was $1.4 million, $1.2 million,
and $0.3 million, respectively. The remaining period for amortization of debt discount and debt issuance costs is the
stated maturity dates for the respective debt. The effective interest rates for the years ended December 31, 2010,
2009, and 2008 are 6.7%, 8.5% and 8.5%, 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 years ended December 31, 2010, 2009 and 2008, the Company
recognized a loss of $11.3 million ($6.8 million after tax), a loss of $1.0 million ($0.6 million after tax) and a gain of
$6.0 million ($3.6 million after tax), respectively, in “Foreign currency transactions and other” in the Consolidated
Statements of Operations.
12. TREASURY STOCK
In the first quarter of 2010, the Company’s Board of Directors authorized an additional repurchase of up to
$500 million of the Company’s common stock from time to time in the open market or in privately negotiated
transactions, including the approval to purchase up to $100 million from the proceeds from the issuance of the 2015
Notes. During the year ended December 31, 2010, the Company repurchased 461,437 shares of its common stock at
an aggregate cost of approximately $106.1 million.
The 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. In the years
ended December 31, 2010, 2009 and 2008, the Company repurchased 94,572, 180,071, and 38,640 shares at an
aggregate cost of approximately $23.4 million, $17.4 million and $4.4 million, respectively, to satisfy employee
withholding taxes related to stock-based compensation.
The Company may make additional repurchases of shares under its stock repurchase program, 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 has a remaining authorization of $459.2 million to repurchase
common stock. As of December 31, 2010, there were approximately 7.4 million shares of the Company’s common
stock held in treasury.
13. 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