Priceline 2011 Annual Report Download - page 46

45
Other Income (Expense)
Interest Income
Interest Expense
Foreign Currency Transactions and Other
Total
Year Ended
December 31,
($000)
2011
$ 8,119
(31,721)
(7,526)
$(31,128)
2010
$ 3,857
(29,944)
(14,427)
$(40,514)
Change
110.5 %
5.9 %
(47.8)%
(23.2)%
For the year ended December 31, 2011, interest income on cash and marketable securities increased over the same
period in 2010, primarily due to an increase in the average balance invested. Interest expense increased for the year ended
December 31, 2011, as compared to the same period in 2010, primarily due to an increase in the average outstanding debt
resulting from the March 2010 issuance of $575.0 million aggregate principal amount of convertible senior notes, and fees on
the undrawn $1 billion revolving credit facility entered into in October 2011.
Derivative contracts that hedge our exposure to the impact of currency fluctuations on the translation of our
international operations into U.S. dollars upon consolidation resulted in foreign exchange gains of $4.0 million for the year
ended December 31, 2011 compared to foreign exchange gains of $2.9 million for the year ended December 31, 2010, and are
recorded in "Foreign currency transactions and other."
Foreign exchange transaction losses, including costs related to foreign exchange transactions, resulted in losses of
$11.3 million for the year ended December 31, 2011, compared to losses of $6.0 million for the year ended December 31, 2010,
and are recorded in "Foreign currency transactions and other."
In addition, losses of $11.3 million for the year ended December 31, 2010 resulted from convertible debt conversions
during 2010, and are recorded in "Foreign currency transactions and other."
During the fourth quarter of 2011, we began classifying certain foreign currency processing fees, amounting to $2.2
million, as an offset to revenue earned from the third party that processes the payments for merchant hotel transactions.
Income Taxes
Income Tax Expense
Year Ended
December 31,
($000)
2011
$ 308,663 2010 $ 218,141
Change
41.5%
Our effective tax rate for the years ended December 31, 2011 and 2010 were 22.6% and 29.2%, respectively. Our
effective tax rate differs from the expected tax provision at the U.S. statutory tax rate of 35% principally due to lower foreign
tax rates, the Innovation Box Tax benefit discussed below, and the resolution of an uncertain tax position during the second
quarter of 2011. Following the conclusion of an audit, we 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. We do not expect further
significant changes in the amount of unrecognized tax benefits during 2012.
The effective tax rate for the year ended December 31, 2011 is lower compared to 2010 primarily due to a higher
percentage of foreign income, which is taxed at lower rates, the Innovation Box Tax benefit discussed below, and the reversal
of the reserve for unrecognized tax benefits referred to above.
Effective January 1, 2010, the Netherlands modified its corporate income tax law related to income generated from
qualifying "innovative" activities (the "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 25.0%. 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