The Priceline Group
Priceline Group Inc. (Form: 10-Q, Received: 08/08/2017 17:07:19)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q  
(Mark One)
ý        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended June 30, 2017
OR
o           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
For the transition period from to
Commission File Number 1-36691
The Priceline Group Inc.
(Exact name of Registrant as specified in its charter) 
Delaware
06-1528493
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
800 Connecticut Avenue
Norwalk, Connecticut 06854
(address of principal executive offices)
(203) 299-8000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed, since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.   Yes ý No o .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ý No  o .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one): 
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes o No ý
Number of shares of Common Stock outstanding at August 1, 2017 :
Common Stock, par value $0.008 per share
 
49,059,019
(Class)
 
(Number of Shares)





The Priceline Group Inc.
Form 10-Q
 
For the Three Months Ended June 30, 2017
 
PART I - FINANCIAL INFORMATION
 
 
 
Item 1. Financial Statements
 
 
Consolidated Balance Sheets (unaudited) at June 30, 2017 and December 31, 2016
Consolidated Statements of Operations (unaudited) For the Three and Six Months Ended June 30, 2017 and 2016
Consolidated Statements of Comprehensive Income (unaudited) For the Three and Six Months Ended June 30, 2017 and 2016
Consolidated Statement of Changes in Stockholders' Equity (unaudited) For the Six Months Ended June 30, 2017
Consolidated Statements of Cash Flows (unaudited) For the Six Months Ended June 30, 2017 and 2016
Notes to Unaudited Consolidated Financial Statements
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4. Controls and Procedures
 
 
PART II - OTHER INFORMATION
 
 
 
Item 1. Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 6. Exhibits
 
 
SIGNATURES

2



PART I — FINANCIAL INFORMATION
Item 1.  Financial Statements

The Priceline Group Inc.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 
 
 
June 30,
2017
 
December 31,
2016
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
2,634,264

 
$
2,081,075

Short-term investments
 
3,721,825

 
2,218,880

Accounts receivable, net of allowance for doubtful accounts of $31,291 and $25,565, respectively
 
1,230,602

 
860,115

Prepaid expenses and other current assets
 
685,879

 
241,449

Total current assets
 
8,272,570

 
5,401,519

Property and equipment, net
 
425,100

 
347,017

Intangible assets, net
 
1,914,767

 
1,993,885

Goodwill
 
2,418,630

 
2,396,906

Long-term investments
 
10,263,659

 
9,591,067

Other assets
 
163,597

 
108,579

Total assets
 
$
23,458,323

 
$
19,838,973

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
598,200

 
$
419,108

Accrued expenses and other current liabilities
 
1,073,632

 
857,467

Deferred merchant bookings
 
1,185,639

 
614,361

Convertible debt
 
899,484

 
967,734

Total current liabilities
 
3,756,955

 
2,858,670

Deferred income taxes
 
397,449

 
822,334

Other long-term liabilities
 
134,537

 
138,767

Long-term debt
 
7,564,636

 
6,170,522

  Total liabilities
 
11,853,577

 
9,990,293

 
 
 
 
 
Commitments and Contingencies (See Note 11)
 
 
 
 
Convertible debt
 
15,077

 
28,538

 
 
 
 
 
Stockholders' equity:
 
 

 
 

Common stock, $0.008 par value; authorized 1,000,000,000 shares, 62,560,183 and 62,379,247 shares issued, respectively
 
486

 
485

Treasury stock, 13,503,447 and 13,190,929 shares, respectively
 
(7,411,392
)
 
(6,855,164
)
Additional paid-in capital
 
5,633,659

 
5,482,653

Retained earnings
 
12,793,001

 
11,326,852

Accumulated other comprehensive income (loss)
 
573,915

 
(134,684
)
  Total stockholders' equity
 
11,589,669

 
9,820,142

Total liabilities and stockholders' equity
 
$
23,458,323

 
$
19,838,973


See Notes to Unaudited Consolidated Financial Statements.

3



The Priceline Group Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Agency revenues
 
$
2,332,371

 
$
1,852,961

 
$
4,117,684

 
$
3,352,990

Merchant revenues
 
498,133

 
517,867

 
940,178

 
987,899

Advertising and other revenues
 
194,052

 
185,074

 
386,098

 
363,132

Total revenues
 
3,024,556

 
2,555,902

 
5,443,960

 
4,704,021

Cost of revenues
 
72,742

 
126,084

 
157,911

 
254,753

Gross profit
 
2,951,814

 
2,429,818

 
5,286,049

 
4,449,268

Operating expenses:
 
 
 
 
 
 

 
 

Performance advertising
 
1,147,589

 
920,763

 
2,128,362

 
1,700,672

Brand advertising
 
121,187

 
112,321

 
194,199

 
182,166

Sales and marketing
 
131,734

 
105,522

 
245,770

 
197,845

Personnel, including stock-based compensation of $66,879, $54,976, $125,827 and $120,976, respectively
 
385,708

 
332,654

 
736,738

 
641,005

General and administrative
 
141,634

 
112,642

 
277,181

 
225,687

Information technology
 
44,831

 
35,797

 
84,776

 
68,585

Depreciation and amortization
 
85,872

 
77,712

 
169,302

 
150,583

Total operating expenses
 
2,058,555

 
1,697,411

 
3,836,328

 
3,166,543

Operating income
 
893,259

 
732,407

 
1,449,721

 
1,282,725

Other income (expense):
 
 
 
 
 
 

 
 

Interest income
 
36,821

 
21,292

 
68,813

 
41,639

Interest expense
 
(60,942
)
 
(50,290
)
 
(116,659
)
 
(97,184
)
Foreign currency transactions and other
 
(6,021
)
 
1,997

 
(11,148
)
 
(10,931
)
Impairment of cost-method investments
 

 
(12,858
)
 

 
(63,208
)
Total other expense
 
(30,142
)
 
(39,859
)
 
(58,994
)
 
(129,684
)
Earnings before income taxes
 
863,117

 
692,548

 
1,390,727

 
1,153,041

Income tax expense
 
142,908

 
111,910

 
214,895

 
197,979

Net income
 
$
720,209

 
$
580,638

 
$
1,175,832

 
$
955,062

Net income applicable to common stockholders per basic common share
 
$
14.66

 
$
11.71

 
$
23.92

 
$
19.25

Weighted-average number of basic common shares outstanding
 
49,131

 
49,604

 
49,161

 
49,617

Net income applicable to common stockholders per diluted common share
 
$
14.39

 
$
11.60

 
$
23.49

 
$
19.06

Weighted-average number of diluted common shares outstanding
 
50,056

 
50,059

 
50,049

 
50,105



See Notes to Unaudited Consolidated Financial Statements.


4



The Priceline Group Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
720,209

 
$
580,638

 
$
1,175,832

 
$
955,062

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
Foreign currency translation adjustments  (1)
 
139,883

 
(50,285
)
 
175,688

 
27,087

Net unrealized gain (loss) on marketable securities (2)
 
186,977

 
(112,038
)
 
532,911

 
(136,497
)
Comprehensive income
 
$
1,047,069

 
$
418,315

 
$
1,884,431

 
$
845,652


(1) Foreign currency translation adjustments include tax benefits of $100,608 and $120,341 for the three and six months ended June 30, 2017 , respectively, and a tax charge of $26,940 and a tax benefit of $34,156 for the three and six months ended June 30, 2016 , respectively, associated with net investment hedges (See Note 10 ). The remaining balance in foreign currency translation adjustments excludes income taxes as a result of the Company's intention to indefinitely reinvest the earnings of its international subsidiaries outside of the United States (See Note 9 ).

(2) Net of tax charges of $8,076 and $15,931 for the three and six months ended June 30, 2017 , respectively, and net of tax charges of $5,796 and $34,924 for the three and six months ended June 30, 2016 , respectively. Net unrealized gain (loss) on marketable securities includes net unrealized gains of $161,389 and $485,077 for the three and six months ended June 30, 2017 , respectively, compared to net unrealized losses of $129,406 and $242,558 for the three and six months ended June 30, 2016 , respectively, related to the Company's investments in Ctrip.com International Ltd. ("Ctrip"), which are exempt from tax in the Netherlands.


See Notes to Unaudited Consolidated Financial Statements.


5



The Priceline Group Inc.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2017
(In thousands)
 
 
 
Common Stock
 
Treasury Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Total
Balance, December 31, 2016
 
62,379

 
$
485

 
(13,191
)
 
$
(6,855,164
)
 
$
5,482,653

 
$
11,326,852

 
$
(134,684
)
 
$
9,820,142

Net income
 

 

 

 

 

 
1,175,832

 

 
1,175,832

Foreign currency translation adjustments, net of tax benefit of $120,341
 

 

 

 

 

 

 
175,688

 
175,688

Net unrealized gain on marketable securities, net of tax charge of $15,931
 

 

 

 

 

 

 
532,911

 
532,911

Reclassification adjustment for convertible debt
 

 

 

 

 
13,461

 

 

 
13,461

Exercise of stock options and vesting of restricted stock units and performance share units
 
138

 
1

 

 

 
2,789

 

 

 
2,790

Repurchase of common stock
 

 

 
(312
)
 
(556,228
)
 

 

 

 
(556,228
)
Stock-based compensation and other stock-based payments
 

 

 

 


 
126,047

 

 

 
126,047

Conversion of debt
 
43

 

 

 

 
(279
)
 

 

 
(279
)
Cumulative effect of adoption of accounting
     standard updates
 

 

 

 

 
8,988

 
290,317

 

 
299,305

Balance, June 30, 2017
 
62,560

 
$
486

 
(13,503
)
 
$
(7,411,392
)
 
$
5,633,659

 
$
12,793,001

 
$
573,915

 
$
11,589,669

 

See Notes to Unaudited Consolidated Financial Statements.


6



The Priceline Group Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
 
Six Months Ended
June 30,
 
 
2017
 
2016
OPERATING ACTIVITIES:
 
 
 
 
Net income
 
$
1,175,832

 
$
955,062

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 

Depreciation
 
85,123

 
65,157

Amortization
 
84,179

 
85,426

Provision for uncollectible accounts, net
 
26,127

 
16,117

Deferred income tax benefit
 
(40,939
)
 
(79,863
)
Stock-based compensation expense and other stock-based payments
 
126,047

 
121,016

Amortization of debt issuance costs
 
4,509

 
3,744

Amortization of debt discount
 
35,386

 
34,180

Loss on early extinguishment of debt
 
1,027

 

Impairment of cost-method investments
 

 
63,208

Excess tax benefits on stock-based awards and other equity deductions
 

 
61,470

Changes in assets and liabilities:
 
 
 
 

Accounts receivable
 
(333,545
)
 
(344,147
)
Prepaid expenses and other current assets
 
(438,641
)
 
(286,976
)
Accounts payable, accrued expenses and other current liabilities
 
873,705

 
683,395

Other
 
3,024

 
(10,563
)
Net cash provided by operating activities
 
1,601,834

 
1,367,226

 
 
 
 
 
INVESTING ACTIVITIES:
 
 
 
 

Purchase of investments
 
(2,869,903
)
 
(2,701,662
)
Proceeds from sale of investments
 
1,480,236

 
2,176,868

Additions to property and equipment
 
(147,269
)
 
(113,699
)
Acquisitions and other investments, net of cash acquired
 
(490
)
 
(795
)
Net cash used in investing activities
 
(1,537,426
)
 
(639,288
)
 
 
 
 
 
FINANCING ACTIVITIES:
 
 
 
 
Proceeds from short-term borrowing
 
4,599

 

Proceeds from the issuance of long-term debt
 
1,051,722

 
994,705

Payments related to conversion of senior notes
 
(83,473
)
 

Payments for repurchase of common stock
 
(555,250
)
 
(520,566
)
Proceeds from exercise of stock options
 
2,790

 
9,766

Net cash provided by financing activities
 
420,388

 
483,905

Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
68,570

 
4,627

Net increase in cash, cash equivalents and restricted cash
 
553,366

 
1,216,470

Cash, cash equivalents and restricted cash, beginning of period
 
2,082,007

 
1,478,071

Cash, cash equivalents and restricted cash, end of period
 
$
2,635,373

 
$
2,694,541

SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
 
Cash paid during the period for income taxes
 
$
577,247

 
$
496,403

Cash paid during the period for interest
 
$
60,308

 
$
43,727

Non-cash financing activity
 
$
1,000

 
$


See Notes to Unaudited Consolidated Financial Statements.

7



The Priceline Group Inc.
Notes to Unaudited Consolidated Financial Statements
 
1.                                       BASIS OF PRESENTATION
 
Management of The Priceline Group Inc. (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, 2016 .
 
The Unaudited Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, including its primary brands of Booking.com, priceline.com, KAYAK, agoda.com, Rentalcars.com and OpenTable. All inter-company 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 income (loss) " in the accompanying Unaudited Consolidated Balance Sheets.  Foreign currency transaction gains and losses are included in "Foreign currency transactions and other" in the Unaudited Consolidated Statements of Operations.
 
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 any subsequent quarter or the full year.

Reclassifications: Due to the adoption of new accounting updates in the fourth quarter of 2016 related to the presentation of restricted cash and the first quarter of 2017 related to stock-based compensation, certain amounts in the Unaudited Consolidated Statement of Cash Flows for the six months ended June 30, 2016 have been reclassified to conform to the current year presentation.

Restricted Cash: The following table reconciles cash, cash equivalents and restricted cash reported in the Unaudited Consolidated Balance Sheets to the total amount shown in the Unaudited Consolidated Statements of Cash Flows:
 
 
June 30,
2017
 
December 31,
2016
As included in the Unaudited Consolidated Balance Sheets:
 
 
 
 
Cash and cash equivalents
 
$
2,634,264

 
$
2,081,075

Restricted cash included in prepaid expenses and other current assets
 
1,109

 
932

Total cash, cash equivalents and restricted cash as shown in the Unaudited Consolidated
  Statements of Cash Flows
 
$
2,635,373

 
$
2,082,007


Recent Accounting Pronouncements Adopted

Second Quarter of 2017:

Scope of Modification Accounting related to Share-based Compensation

In May 2017, the Financial Accounting Standards Board ("FASB") issued a new accounting update to amend the scope of modification accounting for share-based compensation arrangements. Under this update, an entity would not apply modification accounting if the fair value, vesting conditions and classification of the awards are the same immediately before and after the modification. For public business entities, this new accounting update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. This update will be applied prospectively to awards modified on or after the effective date or the adoption date, if the update is early adopted. The Company adopted the accounting update in the second quarter of 2017 and it did not have an impact to the Unaudited Consolidated Financial Statements.


8



First Quarter of 2017:

Definition of a Business

In January 2017, the FASB issued a new accounting update to clarify the definition of a business and provide additional guidance to assist entities with evaluating whether transactions should be accounted for as asset acquisitions (or disposals) or business combinations (or disposals of a business). Under this update, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this criterion is met, the transaction should be accounted for as an asset acquisition as opposed to a business combination. This distinction is important because the accounting for an asset acquisition may differ significantly from the accounting for a business combination. This update eliminates the requirement to evaluate whether a market participant could replace missing elements (e.g., inputs or processes), narrows the definition of outputs and requires that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. 

For public business entities, this update is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods, and is required to be applied prospectively.  The Company early adopted this update in the first quarter of 2017 and the adoption did not have an impact to the Unaudited Consolidated Financial Statements.

Intra-entity Transfers of Assets Other Than Inventory

In October 2016, the FASB issued new accounting guidance on income tax accounting associated with intra-entity transfers of assets other than inventory. This accounting update, which is part of the FASB's simplification initiative, is intended to reduce diversity in practice and the complexity of tax accounting, particularly for those transfers involving intellectual property. This new guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.

For public business entities, this update is effective for annual reporting periods beginning after December 15, 2017. Entities are required to apply this accounting update on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company early adopted this update in the first quarter of 2017. The adoption resulted in a cumulative net charge to retained earnings of $4.2 million , a reduction in deferred tax liabilities of $5.7 million and reductions in current and long-term assets of $3.3 million and $6.6 million , respectively, as of January 1, 2017.

Share-based Compensation

In March 2016, the FASB issued new accounting guidance to improve the accounting for certain aspects of share-based payment transactions as part of its simplification initiative. The key provisions of this accounting update are: (1) recognizing current excess tax benefits in the income statement in the period the benefits are deducted on the income tax return as opposed to an adjustment to additional paid-in capital in the period the benefits are realized by reducing a current income tax liability, (2) allowing an entity-wide election to account for forfeitures related to service conditions as they occur instead of estimating the total number of awards that will be forfeited because the requisite service period will not be rendered, (3) allowing the net settlement of an equity award for employee statutory tax withholding purposes to not exceed the maximum statutory tax rate by relevant tax jurisdiction instead of withholding taxes for each employee based on a minimum statutory withholding tax rate, and (4) requiring the presentation of excess tax benefits as operating cash flows and cash payments for employee statutory tax withholding related to vested stock awards as financing cash flows in the statements of cash flows. Under this new accounting standard, all previously unrecognized equity deductions are recognized as a deferred tax asset, net of any valuation allowance, with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption of this standard.

The Company adopted this accounting update in the first quarter of 2017 and recorded a deferred tax asset of $301.4 million related to previously unrecognized U.S. equity tax deductions, with an offsetting cumulative-effect adjustment to retained earnings as of January 1, 2017. The Company elected to account for forfeitures related to service conditions as they occur; as a result, there was a cumulative net charge to retained earnings of $6.9 million and the recognition of a deferred tax asset of $2.1 million , with an offsetting credit to additional paid-in capital of $9.0 million . In addition, the Company elected to change the presentation of excess tax benefits in the Unaudited Consolidated Statement of Cash Flows for periods prior to January 1, 2017 to reflect these excess tax benefits in operating cash flows instead of financing cash flows, resulting in a

9



reclassification of $61.5 million for the six months ended June 30, 2016 . "Payments for repurchase of common stock" in the Unaudited Consolidated Statements of Cash Flows includes withholding taxes paid on vested stock awards (see Note 8).

Other Recent Accounting Pronouncements

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued a new accounting update to shorten the premium amortization period of purchased callable debt securities with non-contingent call features that are callable at fixed prices and on preset dates from their contractual maturity to the earliest call date. For public business entities, this new accounting update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. Entities are required to apply this accounting update on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact to its financial statements of adopting this new update.

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued a new accounting update to simplify the test for goodwill impairment by eliminating Step 2, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill, which requires a hypothetical purchase price allocation, with the carrying amount of that reporting unit’s goodwill. Under this update, an entity would perform its quantitative annual, or interim, goodwill impairment test using the current Step 1 test and recognize an impairment charge for the excess of the carrying value of a reporting unit over its fair value.

For public business entities, this update is effective for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests occurring after January 1, 2017. The accounting update will be applied prospectively. The Company is currently evaluating the impact to its financial statements of adopting this new update.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued new accounting guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable and available-for-sale debt securities. For financial assets measured at amortized cost, this new guidance requires an entity to (1) estimate its lifetime expected credit losses upon recognition of the financial assets and establish an allowance to present the net amount expected to be collected, (2) recognize this allowance and changes in the allowance during subsequent periods through net income and (3) consider relevant information about past events, current conditions and reasonable and supportable forecasts in assessing the lifetime expected credit losses. For available-for-sale debt securities, this new guidance made several targeted amendments to the existing other-than-temporary impairment model, including (1) requiring disclosure of the allowance for credit losses, (2) allowing reversals of the previously recognized credit losses until the entity has the intent to sell, is more-likely-than-not required to sell the securities or the maturity of the securities, (3) limiting impairment to the difference between the amortized cost basis and fair value and (4) not allowing entities to consider the length of time that fair value has been less than amortized cost as a factor in evaluating whether a credit loss exists.

This update is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Entities are required to apply this accounting update on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact to its financial statements of adopting this new guidance.

Leases

In February 2016, the FASB issued a new accounting standard intended to improve the financial reporting of lease transactions.  The new accounting standard requires lessees to recognize an asset and a liability on the balance sheet for the right and obligation created by entering into a lease transaction for all leases with the exception of short-term leases.  The new standard retains the dual-model concept by requiring entities to determine if a lease is an operating or financing lease and the current "bright line" percentages could be used as guidance in applying the new standard. The lessor accounting model remains largely unchanged. The new standard significantly expands qualitative and quantitative disclosures for lessees.


10



The update is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  Early adoption is allowed. Entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact to its financial statements of adopting this new standard.

Recognition and Measurement of Financial Instruments

In January 2016, the FASB issued a new accounting update which amends the guidance on the recognition and measurement of financial instruments. The update requires (1) an entity to measure equity investments (except those accounted for under the equity method or those that result in consolidation of the investee) at fair value with changes in fair value recognized in net income rather than accumulated other comprehensive income (loss), (2) allows an entity to elect to measure those equity investments that do not have a readily determinable fair value at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, (3) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, and (4) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s evaluation of their other deferred tax assets.

This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption, although allowed in certain circumstances, is not applicable to the Company. An entity would apply this update by a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. After the adoption of this new accounting update, in the first quarter of 2018, the Company will record in net income fair value changes in its investments in Ctrip equity securities, which could vary significantly quarter to quarter (see Note 4 for the carrying values and fair values of these equity investments). In addition, the Company intends to continue to use the cost method of accounting for equity investments without a readily determinable fair value.

Revenue from Contracts with Customers

In May 2014, the FASB issued a new accounting standard on the recognition of revenue from contracts with customers that was designed to create greater comparability for financial statement users across industries and jurisdictions. The core principle of this standard is that an "entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services." The new standard also requires enhanced disclosures on the nature, amount, timing and uncertainty of revenue from contracts with customers. Since May 2014, the FASB has issued several amendments to this standard, including additional guidance, and deferred the effective date for public business entities to annual and interim periods beginning after December 15, 2017.

The Company will adopt this new standard in the first quarter of 2018 and apply the modified retrospective transition approach, which means that revenues for 2016 and 2017 will be reported on a historical basis and revenues for 2018 will be reported on the new basis and disclosed on the historical basis. The revenue standard will change the timing of revenue recognition for travel reservation services. For example, revenue for accommodation reservation services will be recognized at check-in rather than check-out. The Company does not currently expect this timing change to have a material impact to its annual gross profit or net income, although the effects on quarterly gross profit and net income are expected to be more significant. In addition, the adoption of the revenue standard will change the presentation of Name Your Own Price ® revenue from "gross" to "net" reporting, which will decrease revenue and cost of revenue equally, but have no impact on gross profit or net income.


2.                                       STOCK-BASED EMPLOYEE COMPENSATION
 
Stock-based compensation expense included in personnel expenses in the Unaudited Consolidated Statements of Operations was approximately $66.9 million and $55.0 million for the three months ended June 30, 2017 and 2016 , respectively, and $125.8 million and $121.0 million for the six months ended June 30, 2017 and 2016 , respectively.

Stock-based compensation expense is recognized in the financial statements based upon fair value. Fair value is recognized as expense on a straight-line basis over the employee's requisite service period. The fair value of performance share units and restricted stock units is determined based on the number of units granted and the quoted price of the Company's common stock as of the grant date. Stock-based compensation expense related to performance share units reflects the estimated probable outcome at the end of the performance period. The fair value of employee stock options assumed in

11



acquisitions was determined using the Black-Scholes model and the market value of the Company's common stock at the respective acquisition dates.
 
Restricted Stock Units and Performance Share Units

The following table summarizes the activity of restricted stock units and performance share units ("share-based awards") during the six months ended June 30, 2017
Share-Based Awards
 
Shares
 
Weighted-Average Grant Date Fair Value
Unvested at December 31, 2016
 
515,606

 
 
$
1,287.88

 
Granted
 
160,214

 
 
$
1,738.06

 
Vested
 
(128,089
)
 
 
$
1,314.91

 
Performance Share Units Adjustment
 
2,423

 
 
$
1,271.16

 
Forfeited
 
(21,389
)
 
 
$
1,382.84

 
Unvested at June 30, 2017
 
528,765

 
 
$
1,414.19

 
 
As of June 30, 2017 , there was $461.0 million of total future compensation cost related to unvested share-based awards to be recognized over a weighted-average period of 2.1 years.
 
During the six months ended June 30, 2017 , the Company made broad-based grants of 86,321 restricted stock units that generally vest after three years, subject to certain exceptions for terminations other than for "cause," for "good reason" or on account of death or disability. These share-based awards had a total grant date fair value of $150.3 million based on a weighted-average grant date fair value per share of $1,740.59 .

In addition, during the six months ended June 30, 2017 , the Company granted 73,893 performance share units to executives and certain other employees.  The performance share units had a total grant date fair value of $128.2 million based upon a weighted-average grant date fair value per share of $1,735.10 .  The performance share units are payable in shares of the Company's common stock upon vesting. Subject to certain exceptions for terminations other than for "cause," for "good reason" or on account of death or disability, recipients of these performance share units generally must continue their service through the requisite service period in order to receive any shares.  Stock-based compensation related to performance share units reflects 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, 2019 , assuming there is no accelerated vesting for, among other things, a termination of employment under certain circumstances.  As of June 30, 2017 , the estimated number of probable shares to be issued is a total of 72,092 shares, net of performance share units forfeited and vested since the grant date.  If the maximum performance thresholds are met at the end of the performance period, a maximum number of 144,184 total shares could be issued.  If the minimum performance thresholds are not met, 58,835 shares would be issued at the end of the performance period.

2016 Performance Share Units

During the year ended December 31, 2016 , the Company granted 85,735 performance share units with a grant date fair value of $111.7 million , based on a weighted-average grant date fair value per share of $1,302.25 . The actual number of shares to be issued will be determined upon completion of the performance period which generally ends December 31, 2018 .

At June 30, 2017 , there were 73,314 unvested 2016 performance share units outstanding, net of performance share units that were forfeited or vested since the grant date. As of June 30, 2017 , the number of shares estimated to be issued pursuant to these performance share units at the end of the performance period is a total of 116,127 shares. If the maximum thresholds are met at the end of the performance period, a maximum of 165,704 total shares could be issued pursuant to these performance share units. If the minimum performance thresholds are not met, 43,879 shares would be issued at the end of the performance period.
 

12



2015 Performance Share Units

During the year ended December 31, 2015 , the Company granted 107,623 performance share units with a grant date fair value of $133.2 million , based on a weighted-average grant date fair value per share of $1,237.53 . The actual number of shares to be issued will be determined upon completion of the performance period which generally ends December 31, 2017 .

At June 30, 2017 , there were 73,344 unvested 2015 performance share units outstanding, net of performance share units that were forfeited or vested since the grant date. As of June 30, 2017 , the number of shares estimated to be issued pursuant to these performance share units at the end of the performance period is a total of 125,940 shares. If the maximum thresholds are met at the end of the performance period, a maximum of 182,015 total shares could be issued pursuant to these performance share units. If the minimum performance thresholds are not met, 42,423 shares would be issued at the end of the performance period.

Stock Options

All outstanding employee stock options were assumed in acquisitions. The following table summarizes the activity for stock options during the six months ended  June 30, 2017
Employee Stock Options
 
Number of Shares
 
Weighted-Average
Exercise Price
 
Aggregate
 Intrinsic Value (in thousands)
 
Weighted-Average Remaining Contractual Term
(in years)
Balance, December 31, 2016
 
48,983

 
 
$
372.07

 
 
$
53,587

 
4.4
Exercised
 
(10,921
)
 
 
$
255.09

 
 
 
 
 
Forfeited
 
(760
)
 
 
$
866.47

 
 
 
 
 
Balance, June 30, 2017
 
37,302

 
 
$
396.25

 
 
$
54,993

 
4.3
Vested and exercisable as of June 30, 2017
 
36,611

 
 
$
389.26

 
 
$
54,230

 
4.3
Vested and exercisable as of June 30, 2017 and expected to vest thereafter
 
37,302

 
 
$
396.25

 
 
$
54,993

 
4.3

The aggregate intrinsic value of employee stock options that were exercised during the six months ended June 30, 2017 and 2016 was $16.8 million and $23.1 million , respectively. During the six months ended June 30, 2017 and 2016 , stock options vested for 954 and 9,387 shares of common stock with an acquisition-date fair value of $0.6 million and $5.9 million , respectively.

For the three and six months ended June 30, 2017 , the Company recorded stock-based compensation expense related to employee stock options of $0.3 million and $0.5 million , respectively, and $2.4 million and $5.3 million for the three and six months ended June 30, 2016 . respectively. As of June 30, 2017 , there was $0.3 million of total future compensation costs related to unvested employee stock options to be recognized over a weighted-average period of 0.6 years.


3.                                       NET INCOME PER SHARE
 
The Company computes basic net income per share by dividing net income applicable to common shareholders 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 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 notes 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.

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A reconciliation of the weighted-average number of shares outstanding used in calculating diluted earnings per share is as follows (in thousands): 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Weighted-average number of basic common shares outstanding
 
49,131

 
49,604

 
49,161

 
49,617

Weighted-average dilutive stock options, restricted stock units and performance share units
 
206

 
167

 
221

 
230

Assumed conversion of Convertible Senior Notes
 
719

 
288

 
667

 
258

Weighted-average number of diluted common and common equivalent shares outstanding
 
50,056

 
50,059

 
50,049

 
50,105

Anti-dilutive potential common shares
 
2,075

 
2,591

 
2,118

 
2,566

 
Anti-dilutive potential common shares for the three and six months ended June 30, 2017 include approximately 1.5 million and 1.6 million shares, respectively, that could be issued under the Company's outstanding convertible notes.  Under the treasury stock method, the convertible notes will generally have an anti-dilutive impact on net income per share if the conversion prices for the convertible notes exceed the Company's average stock price.


4.                                       INVESTMENTS
 
Short-term and Long-term Investments in Available-for-sale Securities

The following table summarizes, by major security type, the Company's investments as of June 30, 2017 (in thousands): 
 
 
Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair
  Value
Short-term investments:
 
 
 
 
 
 
 
 
International government securities
 
$
650,576

 
$
920

 
$
(418
)
 
$
651,078

U.S. government securities
 
746,814

 
8

 
(690
)
 
746,132

Corporate debt securities
 
2,311,980

 
1,068

 
(1,774
)
 
2,311,274

Commercial paper
 
13,341

 

 

 
13,341

Total short-term investments
 
$
3,722,711

 
$
1,996

 
$
(2,882
)
 
$
3,721,825

 
 
 
 
 
 
 
 
 
Long-term investments:
 
 
 
 
 
 
 
 
International government securities
 
$
447,860

 
$
1,096

 
$
(992
)
 
$
447,964

U.S. government securities
 
801,179

 
179

 
(6,242
)
 
795,116

Corporate debt securities
 
6,342,818

 
9,511

 
(31,315
)
 
6,321,014

U.S. government agency securities
 
4,962

 

 
(27
)
 
4,935

Ctrip convertible debt securities
 
1,275,000

 
254,500

 

 
1,529,500

Ctrip equity securities
 
655,311

 
509,819

 

 
1,165,130

Total long-term investments
 
$
9,527,130

 
$
775,105

 
$
(38,576
)
 
$
10,263,659

 
The Company's investment policy seeks to preserve capital and maintain sufficient liquidity to meet operational and other needs of the business.  As of June 30, 2017 , the weighted-average life of the Company’s fixed income investment portfolio, excluding the Company's investment in Ctrip convertible debt securities, was approximately 1.7 years with an average credit quality of A+/A1/A+.

The Company invests in international government securities with high credit quality. As of June 30, 2017 , investments in international government securities principally included debt securities issued by the governments of the Netherlands, France, Belgium, Germany, Finland and Austria. 


14



On May 26, 2015 and August 7, 2014, the Company invested $250 million and $500 million , respectively, in five -year senior convertible notes issued at par by Ctrip. On December 11, 2015, the Company invested $500 million in a Ctrip ten -year senior convertible note issued at par value, which included a put option allowing the Company to require a prepayment in cash from Ctrip at the end of the sixth year of the note. On September 12, 2016, the Company invested $25 million in a Ctrip six -year senior convertible note issued at par value, which included a put option allowing the Company to require prepayment in cash from Ctrip at the end of the third year of the note. The conversion feature associated with this September 2016 Ctrip convertible note met the definition of an embedded derivative (see Note 5 ). As of June 30, 2017 , the Company had also invested $655.3 million of its international cash in Ctrip American Depositary Shares ("ADSs"). The convertible debt and equity securities of Ctrip have been marked-to-market in accordance with the accounting guidance for available-for-sale securities.

In connection with the Company's investments in Ctrip's convertible notes, Ctrip granted the Company the right to appoint an observer to its board of directors and permission to acquire its shares (through the acquisition of Ctrip ADSs in the open market) so that combined with ADSs issuable upon conversion of the August 2014, May 2015 and September 2016 convertible notes, the Company could hold up to an aggregate of approximately 15% of Ctrip's outstanding equity plus any ADSs issuable upon the conversion of the December 2015 convertible notes. As of June 30, 2017 , the Company did not have significant influence over Ctrip.

The following table summarizes, by major security type, the Company's investments as of December 31, 2016 (in thousands): 
 
 
Cost
 
Gross 
Unrealized 
Gains
 
Gross 
Unrealized
  Losses
 
Fair
  Value
Short-term investments:
 
 
 
 
 
 
 
 
International government securities
 
$
249,552

 
$
221

 
$
(89
)
 
$
249,684

U.S. government securities
 
456,971

 
57

 
(140
)
 
456,888

Corporate debt securities
 
1,510,119

 
1,119

 
(928
)
 
1,510,310

Commercial paper
 
1,998

 

 

 
1,998

Total short-term investments
 
$
2,218,640

 
$
1,397

 
$
(1,157
)
 
$
2,218,880

 
 
 
 
 
 
 
 
 
Long-term investments:
 
 
 
 
 
 
 
 
International government securities
 
$
655,857

 
$
4,110

 
$
(623
)
 
$
659,344

U.S. government securities
 
773,718

 
337

 
(7,463
)
 
766,592

Corporate debt securities
 
6,042,271

 
9,973

 
(50,455
)
 
6,001,789

U.S. government agency securities
 
4,979

 

 
(27
)
 
4,952

Ctrip convertible debt securities
 
1,275,000

 
65,800

 
(47,712
)
 
1,293,088

Ctrip equity securities
 
655,311

 
213,233

 
(3,242
)
 
865,302

Total long-term investments
 
$
9,407,136

 
$
293,453

 
$
(109,522
)
 
$
9,591,067

 
The Company has classified its investments as available-for-sale securities. These securities are carried at estimated fair value with the aggregate unrealized gains and losses related to these investments, net of taxes, reflected as a part of " Accumulated other comprehensive income (loss) " in the Unaudited Consolidated Balance Sheets. Classification as short-term or long-term investment is based upon the maturity of the debt securities.

The Company recognized net realized gains of $0.2 million for the six months ended June 30, 2017 , compared to net realized gains of $2.1 million and net realized losses of $0.8 million for the three and six months ended June 30, 2016 , respectively, related to investments. As of  June 30, 2017 , the Company does not consider any of its investments to be other-than-temporarily impaired.

Cost-method Investments

The Company held investments in equity securities of private companies, companies typically at an early stage of development, of approximately $7.6 million at both June 30, 2017 and December 31, 2016 . The investments are accounted for under the cost method and included in "Other assets" in the Company's Unaudited Consolidated Balance Sheets.


15



For the three and six months ended June 30, 2016 , the Company recognized impairments of approximately $13 million and $63 million , respectively, which wrote off its entire investments in two other private companies.



5.                                       FAIR VALUE MEASUREMENTS
 
Financial assets and liabilities carried at fair value as of June 30, 2017 are classified in the tables below in the categories described below (in thousands): 
 
 
Level 1
 
Level 2
 
Total
ASSETS:
 
 

 
 

 
 

Cash equivalents:
 
 
 
 
 
 
Money market funds
 
$
1,864,644

 
$

 
$
1,864,644

International government securities
 

 
22,836

 
22,836

U.S. government securities
 

 
104,698

 
104,698

Corporate debt securities
 

 
2,159

 
2,159

Commercial paper
 

 
11,995

 
11,995

Short-term investments:
 
 

 
 

 
 

International government securities
 

 
651,078

 
651,078

U.S. government securities
 

 
746,132

 
746,132

Corporate debt securities
 

 
2,311,274

 
2,311,274

Commercial paper
 

 
13,341

 
13,341

Long-term investments:
 
 
 
 
 
 
International government securities
 

 
447,964

 
447,964

U.S. government securities
 

 
795,116

 
795,116

Corporate debt securities
 

 
6,321,014

 
6,321,014

U.S. government agency securities
 

 
4,935

 
4,935

Ctrip convertible debt securities
 

 
1,529,500

 
1,529,500

Ctrip equity securities
 
1,165,130

 

 
1,165,130

Derivatives:
 
 
 
 
 
 
Currency exchange derivatives
 

 
493

 
493

Total assets at fair value
 
$
3,029,774

 
$
12,962,535

 
$
15,992,309

 
 
 
Level 1
 
Level 2
 
Total
LIABILITIES:
 
 

 
 

 
 

Currency exchange derivatives
 
$

 
$
188

 
$
188

 



16



Financial assets and liabilities carried at fair value as of December 31, 2016 are classified in the tables below in the categories described below (in thousands):
 
 
Level 1
 
Level 2
 
Total
ASSETS:
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
Money market funds
 
$
977,468

 
$

 
$
977,468

International government securities
 

 
30,266

 
30,266

U.S. government securities
 

 
176,140

 
176,140

Corporate debt securities
 

 
9,273

 
9,273

Commercial paper
 

 
1,998

 
1,998

Time deposits
 
49,160

 

 
49,160

Short-term investments:
 
 
 
 
 
 
International government securities
 

 
249,684

 
249,684

U.S. government securities
 

 
456,888

 
456,888

Corporate debt securities
 

 
1,510,310

 
1,510,310

Commercial paper
 

 
1,998

 
1,998

Long-term investments:
 
 
 
 
 
 
International government securities
 

 
659,344

 
659,344

U.S. government securities
 

 
766,592

 
766,592

Corporate debt securities
 

 
6,001,789

 
6,001,789

U.S. government agency securities
 

 
4,952

 
4,952

Ctrip convertible debt securities
 

 
1,293,088

 
1,293,088

Ctrip equity securities
 
865,302

 

 
865,302

Derivatives:
 
 
 
 
 
 
Currency exchange derivatives
 

 
756

 
756

Total assets at fair value
 
$
1,891,930

 
$
11,163,078

 
$
13,055,008

 
 
 
Level 1
 
Level 2
 
Total
LIABILITIES:
 
 

 
 

 
 

Currency exchange derivatives
 
$

 
$
1,015

 
$
1,015

 
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.

Investments in corporate debt securities, U.S. and international government securities, commercial paper, government agency securities and convertible debt securities are considered "Level 2 " valuations 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.  For the Company's 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. 
 
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. Derivatives are considered "Level 2 " fair value measurements. The Company's derivative instruments are typically short-term in nature.
 

17



As of June 30, 2017 and December 31, 2016 , the Company's cash consisted of bank deposits.  Other financial assets and liabilities, including restricted cash, accounts receivable, accounts payable, accrued expenses and deferred merchant bookings are carried at cost which approximates their fair value because of the short-term nature of these items.  At both June 30, 2017 and December 31, 2016 , the Company held investments in equity securities of private companies of $7.6 million and these investments are accounted for under the cost method of accounting (see Note 4 ). See Note 4 for information on the carrying value of available-for-sale investments, Note 7 for the estimated fair value of the Company's outstanding Senior Notes and Note 11 for the Company's contingent liabilities associated with business acquisitions.
 
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 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 that 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 foreign currency translation adjustments to offset a portion of the foreign currency translation adjustment from Euro-denominated net assets held by certain subsidiaries and are recognized in the Unaudited Consolidated Balance Sheets in " Accumulated other comprehensive income (loss) ."
 
Derivatives Not Designated as Hedging Instruments — The Company is exposed to adverse movements in currency exchange rates as the operating results of its international operations are translated from local currency into U.S. Dollars upon consolidation.  The Company enters into average-rate derivative contracts to hedge translation risks from short-term foreign exchange rate fluctuations for the Euro, British Pound Sterling and certain other currencies versus the U.S. Dollar.  As of June 30, 2017 and December 31, 2016 , there were no outstanding derivative contracts related to foreign currency translation risks.  Foreign currency gains of $0.9 million and foreign currency losses of $0.2 million for the three and six months ended June 30, 2017 , respectively, compared to foreign currency gains of $3.9 million and $0.3 million for the three and six months ended June 30, 2016 , respectively, related to these derivatives are recorded in "Foreign currency transactions and other" in the Unaudited Consolidated Statements of Operations.

The Company also enters into foreign currency forward contracts to hedge its exposure to the impact of movements in currency exchange rates on its transactional balances denominated in currencies other than the functional currency. Foreign currency derivatives outstanding as of June 30, 2017 associated with foreign currency transaction risks resulted in a net asset of $0.3 million , with an asset in the amount of $0.5 million recorded in "Prepaid expenses and other current assets" and a liability in the amount of $0.2 million recorded in "Accrued expenses and other current liabilities" in the Unaudited Consolidated Balance Sheet. Foreign currency derivatives outstanding as of December 31, 2016 associated with foreign currency transaction risks resulted in a net liability of $0.3 million , with a liability in the amount of $1.0 million recorded in "Accrued expenses and other current liabilities" and an asset in the amount of $0.7 million recorded in "Prepaid expenses and other current assets" in the Unaudited Consolidated Balance Sheet. Derivatives associated with these transaction risks resulted in foreign currency gains of $20.8 million and $27.6 million for the three and six months ended June 30, 2017 , respectively, and foreign currency gains of $3.6 million and $16.0 million for the three and six months ended June 30, 2016 , respectively. These mark-to-market adjustments on the derivative contracts, offset by the effect of changes in currency exchange rates on transactions denominated in currencies other than the functional currency, resulted in net losses of $5.1 million and $11.0 million for the three and six months ended June 30, 2017 , respectively, compared to net losses of $2.6 million and $7.0 million for the three and six months ended June 30, 2016 , respectively. The net impacts related to these derivatives are recorded in "Foreign currency transactions and other" in the Unaudited Consolidated Statements of Operations.

The settlement of derivative contracts not designated as hedging instruments resulted in net cash inflows of $23.1 million and $23.6 million for the six months ended June 30, 2017 and 2016 , respectively, and are reported within " Net cash provided by operating activities " in the Unaudited Consolidated Statements of Cash Flows.
 
Embedded Derivative — In September 2016, the Company invested $25 million in a Ctrip convertible note (see Note 4 ). The Company determined that the conversion option for this note met the definition of an embedded derivative. At June 30, 2017 and December 31, 2016 , the embedded derivative had an estimated fair value of $3.8 million and $1.8 million , respectively, and is reported in the Unaudited Consolidated Balance Sheets with its host contract in "Long-term investments." The embedded derivative is bifurcated for measurement purposes only and the mark-to-market for the three and six months ended June 30, 2017 was a gain of $0.6 million and $2.0 million , respectively, which is included in "Foreign currency transactions and other" in the Company's Unaudited Consolidated Statement of Operations.


18



6.                                       INTANGIBLE ASSETS AND GOODWILL
 
The Company's intangible assets at June 30, 2017 and December 31, 2016 consisted of the following (in thousands): 
 
June 30, 2017
 
December 31, 2016
 
 
 
 
 
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
$
825,029

 
$
(312,144
)
 
$
512,885

 
$
809,287

 
$
(270,813
)
 
$
538,474

 
3 - 20 years
 
16 years
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Technology
113,535

 
(91,568
)
 
21,967

 
112,141

 
(80,549
)
 
31,592

 
 1 - 5 years
 
5 years
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Patents
1,623

 
(1,617
)
 
6

 
1,623

 
(1,598
)
 
25

 
15 years
 
15 years
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Internet domain names
43,100

 
(28,828
)
 
14,272

 
39,495

 
(25,089
)
 
14,406

 
2 - 20 years
 
8 years
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
1,669,503

 
(304,241
)
 
1,365,262

 
1,667,221

 
(261,412
)
 
1,405,809

 
4-20 years
 
20 years
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-compete agreements
21,900

 
(21,525
)
 
375

 
21,900

 
(18,321
)
 
3,579

 
3-4 years
 
3 years
Total intangible assets
$
2,674,690

 
$
(759,923
)
 
$
1,914,767

 
$
2,651,667

 
$
(657,782
)
 
$
1,993,885

 
 
 
 
 
Intangible assets are amortized on a straight-line basis.  Intangible asset amortization expense was approximately $41.2 million and $84.2 million for the three and six months ended June 30, 2017 , respectively, and $43.0 million and $85.4 million for the three and six months ended June 30, 2016 , respectively.

The amortization expense for intangible assets for the remainder of 2017 , the annual expense for the next five years, and the expense thereafter is expected to be as follows (in thousands): 
Remainder of 2017
$
78,747

2018
142,873

2019
131,508

2020
124,427

2021
119,368

2022
118,157

Thereafter
1,199,687

 
$
1,914,767

 
The change in goodwill for the six months ended June 30, 2017 consisted of the following (in thousands): 
Balance at December 31, 2016
$
2,396,906

Foreign currency translation adjustments
21,724

Balance at June 30, 2017
$
2,418,630

 
A substantial portion of the intangibles and goodwill relates to the acquisition of OpenTable in July 2014 and KAYAK in May 2013. There have been no events or changes in circumstances to indicate a potential impairment to goodwill or intangible assets as of June 30, 2017 .



19



7.                                       DEBT
 
Short-term Borrowing

On June 30, 2017 , the Company had a bank overdraft of $4.6 million , which was reported in "Accrued expenses and other current liabilities" in the Unaudited Consolidated Balance Sheet as of June 30, 2017 and was repaid in July 2017.

Revolving Credit Facility

In June 2015, the Company entered into a $2.0 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 0.875% to 1.50% ; or (ii) the greatest of (a) Bank of America, N.A.'s prime lending rate, (b) the federal funds rate plus 0.50% , 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 0.085% to 0.20% .

The revolving credit facility provides for the issuance of up to $70.0 million of letters of credit as well as borrowings of up to $50.0 million on same-day notice, referred to as swingline loans. Borrowings under the revolving credit facility may be made in U.S. Dollars, Euros, British Pounds Sterling and any other foreign currency agreed to by the lenders. The proceeds of loans made under the facility would be used for working capital and general corporate purposes, which could include acquisitions, share repurchases or debt repayments. There were no borrowings outstanding and approximately $3.9 million and $3.8 million of letters of credit issued under the facility as of June 30, 2017 and December 31, 2016 , respectively.

Outstanding Debt
 
Outstanding debt as of June 30, 2017 consisted of the following (in thousands): 
June 30, 2017
 
Outstanding
  Principal 
Amount
 
Unamortized Debt
Discount and Debt
Issuance Cost
 
Carrying
  Value
Short-term debt:
 
 
 
 
 
 
1.0% Convertible Senior Notes due March 2018
 
$
916,536

 
$
(17,052
)
 
$
899,484

Long-term debt:
 
 
 
 
 
 
0.35% Convertible Senior Notes due June 2020
 
$
1,000,000

 
$
(77,636
)
 
$
922,364

0.9% Convertible Senior Notes due September 2021
 
1,000,000

 
(94,016
)
 
905,984

0.8% (€1 Billion) Senior Notes due March 2022
 
1,140,550

 
(6,913
)
 
1,133,637

2.15% (€750 Million) Senior Notes due November 2022
 
855,413

 
(5,044
)
 
850,369

2.375% (€1 Billion) Senior Notes due September 2024
 
1,140,550

 
(12,677
)
 
1,127,873

3.65% Senior Notes due March 2025
 
500,000

 
(3,509
)
 
496,491

3.6% Senior Notes due June 2026
 
1,000,000

 
(7,231
)
 
992,769

1.8% (€1 Billion) Senior Notes due March 2027
 
1,140,550

 
(5,401
)
 
1,135,149

Total long-term debt
 
$
7,777,063

 
$
(212,427
)
 
$
7,564,636

 

20



Outstanding debt as of December 31, 2016 consisted of the following (in thousands): 
December 31, 2016
 
Outstanding
 Principal 
Amount
 
Unamortized Debt
Discount and Debt
Issuance Cost
 
Carrying
  Value
Short-term debt:
 
 
 
 
 
 
1.0% Convertible Senior Notes due March 2018
 
$
1,000,000

 
$
(32,266
)
 
$
967,734

Long-term debt:
 
 
 
 
 
 
0.35% Convertible Senior Notes due June 2020
 
$
1,000,000

 
$
(90,251
)
 
$
909,749

0.9% Convertible Senior Notes due September 2021
 
1,000,000

 
(104,592
)
 
895,408

2.15% (€750 Million) Senior Notes due November 2022
 
791,063

 
(5,336
)
 
785,727

2.375% (€1 Billion) Senior Notes due September 2024
 
1,054,750

 
(12,861
)
 
1,041,889

3.65% Senior Notes due March 2025
 
500,000

 
(3,727
)
 
496,273

3.6% Senior Notes due June 2026
 
1,000,000

 
(7,619
)
 
992,381

1.8% (€1 Billion) Senior Notes due March 2027
 
1,054,750

 
(5,655
)
 
1,049,095

Total long-term debt
 
$
6,400,563

 
$
(230,041
)
 
$
6,170,522

 
Based upon the closing price of the Company's common stock for the prescribed measurement periods for the three months ended June 30, 2017 and December 31, 2016 , the contingent conversion threshold on the 2018 Notes (as defined below) was exceeded. Therefore, the 2018 Notes were convertible at the option of the holders, and, accordingly, the Company reported the carrying value of the 2018 Notes as a current liability in the Company's Unaudited Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016 . Since these notes are convertible at the option of the holders and the principal amount is required to be paid in cash, the Company reclassified the unamortized debt discount for the 2018 Notes in the amount of $15.1 million and $28.5 million before tax as of June 30, 2017 and December 31, 2016 , respectively, from additional paid-in-capital to convertible debt in the mezzanine section in the Company's Unaudited Consolidated Balance Sheets. The determination of whether or not the 2018 Notes are convertible is performed on a quarterly basis. Consequently, the 2018 Notes may or may not be convertible in future quarters.

The contingent conversion thresholds on the 2020 Notes (as defined below) and the 2021 Notes (as defined below) were not exceeded at June 30, 2017 or December 31, 2016 , and therefore these notes were reported as a non-current liability in the Unaudited Consolidated Balance Sheets.

Fair Value of Debt

As of June 30, 2017 and December 31, 2016 , the estimated fair value of the outstanding Senior Notes was approximately $10.4 billion and $8.4 billion , respectively, and was considered a "Level 2 " fair value measurement (see Note 5 ). 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 Convertible Senior Notes.

Convertible Debt

If the note holders exercise their option to convert, the Company delivers cash to repay the principal amount of the notes and delivers shares of common stock or cash, at its option, to satisfy the conversion value in excess of the principal amount.  In cases where holders decide to convert prior to the maturity date, the Company charges the proportionate amount of remaining debt issuance costs to interest expense. For the six months ended June 30, 2017 , the Company paid $83.5 million to satisfy the aggregate principal amount due and issued 43,156 shares of its common stock in satisfaction of the conversion value in excess of the principal amount for debt converted prior to maturity.

In addition, if the Company's convertible debt is redeemed or converted prior to maturity, a gain or loss on extinguishment is 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 of the debt at the conversion date, the Company estimated its straight debt borrowing rate, considering its credit rating and straight debt of comparable corporate issuers. For the six months ended June 30, 2017 , the Company recognized a non-cash loss of $1.0 million ( $0.6 million after tax) in "Foreign currency transactions and other" in the Unaudited Consolidated Statement of Operations in connection with the early conversion of the 2018 Notes.


21



Description of Senior Convertible Notes  

In August 2014, the Company issued in a private placement $1.0 billion aggregate principal amount of Convertible Senior Notes due September 15, 2021, with an interest rate of 0.9% (the "2021 Notes"). The Company paid $11.0 million in debt issuance costs during the year ended December 31, 2014 related to this offering. The 2021 Notes are convertible, subject to certain conditions, into the Company's common stock at a conversion price of approximately $2,055.50 per share. The 2021 Notes are convertible, at the option of the holder, prior to September 15, 2021, upon the occurrence of specific 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 trading days in the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 150% of the 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 2021 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 2021 Notes in an aggregate value ranging from $0 to approximately $375 million depending upon the date of the transaction and the then current stock price of the Company. As of June 15, 2021, holders will have the right to convert all or any portion of the 2021 Notes. The 2021 Notes may not be redeemed by the Company prior to maturity.  The holders may require the Company to repurchase the 2021 Notes for cash in certain circumstances.  Interest on the 2021 Notes is payable on March 15 and September 15 of each year.

In May 2013, the Company issued in a private placement $1.0 billion aggregate principal amount of Convertible Senior Notes due June 15, 2020, with an interest rate of 0.35% (the "2020 Notes"). The 2020 Notes were issued with an initial discount of $20.0 million . The Company paid $1.0 million in debt issuance costs during the year ended December 31, 2013 related to this offering. The 2020 Notes are convertible, subject to certain conditions, into the Company's common stock at a conversion price of approximately $1,315.10 per share. The 2020 Notes are convertible, at the option of the holder, prior to June 15, 2020, upon the occurrence of specific 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 trading days in the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 150% of the 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 2020 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 2020 Notes in an aggregate value ranging from $0 to approximately $397 million depending upon the date of the transaction and the then current stock price of the Company. As of March 15, 2020, holders will have the right to convert all or any portion of the 2020 Notes. The 2020 Notes may not be redeemed by the Company prior to maturity.  The holders may require the Company to repurchase the 2020 Notes for cash in certain circumstances.  Interest on the 2020 Notes is payable on June 15 and December 15 of each year.

In March 2012, the Company issued in a private placement $1.0 billion aggregate principal amount of Convertible Senior Notes due March 15, 2018, with an interest rate of 1.0% (the "2018 Notes"). The Company paid $20.9 million in debt issuance costs during the year ended December 31, 2012 related to this offering. The 2018 Notes are convertible, subject to certain conditions, into the Company's common stock at a conversion price of approximately $944.61 per share. The 2018 Notes are convertible, at the option of the holder, prior to March 15, 2018, upon the occurrence of specific 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 trading days in the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 150% of the 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 2018 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 2018 Notes in aggregate value ranging from $0 to approximately $344 million depending upon the date of the transaction and the then current stock price of the Company. As of December 15, 2017, holders will have the right to convert all or any portion of the 2018 Notes. The 2018 Notes may not be redeemed by the Company prior to maturity.  The holders may require the Company to repurchase the 2018 Notes for cash in certain circumstances.  Interest on the 2018 Notes is payable on March 15 and September 15 of each year.


22



Cash-settled convertible debt, such as the Company's Convertible Senior Notes, is separated into debt and equity components at issuance and each component is 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 rate method over the period from the origination date through the stated maturity date.  The Company estimated the straight debt borrowing rates at debt origination to be 3.18% for the 2021 Notes, 3.13% for the 2020 Notes and 3.50% for the 2018 Notes.  The yield to maturity was estimated at an at-market coupon priced at par.

Debt discount after tax of $82.5 million ( $142.9 million before tax) less financing costs associated with the equity component of convertible debt of $1.6 million after tax was recorded in additional paid-in capital related to the 2021 Notes at December 31, 2014. Debt discount after tax of $92.4 million ( $154.3 million before tax) less financing costs associated with the equity component of convertible debt of $0.1 million after tax was recorded in additional paid-in capital related to the 2020 Notes at June 30, 2013. Debt discount after tax of $80.9 million ( $135.2 million before tax) less financing costs associated with the equity component of convertible debt of $2.8 million after tax was recorded in additional paid-in capital related to the 2018 Notes at March 31, 2012.

For the three months ended June 30, 2017 and 2016 , the Company recognized interest expense of $24.0 million and $23.5 million , respectively, related to convertible notes, which was comprised of $5.4 million and $5.6 million , respectively, related to the contractual coupon interest, $17.3 million and $16.8 million , respectively, related to the amortization of debt discount, and $1.3 million and $1.1 million , respectively, related to the amortization of debt issuance costs.  For the three months ended June 30, 2017 and 2016 , included in the amortization of debt discount mentioned above was $0.7 million of original issuance discount for each period related to the 2020 Notes. The remaining period for amortization of debt discount and debt issuance costs is the period until the stated maturity date for the respective debt. The weighted-average effective interest rates for the three months ended June 30, 2017 and 2016 was 3.5% and 3.4% , respectively, related to convertible notes.

For the six months ended June 30, 2017 and 2016 , the Company recognized interest expense of $48.0 million and $46.9 million , respectively, related to convertible notes, which was comprised of $11.0 million and $11.2 million , respectively, related to the contractual coupon interest, $34.5 million and $33.5 million , respectively, related to the amortization of debt discount, and $2.5 million and $2.2 million , respectively, related to the amortization of debt issuance costs.  For the six months ended June 30, 2017 and 2016 , included in the amortization of debt discount mentioned above was $1.4 million of original issuance discount for each period related to the 2020 Notes. The remaining period for amortization of debt discount and debt issuance costs is the period until the stated maturity date for the respective debt. The weighted-average effective interest rates for the six months ended June 30, 2017 and 2016 was 3.5% and 3.4% , respectively, related to convertible notes.

In addition, for both the three and six months ended June 30, 2017 , the Company recognized interest expense of $0.2 million to write off the unamortized debt issuance cost for debt converted prior to maturity.

Other Long-term Debt

In March 2017, the Company issued Senior Notes due March 10, 2022, with an interest rate of 0.8% (the "March 2022 Notes") for an aggregate principal amount of 1.0 billion Euros. The March 2022 Notes were issued with an initial discount of 2.1 million Euros. In addition, the Company paid $4.9 million in debt issuance costs during the six months ended June 30, 2017. Interest on the March 2022 Notes is payable annually on March 10, beginning March 10, 2018. Subject to certain limited exceptions, all payments of interest and principal for the March 2022 Notes will be made in Euros.

In May 2016, the Company issued Senior Notes due June 1, 2026, with an interest rate of 3.6% (the "2026 Notes") for an aggregate principal amount of $1.0 billion . The 2026 Notes were issued with an initial discount of $1.9 million . In addition, the Company paid $6.2 million in debt issuance costs during the year ended December 31, 2016. Interest on the 2026 Notes is payable semi-annually on June 1 and December 1.

In November 2015, the Company issued Senior Notes due November 25, 2022, with an interest rate of 2.15% (the "November 2022 Notes") for an aggregate principal amount of 750 million Euros. The November 2022 Notes were issued with an initial discount of 2.2 million Euros. In addition, the Company paid $3.7 million in debt issuance costs during the year ended December 31, 2015. Interest on the November 2022 Notes is payable annually on November 25. Subject to certain limited exceptions, all payments of interest and principal, including payments made upon any redemption of the November 2022 Notes will be made in Euros.


23



In March 2015, the Company issued Senior Notes due March 15, 2025, with an interest rate of 3.65% (the "2025 Notes") for an aggregate principal amount of $500 million . The 2025 Notes were issued with an initial discount of $1.3 million . In addition, the Company paid $3.2 million in debt issuance costs during the year ended December 31, 2015. Interest on the 2025 Notes is payable semi-annually on March 15 and September 15.

In March 2015, the Company issued Senior Notes due March 3, 2027, with an interest rate of 1.8% (the "2027 Notes") for an aggregate principal amount of 1.0 billion Euros. The 2027 Notes were issued with an initial discount of 0.3 million Euros. In addition, the Company paid $6.3 million in debt issuance costs during the year ended December 31, 2015. Interest on the 2027 Notes is payable annually on March 3. Subject to certain limited exceptions, all payments of interest and principal for the 2027 Notes will be made in Euros.

In September 2014, the Company issued Senior Notes due September 23, 2024, with an interest rate of 2.375% (the "2024 Notes") for an aggregate principal amount of 1.0 billion Euros. The 2024 Notes were issued with an initial discount of 9.4 million Euros. In addition, the Company paid $6.5 million in debt issuance costs during the year ended December 31, 2014. Interest on the 2024 Notes is payable annually on September 23. Subject to certain limited exceptions, all payments of interest and principal for the 2024 Notes will be made in Euros.

The aggregate principal value of the March 2022 Notes, November 2022 Notes, 2024 Notes and 2027 Notes and accrued interest thereon are designated as a hedge of the Company's net investment in certain Euro functional currency subsidiaries. The foreign currency transaction gains or losses on these liabilities are measured based upon changes in spot rates and are recorded in " Accumulated other comprehensive income (loss) " in the Unaudited Consolidated Balance Sheets. The Euro-denominated net assets of these subsidiaries are translated into U.S. Dollars at each balance sheet date, with effects of foreign currency changes also reported in " Accumulated other comprehensive income (loss) " in the Unaudited Consolidated Balance Sheets. Since the notional amount of the recorded Euro-denominated debt and related interest are not greater than the notional amount of the Company's net investment, the Company does not expect to incur any ineffectiveness on this hedge.

Debt discount is amortized using the effective interest rate method over the period from the origination date through the stated maturity date.  The Company estimated the effective interest rates at debt origination to be 0.84% for the March 2022 Notes, 3.62% for the 2026 Notes, 2.20% for the November 2022 Notes, 3.68% for the 2025 Notes, 1.80% for the 2027 Notes and 2.48% for the 2024 Notes.

For the three months ended June 30, 2017 and 2016 , the Company recognized interest expense of $33.1 million and $25.5 million , respectively, related to other long-term debt, which was comprised of $31.7 million and $24.6 million , respectively, for the contractual coupon interest, $0.5 million and $0.3 million , respectively, related to the amortization of debt discount and $0.9 million and $0.6 million , respectively, related to the amortization of debt issuance costs. The remaining period for amortization of debt discount and debt issuance costs is the period until the stated maturity dates for the respective debt.

For the six months ended June 30, 2017 and 2016 , the Company recognized interest expense of $63.7 million and $46.9 million , respectively, related to other long-term debt, which was comprised of $61.2 million and $45.1 million , respectively, for the contractual coupon interest, $0.9 million and $0.7 million , respectively, related to the amortization of debt discount and $1.6 million and $1.1 million , respectively, related to the amortization of debt issuance costs. The remaining period for amortization of debt discount and debt issuance costs is the period until the stated maturity dates for the respective debt.

In March 2016, the Company received a ten -year loan from the State of Connecticut in the amount of $2.5 million with an interest rate of 1% in connection with the construction of office space in Connecticut.  In the first quarter of 2017, $1.0 million of the loan was forgiven as a result of meeting certain employment and salary conditions. The remaining balance of the loan will be forgiven in 2019 if certain employment and salary conditions are met. As of June 30, 2017 and December 31, 2016 , the loan in the amount of $1.5 million and $2.5 million , respectively, is reported in " Other long-term liabilities " in the Unaudited Consolidated Balance Sheets.


8.                                       TREASURY STOCK
 
In the first quarter of 2016, the Company's Board of Directors authorized a program to repurchase up to $3.0 billion of the Company's common stock. In the first quarter of 2017, the Company's Board of Directors authorized a program to repurchase up to $2.0 billion of the Company's common stock, in addition to amounts previously authorized. As of June 30, 2017 , the Company had a remaining authorization of $3.7 billion to purchase its common stock.

24




In the six months ended June 30, 2017 , the Company repurchased 261,552 shares of its common stock in the open market for an aggregate cost of $467.6 million , which included stock repurchases in June 2017 of 7,409 shares for an aggregate cost of $13.9 million that were settled in July 2017. 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 at the Company's discretion.

The Board of Directors has 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 50,966 shares and 119,509 shares at an aggregate cost of $88.6 million and $155.8 million in the six months ended June 30, 2017 and 2016 , respectively, to satisfy employee withholding taxes related to stock-based compensation. For the six months ended June 30, 2017 and 2016 , the Company remitted $86.5 million and $151.2 million of such employee withholding taxes, respectively, to the tax authorities, with the remainder remitted subsequently. The new accounting standard for stock-based compensation (see Note 1) requires us to report the cash remitted to the tax authorities as a financing activity in the statements of cash flows for all periods presented. Prior to the adoption of this standard, the Company reported the aggregate cost of the shares withheld for taxes as a financing activity and the associated unremitted withholding taxes as an operating activity on the cash flow statements.
 
As of June 30, 2017 , there were 13,503,447 shares of the Company's common stock held in treasury.


9.                                       INCOME TAXES
 
Income tax expense consists of U.S. and international income taxes, determined using an estimate of the Company's annual effective tax rate, which is based upon the applicable tax rates and tax laws of the countries in which the income is generated.  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 provided when it is more likely than not that some portion or all of a deferred tax asset 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, tax planning strategies, the carryforward periods available for tax reporting purposes, and other relevant factors.

The Company's effective tax rate for the three and six months ended June 30, 2017 was 16.6% and 15.5% , respectively, compared to 16.2% and 17.2% for the three and six months ended June 30, 2016 , respectively. The 2017 effective tax rate differs from the U.S. federal statutory tax rate of 35% , primarily due to lower international tax rates and current year excess tax benefits of $2.7 million and $12.6 million for the three and six months ended June 30, 2017 , respectively, recognized from the vesting of equity awards pursuant to the adoption of an accounting update effective January 1, 2017 (see Note 1), partially offset by certain non-deductible expenses. The 2016 effective tax rate differs from the U.S. federal statutory tax rate of 35% , primarily due to lower international tax rates, partially offset by the tax rate impact of non-deductible impairments of a cost-method investment of approximately $10 million and $60 million for the three and six months ended June 30, 2016 , respectively (see Note 4).

The Company's effective tax rate was higher for the three months ended June 30, 2017 , compared to the three months ended June 30, 2016 , primarily because the Company recorded a state tax benefit in the three months ended June 30, 2016 related to U.S. state tax law changes that resulted in a decrease to deferred tax liabilities associated with acquired intangible assets. The benefit was partially offset by a non-deductible impairment of a cost-method investment recognized in the second quarter of 2016.

The Company's effective tax rate was lower for the six months ended June 30, 2017 , compared to the six months ended June 30, 2016 , primarily as a result of an increased proportion of the Company's income being taxed at lower international tax rates due to the growth of the Company's international businesses and current year excess tax benefits recognized from vesting of equity awards. In addition, non-deductible impairments of a cost-method investment recognized in the first and second quarters of 2016 contributed to a higher effective tax rate for the six months ended June 30, 2016.

During the three and six months ended June 30, 2017 and 2016 , a substantial majority of the Company's income was generated in the Netherlands. According to Dutch corporate income tax law, income generated from qualifying innovative activities is taxed at a rate of 5% ("Innovation Box Tax") rather than the Dutch statutory rate of 25% . A portion of

25



Booking.com's earnings during the three and six months ended June 30, 2017 and 2016 qualifies for Innovation Box Tax treatment, which had a significant beneficial impact on the Company's effective tax rate for those periods.


10.                                       ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 
The table below provides the balances for each classification of accumulated other comprehensive income (loss) as of June 30, 2017 and December 31, 2016 (in thousands): 
 
 
June 30,
2017
 
December 31,
2016
Foreign currency translation adjustments, net of tax (1)
 
$
(135,559
)
 
$
(311,247
)
Net unrealized gain on marketable securities, net of tax (2)
 
709,474