Priceline 2011 Annual Report Download - page 83

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82
million and was recorded in "Prepaid and other current assets" in the Consolidated Balance Sheet. Foreign exchange losses of
$2.9 million for the year ended December 31, 2011 compared to foreign exchange gains of $0.1 million for the year ended
December 31, 2010 were recorded in "Foreign currency transactions and other" in the Consolidated Statements of Operations.
The settlement of derivative contracts for the year ended December 31, 2011 resulted in a net cash outflow of $0.6
million compared to a net cash inflow of $3.6 million for the year ended December 31, 2010 and are reported within "Net cash
provided by operating activities" on the Consolidated Statements of Cash Flows.
Derivatives Designated as Hedging Instruments — As of December 31, 2011 and 2010, the Company had outstanding
foreign currency forward contracts for 860 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 December 31, 2011 was an asset
of $60.1 million and is reflected in "Prepaid expenses and other current assets" in the Consolidated Balance Sheet. The fair
value of these derivatives at December 31, 2010 was a net liability of $2.8 million and 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 Consolidated Balance Sheet. A net cash outflow of $11.0 million for the year ended December 31, 2011,
compared to a net cash inflow of $35.0 million million for the year ended December 31, 2010, was reported within "Net cash
used in investing activities" on the Consolidated Statements of Cash Flows.
6. ACCOUNTS RECEIVABLE RESERVES
The Company records a provision for uncollectible agency commissions, principally receivables from hotels related to
agency reservations. The Company also accrues for costs associated with purchases made on its websites by individuals using
fraudulent credit cards and for other amounts "charged back" as a result of payment disputes. Changes in accounts receivable
reserves consisted of the following (in thousands):
Balance, beginning of year
Provision charged to expense
Charge-offs and adjustments
Currency translation adjustments
Balance, end of year
For the Year Ended December 31,
2011
$ 6,353
9,331
(9,449)
(132)
$ 6,103
2010
$ 5,023
7,102
(5,554)
(218)
$ 6,353
2009
$ 8,429
3,227
(6,873)
240
$ 5,023
The increase in the bad debt provision in 2011 as compared to 2010 was primarily due to higher accounts receivable as
a result of increased sales.
7. 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, 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. The convertible notes are included in the calculation of diluted net income per share if their inclusion is dilutive under
the treasury stock method.